This is a real big update to my simulation and reworks the entire logic of it. Though doing so allows me to investigate even more stuff. Check out the post on the old sim if you haven't seen it.
At this point, the sim has become so complex, I don't think I can explain it in as much depth as the previous one.
So I'll keep it simple and show you my assumptions, results, and code. There are 10 sectors in the economy this time (so the visualization has changed)
As always, "economic reproduction" is the condition where nobody in the economy gains or looses money by the end of the production period.
The code and pictures are in the comments.
Also, I'd like /u/Sebrof and /u/pancake@lemmygrad.ml to see this post.
Assumptions:
- There are no banks, governments, population growth or technological changes. None of these things are modeled yet since they distract from the point of the model, which is to see how labor prices and economic reproduction are related.
My next model will try to model these things to see if the relationship between labor prices and economic reproduction still holds
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The logic of this model is inverted to the last one. In the previous model, we started with a net output (sold to consumers) then calculated how much gross output would be needed (sold to consumers and to factories) to maintain this. This time, I randomly generate a gross output then compute a net output.
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I randomly generate 100,000 economies, each with its own technological level (the 10x10 A matrix), a set of prices (10x1 column vector), and employment in industries (10x1 vector). I assume everyone is employed. Also, this time, there is only 1 price vector per economy.
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For each economy, I randomly generate a "basket of consumption", which is the amount of products that its people will consume. I scale the basket so that it could be produced by half the labor of the economy, and keep the basket constant for all time.
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This time, there is foreign trade. If the economy produces more of a product than what is required for the basket, that's exports. Otherwise it imports.
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I simulate 100 time steps for each economy. Every time step, the sectors of the economy will update their prices and employment. There were many possible rules for choosing how these updates happened. I made it so that the sectors hire workers in proportion to how much money they have (divided by how much it costs to hire workers). Prices are scaled down as a sector grows (due to competition)
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Then I compute all the financial data (like revenues, wages, incomes, costs, trade imbalances, profits, etc) and plot it.
The important accounting identities are:
National income = Wages + trade balance
National income = Revenues of industry - Costs of industry (not including wages)
The graphs:
Each graph has 10 million points, There are 100 points (1 for each time step) for 100,000 economies
Graph 1: The average deviation of sectorial income (Revenue - Costs - Wages) from reproduction vs average deviation of prices from LTV.
Graph 2: Graph 1, but the incomes of each sector are given per worker
Graph 3: The trade balance of each economy at each time step
Graph 4: The variability of profit rates between different sectors
Interpretation of the graphs.
Graph 1: We still see the same result. When the prices of an economy are at those predicted by the LTV, the income of every sector shrinks to 0, leading to perfect economic reproduction. However, we see that many economies have economic reproduction even without LTV prices. I have a hypothesis for this. Some of the randomly generated economies in the simulation are "disconnected", meaning that the different industries don't buy and sell to each other. In this case, the effect of prices of one industry on another are minimum, so the prices stop mattering much.
Graph 2: Same as graph 1, but the shape of the curve is different. Not really sure what to say about this
Graph 3: I found it very interesting that no matter how much I tried to increase the wages (at one point, I had a wage basket 2 times bigger than what the economy could actually produce on its own), the trade balance remained stubbornly positive for the overwhelming majority of the data points.
This could happen because the sectors were reorganizing themselves to exploit comparative advantage, even though I never coded them to do this!
Say the people of the country were consuming 1 million tons of grain, and 100,000 cars every time step. Producing a car takes 1 person-year, and producing a ton of grain takes 0.1 person years. This level of consumption would then require 2 million person-years of labor (1 million for the cars, 1 million for the grains).
Even if there were only 1.5 million people in the economy, they could, for example, spend all their labor producing cars. So they would make 150,000 cars and export 50,000 cars. If the price of the cars is much higher than the price of grains, they could just exchange the cars for enough grains while still maintaining a trade surplus.
This was one of the most surprising results I saw from this model.
Graph 4: This here was to test an assumption that many economists make about the economy. They assume that the profit rates of industries equalise over time. However, in my simulation at least, this never happens. There is like an invisible floor to how low the differences in profit rates can get.