An economic model based on classical economics: Its establishment and applications
The theoratical hypotheses of classical economics we used mainly are as follows: 1. Labor, evidently, is the only universal, as well as the only accurate measure of value. Utilty determines the value of commodities. 2. The quantity of every commodity brought to market naturally suits itself to effectural demand. 3. The improvement in dexterity of the workman necessarily increases the quantity of the work he can perform.
By those theoratical hypotheses, classical economists reasonably explained reasons why commodity prices fluctuate, and why there are cyclical economic crisis. In order to make climinating cyclical crisis possible, we propose a new hypothesis. "Product Grade has an inverse relationship to Labor Productivity." Product grade is decided by the energy cost of humans consuming the product. The higher the energy cost used during the consumption process, the higher the product grade is.
Our SED model, established on the basis of those hypotheses above, could simulate the economic and social performance of a country, in which there are 42 different kind products, and more than 100,000 agents including residents, enterprises, banks, and government departments. The post-simulation accuracy of the main variables are higher than 95%. Given the necessary information of external variables, the SED model could be used for economic forecast of countries.
The key findings from SED model application are as follows: 1. If product grade remained unchanged long term, continuous improvement of labor productivity would result in overcapacity. 2. Increasing the output of high grade products would help to overcome overcapacity, and make it possible to avoid the outbreak of cyclical economic crisis. 3. The constant emergence of new technology is the key prerequisite for both market equilibrium and the sustainable growth of wealth.