Comment by hyperadvanced
7 days ago
Depending on how you feel about various theories of development, an argument that all of these categories reduce to time. At the very least, the relationship between labor, capital, and time seems pretty fundamental: labor cannot be instantaneous, capital grows over time, etc.
They can all be related on a philosophical level but in practice economists treat them as separate factors of production. It's land, labor, and capital classically. Technology/entrepreneurship can be seen as another factor, distinctly separate from labor.
I agree that time isn’t an input in the economic system.
Although, one can use either discrete or continuous time to simulate a complex economic system.
Only simple closed form models take time as in input, e.g. compounded interest or Black-Scholes.
Also, there are wide range of hourly rates/salaries, and not everyone compensated by time, some by cost-and-materials, others by value or performance (with or without risking their own funds/resources).
There are large scale agent-based model (ABM) simulations of the US economy, where you have an agent for every household and every firm.
> Although, one can use either discrete or continuous time to simulate a complex economic system.
A very bad model that lacks accuracy and precision, yes. Maybe if you're a PhD quant at Citadel then you can create a very small statistical edge when gambling on an economic system. There's no analytic solution to complex economic systems in practice. It's just noise and various ways of validating efficient market hypothesis.
Also, because of heteroskedasticity and volatility clustering, using time-based bars (e.g. change over a fixed interval of time) is not ideal in modeling. Sampling with entropy bars like volume imbalance bars, instead of time bars, gives you superior statistical properties, since information arrives in the market at irregular times. Sampling by time is never the best way to simulate/gamble on a market. Information is the casual variable, not time. Some periods of time have very little information relative to other periods of time. In modeling, you want to smooth out information independently of time.
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