General Theory of Economics: CDR Supply Side Scientific Growth Law Unveiled

The capitalism (C), democracy (D) and rule of law (R)—CDR global invariant hypothesis was previously demonstrated for year 2014 cross country per capita real gross domestic product adjusted for purchasing power parity (G). Consistent with the principle of parsimony, the CDR index explained G with only these three variables. This paper re-estimates the model for the last 22 years of available data. The result is model parameters that are a set of global time invariant constants. These constants constitute the global time invariant CDR index defined by the vector inner (dot) product of the global constants and country C, D, R and C∙D∙R. This establishes the CDR global time invariant hypothesis. Exogenous and endogenous components of capital are decoupled to calculate and explain the values and roles of new ideas versus old capital stock. Based on the unitary entrepreneurship elasticity of G, the theoretical optimal reinvestment in capital stock is validated by empirical gross fixed capital formation. Together, these place economic growth on a scientific basis. Because of the absence of explicit definitions in the extant literature for concepts such as capitalist, capitalism, entrepreneurship and other consequential terminologies, they are clarified in concise nomenclature.

CDR hypothesis for years other than 2014. We show that in addition to being parametrically global invariant, the CDR index is also time invariant. That is, the CDR hypothesis is shown to be universally true, as is expected in any law of science. We also calculate the total and marginal contributions to G from entrepreneurship. From the marginal contribution, we obtain the unitary entrepreneurship elasticity and the optimal reinvestment in capital stock.
We proffer that a well learned poor society can skip steps within the technology silo travelled by wealthy countries. For example they can skip whale oil and go straight to subterranean crude oil and gas. They can skip oil and gas and go straight to nuclear power. They can skip land line communications and go straight to mobile cell phone technology. But, to gain wealth, they cannot skip the organizational steps of the CDR law. This is now obvious from all the failed attempts by rich countries to help impecunious countries by way of loans, charity, and transfer of technology. What rich countries need to do is help poor countries develop their institutions (North [1]) of democracy and rule of law.
This will increase their CDR index and G. This is more difficult than it first appears because much of the creation of rich country institutions and property rights were accomplished by trial and error. And, many poor countries have developed a debilitating mindset of distrust for capitalism (Ridley [14], Ridley, Davis and Korovyakovskaya [15], Korovyakovskaya and Ridley [16]). Poor countries would do better to recognize that CDR is not rapacious capitalism but capitalism in the presence of democracy and rule of law, consistent with the moral sentiments of Adam Smith [17]. Also, it would help greatly to reduce their angst if poor people would recognize that every rational human being is a capitalist (Smith [18]) who deploys his personal effort so as to maximize his benefit. Should a capitalist who is also an entrepreneur become very rich he can only consume a tiny fraction of the products that he makes. The remainder is consumed by others who might otherwise be less well off. Entrepreneurs devote so much time to risk taking, inventing, and devising ways to manufacture high quality products cheaply so as to be affordable by others, they drastically reduce their own leisure time. The labor saving products that they develop create leisure time for others. That is, entrepreneurship is an act of giving. Instead of worthless envious worrying about equality of income, one should be thankful for all the numerous jobs created and the equality of consumption that rich countries make possible.
CDR is the mechanism that functions through the limited liability company (Micklethwait and Wooldridge [19]) and requires a number of historical institutions, laws and events. At the behest of English barons in search of rights, English King John offered Magna Carta in 1215. English King Charles II granted the Royal Charter of 1662 for the study of science. Smith [18] recognized the mechanism of division of labor that creates surplus capital. The limited liability law of 1811 was enacted by the American State of New York, soon followed by English and German limited liability laws. These set the stage for the perfect storm that led to the English industrial revolution. It could have happened anywhere in DOI: 10.4236/tel.2018. 815223 3639 Theoretical Economics Letters the world where the prevailing conditions were to accumulate. As it turned out, it happened in England on or between 1760 and 1840. Since then, its Western European neighboring countries and their United State of America (USA) settlers and immigrants have never been the same. Whether they realized it or not, they adopted CDR policies and amassed tremendous wealth (Figure 1). At the time of this writing, their economic acceleration is its greatest, while poverty persists elsewhere (Keefer and Knack [20]). There are no records and no blue prints on how it was done or how to repeat it from the beginning (de Soto [21]). Still, as best we can tell, wealth comes from human capital. And, each human being brings his or her wealth into the world. Therefore, it is in the positive sum self-interest of rich countries to help raise all country CDR indices so that people in poor countries can also expand the world's wealth and stability for the benefit of all.
Democracy is a mechanism for exploring a wider and larger set of options and forming consensus through discussing and weighting. It constrains predatory government (Acemoglu and Robinson [22], Acemoglu, Johnson and Robinson [4], North [1], Knack and Keefer [2]) and provides for better institutional context for growth. It also provides for better corporate decision making regarding the deployment of capital. Even if it were true that the variance of genes is different for different sub populations of human beings, then in the case of more variance, even greater intensity of democracy is required to arrive at the optimal consensus. As the internet enables coordination of individual knowledge throughout the economy, democratic countries only grow richer. But, the internet cannot create democracy where it does not already exist.
The remainder of the paper is organized as follows. Section 2 introduces the mystery of wealth creation. Section 3 discusses the structure of the CDR model.

How Supply Side Wealth Is Created
Wealth begins in the imagination and creativity of the mind as a human capital idea ( Figure 2 It is an idea, just like C, D and R. All three of these come from the human brain, the same place that all wealth comes from. To help understand this consider the journey from the silk road to Silicon Valley (see Garten [23], Gordon [24]), and the enormous wealth and philanthropy produced by high technology companies: CDR is a supply side concept. It expands the supply and types of products and services that are available. It comes from the creation of affordable products, not  Hansen invented the garbage bag at home. They thought to place a plastic bag in the trash can, then, collect the bag with the trash deposited inside it. They simply tied the bag at the top, collected the trash bag, and replaced it with a new one. The job changed from cleaning to simply collecting. This is an idea that started at the bottom, saved time and effort, thereby creating surplus wealth. This wealth generating change was supplied by the imagination and creative idea of the lowly home trash collector. As more people were taught the idea, the division of human capital created surplus wealth (Ridley [12]). In the late 1960's, the bag traveled up the corporate ladder to Union Carbide where it was manufactured. The demand for bags and the demand for plastic increased.
Capitalism is a macro-economic activity measured by market capitalization as an expression of confidence in human capital. Market capitalization is the discounted value of all future earnings from products that are expected to be created from human capital. Therefore, it takes into account current and all future years. Assuming perfect D and R, then simultaneous with the appearance of human capital (brain) is an increase in market capitalization. Simultaneous with the distribution of market capital to investee companies, said products are created in individual micro-economic units of production that employ capital stock and corporeal physical labor (brawn). This operating definition of homogenous labor is consistent with the original theory of comparative advantage (Ricardo [25]).
A production function ( ) , Q f K L = relates physical units of inputs to physical units of outputs from a single machine. Therefore, there can be no such thing as a macroeconomic function when the inputs are different types of items, or outputs are different types of items, or outputs are made by different constructs. Furthermore, there is the fallacy of composition that we can simply jump from microeconomic conceptions to an understanding of production by society as a whole (see Cohen and Harcourt [26], and see Ridley and Ngnepieba [27] for a mathematical proof). For this reason it might be that ( ) , , G f C D R = which is defined in the aggregate is a better standalone starting point for the conceptualization of aggregate G. Then, since we will already know G, we do not need an aggregate production function. However, it is assumed here that there exists a macroeconomic domain that maps homeomorphically into microeconomic domains (Ridley and Ngnepieba [27]). Still, it is only under specific conditions related to elasticities in the Cobb-Douglas function that capital will be preserved under this mapping. And, these conditions are impossible to arrive at in practice. To make seemingly appropriate comparisons, all physical and chemical, etc., inputs and outputs are simply converted to economic value in terms of monetary units. After conversion to monetary units, Consider the total value of ideas as measured (estimated) by market capitalization (C), inclusive of current ideas and former ideas that led to the formation of capital stock (K) as measured by fixed capital investment adjusted for depreciation and obsolescence plus skills and knowledge taught to others (see also Day [28]). The part of C that is available comes from the market of publicly traded stocks. This is the best we can do because the private non-traded part of C is not available and never will be. The total value of innovation from entrepreneurship is C-K. K is measured by the sum of the book value of installed fixed capital and salaries paid to skilled and educated administrative and professional employees, where salaries are assumed to be proportional to the stock of human capital. The value of labor can be measured by wages (W) paid to unskilled hourly workers.
In general, consider m countries, applied to the jth unit of production in the ith country, where existing capital stock ij K is replaced by capital obtained by the investment of the fraction ij f of ˆi G , ij L is the matching quantity of physical labor in person-hours per annum, and ij v is the annual value of production. All labor is identical in nature and functionality. Any human differences due to knowledge, experience and skills are transferred into the production capacity of capital stock. Assuming constant returns to scale, then where ij A is the total factor productivity and ij α and are output elasticities of capital and labor respectively. The total monetary value of production for country i is given by The global monetary value of production for all m countries is therefore

Structures of CDR
Endogenous variables: The genesis of all wealth is imagination and creativity of the human mind. C is capital that comprises human capital of ideas from entrepreneurs and endogenous accumulated capital stock that was generated from investments in prior ideas, less depreciation and obsolescence. C is measured by the value of outstanding shares of stock sold on the capital markets. C is utilized in the C to G conversion. Some fraction of said G may be reinvested in capital stock. The decision and the fraction to reinvest are random and exogenous. Therefore, the amount reinvested is not predictable by G. Nevertheless, even after depreciation and obsolescence, the remainder can accumulate and become part of subsequent C and G generation. Said capital stock comprises fixed installed capital less depreciation and obsolescence, plus skills and knowledge acquired from entrepreneurs and taught to others. It is interesting to learn how much capital is new human capital and how much is residual capital stock. In Exogenous variables: The part of C that is human capital ideas from entrepreneurs is exogenous. D is the exogenous catalyst that creates new pathways for connecting, generating, extracting and combining ideas from human capital to generate G. Surowiecki [29] explains how the wisdom of crowds can yield a superior decision compared to that of any one member, even when that member is a superior individual. The direction of causation is obviously from D to G. Furthermore, D and R reflect economic freedom, and Gwartney, Holcombe and Lawson [30] [31] used Granger [32] testing to show the direction of causation to be from economic freedom of the world (EFW) to GDP. R is the exogenous catalyst of governance that recognizes property rights and discourages corruption (Goel, Mazhar and Nelson [33], Czap and Nur-tegin [34]). In this study the reverse of corruption was chosen to represent R. It is a ranking of countries (the Transparency International graphic in Figure A1. depicting corruption speaks volumes). R encompasses property rights, an important feature for economic growth (McCloud and Kumbhakar [35]). Country rankings based on corruption correspond inversely to country rankings based on property rights. Therefore, the reverse of corruption ranking captures property rights. But, property rights are a complex legal proposition that the average person might not fully understand. On the other hand, the concepts of fairness and justice versus corruption are intuitive.
The catalysts D and R perform a role similar to that suggested by Baron J. J.
Berzelius [36] in 1835 to describe the property of substances that speed up or slow down chemical reactions without being consumed in them. D and R are heterogeneous exogenous catalysts because they exist in different structures from each other and from capital and G. That way they can remain robust and incorruptible by the G production that they facilitate. The human capital component of the process is what is now commonly referred to as entrepreneurship.

The Global Time Invariant CDR Model
To determine the relative contributions of C, D, R and natural resources (N), we standardize the variables to guarantee upper and lower bounds of 0 ≤ g, C, D, R, C•D•R, N ≤ 1 as follows: The ordinary least squares (OLS) model is where i represents the ith country, the coefficients and variables are dimensionless, and the errors i ε are random and normally distributed with zero mean and constant standard deviation. We regress g on C, D, R, and N to obtain the ith country estimated g as follows.
The variation in G that is explained by the model is 83%. The remaining 17% is due to unpredictable events such as natural disasters like hurricanes and earth quakes. Additionally, non-publicly traded stocks are not included because there are no data on their capitalization. The largest factor in explaining G is C (59%).
This model shows that contrary to commonly held belief, natural resources contribute only 6% to G. C, D and R together contributes about (59 + 5 + 10 + 3)/6 = 13 times. This is in addition to the Dutch disease or natural resources curse they are known to cause [37]- [47]. Ridley [12] gives a didactic account of how Jamaica lost its currency to the bauxite natural resource curse. The C, D and R components have positive coefficients and are significant per the student ᵵ statis- The negative value is due to friction in the decision making process permitted by a democratic process. It reduces G from the theoretical maximum possible value that would be attainable if the decision makers were in perfect agreement. Any disagreement must subtract from the theoretical optimal contribution. If there were perfect agreement and the agreement was the best possible decision, then the contribution from the interaction could neither be positive nor negative and must be zero. When government spending is added to the regression model (not shown), its coefficient is not significant and there is no change in 2 adj R . Other growth models such as that of Solow [48] [66] and Weede [67] excluded the interactive term, which inter alia, explains why the significance of D gave mixed results and was hitherto not captured. The prior mixed results were positive, negative, and no regression coefficient for D. These created the impression that D does not matter, until now. See also Acemoglu, et al. [5], Glaeser, et al. [3]. Also, economic freedom advocated by Friedman and Friedman [68], Friedman [69], Gwartney, Holcombe and Lawson [70], Gwartney and Lawson [71], Heritage Foundation [72], Sowell [73], Rand [74], reduced government and the empowerment of people, are consistent with the CDR model. Economic freedom appears to be working for GDP (Gwartney, Lawson and Hall [74], Hall and Lawson [76]). But, the Gwartney, Holcombe and R. Lawson's [31] model that uses the EFW index yielded an 2 52.5% adj R = , considerably lower than the 83% obtained from the CDR index reported in this pa- per.
The CDR model may be applied to the global estimation of G ( Figure 3). The high correlation between CDR and G is made obvious from the graph. The     The results are summarized in Table 2.
The coefficient of i L is significantly different from zero (|ᵵ| = 3.77), supporting the requirement that i L be correlated with i C . The OLS stochastic error is unobservable, so we can only assume that the requirement that i L is uncorrelated with i ε prevails (or any correlation is negligible). Note however that the coefficient is negative (−0.07), implying that the exogenous capital decreases the further a country is from the equator. No causation is posited for this but as latitude increases, vegetation decreases, and so does life, the source of human capital. Still, it is not important to our main objective here. As it turns out, when latitude is included in the OLS model, it contributes 4% raising 2 adj R to an impressive almost 90%. But, like N, it is negligible and is not under government decision making control. A country cannot move to gain from latitude or natural resources and must focus on raising its CDR index. When the endogenous capital stock is purged from C, the coefficient of capital changes from So, this shows that new ideas are about (59 − 9)/9~6 times as important for economic growth as is capital stock from old ideas from a previous time. That is, it shows how rapidly capital stock declines from depreciation and obsolescence. Resting on our laurels is the wrong policy. Inheritance, when unenhanced, lasts only a short time. This is consistent with what we know that seventy percent of rich families lose their inheritance by the second generation. And, ninety percent lose it in three generations (Taylor [82]). This is also consistent with and illustrated by the speed with which countries that adopted With what appears to be an accumulation of capital stock, it is so unseemly that a rich country should be defined by its poor. The solution to date has been to institute minimum wage laws that put unqualified persons out of work, followed by welfare for the unemployed, paid for out of the apparent capital stock. But, welfare recipients cannot contribute to new idea generation for the simple reason that they are not engaged in the capital to G conversion process. Their payments from capital stock are not unlike inheritances, or the taxing thereof that accelerates its depletion. This is despite the potential 6 to 1 ratio from their potential contribution versus capital stock. Minimum wage workers may not be qualified to work in research and development. But, consider a negative income tax government wage supplement that places workers in jobs where their experience just does not justify them being hired. In addition to working, numerous small contributions of ideas on how to improve their job will occur in all kinds of ways and at times that are highly unpredictable. These are the kinds of ideas that only workers are likely to see, thereby making them eminently qualified in that sense. The negative income tax wage supplement could pay for itself from these micro innovations. Then, in about six months to a year the worker may become worth what the government defines as a living wage, and the employer will be willing to pay said wage with no need for any supplement (Ridley [13]).
The above section on the structures of CDR explains why D and R are heterogeneous exogenous catalysts and therefore cannot in theory be endogenous. Still, D was tested for endogeneity using legal origin, latitude and ethnolinguistic fractionalization as 2SLS IVs for democracy. But, their regression coefficients were all found to be first stage insignificant.
The revised 2SLS parameters estimated for years 1995-2016 are given in Table  3. To demonstrate that the revised model has all exogenous regressors, a plot of the time variant parameter estimates is shown in Figure 5.
Consistency in the estimator of a parameter requires that the sampling distribution of the estimator becomes increasing concentrated around the population value as the sample size increases. In this case, as    [18] announced an inquiry into the nature and causes of the wealth of nations, the cause is found to be capitalism, democracy and rule of law, and the ĈDR model places economics on a sound scientific footing.

Total and Marginal Contribution to g
The following analysis of total and marginal contributions is based on the revised 2SLS regression model. The total country i contribution is ĝ 1.3 0.12 0.28 0.98 is a product of fractions and is therefore small but positive. Therefore, the negative values for 0.
Consider the scenario where a fraction i f of ĝ i is reinvested in capital stock, such that Then, The following will omit the country i notation and apply the same fraction to all countries. The total contribution to g and marginal contribution from Ĉ for three different fractions of reinvestment in capital stock 0, 0.1, 0.2 f = are plotted in Figure 6(a) and Figure 6(b). In each case, g increases with C = D = R until C = D = R is approximately 0.75 then it declines. The post peak decline in g is due to the interaction effect of Ĉ D R ⋅ ⋅ which can only be zero or negative.
The peak g is 0.85 when there is no reinvestment. Higher peaks in g occur when the fraction reinvested is 0.1 and 0.2. This implies that division of human capital creates surplus g. The marginal return on Ĉ falls with increasing D and R.
Higher marginal returns occur when the fraction reinvested is 0.1 and 0.2. The difference in marginal return due to fraction reinvested is least when D and R are highest. Note that in reality there will be depreciation and obsolescence in capital

Entrepreneurship Capital Elasticity of g
The entrepreneurial capital (Ĉ ) elasticity of g is defined from the percentage change in g in response to a 1% change in Ĉ , ceteris paribus. This point elasticity can be investigated directly from the marginal return on Ĉ . That is, from Figure 6(c), in general, as D and R increase, the elasticity of g falls. When there is no reinvestment (f = 0), g is always inelastic. As the reinvestment fraction increases to f = 0.1 and 0.2, the elasticity increases. If a unitary elasticity of 1.0 can be obtained for some combination of these variables, such that g is maximized, then the policy suggested is to reinvest about 10% when D and R are between 0 and 0.5. As D and R increase from 0.5 to 0.9, increase the fraction of reinvestment in like manner to about 20%. As D and R increase from 0.9 to 1.0, the fraction of reinvestment should be increased to about 25%. Assuming uniform distribution across countries, the average is about 10% + (25 − 10)% × 0.5 = 17.5%. Adding 3.5% for depreciation and obsolescence brings this number up to 21%. This is consistent with the World Bank report of 21% for year 2014 worldwide average gross fixed capital formation (GFCF). GFCF does not include book value recovery of depreciation for tax purposes, but it does include actual replacements. Neither one of these includes capital stock investment in training to develop knowledge and skills. Therefore, we proffer that the theoretical ( ) g , , f C D R = function is validated by the empirical GFCF.

Conclusions
The CDR model is a global time invariant scientific law. The law governs the mechanism by which human capital is converted to wealth for bifurcation into consumption and capital stock for future investment. The unitary capital elasticity of G provides an optimal policy guide for the CDR and reinvestment strategy that maximizes G. The contribution to G from intangible C, D and R is about thirteen times that from tangible natural resources. The law permits decoupling of exogenous and endogenous components of capital to calculate the values of new entrepreneurship ideas versus old capital stock. The contribution from entrepreneurship is about six times that from capital stock. If the source of wealth is indeed the human mind, then if entrepreneurial imagination and creativity are unlimited (Lotto [83]), then wealth is unlimited (Ridley [11]). Each human being brings his or her own wealth into the world. Ideas are the natural born enemy of the way things are. For only change can usher in new wealth. Sometimes it is the people among whom no one imagines anything of who do the things that no one can imagine (Moore [84]). If wealth were fixed, each child could only contribute to the impoverishment of everybody else. The phenomenal wealth creation by the countries that have implemented CDR policies commensurate with population DOI: 10.4236/tel.2018.815223 increases there, is proof that there is no such impoverishment. A country that knows where it is going will not get far. A country willing to create an entrepreneurial environment of risk taking and investment in the unknown may experience unlimited growth. Ridley [85], Llaugel and Ridley [86], and Ngnepieba, et al. [87] suggest ways for introducing university students to CDR growth economics as the source of human ideas of imagination and creativity.
In the mystery of capital, Hernando de Soto [21] implied that capital is hidden in land assets that can be acquired by titling through the property rights feature of rule of law. In reality, such a combination of assets and titles will remain barren in the absence of ideas. It will fall short of being working capital. Property is collateral that can be used to obtain financial capital. But, the true source of wealth is really the human capital of imagination and creativity of the mind. The remainder of the human being is physical labor. Human capital is contained in total capital measured by market capitalization. Wealth is realized through CDR.
Rule of law attracts capital and democracy deploys it optimally to generate wealth contribution as measured by G. Assuming perfect democracy and rule of law, hence high signal to noise ratio channels of new quanta of entrepreneurial information, market capital expands and shrinks to match expansion and shrinkage in entrepreneurial imagination and creativity. Only a small number of sui generis people will be entrepreneurs. What the CDR model suggests is that an entrepreneurial environment is required such that when the entrepreneur does come along their message gets heard and acted on. Also contained in market capitalization may be capital for which fungible property based collateral is pledged. The capital that is deployed to appropriate units of production is converted to G. G is generated from CDR, independently of government spending, country size, culture, and physical characteristics of the population. Natural resources and location are negligible. The human capacity for ideas (human capital and entrepreneurship), and the virtues of democracy and rule of law are all that are required. Even if certain limiting human characteristics or natural resources were obstacles in some nations, CDR is salutary to economic development in terms of making the best of what is possible. As countries adopt policies that decrease CDR, their G falls. Such is the mystery of poverty. As countries adopt policies that increase CDR, their G increases. Such is the mystery of wealth. This is as far as science can take us (Ball [88]). Counting on the next random invention is a leap of faith. The recommendation from this research is that low income countries should adopt a policy to raise their CDR index. Future research can investigate whether or not there is a relationship between the Singapore bonus system for government employees, their raised CDR index, and ultimately their impressively high GDP.

D. Ridley
for probing questions and good discussions; Supercomputer Computations Research Institute's Dennis Duke for questions on economic science for Paul Beaumont and myself in the early 1990's; and the Chicago informed Clemson University laissez-faire school of economic thought, but takes full responsibility for any errors and omissions even after the discussants made their own views clear.

Conflicts of Interest
The author declares no conflicts of interest regarding the publication of this paper. Theoretical Economics Letters

D. Ridley
Shareholder: An owner of shares in a company. Virtue: Self-governing human property that promotes fairness and justice without the need for central government.