Primary and secondary markets {15b}

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Abstract  This paper swaps the standard behavioral axioms for structural axioms and applies the latter to the analysis of the emergence of secondary markets from the flow part of the economy. Real and nominal residuals at first give rise to the accumulation of the stock of money and the stock of commodities. These stocks constitute the demand and supply side of secondary markets. The pricing in these markets is different from the pricing in the primary markets. Realized appreciation in the secondary markets is different from income or profit. To treat primary and secondary markets alike is therefore a category mistake.

Intertwined real and monetary stochastic business cycles {36}

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Abstract  There is no such thing as a ‘real’ economy. The task, therefore, is to consistently reconstruct the fluctuations of employment and output from the interactions of real and nominal variables. The present paper does exactly this. No nonempirical concepts like utility, equilibrium, rationality, decreasing returns or perfect competition are applied. The analysis runs rigorously in objective structural axiomatic terms. Therefrom follows that it is the factor cost ratio, i.e. the relation of the nominal variables wage rate and price and the real variable productivity that, for any given level of effective demand, drives the fluctuations of employment and output.

Make a bubble, take a free lunch, break a bank {35}

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Abstract  Standard economics is known to be incapable of integrating the real and the monetary sphere. The ultimate reason is that the whole theoretical edifice is built upon a set of behavioral axioms. Therefore, the formal starting point is moved to structural axioms. This makes it possible to formally track the complete process of value creation and destruction in the asset market and its consequences for the household and business sector. From the set of structural axioms emerge the well-known phenomena of a bubble from free lunches through appreciation to defaults due to a lack of potential next buyers.

Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster {34}

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Keynes had many plausible things to say about unemployment and its causes. His ‘mercurial mind’, though, relied on intuition which means that he could not strictly prove his hypotheses. This explains why Keynes's ideas immediately invited bastardizations. One of them, the Phillips curve synthesis, turned out to be fatal. This paper identifies Keynes's undifferentiated employment function as a sore spot. It is replaced by the structural employment function that supersedes also the bastard Phillips curve. It will be demonstrated in a formal rigorous way why there is no trade-off between price inflation and unemployment. The structural Phillips curve predicts stagflation.

The common error of common sense: an essential rectification of the accounting approach {33}

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Abstract  The present paper takes the explanatory superiority of the integrated monetary approach for granted. It will be demonstrated that the accounting approach could do even better provided it frees itself from theoretically ill-founded notions like GDP and other artifacts of the equilibrium approach. National accounting as such does not provide a model of the economy but is the numerical reflex of the underlying theory. It is this theory that will be scrutinized, rectified, and ultimately replaced in the following. The formal point of reference is ‘the integrated approach to credit, money, income, production, and wealth’ of Godley and Lavoie.

General formal foundations of the virtuous deficit/profit symmetry and the vicious debt deflation {32}

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Abstract  A comprehensive dynamic model of the monetary economy that produces the key characteristics of debt deflation has been presented recently by Steve Keen as an alternative to conventional approaches. His model is based on a double-entry bookkeeping methodology but lacks an acceptable profit theory. In this respect, it is not different from familiar approaches. Clearly, a deficient profit theory prevents a proper understanding of how the real-world economy works. The present paper takes an entirely different route and places the core of Fisher's debt-deflation theory into the context of the consistent structural axiomatic approach.

Crisis and Methodology: Some Heterodox Misunderstandings {31a}

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Whether justified by the concrete circumstances or not, an economic crisis is, by simple association, taken as an implicit refutation of the invisible hand vision and the underlying theory. The fundamental heterodox critique locates the source of apparent theoretical difficulties at the level of methodology. Although acceptable in principle, this belief involves some actual misunderstandings with regard to the respective roles of deterministic laws and deductive reasoning. In order to clarify these, the present paper revisits some key episodes in the history of economic methodology.

Geometrical exposition of structural axiomatic economics (I): fundamentals {30}

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Abstract  Behavioral assumptions are not solid enough to be eligible as first principles of theoretical economics. Hence all endeavors to lay the formal foundation on a new site and at a deeper level actually need no further vindication. Part (I) of the structural axiomatic analysis submits three nonbehavioral axioms as groundwork and applies them to the simplest possible case of the pure consumption economy. The geometrical analysis makes the interrelations between income, profit, employment, and money under the conditions of market-clearing and budget-balancing immediately evident.

The Rhetoric of Failure: A Hyper-Dialog About Method in Economics and How to Get Things Going {29}

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Abstract  All are agreed that orthodox economics is unsatisfactory but there is wide disagreement, especially among heterodox critics, whether the problems lie at the level of substantive theory or at the level of methodology. This paper gives first an overview of the methodological questions at issue. The frame of reference includes J. S. Mill, Jevons, Popper, Keynes, and Lawson. Drawing on the conclusions, the domain of economics is subsequently refocused. Human behavior is moved from the center to the periphery. From elementary systemic properties the relation of income and profit is then consistently derived. This solves the profit

Zur axiomatischen Einheit von Kreislauf, Geld, Preis, und Verteilungstheorie (The Axiomatic Unity of Circuit, Money, Price and Distribution) {28}

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Abstract This contribution to the Festschrift in memoriam of Karl Brandt and Alfred E. Ott establishes the axiomatic unity of circuit, money, price and distribution theory. From the history of economic methodology and from actual practice follows: one cannot not axiomatize. The crucial question is not axiomatization per se but the real world content of axioms which is not guaranteed by simply applying the method. Axioms can be empirically vacuous. This holds for the behavioral axioms of standard economics. In marked contrast, all structural axiomatic variables are measurable in principle. No metaphysical concepts like equilibrium are put into the premises.

Income Distribution, Profit, and Real Shares {27}

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This paper clarifies first the nature and significance of monetary profit by applying the structural axiom set as a consistent point of departure. As a crucial result, the fundamental theorem of income distribution emerges. It states: profit is no factor income. Since the individual firm is blind to this structural fact it subjectively interprets profit as some kind of reward. As a matter of fact, firms do not ‘make’ profit, they only redistribute it among themselves. With profit consistently defined it is possible to determine the nominal and real shares of the elementary income categories wage income and distributed profit.

Taxes, profits, and employment: a structural axiomatic analysis {26}

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Abstract  Standard economics is regarded as the theory of the market system. Profit is the pivotal phenomenon of this system. Contrary to expectations, though, profit is neither well defined nor fully understood. The frailty of the theoretical core is passed on to the subfields. This paper provides a consistent definition of profit and applies it to the analysis of the effects of the government sector's budget on employment and the profitability of the business sector. Since the formal point of departure is different from the standard approach it is quite natural that we arrive at new conclusions on some fundamental issues.