March 26, 2015

Confounding the Quantity Theory and Say's Law

Comment on ‘Money hoarding — an explanation of today’s low inflation’

Blog-Reference

The core problem of economics is that the representative economist never managed to keep political and theoretical economics properly apart. The mixture is toxic indeed. The preceding discussion is a fine specimen of the resulting all round confusion.

Let us untangle the mess by starting with Pontus's confession. “Anyhow, I still believe in Say’s law.” Many economists have not understood until this day that science has nothing to do with belief but with knowledge. What can be shown in a formal rigorous way is that Say's Law does not imply full employment but is compatible with any level of employment (2015).

What the believers in Say's Law persistently overlook is the role of the profit mechanism. More general, both the Walrasian and Keynesian profit theory is false (2015).

The correct version of Say's Law implies that the quantity of money is not a determinant of the market clearing price (2015, eq. (4)) and (2015, eq. (7)).

The most urgent task of Constructive Heterodoxy is to rethink pivotal concepts like market, Say's Law, money, profit, etcetera. The reconstruction of the theoretical superstructure from scratch is an absolute methodological necessity.

At the moment both Orthodoxy and traditional Heterodoxy is defended by confused confusers, i.e. proto-scientific believers.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2015a). Essentials of Constructive Heterodoxy: Money, Credit, Interest. SSRN Working Paper Series, 2569663: 1–17. URL
Kakarot-Handtke, E. (2015b). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL
Kakarot-Handtke, E. (2015c). Essentials of Constructive Heterodoxy: Say’s Law. SSRN Working Paper Series, 2556434: 1–10. URL


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