March 21, 2015

Principal problem solved

Comment on ‘The principal problem of Political Economy’

David Ruccio writes:
“If we look at changes in capital and labor shares ... we can clearly see that, in recent decades, the profit share has been rising and the labor share has been falling. In other words, labor has been losing out to capital — and we need to focus on solving that class problem.” (See intro)

The principal problem of Political Economy is, of course, the scientific incompetence of Political Economists. The fact of the matter is that the profit theory is false since Adam Smith (Desai, 2008). The mistake/error consists — roughly speaking — in naively taking it for granted that profit is a share of total income and that it is attributable to capital. Nothing is further from reality.

The fatal analytical blunder means that (i) economists have no true conception of the most important phenomenon in their universe, (ii) they fail to capture the quintessence of capitalism, (iii) they lack any deeper understanding of how the actual economy works.

To be sure, with regard to profit not only Orthodoxy is groping in the dark but also heterodox economists, e.g. (2011; 2013; 2014a). David Ruccio can be added to the flat-earth crowd because he is obviously convinced that total income is the sum of wages and profits. Traditional Heterodoxy has to be criticized for its failure to get beyond debunking and class rhetoric.

The principal problem of economics, a.k.a. the profit conundrum (Tómasson and Bezemer, 2010), has been solved by Constructive Heterodoxy (2015). For the correct theory of income distribution see (2014b).

Egmont Kakarot-Handtke

Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2013). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2014a). Profit for Marxists. SSRN Working Paper Series, 2414301: 1–25. URL
Kakarot-Handtke, E. (2014b). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

For further cross-references see here