May 20, 2015

Profit (not mathematics) is the key

Comment on ‘The fetishism of mathematics’

Blog-Reference

You [David Ruccio] nearly hit the jackpot of theoretical economics.

You write: “But there’s something else going on here — not just an attack on mathematical “errors” committed in various areas of contemporary growth theory and the defense of a particular notion of science .... It’s the problem of capital. As I often explain to students ..., the theory of capital is the most controversial topic in the history of economic thought because the theory of capital is the theory of profits — and therefore an answer to the question, do the capitalists deserve the profits they get?” (See intro)

The question whether capitalists “deserve” the profits they get is, clearly, a normative question. It leads straight away to moralizing. Everybody likes moralizing but let us resist the temptation to go further in this direction here.

The first question to ask is rather: What exactly is profit and how is it determined for the economy as a whole? One should think that economists have found an answer in the last 200 years to this all important question. Did they?

“Rather surprisingly, therefore, the nature of profits remains something of a mystery in contemporary economics; indeed, in the realm of "advanced" theory — namely the perfectly competitive general equilibrium models — profits have disappeared altogether. This is clearly an unsatisfactory situation. It is, first of all, illogical at best to argue both that profits are the mainspring of the capitalist system and that they do not exist. And second, the disappearance of profits from theory has not been accompanied by a similar phenomenon in the real world, where, in fact, profits (and losses) live on. Surely the task of theory is to account for this appearance, not ignore it.” (Obrinsky, 1981, p. 491), see also (Desai, 2008)

It is also a curious observation that profit does not appear once in the JEL Classification Code of economic subjects.

This is the fact of the matter: Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they fail to capture the essence of the market economy.

There is only one bright spot in the utter scientific darkness. The exception is Constructive Heterodoxy (2015).

Egmont Kakarot-Handtke


References
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. (2015). Essentials of Constructive Heterodoxy: Profit. SSRN Working Paper Series, 2575110: 1–18. URL
Obrinsky, M. (1981). The Profit Prophets. Journal of Post Keynesian Economics, 3(4): 491–502. URL

See also cross-references