June 22, 2015

When numbers don't add up

Comment on Merijn Knibbe on ‘Keenonomics, aggregate demand/change of debt, and some misleading critique’


Thank you for the link to ‘Why Steve Keen is even more right than he thinks.’ In this 2011 thread you have already pointed out that Keen's argument leads directly to accounting. Basically, this dovetails with Stützel's balance mechanics approach. So we have an analytical square consisting of Keen-Reissl-Stützel-Knibbe which encloses the general issue of accounting.

With regard to the whole formalization and mathiness debate it is worth remembering that accounting is the natural formal tool of the economist and the indispensable integrating hub of all empirical work.

“Somewhere between the Political Arithmetician, alias the National Income Accountant, and the Financial Analyst, alias the Accountant, lies the task of the quantitative economist’s analytical role, and none of the theoretical or applied tasks of these two pragmatic and paradigmatic figures requires anything more than arithmetic, statistics and the rules of compound interest.” (Velupillai, 2005, pp. 866-867)

The trouble is, as you point out, that the representative economist cannot handle this tool properly and this applies first and foremost to Orthodoxy.

I have addressed the inconsistency between theory and accounting/balance mechanics in (2012). As you say, this inconsistency has to be eliminated first from the current discussion.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872

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and  More than two centuries of waffling in the dark