September 28, 2015

Nowhere land

Comment on Merijn Knibbe on ‘The return of ‘land’ in macro economic discourse. Wonkish’

Blog-Reference

(i) The misrepresentation of land in economic theory started already with Ricardo's concept of rent (2011b). The deeper problem is that economists never understood what profit is. Therefore, because profit theory has been false from the very beginning, the concept of rent has been misleading, and distribution theory had no foundation whatsoever since the classics (2014). Neoclassics only worsend the situation.

(ii) In order to integrate land into the theory of market interaction the distinction between primary and secondary markets is essential (2011a). Both types run on entirely different principles. The standard supply-demand-equilirium analysis is not applicable to begin with.

(iii) With the distinction between primary and secondary markets comes the distinction between monetary profit and nonmonetary profit. What is also needed is the distinction between monetary and nonmonetary saving. The latter applies in the case of changes of asset values which affect the household sector's net worth directly.

(iv) For the definition of property and the possible use of land for ‘painless’ taxation see (2015).

(v) For the relationship between financing, asset valuation, rate of interest and profit see (2012).

Note in addition:
— The familiar well-behaved production function is a nonentity. Therefore, all models that contain one are worthless. From this follows that neoclassical production and distribution theory has always been unacceptable.
— As far as land/real estate is used as collateral it does not appear on a bank’s balance sheet. Price changes indirectly influence the riskiness of a loan which, however, becomes effective only in the case of default.

In sum: the treatment of land in the history of economic thought is indeed the unassailable proof for the scientific incompetence of economists.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011a). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL
Kakarot-Handtke, E. (2011b). When Ricardo Saw Profit, He Called it Rent: On the Vice of Parochial Realism. SSRN Working Paper Series, 1932119: 1–19. URL
Kakarot-Handtke, E. (2012). Make a Bubble, Take a Free Lunch, Break a Bank. SSRN Working Paper Series, 2167234: 1–35. URL
Kakarot-Handtke, E. (2014). 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: Institutions. SSRN Working Paper Series, 2598721: 1–18. URL