January 28, 2017

Profit and price ― solving the mystery

Comment on David Ruccio on ‘Profit inflation’


David Ruccio takes Commerce Department data and performs an eye ball analysis of the relationship between profit and inflation. This is an absolutely ridiculous exercise because David Ruccio lacks a valid profit and price theory.

The scientific fact of the matter is that economists do NOT know what profit is. More specifically, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and ALL got profit wrong. As Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”

By consequence, everything economists have said since Adam Smith about the relationship between profit and inflation is pseudo-scientific rubbish.

Because the formal proof can be found elsewhere#1,#2,#3 we can confine ourselves here to simply taking notice of the solution. For the most elementary case of a pure consumption economy, the Profit Law is given here and the Law of Supply and Demand is given here. Legend: Qm monetary profit, rhoE expenditure ratio, rhoD distributed profit ratio, Y total period income, P price, W wage rate, R productivity.

From these two equations then follows the relationship between monetary profit and inflation.

The systemic Profit Law says for the economy as a WHOLE that it is NOT wage income that is the antagonist of profit but monetary saving. Put the other way round: it is deficit spending/dissaving of the household sector, i.e. rhoE greater 1, and profit distribution, i.e. rhoD greater 0, that are the profit determinants in the pure consumption economy. For the price determination unit wage costs come in as the third factor.

ALL textbook profit and price theories are false and neither orthodox nor heterodox economists have realized it until this very day.

Egmont Kakarot-Handtke

#1 See ‘The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#2 See ‘Inequality: Market failure or theory failure?
#3 See ‘How the intelligent non-economist can refute every economist hands down