May 3, 2018

Profit and the Private-Property-Irrelevance Theorem

Comment on Barkley Rosser on ‘Duncan Foley On Socialist Alternatives to Capitalism’

Blog-Reference and Blog-Reference

When proven to be a fake scientist without any understanding of the foundational economic concept of profit, Barkley Rosser answers: “But then, after all these denunciations, when we finally come to the grand presentation of his one and only true theory of profit, it turns out to be, as I said above, a minor accounting variation on Keynesian income and product accounts, a variation well known and long accounted for by the relevant economists who have a need to deal with this minor variation (all about retained earnings! the ultimate meaning of all economics!). It is a giant nothingburger involving no paradigm shift or anything at all of any serious interest to anybody.”

The surrealism of the matter is that the economist Barkley Rosser comments on Capitalism and Socialism and has no idea about what profit is. Fact is that he spent is academic life with behavioral economics which is not more than a mix of sociology/psychology/ anthropology for cargo cult scientists. Barkley Rosser never understood that economics is NOT a social science but a system science.

Here are the facts. Economics is a scientific failure.#1 What first of all has to be done is the paradigm shift from microfoundations to macrofoundations.#2 From the correct axiomatic foundations then follows the macroeconomic Profit Law with increasing complexity:#3
  • Qm=−Sm in the elementary production-consumption economy,
  • Qm=I−Sm in the elementary investment economy (note I is NEVER equal Sm),
  • Qm=(G−T)+I−Sm in the investment economy with government deficit/surplus,
  • Qm=Yd+(X−M)+(G−T)+I−Sm in the open economy with distributed profit.
Legend: Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit.

Written as sectoral balances this gives (X−M)+(G−T)+(I−Sm)−(Qm−Yd)=0. The axiomatically correct sectoral balances equation compares to the false equation (X−M)+(G−T)+(I−Sm)=0 which goes back to Keynes and constitutes to this day the explicit formal foundation of Post-Keynesianism and MMT.#4

The Profit Law says in the most elementary version that profit for the economy as a whole is equal to dissaving, that is, it has NOTHING at all to do with exploitation, greed, constrained optimization or any other psycho-social factors.#5 The comprehensive Profit Law consists exclusively of measurable variables, therefore, macroeconomic profit can be objectively determined with the accuracy of two decimal places.

The Profit Law holds for the monetary economy, no matter on which historical stage the economy actually is, and it is independent of the given legal order, in particular absolutely independent of the definition of property rights. In other words, the Profit Law holds for capitalist USA, communist Soviet Union, socialist/mixed Russia, and state/social China.

Because economists NEVER understood profit* and have NEVER figured out the correct macroeconomic Profit Law, society is plagued since 200+ years with a brain-dead political discussion about Capitalism and Socialism and an economic policy guidance that has NO sound scientific foundation.

For the welfare of society, failed/fake economists are worse than the Four Horsemen.

Egmont Kakarot-Handtke

#1 Economics: 200+ years of scientific incompetence and fraud
#2 True macrofoundations: the reset of economics
#3 Rethinking the Profit Law
#4 Rectification of MMT macro accounting
#5 Capitalism, poverty, exploitation, and cross-over exploitation

Immediately preceding 'Note on ‘Duncan Foley On Socialist Alternatives to Capitalism’'

Related 'Profit: after 200+ years still elusive' and 'Economists understand neither Capitalism nor Socialism'.


REPLY to Barkley Rosser on May 3 and Blog-Reference MNE

Barkley Rosser is in great danger to lose his last two brain cells: “So. Thornton, Egmont has done you a favor and laid it all out, completely verifying everything I said. His system is a minor accounting variation on the basic Keynesian national income and accounting system, with only accounting for Yd, distributed profit, as the difference.”

The axiomatically based macroeconomic Profit Law is NOT a variation of the Keynesian income and accounting system but the REFUTATION of the formal foundations of Keynesianism. Because the formal foundations are false the whole analytical superstructure of Keynesianism is false.

For details see:
Keynes did NOT get profit right and every economist with more than two brain cells knows this: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

REPLY to Barkley Rosser on May 4 and Blog-Reference MNE

I have rated your scientific competence already with zero but now things are getting even worse.

It should NOT be too difficult even for a dim-witted economist to see the difference between the two balances equations:
(i) (X−M)+(G−T)+(I−S)−(Q−Yd)=0, AXEC=axiomatically true,
(ii) (X−M)+(G−T)+(I−S)=0, Post-Keynesianism/MMT=false.

When simplified to the bare bones, i.e. X, M, G, T, Yd all 0, then we have:
(iii) Q=I−S macroeconomic profit is given as the difference between investment and saving,
(iv) I=S saving equals investment.

Eq. (iv) is the Keynesian Ur-blunder: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

The comparison of (iii) and (iv) tells everybody that Keynes dealt with a zero profit economy. Because a zero profit economy is a NONENTITY the whole of the GT is proto-scientific garbage. Keynes, of course, never realized this, and neither did his dull followers up to the present, and neither did Barkley Rosser.

Conclusion: The formal foundations of macro are false since Keynes. All I=S/IS-LM models from Keynes/Hicks to Krugman#2 and all multiplier models#3 of the last 80 years are provably false.


REPLY to Barkley Rosser, Sandwichman on May 5 and Blog-Reference MNE

The complete macroeconomic Profit Law is given with Q=Qm+Qn=Yd+I−Sm+(X−M)+(G−T)+Qn.

All variables are measurable with the accuracy of two decimal places. So, the axiomatically#1 correct Profit Law is a testable proposition.

A scientist would first of all check whether the equation is logically and empirically true. The discussion about Capitalism and Socialism is absolutely senseless as long as the pivotal economic magnitude profit is not consistently defined and fully understood.

You, of course, are no scientists with the goal to figure out how the economy works but political agenda pushers who instead are preoccupied with the question of how best to suppress the unassailable proofs of your multidimensional incompetence.

The capitalist economy will break down for the same reason as the socialist economy, that is, because the Profit Law holds for ALL monetary economies independently of the definition of private/public property.#2

Marx got profit and exploitation and classes wrong.#3 His 200th birthday is the right date to bury him for good at the Cemetery for Failed/Fake Scientists.#4

#1 The true macrofoundations which fully replace the false Walrasian microfoundations and the false Keynesian macrofoundations are shown on Wikimedia.

REPLY to Barkley Rosser on May 6

I wondered already a bit when you will come up with the most idiotic argument of all of economics. And here it is: “But the real bottom line for all your claims of having this great and true theory of profit is that is not at all a theory. It is a mere accounting identity …”

This argument features as item 17 on my comprehensive list of economists’ BS.#1

Your problem is that you do not know what a theory is and that you hallucinate that economic theory is about Human Nature/motives/behavior/action. This is the foundational blunder of standard economics as defined by Arrow: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” 

NO, economics is NOT about how humans behave#2 but about how the economic system behaves. Economic theory is about the properties of the monetary economy as a whole and the objective-structural relationships between the economic variables.

The core of structural relationships is given with what you and the rest of gossip economists falsely call accounting identities. When you look at the correct set of macroeconomic axioms#3 then you see that only the two nominal flow variables, i.e. Yw and C reappear in National Accounting. This is of overriding importance for later testing. The fatal flaw of standard economics is that it takes subjective concepts like utility into the premises and these have not been testable for 140+ years and will not be testable in all eternity. This is why economics has never risen above the level of motive speculation, storytelling, vacuous blather, folk psychology, and gossiping.

Accounting identities are the structural hardcore of all of economics. The two fundamental accounting identities are profit Q≡C−Yw and saving S≡Yw−C, that is, Q+S=0 or Q=−S. So, the elementary mathematics of accounting tells everybody that macroeconomic profit is in the most elementary case equal to dissaving, that is, the growth of household sector debt.

Economists, though, are too stupid for elementary mathematics and got macro accounting wrong. The epitome of incompetence is Keynes’ I=S. Yes, I=S is ‘merely’ an accounting identity but the point is that it is dead wrong, just like 2+2=5 is dead wrong. However, neither you nor the rest of cargo cult scientists have realized it since Keynes messed the macro accounting identities up.#4

Because of this, Keynesian ‘theory’, Post-Keynesian ‘theory’, Modern Monetary ‘Theory’, the story of Lenin’s NEP and your wife’s Russian relatives is pure proto-scientific garbage.

#3 (A1) Yw=WL wage income Yw is equal to wage rate W times working hours L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.