May 7, 2021

Profit Law: The most powerful formula of economics

Comment on Robert Vienneau on ‘Adam Smith On The Source Of Profits And Rents In The Exploitation Of The Worker’

Adam Smith, one of the founding fathers of economics, was not a particularly smart guy: “Smith … disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Accordingly, he got the foundational concept of economics ― profit ― wrong. That is bad, but what is worse is that economists did not get it right to this day.#1-#3

To make matters short here, the macroeconomic 3-sector (household, business, government) Profit Law is given with Qm≡(I−Sm)+(G−T)+Yd, Legend: Qm business sector's monetary profit/loss, Sm household sector's monetary saving/dissaving, G government's expenditures, T taxes, Yd distributed profits. #4

The main drivers of macroeconomic profit/loss Qm are the difference between the business sector's investment expenditures I and the household sector's saving/dissaving Sm, and the government's budget deficit/surplus (G−T). 

The first half of the formula is dominant in early capitalism, and the second half is dominant in late capitalism.#5

It is pretty obvious that profit has NOTHING to do with the Labour Theory of Value.#6 So, Adam Smith and Karl Marx got the macroeconomic profit formula wrong, and later Keynes.#7, #8

Economics is proto-scientific garbage because economists in their abysmal scientific incompetence do not get the profit formula right to this day. Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL get profit wrong.

Egmont Kakarot-Handtke

Related 'The Profit Law'


Wikimedia AXEC143d  Profit Law® and sectoral balances equation