Walras's Law of Markets as special case of the General Period Core Theorem {39}

Working paper at SSRN

Abstract  From the set of the first three structural axioms follows the Period Core Theorem. It asserts that the product of the key ratios, which characterize the firm, the market outcome, and the income distribution, is always equal to unity. The theorem contains only unit-free variables, is testable in principle, and involves no behavioral assumptions. The differentiated Period Core Theorem applies to an arbitrary number of firms. Therefrom Walras's Law can be derived without recourse to demand and supply functions or the notion of equilibrium. It is shown that the familiar interpretation is methodologically illegitimate.

For the complete set of foundational equations — structural axioms and behavioral propensity function — see Wikimedia AXEC61.

Settling the theory of saving {38}

Working paper at SSRN

Abstract  There is no way around it: each theory rests on a tiny set of foundational propositions. Standard economics rests on behavioral axioms. After a long intellectual detour, it should be clear by now that behavioral axioms are the wrong formal departure point. Being beyond repair, they have to be replaced by objective structural axioms. This paper deals with saving and its relation to investment and profit. It starts with the fact that there is no such thing as a 'real' economy. Hence economic phenomena are only explicable as the outcome of the interaction of real and nominal variables.

Confused confusers: how to stop thinking like an economist and start thinking like a scientist {37}

Working paper at SSRN

Abstract  The present paper takes it as an indisputable fact that subjective-behavioral thinking leads, for deeper methodological reasons, to inconclusive filibustering about the agents' economic conduct and therefore has to be replaced by something fundamentally different. The key argument runs as follows: (a) the subjective-behavioral approach cannot, as a matter of principle, afford a correct profit theory, (b) without a correct profit theory it is impossible to comprehend how the monetary economy works, (c) without this knowledge economic policy proposals are unjustifiable, (d) thinking like an economist may be hazardous to the economy.

Intertwined real and monetary stochastic business cycles {36}

Working paper at SSRN

Abstract  There is no such thing as a ‘real’ economy. The task, therefore, is to consistently reconstruct the fluctuations of employment and output from the interactions of real and nominal variables. The present paper does exactly this. No nonempirical concepts like utility, equilibrium, rationality, decreasing returns or perfect competition are applied. The analysis runs rigorously in objective structural axiomatic terms. Therefrom follows that it is the factor cost ratio, i.e. the relation of the nominal variables wage rate and price and the real variable productivity that, for any given level of effective demand, drives the fluctuations of employment and output.

Make a bubble, take a free lunch, break a bank {35}

Working paper at SSRN

Abstract  Standard economics is known to be incapable of integrating the real and the monetary sphere. The ultimate reason is that the whole theoretical edifice is built upon a set of behavioral axioms. Therefore, the formal starting point is moved to structural axioms. This makes it possible to formally track the complete process of value creation and destruction in the asset market and its consequences for the household and business sector. From the set of structural axioms emerge the well-known phenomena of a bubble from free lunches through appreciation to defaults due to a lack of potential next buyers.

Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster {34}

Working paper at SSRN

Keynes had many plausible things to say about unemployment and its causes. His ‘mercurial mind’, though, relied on intuition which means that he could not strictly prove his hypotheses. This explains why Keynes's ideas immediately invited bastardizations. One of them, the Phillips curve synthesis, turned out to be fatal. This paper identifies Keynes's undifferentiated employment function as a sore spot. It is replaced by the structural employment function that supersedes also the bastard Phillips curve. It will be demonstrated in a formal rigorous way why there is no trade-off between price inflation and unemployment. The structural Phillips curve predicts stagflation.

The common error of common sense: an essential rectification of the accounting approach {33}

Working paper at SSRN

Abstract  The present paper takes the explanatory superiority of the integrated monetary approach for granted. It will be demonstrated that the accounting approach could do even better provided it frees itself from theoretically ill-founded notions like GDP and other artifacts of the equilibrium approach. National accounting as such does not provide a model of the economy but is the numerical reflex of the underlying theory. It is this theory that will be scrutinized, rectified, and ultimately replaced in the following. The formal point of reference is ‘the integrated approach to credit, money, income, production, and wealth’ of Godley and Lavoie.