Comment on Paul Davidson
Blog-Reference
In my papers I have quoted you saying:
“..., before accepting the conclusions of any economist’s model as applicable to the real world, the careful student should always examine and be prepared to criticize the applicability of the fundamental postulates of the model; for, in the absence of any mistake in logic, the axioms of the model determine its conclusions.” (Davidson, 2002, p. 41)
Currently, economists do not understand how the economy works. We therefore have good reason to look closely at the axiomatic foundations.
I agree with you that standard economics has been refuted once and for all and that its axioms are unacceptable. Perhaps you do not agree with me that Post Keynesianism has been refuted, too (2011; 2014b).
But certainly you remember that Keynes has called for a paradigm shift:
“Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (Keynes, 1973, p. 16)
Perhaps it is a really good idea to make a fresh attempt with a 'non-Walrasian-Keynesian' set of objective structural axioms (see 2014a).
Egmont Kakarot-Handtke
References
Davidson, P. (2002). Financial Markets, Money and the Real World. Cheltenham,
Northampton, MA: Edward Elgar.
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN
Working Paper Series, 1966438: 1–15. URL
Kakarot-Handtke, E. (2014a). Economics for Economists. SSRN Working Paper
Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money.
The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke:
Macmillan. (1936).
January 1, 2015
No idealization, only misunderstanding and misconstrual
Comment Lars Syll on 'The Invisible Hand ― a brilliant idealization proved wrong by reality'
Blog-Reference
For Adam Smith, the Invisible Hand never was an idealization.
“Moreover, Adam Smith used the phrase “invisible hand” on three dissimilar occasions in his writings and in each case it was employed, not to exemplify the Panglossian conclusion that markets always convert private “vices” like selfishness into public “virtues” like income and employment for all, but to demonstrate that, in Robert Burns’s words, 'the best-laid schemes o’ mice and men/Gang aft a-gley'”. (Blaug, 2001, p. 153)
Whatever Smith meant, the metaphor simply took a life of its own. So it has to be taken in a new sense.
The Invisible Hand metaphor reincarnated as General Equilibrium Theory and the attempt was made to rigorously prove it. This is laudable because the worst feature of economics until today is the endless wish-wash about metaphors and half-baked concepts. However, this attempt did not succeed.
“It is good to have [the technically best study of equilibria], but perhaps the time has now come to see whether it can serve in an analysis of how economies behave. The most intellectually exciting question of our subject remains: is it true that the pursuit of private interest produces not chaos but coherence, and if so, how is it done?” (Hahn, 1984, p. 102)
So, admittedly economists do not understand how the actual economy works. From this follows that there is still some science homework to be done. For the correct account of how the markets work see (2014).
Egmont Kakarot-Handtke
References
Blaug, M. (2001). No History of Ideas, Please, We’re Economists. Journal of Economic Perspectives, 15(1): 145–164.
Hahn, F. H. (1984). Equilibrium and Macroeconomics. Cambridge: MIT Press.
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Blog-Reference
For Adam Smith, the Invisible Hand never was an idealization.
“Moreover, Adam Smith used the phrase “invisible hand” on three dissimilar occasions in his writings and in each case it was employed, not to exemplify the Panglossian conclusion that markets always convert private “vices” like selfishness into public “virtues” like income and employment for all, but to demonstrate that, in Robert Burns’s words, 'the best-laid schemes o’ mice and men/Gang aft a-gley'”. (Blaug, 2001, p. 153)
Whatever Smith meant, the metaphor simply took a life of its own. So it has to be taken in a new sense.
The Invisible Hand metaphor reincarnated as General Equilibrium Theory and the attempt was made to rigorously prove it. This is laudable because the worst feature of economics until today is the endless wish-wash about metaphors and half-baked concepts. However, this attempt did not succeed.
“It is good to have [the technically best study of equilibria], but perhaps the time has now come to see whether it can serve in an analysis of how economies behave. The most intellectually exciting question of our subject remains: is it true that the pursuit of private interest produces not chaos but coherence, and if so, how is it done?” (Hahn, 1984, p. 102)
So, admittedly economists do not understand how the actual economy works. From this follows that there is still some science homework to be done. For the correct account of how the markets work see (2014).
Egmont Kakarot-Handtke
References
Blaug, M. (2001). No History of Ideas, Please, We’re Economists. Journal of Economic Perspectives, 15(1): 145–164.
Hahn, F. H. (1984). Equilibrium and Macroeconomics. Cambridge: MIT Press.
Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Economists do not solve problems, they are the problem
Comment on Lars Syll on 'Economists ― not mathematics ― solve economic problems'
Blog-Reference
It is widely known that the representative economist does not understand how the economy works. Many explanations have been advanced. One of them is that economists have serious trouble with mathematics. The trouble, though, is twofold: economists either reject or accept mathematics, but always for the wrong reason.
When economics was young, calculus was a new and tremendously successful tool. So economists copied it (Mirowski, 1995) and this is how marginalism became the chief tool of explanation. This was the first methodological mistake.
“The mathematical language used to formulate a theory is usually taken for granted. However, it should be recognized that most of mathematics used in physics was developed to meet the theoretical needs of physics. ... The moral is that the symbolic calculus employed by a scientific theory should be tailored to the theory, not the other way round.” (Wittgenstein, quoted in Schmiechen, 2009, p. 368)
It has been realized by many observers that utility maximization, equilibrium, perfect competition, etcetera was the unacceptable part of economic theory and not the application of mathematics.
“When very sound and proper mathematics is misused and misapplied to fairyland problems without any basis in the real world, that fact that the mathematics itself is impeccable makes the whole obnoxious game just that more offensive.” (Blatt, 1983, p. 173)
To blame mathematics for its abuse in economics is simply wrong-headed.
“Mathematics is not really of much fundamental use in a science unless that science is able to constitute its basic concepts with 'exact axioms' and precise numerical results.” (Weintraub, 2002, p. 26)
Ultimately economists got the basic concepts wrong. Conventional economics rests on behavioral assumptions that are formally expressed as axioms (McKenzie, 2008). Axioms are indispensable to build up a theory that epitomizes formal and material consistency. The fatal flaw of the standard approach is that human behavior does not yield to axiomatization.
As a matter of fact, no way leads from psychologism of any sort to the understanding of how the actual economy works. The solution consists of replacing behavioral axioms with objective structural-systemic axioms (2014).
Egmont Kakarot-Handtke
References
Blatt, J. (1983). How Economists Misuse Mathematics. In A. S. Eichner (Ed.), Why Economics is Not Yet a Science, 166–186. Armonk: M.E. Sharpe.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
McKenzie, L. W. (2008). General Equilibrium. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–18. Palgrave Macmillan, 2nd edition. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited,
Vol. 1. Norderstedt: Books on Demand, 2nd edition. URL Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Blog-Reference
It is widely known that the representative economist does not understand how the economy works. Many explanations have been advanced. One of them is that economists have serious trouble with mathematics. The trouble, though, is twofold: economists either reject or accept mathematics, but always for the wrong reason.
When economics was young, calculus was a new and tremendously successful tool. So economists copied it (Mirowski, 1995) and this is how marginalism became the chief tool of explanation. This was the first methodological mistake.
“The mathematical language used to formulate a theory is usually taken for granted. However, it should be recognized that most of mathematics used in physics was developed to meet the theoretical needs of physics. ... The moral is that the symbolic calculus employed by a scientific theory should be tailored to the theory, not the other way round.” (Wittgenstein, quoted in Schmiechen, 2009, p. 368)
It has been realized by many observers that utility maximization, equilibrium, perfect competition, etcetera was the unacceptable part of economic theory and not the application of mathematics.
“When very sound and proper mathematics is misused and misapplied to fairyland problems without any basis in the real world, that fact that the mathematics itself is impeccable makes the whole obnoxious game just that more offensive.” (Blatt, 1983, p. 173)
To blame mathematics for its abuse in economics is simply wrong-headed.
“Mathematics is not really of much fundamental use in a science unless that science is able to constitute its basic concepts with 'exact axioms' and precise numerical results.” (Weintraub, 2002, p. 26)
Ultimately economists got the basic concepts wrong. Conventional economics rests on behavioral assumptions that are formally expressed as axioms (McKenzie, 2008). Axioms are indispensable to build up a theory that epitomizes formal and material consistency. The fatal flaw of the standard approach is that human behavior does not yield to axiomatization.
As a matter of fact, no way leads from psychologism of any sort to the understanding of how the actual economy works. The solution consists of replacing behavioral axioms with objective structural-systemic axioms (2014).
Egmont Kakarot-Handtke
References
Blatt, J. (1983). How Economists Misuse Mathematics. In A. S. Eichner (Ed.), Why Economics is Not Yet a Science, 166–186. Armonk: M.E. Sharpe.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
McKenzie, L. W. (2008). General Equilibrium. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–18. Palgrave Macmillan, 2nd edition. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited,
Vol. 1. Norderstedt: Books on Demand, 2nd edition. URL Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Economic theory — as false as ever
Comment on Peter Temin, David Vines, Lars Syll on ‘ 'Keynes — more important than ever'
Blog-Reference
You write: “We show how hard it was for Keynes to break away from previous theories that work well for individual people and companies — and even for the economy as a whole in the long run — to define the short run in which we all live.”
You hereby acknowledge that pre-Keynesian economics, i.e. “previous theories”, are valid except in the short run. That is to say, the Keynesian Revolution claims only the short run as its niche and leaves the rest to what Keynes called the 'classicals'.
This is not only false modesty but downright nonsense. Why? Because 'classical' economics always has been invalid and it is still invalid in its recent reincarnations. Why?
Let us take the widest possible perspective. The fact of the matter is that neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor New Keynesians, nor New Classicals ever came to grips with profit (cf. Desai, 2008, p. 10). Hence, 'they fail to capture the essence of a capitalist market economy' (Obrinsky, 1981, p. 495).
Keynes, to his greatest honor, realized that there was something wrong with previous profit theories: “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 and Bezemer, 2010, pp. 12-13, 16)
Neither orthodox nor heterodox economists understand the two most important phenomena in the economic universe: profit and income (2014b; 2014a). This is like pre-Newtonian physics before the elementary concepts of force and mass were clearly defined.
There seems to be complete ignorance among both orthodox and heterodox economists that they have nothing to offer in the way of scientifically founded advice: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
Because they lack a correct profit theory neither the proponents of the 'classical' nor of the Keynesian approach have a true theory that could help to fix a crisis or to make the world a better place.
Egmont Kakarot-Handtke
References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2014a). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Obrinsky, M. (1981). The Profit Prophets. Journal of Post Keynesian Economics, 3(4): 491–502. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered.
Blog-Reference
You write: “We show how hard it was for Keynes to break away from previous theories that work well for individual people and companies — and even for the economy as a whole in the long run — to define the short run in which we all live.”
You hereby acknowledge that pre-Keynesian economics, i.e. “previous theories”, are valid except in the short run. That is to say, the Keynesian Revolution claims only the short run as its niche and leaves the rest to what Keynes called the 'classicals'.
This is not only false modesty but downright nonsense. Why? Because 'classical' economics always has been invalid and it is still invalid in its recent reincarnations. Why?
Let us take the widest possible perspective. The fact of the matter is that neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor New Keynesians, nor New Classicals ever came to grips with profit (cf. Desai, 2008, p. 10). Hence, 'they fail to capture the essence of a capitalist market economy' (Obrinsky, 1981, p. 495).
Keynes, to his greatest honor, realized that there was something wrong with previous profit theories: “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 and Bezemer, 2010, pp. 12-13, 16)
Neither orthodox nor heterodox economists understand the two most important phenomena in the economic universe: profit and income (2014b; 2014a). This is like pre-Newtonian physics before the elementary concepts of force and mass were clearly defined.
There seems to be complete ignorance among both orthodox and heterodox economists that they have nothing to offer in the way of scientifically founded advice: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
Because they lack a correct profit theory neither the proponents of the 'classical' nor of the Keynesian approach have a true theory that could help to fix a crisis or to make the world a better place.
Egmont Kakarot-Handtke
References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2014a). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Obrinsky, M. (1981). The Profit Prophets. Journal of Post Keynesian Economics, 3(4): 491–502. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered.
The axiomatic method is impeccable
Comment on Lars Syll on 'Debreu and the Bourbaki delusion of deductive-axiomatic economics'
Blog-Reference
Alan Kirman gives an excellent overview of how Debreu et al. led General Equilibrium Theory ad absurdum. I agree with all of it except for the somewhat implicit conclusion that the axiomatic-deductive method is inapplicable in economics, which is expressed in the title. It is logically incorrect to argue from the fact that someone has crashed an airplane into the ground that it is a delusion that airplanes can fly.
A minor point is that Bourbaki cannot be made accountable for the neoclassical structure-without-application: “..., it was the von Neumann perspective that shaped general equilibrium theory ..., and thus reconstituted economic theory.” (Weintraub, 2002, p. 78).
For a suggestive collection of statements about axiomatization, see also the post Key Issues: Hilbert-Bourbaki-Mill and von Neumann's monster-structure.
The axiomatic-deductive method is impeccable. It is a sad fact that economists either cannot apply it correctly or do not understand what J. S. Mill, perhaps the greatest methodologist among them (Popper, 1980, p. 19), already clearly understood and taught.
Misapplication of the axiomatic method is ultimately responsible for the failure of Orthodoxy. But worse, lack of understanding is also the most important cause of the failure of Heterodoxy.
A paradigm shift consists of replacing the hitherto existing set of axioms with a better one. Keynes famously demanded to throw over the classical axioms (Keynes, 1973, p. 16). New axioms define a new paradigm. Heterodox economists were hitherto incapable of formulating an alternative set of axioms. It seems that they did not even understand that this is their constructive task. Only for lack of a convincing alternative the obsolete Arrow-Debreu-McKenzie axioms still stand.
To resume with Clower: “My opinion continues to be that axiomatics, like every other tool of science, is no better than its user, and not all users are skilled.” (1995, p. 308)
After the neoclassical misapplication, it is high time that the axiomatic-deductive method is skillfully and successfully put to work in economics (see the AXEC Project).
Egmont Kakarot-Handtke
References
Clower, R. W. (1995). Axiomatics in Economics. Southern Economic Journal, 62(2): 307–319. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne, Sydney: Hutchison, 10th edition.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Related 'Who is afraid of axioms?'
Blog-Reference
Alan Kirman gives an excellent overview of how Debreu et al. led General Equilibrium Theory ad absurdum. I agree with all of it except for the somewhat implicit conclusion that the axiomatic-deductive method is inapplicable in economics, which is expressed in the title. It is logically incorrect to argue from the fact that someone has crashed an airplane into the ground that it is a delusion that airplanes can fly.
A minor point is that Bourbaki cannot be made accountable for the neoclassical structure-without-application: “..., it was the von Neumann perspective that shaped general equilibrium theory ..., and thus reconstituted economic theory.” (Weintraub, 2002, p. 78).
For a suggestive collection of statements about axiomatization, see also the post Key Issues: Hilbert-Bourbaki-Mill and von Neumann's monster-structure.
The axiomatic-deductive method is impeccable. It is a sad fact that economists either cannot apply it correctly or do not understand what J. S. Mill, perhaps the greatest methodologist among them (Popper, 1980, p. 19), already clearly understood and taught.
Misapplication of the axiomatic method is ultimately responsible for the failure of Orthodoxy. But worse, lack of understanding is also the most important cause of the failure of Heterodoxy.
A paradigm shift consists of replacing the hitherto existing set of axioms with a better one. Keynes famously demanded to throw over the classical axioms (Keynes, 1973, p. 16). New axioms define a new paradigm. Heterodox economists were hitherto incapable of formulating an alternative set of axioms. It seems that they did not even understand that this is their constructive task. Only for lack of a convincing alternative the obsolete Arrow-Debreu-McKenzie axioms still stand.
To resume with Clower: “My opinion continues to be that axiomatics, like every other tool of science, is no better than its user, and not all users are skilled.” (1995, p. 308)
After the neoclassical misapplication, it is high time that the axiomatic-deductive method is skillfully and successfully put to work in economics (see the AXEC Project).
Egmont Kakarot-Handtke
References
Clower, R. W. (1995). Axiomatics in Economics. Southern Economic Journal, 62(2): 307–319. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne, Sydney: Hutchison, 10th edition.
Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.
Related 'Who is afraid of axioms?'
You have the data, here is the Employment Law
Comment on Marc Lavoie/Engelbert Stockhammer/Lars Syll on 'Wage-led growth'
Blog-Reference
You write: “The most recent empirical studies show that the world economy overall is in a wage-led demand regime ...”
This is good news in several respects. I focus, in the following, on verification/falsification, i.e., on the relationship between facts and theory.
You write: “An increase in the wage share has several effects on demand and whether actual demand regimes are wage-led or profit-led is subject to an ongoing academic debate.”
This debate can be quickly resolved. A positive relationship between wage rate, various demand components, and employment, and a negative relationship between price/inflation and employment is exactly what the structural-axiomatic Employment Law asserts (see 2014, p. 9, eq. (22)).
I wrote on p. 10: “A general increase in the wage rate increases the factor cost ratio in eq. (22) and effects higher employment. This systemic property follows in direct lineage from the axioms and the condition of product market clearing. It goes without saying that this rectified relationship between wage rate and employment is almost certainly beyond the comprehension of the marginalist supply-demand-equilibrium mindset. There is no need, though, to discuss contradicting assertions because of eq. (22) is testable. Therefore, an experimentum crucis that settles the matter is possible in principle. There cannot be much doubt about the outcome.”
The outcome is what the most recent empirical studies show. These studies have not yet come to my notice, yet I am quite certain that you can improve the results by applying the structural axiomatic Employment Law, see Graphic AXEC07:
And, best of all, you get the underlying theory in one package with the correct Profit Law. I am looking forward to a perfect empirical corroboration of the Employment Law.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Related 'Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster' and 'Essentials of Constructive Heterodoxy: Employment'.
Links
Ramanan — Good Reference On Wage-Led Growth
Chris Dillow — On Wage-Led Growth
Blog-Reference
You write: “The most recent empirical studies show that the world economy overall is in a wage-led demand regime ...”
This is good news in several respects. I focus, in the following, on verification/falsification, i.e., on the relationship between facts and theory.
You write: “An increase in the wage share has several effects on demand and whether actual demand regimes are wage-led or profit-led is subject to an ongoing academic debate.”
This debate can be quickly resolved. A positive relationship between wage rate, various demand components, and employment, and a negative relationship between price/inflation and employment is exactly what the structural-axiomatic Employment Law asserts (see 2014, p. 9, eq. (22)).
I wrote on p. 10: “A general increase in the wage rate increases the factor cost ratio in eq. (22) and effects higher employment. This systemic property follows in direct lineage from the axioms and the condition of product market clearing. It goes without saying that this rectified relationship between wage rate and employment is almost certainly beyond the comprehension of the marginalist supply-demand-equilibrium mindset. There is no need, though, to discuss contradicting assertions because of eq. (22) is testable. Therefore, an experimentum crucis that settles the matter is possible in principle. There cannot be much doubt about the outcome.”
The outcome is what the most recent empirical studies show. These studies have not yet come to my notice, yet I am quite certain that you can improve the results by applying the structural axiomatic Employment Law, see Graphic AXEC07:
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Related 'Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster' and 'Essentials of Constructive Heterodoxy: Employment'.
Links
Ramanan — Good Reference On Wage-Led Growth
Chris Dillow — On Wage-Led Growth
Kalecki: the man who missed it by a hair's breadth
Comment on Lars Syll on 'Kalecki on wage-led growth'
Blog-Reference
Kalecki addressed two important questions:
(i) the relationship between profit and employment,
(ii) and the difference between a partial wage rate change and an overall wage rate change.
To take the second point first: Kalecki was perfectly right in pointing out that even if it were true that a partial wage cut could increase employment in one firm, it would be a Fallacy of Composition to maintain that this holds for the economy as a whole. For a consistent analysis of the partial-global interrelations, see (2014a; 2014b).
With regard to point (i), Kalecki has to be praised for being the first to take macroeconomic profit explicitly into the picture. However, he got the relationship between profit and distributed profit wrong (2011b; 2013b; 2011a).
This can be regarded as a trivial offense because Keynes did not get it right either: “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., 2010, pp. 12-13, 16)
Or, to jump directly to the present, Keen did not get it right either (2013a).
Or, to take the broader picture: Neither Classicals, nor Walrasians, nor Marshallians, nor Keynesians, nor Marxians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists ever came to grips with profit (cf. Desai, 2008).
In sum: The profit theory has been false since Adam Smith, and Kalecki is NO exception.
Kalecki recognized that profit is the pivotal concept for the analysis of how the economy works. In marked contrast to his fellow economists, he did not take Walras' zero profit economy for one moment seriously. Yet he stumbled at the very last step: he did not get the formal foundations of economics right. With regard to scientific incompetence, Orthodoxy and Heterodoxy are one big family.
Egmont Kakarot-Handtke
References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–23. URL
Kakarot-Handtke, E. (2011b). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2013a). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2013b). The Emergence of Profit and Interest in the Monetary Circuit. World Economic Review, 2: 106–118. URL
Kakarot-Handtke, E. (2014a). Towards Full Employment Through Applied Algebra and Counter-Intuitive Behavior. SSRN Working Paper Series, 2456184: 1–25. URL
Kakarot-Handtke, E. (2014b). The Truly General Theory of Employment: How Keynes Could Have Succeeded. SSRN Working Paper Series, 2406891: 1–25. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
Blog-Reference
Kalecki addressed two important questions:
(i) the relationship between profit and employment,
(ii) and the difference between a partial wage rate change and an overall wage rate change.
To take the second point first: Kalecki was perfectly right in pointing out that even if it were true that a partial wage cut could increase employment in one firm, it would be a Fallacy of Composition to maintain that this holds for the economy as a whole. For a consistent analysis of the partial-global interrelations, see (2014a; 2014b).
With regard to point (i), Kalecki has to be praised for being the first to take macroeconomic profit explicitly into the picture. However, he got the relationship between profit and distributed profit wrong (2011b; 2013b; 2011a).
This can be regarded as a trivial offense because Keynes did not get it right either: “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., 2010, pp. 12-13, 16)
Or, to jump directly to the present, Keen did not get it right either (2013a).
Or, to take the broader picture: Neither Classicals, nor Walrasians, nor Marshallians, nor Keynesians, nor Marxians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists ever came to grips with profit (cf. Desai, 2008).
In sum: The profit theory has been false since Adam Smith, and Kalecki is NO exception.
Kalecki recognized that profit is the pivotal concept for the analysis of how the economy works. In marked contrast to his fellow economists, he did not take Walras' zero profit economy for one moment seriously. Yet he stumbled at the very last step: he did not get the formal foundations of economics right. With regard to scientific incompetence, Orthodoxy and Heterodoxy are one big family.
Egmont Kakarot-Handtke
References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–23. URL
Kakarot-Handtke, E. (2011b). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2013a). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2013b). The Emergence of Profit and Interest in the Monetary Circuit. World Economic Review, 2: 106–118. URL
Kakarot-Handtke, E. (2014a). Towards Full Employment Through Applied Algebra and Counter-Intuitive Behavior. SSRN Working Paper Series, 2456184: 1–25. URL
Kakarot-Handtke, E. (2014b). The Truly General Theory of Employment: How Keynes Could Have Succeeded. SSRN Working Paper Series, 2406891: 1–25. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
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Graphic AXEC121i
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