AXEC: New Foundations of Economics

November 13, 2026

Occasional X: How it works (DXLII)

“Capitalist production is not merely the production of commodities, but essentially the production of surplus value. The worker produces not for himself, but for capital. For this reason, it is no longer sufficient for him to produce in general. He must produce surplus value.” (Evald Ilyenkov) Marx never understood how surplus value comes about. Consequently, he never understood how Capitalism works. All price and profit theories up to the present are provably false. In particular, Supply-Demand-Equilibrium has never been more than proto-scientific garbage. The same holds for Marx's Value Theory. However: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.” (Feynman) Macroeconomics has always been axiomatically false. It has to be rectified first. This requires a Paradigm Shift. In the following, the economic system is reduced to the bare bones. The new axiom set for an elementary production-consumption economy is given in lines 1-3 as shown in the table AXEC226f ⇓ . For the elementary production-consumption economy, this yields the price under the condition of market-clearing, i.e., P=:ρEc*W/R in line 7. And under the additional condition of budget-balancing, i.e., Ec=Yw that is ρEc=1, it yields P=:W/R in line 5. The subjective element vanishes completely if the expenditure ratio ρEc is 1. Price and profit become purely systemic. In the most elementary case, the market-clearing price P moves with unit wage costs W/R. The workers always get the whole product O. Their real wage is equal to the productivity, i.e., W/P=R. General wage increases are pointless. The worker's living standard depends alone on the productivity R. The profit Qm for the business sector is zero in line 11. Price increases can come only from wage rate increases or from productivity decreases. The quantity of money is not a price determinant. Now, the budget-balancing condition, i.e., Ec=Yw, that is ρEc=1, is lifted. If ρEc>1, the household sector dissaves in line 12, the market-clearing price increases in line 7, and the business sector makes a profit in line 11. If ρEc<1, the household sector saves and the business sector makes a loss. Dissaving, i.e., ρEc>1, means that the household sector takes a credit from the Central Bank. The Central Bank stands here for the banking system. Dissaving also means that the business sector makes a profit and accordingly has additional demand deposits at the Central Bank. The household sector as a whole still gets the whole output O. The business sector ends up with an increase of money in the bank. It seems that the workers have produced 'surplus value'. Actually, the surplus value, a.k.a. profit Qm, does not come from production but from deficit spending. Obviously, the household sector cannot sustain deficit-spending for an indefinite time. Fortunately, there are other profit sources. The generalization yields Qm:=(I−Sm)+(G−T)+(X−M)+Yd. In any case, 'surplus value' has nothing to do with labor time or psychological concepts like alienation. It has more to do with the principle: From nothing comes nothing. In economic terms: the sectoral balances add up to zero. What appears as an increase of 'value' in the business sector is equal to an increase in the household sector's debt. If the debt is eventually repaid, this causes losses and eventually a systemic breakdown. Capitalism requires profit, and profit requires the growth of private/public debt.
— AXEC (@EgmontHandtke) November 13, 2026

Occasional X: The foul spirit of political economics (CDXLVII)

“Nobody can be a great economist who is only an economist.” (Friedrich Hayek) “Nobody can be a great economist who does not understand profit.” (AXEC) Because Austrians never understood profit, their implicit claim to be great economists has never been more than the self-deception of mental dwarfs.
— AXEC (@EgmontHandtke) November 13, 2026

Occasional X: The foul spirit of political economics (CDXLVI)

“The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat' unless you happen to have private means.” (Michał Kalecki) Kalecki got the subject's foundational concept — profit — wrong. This is self-disqualifying. His followers are also too stupid for elementary algebra. Instead of scientifically refuting mainstream economics, the sorry bunch of incompetent scientists resort to political moralizing. For axiomatically correct refutation and rectification, see Kalecki got it wrong, Allais got it right https://t.co/MybEzLGDkg Kalecki's wrong definition of profit and income https://t.co/HkmiJnkOMZ The Levy/Kalecki Profit Equation is false https://t.co/pkoZclFwkc
— AXEC (@EgmontHandtke) November 13, 2026

Occasional X: How it works (DXLI)

“US Budget Deficit Explodes: Worst October On Record On Historic Surge In Defense Spending; 28% Of All Taxes Go To Pay Interest.” (zerohedge) Zerohedge does not understand profit and, consequently, how the economic system works. The free-market economy runs on profit. Macroeconomic profit is given by the axiomatically correct Profit Law Qm:=(I−Sm)+(G−T)+(X−M)+Yd. The Profit Law implies PublicDeficit=PrivateProfit Qm:=(G−T)>0, i.e., macroeconomic profit is (co-)produced by deficit-spending/money-creation, i.e., the growth of public debt. In free-market economies, public debt has increased with minor interruptions for over 200 years. Therefore, Qm:=(G−T)>0 has been a critical factor for Capitalism's survival. The free-market economy is temporarily saved from breakdown by the deficit-spending/money-creating duo of treasury/central bank, i.e., the State. This means that the premise of legacy economics, i.e., that the unfettered free-market economy is a self-adjusting, self-stabilizing, and self-optimizing system, is axiomatically false. This means that economics is failed/fake science. Economists are not scientists. They are mostly silly wafflers for a low-IQ audience. The free-market polity is an Oligarchy with parliament / treasury / central bank / capital markets / big business / three-letter agencies as integral parts. With the other determinants excluded for the moment, private financial wealth grows with public debt. Eventually, WeTheOligarchy owns the financial assets, and WeThePeople owe the public debt and are taxed for interest on government bonds as long as the debt is rolled over. Interest payments on the debt reduce their disposable income for an indefinite time. The government taxes WeThePeople on behalf of WeTheOligarchy. With about one third of the budget, WeThePeople directly feed WeTheOligarchy. This profit/interest/tax triple-whopper produces wealth for WeTheOligarchy and debt and real-income reductions for WeThePeople. Since the household sector is taxed for interest, there is an absolute upper limit for the growth of public debt, which is given by public_debt times avg_interest_rate ≦wage_income. Economic problems, though, start much earlier because of other irreducible items in the budget and a not exactly known upper tax-to-income limit. Currently, POTUS is exploding the public debt; this will increase the number of millionaires/trillionaires/zillionaires in the short run, no matter how the real economy performs. The open question is: when will the inherently unsustainable system hit the wall?
— AXEC (@EgmontHandtke) November 13, 2026

Occasional X: Economists’ eternal problem with methodology (XVII)

“That's why Ludwig von Mises believed economics requires a fundamentally different method. Praxeology, developed by Mises and refined by Murray Rothbard, begins with one undeniable axiom: human beings act purposefully to achieve ends using scarce means. From this single truth, all valid economic propositions are derived through logical deduction rather than observation or experimentation.” (Creative Deduction) Already, J. S. Mill claimed that economics is an 'inexact and separate science'. For details, see Economics is NOT a social science https://t.co/XlYPTxZ0HH Mill's escape clause never worked because there is only one science: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Austrianism is materially/formally inconsistent. It misapplied the axiomatic/deductive method‡, and it cannot escape the final judgement that it has always been political agenda pushing in the garb of science. Austrians are not alone; other political agenda pushers have captured economics early on and ruined all scientific content. This is why economics has been proto-scientific garbage from the Enlightenment onward. Reminder: Economists never had a mandate for political agenda pushing: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (J. S. Mill) For over 200 years, economics has claimed to be a science, but it still isn't. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. Economics has no scientific truth-value, only political use-value. Economic policy guidance has never had valid scientific foundations. Austrianism is the smoking-gun proof except for people who have less than two brain cells. Austrians are not, and never have been, competent scientists but agenda pushers / useful idiots / impostors / phrase mongers / storytellers / trolls / pseudo-psychologists / self-gloryfier / clowns in the political Circus Maximus. ‡ “It is, therefore, natural and indispensable to separate the process of investigation into two parts; and obtain general formulæ for determining what inferences may be drawn, before the occasion arises for drawing the inferences. The work of drawing them is then that of applying the formulæ; and the rules of syllogism are a system of securities for the correctness of the application.” (J. S. Mill, 1882, A System of Logic) With Praxeology, von Mises messed up the first part.
— AXEC (@EgmontHandtke) November 13, 2026

Occasional X: Paradigm Shift (CXXXIII)

“Well said except economics is not about how an economy works. It is the study of allocating scarce resources that have alternative uses.” (Ray Lauletti) Parroting Robbins's pseudo-scientific definition keeps you and your Austrian buddies in the mental trap. Accustomed behavioral definitions of economics: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow, 1994) “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” (Robbins, 1935) Axiomatically correct objective-systemic definition: “Economics is the science that studies how the economic system works.” (AXEC) Here is Robbins's methodological blunder in a nutshell: “The propositions of economic theory, like all scientific theory, are obviously deductions from a series of postulates. And the chief of these postulates are all assumptions involving in some way simple and indisputable facts of experience….’ With this methodology, axioms are certain, and logical deductions are certain, so there is no room for conflict with experience. This is exactly the same as axiomatic Greek geometry, which can never be wrong because it is based on certainties and driven by logic.” There is no such thing as 'simple and indisputable facts of experience'. Observation is theory-laden perception. From the beginning, Austrianism has suffered from the Fallacy of Insufficient Abstraction. The move from the old behavioral definition to the new systemic=behavior-free definition of economics is called a Paradigm Shift. Nothing less will do to get economics out of its proto-scientific deadlock. It's high time, after more than 200 years of proto-scientific garbage.
— AXEC (@EgmontHandtke) November 13, 2026

November 12, 2026

Occasional X: Clueless economists / Science (CCCXCV)

“Murray Rothbard spent two volumes and over 1,500 pages doing what mainstream economics departments refuse to do: tracing the intellectual lineage of economic thought without flattering the victors.” (Handre) The history of economic thought is the history of scientific failure. Economics has been failed/fake science since the Founding Fathers (AXEC179a ⇓). It has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. The existential requirement of a free-market economy is that macroeconomic profit is greater than zero. Otherwise, recession/depression/breakdown results. This is the main economic principle; all other explanations of how the economy works are secondary. Utility/profit maximization or free people on free markets or competition or hard work or innovation or the entrepreneur do not keep the economy above the zero-profit cutoff. Scientifically, it's rather simple: no macroeconomic profit, no economy. Actually, economics is about how the economy works. It is a genuine systems science. The representative economist does not understand what economics is all about. The School of Salamanca, too, did not get much above moralizing. They remained in the theological tradition. Therefore, from the fact that Adam Smith and his followers promoted failed/fake science, it does not logically follow that the School of Salamanca and their Austrian proponents are scientifically superior. Austrianism, too, is failed/fake science. As Feynman put it: “The problem is not just to say that something might be wrong, but to replace it by something ― and that is not so easy.” Handre and Rothbard are right to say that Adam Smith was a lousy scientist, but their implication that Austrians did categorically better is self-delusional. To finally become a science, economics needs a Paradigm Shift from false behavioral microfoundations and false Keynesian macrofoundations to true macrofoundations.
— AXEC (@EgmontHandtke) November 12, 2026

Subscribe to: Posts (Atom)

Knowledge only — no opinion

Science does not explain everything, but non-science explains nothing.

Neither orthodox nor heterodox economics satisfies the scientific criteria of material and formal consistency.

Economists cannot explain how the economy works. The Profit Theory is false since Adam Smith. There is much opinion and little knowledge.

Opinion is the realm of political economics, knowledge is the realm of theoretical economics.

Political economics is scientifically worthless.

Theoretical economics is built upon clearly stated premises, i.e., upon a set of axioms.

Orthodoxy got the axiomatic foundations wrong and Heterodoxy has none at all.

Economics is a failed science. Economists are incompetent scientists.

Profit

Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they all fail to capture the essence of the market economy.

Because of this, economists have nothing to offer in the way of a scientifically founded economic policy guidance.

The hybrid science

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component.

In gestalt-psychological terms the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-component must always be in the foreground. This fallacy compares to geo-centrism. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

There are systemic laws but no behavioral laws. Systemic laws have the same methodological status as physical laws.

Neither Orthodoxy nor Heterodoxy can tell what the systemic laws of the actual monetary economy are.

Whether the outcome of the human/system-interaction is good or bad is a politcal question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works - no less, no more.

Narrative vs.Theory

Psychological, sociological or behavioral assumptionism cannot yield anything other than a gossip model of the world. Second-guessing the agents is not economic analysis.

Science deals exclusively with propositions that can in principle be decided by objective means. The rest is opinion, faith, phantasy, motive speculation, allegation, hallucination, myth, paranoia, ink-blot association, psychology, philosophy, in one word: storytelling.

Storytelling is the original mode of communication in the social realm — except science.

Political economics is storytelling and, by default, the natural habitat of confused confusers. Walrasianism, Keynesianism, Marxianism, Austrianism are social narratives and not scientifically valid representations of reality.

"The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions." (Fisher)

In marked contrast, theoretical economics lives up to the standards of material and formal consistency. A scientific theory is the best mental representation of reality that is humanly possible.

Theory starts with a set of objective and consistent axioms.

Paradigm Shift

"The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy." (Feynman)

"As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction." (Nell)

"The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory." (Blaug)

"Is it not a fact, which stares at us from the histories of all sciences, that it is much more difficult for the human mind to forge the most elementary conceptual schemes than it is to elaborate the most complicated superstructure when those elements are well in hand?" (Schumpeter)

"The task of producing knowledge against the grain requires imagination." (Mirowski)

"A new idea is extremely difficult to think of. It takes a fantastic imagination." (Feynman)

"The scientific imagination dreams of explanations and laws." (Peirce)

"It is brilliance of imagination which makes the glory of science." (Evans)

"... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations." (Clower)

Selftest and to watch for

You apply one of these items

• supply-demand-equilibrium,

• general equilibrium,

• marginal utility,

• well-behaved production functions,

• total income = value of output,

• total income = wages + profits,

• I=S,

• wage rate down - employment up,

• behavioral axioms?

Then you are out of science because of unnoticed material or formal inconsistency.

Every economist who uses the concept of equilibrium is scientifically incompetent because she/he failed to notice that equilibrium is an economic nonentity.

Practically this means: as soon as the word equilibrium appears in an economic text it can be thrown into the waste basket. The same holds for all other nonentities.

The vast majority of economists deals mainly with nonentities. This is why Walrasianism, Keynesianism, Marxianism, Austrianism is scientifically worthless.

Since Adam Smith, economic policy guidance has no sound scientific foundations.

To be replaced (1)

The core premises of Orthodoxy are uncertain and false and this fully explains the failure of the research program.

“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

The inescapable Paradigm Shift consists of the move from this obsolete hard core to the superior set of structural axioms.

To be replaced (2)

The fundamental equations of macroeconomics have been formulated by Keynes in two lines.

"Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment."

This elementary syllogism is demonstrably false. The demonstration consists in the proof that Keynes could not solve the Profit Puzzle. Neither did Post-Neo-New-Keynesians.

In the most general terms, the economics Paradigm Shift consists in switching from the behavior-centric bottom-up approach to the structure-centric top-down approach. This is comparable to the Copernican turn from geo-centrism to helio-centrism.

Consensus

Economics is a science without scientists. Because they are ignorant of the elementary difference between profit and income, the present generation of economists has not made and cannot make a significant contribution to the discussion about how the actual economy works.

Every orthodox or heterodox economist can convince himself/herself that their profit theory is defective.

Every non-economist can — by applying elementary logic — convince himself that conventional profit theories are false. See 'How the intelligent non-economist can refute every economist hands down'.

Because the profit theory is false the whole of conventional economic theory has to be rejected.

"What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse." (McCauley)

No scientist will ever accept Walrasianism, Keynesianism, Marxianism, or Austrianism. These approaches are logically and/or empirically refuted. This is the actual methodological state-of-art. Walrasians, Keynesians, Marxians, or Austrians are still at the proto-scientific stage. These approaches cannot be improved, only abandoned.

Economists are a public nuisance because they have an opinion on everything but knowledge of nothing.

About me

“Bottom line is that your profit law is just a definition you made up nobody else agrees with, nobody. You are all alone with your precious tautology.” Barkley Rosser

“In any event, your entire theory is based on you doing macro accounting in wacky fashion that nobody agrees with.” Brian Romanchuk

"Your stuff is at least original: it's quite cool after a couple of decades at this to see a fresh Economics. But real promises are not advanced: they were around for millennia until the Greeks obscured them with Metaphysics." Chris Cook

"No mate, they're you-blockers. You have all the personality traits of a crank, and the rest of them have tired of you. You could be 100% right, and you'd still die as your only follower." Steve Keen

"What you are doing fills is all with joy, your constructive critique is most welcome!"

Achim Truger,

German Council of Economic Experts,

in a failed attempt to be ironic

"200+ years of thought and yet you are the only one who gets it—or even understands your argument. Thank god we have you, pseudonymous Twitter user. Otherwise no one would know."

William Luther

Assistant Professor of Economics

in a failed attempt to be funny

"Egmonts profit law is the perfect equation that demonstrates this in action. Put the equation into a spreadsheet and then add government spending and watch how it flows into profits. Enter in some debt (-Sm) and watch too how that flows into profits. It can't go anywhere else."

Dean

About the rest of economics

Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism are mutually contradictory, axiomatically false, materially/ formally inconsistent. Economics is a failed science.

“There are three classes of people: those who see. Those who see when they are shown. Those who do not see.” Leonardo da Vinci

In economics, the overwhelming majority belongs to Class III. This explains why economics is after 200+ years still at the proto-scientific level.

The obvious task for every economist is to advance from cargo cult science and political agenda-pushing to science. This is absolutely beyond the means of Class III people.

For 200+ years now, economists are not scientists but agenda pushers, useful idiots, clowns in the political Circus Maximus.

Nopopop

This blog does not add to any popular/un- popular opinion.

This blog does not hand out advice about how to avoid taxes, to get rich on the stock market, to be successful in business, to increase the wealth of nations, to run an economy, to maximize welfare, to prevent national/global bankruptcy, to improve the institutional setup of society, to get out of national/global depression, nor about how to save humankind or any subgroup thereof.

This blog is about the true theory of the actual monetary economy.

"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)

Focus

Science is of primary interest and importance. Scientists are of secondary interest.

With regard to science, most people lose focus easily because of a natural preference for anecdotes and gossip over facts or subjectivity over objectivity.

Hence, Schumpeter once considered it necessary to remind his habitually disoriented fellow economists: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

Science is about true/false and nothing else.

Disclaimer

Missing Blog-Reference links: AXEC does not guarantee that their comments can at any time be recovered from where they have been posted intitially because the availability depends on the publication policy of the blog owner which is implicitly accepted on entering a debate. See also: 'Economists: Incompetent? Stupid? Corrupt?'

Texts: Parts of arbitrary length of any of the author's texts is and will be used again by the author in papers, books, websites, blogs, and other media without explicit reference. The right to make corrections or minor textual improvements on reutilization is reserved. Therefore, it is always a good idea to double-check for the latest version.

Caution: Do not expect a corroboration of your political view. Neither a refutation. Political economics has been scientifically worthless since Adam Smith. Politics has to be separated from economics because it is categorically different from science. The best science can do and has always done is to prove beyond reasonable doubt that you have been objectively wrong or ignorant until now. Science goes beyond the naive common sense of today and becomes the sophisticated common sense of tomorrow.

See also Terms of Use and Legal at www.AXEC.org

Outlook

To recall, while political economics is storytelling, theoretical economics adheres to scientific standards.

The first task of theoretical economics is to get the axiomatic foundations right. This is what J. S. Mill called the opus magnum. Neither Orthodoxy nor Heterodoxy came up with a reasonable solution to this day. This explains the secular stagnation of economics.

There is no serious alternative to structural axiomatic economics. This is not a matter of opinion but of proof. The sole criteria are material and formal consistency.

All of economics has to be reconstructed from the ground up.

Major economic policy implication

The price mechanism does not work as standard economics hypothesizes. The axiom-based Employment Law states that overall employment increases if the average wage rate increases relative to average price and productivity. This gives one the lever to improve the employment situation all over the world and to fend off deflation without rising debt and without artificial capacity growth. To increase the average price relative to the average wage rate and productivity increases unemployment.

Right policy depends on true theory.

“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)

Lacking the true theory, economists promote for more than 200 years opinion instead of knowledge.