August 26, 2011

Primary and secondary markets {15}

Working paper at SSRN

Abstract  This paper swaps the standard behavioral axioms for structural axioms and applies the latter to the analysis of the emergence of secondary markets from the flow part of the economy. Real and nominal residuals at first give rise to the accumulation of the stock of money and the stock of commodities. These stocks constitute the demand and supply side of secondary markets. The pricing in these markets is different from the pricing in the primary markets. Realized appreciation in the secondary markets is different from income or profit. To treat primary and secondary markets alike is therefore a category mistake.

August 18, 2011

Squaring the Investment Cycle {14}

The present paper replaces the standard behavioral axioms by structural axioms and applies these to the analysis of the accumulation and decumulation of capital. This yields a coherent view of the interrelations of real and nominal saving–investment, of profit–loss, of money–credit, and of internal–external financing. The main result is that asymmetric growth is indispensable for the viability of the market system. An equilibrium of saving and investment would be rather disadvantageous for the business sector.

August 8, 2011

Uniform profit ratios {13}

Working paper at SSRN

Abstract  The equalization of profit rates as the outcome of free competition is one of the oldest tenets in theoretical economics. Being intuitively convincing its premises and implications, though, are not well defined. As Walras put it: ‘To state a theory is one thing; to prove it is another.’ First of all, a consistent concept of profit is required. In the present paper, the structural axiom set is taken as premise. Thereof the determinants of profit and the profit ratio follow. This makes it possible to definitively state the conditions for uniform profit ratios in a hierarchical market structure.

August 2, 2011

Reconstructing the Quantity Theory (II) {12}

Part I and II of the present paper reconstruct the quantity theory from structural axiomatic foundations. This yields a coherent view of the interrelations of quantity of money, transaction money, saving–dissaving, liquidity–illiquidity, rates of interest, leverage, allocation of labor, prices, profits, and employment. Part II focuses on the symmetric and asymmetric process of nominal and real saving–dissaving and on the monetization of nonfinancial assets. The distinction between liquidity preferences of individual households and the household sector as a whole proves to be crucial. From the objective structural axiom set follows a structural inflation formula.