February 23, 2013

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.

February 22, 2013

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.