January 29, 2014

Exchange in the monetary economy {51}

Working paper at SSRN

Abstract  It is clear by now that pure exchange models are useless. For two reasons. First, because exchange is the other side of specialization in production, and, second, because a direct exchange of goods does not take place in the monetary economy. The decisive drawback of conventional exchange models, though, is that they cannot explain profit. Standard economics rests on behavioral assumptions that are expressed as axioms. The ultimate reason for the failure of conventional exchange theory is that human behavior and axiomatization are disjunct. Notable progress can be made by replacing the subjective-behavioral axioms with objective-structural axioms.