October 28, 2015

I=S: Mark of the Incompetent

Comment on JKH and Roger Farmer on ‘Demand Creates its Own Supply’


I=S is provably false but the representative economist never got the point. To some degree, this is understandable because the deeper conceptual problem is that the representative economist does not even know what profit is because, as the Palgrave Dictionairy summarizes “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)

In simple words, this means that all economic models are defective — except those that come explicitly to grips with the foundational economic concept of profit. None are known from Orthodoxy and Heterodoxy. And this, in turn, means that all economic policy advice lacks sound scientific foundations.

The I=S blunder is not a single or isolated event but a rather typical outcome of proto-scientific thinking and widespread misapprehension of scientific methodology.#1

The following economists are representatives of the general intellectual malaise which manifests itself in the longstanding I=S debate. The list could be easily extended.#2

For a crash course in profit theory see The Profit Law.

Egmont Kakarot-Handtke

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

#1 The axiomatically correct relationship between monetary profit Qm, distributed profit Yd, investment expenditures I and monetary saving Sm is given with Qm≡Yd+I−Sm.
#2 For details of the big picture see cross-references Refutation of I=S

Preceding Fundamentally flawed.

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