June 9, 2016

Forget Chicago, and also Cambridge

Comment on Paul Davidson and Ken Zimmerman on ‘Chicago economics — only for people unlucky when trying to think’


Every heterodox economist knows that the Walrasian approach is based on methodologically unacceptable axiomatic foundations (Arnsperger et al., 2006). The ergodic axiom is only one among others. Constrained optimization and equilibrium are even worse if something like a hierarchy of faultiness exists.

The crucial question is forward-looking: What takes the place of the obsolete axioms of standard economics? The correct answer is that the unacceptable microfoundations have to be replaced by macrofoundations. This is achieved as follows.
(A0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
O=RL output O is equal to productivity R times working hours L,
C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

This OBJECTIVE structural axiom set is, in Zimmerman’s words, simple, direct, and easily testable, or in Aristotle’s words, certain, true, and primary (2014).

These, indeed, are the criteria that axioms must satisfy. This is NOT the case with the familiar Walrasian and Keynesian axioms, yet this is obviously the case with the ABSOLUTE MINIMUM SET A1 to A3.

Neither the Chicago nor the Cambridge approach complies with the indispensable absolute formal minimum and therefore both are scientifically worthless. The same holds for Marxianism and Austrianism.

Egmont Kakarot-Handtke

Arnsperger, C., and Varoufakis, Y. (2006). What Is Neoclassical Economics? The Three Axioms Responsible for its Theoretical Oeuvre, Practical Irrelevance and, thus, Discursive Power. Paneconomicus, 1: 5–18. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL

REPLY to Carmen Basilovecchi on Jun 11

You propose four monetary axioms and ask: “One simple question? True or False?”

The answer is False because with purely monetary axioms you cover only a part of the subject matter of economics. This mistake is complementary to those who argue with ‘real’ (= money is a veil) constructs (e.g. Ricardo, Sraffa, RBC, etc).

Keynes had a great methodological insight: “In 1933, Keynes wrote a short contribution to a Festschrift for the German economist Arthur Spiethoff. He there attacked classical economists for not providing an adequate monetary theory. He then embarked upon the development of what he termed a monetary theory of production, a theory in which the interdependence of money and uncertainty, and their effects on economic behavior, could be properly investigated.” (Fontana, 2000, p. 40)

Keynes’s insight has been that the proper subject matter of economics is the ‘monetary theory of production’. Obviously, your four axioms say nothing at all about production.

The real-world economy manifests itself in the INTERACTION of real and nominal variables. From this interaction, money emerges as a means of transaction and a store of value (2011). Because of this, all ‘real’ and ‘monetary’ approaches are one-sided=incomplete=false.

Fontana, G. (2000). Post Keynesians and Circuitists on Money and Uncertainty: An Attempt at Generality. Journal of Post Keynesian Economics, 23(1): 27–48. URL
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL