December 12, 2016

The magic circuit and how economists got it wrong

Comment on Peter Cooper on ‘The Monetary Circuit & Compatibility of Marx, Kalecki and Keynesian Macro’

Blog-Reference and Blog-Reference

The heteconomist Peter Cooper says: “There appears to be a considerable degree of compatibility between Marx and various Kalecki- and Keynes-influenced approaches to macroeconomics.” (See intro)

The compatibility consists in the fact that all these approaches are provably false. In other words, until this day neither orthodox nor heterodox economists have managed to give a formally consistent description of the monetary circuit. The blatant incompetence of economists is the ultimate reason why economics is a failed science.

The current state of economics is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false.

For the short refutation of Kalecki, Keynes, Minsky, and Keen see Heterodoxy, too, is proto-scientific garbage#1 The complete formal proofs are given in separate papers.#2

Debunking is necessary but insufficient. As Blaug put it: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” What is needed is to move on from falsified approaches to the materially and formally correct theory. In methodology, this is called a Paradigm Shift.#3 The opus magnum consists of replacing false Walrasian microfoundations and false Keynesian macrofoundations by entirely new macrofoundations.#4 Nothing less will do.

The true theory does not emerge from the mixing of failed approaches. The true theory satisfies the well-defined criteria of material and formal consistency. What the heteconomist Peter Cooper offers is as inconsistent as one can get.

Both Orthodoxy and Heterodoxy never came to grips with science, with the foundational concept of profit, and with the working of the monetary circuit, we happen to live in.

Egmont Kakarot-Handtke

#1 Heterodoxy, too, is proto-scientific garbage
#2 Profit for Marxists and Debunking Squared
#3 The Emergence of Profit and Interest in the Monetary Circuit
#4 From Orthodoxy to Heterodoxy to Sysdoxy

Related 'Why economists know nothing' and 'Rethinking MMT' and 'The false foundations of economics' and 'Wikipedia and the promotion of economists’ idiotism' and 'From false micro to true macro: the new economic paradigm' and 'The final implosion of MMT' and 'Economists still don’t get Econ 101 right' and 'Kalecki got it wrong, Allais got it right' and cross-references Kalecki.

COMMENT on peterc on Dec 20

You write “Hi Magpie. Kalecki is starting from accounting identities. In particular, in the simplest model:
Income = Wages + Gross Profit
Income = Consumption + Gross
Investment Proceeds = Prime Cost + Wages + Gross Profit.”

Note that the first equation, i.e. Income = Wages + Gross Profit, is already false. For the proof see (2011; 2012; 2014)

Kakarot-Handtke, E. (2011). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL


REPLY to peterc on Dec 22 and additional Blog-Reference

You compare Marx, Kalecki, and Keynes. The first thing a logically talented person notes are that the three authors use different definitions of profit and income. Now, a logically talented person knows (i) only one approach can be true, or (ii), all three are false. This is known for more than 2700 years: “There are always many different opinions and conventions concerning any one problem or subject-matter ... This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion ... on the other.” (Popper, 1994)

The intellectual Lumpenproletariat has no problem with scrambling an arbitrary number of contradictions in their confused brains but for a scientist this is unacceptable: “[economists] pursue the consistency of the theories they make, for he who contradicts himself proves nothing.” (Klant, 1988)

Because the definitions of income and profit by Marx, Kalecki, and Keynes are inconsistent these three authors prove NOTHING. You can find the proof of inconsistency elsewhere.#1 From this proof follows that the widely used definition Income = Wages + Profits is false. And since Kalecki starts with this definition he, too, is false and his whole analytical superstructure falls apart. It is as simple as that.

You say: “You can start from your own definitions, but this doesn’t really have a bearing on Kalecki, who did not share the same starting position.”

It is a widespread self-delusion among the intellectual Lumpenproletariat that everybody is entitled to make his own definitions. This is NOT the case.#2 It should be pretty obvious that all physicists apply the same definitions of energy, work, velocity, potential/kinetic energy etcetera and that these foundational concepts are consistently defined. And this explains why physics is a success while economics never rose above the level of incoherent blather.#3

What is known for 2300+ years* ― except to economists ― is: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen, 2009)

So what has to be done instead of comparing the proto-scientific garbage of Marx, Kalecki, and Keynes is to move from their false macrofoundations to true macrofoundations.

#1 Debunking Squared
#2 Humpty Dumpty is back again
#3 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist


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