December 7, 2016

Why economists know nothing

Comment on Steve Roth on ‘Why Economists Don’t Know How to Think about Wealth (or Profits)’

Blog-Reference and Blog-Reference

The short answer is because economists are scientifically incompetent. The Profit Theory is false since Adam Smith or, as the Palgrave Dictionary puts it, “A satisfactory theory of profits is still elusive.” (Desai, see also 2014; 2015). In fact, Walrasians, Keynesians, Marxians, Austrians have NO idea of the foundational concept of their subject matter.

Scientific standards are well-defined: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

In order to establish material consistency, one needs measurement and one of the most important measurement tools of economics is national accounting. The importance of national accounting for testing of economic models is comparable to CERN for testing in physics. The MMTers got the point, yet in general, it holds that economists neither understand the significance nor the elementary algebra of national accounting. The most idiotic argument of the morons who overpopulate economics is ‘That’s just an accounting identity.’

Economic theory and accounting are like hand and glove. Therefore, it is of utmost importance that the foundational concepts are consistently defined and the SAME in theory and accounting. It is the worst mistake to play accounting against theory/model. At a deeper level, they have a common conceptual/formal core. But at the moment both spheres are disjunct and the foundational concepts are wildly inconsistent.

Because the nominal magnitudes of accounting are a subset of a comprehensive theory that is composed of nominal and real variables, the concepts have to be consistently defined in theory and then applied one-to-one in national accounting. Theory has to take the lead. The mistake of MMT is that faulty accounting takes the lead.

From methodology, it is known that “The often heard rule that concepts are to be defined before they are used in a discussion is much too simple-minded pre-Hilbertian. The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen, 2009, p. 344)

The fact of the matter is that Walrasian microfoundations and Keynesian/MMT macrofoundations are axiomatically false. This is why economics is a failed science.

Steve Roth names two big discrepancies between theory and national accounting, i.e. ‘The Paradox of Monetary Profits’ and ‘Saving and Investment’. These discrepancies can only be resolved with a Paradigm Shift, that is, with a move from false Walrasian microfoundations and false Keynesian macrofoundations to entirely new macrofoundations.#1

Egmont Kakarot-Handtke

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
Kakarot-Handtke, E. (2015). How the Intelligent Non-Economist Can Refute Every Economist Hands Down. SSRN Working Paper Series, 2705395: 1–6. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
Schmiechen, M. (2009). Newton’s Principia and Related ‘Principles’ Revisited, volume 1. Norderstedt: Books on Demand, 2nd edition. URL

#1 For details of the big picture see cross-references Profit, I=S, Accounting

Related 'Marx and Marxists ― too stupid for the elementary algebra of profit'

For more about Steve Roth see AXECquery.