Blog-Reference and Blog-Reference and Blog-Reference

You say: “Is capitalism a positive-sum or zero-sum game? The answer is both: Smith and Marx both had a point.”

False answer. The correct answer is NEITHER because the profit theory is provably false since Adam Smith/Karl Marx.#1 And this 200+ years old blunder makes that economics will not even appear in a footnote of the history of sciences, or at best as a cautionary example.

In order to see this one has to go back to the most elementary economic configuration, that is, the pure production-consumption economy which consists only of the household and the business sector.

The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Qm≡C−Yw, Sm≡Yw−C) and from this follows IMMEDIATELY that Qm≡−Sm.#2

This equation says that the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, monetary loss is the counterpart of monetary saving and monetary profit is the counterpart of monetary dissaving. This is the most elementary form of the macroeconomic Profit Law. The elementary production-consumption economy clearly is a zero-sum system, i.e. Qm+Sm=0, but NOT a zero-profit game.

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, innovation, capital, power, monopoly, monopsony, waiting, risk, greed, the smartness/stupidity of capitalists, or any other subjective factors. Total profit/loss is in the most elementary case OBJECTIVELY determined with the precision of two decimal places by the change of the household sector’s debt.

The balances of the business sector, the household sector, the government sector, and the foreign trade sector are interrelated as follows Qm≡−Sm+I+Yd+(G−T)+(X−M), and this is the Profit Law for an open economy (X−M) with a government sector (G−T) and with business investment I and distributed profit Yd.

Let Yd, I, X, M be zero for the moment, so Qm≡−Sm+(G−T). Then, the counterpart of an increased public deficit (G−T) is either increased saving of the household sector Sm or increased profit of the business sector Qm or some combination of the two. In the past decades the US households increased their debt, that is, they were dissaving, i.e. Sm was negative (−(−Sm) gives +). So, BOTH the private and public households ran deficits. From the equation above follows that this boosted monetary profit Qm TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

When the pivotal concept of profit is not properly understood, the rest of the analytical superstructure of economics falls apart and there is NO USE AT ALL to stumble and mumble about capitalism as a zero-sum game.#3

Egmont Kakarot-Handtke

#1 The Profit Theory is False Since Adam Smith and Proﬁt for Marxists

#2 For the complete verbal and graphics supported description of the elementary production-consumption economy see How the intelligent non-economist can refute every economist hands down

#3 For the far-reaching implications of systemic zero-sum see Mathematical Proof of the Breakdown of Capitalism.

Related 'Profit theory in less than 5 minutes' and 'Economists: scientists or political clowns?' and 'Profit and stupidity' and cross-references Profit

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COMMENT on Tom Hickey, peterc on Jul 10Note that capitalism breaks down ― NOT for social reasons but for mathematical reasons.#1

#1 Mathematical Proof of the Breakdown of Capitalism