Blog-Reference and Blog-Reference
Eighty years ago, Keynes got macro wrong and Keynesians did not notice it to this very day. Yet, anti-Keynesians did not notice it either. There is no better proof of the abysmal scientific incompetence of economists.
Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a Paradigm Shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
Primary Methodological Directive: Every economist who does not see the necessity of a Paradigm Shift is a moron. Fact is (i) that Walrasianism/Marshallianism has already been dead in the cradle, (ii) that Keynes was right on this point, and (iii), that it is impossible to go back before Keynes.
The Keynesian Revolution failed because Keynes messed up the move from microfoundations to macrofoundations.#2 Keynes’ own methodological blunder can be exactly located in the General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)
This elementary syllogism is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
Because profit and income are ill-defined the whole theoretical superstructure of Keynesianism is false (i.e. employment, money, interest, distribution, etcetera). It was Allais who identified and rectified Keynes’ lethal foundational blunder.#2. Kaldor realized that something was wrong but did not make anything of it.#3 Thus, Kaldor missed the pivotal 'stylized' fact of economics: overall monetary profit.#4
Both, the pro-Keynesians and the anti-Keynesians have to this very day NO idea of the fundamental concepts of economics, viz. profit, and income. The fact is that Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, and Pluralism are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. There is NOTHING to choose from.
#1 Keynes’ message for contemporaries
#2 How Keynes got macro wrong and Allais got it right
#3 Kaldor, N. (1983). Grenzen der General Theory. Berlin: Springer, p. 29, fn. 2
#4 Why Post Keynesianism Is Not Yet a Science
Related 'Mass unemployment: The joint failure of orthodox and heterodox economics' and 'Keynesians ― terminally stupid or worse?' and 'From false microfoundations to true macrofoundations'. For details of the big picture see cross-references Keynesianism.