October 5, 2017

Saving NEVER equals investment

Comment on Anonymous on ‘Why is MMT so popular?’


Yous say “the real story is savings equals investment plus net production.”

THIS is the real story: Keynes got the paradigm shift from microfoundations to macrofoundations wrong. His methodological blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This two-liner 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.)#1, #2

The axiomatically correct macro relationships are:
Qm≡−Sm                                 in the case of the elementary production-consumption economy,
Qm≡I−Sm                                in the case of the investment economy,
Qm≡(I−Sm)+Yd+(G−T)+(X−M)    in the general case.
Legend: Qm monetary profit, Sm monetary saving, I investment expenditures, Yd distributed profit, G government expenditures, T taxes, X export, M import.

All I=S and IS-LM models are provably false.#3

Egmont Kakarot-Handtke

#1 How Keynes got macro wrong and Allais got it right
#2 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#3 For the details of the big picture see cross-references Refutation of I=S

Immediately preceding Why is MMT so false?.