March 2, 2018

Economies are culturally different but economic laws are universal

Comment on Tom Hickey on ‘Ellen Brown ― Funding Infrastructure: Why China Is Running Circles Around America’


The economic laws for the monetary economy are the SAME under capitalism and communism or anything in between, just as the laws of aerodynamics are the same for a bird or a plane and whether one flies to the South Sea or to Antarctica.

Of course, the cultural superstructure of different economies is different. So, universal economic laws and national culture together produce concrete historical outcomes for different economies. Analytically, though, both things have to be kept apart. Economics deals with objective-systemic laws of the monetary economy and not with the sociology or history of an individual country. This is analogous to physics where the Law of Gravity is the same for different countries and for different cultures and for people with different worldviews.

The crucial point for the economist to understand is that economics deals neither primarily nor secondarily with individual human behavior or society at large. This is the realm of psychology, sociology, anthropology, history, political science, social philosophy, biology/evolution etcetera. It is high time that economists take their sticky fingers out of these pies.#1

The Employment Law and the Profit Law are the same for China, the USA, or Germany.#2 The macroeconomic profit in an economy is the same whether firms are run by owner-appointed managers or state-appointed managers and it is given by Qm≡Yd+(I−Sm)+(G−T)+(X−M).#3

Obviously, the philosophy of society/state/politics is different in different national economies. In China the underlying state ethics is Confucian, in Germany it is Prussian, and in the USA it is Utilitarian. The former two have a strong social component that manifests itself in economic institutions like banking or old age assurance.

Different overall profitabilities in different countries are NOT due to cultural differences, or the ownership order, or the proficiency of workers, or the greediness of managers but uniquely and exclusively to the macroeconomic Profit Law. Put bluntly, if ‘capitalist’ American firms appear on average to be more profitable than ‘communist’ Russian firms this is because public and private deficit spending in the USA is a bit over the top. The mirror image of corporate/private financial wealth is the public debt of the US government. In other words, overall profit Qm in the USA is for the greater part state-determined.

Therefore, in a systemic comparison, it is NOT the case that the US economic order is superior to the Chinese economic order or vice versa. The fact is that ALL monetary economies are identical with regard to the underlying systemic economic laws. The differences are in the social philosophies. But philosophy is NOT an issue for economists. All the more so, because economists have not yet understood the foundational concept of their subject matter, i.e. profit. How can they understand anything else?

Egmont Kakarot-Handtke

#1 Economics: Poor philosophy, poor psychology, poor science
#2 Full employment: thinking like the macro-boss
#3 For details of the big picture see cross-references Profit