February 15, 2019

Who is really a scientist?

Comment on Barkley Rosser on ‘Who Is Really A Socialist?’

Blog-Reference

Forget the whole Capitalism/Socialism thing. Neither left-wing nor right-wing economists know how the economy works.

Because economists have to this day NO scientifically valid Profit-, Money-, Distribution- or Employment Theory, economic policy guidance from left-wing to right-wing has NEVER been more than brain-dead agenda pushing.

Economics is a failed science. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.

As a result, since Adam Smith/Karl Marx economic policy guidance NEVER has had sound scientific foundations.#1 This, of course, holds also for Marxism and its derivatives.
  • Marx’s profit theory is provably false.#2
  • By consequence, the concepts of exploitation and classes are false.
  • Marx lacks the concept of cross-over exploitation.#3, #4
  • Because the foundational concepts are false, Marx’s whole analytical superstructure is false.
  • Because the theory is defective, Marxian economic policy guidance was bound to fail from the very beginning.
  • After-Marxians have not spotted Marx’s foundational blunder to this day.#5

Marxians are scientifically incompetent just like non-Marxians and all together are only employable as clowns and useful idiots in the political Circus Maximus.

Forget the whole Capitalism/Socialism thing. Economists’ contributions to the development of the Good Society were just as helpful as those of Flat-Earthers.#6 All real progress in the last 200+ years has come from genuine scientists, not from political soapbox blatherers.

Egmont Kakarot-Handtke


#1 Karl Marx, fake scientist
#2 Profit for Marxists
#3 Capitalism, poverty, exploitation, and cross-over exploitation
#4 If we only had classes
#5 Economists simply don’t get it
#6 Econogenics in action

For the concept of cross-over exploitation see AXECquery.

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REPLY to Barkley Rosser on Feb 19

The so-called Russian Revolution was neither Russian nor a Revolution. It was a quite ordinary coup d’état engineered by foreign powers. It is well known that Lenin was sent with some starting capital in a sealed train from Zurich to Sweden/Russia courtesy of the Generalstab. The plan worked fine until the Peace of Brest-Litovsk.#1

All this had NOTHING AT ALL to do with Marx’s economic theory. This theory is proto-scientific garbage. However, it provides a justification for taking over the “commanding heights” of the state. Clearly, Marxism was used by Lenin as a pretext much like religion was used in the old days as a pretext for conquest.

Since Smith/Marx, the whole Capitalism/Socialism debate has NOTHING to do with science, that is, with the materially/formally consistent theory about how the economy works, but with brain-dead agenda pushing.

So, your question Who is really a Socialist? has as much economic/scientific content as Who murdered Mr. Khashoggi?


#1 "The Treaty of Brest-Litovsk was a peace treaty signed on March 3, 1918, between the new Bolshevik government of Russia and the Central Powers (German Empire, Austria-Hungary, Bulgaria, and the Ottoman Empire), that ended Russia’s participation in World War I.” (Wikipedia)

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REPLY to Barkley Rosser on Feb 20

You say: “… most economists think it is a big deal whether or not an economy is run as a command socialist system or a market capitalist system. They tend to behave very differently in well known ways.”

Capitalism and Socialism are (i) political belief systems (ii) economic theories. As political belief systems, they are on the same level as religious belief systems, that is, they are literary fabrications and storytelling or, as Marx called it, ideologies. The subject matter of ideologies are NONENTITIES (God, paradise, classes, supply-demand-equilibrium, world spirit, etcetera) but despite the fact that ideologies have no reality content, they are a big deal for most people.

Ideologies are the subject matter of Psychology, Sociology, Political Science, History etcetera. The well-known problem with History is that it is for the greater part literary fiction.

Economics, on the other hand, is a systems science and deals with how the actual economy works. Science materializes itself as true theory, with truth well-defined as material and formal consistency. Theory is different from storytelling. Theory has ninety-nine percent reality content, storytelling one percent.

Capitalism and Socialism are allegedly underpinned by true theory. This, though, is a bad joke. General Equilibrium Theory and Marxianism is proto-scientific garbage. So Capitalism and Socialism are ultimately vacuous belief systems.

The fact of the matter is that the monetary economy can be described by economic laws, the Profit Law for example. It is given as Q≡Yd+(X−M)+(G−T)+(I−S) and it holds for the USA, for Russia, and China and it is absolutely independent of the ownership of the firms or from the self-identification as capitalistic or socialistic, or from the agenda pushers that occupy the political commanding heights.

For the past 200+ years, economists were so much occupied with political propaganda and agenda-pushing that they had no time for genuine scientific work. This is why Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economics is a failed science, economists are not scientists but storytellers and useful political idiots.

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REPLY to Barkley Rosser on Feb 21, Cross-posting

Dear idiots, Marx got profit and exploitation wrong
Comment on Peter May on ‘A communist manifesto for money?’

Peter May recaps: “Marx is saying that money ― a monetary production economy ― is the basis for capitalism since capitalists use money to produce goods for sale for more money ― investment is for return, that is, profit. The profit comes from the wage being less than the market price of commodities produced by wage labor. The end-in-view is not to provide a rationale for abolishing money but rather for terminating the extraction of economic rent in the form of ‘surplus value,’ profit accruing from unpaid labor time.”

Marx’s definition of profit is ultimately based on the Labour Theory of Value which does not relate to the economy as a whole.#1 But Marx applied also macroeconomic reasoning: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”

This, indeed, is the crux of Profit Theory. To come to the point, Marx got the answer wrong.#2 Here is the short proof.#3

(i) The objectively given and most elementary systemic configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.

(ii) The elementary production-consumption economy is defined by three macroeconomic axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

(iii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. X=O.

(iv) The monetary profit of the business sector is defined as Q≡C−Yw,

(v) The monetary saving of the household sector is defined as S≡Yw−C.

(vi) Ergo Q≡−S.

The balances add up to zero. The counterpart of household sector saving S is business sector loss −Q. The counterpart of household sector dissaving −S is business sector profit Q.

For a start, the household sector’s budget is balanced, i.e. C=Yw. From this follows that macroeconomic profit is zero. The market-clearing price is given by P=W/R and from this follows W/P=R, i.e. the real wage is equal to the productivity. The workers get the whole product.

Now, the owner of the single macroeconomics firm can do what he wants, i.e. lengthen the labor time or cut wages, nothing happens to profit and the real wage.#4 In Marx’s impeccable logic: “From nothing comes nothing. The capitalist class cannot draw more out of circulation than they throw into it.” They throw Yw in and get C out and because of C=Yw macroeconomic profit is zero.

The business sector can only get more out of the circulation if the household sector throws more in, that is, if the household sector deficit-spends/dissaves. This is what the most elementary version of the Profit Law says, i.e. Q≡−S. The logical minimum condition of deficit spending is a banking system that lends money to the households.

So, profit does NOT come from exploitation but, in the most elementary case, from the growth of the household sector’s debt. And this, in turn, means that Capitalism does not end with a revolution of the exploited workers but as soon as the growth of private and public debt ends.#5


#1 Basics of Value Theory
#2 Profit for Marxists
#3 Profit Theory in less than 5 minutes
#4 Capitalism, poverty, exploitation, and cross-over exploitation
#5 MMTers make capitalism work

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REPLY to Barkley Rosser, Calgacus on Feb 23 and Blog-Reference MNE

For monetary economies like the USA, USEu, Russia, China, the macroeconomic Profit Law reads Q≡Yd+(X−M)+(G−T)+(I−S) and it holds independently of whether these countries describe themselves as capitalistic/socialistic/mixed and independently of how the commanding heights of the economy are staffed.

The fact of the matter is that in most countries the deficit-spending of the government has become the major source of macroeconomic profit. This means that so-called free market economies like the USA are on full life-support of the state.

The all-decisive political decision in all monetary economies is between breakdown now or growing public/private debt with breakdown later and NOT between private or public ownership.

The composition of the government’s budget is of secondary importance. The economic minimum condition for the continuation of the political status quo is that the deficit is sufficient to produce an overall profit Q given the other sectoral balances. This is the implicit rationale of full employment policy since Keynes.#1, #2 Implicit because it is obvious that politicians/economists do not really understand how the monetary economy works. In the old days, deficit spending has been justified by the urgency of defense against hostile neighbors/Communism/Terrorism now it is justified by the urgency of the avoidance of human extinction.

For the survival of the so-called free-market economy, the allocation of the government’s budget between military or environmental/social spending is a matter of indifference. Politically, though, a Green New Deal sells better than a Space Force or tax reductions for the rich. Thus, the allocation problem boils down to a marketing pitch between the “good” environmental/social guys and the “bad” military/Oligarchy guys.

Independently of the allocation of the government’s budget, it is WeThePeople who is going to pay for it in real terms through either open or stealth taxation. Stealth taxation via the price mechanism is the Invisible-Hand outcome of deficit-spending/money-creation.

No matter under what cloak deficit-spending/money-creation appears it is NEVER for the benefit of WeThePeople as a whole but ― because of the Profit Law Public Deficit = Private Profit ― a free lunch for the Oligarchy. The macroeconomic Laws apply to all monetary economies no matter what stupid/corrupt economists blather about Capitalism/Socialism.


#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 MMTers make Capitalism work

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REPLY to Barkley Rosser on Feb 24

You say: “… during the final years of the Bill Cllinton presidency at the end of the last century, the US government was rnning budget surpluses. But, guess what? Businesses were also enjoying high profits …”

You cannot even read a simple equation. The macroeconomic Profit Law is given by Q=Yd+(X−M)+(G−T)+(I−S) and it boils down to Public Deficit (G>T) = Private Profit Q if the other factors are taken out of the picture for a moment.#1

From the full-length equation follows that a government budget surplus is perfectly compatible with a high macroeconomic profit depending on the other components of the equation.

A refutation requires the test of the full-length equation. This is obvious to any remotely intelligent economics freshman.

How can you talk about capitalism and socialism without any idea about what profit is and how the monetary economy works?


#1 Wikimedia, Profit Law

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REPLY to Barkley Rosser on Feb 25

Your simpleminded distinction between Capitalism and Socialism is long outdated. Since the 1960s, the sub-sectors of the economy where the commanding heights are traditionally staffed with criminal/corrupt/unethical actors (weapons, drugs, money laundering, tax evasion, human trafficking, land theft, waste dumping, etcetera) have grown above-average. So, an updated classification of socio-economic systems should at least include Capitalism, Gangsterism, Socialism.

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REPLY Barkley Rosser on Feb 26

My idiosyncratic macroeconomic profit Law Q≡Yd+(X−M)+(G−T)+(I−S) holds for Capitalism, Gangsterism, Socialism just like Newton’s idiosyncratic Law of Gravity. Only the DISTRIBUTION of overall profit Q between the firms that compose the business sector is different in different national economies.

To the extent that firms of the legal economy are ultimately controlled by the mob, which is NOT visible to the naked eye, the superficial distinction between Capitalism and Socialism becomes progressively meaningless.

Lenin’s take-over of power is better characterized as the implementation of mob rule than of socialism. I leave it to your historical erudition to figure out whether something similar has happened to countries that identify themselves as capitalistic or socialistic.

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NOTE on Barkley Rosser’s ‘Is Russia Becoming A Neo-Socialist NEP Economy?’ on Mar 16

The distinction between Capitalism/Socialism is obsolete. The updated distinction is Capitalism/Gangsterism/Socialism.

What does the Neo-Capitalist economy look like? The answer is not in the supply-demand-equilibrium textbooks but on the Internet: “When we look at western countries, especially the USA, we see what some call ‘crony capitalism’ with absolutely fantastic levels of corruptions, huge mega-corporations in control of entire segments of the economy, exports imposed by sanctions and threat of sanctions rather than competitive advantages, feudal labor laws, a ruthless imperialist/colonial policy of systematically robbing those who dare to live above resources the Empire needs or wants.”#1

Accordingly, the commanding heights of the economy are no longer occupied by capitalists/entrepreneurs but by actors/entertainers like Elon Musk.

Whether there is long-range central planning in Neo-Capitalism is unclear. However, the fact that the crucial qualification of presidents like Reagan or Trump or business leaders like Musk is media-suitability lets one guess that at least the casting is centralized in Hollywood.

Unfortunately, Barkley Rosser is stuck with the NEP in interwar Russia and somehow missed that there has been a NEP in the United States in the 1960s. As a result, the economy no longer resembles the classical description of free-market Capitalism.

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REPLY to Barkley Rosser on Mar 17

The economist as a scientist cannot say anything about the political system but he can say something about the economic system. The most important insight is that all monetary economies are governed by the same economic laws. For example, the macroeconomic Profit Law, i.e. Q≡Yd+(I−S)+(G−T)+(X−M), holds independently of whether an economy is capitalist or socialist. More specifically, this Law holds for the USA, Russia, China, the EU, etcetera.

The Law boils down to Q=(G−T), i.e. the profit of the business sector is equal to the deficit of the public sector.

For the USA, this means (i) the profitability of the so-called free market economy is maintained by the state’s permanent deficit spending, (ii) financial wealth grows in lockstep with public debt, (iii) the positive performance of the stock-market is maintained by the operations of the Central Bank.

In sum, the wealth-creation of the so-called free market economy depends on the joint operations of the Treasury/Central Bank. The state produces macroeconomic profit and this money is, in turn, partly used to control the state. The power-infighting between the different factions (military, CIA, FBI, organized crime, media, agriculture/industry/ banking, states, churches/religious groups/sects, political parties, domestic/foreign lobbies, wealthy individuals, etcetera) is NOT the subject matter of economics.

It is characteristic of economists from Paul Krugman to Barkley Rosser that they blather a lot about the ongoing political infighting but have no idea how the monetary economy works. With these unqualified personages, it is no wonder that economics is to this day a failed science.

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REPLY to Barkley Rosser on Mar 18

You say: “The US government ran a budget surplus during the last several years of the Clinton presidency, but, guess what? Corporate profits were at a record high.”

Have you never heard of vector addition?

The macroeconomic Profit Law, i.e. Q≡Yd+(I−S)+(G−T)+(X−M), consists of 4 vectors. The government vector reads Qg=(G−T), i.e. the deficit of the public sector adds to the profit of the business sector and the surplus of the public sector adds to the loss of the business sector, in short, Public Deficit = Private Profit. The negative gov vector, though, can be overcompensated by the other vectors, such that the vector sum is positive.

Your Clinton era example is proof that you cannot even read a simple equation.

You talk about Capitalism/Socialism and do not understand the Profit Law. What about doing some scientific homework first?

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REPLY to Barkley Rosser on Mar 19

You say: “Your comment shows that you do not know what a fact is, much less broader empirical data.”

The macroeconomic Profit Law consists of measurable variables and is testable in the USA, Russia, China, the EU, etcetera with the precision of two decimal places. That makes it scientifically superior to your political blather about interwar Russia.

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REPLY to Barkley Rosser on Mar 20

You say: “Yes, the variables are measurable, and they are measured all the time, and your claims about what those measurements should show are blatantly false. Corporate profits were very high in the US in the late 1990s at the same time that the budget was running a surplus. Since you claim that that corporate profits equal budget deficit, you are wrong. Period.”

I said: “… the macroeconomic Profit Law, i.e. Q≡Yd+(I−S)+(G−T)+(X−M), holds independently of whether an economy is capitalist or socialist. ... The Law boils down to Q=(G−T), i.e. the profit of the business sector is equal to the deficit of the public sector. For the USA, this means (i) the profitability of the so-called free-market economy is maintained by the state’s permanent deficit spending, …”

For the record: you are wrong, I am right.

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Source Twitter Bloomberg Businessweek Mar 22

Source: Twitter