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David Ricardo defined the task of economics back in 1821: “To determine the laws which regulate this distribution [between rent, profit, wages], is the principal problem in Political Economy.” (Principles, p. 5)
Yet, the scientifically incompetent Ricardo himself messed distribution theory up and so it remained to this day.#1, #2
The economist Lars Syll sums up: “As has become abundantly clear to students of economics these days, mainstream textbook economics has pretty little in common with the real world in which we actually live. Especially when it comes to the mainstream theories of income distribution, the gap between theory and reality is ocean wide.” and “History has over and over again disconfirmed the close connection between productivity and remuneration postulated in mainstream income distribution theory. Neoclassical marginal productivity theory is obviously a collapsed theory from both a historical and a theoretical point of view, as shown already by Sraffa in the 1920s, and in the Cambridge capital controversy in the 1960s and 1970s.”
The philosopher Tom Hickey sums up: “This necessitates an investigation of power and its operation in a society as a social system (complex adaptive system). This was initiated by the classical economists in their investigation of economic rent, continued by Karl Marx, taken up by Veblen and the institutionalists, and subsequently shunted over to sociology … and political science since the advent of marginalism explained economic rent away based on idealistic models of a market economy based on near perfect markets. Conventional economists know about market imperfection, rent, rent-seeking and rent extraction but they have avoided dealing with it as a socio-economic factor. Now rising social dysfunctionality is forcing a return to investigating distribution and the causes of increasing inequality of income and wealth.”
Both Lars Syll and Tom Hickey belong to the heterodox camp. The characteristic of heterodox economists is that they demonstrate for 200+ years now that mainstream economics is false but have not come up in the meantime with something better. The unsurprising result of inconclusive blather is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and that all got the foundational concept of the subject matter ― profit ― wrong. Because the profit theory is false, distribution theory is false to this day.
Both Lars Syll and Tom Hickey promote MMT. And at this point, things escalate from scientific incompetence to political corruption.
To make matters short here, the macroeconomic Profit Law is given as Q≡Yd+(I−S)+(G−T)+(X−M).#3 In the most elementary case of the elementary production-consumption economy, this reduces to Q≡−S.
The Profit Law implies: (1) the business sector’s revenues can only be greater than costs if, in the simplest of all possible cases, consumption expenditures are greater than wage income, (2) macroeconomic profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit-maximizing behavior, nor on markup setting, nor on risk-taking, (3) in order that profit comes into existence for the first time in the production-consumption economy, the household sector must run a deficit at least in one period, (4) this presupposes the existence of a credit-creating entity, (5) profit/loss is, in the most elementary case, determined by the increase and decrease of the household sector’s debt, (6) monopoly power/rent-seeking is irrelevant for macroeconomic profit and affects only the distribution of macroeconomic profit BETWEEN firms, (7) there is no relation at all between profit, capital, marginal or average productivity, (8) innovation and efficiency are irrelevant for the profit of the business sector as a whole, (9) profit is a factor-independent residual and qualitatively different from wage income, (10) it is an elementary mistake to maintain that total income is the sum of wages and profits, (11) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows, (12) distributed profit Yd is income and adds up with wage income Yw to total income, (13) total income is NEVER equal to total spending, (14) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/dissaving, (15) profit/loss of the business sector is the mirror image of dissaving/saving of the household sector, (16) saving and investment are causally INDEPENDENT and NEVER equal, (17) all I=S/IS-LM models are false since Keynes/Hicks, (18) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (19) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (20) because profit is false, the whole of MMT is false, (21) because the theory is false, MMT policy guidance has no sound scientific foundations.#4, #5
With regard to government spending, the macroeconomic Profit Law boils down to Public Deficit = Private Profit and therefore the Oligarchy’s financial wealth and public debt (currently $22 trillion) grow in lockstep. Roughly speaking, fabulous financial wealth is the mirror image of continuous deficit spending of the household and government sector and has nothing to do with value creation or exploitation.
MMT theory is provably false, MMT policy serves the Oligarchy. From Ricardo onward, economists in both their orthodox and heterodox incarnations are NOT scientists but useful political idiots.#6
#1 Ricardo, too, got profit theory wrong
#2 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#3 For details of the big picture see cross-references Profit/Distribution
#4 Refuting MMT’s Macroeconomics Textbook
#5 For the full-spectrum refutation of MMT see cross-references MMT
#6 Economists: “a bevy of camp-following whores”
Related 'Keynes, Lerner, MMT, Trump, etc. and exploding profit' and 'Profit and the collective failure of economists' and 'Profit'.