April 20, 2019

The CCC ― a monument of economists’ utter scientific incompetence

Comment on Robert Vienneau on ‘Some Experts On The Cambridge Capital Controversy’*

Blog-Reference and Blog-Reference

David Ricardo defined 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)

This problem has NOT been solved to this day. Economics is proto-scientific garbage since the founding fathers. Or, as Steve Keen summarized with regard to the Cambridge Capital Controversy: “Today economic theory continues to use exactly the same concepts which Sraffa’s critique showed to be completely invalid … There is no better sign of the intellectual bankruptcy of economics than this.”

Intellectual bankruptcy is all-embracing. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong.

Because profit theory has always been false, distribution theory has always been false. There is NO need to elaborate again and again on the defects of the diverse approaches. This is a senseless exercise. As Joan Robinson put it “Scrap the lot and start again.” In other words, what is needed is a Paradigm Shift. More specifically, economics has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#1, #2, #3, #4, #5

This is the correct core of macroeconomic premises: (A0) The 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. (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.

The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. it holds X=O. The monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S.

The balances add up to zero. The mirror image of household sector saving S is business sector loss −Q. The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.

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 C are greater than wage income Yw, (2) macroeconomic profit/loss Q does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit-maximizing behavior, nor on the quantity of capital employed,#6 (3) in order that profit comes into existence for the first time in the elementary 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/decrease of the household sector’s debt, (6) profit/loss Q is a factor-independent residual and qualitatively different from wage income Yw, (7) it is an elementary mistake to maintain that total income is the sum of wages and profits, (8) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows, (9) distributed profit Yd is income and adds up with wage income Yw to total income. #7, #8, #9, #10

Bottom line: Profit Theory and by consequence Distribution Theory is false from Adam Smith onward to the Cambridge Capital Controversy and beyond. Robert Vienneau has not realized anything and prolongs the worst performance in the history of modern science by recycling BS as expert knowledge.#11, #12

Egmont Kakarot-Handtke

* Thoughts on Economics
#1 Microfoundations are given with this axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) To accept these axioms has always been a sure indicator of idiocy.
#2 Where economics went wrong (II)
#3 Macroeconomics ― dead since Keynes
#4 From Keynes’ fatal blunder to the true economic model
#5 True macrofoundations: the reset of economics
#6 Squaring the Investment Cycle
#7 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#8 Ricardo, too, got profit theory wrong
#9 The futile attempt to recycle Sraffa
#10 Dear idiots, it is deficit spending that creates the distribution people complain about
#11 Economics: A science without scientists
#12 How the Intelligent Non-Economist Can Refute Every Economist Hands Down

Related 'Ricardian vice and Keynesian confusedness' and 'Ricardo and the invention of class war' and 'Profit for Marxists' and 'Socialism and scientific incompetence' and 'Profit: after 200+ years still elusive' and 'The solemn burial of marginalism' and 'Capitalism, poverty, exploitation, and cross-over exploitation'. For details of the big picture see cross-references Profit/Distribution.