Blog-Reference and Blog-Reference
The characteristic capability of science ― to turn whatever it might touch into knowledge ― obviously has eluded economics.#1 Currently, economists do not understand how the monetary economy works. Walrasianism, Keynesianism, Marxianism, Austrianism, MMT are mutually contradictory, axiomatically false, materially/formally inconsistent, and all approaches got profit ― the foundational concept of the subject matter ― wrong. Every topic economists take up turns sooner or later into brain-dead blather and invariably ends in the political swamp where “nothing is clear and everything is possible.” (Keynes)#2
Ikonoclast maintains: “The only real science is hard science; namely physics, chemistry and biology. The rest is not science. This is not to insist on mere scientism nor is it to insist that other subjects are worthless.” and “If you are calling for scientific and mathematical precision in economics then you must stick to the scientific units laid out in International System of Units (SI). These are base units; s second time, m metre length, kg kilogram mass, A ampere electric current, K kelvin temperature, mol mole amount of substance cd candela, and derived units … Does anyone see dollars, ‘utils’ or ‘snalts’ in that list?” and “Only real resource considerations are meaningful. Money considerations are completely meaningless. This is if we are being entirely logical and scientific.”
Where is the blunder in this argument? The economy constitutes itself through the interaction of real and nominal variables, therefore ‘money considerations’ are an integral part of economics. After all, monetary profit/loss is a precisely measurable ‘monetary’ variable that does not appear in physics or elsewhere but can be as real as a sack of gold or an entry on the Central Bank’s accounts.
The economic universe contains the physical magnitudes#3 PLUS the foundational economic magnitudes.
The blunder of scientifically incompetent economists is this: microfoundations are given with these verbalized Walrasian axioms: “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)
Obviously, the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization HC2, (ii) rational expectations HC4, (iii) equilibrium HC5. Every theory/model that contains a NONENTITY is a priory false and scientifically worthless.
Keynesian macrofoundations are also provably false.#4 So, what are the true macroeconomic foundations?
This is the correct core of macroeconomic premises, a.k.a. axioms: (A0) 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. (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. A graphical representation of the elementary production-consumption economy is given on Wikimedia.#6
These premises satisfy all methodological requirements. The set contains NO NONENTITIES like utils but only the measurable real (L, R, O, X) and nominal (W, Yw, C, P) variables. The real variables are measured in physical units, the nominal variables are measured in monetary units, e.g. euro, ruble, yuan, yen, dollar, etc.
Ikonoclast’s assertion: “Money considerations are completely meaningless. This is if we are being entirely logical and scientific.” is absolute methodological BS. It only proves again that neither orthodox nor heterodox economists ever understood what science is all about.
#1 Lacking the Midas touch of science
#2 Economics: The greatest scientific fraud in modern times
#3 “Political Economy, therefore, presupposes all the physical sciences; it takes for granted all such of the truths of those sciences as are concerned in the production of the objects demanded by the wants of mankind; or at least it takes for granted that the physical part of the process takes place somehow.” (J. S. Mill, 1874)
#4 Economic methodology for the little man
#5 True macrofoundations: the reset of economics
#6 Wikimedia AXEC31 Elementary production-consumption economy with market-clearing and budget-balancing