Blog-Reference and Blog-Reference (Link)
Chris Dillow quotes Martin Wolf: “What we increasingly seem to have … is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality and, not coincidentally, an increasingly degraded democracy.”
Chris Dillow then sets out to explain the trouble with Capitalism: “The Bank of England has given us a big clue here. It points out that the rising profit share (a strong sign of increased monopoly) is largely confined to the US. In the UK, the share of profits in GDP has flatlined in recent years. Few, however, would argue that UK capitalism is less dysfunctional than its US counterpart. This suggests that the problem with capitalism is not increased monopoly. So what is it? Here, I commend some brilliant work by Michael Roberts. Many of the faults Martin discusses have their origin in a declining rate of profit ― a decline which became acute in the 1970s but which was never wholly reversed.”
The whole intellectual/moral misery of economists is contained in this paragraph. Chris Dillow’s explanation starts with the “share of profits in GDP” and ends with the “rate of profit”. Not only are these entirely different things but macroeconomic profit is not defined, to begin with. The simple reason is that neither Chris Dillow nor Martin Wolf nor Michael Roberts knows what profit is.#1 This sad fate they share with Walrasians, Keynesians, Marxians, Austrians, and MMTers. The dirty secret of economics is that since Adam Smith/Karl Marx economists do not know what profit is.#2, #3 And this means that economics is proto-scientific garbage but economists have not realized it to this day.
To make matters short, the axiomatically correct macroeconomic Profit Law is given by Q≡Qm+Qn with Qm≡Yd+(I−Sm)+(G−T)+(X−M) Legend: Qm monetary profit/loss of the business sector, Yd distributed profit, I investment expenditure, Sm monetary saving/dissaving of the household sector, G government expenditures, T taxes, X exports, M imports. Total profit Q is the sum of monetary and nonmonetary profit/loss. Roughly speaking, monetary profit Qm is determined by the excess of business sector investment over household sector saving, the government’s deficit and the excess of exports over imports. All variables are measurable with the precision of two decimal places. The Profit Law is testable and this settles all questions and ends all blather.
In the elementary case of the production-consumption economy, the Profit Law reduces to Q≡−S, i.e. 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. The point to grasp is that profit for the business sector as a whole depends on the deficit-spending of the household sector and NOT on the behavior or achievements of Capitalists. Because capital is zero in the elementary production-consumption economy, the concept of a profit rate is senseless.#4
With regard to the State, the Profit Law boils down to Q≡(G−T), i.e. Public Deficit = Private Profit. Public deficit-spending/money-creation is a free lunch program for the Oligarchy. The fact is that the so-called free market economy is on the life support of the State and Wall Street is on the life support of the Central Bank. Macroeconomic profit is in the main produced by public deficits. Financial wealth grows in lockstep with public debt. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the State’s legislative, executive, and judiciary institutions.
Despite the fact that Chris Dillow neither understands what profit is nor how the economy works he ends up with an almost correct summary: “Sadly, though, one effect of capitalism’s crisis has been, as Martin says, to so degrade democracy as to take intelligent economic policy off the agenda.” The fact is, though, that there NEVER has been such a thing as an “intelligent economic policy” because the Profit Theory is false for 200+ years. And this is alone the fault of scientifically incompetent economists.
* Stumbling and Mumbling and Financial Times, Martin Wolf
#1 Profit analysis ― another exercise in economic deception
#2 The dirty secret of Capitalism: Economists have NO idea how Capitalism works
#3 For details of the big picture see cross-references Profit
#4 There is NO such thing as a “labor share of income”
Related 'Links on “Capitalism. Time for a reset.”' and 'Econogenics in action' and 'Economists’ silly kindergarten games' and 'Macroeconomics: Economists are too stupid for science' and 'Econ 101: Economists flunk the intelligence test at the first hurdle' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and 'There is NO such thing as “smart, honest, honorable economists”' and 'The irrelevance of economics'.