“An encyclopedia … is a reference work or compendium providing summaries of knowledge either from all branches or from a particular field or discipline. … The appearance of digital and open-source versions in the 21st century has vastly expanded the accessibility, authorship, readership, and variety of encyclopedia entries.” (Wikipedia). The basic idea of an encyclopedia is the unwavering commitment to episteme (= knowledge) in Plato's original meaning as the very opposite of doxa (= opinion). An encyclopedia is a summary of contemporary knowledge.
The guiding principle for establishing knowledge is the distinction true/false: “There are always many different opinions and conventions concerning any one problem or subject-matter … This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other ...” (Popper)
Scientific truth is well-defined: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant) Knowledge comes in two forms “Whatever knowledge we possess is either knowledge of particular facts or scientific knowledge.” (Russel)
Scientific knowledge takes the form of a theory. Science is binary, i.e. true/false with nothing in between. The ultimate goal of science is the true theory. Although theories are mostly rather abstract, the true theory always has consequences at the street level. As Kant put it: "There is nothing so practical as a good theory." and more detailed in ‘On the Old Saw: That May Be Right in Theory But It Won’t Work in Practice.’
So, more specifically, an encyclopedia … is a reference work or compendium providing summaries of the actual best knowledge, that is, summaries of the most advanced, i.e. best corroborated, theories with regard to formal/material consistency, of the different fields or disciplines. Refuted theories cannot be content of an up-to-date encyclopedia but have to be relocated to the Repository of Opinion, Error, Belief, Fake, and Obsolete Knowledge.
Because in any given population there is a scarcity of scientific competence and an abundance of stupidity, encyclopedias are under the constant threat of losing whatever episteme they have achieved thus far and of being drowned in inconclusive opinions or of being abused as a vehicle for propaganda. Therefore, the quality of an encyclopedia depends on the ability of the publishers/editors to apply the scientific criteria of true/false. In the 'Age of Preposterism' (Haack) this has become the main challenge.
The crucial competence for an encyclopedia is whether it succeeds in bringing episteme in and keeping doxa out.
Wikipedia failed on this score. This is proved in the following for the subject matter of economics, more specifically for the pivotal theory of profit, even more specifically for the entry Profit (economics). The inconsistency of economics has been known for a considerable time, the formal proof is repeated here in the tersest manner so that everyone can immediately do the fact check.
Exemplary proof of the inconsistency of economics
It is common knowledge that economics has been highly politicized since the founding fathers. As a result, economics has been unable to advance from proto-science to science.
It is common knowledge that economics habitually violates scientific standards: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern) Or, as Hands put it: “... suppose they did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.”
Economists have found numerous excuses for this state of affairs: “Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that.” (Solow)
According to this self-assessment, academic scholarship and peer-reviewed publications do not satisfy the scientific criteria of reliable sources as far as economics is concerned.
Well-known methodological problems
The failure of economics started with Jevons/Walras/Menger but Arrow gave the deciding push with this methodological dictate: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.”
Mainstream profit theory is microfounded. This is a lethal methodological blunder. Because profit – the foundational concept of economics – is ill-defined the whole analytical superstructure is scientifically worthless. By consequence, economic policy guidance has never had sound foundations. This applies to left/center/right economic policy. More generally, this applies to political economy from the founding fathers to this day: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum) To overcome the scientifically untenable pluralism of provably false approaches a paradigm shift is imperative. The shift consists of moving from microfoundations to macrofoundations.
The rule to follow has been known for 2300+ years “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle, Posterior Analytics)
This is the methodologically correct starter set of economic premises
(A0) The objectively given and most elementary systemic configuration of the economy consists of the household sector and the business sector which in turn consists initially of one giant fully integrated firm. It holds in simplified notation
(A1) wage income is equal to wage rate times working hours ,
(A2) output is equal to productivity times working hours ,
(A3) consumption expenditures are equal to price times quantity bought/sold .
These macroeconomic axioms are certain, true, and primary, and therefore satisfy all methodological requirements. The starter set is minimalist, that is, Occam’s razor has been applied and the axiom set cannot be reduced further, only expanded. The set is objective-structural and composed of measurable variables which is of obvious importance for the eventual state-of-the-art testing of the conclusions that are consistently derived from the premises. In every scientific domain, the axiom set constitutes the universe of discourse.
For a start, the following conditions are added to the premises
(C1) market clearing, i.e. the quantity bought/sold is equal to the quantity produced .
(C2) budget balancing, i.e. consumption expenditures of the household sector are equal to wage income .
The graphical representation of the elementary production-consumption economy is given with the 4-quadrant chart of Figure 1.
Profit/loss and dissaving/saving
Now, the definitions of monetary saving and monetary profit are added. The sectoral balance of the household sector, i.e. monetary saving/dissaving, is defined as
The right-hand side of the symbol/operator , i.e. the definiens, contains variables that have been introduced with the axioms. On the left-hand side stands the derived variable, i.e. the definiendum, which is consistently connected to the original variables of the axiom set.
The sectoral balance of the business sector, i.e. monetary profit/loss, is defined as
is called profit, is called loss. Budget balancing implies a macroeconomic profit of zero. Nonmonetary profit is not dealt with here.
The sectoral balances are complementary
At the heart of the monetary economy is an identity: the business sector's nominal surplus, i.e. profit, equals the household sector's nominal deficit, i.e. dissaving. And vice versa, the business sector's deficit, i.e. loss, equals the household sector's surplus, i.e. saving. This is the most elementary form of the macroeconomic profit law. The elementary accounting relationships are shown in Figure 2.
Another way of stating the complementarity of the sectoral balances is to add the balances up
The sectoral balances add up to zero. The symbol/operator means 'true by definition'. This is an implicit formal feature of microeconomic and macroeconomic accounting.
So, where does profit ultimately come from? Macroeconomic profit is not made from a longer labor time , not from higher productivity , not from innovation/creative destruction, not from a lower wage rate , not from more greed, not from exploitation, not from monopoly power, not from risk-taking, not from rent-seeking, not from wishful thinking or any other subjective factor, but in the most elementary case of the production-consumption economy from the dissaving/deficit spending of the household sector. Starting with a balanced-budget economy, macroeconomic profit presupposes credit/money creation by the banking sector (central bank and commercial banks).
Accordingly, microeconomic profit is the result of the continuous redistribution of macroeconomic profit between the firms that constitute the business sector. If macroeconomic profit is zero, i.e. if the household sector's budget is balanced, then the sum of microeconomic profits is equal to the sum of microeconomic losses. This, clearly, is an analytical limiting case. What can be observed is that macroeconomic profit has since the Industrial Revolution been most of the time greater than zero.
The macroeconomic profit law reads with increasing complexity
(i) in the elementary production-consumption economy,
(ii) in the production-consumption economy with distributed profit ,
(iii) in the elementary investment economy with investment expenditures I,
(iv) in the investment economy with profit distribution,
(v) in the investment economy with government deficit or surplus , Legend: government spending, taxes,
(vi) in the open economy with distributed profit, Legend: export, import.
Keynes defined the formal core of his General Theory on p. 63 as follows “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.”
Neither pro- nor anti-Keynesians spotted the elementary mathematical defect in Keynes' macrofoundations to this day. This amounts to scientific self-disqualification. Because of formal inconsistency, Keynesianism has to be excluded from the sciences.
Complexity level (iii) of the macro-axiomatic profit law, i.e. , says that in the elementary investment economy business sector investment is never equal to household sector saving and that their difference is macroeconomic profit/loss .
Keynes wrecked the paradigm shift from microfoundations to macrofoundations. The Keynesian Revolution has been a scientific failure from the very beginning. This carried over to derivative approaches like Post-Keynesian economics or New Keynesian economics.
From Equation (v) follows the profit law for the basic three-sector economy (household, business, state) without investment as
which says that the business sector's profit/loss is given by the state sector's budget deficit/surplus and the household sector's dissaving/saving. For this boils down to , i.e. public deficit equals private profit. The profit of the monetary economy is in this analytical limiting case produced entirely by the state. This case is at odds with the popular ideas of a free market economy and Laissez-faire but it is practically the new normal.
The business sector's profit is zero if the state sector's deficit is equal to the household sector's saving. If the budget deficit is greater than saving, then macroeconomic profit is greater than zero, otherwise, the business sector makes a loss. This is not a reproducible situation. The monetary economy breaks down – at the latest – when macroeconomic profit turns negative. This does not happen as long as the household sector and the state sector combined run a net deficit.
The profit law holds for the monetary economy as given by the macroeconomic axiom set, that is, for Capitalism and Communism and everything in-between. Macroeconomic profit does not depend on the ownership of the means of production.
The government's policy of deficit spending/money creation clearly benefits the business sector because it increases macroeconomic profit according to the profit law which entails Public deficit Private profit. Thus, private financial wealth and public debt grow in lockstep.
MMTers obfuscate the relationship between public deficit spending and macroeconomic profit by rearranging and redefining Equation (5) as follows
i.e. by asserting that “private saving” is equal to the public deficit . Thus, the logical directionality between the sectoral balances that is formally embodied in the one-way operator is by sleight of hand changed to the two-way operator , and macroeconomic profit vanishes entirely from view through the redundant definition of “private saving”. As a consequence of this mathematically/semantically incorrect operation, it is no longer apparent that the state sector's deficit spending is to the advantage of the ten-percenters and to the disadvantage of the ninety-percenters. In real terms, deficit spending amounts to stealth taxation of the household sector. In addition, the interest on public debt will be taxed and redistributed within the household sector from the ninety-percenters to the ten-percenters as long as the public debt is rolled over. This can be a very long time. The distributional consequences of public deficit spending/money creation are enormous.
How long private/public debt can grow, i.e. how long the turn from profit to loss – and by consequence, the breakdown of the economy – can be postponed, is an open question. The monetary economy lives on borrowed time, there is no such thing as an economic equilibrium.
Proof of political capture
The preceding section makes it clear that the entry Sectoral balances is provably false at the level of elementary algebra. The Wikipedia editors let this scientific blunder slip through. This casts serious doubts on the reliability of the concept of an open-source encyclopedia. Since MMT is known to be a promoter of public deficit-spending – which is economically to the advantage of the ten-percenters and to the disadvantage of the ninety-percenters – Wikipedia has effectively become a tool of political agenda pushing. This is obvious from the Section 'Austerity in the view of the sectoral balances approach.'
What has been proved above for the entry Sectoral balances can be proved for many more economics entries. So, Wikipedia is unreliable with regard to the subject matter of economics.
The inescapable reset
The commitment to methodological individualism translates into the verbalized neo-Walrasian 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)
From these microfoundations, supply-demand-equilibrium is derived and then it goes on to General Equilibrium and ends with the welfare theorems. Because methodological individualism is false, the behavioral microfoundations HC1/HC5 are false. Because the axioms are false, the analytical superstructure is false. As a result, mainstream economics is a cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.” (Feynman)
This is common knowledge: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
The long-overdue new conceptual approach, i.e. the paradigm shift consists of this replacement of foundational premises:
- Old definition, subjective-behavioral, microfoundations: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses." (Robbins)
- New definition, objective-systemic, macrofoundations: Economics is the science that studies how the monetary economy works.
All microfounded profit theories are provably false.
Keynesianism is macrofounded but Keynes' macrofoundations are not correctly specified.
The major approaches – Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism – are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong.
This holds by implication for Wikipedia entries that refer to the subject matter of economics and that are not based on consistent macrofoundations. With regard to economics, academic scholarship and peer-reviewed publications do not satisfy the criteria of reliable sources for a scientific encyclopedia that is seriously committed to episteme as the very opposite of doxa.
- ^ Popper, Karl (1994). The Myth of the Framework. In Defence of Science and Rationality. London, New York: Routledge. pp. 39–40.
- ^ Klant, Joop (1994). The Nature of Economic Thought. Aldershot: Edward Elgar. p. 31.
- ^ Russel, Bertrand (1961). The Basic Writings of Bertrand Russel. London: Routledge. p. 620.
- ^ Kant, Immanuel; Ashton, E. B. (1974). On the Old Saw: That May be Right in Theory But It Won't Work in Practice. University of Pennsylvania Press. ISBN 978-0-8122-1058-3.
- ^ Haack, Susan (1997-11-01). "Science, Scientism, and Anti-Science in the Age of Preposterism". Retrieved 2020-06-20.
- ^ Kakarot-Handtke, Egmont (2020). Sovereign Economics. Norderstedt: BoD. pp. 1–26. ISBN 9783751946490.‡
- ^ Morgenstern, Oskar (1941). "Professor Hicks on Value and Capital". Journal of Political Economy. 49 (3): 369–370. ISSN 0022-3808.
- ^ Hands, D. Wade (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York: Cambridge University Press. p. 404.
- ^ Solow, Robert M (1998). Foreword to William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press. pp. x–xi.
- ^ Arrow, Kenneth J. (1994). "Methodological Individualism and Social Knowledge". The American Economic Review. 84 (2): 1–9. ISSN 0002-8282.
- ^ Stigum, Bernd (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press. p. 30.
- ^ See Ch 1 of Ref 6.
- ^ Keynes, John Maynard (2018). "The General Theory of Employment, Interest, and Money". doi:10.1007/978-3-319-70344-2.
- ^ Popper, Karl (1963). Conjectures and Refutations. London: Routledge and Kegan Paul.
- ^ "MMT: cross-references". AXEC. 2015-11-30. Retrieved 2020-06-16.
- ^ Weintraub, E. Roy (1985). "Joan Robinson's Critique of Equilibrium: An Appraisal". The American Economic Review. 75 (2): 146–149. ISSN 0002-8282.
- ^ Ingrao, B. and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press. p. 362.
- ^ Robbins, Lionel (1935). An Essay on the Nature and Significance of Economic Science. London: Macmillan. p. 16.
* Submission Jun 30
|Source: Wikipedia Draft|
|Source: Wikipedia Draft|