Occasional X: How it works (DXXXVI)

“Prices should be understood first and foremost as a mechanism through which monetary incomes, including profits, are generated and realized. After all, firms set prices not simply to cover their costs, but also to make profits.” (Khazbi Budunov) Time to get Price and Profit Theory right. Economics has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. Economics needs a Paradigm Shift. The representative economist will not survive it intellectually. That's a bad outlook for Khazbi Budunov. The methodologically correct approach is summarized in table AXEC244a ⇓. Microfoundations are methodologically false; therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. Under the initial analytical conditions of market-clearing, i.e., X=O, and budget-balancing, i.e., Ec=Yw or ρEC=1, this yields the price P in line 5 and 8 as equal to unit wage costs W/R. Without budget-balancing, it is ρEC*W/R, in the general case with ρEC≠1. For a start, the price is the dependent variable here. This is a starting condition. In the most elementary case, the price is equal to unit wage costs W/R. The workers get the whole product O. The profit Qm for the business sector as a whole is zero. In the general case, the macroeconomic price depends on demand, expressed by ρEC≠1, and unit wage costs W/R. If the condition of budget balancing is lifted, then nominal demand is not equal to wage income. The market-clearing price P is now co-determined by the expenditure ratio ρE, i.e., ρE1<1 means saving of the household sector as a whole. Dissaving, i.e., ρE1>1, means that the household sector takes a credit from the Central Bank. The Central Bank stands here for the banking system. Dissaving also means that the business sector makes a profit in line 12 and accordingly has demand deposits at the Central Bank. If the household sector saves, the business sector makes a loss. As a result, the expenditure ratio ρE determines both price P (line 8) and profit/loss Qm (line 12) simultaneously. Without ρE>1, the price cannot rise above unit wage costs W/R, and there is no profit Qm. Profit is not a monetary income; distributed profit is. Profit is a balance, i.e., the difference of flows. Economists have not understood this since the time of the Founding Fathers. If the firm simply increases the price, the market-clearing condition no longer holds and the inventory increases, i.e., O−X>0. Whether the firm wants to make a profit is irrelevant. Profit appears only if ρE>1. Profit does not appear either if the firm simply increases the price. Profit is not psychic or behavioral but depends on the objective/systemic precondition ρE>1. To expect profit from the entrepreneur's wishes or expectations or price increases is as good as expecting rain from the chief's rain dance.

— AXEC (@EgmontHandtke) November 6, 2026