Occasional Xs: Forget supply-demand-equilibrium (XVII)

#Economics#AllYouNeedToKnow

“System dynamics models do not require or assume equilibrium. They explicitly model the processes of adjustment—often long, delayed, and unstable—that shape real systems.” (John Sterman)

Yes, dear Relearning crowd, this has already been done. It's…

— AXEC (@EgmontHandtke) August 4, 2025

Occasional Xs: Equilibrium is long dead but some folks still don't get it (II)

 

#Economics#FailedFakeScience

Mr. Milei is far behind the curve. The discussion about price equilibrium in general and Brouwer’s and Kakutani’s theorems in particular is long over. For details see ⇒

Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in…

— E.K-H (@AXECorg) May 30, 2024

Occasional Xs: Forget supply-demand-equilibrium (V)

 

#Economics#FailedFakeScience

“Just when you think AI is catching up, it falls short. Claude 3's misunderstanding of equilibrium in economic scenarios is alarming.” Not at all! AI is smarter than the representative #Economist who has not figured out in more than 150 years that…

— E.K-H (@AXECorg) March 24, 2024

Occasional Xs: Forget supply-demand-equilibrium (III)

 

#Economics#FailedFakeScience

Because #Equilibrium (and by implication #Disequilibrium) is a NONENTITY, all theories/models that contain the concept are a priori false and scientifically worthless.

Equiliriumhttps://t.co/DpU9SsBMPC pic.twitter.com/hSmmGO0y4Q

— E.K-H (@AXECorg) January 18, 2024

Occasional Xs: Forget supply-demand-equilibrium (II)

 

#Econ#FailedFakeScience

The history of economic thought is the history of scientific failure. The major approaches are axiomatically false & materially/formally inconsistent & ALL got the foundational concepts wrong.

Forget equilibriumhttps://t.co/QUk3K5AE3u

— E.K-H (@AXECorg) January 17, 2024

For more about equilibrium see AXECquery. 

Key Issues: Methodology ― from anything-goes to rien-ne-va-plus

Economics is a perplexing subject. Though I have spent the better part of my academic career thinking about its aims and methods, I have never been confident that I or anyone else for that matter really understand its cognitive status. ... Without assurance about the cognitive status of the theory, there is no basis of confidence in it. (Rosenberg, 1994, pp. 216-217)

***

Now, the doubts about the explanatory relevance of general equilibrium theory suggest that it cannot explain choice within constraints. That is, so to speak, how the problem of justifying general equilibrium theory starts. (Rosenberg, 1994, p. 221)

The great contradiction revealed is as follows: one of the theory's greatest strength – its claim to deduce significant results from very general hypotheses about the behavior of economic agents – turns out to be its greatest weakness. (Ingrao and Israel, 1990, p. 364)

To the extent that they [alternative theories] trade in the preferences and expectations of individuals, they will do no better than neoclassical economics. (Rosenberg, 1994, p. 233)

By having a vague theory it is possible to get either result. ... It is usually said when this is pointed out, ‘When you are dealing with psychological matters things can't be defined so precisely’. Yes, but then you cannot claim to know anything about it. (Feynman, 1992, p. 159)

If we ask, ‘What is the most adequate model of behaviour for economics?’ we implicitly assume that economics actually needs a model of behaviour; hence, we already assume psychologism of a kind. (Hudík, 2011, p. 147)

***

In fact, it has not been such a good idea to organize economic theory around a model of behavior.

 The scientific method has rather narrow limits, especially in dealing with human behavior and social phenomena. (Knight, 1921, p. 144)

...  there has been no progress in developing laws of human behavior for the last twenty-five hundred years. (Hausman, 1992, p. 320), (Rosenberg, 1980, pp. 2-3)

... theorists all over the world have become aware that anything based on this mock-up [GET] is unlikely to fly, ...  (Hahn, 1981, p. 1036)

The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory. (Blaug, 1998, p. 703)

***

What particular reality is described by a given theory can be ascertained only from that theory's axiomatic foundation. (Georgescu-Roegen, 1966, p. 361)

The process of axiomatic thought is then a method both for accreting and warranting knowledge claims, for those claims, if developed from independent and consistent axioms, themselves make strong claims on our attention and reason. (Weintraub, 2002, p. 87)

Axiomatization is indispensable because the methodological anything-goes mentality among economists is the proximate reason for the proto-scientific condition of conventional economics. Because of conceptual sloppiness, neither Orthodoxy nor Heterodoxy has a clear idea of the fundamental economic concepts of income and profit. Doing economics without a clear idea of income and profit is like doing physics without a clear idea of force and mass — it cannot possibly yield practical results, it has not, and it will not.

I think it is the lack of quite sharply defined concepts that the main difficulty lies, and not in any intrinsic difference between the fields of economics and other sciences. (von Neumann, quoted in Mirowski, 2002, p. 146 fn. 49)

***

Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of “abstract speculation.” (Mill, 2004, pp. 113-114)

Abstract speculation starts with clearly stated foundational propositions.

What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. (Mill, 2006, p. 746)

These propositions must relate to economic facts and not to human behavior.

The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; no claim of truth is implied in the term ‘axiom’ as here used). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations. (Popper, 1980, p. 71)

***

His [Adam Smith’s] method is always the method of Newton, which we have already seen applied to psychology and morals: to attain, by generalization, certain simple truths, from which it will be possible to reconstruct, synthetically, the world of experience. (Halévy, 1960, p. 100)

By sketchily copying Newton and by applying the axiomatic method to psychology and morals, Adam Smith set economics on the wrong track. There is nothing wrong with Newton or the axiomatic method, only with Smith's shallow scientific understanding, which still prevails among economists.

If one takes seriously what Popper says about falsifiability and the critical attitude, then the methodological practice of economics is not only mistaken, it is stupid and intellectually reprehensible. (Hausman, 1992, p. 275)

One hopes that the economics profession will not spend the whole twenty-first century waiting for a new Newton or Einstein of formal economics to emerge to shed a more powerful light in the current darkness. (Nelson, 2006, p. 227)

As a matter of fact, it is not a question of hope and waiting: As long as the darkness persists, economists have no mandate to speak in the name of science. At present, economic policy advice is, at bottom, the personal opinion of someone who cannot tell the difference between income and profit.

References

Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.

Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.

Georgescu-Roegen, N. (1966). Analytical Economics, chapter Economic Theory and Agrarian Economics, 359–397. Cambridge: Harvard University Press.

Hahn, F. H. (1981). Review: A Neoclassical Analysis of Macroeconomic Policy. Economic Journal, 91(364): 1036–1039.

Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston: Beacon Press.

Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.

Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.

Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, London: MIT Press.

Knight, F. H. (1921). Traditional Economic Theory ― Discussion. American Economic Review, Papers and Proceedings, 11(1): 143–147.

Mill, J. S. (2004). Essays on Some Unsettled Questions of Political Economy, chapter On the Definition of Political Economy; and the Method of Investigation Proper to It., 93–125. Electronic Classic Series PA 18202: Pennsylvania State University.

Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.

Mirowski, P. (2002). Machine Dreams. Cambridge: Cambridge University Press.

Nelson, R. H. (2006). Economics as Religion: From Samuelson to Chicago and Beyond. Pennsylvania: Pennsylvania State University Press.

Popper, K. R. (1980). The Logic of Scientific Discovery. London, Melbourne, Sydney: Hutchison, 10th edition.

Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.

Rosenberg, A. (1994). What is the Cognitive Status of Economic Theory? In R. E. Backhouse (Ed.), New Directions in Economic Methodology, 216–235. London, New York: Routledge.

Weintraub, E. R. (2002). How Economics Became a Mathematical Science. Durham, London: Duke University Press.

Related to Newton and Euclid

© 2013 EKH, except original quotes 

Occasional Tweets: There are still folks around who have not realized that DSGE models are proto-scientific garbage

 

#Econ#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, #MMT are mutually contradictory, axiomatically false, materially/formally inconsistent. And there are still folks around who have not realized that DSGE models are proto-scientific garbage. ⇒https://t.co/wUZPePdQFM pic.twitter.com/oKrlynYSps

— E.K-H (@AXECorg) June 22, 2022

Occasional Tweets: The futile attempt to recycle General Equilibrium

 

#FailedScience#GeneralEquilibrium

The history of economic thought is the history of scientific failure: “The only way possible is a thorough reexamination of the theory’s basic hypotheses, i.e., a true paradigmatic revolution.” (Ingrao et al., 1990) ⇒https://t.co/TFmOmC1auZ

— E.K-H (@AXECorg) April 11, 2022

For more about equilibrium see AXECquery.

For more about paradigm see AXECquery. 

Occasional Tweets: There are still economists around who babble supply-demand-equilibrium nonsense

 

#Economics#FailedScience#FakeScience

Supply-demand-equilibrium is an intelligence test. Whoever accepts this construct exposes himself as an incompetent #Scientist.

The monstrous utility-supply-demand-equilibrium failurehttps://t.co/5K0YAuqmZ3

— E.K-H (@AXECorg) February 21, 2022

For more about supply-demand-equilibrium see AXECquery. 

Occasional Tweets: Some folks are still stuck with the rational expectation equilibrium

 

#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, #MMT are mutually contradictory, axiomatically false, materially/formally inconsistent. #Economists are too stupid for the #Algebra of #MacroFoundations. So the whole analytical superstructure is scientifically worthless. pic.twitter.com/NbDkWpOiod

— E.K-H (@AXECorg) November 8, 2021

For more about microfoundations see AXECquery.

For more about macrofoundations see AXECquery.  

Occasional Tweets: Yes, neoclassical economics has always been proto-scientific garbage

 

#Economics is the science of how the #Economy works. #Economists don't understand it to this day.

Econ 101: Supply-Demand-Equilibrium is dead for 150+ yearshttps://t.co/DYbAjpzxbm#FailedScience#FakeScience

— E.K-H (@AXECorg) October 22, 2021

For more about supply-demand-equilibrium see AXECquery. 

Occasional Tweets: Lucas ― another case of cargo cult science

 

The history of economic thought is the history of scientific failure. #Economics is #CargoCultScience. Lucas and his proto-scientific garbage are long-buried at the Flat-Earth-Cemetery. All attempts to resuscitate this corpse are in vain.

→ referenceshttps://t.co/RrO9KQsuZu pic.twitter.com/EXhq9HMrdA

— E.K-H (@AXECorg) October 10, 2021

Occasional Tweets: Equilibrium is long dead but some folks still don't get it (I)

 

#Economics#FailedScience#FakeScience#Equilibrium is a NONENTITY. By consequence, ALL equilibrium models are proto-scientific garbage.

Forget equilibriumhttps://t.co/QUk3K5AE3u

Equilibrium and the violation of a fundamental principle of sciencehttps://t.co/LiwFK1CBDp

— E.K-H (@AXECorg) October 8, 2021

For more about equilibrium see AXECorg.

For more about the economists' corner at the Flat-Earth-Cemetery see AXECorg.

Occasional Tweets: Marginalism ― proto-scientific garbage for 150+ years

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

There is NO such thing as supply-demand-equilibrium.

Marginalism is the landmark of scientific incompetencehttps://t.co/e8WmHvNz3O

The solemn burial of marginalismhttps://t.co/9MVsTvNma4

— E.K-H (@AXECorg) August 22, 2021

For more about marginalism see AXECquery. 

Occasional Tweets: Paradigm Shift ― how economics becomes a science after 200+ years of brain-dead political agenda-pushing

 

#Economics#FailedScience#FakeSciences#Economists#StupidOrCorruptOrBoth

Economics has to move from false Walrasian #MicroFoundations and false Keynesian #MacroFoundations to #TrueMacroFoundations.

See cross-references #ParadigmShifthttps://t.co/rf8n0xkhRA pic.twitter.com/P7YEsSUfJt

— E.K-H (@AXECorg) August 8, 2021

For more about equilibrium see AXECquery.

For more about I=S see AXECquery.

For more about paradigm see AXECquery.

For more about David Glasner see AXECquery.

Occasional Tweets: For 150+ years, economists again and again awake to the fact that supply-demand-equilibrium is a moronic concept

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOtBoth

Equilibrium and the violation of a fundamental principle of sciencehttps://t.co/LiwFK1CBDp#DefundEconomics #FireEconomists #ScrapTheLot

— E.K-H (@AXECorg) June 26, 2021

Supply-Demand-Equilibrium

• The equilibrium of idiocy
• Equilibrium and the violation of a fundamental principle of science
• Equilirium
• There is NO such thing as supply-demand-equilibrium
• Forget equilibrium
• Equilibrium is stone dead — and now?
• Economists: scientists or political clowns?
• Axiomatized NONENTITIES and the failure of methodologists
• The prime primer on equilibrium
• Walras is long gone
• Bang — the representative economist and supply-demand-equilibrium are dead
• Econ 101: Supply-Demand-Equilibrium is dead for 150+ years
• NAIRU does not exist because equilibrium does not exist
• Why you should NEVER use supply-demand-equilibrium
• Equilibrium is a nonentity like dancing angels on a pinpoint
• The monstrous utility-supply-demand-equilibrium failure
• Forget equilibrium
• Still alive in some heads: equilibrium
• How to Get Rid of Supply-Demand-Equilibrium
• The Law of Supply and Demand: Here It Is Finally
• Essentials of Constructive Heterodoxy: The Market

Price theory — more than beating the dead horse again and again

Comment on Blair Fix on ‘Supply and demand deconstructed’

Blog-Reference and Blog-Reference

Blair Fix summarizes “… Jonathan Nitzan demolishes the neoclassical theory of prices. It’s a master lesson in how to deconstruct a theory.”

Mainstream economics, though, does not need another deconstruction. Mainstreamers have admitted failure long ago “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., 1990)

Clearly, everybody knows by now for sure that supply-demand-equilibrium is proto-scientific garbage. Back in 1954, Schumpeter found it still necessary to diffuse doubts about the scientific status of the supply-demand-equilibrium approach “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

So, the right thing to do is to bury and forget the “Totem of the Micro”: “If neoclassical theory is bunk, then what explains prices? Jonathan Nitzan, together with Shimshon Bichler, argues that prices are inseparable from power.”#4

With this, though, everything remains in the old economics-is-a-social-science paradigm. The behavioral assumption of price-taking is replaced by the assumption of price-setting. To remain in the psycho-sociological sphere is the lethal blunder of the power approach because economics is a systems science.#5

Here are the basics of the macrofoundations approach. The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) 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.

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price as the dependent variable is given by P=W/R (1a). The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. This is the most elementary case, i.e. when the economy gets more complex the price equation becomes longer.*

The macroeconomic Law of Supply and Demand (1a) implies W/P=R (1b), i.e. the real wage is always equal to the productivity no matter how the wage rate W is set or how long the individual or aggregate working time L is. Full employment is possible, the workers always get the whole product O. The workers' living standard depends ultimately on productivity.

The logical next steps are (i) to skip the conditions of market-clearing and budget-balancing and to allow for price-setting, (ii) to differentiate the business sector into multiple firms and markets and to determine the price structure.#6

Egmont Kakarot-Handtke


#1 There is NO such thing as supply-demand-equilibrium
#2 How to Get Rid of Supply-Demand-Equilibrium
#3 The Law of Supply and Demand: Here It Is Finally
#4 This echoes Macht und ökonomisches Gesetz (Power and Economic Law), Schriften des Vereins für Socialpolitik, 1972.
#5 Your economics is refuted on all counts: here is the real thing
#6 See Ch. 3 Market interdependence in Sovereign Economics

Related 'Economists never understood how the price mechanism works' and '10 steps to leave cargo cult economics behind for good' and 'Primary and Secondary Markets' and 'Hayek and other informationally retarded proto-economists' and 'How to overcome the manifest silliness of Econ 101 and save the economy' and 'Why you should NEVER use supply-demand-equilibrium' and 'Traditional Heterodoxy’s paradigmatic impotence' and 'Essentials of Constructive Heterodoxy: The Market' and 'Understanding Profit and the Markets: The Canonical Model' and 'Major Defects of the Market Economy' and 'How to finally hammer down the nails in the coffin of Monty Python economics' and 'Get it econ suckers: behavioral microfoundations ⇒ false, systemic macrofoundations ⇒ true' and 'Econ 101: Economists flunk the intelligence test at the first hurdle' and 'The monstrous utility-supply-demand-equilibrium failure' and 'To this day, economists have produced NOT ONE textbook that satisfies scientific standards' and 'Ch. 9, Price mechanism vs quantity mechanism in Sovereign Economics, BoD'.

“Totem of the Micro” has been coined by Axel Leijonhufvud.

* E.g. AXEC64

***

#PointOfProof

Aug 29

post missing

Macroeconomics and the vacuous History of Economic Thought

Comment on George Akerlof on ‘What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years’*

Own post and Blog-Reference and Blog-Reference on Nov 7

Napoleon is supposed to have said, “History is a myth agreed upon.” or “History is a set of lies people have agreed upon”. This, of course, also holds for the History of Economic Thought.

Economics has been a scientific failure for 200+ years. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives — are mutually contradictory, axiomatically false, and materially/formally inconsistent. Yet, on top of the heap of proto-scientific garbage, George Akerlof tries to erect a false-hero memorial for MIT: “The primary public policy lesson of Keynesian economics ― that we now knew how to respond to economic downturns ― had been a hard-won fight. It had been fought for decades, with high stakes: nothing less than the maintenance of full employment, rather than lapses into Great Depression.” and “The great public policy question of the day ― how to fight underemployment ― had thus also been solved. This message, significantly homegrown at MIT, was revolutionary relative to the thinking of the early 1930s, when economists could reach no clear consensus regarding how to restore full employment.”

This is a clear case of auto-hypnosis, which is the defining characteristic of economists, and it traditionally finds expression in the self-propagation of economics as the Queen of Social Sciences.

And this is how MIT economists pulled off their PR stunt: “At the time, Paul Samuelson of MIT was the world’s most famous living economist, known for his Foundations of Economic Analysis and for his numerous articles, but especially for his bestselling introductory textbook. Its early editions began with macroeconomics based on the keystone ‘Keynesian cross’ diagram of Samuelson’s invention, which was the uncontested heart of macroeconomics at MIT.”#1

That much is correct, Samuelson started the economics textbook industry. Needless to emphasize economics textbooks are scientifically worthless to this day.#2, #3

And this is in detail how the hallucinatory scientific revolution happened: “As a reminder, the Keynesian cross plots income on the horizontal axis and expenditures on the vertical axis. Equilibrium occurs where income and expenditures are equal ― along a 45-degree line from the origin ― but this equilibrium could occur either as a ‘deflationary gap’ below full employment, or at full employment, or as an ‘inflationary gap’ above full employment. The analysis behind the figure explored the consequences of observing that, as Keynes had claimed, equilibrium income occurs where desired savings equals desired investment.”

The first methodological blunder was, of course, to apply the equilibrium concept. Samuelson failed to realize that equilibrium is a NONENTITY.#4, #5, #6, #7. The second fatal blunder was inherited directly from Keynes.

The formal basis of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This elementary syllogism is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)#8

Let this sink in: Keynes had no idea of macroeconomic profit.

Because the foundational concepts of profit/income are ill-defined, the whole analytical superstructure of Keynesianism is provably false. Samuelson, though, did not realize that the Keynesian macrofoundations were fatally flawed, and neither did Post Keynesians, New Keynesians, and Anti-Keynesians to this day.#9, #10, #11

Practically, this means that economic policy guidance has NO sound scientific foundations since Adam Smith. Economists bear the intellectual responsibility for the social devastation of economic crises.#12

Because both Walrasian microfoundations and Keynesian macrofoundations are defective, the so-called Keynesian-Neoclassical Synthesis is provably false; in particular, all IS-LM models #13, #14, and all Phillips-Curves #15, #16 (except the original one) are proto-scientific garbage.

This, of course, is not the conclusion of George Akerlof. The standard excuse for permanent failure is that economists are struggling scientists and prone to error and neglect like anybody else: “The Keynesian-neoclassical synthesis that had emerged by the early 1960s put constraints on macroeconomics. Foremost, it divorced macroeconomists from working on financial stability. Luckily, after the crash of 2008, the prior work of finance economists has been belatedly acknowledged, and the subfield of macro stability has also emerged as quite possibly the most vibrant research frontier in economics.”

The general public appreciates the humbleness of what it is told are Nobel-worthy scientific geniuses.#17 These repeating We-were-a-bit-wrong-then-but-now-we-are-vibrantly-on-the-right-track confessions are part of the PR stunt called economics. The fact of the matter is: economics is NOT science but political agenda-pushing and economists are NOT scientists but clowns and useful idiots in the political Circus Maximus.#18

The History of Economic Thought, including the History of Macroeconomic Thought#19, is a fake from Adam Smith onward to George Akerlof and beyond. All this stuff ends up with absolute necessity at the Flat-Earth Cemetery.

Egmont Kakarot-Handtke


* George A. Akerlof, What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years, Journal of Economic Perspectives Vol. 33
#1 “The Keynesian cross diagram is a formulation of the central ideas in Keynes’ General Theory. It first appeared as a central component of macroeconomic theory as it was taught by Samuelson in his textbook, Economics: An Introductory Analysis.” (Wikipedia)
#2 The father of modern economics and his imbecile kids
#3 To this day, economists have produced NOT ONE textbook that satisfies scientific standards
#4 Equilibrium and the violation of a fundamental principle of science
#5 There is NO such thing as supply-demand-equilibrium
#6 What Keynes really meant but could not really prove
#7 Proof of the inherent instability of the market economy
#8 Keynes ― the poster boy for the weakness of the economist’s mind
#9 The elementary production-consumption economy is, for a star,t defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (Qm≡C−Yw, Sm≡Yw−C). Legend: Yw wage income, W wage rate, L employment, O output, R productivity, C consumption expenditures, P price, X quantity bought/sold.

From these macrofoundations follows the market-clearing price P=W/R (1), which defines the core of inflation/deflation theory, and the average amount of fiat money M=κYw (2).

It always holds Q≡−S (3), in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Eq. (3) refutes the Keynesian I=S. For the elementary investment economy holds Q≡I−S. Saving and investment are NEVER equal, neither ex-ante nor ex-post.
#10 Economics for Economists
#11 Keynes’s Missing Axioms
#12 Econogenics in action
#13 The IS-LM macro imbeciles
#14 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#15 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#16 Links on the Phillips Curve
#17 Scrap the EconNobel
#18 There is NO such thing as “smart, honest, honorable economists”
#19 Wikipedia History of macroeconomic thought

Related 'Failed economics: The losers’ long list of lame excuses' and 'Why Post Keynesianism Is Not Yet a Science' and 'Cross-references: Kalecki' and 'Squaring the Investment Cycle'.

***

REPLY to Barkley Rosser on Nov 4

You say: “And thus has what to do with this thread, Egmontt? Not a damn ed thing, near as I can tell, and you have bored us with this stuff previously numerous times.”

Time to face reality. The readers of EconoSpeak are tired of your kill-and-dump murder stories (Bin Laden, Khashoggi, Al-Baghdadi). You may be bored reading that macroeconomics is proto-scientific garbage since Keynes. However, it is certainly a sensation for the EconoSpeak audience to learn that your whole academic cohort got the elementary algebra of macro wrong. From this, one may conclude that your foreign policy comments, too, are worth even less than a fart.

***

REPLY to Barkley Rosser on Nov 5

I=S ⇒ false macro algebra ⇒ Keynes et al.
Q≡I−S ⇒ correct algebra.

The formal proof has been given in the References, which were not uploaded because of space restrictions at EconoSpeak. See #9.

***

REPLY to Barkley Rosser on Nov 7

You say: “You have just confirmed that I am right and verified that you are mathematically incompetent and innumerate. There is no algebra problem here. The issue is simply one of competing definitions.”

When confronted with a clear-cut true/false question, the swampies of economics always take the emergency exit of ‘That’s just a matter of definition’. This is excuse No. 26 from my 54-item compilation of economists’ brain-dead methodological blather: “The issue is largely definitional and, as Lewis Carroll pointed out, everyone is entitled to his own definitions. (Blinder)”#1 This is the Humpty Dumpty Fallacy.#2 Definitions have to be consistent. The methodological fact of the matter is that the definitions of profit/income/ saving have been inconsistent for 200+ years.

You say: “So, Egmont, as I have pointed out here on numerous occasions, the US National Income and Product Accounts (NIPS), whose practices are imitated in nearly all nations now, defines investment and savings in a way that I=S, simply by definition.”

Keynes’ I=S rests on the premise “Income = value of output”#3, which is provably false because it implies that macroeconomic profit is zero, which is obviously NOT the case. So I=S is NOT true “simply by definition” but empirically false. Q≡I−S is materially and formally correct. The remaining question is whether economists are too stupid for elementary algebra or whether they intentionally let profit disappear from the sectoral balances equations.#4-#10

I am well aware of the practice of NIPS accounting, and I have shown in detail where it goes wrong.#11 See, in particular, section 1.9 Cooked transaction recording.

As a fake scientist, you do not address the clear-cut challenge [I=S ⇒ false, Q≡I−S ⇒ true) but appeal to authority (NIPS) and the majority (nearly all nations).

From the fact that all national accountants define things “in a way that I=S, simply by definition,” does NOT logically follow that I=S is true, but that all national accountants are either stupid or corrupt or both.

What is known for 2300+ years ― except to economists ― is: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)

The methodological fact of the matter is that both microeconomic axioms and macroeconomic axioms are materially/formally inconsistent and this explains why economics is not more than incoherent blather and why the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a fraud.

Economics has NEVER been anything else than brain-dead political agenda-pushing and your Al-Baghdadi post just proves it again.


#1 Failed economics: The losers’ long list of lame excuses
#2 Humpty Dumpty is back again
#3 “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)
#4 Wikipedia and the promotion of economists’ idiotism (II)
#5 The monetary circuit and how economists got it wrong
#6 Why economists know nothing
#7 Substandard reasoners
#8 Economists’ proto-scientific methodology
#9 Mental messies and loose losers
#10 How to get out of the swamp of ignorance
#11 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

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REPLY to Barkley Rosser on Nov 8

You say: “So, Egmont, as I have pointed out here on numerous occasions, the US National Income and Product Accounts (NIPS), whose practices are imitated in nearly all nations now, defines investment and savings in a way that I=S, simply by definition.”

I say: “I am well aware of the practice of NIPS accounting and I have shown in detail where it goes wrong.#11 See, in particular, section 1.9 Cooked transaction recording.”

I conclude: “From the fact that all national accountants define things in a way that I=S, simply by definition” does NOT logically follow that I=S is true, but that all national accountants are either stupid or corrupt or both.”

You conclude: “Sorry, but this is definitional, and you do not have the rght to imposee your defnition on others, …”

I do not impose anything on anybody, I just bury macroeconomics from Keynes to Hicks to Samuelson to Akerlof to Krugman#1 to Barkley Rosser, including the peer-reviewed economic journals and textbooks of the last 80+ years, at the Flat-Earth-Cemetery.


#1 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It

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AXEC139f

Equilirium

Comment on David Glasner’s ‘On Equilibrium in Economic Theory’

Blog-Reference and Blog-Reference on Apr 20

David Glasner explains the evolution of the equilibrium concept: “Equilibrium is an essential concept in economics. While equilibrium is an essential concept in other sciences as well, and was probably imported into economics from physics, its meaning in economics cannot be straightforwardly transferred from physics into economics. The dissonance between the physical meaning of equilibrium and its economic interpretation required a lengthy process of explication and clarification, before the concept and its essential, though limited, role in economic theory could be coherently explained.”

What David Glasner overlooks is that equilibrium is one of the worst methodological blunders of the failed science of economics. Hence, the history of equilibrium economics from demand-supply-equilibrium to DSGE is in essence not different from the history of the Flat Earth Theory. It can only be told as a cautionary example of utter scientific incompetence.

The lethal methodological blunder of standard economics consists of putting equilibrium into the premises. This is the verbalized neo-Walrasian axiom set:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, 1985)

Obviously, since we do not know at the beginning of the analysis whether something like an equilibrium exists in the monetary economy, it is illegitimate to put it into the premises. This idiocy/fraud has been known since antiquity as petitio principii.#1, #2, #3, #4

At the beginning of economic analysis stands Keynes’ question: “... is the existing economic system in any significant sense self-adjusting.” Keynes started with the right question but he could not answer it in a scientifically correct manner.#5, #6, #7

Because equilibrium (and by implication disequilibrium) does not exist, all theories/models that contain the concept are a priori false and scientifically worthless. The history of equilibrium economics cannot be told as a story of progressive insight and growth of scientific knowledge but as a delirious march into the woods towards the inescapable end: “... when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.” (Hume)#8, #9

David Glasner, though, lacks even this little judgment.

Egmont Kakarot-Handtke


#1 Equilibrium and the violation of a fundamental principle of science
#2 There is NO such thing as supply-demand-equilibrium
#3 Forget equilibrium
#4 Equilibrium is stone dead — and now?
#5 Could we, please, all focus on the key question of economics?
#6 What Keynes really meant but could not really prove
#7 Proof of the inherent instability of the market economy
#8 Economists― standing on the shoulders of dwarfs
#9 New insight from Meta-Learning: delete economics

Full employment, the Phillips Curve, and the end of gaganomics

Comment on David Glasner on ‘The Phillips Curve and the Lucas Critique’

Blog-Reference and Blog-Reference on Apr 6 and Blog-Reference on Apr 10 adapted to context

The utter failure of economics, of which the Phillips Curve is a well-known example, is due to microfoundations. Economics has to be based on objective macrofoundations. This methodological move is called Paradigm Shift.

Reminder: Economics is NOT about what people do; economics is about what the economy does. Economics is NOT a social science but a systems science.

The macrofoundations approach starts with behavior-free systemic axioms which define the elementary production-consumption economy: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Y_w=WL wage income Y_w 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.

Under the ‘classical’ conditions of market-clearing X=O and budget-balancing C=Y_w in each period, the price is the dependent variable and given by P=W/R, i.e., the market-clearing price is always equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.

As a corollary, this macroeconomic Law kills the commonplace Quantity Theory because the Quantity of Money is NOT among the price determinants.#1 The price is, under the ‘classical’ conditions, determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R.

If the budget is not balanced, i.e. if the household sector either saves or dissaves, the macroeconomic Law of Supply and Demand takes the form shown on Wikimedia.#2

An expenditure ratio ρ_E greater than 1 indicates dissaving/credit expansion of the household sector, a ratio ρ_E less than 1 indicates saving/credit contraction. The ratio ρ_E provides the link to monetary theory.

The elementary production-consumption economy is the starting point. Subsequently, things become more complex. Under the conditions of market-clearing and independent wage rate and price-setting, employment becomes the dependent variable. The elementary version of the axiomatically correct (objective, systemic, behavior-free, macrofounded) Employment Law is shown on Wikimedia.#3, #4, #5

From this equation follows:
(i) An increase in the expenditure ratio ρ_E leads to higher employment L.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment.

The complete Employment Law contains, in addition, profit distribution, the public sector, and foreign trade. These issues have been dealt with elsewhere.

Items (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρ_F, as defined in (iii), embodies the macroeconomic price mechanism. The fact of the matter is that overall employment INCREASES if the average wage rate W INCREASES relative to the average price P and productivity R. Or, the other way round, overall employment DECREASES if the average price P INCREASES relative to the average wage rate W with productivity R unchanged.

Roughly speaking, price inflation is bad for employment, and wage inflation is good. The systemic Phillips Curve defines an inverse relation between price P as the independent variable and employment L as the dependent variable. Since all variables of the macroeconomic Employment Law are measurable, the systemic Phillips Curve is testable. Note that there is no recourse to ridiculous behavioral assumptions like constrained optimization or rational expectations. Microfoundations are gone for good. Lucas's gaganomics is over.

In the Employment Law, wage rate W and price P are the independent variables. So, under the condition of wage rate- and price-setting, the relationship between unemployment and wage rate or wage rate and the price is contingent, i.e., there is NO systemic relationship and no stable correlation.

This, in turn, means that there is NOTHING in the economic system that guarantees that the independent wage rate and price-setting lead somehow to full employment. The market economy is NOT a self-regulating system with an intrinsic tendency to full employment if left alone. Just the opposite, the market system is inherently unstable.

Because the fundamental premise of standard economics is provably false, the independent variables have to be taken as policy parameters. Wage rate- and price-setting have to be managed such that ρ_F drives employment towards full employment. Monetary and fiscal policies are unfit for the job.

The well-defined systemic Phillips Curve ends all senseless speculation/blather about whether wages rise if the economy approaches full employment or not, but tells policymakers exactly how to set the parameters in order to achieve full employment and zero inflation.#6

Egmont Kakarot-Handtke


#1 Forget Friedman, forget the Quantity Theory
#2 Wikimedia AXEC101 Law of Supply and Demand
#3 Wikimedia AXEC62 Employment Law
#4 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#5 NAIRU, wage-led growth, and Samuelson's Dyscalculia
#6 For details of the big picture, see cross-references Employment/Phillips Curve

Related 'Economists never understood how the price mechanism works' and 'Mass unemployment: The joint failure of orthodox and heterodox economics' and 'NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy' and 'Full employment through the price mechanism'.

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Twitter/X Sep 10, 2025  Testing the Employment Law (and refuting the Phillips Curve trade-off between inflation and employment) is especially difficult because employment numbers are unreliable, particularly in the run-up to an election.

Twitter/X Sep 10, 2025