The Dark-Matter Theory of Fiat Money {78a}

Working paper at ARCHIVE The version {78a} is an improvement of the version {78}

Abstract  Currently, the Theory of Money suffers from a lack of consistent macroeconomic foundations and a lack of reliable empirical data. Because both macroeconomics and macroeconomic accounting are defective, there is no scientific basis for the decision between competing theories. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. As a result, economic policy guidance has never had valid scientific foundations. It has never been more than silly political blather. This is an untenable situation. As Stigum put it, "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." In this paper, the essentials of the true Theory of Money are developed.

***

Twitter/X Jun 28, 2026  Illicit money found

The Dark-Matter Theory of Fiat Money {78}

Working paper at SSRN

Abstract Currently, the Theory of Money suffers from a lack of consistent macroeconomic foundations and a lack of reliable empirical data. Because both macroeconomics and macroeconomic accounting are defective, there is no scientific basis for the decision between competing theories. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. As a result, economic policy guidance has never had valid scientific foundations. It has never been more than silly political blather. This is an untenable situation. As Stigum put it, "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." In this paper, the essentials of the true Theory of Money are developed.

The Logical Interface Between Objective Macrofoundations and Subjective Valuations {77}

Working paper at SSRN

Working paper at ARCHIVE

Abstract Economists never managed to consistently integrate micro- and macroeconomics. Walrasian economics is built upon microfoundations. These consist of patently absurd subjective-behavioral assumptions. Keynesian economics is built upon objective-structural macrofoundations. These are algebraically defective. Both approaches get the foundational economic concept of profit wrong. Because the axiomatic foundations are provably false, the whole analytical superstructure of economics is scientifically worthless. The present paper starts with the correct macrofoundations and determines the logical interface between objective market price and the multitude of subjective valuations.

Stop Recycling Dead Economic Theories, Start the Paradigm Shift {76}

Working paper at SSRN

Working paper at ARCHIVE

Abstract The major approaches Walrasianism, Keynesianism, Marxianism, Austrianism, MMT are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter profit wrong. What we have is the pluralism of provably false theories. Criticism and marginal improvements are pointless. It takes a new theory to beat an old theory.

How the Intelligent Non-Economist Can Refute Every Economist Hands Down {75}

Working paper at SSRN

Working paper at ARCHIVE

Abstract Most non-economists tend to think that economists know what they are talking about when they use specific terms like income, profit, capital, market equilibrium, and so on. This is not the case. What, then, follows from the well-documented fact that the representative economist has no idea of what profit is? Quite simple: if the core concept of profit is false, then the whole economic theory/model is false. This holds for the Walrasian, the Keynesian, the Marxian, and the Austrian approach.

Major defects of the market economy {74}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  When we characterize an argument that has no sound theoretical foundation as political, then what has been produced by economists so far is political economics. However, since the Classics and Marx, all major economic schools have defended the claim that they were doing science. This claim has been convincingly rebutted. So, the task is still before us. The way forward is to move from behavioral to structural economics. What we should be most interested in is not so much the behavioral defects of economic agents but the structural defects of the market system and how to repair them.

Essentials of Constructive Heterodoxy: financial markets {73}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  What stands before all eyes as failed Orthodoxy is ultimately caused by the wrong answer to Mill's Starting Problem. It is now pretty obvious that one cannot put utility maximization, equilibrium, well-behaved production functions, ergodicity, or any other physical or psychological or sociological or behavioral assumption into the premises. No way leads from such premises to the explanation of how the actual market economy works. The logical consequence is to discard them. Having first secured a superior formal starting point, the present paper addresses the question of how the various types of financial markets emerge from the elementary monetary circuit.

Essentials of Constructive Heterodoxy: behavior {72}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  For a host of compelling methodological reasons, homo oeconomicus has to be replaced. This is consensus, the open question is how this could be accomplished. What is required first is the separation of the formal foundations into a structural and a behavioral part. This paper introduces the propensity function as a general formalization of Economic Man/Woman. The propensity function is a compact formal expression of random, semi-random, and deterministic behavioral assumptions. It is shown how, in a random environment, target-oriented behavior produces stochastic stability and optimality in the product market. With homo oeconomicus, the conception of simultaneous equilibrium, too, vanishes.

For the complete set of foundational equations — structural axioms and behavioral propensity function — see Graphic AXEC61.

Essentials of Constructive Heterodoxy: institutions {71}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  What do economists understand about the economy if they do not understand the profit phenomenon? Next to nothing. Therefore, the first task in theoretical economics is to clarify the difference between profit and wage income and their respective determinants. It was Ricardo who tackled the problem first, but neither Orthodoxy nor Heterodoxy solved it until this day. The need for a paradigm shift is indisputable. The structural axiomatic approach is more comprehensive as it embraces the consistent interaction of real and nominal variables of the monetary economy and the economic consequences of alternative variants of institutions, e.g. land ownership.

For the complete set of foundational equations — structural axioms and behavioral propensity function — see Graphic AXEC61.

Essentials of Constructive Heterodoxy: employment {70}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  Orthodox economics is founded on behavioral assumptions. This has been the wrong starting point because no way leads from there to an understanding of how the economic system works. Critical Heterodoxy is one step ahead insofar as it does not accept the green cheese assumptionism of optimization and supply-demand-equilibrium, yet this is not sufficient to establish a superior paradigm. What we have at the moment is a plurality of debunked theories. This is not a tenable situation. Consequently, Constructive Heterodoxy is focused on the formally consistent reconstruction of central economic phenomena like market, money, profit, and - in this paper - employment.


For cross-references, see here

Essentials of Constructive Heterodoxy: profit {69}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  The goal of theoretical economics is to explain how the actual economy works. Since Adam Smith economists have consistently failed to clarify the nature and magnitude of overall profit. No economist, though, would deny that profit is an important phenomenon. Yet, obviously, economists are still mired in utter confusion about the most fundamental concept of their discipline. Hence, in the strict sense, there is no valid economics. From all this follows for a methodologically ambitious Constructive Heterodoxy that the accustomed foundations of Orthodoxy have to be replaced. In technical terms, this is what a Paradigm Shift is all about.

Essentials of Constructive Heterodoxy: money, credit, interest {68}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  The goal of theoretical economics is to explain how the monetary economy works. The fatal methodological defect of Orthodoxy is that it is based on behavioral axioms. Yet, no specific behavioral assumption whatever can serve as a starting point for economic analysis. From this follows for Constructive Heterodoxy that the subjective axiomatic foundations have to be replaced. This amounts to a paradigm shift. Nobody can rest content with a pluralism of false theories. Based on a set of objective axioms all economic conceptions have to be reconstructed from scratch. In the following, this is done for the theory of money.

For cross-references, see here

Essentials of Constructive Heterodoxy: aggregate demand {67}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  Heterodoxy has left not one stone unturned and has unraveled a plethora of errors/mistakes/contradictions of Orthodoxy. The outcome of this prolonged critical and self-critical process is that there is actually no acceptable and accepted theoretical economics. The need for a Paradigm Shift is irrefutable. There is less need for further debunking exercises. For Constructive Heterodoxy follows that the subjective axiomatic foundation of Orthodoxy has to be replaced. All economic conceptions have to be consistently reconstructed. What comes to mind first are phenomena like market, profit, money, employment or aggregate demand. The latter is dealt with in the present paper.

Essentials of Constructive Heterodoxy: Say's Law {66}

Working paper at SSRN

Working paper at ARCHIVE

Abstract The core problem of economics is that the representative economist never managed to keep political and theoretical economics properly apart. The mixture is toxic indeed. As Joan Robinson said about what parades as economics: Scrap the lot and start again. Yet, the question then arises where to start. To solve the Starting Problem — first formulated by J. S. Mill — is the all-dominant initial step of a paradigm shift. The most urgent task of a constructive Heterodoxy is to rethink pivotal concepts like market, Say's Law, profit, etcetera. The reconstruction of the theoretical superstructure from scratch is an absolute methodological necessity.

Essentials of Constructive Heterodoxy: the market {65}

Working paper on SSRN

Working paper at ARCHIVE

Abstract The consensus is that orthodox economics is a failure in three dimensions: conceptual, methodological, and empirical. Heterodoxy has meticulously sorted out the multitude of errors, mistakes, and distortions. Yet, this alone does not help out of stagnation. Economists have now to go into the constructive mode. The most urgent task is to replace the misleading supply-demand-equilibrium representation of the market. The reconstruction of the centerpiece of the market system from scratch paves the way to the new paradigm. Nobody can talk about the market system without a correct idea of how the market works. Heterodox economists must take the innovative lead.

Onblog Economics Muddle Busting {64}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  The representative economist does not understand the two most important phenomena in the economic universe: profit and income. Because of this economists have nothing to offer in the way of a scientifically founded advice. Therefore, the contributions to economic blogs cannot claim to offer more than personal opinion. Of opinions, though, economics always had plenty. What is needed is knowledge – scientific knowledge, that is. With the outline of the correct economic paradigm at hand it is straightforward to refute obsolete approaches. For this purpose the economics blogs are ideal. A selection of recent comments is reproduced in the present paper. 

Economics for economists {63}

Working paper at SSRN

Working paper at ARCHIVE

Abstract  The characteristic capability of science — to turn whatever it might touch into knowledge — seems to have eluded economics. Currently, economists do not understand how the economy works. To get out of the cul-de-sac requires a paradigm shift. It consists of replacing behavioral axioms with structural axioms. The subject matter of theoretical economics is not human behavior but systemic behavior. From the structural analysis follows a new Law of Supply and Demand and a new Profit Law for the economy as a whole. The conventional supply-demand-equilibrium approach is refuted. This implies that the reliance on the spontaneous order metaphor is unfounded.

The profit theory is false since Adam Smith. What about the true distribution theory? {62}

Working paper at SSRN

Working paper at ARCHIVE


Abstract  All popular schools lack a consistent profit theory. Economists have no true conception of the most important phenomenon in their universe. This methodological defect persists since Adam Smith. Therefore, the theories of income and wealth distribution are wrong by logical implication. If the conclusions of a theory do not find any counterpart in reality the fault lies in the premises. In order to rectify distribution theory, it is necessary to substitute the conventional subjective-behavioral axioms with objective-structural axioms. A major result of the present paper is that distribution is not governed by marginal productivity but by the distributed profit ratio.


The Structural Profit Law for the elementary consumption economy is summarized with Graphic AXEC08, and for the investment economy with AXEC42.

The Synthesis of Economic Law, Evolution, and History {61}

Working paper at SSRN

Working paper at ARCHIVE

It has long been criticized that history is almost entirely absent from orthodox economics. This deficiency is due to the fact that equilibrium and time make an odd couple. Because equilibrium is one of the crucial hard-core propositions of the research program it cannot be abandoned. This impedes the treatment of time in a methodologically acceptable manner. The orthodox approach is based on indefensible axioms which are in this paper replaced by objective structural axioms. This enables the synthesis of timeless economic laws, randomness, and goal-oriented human action, which are the essential elements of a formally consistent historical account.

The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment {60}

 Working paper at SSRN

Working paper at ARCHIVE

Axiomatization is the prime task of theoretical economics. Without correct axioms, no correct theory. Without correct theory, no understanding of how the economy works. Without empirically corroborated understanding, no useful economic policy advice. Yet, much more important than any political reputation of economics is indeed: without correct axioms, no acceptance as science. There is no way around it, neither for Orthodoxy nor for Heterodoxy. The conceptual consequence of this paper is to discard the subjective-behavioral axioms and to take objective-structural axioms as the formal point of departure. This enables the rectification of the most fatal analytical mistakes of conventional economics.