“inflation is always and everywhere a monetary phenomenon—milton friedman was correct” (Time Preference)
— AXEC (@EgmontHandtke) March 21, 2026
The axiomatically correct macroeconomic Law of Supply and Demand ⇓ tells one how ― in the elementary case ― the avg price P moves under the condition of market clearing as a… pic.twitter.com/zK63LqD9tJ
Showing posts sorted by relevance for query title:price. Sort by date Show all posts
Showing posts sorted by relevance for query title:price. Sort by date Show all posts
March 21, 2026
Occasional X: Clueless economists / Price Mechanism (XII)
August 22, 2024
Occasional X: Clueless economists / Price Mechanism (I)
#Economics#FailedFakeScience
— E.K-H (@AXECorg) August 22, 2024
For 200+ years, economics has claimed to be #Science but is NOT. The major approaches (#Walrasianism, #Keynesianism, #Marxianism, #Austrianism, and their derivatives) are mutually contradictory & axiomatically false & materially/formally…
April 27, 2010
August 24, 2015
It’s the wage-price-productivity mechanism, stupid!
Comment on Mark Thoma on ‘The Fed Looks Set to Make a Dangerous Mistake’
Blog-Reference
The current situation is a clear refutation of both employment and quantity theory. It is an eerie déjà-vu: when things get tough, it becomes self-evident that economists have no idea how the economy works.
There is not much use in discussing defunct theories any further. The most elementary version of the correct Employment Law is summarized with Graphic AXEC62 #1
Blog-Reference
The current situation is a clear refutation of both employment and quantity theory. It is an eerie déjà-vu: when things get tough, it becomes self-evident that economists have no idea how the economy works.
There is not much use in discussing defunct theories any further. The most elementary version of the correct Employment Law is summarized with Graphic AXEC62 #1
This equation tells us three things:
(i) An increase in the expenditure ratio ρE leads to higher employment. A ratio ρE>1 means deficit spending. This option has been exhausted.
(ii) Increasing investment expenditures exert a positive influence on employment. This option, too, has been exhausted.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
The factor cost ratio formally represents the price mechanism, which, however, works quite differently from what standard economics assumes. As a matter of fact, overall employment increases if the average wage rate W increases relative to average price P and productivity R. This is a systemic law and not a behavioral assumption. With price inflation greater than wage inflation, unemployment increases. Translated into a political slogan: price inflation is a bad thing, wage inflation is a good thing.
The core of the employment problem is that the price mechanism does not work as the textbook cliche says. It is contrary to habitual economic intuition (which rests on the Fallacy of Composition), yet there is no way around it: UPward wage rate stickiness produces unemployment and deflation. It is the wage rate and not the interest rate that is crucial in the current situation. Courtesy of the U.S., we now participate in the biggest real-life test in economic history and the most expensive refutation of silly economic theories.
Egmont Kakarot-Handtke
#1 Major Defects of the Market Economy
(i) An increase in the expenditure ratio ρE leads to higher employment. A ratio ρE>1 means deficit spending. This option has been exhausted.
(ii) Increasing investment expenditures exert a positive influence on employment. This option, too, has been exhausted.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
The factor cost ratio formally represents the price mechanism, which, however, works quite differently from what standard economics assumes. As a matter of fact, overall employment increases if the average wage rate W increases relative to average price P and productivity R. This is a systemic law and not a behavioral assumption. With price inflation greater than wage inflation, unemployment increases. Translated into a political slogan: price inflation is a bad thing, wage inflation is a good thing.
The core of the employment problem is that the price mechanism does not work as the textbook cliche says. It is contrary to habitual economic intuition (which rests on the Fallacy of Composition), yet there is no way around it: UPward wage rate stickiness produces unemployment and deflation. It is the wage rate and not the interest rate that is crucial in the current situation. Courtesy of the U.S., we now participate in the biggest real-life test in economic history and the most expensive refutation of silly economic theories.
Egmont Kakarot-Handtke
#1 Major Defects of the Market Economy
For details of the big picture, see cross-references Employment/Phillips Curve.
October 25, 2010
October 5, 2010
June 3, 2026
Occasional X: Clueless economists / Price Mechanism (XVII)
“If this interpretation is correct, then the issue is not merely whether prices are flexible or sticky. The deeper issue concerns the social ontology of prices themselves. In the Walrasian tradition, prices are primarily signals. In the later Hicksian tradition, prices are also… pic.twitter.com/kBm1RSnCIg
— AXEC (@EgmontHandtke) June 3, 2026
March 13, 2016
It’s the price mechanism, stupid!
Comment on Bradford DeLong on ‘Ordoliberalismus and Ordovolkismus’
Blog-Reference and Blog-Reference on Mar 14
You present three propositions about output, deficit spending, and the Keynesian multiplier and then sum up: “That is the simple arithmetic of expansionary fiscal policy in a liquidity trap.”
The fact of the matter is that the multiplier arithmetic is flawed since Keynes. Therefore, the rest of your argument falls flat.
To cut the meticulous formal derivation short (2015; 2014; 2012), the most elementary version of the correct Employment Law for the economy as a whole is given under the label of Graphic as AXEC62:
Blog-Reference and Blog-Reference on Mar 14
You present three propositions about output, deficit spending, and the Keynesian multiplier and then sum up: “That is the simple arithmetic of expansionary fiscal policy in a liquidity trap.”
The fact of the matter is that the multiplier arithmetic is flawed since Keynes. Therefore, the rest of your argument falls flat.
To cut the meticulous formal derivation short (2015; 2014; 2012), the most elementary version of the correct Employment Law for the economy as a whole is given under the label of Graphic as AXEC62:
From this equation follows:
(i) An increase in the expenditure ratio ρE leads to higher employment L (the letter ρ stands for ratio). An expenditure ratio ρE>1 indicates credit expansion, a ratio ρE<1 indicates credit contraction/debt repayment of the household sector.
(ii) Increasing investment expenditures I exert a positive influence on employment; a slowdown of growth does the opposite.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
The complete Employment Law is a bit longer and contains, in addition, profit distribution, public deficit spending, and import/export. From employment L, one comes to output O by multiplying both sides by productivity R. The employment/output equations contain but measurable variables and are testable.
Items (i) and (ii) are familiar since Keynes. What is missing in the Keynesian employment multiplier, though, is the ratio ρF as defined in (iii). This variable embodies the price mechanism. It works such that overall employment increases if the average wage rate W increases relative to the average price P and productivity R.
The Employment Law says that an increase in investment expenditure or deficit spending, i.e., ρE>1, increases employment. The multiplier, though, is different from Keynes’s flawed multiplier. The crucial difference consists of ρF.
The correct Employment Law reproduces the familiar Keynesian mechanisms. What is more important: it shows that the price mechanism, i.e., the relationship of wage rate, price, and productivity ρF, can be used to increase employment/output. Thus, there is, to begin with, no need to increase private/public debt or push investment. The crucial point is that the price mechanism does not work as standard economics claims, in other words, standard price theory is provably false.
Hence, the real problem is not at all that 'Ordoliberalismus and Ordovolkismus' do not understand the logic of deficit spending, but that both Keynesians and Walrasians have no idea of how the price mechanism in the monetary economy works.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
(i) An increase in the expenditure ratio ρE leads to higher employment L (the letter ρ stands for ratio). An expenditure ratio ρE>1 indicates credit expansion, a ratio ρE<1 indicates credit contraction/debt repayment of the household sector.
(ii) Increasing investment expenditures I exert a positive influence on employment; a slowdown of growth does the opposite.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
The complete Employment Law is a bit longer and contains, in addition, profit distribution, public deficit spending, and import/export. From employment L, one comes to output O by multiplying both sides by productivity R. The employment/output equations contain but measurable variables and are testable.
Items (i) and (ii) are familiar since Keynes. What is missing in the Keynesian employment multiplier, though, is the ratio ρF as defined in (iii). This variable embodies the price mechanism. It works such that overall employment increases if the average wage rate W increases relative to the average price P and productivity R.
The Employment Law says that an increase in investment expenditure or deficit spending, i.e., ρE>1, increases employment. The multiplier, though, is different from Keynes’s flawed multiplier. The crucial difference consists of ρF.
The correct Employment Law reproduces the familiar Keynesian mechanisms. What is more important: it shows that the price mechanism, i.e., the relationship of wage rate, price, and productivity ρF, can be used to increase employment/output. Thus, there is, to begin with, no need to increase private/public debt or push investment. The crucial point is that the price mechanism does not work as standard economics claims, in other words, standard price theory is provably false.
Hence, the real problem is not at all that 'Ordoliberalismus and Ordovolkismus' do not understand the logic of deficit spending, but that both Keynesians and Walrasians have no idea of how the price mechanism in the monetary economy works.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
April 3, 2010
April 12, 2010
November 24, 2021
Occasional Tweets: Wage inflation, price inflation, and employment
#DearIdiots#LearnEconomics
— E.K-H (@AXECorg) November 24, 2021
The axiomatically correct macroeconomic #EmploymentLaw tells one that wage rate inflation is GOOD for employment and price inflation is BAD.
Full employment, the Phillips Curve, and the end of Gaganomicshttps://t.co/PzNBprxkBN pic.twitter.com/KtNuawevL3
For details of the big picture see cross-references Employment/Phillips Curve.
October 29, 2026
Occasional X: Clueless economists / Price Mechanism (XIX)
“The market is a democracy. Capitalism is the consummation of the self-determination of consumers.” (Ludwig von Mises) That's one of the biggest underhanded Austrian deceptions ever. There are two markets: the goods market and the labor market. The labor market is no democracy. Here, the workers/employees have not much to say. But the real wage is determined in the interaction of the goods and labor market. Austrians ignore the latter when praising Capitalism. According to the axiomatically correct macroeconomic Law of Supply and Demand, the real wage W/P in the elementary production-consumption economy (⇓ AXEC 28a) rises with the productivity R and declines with deficit-spending/money-creation, i.e., ρE>1. The formula gets a bit more complex for the open investment economy, but basically, it is ρE that separates real wage and productivity. Put simply, the macroeconomic wedge between real wages and productivity is due to private/public deficit-spending/money-creation. It holds that the profit of the business sector is equal to the deficit spending of the household and the government sector. In the most elementary case, i.e., ρE=1 and ρD=0, the real wage is equal to productivity R. The workers get the whole product; profit is zero. Note that (i) productivity is different from (ii) the 'marginal product of labor'. Note that (i) is objective/systemic, and (ii) is subjective/behavioral; it depends on the assumption of constrained optimization. Note that (i) is methodologically right and (ii) is wrong. Ultimately, the market is not a democratic allocation system but a quasi-Darwinian selection mechanism that increases the survival chances of the rich and decreases them for the poor. ρE>1 and ρD>0 favors the rich. That's how the Invisible Hand works. Democracy gets lost in the process. For more details, see Clueless economists / Price Mechanism (XI) https://t.co/iVKYSeXSU3
— AXEC (@EgmontHandtke) October 29, 2026
October 25, 2010
July 20, 2026
Occasional X: Clueless economists / Price Mechanism (XVIII)
“Marxists can never understand the functioning of the market. They believe it’s the costs which determine prices.” (Friedrich Hayek)
— AXEC (@EgmontHandtke) July 20, 2026
The question is whether Friedrich Hayek ever understood the 'functioning of the market'.
The social ontology of prices says that the free-market…
April 19, 2016
It’s the price and profit mechanism, stupid!
Comment on Simon Wren-Lewis on ‘Its ideology, stupid’
Blog-Reference
You say: “What we should be talking about is why governments are not doing much more public investment.”
What the anti-austerity disputants have on their minds is good old Keynesian deficit spending. That is not wrong per se, but it is wrong for an economist. An economist should have realized after more than 80 years that Keynesian theory is defective. The fact of the matter is that (i) the multiplier arithmetic is fallacious, and (ii) that distributional effects are completely overlooked. Deficit spending is the very profit machine and more than anything else accounts for the observable unequal wealth-distribution.*
Could it be that it is not a question of ideology at all, but that Schäuble has a better economic theory at the back of his mind than retarded economists?
To cut a longer formal derivation short (2015), the most elementary version of the macrofounded Employment Law for the economy as a whole is given with Graphic AXEC62
Blog-Reference
You say: “What we should be talking about is why governments are not doing much more public investment.”
What the anti-austerity disputants have on their minds is good old Keynesian deficit spending. That is not wrong per se, but it is wrong for an economist. An economist should have realized after more than 80 years that Keynesian theory is defective. The fact of the matter is that (i) the multiplier arithmetic is fallacious, and (ii) that distributional effects are completely overlooked. Deficit spending is the very profit machine and more than anything else accounts for the observable unequal wealth-distribution.*
Could it be that it is not a question of ideology at all, but that Schäuble has a better economic theory at the back of his mind than retarded economists?
To cut a longer formal derivation short (2015), the most elementary version of the macrofounded Employment Law for the economy as a whole is given with Graphic AXEC62
From this equation follows:
(i) An increase in the expenditure ratio ρE leads to higher employment L (the letter ρ stands for the ratio). An expenditure ratio ρE>1 indicates credit expansion, and a ratio ρE<1 indicates credit contraction of the household sector.
(ii) Increasing investment expenditures I exert a positive influence on employment; a slowdown of growth does the opposite.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
The complete Employment Law is a bit longer and contains, in addition, profit distribution, public deficit spending, and import/export.
Items (i) and (ii) are familiar stuff since Keynes. What is missing in the flawed Keynesian employment multiplier, though, is the ratio ρF as defined with (iii). This variable embodies the price mechanism. It works such that overall employment L increases if the average wage rate W increases relative to the average price P and productivity R.
The correct Employment Law shows that the price mechanism, i.e., the relationship of wage rate, price, and productivity, can be used to increase employment. Thus, there is, as a matter of principle, no need to increase private/public debt or of pushing investment. The crucial point is that the standard price theory is provably false.
The correct economic theory opens new dimensions of economic policy. Or, put the other way round, right policy depends on true theory. Neither Keynesians nor Walrasians, though, have the true theory. In particular, they lack a deeper understanding of how the price and the profit mechanism of the monetary economy work. This is what economists should be talking about before they make fools of themselves with inept economic policy blather.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Related ‘Keynesianism as ultimate profit machine’ and ‘Deficit spending, helicopter money, and profit’
(i) An increase in the expenditure ratio ρE leads to higher employment L (the letter ρ stands for the ratio). An expenditure ratio ρE>1 indicates credit expansion, and a ratio ρE<1 indicates credit contraction of the household sector.
(ii) Increasing investment expenditures I exert a positive influence on employment; a slowdown of growth does the opposite.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
The complete Employment Law is a bit longer and contains, in addition, profit distribution, public deficit spending, and import/export.
Items (i) and (ii) are familiar stuff since Keynes. What is missing in the flawed Keynesian employment multiplier, though, is the ratio ρF as defined with (iii). This variable embodies the price mechanism. It works such that overall employment L increases if the average wage rate W increases relative to the average price P and productivity R.
The correct Employment Law shows that the price mechanism, i.e., the relationship of wage rate, price, and productivity, can be used to increase employment. Thus, there is, as a matter of principle, no need to increase private/public debt or of pushing investment. The crucial point is that the standard price theory is provably false.
The correct economic theory opens new dimensions of economic policy. Or, put the other way round, right policy depends on true theory. Neither Keynesians nor Walrasians, though, have the true theory. In particular, they lack a deeper understanding of how the price and the profit mechanism of the monetary economy work. This is what economists should be talking about before they make fools of themselves with inept economic policy blather.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Related ‘Keynesianism as ultimate profit machine’ and ‘Deficit spending, helicopter money, and profit’
December 17, 2022
Occasional Tweets: A government deficit causes a price hike but no inflation
#LearnEconomics#Inflation
— E.K-H (@AXECorg) December 17, 2022
MMT was right all along: Gov-Deficits do NOT cause inflationhttps://t.co/tNg8dEgo6L
The macroeconomic #LawOfSupplyAndDemand tells one exactly how the #Price P increase as a function of #DeficitSpendingMoneyCreation i.e. the expenditure ratio ρE. pic.twitter.com/lSweXfwzLm
For more about inflation see AXECquery.
January 5, 2022
Occasional Tweets: Price and profit effect of deficit-spending/money-creation
#MacroFoundations#Inflation is a #MacroEconomic phenomenon. The macro #LawOfSupplyAndDemand and the #ProfitLaw tells one how #Price P and #Profit Qm increase as a function of #DeficitSpendingMoneyCreation i.e. the expenditure ratio ρE (→ elementary formulas) pic.twitter.com/TAhHkj2tvr
— E.K-H (@AXECorg) January 5, 2022
March 17, 2026
Occasional X: Clueless economists / Price Mechanism (XI)
“Rationing wasn't about 'fairness' or patriotic sacrifice. It was the only way to prevent the monetary expansion from exploding into visible hyperinflation.” (Handre)
— AXEC (@EgmontHandtke) March 17, 2026
The free-market system is, in the last instance, a quasi-Darwinian selection mechanism, i.e., the economic…
September 5, 2015
Deflation? Oops, price theory, too, is wrong
Comment on ‘Deflation and Money’
Blog-Reference
The current economic situation is a clear refutation of both the commonplace employment and quantity theories. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.
The correct formula for the market-clearing price in the simplified consumption good industry is shown with Graphic AXEC41
Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumer goods industry. The formula follows from (2014, Sec. 5). The more differentiated and therefore better testable formula is given with Graphic AXEC39
Blog-Reference
The current economic situation is a clear refutation of both the commonplace employment and quantity theories. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.
The correct formula for the market-clearing price in the simplified consumption good industry is shown with Graphic AXEC41
Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumer goods industry. The formula follows from (2014, Sec. 5). The more differentiated and therefore better testable formula is given with Graphic AXEC39
The crucial message is that the wage rate is the numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.
The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases, deflation occurs (the rest of the formula kept constant for the moment).
For the rectification of the naive quantity theory, see (2011) (I)/(II).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Economists still do not understand how the price mechanism works. No surprise after endless repetition of the silly supply-demand-equilibrium model. The pivotal relationship is given by the relative changes of average price/wage/productivity. These changes should secure full employment if the standard price theory were correct. It never was. The current unemployment/deflation situation is the mirror image of the unemployment/inflation situation of the ’70s. After New Classicals and New Keynesians have long enough fooled around, it is now high time to finally solve the Phillips curve puzzle. See Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster.
The effective alternative to monetary and fiscal policy fixes is to put the price mechanism to work.
The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases, deflation occurs (the rest of the formula kept constant for the moment).
For the rectification of the naive quantity theory, see (2011) (I)/(II).
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
***
ICYMI (September 7)Economists still do not understand how the price mechanism works. No surprise after endless repetition of the silly supply-demand-equilibrium model. The pivotal relationship is given by the relative changes of average price/wage/productivity. These changes should secure full employment if the standard price theory were correct. It never was. The current unemployment/deflation situation is the mirror image of the unemployment/inflation situation of the ’70s. After New Classicals and New Keynesians have long enough fooled around, it is now high time to finally solve the Phillips curve puzzle. See Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster.
The effective alternative to monetary and fiscal policy fixes is to put the price mechanism to work.
May 12, 2023
Occasional Tweets: The common cause of macroeconomic price and profit increases
#LearnEconomics
— E.K-H (@AXECorg) May 12, 2023
The macroeconomic #LawOfSupplyAndDemand and the #ProfitLaw tell one exactly how avg #Price P & total #Profit Qm move as a function of avg #WageRate W, avg Productivity R & overall #DeficitSpendingMoneyCreation ρE ― which is the common cause. pic.twitter.com/sIJLCaQUPC
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