“….we attack a 150 year old Walras question that's gone unanswered, not for lack of trying … Q: Is the market equilibrium stable or unstable?” (Ivan Werning)
— AXEC (@EgmontHandtke) June 21, 2026
There are multiple methodological faults with General Equilibrium Theory. One of them is time/simultaneity. It has to… pic.twitter.com/qfLcAXvFnB
Showing posts sorted by date for query von Neumann. Sort by relevance Show all posts
Showing posts sorted by date for query von Neumann. Sort by relevance Show all posts
June 21, 2026
Occasional X: Clueless economists / Science (CCCXLVIII)
April 12, 2026
Occasional X: Clueless economists / Science (CCXCXV)
“Utility; for an entrepreneur, ― profit; for a player, gain or loss.” (Theory of Games and Economic Behavior, p. 33, fn. 2) von Neumann/Morgenstern got profit wrong. ⇓ Profit is the foundational economic concept. Because of this, Game Theory has always been irrelevant to… pic.twitter.com/Lys278lnmO
— AXEC (@EgmontHandtke) April 12, 2026
Also at Robert Murphy.
March 20, 2026
Occasional X: Game Theory has no economic content (III)
“Utility; for an entrepreneur, ― profit; for a player, gain or loss.” (Theory of Games and Economic Behavior, p. 33, fn. 2) von Neumann/Morgenstern got profit wrong. ⇓ Profit is the foundational economic concept. Because of this, Game Theory has always been irrelevant to… pic.twitter.com/O7V3fIWwW7
— AXEC (@EgmontHandtke) March 20, 2026
March 13, 2026
Occasional X: Economics and math ― they just can't get it together (X)
“Utility; for an entrepreneur, ― profit; for a player, gain or loss.” (Theory of Games and Economic Behavior, p. 33, fn. 2) von Neumann/Morgenstern got profit wrong. ⇓ Profit is the foundational economic concept. Because of this, Game Theory has always been irrelevant to… pic.twitter.com/aeZEJKpvIr
— AXEC (@EgmontHandtke) March 13, 2026
February 11, 2026
Occasional X: Clueless economists / Science (CCXLXVIII)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) February 11, 2026
“Utility; for an entrepreneur, ― profit; for a player, gain or loss.” (Theory of Games and Economic Behavior, p. 33, fn. 2) von Neumann/Morgenstern got profit wrong. ⇓ Because of this, Game Theory has always been irrelevant to economics.
The major… pic.twitter.com/OFHgkbxtnE
January 27, 2026
Occasional X: Game Theory has no economic content (II)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) January 27, 2026
“Utility; for an entrepreneur, ― profit; for a player, gain or loss.” (Theory of Games and Economic Behavior, p. 33, fn. 2) von Neumann/Morgenstern got profit wrong. ⇓ Because of this, Game Theory has always been irrelevant to economics.
The major… pic.twitter.com/AJVxAJK8mC
May 19, 2023
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, Vol. 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: Hutchinson, 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.
© 2013 EKH, except original quotes
December 28, 2022
Occasional Tweets: Game Theory has no economic content (I)
#Economics#FailedFakeScience#MicroFoundations
— E.K-H (@AXECorg) December 28, 2022
“Utility; for an entrepreneur, ― profit; for a player, gain or loss.” (ToG, p. 33, fn. 2) von Neumann, too, got #ProfitTheory wrong. Bc of this, #GameTheory is irrelevant to #Economics. ⇒https://t.co/g6NHSdK2Jb
For more about von Neumann see AXECquery.
July 4, 2020
Economists: at the end of the wrong track
Comment on Barkley Rosser on ‘July 24 Society For Chaos Theory In Psychology And Life Sciences Conference’
Blog-Reference
As usual, Barkley Rosser promotes cargo cult stuff. Cargo cult was the name that Feynman gave the ‘social sciences’, in order to clearly distinguish them from genuine science. Here are some programmatic highlights from the ongoing aberration:
• "Applications of prisoner's dilemma modeling in search of a more socially just dominant strategy: Overcoming anxiety associated with group oppression: Lessons from a single case study"
• "Stability swtiching in Cournot duopoly games with three delays"
• "Covid-19 and the nonlinear dynamics of everyday life"
All this fits perfectly with Feynman's definition: “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.”
The essential insight that economists are missing is that they are for 200+ years now on the wrong track, i.e., in the wrong Paradigm. Economics is not a 'social science' but a systems science.#1, #2
For Barkley Rosser, it is too late, but for those who are fed up with 200+ years of proto-scientific garbage and want to know what the Paradigm Shift looks like, there is now the first scientifically valid economics textbook available.#3
Egmont Kakarot-Handtke
#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?
#2 Your economics is refuted on all counts: here is the real thing
#3 Sovereign Economics
Related 'Dilettantes at the end of the coal-pit' and 'Modern macro moronism' and 'Economics: 200+ years of scientific incompetence and fraud'.
You say, “Kanye West tweets he’s running for president this year.”
That’s a nice try to distract from the fact that Barkley Rosser is promoting the agenda of the Society for Chaos Theory in Psychology And Life Sciences. The title reminds one immediately of a $30 bill.
Note that economists do not know to this very day what profit is. They are simply too stupid for the elementary algebra that underlies macroeconomics. Just check the proof. #1 What do you think one can learn from failed economists about psychology or any other topic?
Nothing. Right.
By the way, if Caligula made his horse a Roman consul, Kanye West can be made president. What goes on in contemporary politics is old hat in academia. After all, Barkley Rosser has been made an economics professor. And he is not as smart as a horse.
#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?
Section Provably false
Name-dropping again ... the world's leading blablahblah ... cited many tens of thousands of times ... Princeton ... RAND ... John von Neumann ... And almost all are best buddies of the academic busybody Barkley Rosser.
Yes, Barkley Rosser, you know a lot of people from the academic entertainment industry, too bad that you have no idea how the economy works.
You say, “It is true that economists have used game theory a lot, but they did not invent it, and people from many other disciplines have used it.” Did it ever occur to you that game theory is zero-sum and that the market economy is not zero-sum? For 200+ years now, macroeconomic profit is obviously greater than zero. So, to begin with, game theory does NOT apply to economics. Von Neumann’s Theory of Games and Economic Behavior is plain methodological BS because it gets the pivotal economic concept of profit wrong.
And you hang around in academia and all these pointless conferences and have not realized that something is deeply wrong with economics. Guess what, it has nothing to do with animal behavior or the nonlinear dynamics of armed groups in Yemen and Pakistan.
Learn economics, Barkley Rosser. The canonical textbook Sovereign Economics#1 is your last chance.
#1 Amazon or BoD
You say, “Wow, I have not seen you fall so spectacularly on your face practically ever. I do not know where you went to econ grad school, but apparently they did not teach you even the most elementary game theory.” and “Sorry, Egmont, but no, it is not in general zero sum. Indeed, the classic example of it not being zero sum is that most famous of cases you poked at: the prisoner's dilemma.”
Take notice first, Barkley Rosser, that the term game theory covers TWO different approaches, that of von Neumann and that of Nash. The prisoner's dilemma belongs to Nash. Von Neumann had only utter contempt for the Nash approach (see Mirowski, who has extensively dealt with the issue).
Here is the summary: “Finally, algorithmic rationality infected game theory itself, changing von Neumann’s original project considerably. The Nash Equilibrium, for Mirowski the paradigm case of the ‘rationality of the paranoid’ (p. 343), stands for him in marked contrast to von Neumann and Morgenstern’s earlier work. Mirowski points to various sources that report von Neumann’s rejection of the equilibrium concept; further, he finds in Nash’s work all of the ingredients that had beset the Cowles Commission: ‘hyper-individualism, non-accessible utility functions, constrained maximization, and cognition as a species of statistical inference’ (p. 348). The Nash equilibrium, Mirowski concludes, is to be seen as a ‘logical extension of the Walrasian general equilibrium tradition into the Cold War context’ (p. 339), but not as a continuation of von Neumann’s project.”#1
Obviously, it is you who is not familiar with the most elementary facts about game theory. No surprises here.
The term zero-sum game relates to the von Neumann approach and has nothing to do with the prisoner's dilemma.
Von Neumann was well aware that there are non-zero-sum n-person games, but he transformed them into zero-sum games with the introduction of the n+1th player.
Take notice, second, that von Neumann had no idea of what macroeconomic profit is. There are three references to profit in the index and they tell you that von Neumann did not understand the essence of economics. He simply redefined utility as profit for the entrepreneur, see footnote 2 on p. 33 ToG.
No way leads from game theory in any version to macroeconomic profit.#2 Game theory is essentially a new version of the old angels-on-a-pinpoint blather that is so beloved in scientifically incompetent academic circles, of which you are a card-carrying member.
Economics is a fake science, and you are living proof.
#1 Economica Till Gruene
#2 Wikipedia, economics, scientific knowledge, or political agenda pushing?
The lethal defect of game theory is that neither von Neumann nor Nash got the foundational economic concept of profit right. This defect they share with the representative economist to this very day.
So, this whole set-theoretical fireworks with Brower's and Kakutani's fixpoint theorems is scientifically beside the point and serves only to train mentally retarded economists to dance around false-hero memorials.
Von Neumann got his math from Hilbert in Göttingen. There, he was one of many talented mathematicians. He learned soon that he could sell his talent at a premium in the United States. In an environment that runs on the principles of show business, he hyped himself or was hyped to the status of mathematical demi-good (Mirowski, Machine Dreams).
Von Neumann was on the payroll of the military and he died as an alcoholic in the Institute for Advanced Salaries as he himself called it. In sum, von Neumann was instrumental in weaponizing mathematics and swapping the principles of science for the dictates of show business. In the history of science, von Neumann will feature as one of the corruptors of mathematics.
The sickest joke in the sick story of game theory is that the foundational blunder of economics lies on the level of elementary algebra.#1 So much for the achievements of mathematical economics. It is proto-scientific garbage, just like the rest of economics.
Here is the three-step program for the New Paradigm
1. Defund economics.
2. Fire economists.
3. Scrap the lot and start again. (J. Robinson)
#1 Your economics is refuted on all counts: here is the real thing
You say: “What? Joan Robinson accepted your wacko profit theory, Egmont? I never knew.”
Of course, you know nothing because you are not only stupid but also lazy. Go to the library and get Robinson, J. (1956). The Accumulation of Capital. London: Macmillan. See pp. 400-402.
“… an excess of investment over saving is an undistributed profit to the firm, …” (p. 402), and this corresponds formally to equation (32) in my 2011 working paper Keynes’s Missing Axioms.
Do you need more proof of your utter scientific incompetence, wacko Barkley?
You say, “I have never said that your theory is wrong, but rather that it is a vcuous tautology. Everybody knows about retained earnings, and it is a matter of no importance except slightly in determining investment.”
No, you did not say that my profit theory is wrong, you said that it is wacko.
You try to suggest that for me “… thinking about retained earnings is the most important thing in economics, …”.
No, the most important thing in economics is to get the foundational concept of profit right. And the fact of the matter is that economics is provably false on this all-decisive score for 200+ years.#1
Economics is NOT a science, economists are NOT scientists but clowns and useful idiots in the political Circus Maximus. The representative economist is stupid or corrupt or both. The economics Nobel is a fraud.
#1 Your economics is refuted on all counts: here is the real thing
You say, “The wacko part is that you think it is important. It is utterly trivial. It is rather like somebody deciding that the fundamental key to understanding all of mathematics is to realize that 7 + 2 = 9. This is certainly true, and it is also something that anybody who knows even basic arithmetic knows.”
By trying to trivialize the absolutely devastating proof that economists got profit wrong for 200+ years, you shoot yourself in the head.
Ultimately, the Profit Law for the investment economy, i.e., Qm≡I−Sm, is indeed trivial. It is elementary algebra. The point is that economists are too stupid for elementary algebra.#1 And because of this, they get profit for the elementary production-consumption economy, i.e. Qm≡−Sm, wrong, and then the more complex investment economy with profit distribution, i.e. Qm≡Yd+I−Sm, and so on. By consequence: because economists are too stupid for the elementary algebra of macroeconomic profit determination, the whole analytical superstructure of economics is provably false. As a consequence, economic policy guidance has never had sound scientific foundations.
This proven scientific incompetence does not only apply to Barkley Rosser, it applies also to his faculty. More, it applies to ALL economics faculties in the United States, and it applies to the American Economic Association and the peer-reviewers of its journals. ALL these folks get the trivial algebra of profit wrong.
#1 See section ‘Provably false’ in Wikipedia, economics, scientific knowledge, or political agenda pushing?
You say “Weil, Egmont, my evolutionary game theorist friend, Bill Sandhlm may have just blown his brains out, at least he did himself in somehow or other. Perhaps he read your recent writings and took them too cloaely to heart. Heck, he might even have come to believe that 2=7=10. ”
The University of Wisconsin–Madison says “Colleagues knew Bill as “a genuine scientist; detail-oriented, open-minded, and uncompromising in the pursuit of truth,” “a humble scholar with an enormous love for research,” “an exceptional human being, generous with his time,” “kind and supportive to all, and a cherished mentor.” and “After years of struggling with depression, Bill ended his life earlier this week.”
Blog-Reference
As usual, Barkley Rosser promotes cargo cult stuff. Cargo cult was the name that Feynman gave the ‘social sciences’, in order to clearly distinguish them from genuine science. Here are some programmatic highlights from the ongoing aberration:
• "Applications of prisoner's dilemma modeling in search of a more socially just dominant strategy: Overcoming anxiety associated with group oppression: Lessons from a single case study"
• "Stability swtiching in Cournot duopoly games with three delays"
• "Covid-19 and the nonlinear dynamics of everyday life"
All this fits perfectly with Feynman's definition: “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.”
The essential insight that economists are missing is that they are for 200+ years now on the wrong track, i.e., in the wrong Paradigm. Economics is not a 'social science' but a systems science.#1, #2
For Barkley Rosser, it is too late, but for those who are fed up with 200+ years of proto-scientific garbage and want to know what the Paradigm Shift looks like, there is now the first scientifically valid economics textbook available.#3
Egmont Kakarot-Handtke
#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?
#2 Your economics is refuted on all counts: here is the real thing
#3 Sovereign Economics
Related 'Dilettantes at the end of the coal-pit' and 'Modern macro moronism' and 'Economics: 200+ years of scientific incompetence and fraud'.
***
REPLY to Fred C. Dobbs on Jul 5You say, “Kanye West tweets he’s running for president this year.”
That’s a nice try to distract from the fact that Barkley Rosser is promoting the agenda of the Society for Chaos Theory in Psychology And Life Sciences. The title reminds one immediately of a $30 bill.
Note that economists do not know to this very day what profit is. They are simply too stupid for the elementary algebra that underlies macroeconomics. Just check the proof. #1 What do you think one can learn from failed economists about psychology or any other topic?
Nothing. Right.
By the way, if Caligula made his horse a Roman consul, Kanye West can be made president. What goes on in contemporary politics is old hat in academia. After all, Barkley Rosser has been made an economics professor. And he is not as smart as a horse.
#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?
Section Provably false
***
REPLY to Barkley Rosser on Jul 6Name-dropping again ... the world's leading blablahblah ... cited many tens of thousands of times ... Princeton ... RAND ... John von Neumann ... And almost all are best buddies of the academic busybody Barkley Rosser.
Yes, Barkley Rosser, you know a lot of people from the academic entertainment industry, too bad that you have no idea how the economy works.
You say, “It is true that economists have used game theory a lot, but they did not invent it, and people from many other disciplines have used it.” Did it ever occur to you that game theory is zero-sum and that the market economy is not zero-sum? For 200+ years now, macroeconomic profit is obviously greater than zero. So, to begin with, game theory does NOT apply to economics. Von Neumann’s Theory of Games and Economic Behavior is plain methodological BS because it gets the pivotal economic concept of profit wrong.
And you hang around in academia and all these pointless conferences and have not realized that something is deeply wrong with economics. Guess what, it has nothing to do with animal behavior or the nonlinear dynamics of armed groups in Yemen and Pakistan.
Learn economics, Barkley Rosser. The canonical textbook Sovereign Economics#1 is your last chance.
#1 Amazon or BoD
***
REPLY to Barkley Rosser on Jul 7You say, “Wow, I have not seen you fall so spectacularly on your face practically ever. I do not know where you went to econ grad school, but apparently they did not teach you even the most elementary game theory.” and “Sorry, Egmont, but no, it is not in general zero sum. Indeed, the classic example of it not being zero sum is that most famous of cases you poked at: the prisoner's dilemma.”
Take notice first, Barkley Rosser, that the term game theory covers TWO different approaches, that of von Neumann and that of Nash. The prisoner's dilemma belongs to Nash. Von Neumann had only utter contempt for the Nash approach (see Mirowski, who has extensively dealt with the issue).
Here is the summary: “Finally, algorithmic rationality infected game theory itself, changing von Neumann’s original project considerably. The Nash Equilibrium, for Mirowski the paradigm case of the ‘rationality of the paranoid’ (p. 343), stands for him in marked contrast to von Neumann and Morgenstern’s earlier work. Mirowski points to various sources that report von Neumann’s rejection of the equilibrium concept; further, he finds in Nash’s work all of the ingredients that had beset the Cowles Commission: ‘hyper-individualism, non-accessible utility functions, constrained maximization, and cognition as a species of statistical inference’ (p. 348). The Nash equilibrium, Mirowski concludes, is to be seen as a ‘logical extension of the Walrasian general equilibrium tradition into the Cold War context’ (p. 339), but not as a continuation of von Neumann’s project.”#1
Obviously, it is you who is not familiar with the most elementary facts about game theory. No surprises here.
The term zero-sum game relates to the von Neumann approach and has nothing to do with the prisoner's dilemma.
Von Neumann was well aware that there are non-zero-sum n-person games, but he transformed them into zero-sum games with the introduction of the n+1th player.
Take notice, second, that von Neumann had no idea of what macroeconomic profit is. There are three references to profit in the index and they tell you that von Neumann did not understand the essence of economics. He simply redefined utility as profit for the entrepreneur, see footnote 2 on p. 33 ToG.
No way leads from game theory in any version to macroeconomic profit.#2 Game theory is essentially a new version of the old angels-on-a-pinpoint blather that is so beloved in scientifically incompetent academic circles, of which you are a card-carrying member.
Economics is a fake science, and you are living proof.
#1 Economica Till Gruene
#2 Wikipedia, economics, scientific knowledge, or political agenda pushing?
***
REPLY to Barkley Rosser on Jul 8The lethal defect of game theory is that neither von Neumann nor Nash got the foundational economic concept of profit right. This defect they share with the representative economist to this very day.
So, this whole set-theoretical fireworks with Brower's and Kakutani's fixpoint theorems is scientifically beside the point and serves only to train mentally retarded economists to dance around false-hero memorials.
Von Neumann got his math from Hilbert in Göttingen. There, he was one of many talented mathematicians. He learned soon that he could sell his talent at a premium in the United States. In an environment that runs on the principles of show business, he hyped himself or was hyped to the status of mathematical demi-good (Mirowski, Machine Dreams).
Von Neumann was on the payroll of the military and he died as an alcoholic in the Institute for Advanced Salaries as he himself called it. In sum, von Neumann was instrumental in weaponizing mathematics and swapping the principles of science for the dictates of show business. In the history of science, von Neumann will feature as one of the corruptors of mathematics.
The sickest joke in the sick story of game theory is that the foundational blunder of economics lies on the level of elementary algebra.#1 So much for the achievements of mathematical economics. It is proto-scientific garbage, just like the rest of economics.
Here is the three-step program for the New Paradigm
1. Defund economics.
2. Fire economists.
3. Scrap the lot and start again. (J. Robinson)
#1 Your economics is refuted on all counts: here is the real thing
***
REPLY to Barkley Rosser on Jul 8You say: “What? Joan Robinson accepted your wacko profit theory, Egmont? I never knew.”
Of course, you know nothing because you are not only stupid but also lazy. Go to the library and get Robinson, J. (1956). The Accumulation of Capital. London: Macmillan. See pp. 400-402.
“… an excess of investment over saving is an undistributed profit to the firm, …” (p. 402), and this corresponds formally to equation (32) in my 2011 working paper Keynes’s Missing Axioms.
Do you need more proof of your utter scientific incompetence, wacko Barkley?
***
REPLY to Barkley Rosser on Jul 9You say, “I have never said that your theory is wrong, but rather that it is a vcuous tautology. Everybody knows about retained earnings, and it is a matter of no importance except slightly in determining investment.”
No, you did not say that my profit theory is wrong, you said that it is wacko.
You try to suggest that for me “… thinking about retained earnings is the most important thing in economics, …”.
No, the most important thing in economics is to get the foundational concept of profit right. And the fact of the matter is that economics is provably false on this all-decisive score for 200+ years.#1
Economics is NOT a science, economists are NOT scientists but clowns and useful idiots in the political Circus Maximus. The representative economist is stupid or corrupt or both. The economics Nobel is a fraud.
#1 Your economics is refuted on all counts: here is the real thing
***
REPLY to Barkley Rosser on Jul 10You say, “The wacko part is that you think it is important. It is utterly trivial. It is rather like somebody deciding that the fundamental key to understanding all of mathematics is to realize that 7 + 2 = 9. This is certainly true, and it is also something that anybody who knows even basic arithmetic knows.”
By trying to trivialize the absolutely devastating proof that economists got profit wrong for 200+ years, you shoot yourself in the head.
Ultimately, the Profit Law for the investment economy, i.e., Qm≡I−Sm, is indeed trivial. It is elementary algebra. The point is that economists are too stupid for elementary algebra.#1 And because of this, they get profit for the elementary production-consumption economy, i.e. Qm≡−Sm, wrong, and then the more complex investment economy with profit distribution, i.e. Qm≡Yd+I−Sm, and so on. By consequence: because economists are too stupid for the elementary algebra of macroeconomic profit determination, the whole analytical superstructure of economics is provably false. As a consequence, economic policy guidance has never had sound scientific foundations.
This proven scientific incompetence does not only apply to Barkley Rosser, it applies also to his faculty. More, it applies to ALL economics faculties in the United States, and it applies to the American Economic Association and the peer-reviewers of its journals. ALL these folks get the trivial algebra of profit wrong.
#1 See section ‘Provably false’ in Wikipedia, economics, scientific knowledge, or political agenda pushing?
***
REPLY to Barkley Rosser on Jul 11You say “Weil, Egmont, my evolutionary game theorist friend, Bill Sandhlm may have just blown his brains out, at least he did himself in somehow or other. Perhaps he read your recent writings and took them too cloaely to heart. Heck, he might even have come to believe that 2=7=10. ”
The University of Wisconsin–Madison says “Colleagues knew Bill as “a genuine scientist; detail-oriented, open-minded, and uncompromising in the pursuit of truth,” “a humble scholar with an enormous love for research,” “an exceptional human being, generous with his time,” “kind and supportive to all, and a cherished mentor.” and “After years of struggling with depression, Bill ended his life earlier this week.”
September 29, 2019
Economics, math, pluralism, and corruption
Comment on Barkley Rosser on ‘Computable economics’
Blog-Reference and Blog-Reference
Barkley Rosser summarizes: “Regarding the Horgan piece on pluralistic math, he is not up on the deeper aspects of this, which have been around for a long time, ….” and “This actually has spilled over into economics with the group calling themselves ‘computable economists’ …, whose leader has long been Kumaraswamy Vela Velupillai. He and his followers think basic economic theorems should be proven using constructivist methods, …” and “This is certainly very esoteric theoretical stuff without obvious direct implications for current policy disputes. It is also true that even within the world of pure economic theory, it may well be that this constructivist computable program may simply lead to the theory being harder to do or prove.”
The simple fact of the matter is that science is about true/false, but about 99 percent of any population are not scientists but live in the swamp between true/false, where “nothing is clear and everything is possible.” (Keynes) This applies, in particular, to economists. 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 actually have is the pluralism of provably false theories.
This, of course, is absolutely at odds with the very essence of science: “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)
Economists do not have the true theory to this day. Because of this, the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is plain fraud.
Economists, of course, do not admit that they are stupid or corrupt or both but simply try to redefine science: “The first distinction you draw is that the old paradigm (OPE) is anti-pluralist (as in classical physics), while the new paradigm (NPE) is pluralist (as in modern physics).” (Fullbrook) #1, #2, #3
To cover their scientific failure and to justify swampiness, economists love to cite stuff they do not understand, like Heisenberg’s Uncertainty Principle, Gödel’s Incompleteness Theorems, or the alleged pluralism of mathematics. #4
The point to grasp is that pluralism is a political principle that can be traced back to the Peace of Westphalia, which ended the European wars of religion in 1648. The guiding idea since then has been the peaceful coexistence of incompatible religious beliefs and the end of attempts to prove hallucinatory religious truths by victory in battle.
This laudable political principle, though, does not carry over to science, where truth comes in the singular and NOT as pluralism of provably false theories. The very characteristic of science is to replace the pluralism of opinions with certain knowledge. #5 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)
According to this criterion, economics is a failed science. Economists, of course, try to evade this conclusion. Since Adam Smith/Karl Marx, they insist on doing science. What they have been doing, though, is political agenda-pushing in the cloak of science.
The dismal scientific fact of the “dismal science” is that economists are too stupid for the elementary algebra that underlies macroeconomics. Logical consistency, as it is embodied in the corpus of mathematics, has always been the weak point of economics.
This weakness did not escape mathematicians: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)
Later on, von Neumann started in earnest to rectify the formalism of Walrasian economics: “You know, Oskar, if those books are unearthed sometime a few hundred years hence, people will not believe they were written in our time. Rather, they will think that they are about contemporary with Newton, so primitive is their mathematics. Economics is simply still a million miles away from the state in which an advanced science is, such as physics.” (quoted in Ingrao et al.) The final result of von Neumann’s intervention was General Equilibrium Theory. Von Neumann and others rectified the mathematical formalism; however, they retained the Walrasian axioms (methodological individualism, constrained optimization, equilibrium, etc.).#6
Moreover, GE has been established by an existence proof. The fixpoint theorem, though, does not tell the coordinates of the equilibrium nor whether and how it can be reached. This is where the critique of Kumaraswamy Velupillai and the concept of computable economics kicks in. However, as the ToC of Computable Economics shows (e.g., Computable Rationality, Adaptive Behavior, Learning in a Computable Setting, etc.), Velupillai sticks to the old Walrasian behavioral concepts. What Velupillai does NOT realize is that economics cannot be based on behavioral microfoundations.
Standard economics is false because it is based on false microeconomic axioms. Keynesian economics is false because it is based on false macroeconomic axioms. Velupillai’s shift from set theory to recursion theory is pointless because he makes the same mistake as von Neumann, i.e., he does not realize that economics is axiomatically defective. A computable equilibrium is pointless, to begin with, because equilibrium is a petitio principii since Jevons/Walras/Menger.
What is straightforwardly computable in economics is, for example, profit. Curiously, the promoter of computable economics has never computed the key variable macroeconomic profit. Worse, he has not even realized that Keynesian macroeconomics is utter algebraic garbage.
Proof: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, GT, p. 63) is false. Instead of I=S, Q≡I−S holds in the most elementary case with Q as macroeconomic profit. #7, #8
The balance of the business sector, i.e., macroeconomic profit, is computable; however, the champion of computable economics has failed to this day to compute the pivotal variable of all of economics. The mathematical incompetence of economists is the ultimate reason why economics is nothing more than the forever unacceptable pluralism of false theories. This, in turn, means that economic policy guidance NEVER had sound scientific foundations. #9 Computable economics has NOT rectified this lethal defect and, given scientifically incompetent promoters like Kumaraswamy Velupillai, never will.
Egmont Kakarot-Handtke
#1 How Heterodoxy became the venue for science’s scum
#2 Failed economics: The losers’ long list of lame excuses
#3 A political stench is in the air
#4 Scientific American, Is Mathematics, like Science, Pluralistic? Mathematicians disagree over whether their fundamental assumptions, or axioms, are true
#5 “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)
#6 “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub)
#7 How Keynes got macro wrong and Allais got it right
#8 Knowledge is attainable ― even in economics
#9 For details, see cross-references Methodology
Related 'How economists shoot themselves non-stop in the methodological foot'
Since Sonnenschein/Mantel/Debreu, it is generally known that General Equilibrium Theory = mainstream economics is a failed approach. This means (i) that economic policy guidance has NO valid scientific foundations, (ii) that economics needs a Paradigm Shift: “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)
Obviously, there is to this very day ‘no indication of what it might mean’ to perform the indispensable Paradigm Shift.
In his formal rectification of Walrasian economics, von Neumann applied set theory. This was state-of-the-art concerning mathematics, but was not such a good idea concerning economics: “Thus not all axiomatic theories need to be phrased in terms of set theory but much more conveniently and intelligibly rather in terms of some advanced mathematical structures.” (Schmiechen)
Therefore, Velupillai’s shift from set theory to recursion theory is certainly a promising move to get out of von Neumann’s set-theoretical dead end. The irony is that economists fail to this day at the simple algebra of macroeconomic accounting. #1
The remark: “At the end of his life von Neumann eseentially sided with Velupillai in pointing to greater use of computers, …” shows that you are still deep in the woods. Computable economics is a methodological issue for economists, the greater use of computers is a practical issue for all walks of life.
Right policy depends on true theory. Because economic theory is axiomatically false, economic policy can only make matters worse.
#1 For details of the big picture, see cross-references Accounting
Brouwer, Gödel, et al., and all the questions about the foundations of mathematics are irrelevant for economics. Economics needs only elementary algebra for a start. And neither Brouwer nor Gödel contested the validity of algebra. The fact of the matter is that the representative economist is too stupid for algebra.
Von Neumann’s lethal blunder was to adopt the concept of utility/preferences from Neoclassics (see The Notion of Utility, ToG, p. 15ff). For deeper methodological reasons, which have been given elsewhere, economics cannot be built upon the behavioral assumption of (cardinal/ordinal) utility maximization.
Von Neumann axiomatized game theory, which is absolutely irrelevant to economics. Game theory deals with zero-sum games and “payouts” and it should be obvious to every economist that the economy is NOT a zero-sum game and that profit is NOT a “payout”. Macroeconomic profit is for 200+ years now greater than zero, which tells one that von Neumann had NO idea what profit ― the foundational magnitude of economics ― is.
Neither has the applause-troll Barkley Rosser ― whose main business is the self-congratulation of failed economics, the erection of false-hero memorials, the bestowal of fake Nobels, and the deception of the general public about the proto-scientific state of economics ― nor the rest of scientifically incompetent economists. Fact is: the Profit Theory is false from Adam Smith to von Neumann to Barkley Rosser, and this has NOTHING to do with constructive or intuitionist math.
Barkley Rosser claims “… but these days one cannot even get into a grad econ program without having a near perfect score on the quant GRE, at least in the US. Pretty much everybody going through econ grad school has a reasonably decent knowledge of algebra.”
EK-H claims: The representative economist is too stupid for the elementary algebra that underlies macroeconomics.
Proof: Keynes was a trained mathematician. He stated in his General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This is provably false. The mathematically correct relationship reads Q≡I−S with Q as macroeconomic profit.
After-Keynesians who have allegedly “a reasonably decent knowledge of algebra” have NOT spotted Keynes’s blunder to this day. For example, Paul Krugman still applies IS-LM.
Conclusion: Mathematically trained economists are too stupid for the elementary algebra that underlies macroeconomics. Their utter scientific incompetence notwithstanding, they are awarded “Nobels”.
Political implication: Economics is mathematically flawed to this day. Economic policy guidance has NEVER had valid scientific foundations. Economists (left-center-right does NOT matter) are either stupid or corrupt or both, and a hazard to their fellow citizens.
Barkley Rosser re-frames the point at issue: “Most of what he [Mark Thoma] links to are things with policy implications. But occasionally, he posts oddball stuff that he thinks has some intellectual interest that is not directly policy-related. This was one of those links, about ‘pluralistic math,’ something not many people know anything about.”
Nothing could be further from the truth. Mathematics, like economics long before, is now also politically weaponized. To recall, Walrasian General Equilibrium Theory claims that the market economy is a spontaneous, self-optimizing, stable system. Walras knew quite well that in the Age of Science, he had to prove this claim. He failed, and the mathematicians von Neumann/Wald kicked off the formal rectification, which ended with Arrow/Debreu/ McKenzie/Nash’s existence theorem. This theorem amounts politically to the scientific legitimization of Capitalism. Arrow/Debreu et al. were on the payroll of the Cowles Commission, which is named after its founder and funder, the “businessman and economist Alfred Cowles” (Wikipedia).
As it became increasingly clear that GET is proto-scientific garbage and the existence proof had been a contract job on behalf of the Oligarchy, Walrasian economics had to give up its claim to scientific truth. Strictly speaking, it had to bury itself at the Flat-Earth-Cemetery #1, but instead, it remained firmly in academic place and merely performed an orderly withdrawal. This move comes under the euphemism of Pluralism or Anything-Goes. People love Pluralism because it gives them the license to choose their subjective truth and to ignore the taxing demand for material/formal consistency that has defined science for 2300+ years. Pluralism/Anything-Goes is anti-scientific but has some political merits. Economists busily produce many “truths”, and the Oligarchy picks the one that fits the actual circumstances best. Thus, academic economists add some scientific legitimacy to economic policy. For their valuable propaganda services, economists are rewarded with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Pluralism is nothing but the methodological smoke screen of richly rewarded useful political idiots.
Remains one problem. Mathematics is binary true/false. Political creatures, though, thrive in the swampy zone of the excluded middle between true/false, where “nothing is clear and everything is possible” (Keynes). Political agenda pushers try to keep everything open to interpretation and negotiation. #2 In the eyes of political agenda pushers, science/ mathematics, with its insistence on consistency and proof, is just a nuisance.
What Mark Thoma tells his fellow economists is NOT some oddball stuff about some remote “intellectual frisson” but that mathematics, too, is in the process of Pluralization. This is good news for all fake scientists and, contrary to the assertions of Barkley Rosser, it has enormous policy implications.
To replace the idea of scientific/mathematical truth with Pluralism is nothing else than the ultimate political corruption of science.
#1 “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)
#2 And the answer is NCND ― economics after 200+ years of Glomarization
Blog-Reference and Blog-Reference
Barkley Rosser summarizes: “Regarding the Horgan piece on pluralistic math, he is not up on the deeper aspects of this, which have been around for a long time, ….” and “This actually has spilled over into economics with the group calling themselves ‘computable economists’ …, whose leader has long been Kumaraswamy Vela Velupillai. He and his followers think basic economic theorems should be proven using constructivist methods, …” and “This is certainly very esoteric theoretical stuff without obvious direct implications for current policy disputes. It is also true that even within the world of pure economic theory, it may well be that this constructivist computable program may simply lead to the theory being harder to do or prove.”
The simple fact of the matter is that science is about true/false, but about 99 percent of any population are not scientists but live in the swamp between true/false, where “nothing is clear and everything is possible.” (Keynes) This applies, in particular, to economists. 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 actually have is the pluralism of provably false theories.
This, of course, is absolutely at odds with the very essence of science: “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)
Economists do not have the true theory to this day. Because of this, the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is plain fraud.
Economists, of course, do not admit that they are stupid or corrupt or both but simply try to redefine science: “The first distinction you draw is that the old paradigm (OPE) is anti-pluralist (as in classical physics), while the new paradigm (NPE) is pluralist (as in modern physics).” (Fullbrook) #1, #2, #3
To cover their scientific failure and to justify swampiness, economists love to cite stuff they do not understand, like Heisenberg’s Uncertainty Principle, Gödel’s Incompleteness Theorems, or the alleged pluralism of mathematics. #4
The point to grasp is that pluralism is a political principle that can be traced back to the Peace of Westphalia, which ended the European wars of religion in 1648. The guiding idea since then has been the peaceful coexistence of incompatible religious beliefs and the end of attempts to prove hallucinatory religious truths by victory in battle.
This laudable political principle, though, does not carry over to science, where truth comes in the singular and NOT as pluralism of provably false theories. The very characteristic of science is to replace the pluralism of opinions with certain knowledge. #5 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)
According to this criterion, economics is a failed science. Economists, of course, try to evade this conclusion. Since Adam Smith/Karl Marx, they insist on doing science. What they have been doing, though, is political agenda-pushing in the cloak of science.
The dismal scientific fact of the “dismal science” is that economists are too stupid for the elementary algebra that underlies macroeconomics. Logical consistency, as it is embodied in the corpus of mathematics, has always been the weak point of economics.
This weakness did not escape mathematicians: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)
Later on, von Neumann started in earnest to rectify the formalism of Walrasian economics: “You know, Oskar, if those books are unearthed sometime a few hundred years hence, people will not believe they were written in our time. Rather, they will think that they are about contemporary with Newton, so primitive is their mathematics. Economics is simply still a million miles away from the state in which an advanced science is, such as physics.” (quoted in Ingrao et al.) The final result of von Neumann’s intervention was General Equilibrium Theory. Von Neumann and others rectified the mathematical formalism; however, they retained the Walrasian axioms (methodological individualism, constrained optimization, equilibrium, etc.).#6
Moreover, GE has been established by an existence proof. The fixpoint theorem, though, does not tell the coordinates of the equilibrium nor whether and how it can be reached. This is where the critique of Kumaraswamy Velupillai and the concept of computable economics kicks in. However, as the ToC of Computable Economics shows (e.g., Computable Rationality, Adaptive Behavior, Learning in a Computable Setting, etc.), Velupillai sticks to the old Walrasian behavioral concepts. What Velupillai does NOT realize is that economics cannot be based on behavioral microfoundations.
Standard economics is false because it is based on false microeconomic axioms. Keynesian economics is false because it is based on false macroeconomic axioms. Velupillai’s shift from set theory to recursion theory is pointless because he makes the same mistake as von Neumann, i.e., he does not realize that economics is axiomatically defective. A computable equilibrium is pointless, to begin with, because equilibrium is a petitio principii since Jevons/Walras/Menger.
What is straightforwardly computable in economics is, for example, profit. Curiously, the promoter of computable economics has never computed the key variable macroeconomic profit. Worse, he has not even realized that Keynesian macroeconomics is utter algebraic garbage.
Proof: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, GT, p. 63) is false. Instead of I=S, Q≡I−S holds in the most elementary case with Q as macroeconomic profit. #7, #8
The balance of the business sector, i.e., macroeconomic profit, is computable; however, the champion of computable economics has failed to this day to compute the pivotal variable of all of economics. The mathematical incompetence of economists is the ultimate reason why economics is nothing more than the forever unacceptable pluralism of false theories. This, in turn, means that economic policy guidance NEVER had sound scientific foundations. #9 Computable economics has NOT rectified this lethal defect and, given scientifically incompetent promoters like Kumaraswamy Velupillai, never will.
Egmont Kakarot-Handtke
#1 How Heterodoxy became the venue for science’s scum
#2 Failed economics: The losers’ long list of lame excuses
#3 A political stench is in the air
#4 Scientific American, Is Mathematics, like Science, Pluralistic? Mathematicians disagree over whether their fundamental assumptions, or axioms, are true
#5 “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)
#6 “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub)
#7 How Keynes got macro wrong and Allais got it right
#8 Knowledge is attainable ― even in economics
#9 For details, see cross-references Methodology
Related 'How economists shoot themselves non-stop in the methodological foot'
***
REPLY to Barkley Rosser, anne on Oct 1Since Sonnenschein/Mantel/Debreu, it is generally known that General Equilibrium Theory = mainstream economics is a failed approach. This means (i) that economic policy guidance has NO valid scientific foundations, (ii) that economics needs a Paradigm Shift: “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)
Obviously, there is to this very day ‘no indication of what it might mean’ to perform the indispensable Paradigm Shift.
In his formal rectification of Walrasian economics, von Neumann applied set theory. This was state-of-the-art concerning mathematics, but was not such a good idea concerning economics: “Thus not all axiomatic theories need to be phrased in terms of set theory but much more conveniently and intelligibly rather in terms of some advanced mathematical structures.” (Schmiechen)
Therefore, Velupillai’s shift from set theory to recursion theory is certainly a promising move to get out of von Neumann’s set-theoretical dead end. The irony is that economists fail to this day at the simple algebra of macroeconomic accounting. #1
The remark: “At the end of his life von Neumann eseentially sided with Velupillai in pointing to greater use of computers, …” shows that you are still deep in the woods. Computable economics is a methodological issue for economists, the greater use of computers is a practical issue for all walks of life.
Right policy depends on true theory. Because economic theory is axiomatically false, economic policy can only make matters worse.
#1 For details of the big picture, see cross-references Accounting
***
REPLY to Barkley Rosser, anne on Oct 2Brouwer, Gödel, et al., and all the questions about the foundations of mathematics are irrelevant for economics. Economics needs only elementary algebra for a start. And neither Brouwer nor Gödel contested the validity of algebra. The fact of the matter is that the representative economist is too stupid for algebra.
Von Neumann’s lethal blunder was to adopt the concept of utility/preferences from Neoclassics (see The Notion of Utility, ToG, p. 15ff). For deeper methodological reasons, which have been given elsewhere, economics cannot be built upon the behavioral assumption of (cardinal/ordinal) utility maximization.
Von Neumann axiomatized game theory, which is absolutely irrelevant to economics. Game theory deals with zero-sum games and “payouts” and it should be obvious to every economist that the economy is NOT a zero-sum game and that profit is NOT a “payout”. Macroeconomic profit is for 200+ years now greater than zero, which tells one that von Neumann had NO idea what profit ― the foundational magnitude of economics ― is.
Neither has the applause-troll Barkley Rosser ― whose main business is the self-congratulation of failed economics, the erection of false-hero memorials, the bestowal of fake Nobels, and the deception of the general public about the proto-scientific state of economics ― nor the rest of scientifically incompetent economists. Fact is: the Profit Theory is false from Adam Smith to von Neumann to Barkley Rosser, and this has NOTHING to do with constructive or intuitionist math.
***
REPLY to Barkley Rosser, anne on Oct 3Barkley Rosser claims “… but these days one cannot even get into a grad econ program without having a near perfect score on the quant GRE, at least in the US. Pretty much everybody going through econ grad school has a reasonably decent knowledge of algebra.”
EK-H claims: The representative economist is too stupid for the elementary algebra that underlies macroeconomics.
Proof: Keynes was a trained mathematician. He stated in his General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This is provably false. The mathematically correct relationship reads Q≡I−S with Q as macroeconomic profit.
After-Keynesians who have allegedly “a reasonably decent knowledge of algebra” have NOT spotted Keynes’s blunder to this day. For example, Paul Krugman still applies IS-LM.
Conclusion: Mathematically trained economists are too stupid for the elementary algebra that underlies macroeconomics. Their utter scientific incompetence notwithstanding, they are awarded “Nobels”.
Political implication: Economics is mathematically flawed to this day. Economic policy guidance has NEVER had valid scientific foundations. Economists (left-center-right does NOT matter) are either stupid or corrupt or both, and a hazard to their fellow citizens.
***
REPLY to Barkley Rosser, anne on Oct 4Barkley Rosser re-frames the point at issue: “Most of what he [Mark Thoma] links to are things with policy implications. But occasionally, he posts oddball stuff that he thinks has some intellectual interest that is not directly policy-related. This was one of those links, about ‘pluralistic math,’ something not many people know anything about.”
Nothing could be further from the truth. Mathematics, like economics long before, is now also politically weaponized. To recall, Walrasian General Equilibrium Theory claims that the market economy is a spontaneous, self-optimizing, stable system. Walras knew quite well that in the Age of Science, he had to prove this claim. He failed, and the mathematicians von Neumann/Wald kicked off the formal rectification, which ended with Arrow/Debreu/ McKenzie/Nash’s existence theorem. This theorem amounts politically to the scientific legitimization of Capitalism. Arrow/Debreu et al. were on the payroll of the Cowles Commission, which is named after its founder and funder, the “businessman and economist Alfred Cowles” (Wikipedia).
As it became increasingly clear that GET is proto-scientific garbage and the existence proof had been a contract job on behalf of the Oligarchy, Walrasian economics had to give up its claim to scientific truth. Strictly speaking, it had to bury itself at the Flat-Earth-Cemetery #1, but instead, it remained firmly in academic place and merely performed an orderly withdrawal. This move comes under the euphemism of Pluralism or Anything-Goes. People love Pluralism because it gives them the license to choose their subjective truth and to ignore the taxing demand for material/formal consistency that has defined science for 2300+ years. Pluralism/Anything-Goes is anti-scientific but has some political merits. Economists busily produce many “truths”, and the Oligarchy picks the one that fits the actual circumstances best. Thus, academic economists add some scientific legitimacy to economic policy. For their valuable propaganda services, economists are rewarded with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Pluralism is nothing but the methodological smoke screen of richly rewarded useful political idiots.
Remains one problem. Mathematics is binary true/false. Political creatures, though, thrive in the swampy zone of the excluded middle between true/false, where “nothing is clear and everything is possible” (Keynes). Political agenda pushers try to keep everything open to interpretation and negotiation. #2 In the eyes of political agenda pushers, science/ mathematics, with its insistence on consistency and proof, is just a nuisance.
What Mark Thoma tells his fellow economists is NOT some oddball stuff about some remote “intellectual frisson” but that mathematics, too, is in the process of Pluralization. This is good news for all fake scientists and, contrary to the assertions of Barkley Rosser, it has enormous policy implications.
To replace the idea of scientific/mathematical truth with Pluralism is nothing else than the ultimate political corruption of science.
#1 “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)
#2 And the answer is NCND ― economics after 200+ years of Glomarization
***
Graphic AXEC121i
***
Enlightening external link to Miles Mathis’ Gödel’s Incompleteness Theorems. Among others: “I am not concerned that Russell was against the bomb or the war or anything else. Just as I am not concerned that Einstein was against the bomb or the war. I am concerned that mathematicians and physicists cannot do algebra.”
July 6, 2019
The only thing we can learn from economic models is what proto-scientific garbage looks like
Comment on Lars Syll on ‘What can we learn from economic models?’
Blog-Reference
Economists in general and Lars Syll, in particular, are in a desperate struggle with scientific methodology: “Some economic methodologists have lately been arguing that economic models may well be considered ‘minimal models’ that portray ‘credible worlds’ without having to care about things like similarity, isomorphism, simplified representationality or resemblance to the real world. These models are said to resemble ‘realistic novels’ that portray ‘possible worlds’. And sure: economists constructing and working with that kind of models learn things about what might happen in those ‘possible worlds’. But is that really the stuff real science is made of? I think not.” and “Science has to be something more than just more or less realistic ‘story-telling’ or ‘explanatory fictionalism’. One has to provide decisive empirical evidence that what can be inferred in a model also helps us to uncover what actually goes on in the real world.”
Science consists of two essential elements: “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) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-art testing. Or, as Aristotle put it pack in 400 BC: “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.”
So, it is well-known for a long time what scientific methodology is except among economists. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit ― the foundational concept of the subject matter ― wrong.
Of all imbeciles that open their mouths in economics, methodologists are the worst. They have consistently failed to spot elementary methodological blunders.#1 Economics is bad science but the economic methodology is even worse. This applies to Orthodoxy and Heterodoxy.#2, #3, #4, #5
Lars Syll’s critique is trivially true: “As long as one doesn’t come up with credible export warrants to real-world target systems and show how those models ― often building on idealizations with known to be false assumptions ― enhance our understanding or explanations about the real world, well, then they are just nothing more than just novels.” However, the heterodox methodologist Lars Syll NEVER came up with something better which, in turn, is acceptable because he is only a self-declared humble Humean Under-Labourer who is satisfied with “clearing Ground a little, and removing some of the Rubbish, that lies in the way to Knowledge.”
This is a bit unambitious because the premises of Orthodoxy are obviously idiotic. The hardcore propositions of microeconomics are given: “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)
It is pretty obvious that this (verbalized) axiom set consists of multiple NONENTITIES and does NOT satisfy Aristotle’s criteria, viz. “certain, true, and primary”. Von Neumann identified the Walrasian approach as given with HC1 to HC5 as petitio principii, that is, as methodologically unacceptable. (TOG p. 15)#6 Keynes tried to replace microfoundations with macrofoundations, however, Keynesian macrofoundations are also materially/formally inconsistent.
So, what can we learn from economic models? All models that contain a NONENTITY are a priori false. In practical terms: as soon as one of the axioms HC1 to HC5 appears in an economics paper it can be thrown into the wastebasket. The same applies to all macroeconomic models that contain I=S. What we learn is that the greater part of peer-reviewed models that appear in flagship journals and in textbooks#7 is proto-scientific garbage and that both orthodox and heterodox economists have to be expelled from the sciences because of proven incompetence. Economists themselves are the “Rubbish, that lies in the way to Knowledge”.
Egmont Kakarot-Handtke
#1 How incompetent are economic methodologists? Very!
#2 Still in the proto-scientific wood
#3 The economist as storyteller
#4 Are economics professors really that incompetent? Yes!
#5 How to spot economics trolls
#6 The Palgrave Dictionary ― a comprehensive collection of False-Hero Memorials
#7 To this day*, economists have produced NOT ONE textbook that satisfies scientific standards
Related 'False models and true incompetence' and 'All models are false because all economists are stupid' and 'The Ur-Blunder of economics and its rectification' and 'From Keynes’ fatal blunder to the true economic model' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?' and 'Summary on ‘Musings on Whether We Consciously Know More or Less than What Is in Our Models…’' and 'Neoclassical growth theory: modeling gone nuts' and 'Failed economics: The losers’ long list of lame excuses' and 'From the pluralism of false models to the true economic theory' and 'Yes, orthodox economics is poor science, but can Heterodoxy raise hope?' and 'The canonical macroeconomic model'. For details of the big picture see cross-references Methodology.
Blog-Reference
Economists in general and Lars Syll, in particular, are in a desperate struggle with scientific methodology: “Some economic methodologists have lately been arguing that economic models may well be considered ‘minimal models’ that portray ‘credible worlds’ without having to care about things like similarity, isomorphism, simplified representationality or resemblance to the real world. These models are said to resemble ‘realistic novels’ that portray ‘possible worlds’. And sure: economists constructing and working with that kind of models learn things about what might happen in those ‘possible worlds’. But is that really the stuff real science is made of? I think not.” and “Science has to be something more than just more or less realistic ‘story-telling’ or ‘explanatory fictionalism’. One has to provide decisive empirical evidence that what can be inferred in a model also helps us to uncover what actually goes on in the real world.”
Science consists of two essential elements: “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) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-art testing. Or, as Aristotle put it pack in 400 BC: “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.”
So, it is well-known for a long time what scientific methodology is except among economists. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit ― the foundational concept of the subject matter ― wrong.
Of all imbeciles that open their mouths in economics, methodologists are the worst. They have consistently failed to spot elementary methodological blunders.#1 Economics is bad science but the economic methodology is even worse. This applies to Orthodoxy and Heterodoxy.#2, #3, #4, #5
Lars Syll’s critique is trivially true: “As long as one doesn’t come up with credible export warrants to real-world target systems and show how those models ― often building on idealizations with known to be false assumptions ― enhance our understanding or explanations about the real world, well, then they are just nothing more than just novels.” However, the heterodox methodologist Lars Syll NEVER came up with something better which, in turn, is acceptable because he is only a self-declared humble Humean Under-Labourer who is satisfied with “clearing Ground a little, and removing some of the Rubbish, that lies in the way to Knowledge.”
This is a bit unambitious because the premises of Orthodoxy are obviously idiotic. The hardcore propositions of microeconomics are given: “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)
It is pretty obvious that this (verbalized) axiom set consists of multiple NONENTITIES and does NOT satisfy Aristotle’s criteria, viz. “certain, true, and primary”. Von Neumann identified the Walrasian approach as given with HC1 to HC5 as petitio principii, that is, as methodologically unacceptable. (TOG p. 15)#6 Keynes tried to replace microfoundations with macrofoundations, however, Keynesian macrofoundations are also materially/formally inconsistent.
So, what can we learn from economic models? All models that contain a NONENTITY are a priori false. In practical terms: as soon as one of the axioms HC1 to HC5 appears in an economics paper it can be thrown into the wastebasket. The same applies to all macroeconomic models that contain I=S. What we learn is that the greater part of peer-reviewed models that appear in flagship journals and in textbooks#7 is proto-scientific garbage and that both orthodox and heterodox economists have to be expelled from the sciences because of proven incompetence. Economists themselves are the “Rubbish, that lies in the way to Knowledge”.
Egmont Kakarot-Handtke
#1 How incompetent are economic methodologists? Very!
#2 Still in the proto-scientific wood
#3 The economist as storyteller
#4 Are economics professors really that incompetent? Yes!
#5 How to spot economics trolls
#6 The Palgrave Dictionary ― a comprehensive collection of False-Hero Memorials
#7 To this day*, economists have produced NOT ONE textbook that satisfies scientific standards
Related 'False models and true incompetence' and 'All models are false because all economists are stupid' and 'The Ur-Blunder of economics and its rectification' and 'From Keynes’ fatal blunder to the true economic model' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?' and 'Summary on ‘Musings on Whether We Consciously Know More or Less than What Is in Our Models…’' and 'Neoclassical growth theory: modeling gone nuts' and 'Failed economics: The losers’ long list of lame excuses' and 'From the pluralism of false models to the true economic theory' and 'Yes, orthodox economics is poor science, but can Heterodoxy raise hope?' and 'The canonical macroeconomic model'. For details of the big picture see cross-references Methodology.
***
#PointOfProof
Jul 7
June 25, 2019
The Palgrave Dictionary ― a comprehensive collection of false-hero memorials
Comment on Barkley Rosser on ‘Learning The Origin Of “Duality”’
Blog-Reference
Barkley Rosser reports: “Yesterday I learned that the person who first used the term ‘duality’ in connection with linear programming, indeed with anything in economics, was John von Neumann in a private conversation with George Dantzig in 1947, the ‘father of linear programming.’ That was the year Dantzig published his paper showing the simplex method for solving linear programming problems, bot their primals and their duals. … It is not really surprising that it would be von Neumann as there are deep links between oprimizing programming and game theory.”
Yes, indeed, and the deep link is in the Walrasians axioms. The hardcore propositions of microeconomics are given with: “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)
This axiom set contains a lot of NONENTITIES, a fact that did not escape the mathematicians: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)
The next mathematician to realize that Walrasian mathematics was not up to standards was von Neumann: “You know, Oskar, if those books are unearthed sometime a few hundred years hence, people will not believe they were written in our time. Rather, they will think that they are about contemporary with Newton, so primitive is their mathematics. Economics is simply still a million miles away from the state in which an advanced science is, such as physics.”
The two central issues the mathematicians addressed were HC2, i.e., constrained optimization, and HC5, i.e., equilibrium. The end result was General Equilibrium Theory, which is known today to be a failure. #1 The mathematicians fixed the economists’ mathematical blunders #2, #3, but von Neumann uncritically bought into the silly behavioral assumptions of mainstream economics. #4 So, the project of the proper formalization of economics had one fatal drawback: von Neumann left the foundational assumptions untouched: “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub)
Because of this, the NONENTITIES HC2 and HC5 are still with us from choice theory to Game Theory. Strictly speaking, von Neumann messed up the Paradigm Shift, and this is where things stand to this day: “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.)
Barkley Rosser does not fail to mention that economists have developed the habit to award themselves faux Nobels for their scientific failure and that “it has long been viewed by many as being one of the greatest mistakes and wrongs that when the Nobel Prize was given for linear programming, Dantzig was not one of the recipients, …” Indeed, False-Hero Memorials are the real problem of the cargo cult science economics.
Egmont Kakarot-Handtke
#1 “At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin. It has been a dead alley because the most rigorous solution of the existence problem by Arrow and Debreu turns general theory into a mathematical puzzle applied to a virtual economy that can be imagined but could not possibly exist, while the extremely relevant ‘stability problem’ has never been solved either rigorously or sloppily. General theory is simply a research program that has run into the sands.” (Blaug)
#2 “The so-called ‘mathematical’ economists in the narrower sense ― Walras, Pareto, Fisher, Cassel, and hosts of other later ones ― especially, have completely failed even to see the task that was before them. Professor Hicks has to be added to this list, which is regrettable because he wrote several years after decisive work had been done ― in principle ― by J. von Neumann and A. Wald.” (Morgenstern)
#3 “Consequently, it was the von Neumann perspective that shaped general equilibrium theory and game theory, and thus reconstituted economic theory. Thus, David Hilbert was the spiritual grandfather of this new economics. (Weintraub) Interestingly, both von Neumann and Einstein got/took their advanced math from Hilbert and the Göttingen School.
#4 “In any event, it seems that Morgenstern finally convinced von Neumann that they must proceed tactically by means of the conciliatory move of phrasing the payoffs in terms of an entity called ‘utility’, but one that von Neumann would demonstrate was cardinal ― in other words, for all practical purposes indistinguishable from money . . .” (Mirowski)
When the classical economists for a moment stopped writing their silly propaganda pamphlets and watched what was going on in the triumphant sciences they could not fail to notice that calculus was a core element of analysis: “Already Maupertuis considered his minimum principle as proof that the world, where among many virtual movements the one leading to maximum effect with minimum effort is realized, is the ‘best of all worlds’ and work of a purposeful creator. Euler made a similar remark: ‘Since the construction of the whole world is the most eminent and since it originated from the wisest creator, nothing is found in the world which would not show a maximum or minimum characteristic.’ ...” (von Bertalanffy)
Economists had the presence of mind to adopt optimization as a foundational principle, and eventually it became HC2 of the Walrasian axiom set. This is how economics became marginalistic and remained so to this day: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...” (Krugman)
Constrained optimization is simple if the assumption of a well-behaved production function is added. In the course of time, mathematicians found solutions for more complicated problems of production, transport, warfare, and the like. This is where Dantzig and Kantorovich came in.
However, while mathematicians developed solutions for real-world problems, economists applied constrained optimization to human behavior. This is the foundational idiotism of microfoundations: “Throughout its history, the idea of some ‘Fundamental Assumption’, some basic ‘Economic Principle’ about human conduct, from which much or most of economics can ultimately be deduced, has been deeply rooted in the procedure of economic theory. Some such notion is still, in many quarters, dominant at the present time. For example, it has recently been stated that the task of economics is ‘to display the structure and working of the economic cosmos as an outgrowth of the maximum principle’.” (Hutchison)
The point is: no way leads from a behavioral assumption (optimization or otherwise) to the understanding of how the economy works. Standard economics is based on behavioral axioms, and this is not a solid enough foundation: “… if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses.” (Slutsky)
So, mathematicians have done a fine job of solving all kinds of complex optimization problems. This, though, does not alter the fact that microfoundations HC1 to HC5 are proto-scientific garbage and have to be replaced by macrofoundations. This is called a Paradigm Shift, which, as everyone knows by now, has been messed up by the waffling economist Keynes. Economists are simply too stupid for the elementary mathematics that underlies macroeconomics. #1, #2
Economists claim, since Adam Smith, that the free market economy is self-regulating and self-optimizing if left to itself. In reality, it is just the opposite: the real part of the economy is kept on life support by the government, and the monetary/financial part is kept on life support by the Central Bank. #3
Economics is a failed science, and the Bank of Sweden's fake Nobel is the most fraudulent of all False-Hero Memorials. #3
#1 Are economics professors really that incompetent? Yes!
#2 Econ 101: Economists flunk the intelligence test at the first hurdle
#3 The Levy/Kalecki Profit Equation is false
You say: “Sorry, but a lot of the people you label as ‘economists’ were or are really mathematicians, e.g., von Neumann, Nash, Kantorovich.”
No. My point is that it was mathematicians and not economists who cleared up the mathematical mess of economists and did all the heavy lifting that resulted in General Equilibrium Theory. See Mirowski’s More Heat Than Light for the finer points, especially how mathematically trained engineers who dabbled in economics desperately tried to make economists aware that they applied calculus incorrectly. To no avail, of course.
It is mathematicians who deserve most or all of the credit for solving the tricky optimization problems that were implicit in the (verbalized, i.e., not yet formalized) Walrasian axiom HC2. Solving optimization problems is mathematics and, strictly speaking, not economics. Economics is about how the economic system works. The simple fact of the matter is that General Equilibrium Theory, which is based on HC2, i.e., constrained optimization, and HC5, i.e., equilibrium, does NOT explain how the economy works. This showpiece of the mathematicians’ ingenuity has NO economic content at all. GET belongs to the “... crop of monster-structures, entirely without application.” (Bourbaki)
To award an economics “Nobel” to a mathematical achievement has to be seen as an attempt to give the cargo cult science economics the appearance of genuine science.
Von Neumann’s contribution has to be seen in the context of the ideological/physical war capitalism/USA vs communism/Russia, and the involvement of mathematicians/physicists in the development of the atom bomb. Von Neumann recommended himself to the US military with his famous statement: “If you say why not bomb them tomorrow, I say why not today? If you say today at five o’clock, I say why not one o’clock?” (Wikiquote)
The US military needed the most advanced mathematics available on the planet, so von Neumann was sent to Göttingen: “In 1926 von Neumann went to Göttingen on a Rockefeller fellowship to work as Hilbert’s assistant. Göttingen was not only one of the centers of mathematics, but it also was a mecca of theoretical physics; thus in Göttingen von Neumann could familiarize himself with the latest developments concerning quantum mechanics. Hilbert himself gave lectures on the mathematical foundations of quantum mechanics in the academic year 1926-1927. Von Neumann attended these lectures, and working out the lecture notes taken during those lectures led to a joint publication and eventually to von Neumann’s three ground breaking papers on the mathematical foundations of quantum mechanics that served as the basis of his book.” #1
Not to forget, Game Theory is not so much about parlor games or the problems of incarcerated mobsters or strategic economic behavior as about war games.
What von Neumann learned from Hilbert was the crucial importance of axiomatization: “When we assemble the facts of a definite, more-or-less comprehensive field of knowledge, we soon notice that these facts are capable of being ordered. This ordering always comes about with the help of a certain framework of concepts... The framework of concepts is nothing other than the theory of the field of knowledge. ... If we consider a particular theory more closely, we always see that a few distinguished propositions of the field of knowledge underlie the construction of the framework of concepts, and these propositions then suffice by themselves for the construction, in accordance with logical principles, of the entire framework. ... The procedure of the axiomatic method, as it is expressed here, amounts to a deepening of the foundations of the individual domains of knowledge — a deepening that is necessary for every edifice that one wishes to expand and to build higher while preserving its stability.” (Hilbert)
Note that the Theory of Games and Economic Behavior is axiomatized.
You say: “To the extent what they [the mathematicians] did id not good because of a failure to allow for a macrofoundatiions and that amounts to recognizing your silly profit accounting, your comments are just irrelevant and silly, Egmont.”
What I actually say is that ECONOMISTS are too stupid for the elementary mathematics that underlies macroeconomics. This is a provable fact.
Since Keynes, neither Post-Keynesians nor New Keynesians nor Anti-Keynesians have realized that I=S is false and has to be replaced by Q≡I−S, with Q representing macroeconomic profit. What Hilbert called “the framework of concepts” is false in economics to this day.
Needless to emphasize that you neither understand the problem of the proper axiomatization of economics nor the macroeconomic Profit Law. So, you are the ideal person to work on a new edition of the Palgrave collection of False-Hero-Memorials of the cargo cult science economics.
Economics is a failed/fake science, and the Palgrave Dictionary, and you are part of it. Economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.
#1 PDFs.semanticscholar Miklós Rédei, John von Neumann 1903-1957
Let’s return to the main point: “According to George Dantzig, the duality theorem for linear optimization was conjectured by John von Neumann immediately after Dantzig presented the linear programming problem. Von Neumann noted that he was using information from his game theory, and conjectured that two person zero sum matrix game was equivalent to linear programming.” #1
Von Neumann identified the Walrasian approach as given with the verbalized axioms HC1 to HC5 as petitio principii (TOG p. 15), that is, as methodologically unacceptable. #2 So, he introduced a new set of axioms: “An exact and exhaustive elaboration of these ideas requires the use of the axiomatic method.” (TOG p. 19) The formulation of a new set (TOG p. 24 f..) amounts to a Paradigm Shift.
Note, in particular, von Neumann’s general remark on axiomatization: “The axioms should not be too numerous, their system is to be as simple and transparent as possible, and each axiom should have an immediate intuitive meaning by which its appropriateness may be judged directly.” (TOG p. 25)
Generally speaking, von Neumann’s approach is (i) behavioral and (ii) bottom-up. In this, it resembles the Walrasian approach. Both may be put together under the label microfoundations. Now, the correct approach to economics is (i) structural and (ii) top-down. For good methodological reasons, economics has to be macrofounded.
Game Theory is predicated on von Neumann’s specification of utility (TOG p. 15) and this leads to the concept of zero-sum games: “In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.” #3 Note that there is a quite subtle transition from utility (ordinal) to profit (cardinal): “In 1944, John von Neumann and Oskar Morgenstern proved that any non-zero-sum game for n players is equivalent to a zero-sum game with n+1 players; the (n+1)th player representing the global profit or loss.” #3
And exactly here is the lethal blunder: global profit or loss cannot be determined within the framework of Game Theory.
Here is the axiomatically correct proof. 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.
Note that this set satisfies von Neumann’s general criteria of proper axiomatization as quoted above.
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. This is the macroeconomic Law of Supply and Demand.
The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e., it holds X=O. The condition of budget balancing, i.e., C=Yw, is now skipped. The monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S.
The balances add up to zero. The mirror image of household sector saving S is the business sector loss (-Q). The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.
From Q+S=0, one could conclude that economics is a zero-sum game between the business sector and the household sector. However, this is only the first half of the truth. From the fact that profit comes from dissaving, it follows that the household sector accumulates debt (overdrafts at the central bank) while the business sector accumulates money (deposits at the central bank). Now, debt has to be eventually repaid, and this inverts the whole game: profit Q in period t is exactly annihilated by loss (-Q) in period t+1. The mirror image is dissaving (-S) in t and saving S in t+1. The result of these interlocked zero-sum games is zero profit over all periods.
The monetary economy is an intertemporal zero-sum game, and the n+1th player is the future. This is the reason why capitalism will eventually break down and NOT Marx’s phony Revolution of the Proletariat. The intertemporal zero-sum theorem fully replaces folk psychology/ sociology. Note that the intertemporal zero-sum theorem holds for a monetary economy that is for capitalism AND communism, AND anything in between. Which in turn proves that political economics has NEVER been anything other than proto-scientific garbage of the worst sort.
#1 Wikipedia Duality (optimization)
#2 Petitio principii — economists’ biggest methodological mistake
#3 Wikipedia Zero-sum game
#4 The Levy/Kalecki Profit Equation is false
Blog-Reference
Barkley Rosser reports: “Yesterday I learned that the person who first used the term ‘duality’ in connection with linear programming, indeed with anything in economics, was John von Neumann in a private conversation with George Dantzig in 1947, the ‘father of linear programming.’ That was the year Dantzig published his paper showing the simplex method for solving linear programming problems, bot their primals and their duals. … It is not really surprising that it would be von Neumann as there are deep links between oprimizing programming and game theory.”
Yes, indeed, and the deep link is in the Walrasians axioms. The hardcore propositions of microeconomics are given with: “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)
This axiom set contains a lot of NONENTITIES, a fact that did not escape the mathematicians: “Walras approached Poincaré for his approval. ... But Poincaré was devoutly committed to applied mathematics and did not fail to notice that utility is a nonmeasurable magnitude. ... He also wondered about the premises of Walras’s mathematics: It might be reasonable, as a first approximation, to regard men as completely self-interested, but the assumption of perfect foreknowledge ‘perhaps requires a certain reserve’.” (Porter)
The next mathematician to realize that Walrasian mathematics was not up to standards was von Neumann: “You know, Oskar, if those books are unearthed sometime a few hundred years hence, people will not believe they were written in our time. Rather, they will think that they are about contemporary with Newton, so primitive is their mathematics. Economics is simply still a million miles away from the state in which an advanced science is, such as physics.”
The two central issues the mathematicians addressed were HC2, i.e., constrained optimization, and HC5, i.e., equilibrium. The end result was General Equilibrium Theory, which is known today to be a failure. #1 The mathematicians fixed the economists’ mathematical blunders #2, #3, but von Neumann uncritically bought into the silly behavioral assumptions of mainstream economics. #4 So, the project of the proper formalization of economics had one fatal drawback: von Neumann left the foundational assumptions untouched: “But this [establishing the analytic mother-structure] required one very crucial maneuver that was nowhere stated explicitly: namely, that the model of Walrasian general equilibrium was the root structure from which all further work in economics would eventuate.” (Weintraub)
Because of this, the NONENTITIES HC2 and HC5 are still with us from choice theory to Game Theory. Strictly speaking, von Neumann messed up the Paradigm Shift, and this is where things stand to this day: “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.)
Barkley Rosser does not fail to mention that economists have developed the habit to award themselves faux Nobels for their scientific failure and that “it has long been viewed by many as being one of the greatest mistakes and wrongs that when the Nobel Prize was given for linear programming, Dantzig was not one of the recipients, …” Indeed, False-Hero Memorials are the real problem of the cargo cult science economics.
Egmont Kakarot-Handtke
#1 “At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin. It has been a dead alley because the most rigorous solution of the existence problem by Arrow and Debreu turns general theory into a mathematical puzzle applied to a virtual economy that can be imagined but could not possibly exist, while the extremely relevant ‘stability problem’ has never been solved either rigorously or sloppily. General theory is simply a research program that has run into the sands.” (Blaug)
#2 “The so-called ‘mathematical’ economists in the narrower sense ― Walras, Pareto, Fisher, Cassel, and hosts of other later ones ― especially, have completely failed even to see the task that was before them. Professor Hicks has to be added to this list, which is regrettable because he wrote several years after decisive work had been done ― in principle ― by J. von Neumann and A. Wald.” (Morgenstern)
#3 “Consequently, it was the von Neumann perspective that shaped general equilibrium theory and game theory, and thus reconstituted economic theory. Thus, David Hilbert was the spiritual grandfather of this new economics. (Weintraub) Interestingly, both von Neumann and Einstein got/took their advanced math from Hilbert and the Göttingen School.
#4 “In any event, it seems that Morgenstern finally convinced von Neumann that they must proceed tactically by means of the conciliatory move of phrasing the payoffs in terms of an entity called ‘utility’, but one that von Neumann would demonstrate was cardinal ― in other words, for all practical purposes indistinguishable from money . . .” (Mirowski)
***
REPLY to Barkley Rosser on Jun 26When the classical economists for a moment stopped writing their silly propaganda pamphlets and watched what was going on in the triumphant sciences they could not fail to notice that calculus was a core element of analysis: “Already Maupertuis considered his minimum principle as proof that the world, where among many virtual movements the one leading to maximum effect with minimum effort is realized, is the ‘best of all worlds’ and work of a purposeful creator. Euler made a similar remark: ‘Since the construction of the whole world is the most eminent and since it originated from the wisest creator, nothing is found in the world which would not show a maximum or minimum characteristic.’ ...” (von Bertalanffy)
Economists had the presence of mind to adopt optimization as a foundational principle, and eventually it became HC2 of the Walrasian axiom set. This is how economics became marginalistic and remained so to this day: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...” (Krugman)
Constrained optimization is simple if the assumption of a well-behaved production function is added. In the course of time, mathematicians found solutions for more complicated problems of production, transport, warfare, and the like. This is where Dantzig and Kantorovich came in.
However, while mathematicians developed solutions for real-world problems, economists applied constrained optimization to human behavior. This is the foundational idiotism of microfoundations: “Throughout its history, the idea of some ‘Fundamental Assumption’, some basic ‘Economic Principle’ about human conduct, from which much or most of economics can ultimately be deduced, has been deeply rooted in the procedure of economic theory. Some such notion is still, in many quarters, dominant at the present time. For example, it has recently been stated that the task of economics is ‘to display the structure and working of the economic cosmos as an outgrowth of the maximum principle’.” (Hutchison)
The point is: no way leads from a behavioral assumption (optimization or otherwise) to the understanding of how the economy works. Standard economics is based on behavioral axioms, and this is not a solid enough foundation: “… if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses.” (Slutsky)
So, mathematicians have done a fine job of solving all kinds of complex optimization problems. This, though, does not alter the fact that microfoundations HC1 to HC5 are proto-scientific garbage and have to be replaced by macrofoundations. This is called a Paradigm Shift, which, as everyone knows by now, has been messed up by the waffling economist Keynes. Economists are simply too stupid for the elementary mathematics that underlies macroeconomics. #1, #2
Economists claim, since Adam Smith, that the free market economy is self-regulating and self-optimizing if left to itself. In reality, it is just the opposite: the real part of the economy is kept on life support by the government, and the monetary/financial part is kept on life support by the Central Bank. #3
Economics is a failed science, and the Bank of Sweden's fake Nobel is the most fraudulent of all False-Hero Memorials. #3
#1 Are economics professors really that incompetent? Yes!
#2 Econ 101: Economists flunk the intelligence test at the first hurdle
#3 The Levy/Kalecki Profit Equation is false
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REPLY to Barkley Rosser on Jun 27You say: “Sorry, but a lot of the people you label as ‘economists’ were or are really mathematicians, e.g., von Neumann, Nash, Kantorovich.”
No. My point is that it was mathematicians and not economists who cleared up the mathematical mess of economists and did all the heavy lifting that resulted in General Equilibrium Theory. See Mirowski’s More Heat Than Light for the finer points, especially how mathematically trained engineers who dabbled in economics desperately tried to make economists aware that they applied calculus incorrectly. To no avail, of course.
It is mathematicians who deserve most or all of the credit for solving the tricky optimization problems that were implicit in the (verbalized, i.e., not yet formalized) Walrasian axiom HC2. Solving optimization problems is mathematics and, strictly speaking, not economics. Economics is about how the economic system works. The simple fact of the matter is that General Equilibrium Theory, which is based on HC2, i.e., constrained optimization, and HC5, i.e., equilibrium, does NOT explain how the economy works. This showpiece of the mathematicians’ ingenuity has NO economic content at all. GET belongs to the “... crop of monster-structures, entirely without application.” (Bourbaki)
To award an economics “Nobel” to a mathematical achievement has to be seen as an attempt to give the cargo cult science economics the appearance of genuine science.
Von Neumann’s contribution has to be seen in the context of the ideological/physical war capitalism/USA vs communism/Russia, and the involvement of mathematicians/physicists in the development of the atom bomb. Von Neumann recommended himself to the US military with his famous statement: “If you say why not bomb them tomorrow, I say why not today? If you say today at five o’clock, I say why not one o’clock?” (Wikiquote)
The US military needed the most advanced mathematics available on the planet, so von Neumann was sent to Göttingen: “In 1926 von Neumann went to Göttingen on a Rockefeller fellowship to work as Hilbert’s assistant. Göttingen was not only one of the centers of mathematics, but it also was a mecca of theoretical physics; thus in Göttingen von Neumann could familiarize himself with the latest developments concerning quantum mechanics. Hilbert himself gave lectures on the mathematical foundations of quantum mechanics in the academic year 1926-1927. Von Neumann attended these lectures, and working out the lecture notes taken during those lectures led to a joint publication and eventually to von Neumann’s three ground breaking papers on the mathematical foundations of quantum mechanics that served as the basis of his book.” #1
Not to forget, Game Theory is not so much about parlor games or the problems of incarcerated mobsters or strategic economic behavior as about war games.
What von Neumann learned from Hilbert was the crucial importance of axiomatization: “When we assemble the facts of a definite, more-or-less comprehensive field of knowledge, we soon notice that these facts are capable of being ordered. This ordering always comes about with the help of a certain framework of concepts... The framework of concepts is nothing other than the theory of the field of knowledge. ... If we consider a particular theory more closely, we always see that a few distinguished propositions of the field of knowledge underlie the construction of the framework of concepts, and these propositions then suffice by themselves for the construction, in accordance with logical principles, of the entire framework. ... The procedure of the axiomatic method, as it is expressed here, amounts to a deepening of the foundations of the individual domains of knowledge — a deepening that is necessary for every edifice that one wishes to expand and to build higher while preserving its stability.” (Hilbert)
Note that the Theory of Games and Economic Behavior is axiomatized.
You say: “To the extent what they [the mathematicians] did id not good because of a failure to allow for a macrofoundatiions and that amounts to recognizing your silly profit accounting, your comments are just irrelevant and silly, Egmont.”
What I actually say is that ECONOMISTS are too stupid for the elementary mathematics that underlies macroeconomics. This is a provable fact.
Since Keynes, neither Post-Keynesians nor New Keynesians nor Anti-Keynesians have realized that I=S is false and has to be replaced by Q≡I−S, with Q representing macroeconomic profit. What Hilbert called “the framework of concepts” is false in economics to this day.
Needless to emphasize that you neither understand the problem of the proper axiomatization of economics nor the macroeconomic Profit Law. So, you are the ideal person to work on a new edition of the Palgrave collection of False-Hero-Memorials of the cargo cult science economics.
Economics is a failed/fake science, and the Palgrave Dictionary, and you are part of it. Economics needs a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.
#1 PDFs.semanticscholar Miklós Rédei, John von Neumann 1903-1957
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REPLY to Barkley Rosser on Jun 28Let’s return to the main point: “According to George Dantzig, the duality theorem for linear optimization was conjectured by John von Neumann immediately after Dantzig presented the linear programming problem. Von Neumann noted that he was using information from his game theory, and conjectured that two person zero sum matrix game was equivalent to linear programming.” #1
Von Neumann identified the Walrasian approach as given with the verbalized axioms HC1 to HC5 as petitio principii (TOG p. 15), that is, as methodologically unacceptable. #2 So, he introduced a new set of axioms: “An exact and exhaustive elaboration of these ideas requires the use of the axiomatic method.” (TOG p. 19) The formulation of a new set (TOG p. 24 f..) amounts to a Paradigm Shift.
Note, in particular, von Neumann’s general remark on axiomatization: “The axioms should not be too numerous, their system is to be as simple and transparent as possible, and each axiom should have an immediate intuitive meaning by which its appropriateness may be judged directly.” (TOG p. 25)
Generally speaking, von Neumann’s approach is (i) behavioral and (ii) bottom-up. In this, it resembles the Walrasian approach. Both may be put together under the label microfoundations. Now, the correct approach to economics is (i) structural and (ii) top-down. For good methodological reasons, economics has to be macrofounded.
Game Theory is predicated on von Neumann’s specification of utility (TOG p. 15) and this leads to the concept of zero-sum games: “In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.” #3 Note that there is a quite subtle transition from utility (ordinal) to profit (cardinal): “In 1944, John von Neumann and Oskar Morgenstern proved that any non-zero-sum game for n players is equivalent to a zero-sum game with n+1 players; the (n+1)th player representing the global profit or loss.” #3
And exactly here is the lethal blunder: global profit or loss cannot be determined within the framework of Game Theory.
Here is the axiomatically correct proof. 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.
Note that this set satisfies von Neumann’s general criteria of proper axiomatization as quoted above.
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. This is the macroeconomic Law of Supply and Demand.
The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e., it holds X=O. The condition of budget balancing, i.e., C=Yw, is now skipped. The monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S.
The balances add up to zero. The mirror image of household sector saving S is the business sector loss (-Q). The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.
From Q+S=0, one could conclude that economics is a zero-sum game between the business sector and the household sector. However, this is only the first half of the truth. From the fact that profit comes from dissaving, it follows that the household sector accumulates debt (overdrafts at the central bank) while the business sector accumulates money (deposits at the central bank). Now, debt has to be eventually repaid, and this inverts the whole game: profit Q in period t is exactly annihilated by loss (-Q) in period t+1. The mirror image is dissaving (-S) in t and saving S in t+1. The result of these interlocked zero-sum games is zero profit over all periods.
The monetary economy is an intertemporal zero-sum game, and the n+1th player is the future. This is the reason why capitalism will eventually break down and NOT Marx’s phony Revolution of the Proletariat. The intertemporal zero-sum theorem fully replaces folk psychology/ sociology. Note that the intertemporal zero-sum theorem holds for a monetary economy that is for capitalism AND communism, AND anything in between. Which in turn proves that political economics has NEVER been anything other than proto-scientific garbage of the worst sort.
#1 Wikipedia Duality (optimization)
#2 Petitio principii — economists’ biggest methodological mistake
#3 Wikipedia Zero-sum game
#4 The Levy/Kalecki Profit Equation is false
June 29, 2017
Economists: scientists or political clowns?
Comment on Barkley Rosser on ‘Comments on Profit and Capital’
Blog-Reference
If you do not like Desai’s assessment of theoretical economics, take Mirowski’s: “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” Or take Wood: “Profit is a subject to which economists have addressed themselves for at least two hundred years but without much success. For there is at the moment no general theory of profits which commands anything approaching universal acceptance either among academic economists or among men of affairs.” Or take Obrinsky: “Nor do the modern variants add anything whatever on this score. For Debreu, profits are simply a non-issue, while Arrow and Hahn make only passing reference to profits ― and that only as a historical introduction. Whatever may be the usefulness of these idealized theoretical constructs, they cannot be said to throw any light on the profit issue; surely, therefore, they fail to capture the essence of a capitalist market economy.”
Repeat: The representative economist fails to this day to capture the essence of a capitalist market economy. And these scientific nullities dare to open their mouths and give economic policy advice.
Your question “You think that Desai agrees with you and supports your views” is entirely beside the point. The only question is this: is the structural-systemic-macroeconomic Profit Law true or false, with truth defined as formal and material consistency. Scientific truth is NOT established by an opinion poll among economists.
The structural-systemic-macroeconomic Profit Law consists of measurable variables and is readily testable. There is no need at all to second-guess what commonsensers think about it, just as there is no need to second-guess what commonsensers think about the Law of the Lever. Everybody who thinks the structural-systemic-macro Profit Law is false can try to logically/empirically refute it. This is how science works. Only proof counts.
The opinion of commonsensers is traditionally the last thing a scientist is interested in: “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, …, should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (Mill)
What commonsensers or myopic capitalists and workers or incompetent economists hallucinate about profit is scientifically irrelevant. Overall monetary profit is given with Qm≡−Sm in the most elementary case. This tiny formula turns whole economic libraries into waste paper.
You say about the heap of crappy profit theories: “That is my view. All of them have some degree of truth to them, all of them see different aspects, but indeed none of them are fully satisfactory.” It is a well-known fact that all false theories, including the flat earth theory, have “some truth” to them. Some truth is the same thing as worthless commonsensical plausibility which is the very opposite of scientific truth.
You will never hear a scientist saying that we have numerous concepts of energy and “all of them have some degree of truth to them”.
This is the defining difference between a cargo cult scientist and a scientist: the former tries to keep everything in the swamp of wish-wash where ‘nothing is clear and everything is possible’ (Keynes). A scientist drives every question to a final clear-cut true/false decision. This is what rigorous means and this is what all blatherers and storytellers and swamp creatures abhor and denounce most.
The pluralism of false profit theories has always been and will always be scientifically indefensible. Barkley Rosser’s methodologically confused anything-goes wish-wash is self-disqualifying.
The main issue of this thread is profit and not capital and not distribution. It should be immediately clear that traditional distribution theory falls apart because the underlying profit theory is provably false. So, there is absolutely no need to deal here in any detail with the marginal theory of distribution (the second-worst construct right after supply-demand-equilibrium) or with Piketty. #1
The profit theory is false since Adam Smith. Whether the representative economist understands the unassailable mathematical proof and its vast implications is a matter of indifference. The representative economist has always been outside of science and will never be admitted to it. Not knowing what profit is, is scientifically lethal to an economist, and degrades him to a clown in the political Circus Maximus. Barkley Rosser is a living example.
Egmont Kakarot-Handtke
#1 For more details about these issues see
► Non-existence of economic science
► A particularly silly critique
► The universal Profit Law and the multitude of unique historical circumstances
► First Fundamental Law vs. Fundamental theorem of income distribution
► The profit theory is false since Adam Smith. What can you expect from distribution theory?
► Economic policy has gone wrong because economic theory has gone wrong
Immediately preceding Profit and stupidity.
There are TWO issues:
(i) Desai, Mirowski, Wood, Obrinsky, you, and I agree that the profit theory is false for 200+ years, that is, the representative economist fails until this day to capture the essence of a capitalist market economy.
(ii) Whether the elementary objective-structural-systemic-behavior-free-macroeconomic Profit Law, i.e. Qm≡−Sm, is scientifically true, i.e. materially and formally consistent.
Let us be content with the agreement on (i) and not get distracted by (ii). From (i) follows: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, #1, and ALL got profit wrong. With the pluralism of provable false theories, economics sits squarely at the proto-scientific level. Economics is NOT a science and neither orthodox nor heterodox economists qualify as scientists. #2
#1 “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)
#2 Economics: 200+ years of scientific incompetence and fraud
Isn’t it curious that in economics NOT ONE of the basic concepts ― profit, income, capital, money, etcetera ― is properly defined. A fact that did not escape the notice of von Neumann: “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.”
Needless to emphasize that economists have an explanation=excuse for their failure in general and in every particular case. #1 The Pavlovian argument is that in “other sciences”, too, things are not defined precisely (meteorology, biology, psychology etcetera). Stupid as they are, economists have never realized that with these excuses they catapult themselves out of science. Feynman killed this silly argument long ago: “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.”
Rule #1: When you cannot define your subject matter precisely you are a priori OUTSIDE of science. This applies to the so-called social sciences which Feynman re-categorized as cargo cult sciences. And this is why economics has to be re-defined as systems science.
This is the current state of economics: “economists cannot claim to know anything about it” or as Clower put it: “... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” What has been produced instead of scientific knowledge is endless blather, political hot air, folk philosophy=utilitarianism, folk psychology, folk sociology, silly semantic games, sitcom stories, and white noise.
Ask an economist what profit is and you get these answers: Smith: Wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value. Ricardo: … profits would be high or low in proportion as wages were low or high. Senior: In the second class we have the words Capital, Capitalist, and Profit. These terms express the instrument, the person who employs or exercises it, and his remuneration; but there is no familiar term to express the act, the conduct of which profit is the reward, and which bears the same relation to profit which labour does to wages. To this conduct we have already given the name of Abstinence. Mill: The cause of profit is, that labour produces more than is required for its support. Marx: Hence, if a commodity is sold at its value, a profit is realized, which is equal to the excess of its value over its cost-price, or equal to the entire surplus-value incorporated in the value of the commodity. Jevons: I think that in the equation Produce=profit+wages, the quantity of produce is essentially variable, and that profit is the part to be first determined. Marshall: The normal earnings of management are of course high in proportion to the capital, and therefore the rate of profits per annum on the capital is high, when the work of management is heavy in proportion to the capital. Knight: The presence of true profit, therefore, depends on an absolute uncertainty in the estimation of the value of judgment, or on the absence of the requisite organization for combining a sufficient number of instances to secure certainty through consolidation. Schumpeter: And since the new combinations which are carried out if there is ‘development’ are necessarily more advantageous than the old, total receipts must in this case be greater than total costs. von Mises: The ultimate source from which entrepreneurial profit and losses are derived is the uncertainty of the future constellation of demand and supply. Keynes: Thus the factor cost and the entrepreneur’s profit make up, between them, what we shall define as the total income resulting from the employment given by the entrepreneur. Hicks: The curve IS can therefore be drawn showing the relation between Income and interest which must be maintained in order to make saving equal to investment. Harrod: The relevant propositions may be stated in the form of truisms or tautologies, such as that the price of an article is equal to the sum of rewards to all persons contributing to its production, ... Shackle: Thus it seems that we might select decision-making and uncertainty-bearing as the economic roles to perform which men come forward because of the prize of profit in the sense we have been discussing. Samuelson: GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP. Debreu: … the consumers own the resources and control the producers. Thus, the ith consumer receives the value of his resources … and the shares … of the profit of the 1st, …, jth, …, nth producer. … Consider a private ownership economy E . When the price system is p, the jth producer tries to maximize his profit on Yj. Suppose that yj does this; the profit pj(p) = p • yj is distributed to shareholders. Arrow and Hahn: Given a set of prices for all commodities, it is possible to calculate for each activity its profit, the excess of the values of its outputs over the value of its inputs; … The assumptions of perfect competition imply that … each firm chooses an activity that yields it at least as much profit as any other possible. Kaldor: Income may be divided into two broad categories, Wages and Profits (W and P), where the wage-category comprises not only manual labour but salaries as well, and Profits the income of property owners generally, and not only of entrepreneurs; Kalecki: Gross profits = Gross private investment + Capitalists’ consumption. Sraffa: This is because the surplus (or profit) must be distributed in proportion to the means of production (or capital) advanced in each industry; and such a proportion between two aggregates of heterogeneous goods (in other words, the rate of profits) cannot be determined before we know the prices of the goods. Boland: The Walrasian prices correspond to the Marshallian long-run equilibrium prices where every producer is making zero excess profits. Thus, since in the short-run non-zero profit is possible, the actual short-run prices cannot always be used for aggregation. But, from the macro perspective of Walrasian general equilibrium, the total profits in this case cannot be other that zero (otherwise, we would need a Santa Claus to provide the aggregated positive profit) but this does not preclude the possibility of short-run profits and losses of individual firms canceling each other out. Minsky: The simple equation ‘profit equals investment’ is the fundamental relation for a macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure. Barro: Households receive income in four forms: profit …, wage income, rental income, and interest income. Wickens: Implicit measure of profits Πt = −kt+1 +(1+θ)kt. Ljungqvist and Sargent: In each period, the representative firm takes (rt, wt) as given, rents capital and labor from the households, and maximizes profits: Π=F(kt, nt)−rtkt−wtnt. Nadal: ... the budget constraint of consumers may be undetermined because it incorporates their share of firms’ profits, which may not be defined. Keen: … net annual income in this simple model equals the sum of wages plus profits.
ALL, repeat ALL, these authors got it wrong and nothing proves the idiocy of economists better than the endless list of provably false profit definitions.
Overall profit is with the precision of two decimal places given by the macrofounded Profit Law, which reads in the most elementary case Qm≡−Sm. This formula immediately tells anyone who can read and think that the monetary economy is NOT an equilibrium system but will break down with mathematical necessity ― not because of human errors/mistakes/ misbehavior but BECAUSE of the inescapable Profit Law.
#1 Failed economics: The losers’ long list of lame excuses
(i) The ancient Greeks introduced the distinction between opinion (= doxa) and knowledge (= episteme).
(ii) Scientific knowledge is defined by material AND formal consistency. Accordingly, refutation consists of proof of empirical or logical inconsistency.
(iii) 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 (such as the gods). 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)
(iv) Knowledge takes the form of a materially/formally consistent theory which is the best mental representation of reality that is humanly possible.
(v) Barkley Rosser has never understood what science is all about. This, he has in common with the vast majority of economists who are 2000+ years behind the curve.
(vi) All human beings are born into an intellectual swamp. The vast majority stays there for the rest of their lives, only the tiny intellectual elite of scientists tries to get out: “We are lost in a swamp, the morass of our ignorance. … We have to find the roots and get ourselves out! … Braids or bootstraps are necessary for two purposes: to pull ourselves out of the swamp and, afterwards, to keep our bits and pieces together in an orderly fashion.” (Schmiechen) #1
(vii) The methodological bootstraps of science are formal and material consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.
(viii) ALL profit theories since Adam Smith are logically/empirically false. Strictly speaking, this proto-scientific rubbish does not deserve the title theory. Laypeople constantly confound hypothesis (= guess, start of the process) with theory (= truth, end of the process). Profit theory never rose above the guessing stage. #2
(ix) There is only ONE true theory. The pluralism of false theories is scientifically indefensible: “It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend)
(x) In their defense of the comfort zone of stupidity ‘where nothing is clear and everything is possible’ (Keynes) swampies regularly invoke Heisenberg’s uncertainty principle, Schrödinger’s cat, or Gödel’s proof. #3 Barkley Rosser is no exception. Needless to emphasize that his understanding of physics and logic is even worse than his understanding of profit.
(xi) By invoking quantum mechanics in order to defend the logical inconsistency of economics he again makes a fool of himself. Schrödinger’s cat is “The most misunderstood thought experiment in all of Science. The cat is used as an illustration of the fallacy in applying quantum mechanical principles to macroscopic objects. Cats cannot exist in a superposition of alive and dead.” #4
(xii) Because economics cannot exist in a superposition of true and false, all false profit theories have to be eliminated. Economists have failed at this task until this day. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.
(xiii) Barkley Rosser is defending the indefensible. He always was and still is outside of science. #5
#1 Getting out of the economics swamp
#2 Economics: a science without scientists
#3 How economists shoot themselves non-stop in the methodological foot
#4 Source
#5 Economists: The Trumps of science
Economics in its four incarnations ― Walrasianism, Keynesianism, Marxianism, Austrianism ― is one of the worst scientific scandals in human history and you and Barkley Rosser are part of it. #1
#1 For details of the big picture see cross-references Incompetence
You say: “It seems to me your equation relates to changes in inventory, not profits.”
This is NOT the case. Changes of inventory have been explicitly excluded with the condition X=O in footnote 2 above. #1 Inventories have been dealt with at length elsewhere. #2
Note that there is monetary profit and nonmonetary profit. In order to keep the discussion FOCUSED, inventories, nonmonetary profit, distributed profit, retained profit and related phenomena have ALL been left out here. Of course, they have been dealt with elsewhere. This is why references are given.
The sole point to PROVE here is that profit/loss is (in the most elementary case) the mirror image of dissaving/saving and that it has NOTHING to do with what capitalists, workers, laypeople, commonsensers, or scientifically incompetent economists have hallucinated since Adam Smith/Karl Marx it is.
Profit is NOT the income of capital.
Your attempt to de-focus the issue again by taking in a ‘surplus of utility’ and then making a measurement problem out of it is futile. Monetary profit is (in the most elementary case) tangible cash in the box and measurable with the precision of two decimal places. Qm≡−Sm is a testable proposition #3, utility is a NONENTITY. To mix the two concepts is the sure way to scientific failure. #4 By putting utility into the Walrasian axioms=microfoundations economists are for 150+ years on the way to the inescapable final delirium.
#1 Link to footnote 2
#2 Primary and Secondary Markets
#3 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach’
#4 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
The profit theory is false since Adam Smith. This is one of the greatest embarrassments in the history of the sciences. For the proof see:
Profit and stupidity
Economists: scientists or political clowns?
and cross-references Profit
The profit theory is false since Adam Smith. This is one of the greatest embarrassments in the history of the sciences. For the proof see:
Profit and stupidity
Economists: scientists or political clowns?
and cross-references Profit
COMMENT on John Vertegaal, Dennis Pickard on Jul 5
Barkley Rosser takes it upon him to explain the macrofoundations approach. Needless to emphasize that he fails.
(i) He argues: “This implies certain things that neither you nor he mention, that such a firm would have enormous monopoly power, hence an ability to arbitrarily change price, and price certainly matters for all this.”
This is inaccurate. In the most elementary case, the conditions of market clearing and budget-balancing hold and in this case the price as the DEPENDENT variable is given as P=W/R. For details see True macrofoundations: the reset of economics.
If the firm sets any other price then the quantity becomes the dependent variable. In this case, the market does NOT clear and inventory changes happen. Note that the macrofoundations approach deals with the systemic properties and the behavior of the economy. There is NO vacuous second-guessing of human behavior at all. This is the whole point of the paradigm shift.
(ii) He asserts: “Egmont claims inventories are irrelevant.” This is NOT the case. Inventories have been dealt with at length elsewhere. See for example Essentials of Constructive Heterodoxy: The Market.
(iii) He asserts: “His accounting and axioms imply equilibrium conditions that he does not admit he is doing”. This is NOT the case. Equilibrium, clearly, is a NONENTITY and all theories/models that apply the equilibrium concept are a priori false. For details see Equilibrium and the violation of a fundamental principle of science.
To apply the condition of market-clearing or budget balancing has NOTHING to do with equilibrium. It is the other way round, equilibrium implies market clearing and budget balancing. This is hard to understand for confused confusers.
(iv) He mentions: “… just as in fact the NIPA of the US simply impose the accounting identity that savings equal investment.” The proof has been given that the IS-identity is false. See The Common Error of Common Sense: An Essential Rectification of the Accounting Approach and The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment.
Barkley Rosser is lost in yesterday's economics and simply cannot get his head around the methodological imperative that economics has to be macrofounded.
Barkley Rosser does not get the simplest of all economic configurations. These three axioms constitute the macrofoundations: (A1) Yw=WL, (A2) O=RL, (A3) C=PX. For a start, two conditions hold: market-clearing X=O and budget-balancing C=Yw. This yields the price as dependent variable P=W/R. Monetary profit is defined as Qm≡C−Yw and is ZERO under the condition of budget balancing. Changes in the wage rate change the market-clearing price in the same direction but do NOT affect monetary profit. This is an unassailable mathematical fact that can be checked by national accounting. Note that ALL variables of the axioms are measurable.
The start configuration is a limiting case and the two conditions are lifted in the course of further analysis. Who does not understand the simplest case, though, is unfit for understanding the general case with non-market-clearing (= inventory changes) and non-budget-balancing (= saving/dissaving).
The interesting thing is that the two conditions market-clearing X=O and budget-balancing C=Yw also appear in equilibrium models and this means that equilibrium models are zero profit models. The representative economist is seldom aware of this implication.
“The Walrasian prices correspond to the Marshallian long-run equilibrium prices where every producer is making zero excess profits. Thus, since in the short-run non-zero profit is possible, the actual short-run prices cannot always be used for aggregation. But, from the macro perspective of Walrasian general equilibrium, the total profits, in this case, cannot be other than zero (otherwise, we would need a Santa Claus to provide the aggregated positive profit) but this does not preclude the possibility of short-run profits and losses of individual firms canceling each other out. (Boland)
“Some economists hold that although the profit motive is necessary in a business economy, actual profit is unnecessary, and that in fact pure profits are zero in a competitive economy.” (Murad)
Needless to emphasize that the manifest CONTRADICTION between zero profit in equilibrium models and non-zero macroeconomic profit/loss, in reality, has been buried under a gigantic heap of confused blather. In the real world, macroeconomic profit is NON-ZERO for hundreds of years because of the Profit Law which says Qm≡−Sm in the most elementary case.
Because the profit theory is false since Adam Smith ALL economics textbooks from Samuelson to Mankiw and Rodrik are false. #1 The logical blunder is right before everybody’s eyes. As Barkley Rosser recommends: “Look at any Principles of economics textbook.”
Because the profit theory is false Econ 101 is false. #2 Economics students, though, swallow this proto-scientific garbage generation after generation without turning a hair. This gives one a reliable and precise metric of the abysmal stupidity of the folks that populate the universities.
#1 The father of modern economics and his imbecile kids
#2 For details see cross-references Econ 101
(i) Barkley Rosser misquotes: “So he identifies ‘market clearing’ which (ahem) he assumes, as being given by X=0.” Actually, it is X=O, that is, quantity bought X = output O. Barkley Rosser should have immediately recognized that X=0 makes NO sense at all. Obviously, he does NOT understand what he is commenting on.
(ii) The condition of market-clearing X=O does NOT imply equilibrium, while equilibrium implies market clearing. The idea of equilibrium entails that the system moves towards this end-state. Nothing of the sort happens in the economic system as defined by macrofoundations.
Equilibrium is a NONENTITY. The economic system evolves but neither towards a short-run nor a long-run equilibrium. In fact, the proof has been given that the market economy is INHERENTLY UNSTABLE. #1 There is NO such thing as general supply-demand-equilibrium. The whole of equilibrium economics from Marshall to DSGE is PROVABLE false. #2
(iii) I have NOT “discovered that profits are zero (in equilibrium)”. This is a feature of Walrasianism. I have indeed discovered that monetary profit is ALWAYS non-zero, i.e. Qm≡−Sm in the most elementary case. Profit is zero in the analytical limiting case of household sector’s exact budget balancing, i.e. C=Yw, which practically never happens.
(iv) Barkley Rosser summarizes: “To close this out, aggregate profits in the US are currently about $1,8 trillion, about 10% of US GDP, and far above Egmont’s zero.” I NOWHERE said that profit is zero in the US or elsewhere. Just the contrary. The macrofounded profit theory unambiguously states that total monetary profit is given by Qm≡Yd+(I−Sm)+(G−T)+(X−M). #2 This is a testable formula that holds also for the US.
In sum: Barkley Rosser cannot get out of his self-created confusion. Who cannot handle three simple equations (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and the definition of total monetary profit (Qm≡C−Yw) is forever outside of economics. Note that ALL variables in ALL equations are unambiguous and measurable. There is NO room for interpretation and blather.
#1 The market economy is inherently unstable and economists never grasped it
#2 First Lecture in New Economic Thinking
You say: “I find it weird that you seem to think it is a big mystery or might be extremely unusual that wages and profits might be inversely related.”
Now, this is as old as Ricardo: “… profits would be high or low in proportion as wages were low or high” and it is FALSE. It is the old mistake of mentally retarded economists to generalize the results of partial analysis. For a single firm, it is true that a reduction of the wage rate increases profit but for the economy as a whole this does NOT hold. #1
It is the Fallacy of Composition all over again.
The most elementary economy is given with three equations Yw=WL, O=RL, C=PX, two conditions X=O, C=Yw and the definition of total monetary profit Qm≡C−Yw. #2 This yields P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is equivalent to W/P=R (2), i.e. the real wage is equal to productivity. This holds, no matter how the wage rate is set. A wage reduction leads to a proportional fall in the market-clearing price. Profit Qm does NOT change because the budget is balanced, i.e. C=Yw, and from this follows Qm=0.
So Ricardo was wrong: from a lower wage rate does NOT follow a higher profit for the economy as a whole. There is NO inverse relationship between wages and total profit in the most elementary economy. Where, then, does profit come from? Not from higher productivity either! Productivity changes lead to inverse changes in the market-clearing price according to (1).
It was Marx who asked the right question: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”
Trivially true. #3 As long as the budget is balanced, i.e. C=Yw, total monetary profit Qm is zero. Because we know already that the macroeconomic Profit Law states Qm≡−Sm it is quite obvious that the business sector as a whole can only draw more out of the circulation, i.e. C greater Yw, if the household sector throws more into the circulation, in other words, if the household sector dissaves, i.e. if Sm≡Yw−C is negative, i.e. if C is greater than Yw.
From nothing comes nothing, even economists understand this.
So, Marx asked the right question but gave the wrong answer because he was fixated on the labor theory of value and not very good at logic and math. #1 Those who came after he was even worse.
#1 Profit for Marxists
#2 For details see Profit theory in less than 5 minutes
#3 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
Your conclusion: “I’d hazard a guess that it’s founded on differences of subjective opinion rather than facts” is entirely beside the point. First of all, science is NOT a matter of opinion (= doxa) but of knowledge (= episteme). Scientific knowledge is well-defined by material and formal consistency.
Now, every economist knows the following:
(i) Economics is a failed science, that is, the four main approaches Walrasianism, Keynesianism, Marxianism, Austrianism are materially/formally inconsistent.
(ii) The foundational concept profit is ill-defined (see Desai and others)
(iii) The concept of capital is ill-defined (see Cambridge Capital Controversy)
(iv) The concept of equilibrium is ill-defined: “At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin.” (Blaug), see also (Ingrao et al.), (Ackerman et al.)
Therefore, ALL theories/models that apply the traditional concepts of profit, capital, equilibrium are A PRIORI false. And this provides the implicit consensus of every worthwhile economic discussion: there is NO USE at all to stir this 200+-year-old rotten soup one more time. The only worthwhile task for the economist/scientist has been defined by Joan Robinson: “Scrap the lot and start again.”
Clearly, a paradigm shift is the last thing Barkley Rosser wants. Being a lifelong loudspeaker in the economics swamp where “nothing is clear and everything is possible” (Keynes) he attempts to defend his natural habitat with the tried and tested rhetorical means of a confused confuser.
What has been accomplished in this thread is:
(1) A paradigm shift from obsolete microfoundations to correct macrofoundations.
(2) The consistent derivation of total monetary profit from the most elementary set of macroeconomic axioms.
(3) The clarification of the OBJECTIVE nature of profit and the refutation of the familiar SUBJECTIVE interpretations.
(4) The irreversible final debunking of Barkley Rosser.
(5) The presentation of the complete macrofounded Profit Law Qm≡Yd+(I−Sm)+(G−T)+(X−M). This is a testable equation that holds for all countries. Theoretical economics has done its job, now national econometricians can do theirs.
Everybody who wants to refute the macrofounded profit theory ― which fully replaces all profit theories since Adam Smith/Karl Marx ― has a straightforward task: to prove that the Profit Law is either logically or empirically inconsistent.
Science is NOT a matter of opinion but of proof. Everything else is brain-dead blather of soapbox economists.
(i) You say: “So, when Qm = Sm, they are positively related, but when you provide your more general equation, it is (1−Sm) that is entering on the right-hand side. This implies a negative relationship. So, are they positively related or negatively related, …”
This is a typo of your OWN making. It always holds and I always write Qm=−Sm. #1 As usual, the contradiction is only in your muddled head.
(ii) You say: “And that more complicated equation is very close to a Keynesian formulation, but, of course, you have denounced Keynesian economics as totally and utterly false.”
I have not only “denounced Keynesian economics as totally and utterly false” but I have PROVED it. #2 Allais has done this before #3: “Toutes ses [Keynes’s] deductions, à notre avis, manquent absolument de rigeur. … L’intuition de Keynes lui a fait sentir où se trouvaient les difficultés, mais son insuffisance logique ne lui a pas permis de résoudre les problèmes que son intuition lui avait fait entrevoir.” In plain English: Keynes was scientifically incompetent. Among economists, though, this defect is rarely noticed because it is the old normal since Adam Smith.
(iii) Standard economics is based on the Walrasian axiom set = microfoundations: “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)
Everybody knows by now that equilibrium is a NONENTITY: “Just as classical General Equilibrium Theory has never been able to provide a definitive account of how equilibrium prices come to be established, so Rational Expectation Theory has not shown how, starting from relative ignorance, everything that can be learned comes to be learned.” (Hahn)
Because of this, microfoundations have to be fully replaced by macrofoundations. The most elementary version consists of the three axioms (A1) Yw=WL, (A2) O=RL, (A3) C=PX. It is as clear as the day, except for the muddled head of Barkley Rosser, that macrofoundations (A1) to (A3) do NOT contain the concept of equilibrium in marked contrast to microfoundations HC1 to HC5.
So: “Because equilibrium is a NONENTITY, ALL equilibrium models fly out of the window, no matter whether they are Walrasian or Keynesian equilibrium models. From the fact that equilibrium is a NONENTITY follows logically that disequilibrium, too, is a NONENTITY. Because of this, all disequilibrium models, too, fly out of the window. The economy is an evolving system and neither the concept of equilibrium nor disequilibrium is applicable.” #4
Walrasianism and Keynesianism are materially/formally inconsistent proto-scientific garbage, and it is nowadays only defended by a rearguard of incorrigible muddleheads.
#1 You can check this with Ctrl+F and entering Qm in the search field
#2 For more details, see Keynesianism ― the economists’ senile dementia
#3 How Keynes got macro wrong and Allais got it right
#4 Productivity and the zombie apocalypse
You say: “… but they are what get you from your three empty accounting identities to your wonderful condition of Qm = Sm, …”
Again. This is a typo of your OWN making. It always holds and I always write Qm≡−Sm. The minus sign is easy to overlook, so perhaps this helps Qm = ―Sm.
But the real issue is not the typo; the issue is UNDERSTANDING. The verbalization of the equation reads: “It always holds Qm+Sm=0 or Qm=−Sm, in other words, at the heart of national income accounting is an identity — the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.”
Barkley Rosser cannot get out of his self-created muddle. Who cannot handle three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (Qm≡C−Yw, Sm≡Yw−C), and UNDERSTAND IMMEDIATELY that Qm≡−Sm, i.e., that business profit and household saving are NEGATIVELY related, is OUTSIDE of economics.
When the pivotal concept of profit is not properly understood, the rest of the analytical superstructure of economics falls apart, and there is NO use at all to filibuster about capital and equilibrium. The best the representative economist can do for the welfare of humanity is to get out of the way.
Rewarding to see that you have drawn the consequence of a rare flash of insight and left economics altogether. #1
Your true competence has always been insightful comments on the sex life of the House of Sa’ud and other celebrities, as demonstrated in two recent pieces:
May the rest of the scientifically failed economists follow your example.
#1 Economists: scientists or political clowns?
Barkley Rosser argues: “You can read about this stuff in the book I already cited by me, as well as several of my other books, and also in standard grad level micro theory textbooks like Varian or Mas-Colell, Whinston, and Green.”
Note that standard economics is axiomatically false, and because of this, the textbooks mentioned are scientifically worthless. #1
The standard axiom set #2 consists of blatant nonentities, but each student generation has swallowed it for 150+ years without turning an eyelid. In order to be applicable HC2, which translates formally into calculus, requires a lot of auxiliary assumptions, most prominently a well-behaved production function. Taken together, all axioms and auxiliary assumptions crystallize to SS-DD-equilibrium or what Leijonhufvud famously called the Totem of Micro/Macro.
Needless to stress that ALL THREE elements of the standard tool (SS-function, DD-function, equilibrium) are NONENTITIES. Any discussion about forward- or backward-bending supply curves or stable/unstable equilibria is as vacuous and ridiculous as any discussion about dancing-angels-on-a-pinpoint. #3
All standard textbooks are false because microfoundations and the definition of profit/income are provably false ― there is NO NEED AT ALL to read or quote this stuff.
This is the challenge of economics: “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.)
#1 The father of modern economics and his imbecile kids
#2 “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)
#3 All models are false because all economists are stupid
There is the quantity produced per period = output O. There is the quantity sold per period X. These two quantities are different. But it is logically and practically possible that they are equal. If they are not equal the stock of hitherto unsold output of the business sector (= inventory) changes.
To write down X=O is to say that the market is cleared in the given period. For the purpose of analysis, X=O can also be used as a condition.
The concept of the equality of two quantities is different from the concept of equilibrium. Equilibrium, IN ADDITION, implies that there is some force (= Invisible Hand) that makes the quantities eventually become equal.
This, though, is NOT the case for the economic system. It has NEVER been proven that the monetary economy is an equilibrium system. #1 The fixpoint theorem is an existence proof (i.e. it is possible that X = O) but does NOT prove that X = O is realizable.
Time to take notice that equilibrium is a dead concept; in fact, it has already been dead in the Jevons/Walras/Menger cradle 150+ years ago. This is common knowledge.
“The mathematical failure of general equilibrium is such a shock to established theory that it is hard for many economists to absorb its full impact.” (Ackerman)
“To conclude, the proof of existence concerns a state of the economy that cannot be attained by the individual actions of the self-aggrandizing and decentralized agents originally specified for the general equilibrium model.” (Nadal)
“Gerard Debreu in his classic Theory of Value states that his theory is concerned with the explanation of prices. Others as distinguished as Kenneth Arrow and Frank Hahn deny that general equilibrium theories are explanatory. Moreover, some prominent economists and philosophers have argued that work in general equilibrium theory is not empirical science at all.” (Hausman)
“The fact that it has not been possible to build a process for the formation of equilibrium prices is disastrous when it is recalled that the fundamental task of theory is precisely to make coordination in the market intelligible.” (Benetti et al.)
“Just as classical General Equilibrium Theory has never been able to provide a definitive account of how equilibrium prices come to be established, so Rational Expectation Theory has not shown how, starting from relative ignorance, everything that can be learned comes to be learned.” (Hahn)
Equality X = O is NOT the same as equilibrium. Equality is logically and practically possible, but equilibrium is a NONENTITY. No competent economist applies it any longer. Somehow, this seems to have escaped Barkley Rosser and you.
#1 Just the contrary, see Could we, please, all focus on the key question of economics?.
PROVABLY false
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 150+ years,
• Keynesian macrofoundations (including I=S, IS-LM), for 80+ years.
ALL theories/models that contain profit, maximization-and-equilibrium, or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1948.
By implication, ALL posts that contain these concepts are proto-scientific garbage. This includes your exchange with Barkley Rosser.
You may not have heard it, but Barkley Rosser has now left economics for good and dedicates his talent to sexual research, gossiping about academic celebrities, name-dropping, and reputation management.
Blog-Reference
If you do not like Desai’s assessment of theoretical economics, take Mirowski’s: “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” Or take Wood: “Profit is a subject to which economists have addressed themselves for at least two hundred years but without much success. For there is at the moment no general theory of profits which commands anything approaching universal acceptance either among academic economists or among men of affairs.” Or take Obrinsky: “Nor do the modern variants add anything whatever on this score. For Debreu, profits are simply a non-issue, while Arrow and Hahn make only passing reference to profits ― and that only as a historical introduction. Whatever may be the usefulness of these idealized theoretical constructs, they cannot be said to throw any light on the profit issue; surely, therefore, they fail to capture the essence of a capitalist market economy.”
Repeat: The representative economist fails to this day to capture the essence of a capitalist market economy. And these scientific nullities dare to open their mouths and give economic policy advice.
Your question “You think that Desai agrees with you and supports your views” is entirely beside the point. The only question is this: is the structural-systemic-macroeconomic Profit Law true or false, with truth defined as formal and material consistency. Scientific truth is NOT established by an opinion poll among economists.
The structural-systemic-macroeconomic Profit Law consists of measurable variables and is readily testable. There is no need at all to second-guess what commonsensers think about it, just as there is no need to second-guess what commonsensers think about the Law of the Lever. Everybody who thinks the structural-systemic-macro Profit Law is false can try to logically/empirically refute it. This is how science works. Only proof counts.
The opinion of commonsensers is traditionally the last thing a scientist is interested in: “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, …, should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (Mill)
What commonsensers or myopic capitalists and workers or incompetent economists hallucinate about profit is scientifically irrelevant. Overall monetary profit is given with Qm≡−Sm in the most elementary case. This tiny formula turns whole economic libraries into waste paper.
You say about the heap of crappy profit theories: “That is my view. All of them have some degree of truth to them, all of them see different aspects, but indeed none of them are fully satisfactory.” It is a well-known fact that all false theories, including the flat earth theory, have “some truth” to them. Some truth is the same thing as worthless commonsensical plausibility which is the very opposite of scientific truth.
You will never hear a scientist saying that we have numerous concepts of energy and “all of them have some degree of truth to them”.
This is the defining difference between a cargo cult scientist and a scientist: the former tries to keep everything in the swamp of wish-wash where ‘nothing is clear and everything is possible’ (Keynes). A scientist drives every question to a final clear-cut true/false decision. This is what rigorous means and this is what all blatherers and storytellers and swamp creatures abhor and denounce most.
The pluralism of false profit theories has always been and will always be scientifically indefensible. Barkley Rosser’s methodologically confused anything-goes wish-wash is self-disqualifying.
The main issue of this thread is profit and not capital and not distribution. It should be immediately clear that traditional distribution theory falls apart because the underlying profit theory is provably false. So, there is absolutely no need to deal here in any detail with the marginal theory of distribution (the second-worst construct right after supply-demand-equilibrium) or with Piketty. #1
The profit theory is false since Adam Smith. Whether the representative economist understands the unassailable mathematical proof and its vast implications is a matter of indifference. The representative economist has always been outside of science and will never be admitted to it. Not knowing what profit is, is scientifically lethal to an economist, and degrades him to a clown in the political Circus Maximus. Barkley Rosser is a living example.
Egmont Kakarot-Handtke
#1 For more details about these issues see
► Non-existence of economic science
► A particularly silly critique
► The universal Profit Law and the multitude of unique historical circumstances
► First Fundamental Law vs. Fundamental theorem of income distribution
► The profit theory is false since Adam Smith. What can you expect from distribution theory?
► Economic policy has gone wrong because economic theory has gone wrong
Immediately preceding Profit and stupidity.
***
REPLY to Barkley Rosser on Jun 30There are TWO issues:
(i) Desai, Mirowski, Wood, Obrinsky, you, and I agree that the profit theory is false for 200+ years, that is, the representative economist fails until this day to capture the essence of a capitalist market economy.
(ii) Whether the elementary objective-structural-systemic-behavior-free-macroeconomic Profit Law, i.e. Qm≡−Sm, is scientifically true, i.e. materially and formally consistent.
Let us be content with the agreement on (i) and not get distracted by (ii). From (i) follows: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, #1, and ALL got profit wrong. With the pluralism of provable false theories, economics sits squarely at the proto-scientific level. Economics is NOT a science and neither orthodox nor heterodox economists qualify as scientists. #2
#1 “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)
#2 Economics: 200+ years of scientific incompetence and fraud
***
REPLY to Barkley Rosser on Jun 30Isn’t it curious that in economics NOT ONE of the basic concepts ― profit, income, capital, money, etcetera ― is properly defined. A fact that did not escape the notice of von Neumann: “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.”
Needless to emphasize that economists have an explanation=excuse for their failure in general and in every particular case. #1 The Pavlovian argument is that in “other sciences”, too, things are not defined precisely (meteorology, biology, psychology etcetera). Stupid as they are, economists have never realized that with these excuses they catapult themselves out of science. Feynman killed this silly argument long ago: “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.”
Rule #1: When you cannot define your subject matter precisely you are a priori OUTSIDE of science. This applies to the so-called social sciences which Feynman re-categorized as cargo cult sciences. And this is why economics has to be re-defined as systems science.
This is the current state of economics: “economists cannot claim to know anything about it” or as Clower put it: “... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” What has been produced instead of scientific knowledge is endless blather, political hot air, folk philosophy=utilitarianism, folk psychology, folk sociology, silly semantic games, sitcom stories, and white noise.
Ask an economist what profit is and you get these answers: Smith: Wages, profit, and rent, are the three original sources of all revenue as well as of all exchangeable value. Ricardo: … profits would be high or low in proportion as wages were low or high. Senior: In the second class we have the words Capital, Capitalist, and Profit. These terms express the instrument, the person who employs or exercises it, and his remuneration; but there is no familiar term to express the act, the conduct of which profit is the reward, and which bears the same relation to profit which labour does to wages. To this conduct we have already given the name of Abstinence. Mill: The cause of profit is, that labour produces more than is required for its support. Marx: Hence, if a commodity is sold at its value, a profit is realized, which is equal to the excess of its value over its cost-price, or equal to the entire surplus-value incorporated in the value of the commodity. Jevons: I think that in the equation Produce=profit+wages, the quantity of produce is essentially variable, and that profit is the part to be first determined. Marshall: The normal earnings of management are of course high in proportion to the capital, and therefore the rate of profits per annum on the capital is high, when the work of management is heavy in proportion to the capital. Knight: The presence of true profit, therefore, depends on an absolute uncertainty in the estimation of the value of judgment, or on the absence of the requisite organization for combining a sufficient number of instances to secure certainty through consolidation. Schumpeter: And since the new combinations which are carried out if there is ‘development’ are necessarily more advantageous than the old, total receipts must in this case be greater than total costs. von Mises: The ultimate source from which entrepreneurial profit and losses are derived is the uncertainty of the future constellation of demand and supply. Keynes: Thus the factor cost and the entrepreneur’s profit make up, between them, what we shall define as the total income resulting from the employment given by the entrepreneur. Hicks: The curve IS can therefore be drawn showing the relation between Income and interest which must be maintained in order to make saving equal to investment. Harrod: The relevant propositions may be stated in the form of truisms or tautologies, such as that the price of an article is equal to the sum of rewards to all persons contributing to its production, ... Shackle: Thus it seems that we might select decision-making and uncertainty-bearing as the economic roles to perform which men come forward because of the prize of profit in the sense we have been discussing. Samuelson: GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP. Debreu: … the consumers own the resources and control the producers. Thus, the ith consumer receives the value of his resources … and the shares … of the profit of the 1st, …, jth, …, nth producer. … Consider a private ownership economy E . When the price system is p, the jth producer tries to maximize his profit on Yj. Suppose that yj does this; the profit pj(p) = p • yj is distributed to shareholders. Arrow and Hahn: Given a set of prices for all commodities, it is possible to calculate for each activity its profit, the excess of the values of its outputs over the value of its inputs; … The assumptions of perfect competition imply that … each firm chooses an activity that yields it at least as much profit as any other possible. Kaldor: Income may be divided into two broad categories, Wages and Profits (W and P), where the wage-category comprises not only manual labour but salaries as well, and Profits the income of property owners generally, and not only of entrepreneurs; Kalecki: Gross profits = Gross private investment + Capitalists’ consumption. Sraffa: This is because the surplus (or profit) must be distributed in proportion to the means of production (or capital) advanced in each industry; and such a proportion between two aggregates of heterogeneous goods (in other words, the rate of profits) cannot be determined before we know the prices of the goods. Boland: The Walrasian prices correspond to the Marshallian long-run equilibrium prices where every producer is making zero excess profits. Thus, since in the short-run non-zero profit is possible, the actual short-run prices cannot always be used for aggregation. But, from the macro perspective of Walrasian general equilibrium, the total profits in this case cannot be other that zero (otherwise, we would need a Santa Claus to provide the aggregated positive profit) but this does not preclude the possibility of short-run profits and losses of individual firms canceling each other out. Minsky: The simple equation ‘profit equals investment’ is the fundamental relation for a macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure. Barro: Households receive income in four forms: profit …, wage income, rental income, and interest income. Wickens: Implicit measure of profits Πt = −kt+1 +(1+θ)kt. Ljungqvist and Sargent: In each period, the representative firm takes (rt, wt) as given, rents capital and labor from the households, and maximizes profits: Π=F(kt, nt)−rtkt−wtnt. Nadal: ... the budget constraint of consumers may be undetermined because it incorporates their share of firms’ profits, which may not be defined. Keen: … net annual income in this simple model equals the sum of wages plus profits.
ALL, repeat ALL, these authors got it wrong and nothing proves the idiocy of economists better than the endless list of provably false profit definitions.
Overall profit is with the precision of two decimal places given by the macrofounded Profit Law, which reads in the most elementary case Qm≡−Sm. This formula immediately tells anyone who can read and think that the monetary economy is NOT an equilibrium system but will break down with mathematical necessity ― not because of human errors/mistakes/ misbehavior but BECAUSE of the inescapable Profit Law.
#1 Failed economics: The losers’ long list of lame excuses
***
REPLY to Barkley Rosser on Jul 1(i) The ancient Greeks introduced the distinction between opinion (= doxa) and knowledge (= episteme).
(ii) Scientific knowledge is defined by material AND formal consistency. Accordingly, refutation consists of proof of empirical or logical inconsistency.
(iii) 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 (such as the gods). 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)
(iv) Knowledge takes the form of a materially/formally consistent theory which is the best mental representation of reality that is humanly possible.
(v) Barkley Rosser has never understood what science is all about. This, he has in common with the vast majority of economists who are 2000+ years behind the curve.
(vi) All human beings are born into an intellectual swamp. The vast majority stays there for the rest of their lives, only the tiny intellectual elite of scientists tries to get out: “We are lost in a swamp, the morass of our ignorance. … We have to find the roots and get ourselves out! … Braids or bootstraps are necessary for two purposes: to pull ourselves out of the swamp and, afterwards, to keep our bits and pieces together in an orderly fashion.” (Schmiechen) #1
(vii) The methodological bootstraps of science are formal and material consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.
(viii) ALL profit theories since Adam Smith are logically/empirically false. Strictly speaking, this proto-scientific rubbish does not deserve the title theory. Laypeople constantly confound hypothesis (= guess, start of the process) with theory (= truth, end of the process). Profit theory never rose above the guessing stage. #2
(ix) There is only ONE true theory. The pluralism of false theories is scientifically indefensible: “It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend)
(x) In their defense of the comfort zone of stupidity ‘where nothing is clear and everything is possible’ (Keynes) swampies regularly invoke Heisenberg’s uncertainty principle, Schrödinger’s cat, or Gödel’s proof. #3 Barkley Rosser is no exception. Needless to emphasize that his understanding of physics and logic is even worse than his understanding of profit.
(xi) By invoking quantum mechanics in order to defend the logical inconsistency of economics he again makes a fool of himself. Schrödinger’s cat is “The most misunderstood thought experiment in all of Science. The cat is used as an illustration of the fallacy in applying quantum mechanical principles to macroscopic objects. Cats cannot exist in a superposition of alive and dead.” #4
(xii) Because economics cannot exist in a superposition of true and false, all false profit theories have to be eliminated. Economists have failed at this task until this day. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.
(xiii) Barkley Rosser is defending the indefensible. He always was and still is outside of science. #5
#1 Getting out of the economics swamp
#2 Economics: a science without scientists
#3 How economists shoot themselves non-stop in the methodological foot
#4 Source
#5 Economists: The Trumps of science
***
REPLY to anne on Jul 2Economics in its four incarnations ― Walrasianism, Keynesianism, Marxianism, Austrianism ― is one of the worst scientific scandals in human history and you and Barkley Rosser are part of it. #1
#1 For details of the big picture see cross-references Incompetence
***
REPLY to Dennis Pickard on Jul 3You say: “It seems to me your equation relates to changes in inventory, not profits.”
This is NOT the case. Changes of inventory have been explicitly excluded with the condition X=O in footnote 2 above. #1 Inventories have been dealt with at length elsewhere. #2
Note that there is monetary profit and nonmonetary profit. In order to keep the discussion FOCUSED, inventories, nonmonetary profit, distributed profit, retained profit and related phenomena have ALL been left out here. Of course, they have been dealt with elsewhere. This is why references are given.
The sole point to PROVE here is that profit/loss is (in the most elementary case) the mirror image of dissaving/saving and that it has NOTHING to do with what capitalists, workers, laypeople, commonsensers, or scientifically incompetent economists have hallucinated since Adam Smith/Karl Marx it is.
Profit is NOT the income of capital.
Your attempt to de-focus the issue again by taking in a ‘surplus of utility’ and then making a measurement problem out of it is futile. Monetary profit is (in the most elementary case) tangible cash in the box and measurable with the precision of two decimal places. Qm≡−Sm is a testable proposition #3, utility is a NONENTITY. To mix the two concepts is the sure way to scientific failure. #4 By putting utility into the Walrasian axioms=microfoundations economists are for 150+ years on the way to the inescapable final delirium.
#1 Link to footnote 2
#2 Primary and Secondary Markets
#3 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach’
#4 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
***
LINKS at Angry Bear on Jul 4The profit theory is false since Adam Smith. This is one of the greatest embarrassments in the history of the sciences. For the proof see:
Profit and stupidity
Economists: scientists or political clowns?
and cross-references Profit
***
LINKS at Mike Norman Blog on Jul 4The profit theory is false since Adam Smith. This is one of the greatest embarrassments in the history of the sciences. For the proof see:
Profit and stupidity
Economists: scientists or political clowns?
and cross-references Profit
***
Barkley Rosser takes it upon him to explain the macrofoundations approach. Needless to emphasize that he fails.
(i) He argues: “This implies certain things that neither you nor he mention, that such a firm would have enormous monopoly power, hence an ability to arbitrarily change price, and price certainly matters for all this.”
This is inaccurate. In the most elementary case, the conditions of market clearing and budget-balancing hold and in this case the price as the DEPENDENT variable is given as P=W/R. For details see True macrofoundations: the reset of economics.
If the firm sets any other price then the quantity becomes the dependent variable. In this case, the market does NOT clear and inventory changes happen. Note that the macrofoundations approach deals with the systemic properties and the behavior of the economy. There is NO vacuous second-guessing of human behavior at all. This is the whole point of the paradigm shift.
(ii) He asserts: “Egmont claims inventories are irrelevant.” This is NOT the case. Inventories have been dealt with at length elsewhere. See for example Essentials of Constructive Heterodoxy: The Market.
(iii) He asserts: “His accounting and axioms imply equilibrium conditions that he does not admit he is doing”. This is NOT the case. Equilibrium, clearly, is a NONENTITY and all theories/models that apply the equilibrium concept are a priori false. For details see Equilibrium and the violation of a fundamental principle of science.
To apply the condition of market-clearing or budget balancing has NOTHING to do with equilibrium. It is the other way round, equilibrium implies market clearing and budget balancing. This is hard to understand for confused confusers.
(iv) He mentions: “… just as in fact the NIPA of the US simply impose the accounting identity that savings equal investment.” The proof has been given that the IS-identity is false. See The Common Error of Common Sense: An Essential Rectification of the Accounting Approach and The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment.
Barkley Rosser is lost in yesterday's economics and simply cannot get his head around the methodological imperative that economics has to be macrofounded.
***
COMMENT John Vertegaal, Dennis Pickard on Jul 5Barkley Rosser does not get the simplest of all economic configurations. These three axioms constitute the macrofoundations: (A1) Yw=WL, (A2) O=RL, (A3) C=PX. For a start, two conditions hold: market-clearing X=O and budget-balancing C=Yw. This yields the price as dependent variable P=W/R. Monetary profit is defined as Qm≡C−Yw and is ZERO under the condition of budget balancing. Changes in the wage rate change the market-clearing price in the same direction but do NOT affect monetary profit. This is an unassailable mathematical fact that can be checked by national accounting. Note that ALL variables of the axioms are measurable.
The start configuration is a limiting case and the two conditions are lifted in the course of further analysis. Who does not understand the simplest case, though, is unfit for understanding the general case with non-market-clearing (= inventory changes) and non-budget-balancing (= saving/dissaving).
The interesting thing is that the two conditions market-clearing X=O and budget-balancing C=Yw also appear in equilibrium models and this means that equilibrium models are zero profit models. The representative economist is seldom aware of this implication.
“The Walrasian prices correspond to the Marshallian long-run equilibrium prices where every producer is making zero excess profits. Thus, since in the short-run non-zero profit is possible, the actual short-run prices cannot always be used for aggregation. But, from the macro perspective of Walrasian general equilibrium, the total profits, in this case, cannot be other than zero (otherwise, we would need a Santa Claus to provide the aggregated positive profit) but this does not preclude the possibility of short-run profits and losses of individual firms canceling each other out. (Boland)
“Some economists hold that although the profit motive is necessary in a business economy, actual profit is unnecessary, and that in fact pure profits are zero in a competitive economy.” (Murad)
Needless to emphasize that the manifest CONTRADICTION between zero profit in equilibrium models and non-zero macroeconomic profit/loss, in reality, has been buried under a gigantic heap of confused blather. In the real world, macroeconomic profit is NON-ZERO for hundreds of years because of the Profit Law which says Qm≡−Sm in the most elementary case.
Because the profit theory is false since Adam Smith ALL economics textbooks from Samuelson to Mankiw and Rodrik are false. #1 The logical blunder is right before everybody’s eyes. As Barkley Rosser recommends: “Look at any Principles of economics textbook.”
Because the profit theory is false Econ 101 is false. #2 Economics students, though, swallow this proto-scientific garbage generation after generation without turning a hair. This gives one a reliable and precise metric of the abysmal stupidity of the folks that populate the universities.
#1 The father of modern economics and his imbecile kids
#2 For details see cross-references Econ 101
***
REPLY to Barkley Rosser on Jul 6(i) Barkley Rosser misquotes: “So he identifies ‘market clearing’ which (ahem) he assumes, as being given by X=0.” Actually, it is X=O, that is, quantity bought X = output O. Barkley Rosser should have immediately recognized that X=0 makes NO sense at all. Obviously, he does NOT understand what he is commenting on.
(ii) The condition of market-clearing X=O does NOT imply equilibrium, while equilibrium implies market clearing. The idea of equilibrium entails that the system moves towards this end-state. Nothing of the sort happens in the economic system as defined by macrofoundations.
Equilibrium is a NONENTITY. The economic system evolves but neither towards a short-run nor a long-run equilibrium. In fact, the proof has been given that the market economy is INHERENTLY UNSTABLE. #1 There is NO such thing as general supply-demand-equilibrium. The whole of equilibrium economics from Marshall to DSGE is PROVABLE false. #2
(iii) I have NOT “discovered that profits are zero (in equilibrium)”. This is a feature of Walrasianism. I have indeed discovered that monetary profit is ALWAYS non-zero, i.e. Qm≡−Sm in the most elementary case. Profit is zero in the analytical limiting case of household sector’s exact budget balancing, i.e. C=Yw, which practically never happens.
(iv) Barkley Rosser summarizes: “To close this out, aggregate profits in the US are currently about $1,8 trillion, about 10% of US GDP, and far above Egmont’s zero.” I NOWHERE said that profit is zero in the US or elsewhere. Just the contrary. The macrofounded profit theory unambiguously states that total monetary profit is given by Qm≡Yd+(I−Sm)+(G−T)+(X−M). #2 This is a testable formula that holds also for the US.
In sum: Barkley Rosser cannot get out of his self-created confusion. Who cannot handle three simple equations (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and the definition of total monetary profit (Qm≡C−Yw) is forever outside of economics. Note that ALL variables in ALL equations are unambiguous and measurable. There is NO room for interpretation and blather.
#1 The market economy is inherently unstable and economists never grasped it
#2 First Lecture in New Economic Thinking
***
REPLY to Barkley Rosser on Jul 7You say: “I find it weird that you seem to think it is a big mystery or might be extremely unusual that wages and profits might be inversely related.”
Now, this is as old as Ricardo: “… profits would be high or low in proportion as wages were low or high” and it is FALSE. It is the old mistake of mentally retarded economists to generalize the results of partial analysis. For a single firm, it is true that a reduction of the wage rate increases profit but for the economy as a whole this does NOT hold. #1
It is the Fallacy of Composition all over again.
The most elementary economy is given with three equations Yw=WL, O=RL, C=PX, two conditions X=O, C=Yw and the definition of total monetary profit Qm≡C−Yw. #2 This yields P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is equivalent to W/P=R (2), i.e. the real wage is equal to productivity. This holds, no matter how the wage rate is set. A wage reduction leads to a proportional fall in the market-clearing price. Profit Qm does NOT change because the budget is balanced, i.e. C=Yw, and from this follows Qm=0.
So Ricardo was wrong: from a lower wage rate does NOT follow a higher profit for the economy as a whole. There is NO inverse relationship between wages and total profit in the most elementary economy. Where, then, does profit come from? Not from higher productivity either! Productivity changes lead to inverse changes in the market-clearing price according to (1).
It was Marx who asked the right question: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”
Trivially true. #3 As long as the budget is balanced, i.e. C=Yw, total monetary profit Qm is zero. Because we know already that the macroeconomic Profit Law states Qm≡−Sm it is quite obvious that the business sector as a whole can only draw more out of the circulation, i.e. C greater Yw, if the household sector throws more into the circulation, in other words, if the household sector dissaves, i.e. if Sm≡Yw−C is negative, i.e. if C is greater than Yw.
From nothing comes nothing, even economists understand this.
So, Marx asked the right question but gave the wrong answer because he was fixated on the labor theory of value and not very good at logic and math. #1 Those who came after he was even worse.
#1 Profit for Marxists
#2 For details see Profit theory in less than 5 minutes
#3 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
***
REPLY to Anonymous on Jul 8Your conclusion: “I’d hazard a guess that it’s founded on differences of subjective opinion rather than facts” is entirely beside the point. First of all, science is NOT a matter of opinion (= doxa) but of knowledge (= episteme). Scientific knowledge is well-defined by material and formal consistency.
Now, every economist knows the following:
(i) Economics is a failed science, that is, the four main approaches Walrasianism, Keynesianism, Marxianism, Austrianism are materially/formally inconsistent.
(ii) The foundational concept profit is ill-defined (see Desai and others)
(iii) The concept of capital is ill-defined (see Cambridge Capital Controversy)
(iv) The concept of equilibrium is ill-defined: “At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin.” (Blaug), see also (Ingrao et al.), (Ackerman et al.)
Therefore, ALL theories/models that apply the traditional concepts of profit, capital, equilibrium are A PRIORI false. And this provides the implicit consensus of every worthwhile economic discussion: there is NO USE at all to stir this 200+-year-old rotten soup one more time. The only worthwhile task for the economist/scientist has been defined by Joan Robinson: “Scrap the lot and start again.”
Clearly, a paradigm shift is the last thing Barkley Rosser wants. Being a lifelong loudspeaker in the economics swamp where “nothing is clear and everything is possible” (Keynes) he attempts to defend his natural habitat with the tried and tested rhetorical means of a confused confuser.
What has been accomplished in this thread is:
(1) A paradigm shift from obsolete microfoundations to correct macrofoundations.
(2) The consistent derivation of total monetary profit from the most elementary set of macroeconomic axioms.
(3) The clarification of the OBJECTIVE nature of profit and the refutation of the familiar SUBJECTIVE interpretations.
(4) The irreversible final debunking of Barkley Rosser.
(5) The presentation of the complete macrofounded Profit Law Qm≡Yd+(I−Sm)+(G−T)+(X−M). This is a testable equation that holds for all countries. Theoretical economics has done its job, now national econometricians can do theirs.
Everybody who wants to refute the macrofounded profit theory ― which fully replaces all profit theories since Adam Smith/Karl Marx ― has a straightforward task: to prove that the Profit Law is either logically or empirically inconsistent.
Science is NOT a matter of opinion but of proof. Everything else is brain-dead blather of soapbox economists.
***
REPLY to Barkley Rosser on Jul 9(i) You say: “So, when Qm = Sm, they are positively related, but when you provide your more general equation, it is (1−Sm) that is entering on the right-hand side. This implies a negative relationship. So, are they positively related or negatively related, …”
This is a typo of your OWN making. It always holds and I always write Qm=−Sm. #1 As usual, the contradiction is only in your muddled head.
(ii) You say: “And that more complicated equation is very close to a Keynesian formulation, but, of course, you have denounced Keynesian economics as totally and utterly false.”
I have not only “denounced Keynesian economics as totally and utterly false” but I have PROVED it. #2 Allais has done this before #3: “Toutes ses [Keynes’s] deductions, à notre avis, manquent absolument de rigeur. … L’intuition de Keynes lui a fait sentir où se trouvaient les difficultés, mais son insuffisance logique ne lui a pas permis de résoudre les problèmes que son intuition lui avait fait entrevoir.” In plain English: Keynes was scientifically incompetent. Among economists, though, this defect is rarely noticed because it is the old normal since Adam Smith.
(iii) Standard economics is based on the Walrasian axiom set = microfoundations: “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)
Everybody knows by now that equilibrium is a NONENTITY: “Just as classical General Equilibrium Theory has never been able to provide a definitive account of how equilibrium prices come to be established, so Rational Expectation Theory has not shown how, starting from relative ignorance, everything that can be learned comes to be learned.” (Hahn)
Because of this, microfoundations have to be fully replaced by macrofoundations. The most elementary version consists of the three axioms (A1) Yw=WL, (A2) O=RL, (A3) C=PX. It is as clear as the day, except for the muddled head of Barkley Rosser, that macrofoundations (A1) to (A3) do NOT contain the concept of equilibrium in marked contrast to microfoundations HC1 to HC5.
So: “Because equilibrium is a NONENTITY, ALL equilibrium models fly out of the window, no matter whether they are Walrasian or Keynesian equilibrium models. From the fact that equilibrium is a NONENTITY follows logically that disequilibrium, too, is a NONENTITY. Because of this, all disequilibrium models, too, fly out of the window. The economy is an evolving system and neither the concept of equilibrium nor disequilibrium is applicable.” #4
Walrasianism and Keynesianism are materially/formally inconsistent proto-scientific garbage, and it is nowadays only defended by a rearguard of incorrigible muddleheads.
#1 You can check this with Ctrl+F and entering Qm in the search field
#2 For more details, see Keynesianism ― the economists’ senile dementia
#3 How Keynes got macro wrong and Allais got it right
#4 Productivity and the zombie apocalypse
***
REPLY to Barkley Rosser on Jul 10You say: “… but they are what get you from your three empty accounting identities to your wonderful condition of Qm = Sm, …”
Again. This is a typo of your OWN making. It always holds and I always write Qm≡−Sm. The minus sign is easy to overlook, so perhaps this helps Qm = ―Sm.
But the real issue is not the typo; the issue is UNDERSTANDING. The verbalization of the equation reads: “It always holds Qm+Sm=0 or Qm=−Sm, in other words, at the heart of national income accounting is an identity — the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.”
Barkley Rosser cannot get out of his self-created muddle. Who cannot handle three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (Qm≡C−Yw, Sm≡Yw−C), and UNDERSTAND IMMEDIATELY that Qm≡−Sm, i.e., that business profit and household saving are NEGATIVELY related, is OUTSIDE of economics.
When the pivotal concept of profit is not properly understood, the rest of the analytical superstructure of economics falls apart, and there is NO use at all to filibuster about capital and equilibrium. The best the representative economist can do for the welfare of humanity is to get out of the way.
***
WRAP-UP for Barkley Rosser on Jul 13Rewarding to see that you have drawn the consequence of a rare flash of insight and left economics altogether. #1
Your true competence has always been insightful comments on the sex life of the House of Sa’ud and other celebrities, as demonstrated in two recent pieces:
- Muhammed Bin Nayef Bin Abdulaziz Al Sa’ud Confined To His Palace
- Was Thomas Jefferson A Monstrous Rapist?
May the rest of the scientifically failed economists follow your example.
#1 Economists: scientists or political clowns?
***
REPLY to Barkley Rosser, vertegaa, Anonymous on Jul 14Barkley Rosser argues: “You can read about this stuff in the book I already cited by me, as well as several of my other books, and also in standard grad level micro theory textbooks like Varian or Mas-Colell, Whinston, and Green.”
Note that standard economics is axiomatically false, and because of this, the textbooks mentioned are scientifically worthless. #1
The standard axiom set #2 consists of blatant nonentities, but each student generation has swallowed it for 150+ years without turning an eyelid. In order to be applicable HC2, which translates formally into calculus, requires a lot of auxiliary assumptions, most prominently a well-behaved production function. Taken together, all axioms and auxiliary assumptions crystallize to SS-DD-equilibrium or what Leijonhufvud famously called the Totem of Micro/Macro.
Needless to stress that ALL THREE elements of the standard tool (SS-function, DD-function, equilibrium) are NONENTITIES. Any discussion about forward- or backward-bending supply curves or stable/unstable equilibria is as vacuous and ridiculous as any discussion about dancing-angels-on-a-pinpoint. #3
All standard textbooks are false because microfoundations and the definition of profit/income are provably false ― there is NO NEED AT ALL to read or quote this stuff.
This is the challenge of economics: “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.)
#1 The father of modern economics and his imbecile kids
#2 “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)
#3 All models are false because all economists are stupid
***
REPLY to Anonymous on Jul 15There is the quantity produced per period = output O. There is the quantity sold per period X. These two quantities are different. But it is logically and practically possible that they are equal. If they are not equal the stock of hitherto unsold output of the business sector (= inventory) changes.
To write down X=O is to say that the market is cleared in the given period. For the purpose of analysis, X=O can also be used as a condition.
The concept of the equality of two quantities is different from the concept of equilibrium. Equilibrium, IN ADDITION, implies that there is some force (= Invisible Hand) that makes the quantities eventually become equal.
This, though, is NOT the case for the economic system. It has NEVER been proven that the monetary economy is an equilibrium system. #1 The fixpoint theorem is an existence proof (i.e. it is possible that X = O) but does NOT prove that X = O is realizable.
Time to take notice that equilibrium is a dead concept; in fact, it has already been dead in the Jevons/Walras/Menger cradle 150+ years ago. This is common knowledge.
“The mathematical failure of general equilibrium is such a shock to established theory that it is hard for many economists to absorb its full impact.” (Ackerman)
“To conclude, the proof of existence concerns a state of the economy that cannot be attained by the individual actions of the self-aggrandizing and decentralized agents originally specified for the general equilibrium model.” (Nadal)
“Gerard Debreu in his classic Theory of Value states that his theory is concerned with the explanation of prices. Others as distinguished as Kenneth Arrow and Frank Hahn deny that general equilibrium theories are explanatory. Moreover, some prominent economists and philosophers have argued that work in general equilibrium theory is not empirical science at all.” (Hausman)
“The fact that it has not been possible to build a process for the formation of equilibrium prices is disastrous when it is recalled that the fundamental task of theory is precisely to make coordination in the market intelligible.” (Benetti et al.)
“Just as classical General Equilibrium Theory has never been able to provide a definitive account of how equilibrium prices come to be established, so Rational Expectation Theory has not shown how, starting from relative ignorance, everything that can be learned comes to be learned.” (Hahn)
Equality X = O is NOT the same as equilibrium. Equality is logically and practically possible, but equilibrium is a NONENTITY. No competent economist applies it any longer. Somehow, this seems to have escaped Barkley Rosser and you.
#1 Just the contrary, see Could we, please, all focus on the key question of economics?.
***
REPLY to Anonymous on Jul 16PROVABLY false
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 150+ years,
• Keynesian macrofoundations (including I=S, IS-LM), for 80+ years.
ALL theories/models that contain profit, maximization-and-equilibrium, or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1948.
By implication, ALL posts that contain these concepts are proto-scientific garbage. This includes your exchange with Barkley Rosser.
You may not have heard it, but Barkley Rosser has now left economics for good and dedicates his talent to sexual research, gossiping about academic celebrities, name-dropping, and reputation management.
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