Keynes had many plausible things to say about unemployment and its causes. His ‘mercurial mind’, though, relied on intuition which means that he could not strictly prove his hypotheses. This explains why Keynes's ideas immediately invited bastardizations. One of them, the Phillips curve synthesis, turned out to be fatal. This paper identifies Keynes's undifferentiated employment function as a sore spot. It is replaced by the structural employment function that supersedes also the bastard Phillips curve. It will be demonstrated in a formal rigorous way why there is no trade-off between price inflation and unemployment. The structural Phillips curve predicts stagflation.
August 12, 2012
The common error of common sense: an essential rectification of the accounting approach {33}
Working paper at SSRN
Working paper at ARCHIVE
Abstract The present paper takes the explanatory superiority of the integrated monetary approach for granted. It will be demonstrated that the accounting approach could do even better provided it frees itself from theoretically ill-founded notions like GDP and other artifacts of the equilibrium approach. National accounting as such does not provide a model of the economy but is the numerical reflex of the underlying theory. It is this theory that will be scrutinized, rectified, and ultimately replaced in the following. The formal point of reference is ‘the integrated approach to credit, money, income, production, and wealth’ of Godley and Lavoie.
Abstract The present paper takes the explanatory superiority of the integrated monetary approach for granted. It will be demonstrated that the accounting approach could do even better provided it frees itself from theoretically ill-founded notions like GDP and other artifacts of the equilibrium approach. National accounting as such does not provide a model of the economy but is the numerical reflex of the underlying theory. It is this theory that will be scrutinized, rectified, and ultimately replaced in the following. The formal point of reference is ‘the integrated approach to credit, money, income, production, and wealth’ of Godley and Lavoie.
July 12, 2012
General formal foundations of the virtuous deficit/profit symmetry and the vicious debt deflation {32}
Working paper at SSRN
Abstract A comprehensive dynamic model of the monetary economy that produces the key characteristics of debt deflation has been presented recently by Steve Keen as an alternative to conventional approaches. His model is based on a double-entry bookkeeping methodology but lacks an acceptable profit theory. In this respect, it is not different from familiar approaches. Clearly, a deficient profit theory prevents a proper understanding of how the real-world economy works. The present paper takes an entirely different route and places the core of Fisher's debt-deflation theory into the context of the consistent structural axiomatic approach.
June 13, 2012
Crisis and Methodology: Some Heterodox Misunderstandings {31a}
Whether justified by the concrete circumstances or not, an economic crisis is, by simple association, taken as an implicit refutation of the invisible hand vision and the underlying theory. The fundamental heterodox critique locates the source of apparent theoretical difficulties at the level of methodology. Although acceptable in principle, this belief involves some actual misunderstandings with regard to the respective roles of deterministic laws and deductive reasoning. In order to clarify these, the present paper revisits some key episodes in the history of economic methodology.
May 15, 2012
Geometrical exposition of structural axiomatic economics (I): fundamentals {30}
Working paper at SSRN
Working paper at ARCHIVE
Abstract Behavioral assumptions are not solid enough to be eligible as first principles of theoretical economics. Hence all endeavors to lay the formal foundation on a new site and at a deeper level actually need no further vindication. Part (I) of the structural axiomatic analysis submits three nonbehavioral axioms as groundwork and applies them to the simplest possible case of the pure consumption economy. The geometrical analysis makes the interrelations between income, profit, employment, and money under the conditions of market-clearing and budget-balancing immediately evident.
Abstract Behavioral assumptions are not solid enough to be eligible as first principles of theoretical economics. Hence all endeavors to lay the formal foundation on a new site and at a deeper level actually need no further vindication. Part (I) of the structural axiomatic analysis submits three nonbehavioral axioms as groundwork and applies them to the simplest possible case of the pure consumption economy. The geometrical analysis makes the interrelations between income, profit, employment, and money under the conditions of market-clearing and budget-balancing immediately evident.
April 28, 2012
The Rhetoric of Failure: A Hyper-Dialog About Method in Economics and How to Get Things Going {29}
Abstract All are agreed that orthodox economics is unsatisfactory but there is wide disagreement, especially among heterodox critics, whether the problems lie at the level of substantive theory or at the level of methodology. This paper gives first an overview of the methodological questions at issue. The frame of reference includes J. S. Mill, Jevons, Popper, Keynes, and Lawson. Drawing on the conclusions, the domain of economics is subsequently refocused. Human behavior is moved from the center to the periphery. From elementary systemic properties the relation of income and profit is then consistently derived. This solves the profit
March 9, 2012
Zur axiomatischen Einheit von Kreislauf, Geld, Preis, und Verteilungstheorie (The Axiomatic Unity of Circuit, Money, Price and Distribution) {28}
Abstract This contribution to the Festschrift in memoriam of Karl Brandt and Alfred E. Ott establishes the axiomatic unity of circuit, money, price and distribution theory. From the history of economic methodology and from actual practice follows: one cannot not axiomatize. The crucial question is not axiomatization per se but the real world content of axioms which is not guaranteed by simply applying the method. Axioms can be empirically vacuous. This holds for the behavioral axioms of standard economics. In marked contrast, all structural axiomatic variables are measurable in principle. No metaphysical concepts like equilibrium are put into the premises.
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