AXEC: New Foundations of Economics

October 30, 2026

Occasional X: Paradigm Shift (CXXVIII)

“‘You tried to reason from an identity.’ A young Ronald Coase (or was it Hayek?) growled. ‘You should know better. In the real world, factors like ‘V’ and ‘T’ cannot simply be assumed to be held constant, because aggregates don’t interact with aggregates, individuals interact with individuals.'” (Nikolai Rostov) The problem with modern macro is that it is axiomatically false. Economics is failed/fake science. Microfoundations was dead from the start. The Founding Fathers defined economics as a social science, and accordingly, it has been based on subjective/behavioral assumptions/axioms. This has been the methodological ur-mistake. For example, here are the Walrasian axioms: “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) The methodological mistake is that economists put the behavioral assumption of constrained optimization and equilibrium into the premises. This is a petitio principii, but economists do not know what this means. Stupidity makes faithful worshipers: “And so — faithful to the theory's conceptual cornerstones and hoping against all hope that the unthinkable may still be achieved (i.e., a satisfactory theory of the price mechanism) — the tormented upholders of the validity of the paradigmatic core of economic equilibrium theory appear singularly reluctant to face the problem of comparing expectations and results and assessing the consistency of the theory.” (Ingrao et al., 1990, p. 346) Although microfoundations is methodologically a false concept, economists repeat it nonetheless: “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, 1941, pp. 369-370) The way forward is to reconstruct economics entirely without the concepts of constrained optimization, rational expectations, equilibrium, and other NONENTITIES. In methodology, this is called 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, p. 362) It means, first, that legacy economics goes down the scientific drain for good. It means, second, to go forward and perform the Paradigm Shift (⇓ AXEC113i). It means, finally, to bury microeconomists in the darkest corner of the Flat-Earth cemetery. Economics is a genuine system science, not a social science. Economists have gotten it wrong since the Founding Fathers. The EconNobel for 'economic sciences' is a scientific fraud.
— AXEC (@EgmontHandtke) October 30, 2026

October 29, 2026

Occasional X: How it works (DXXVIII)

“Taught this way, economics is revealed as the story of human cooperation, with division of labour, profit and loss guiding us toward more productive activity.” (Mani Basharzad) Not true. Economics is taught the false Austrian way. Instead, profit may provide a strong incentive to corruption/ organized crime. The proof is given in table AXEC221b ⇓. The elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 4, 7. The business sector is split into two identical firms in lines 1-2, 4-5, 7-8. Under the conditions of market-clearing and budget-balancing, this yields the price P in line 16. The price is here the dependent variable. In the initial state, the price is equal to unit wage costs W/R, and equal for both firms. The workers get the whole product O. The profit Qm for both firms and the business sector as a whole is zero. Now, the wage rate W in firm 1 is lowered arbitrarily; otherwise, both firms are identical in every respect. As a result, the market price P decreases in line 12. The profit of firm 1 increases in line 19; firm 2 makes a loss in line 20. Total profit remains zero. The household sector as a whole still gets the whole product O, but the workers of firm 1 can buy less with their lower income; the workers of firm 2 can buy more with their unchanged wage rate W and a lower price P. The firm that somehow manages to pay less for the same labor input increases profit. Firm 2 makes a loss and will go bankrupt if it does not also make a wage cut. As a result, firm 1 wins the race to the bottom. The workers of firm 1 cannot move to firm 2 because it no longer hires or doesn't exist any longer. This process of cross-over exploitation is inherent to capitalism and inevitably leads to higher concentration. If a firm can undercut minimum wage regulations, it can be said that the criminal firm wins and the honest firm loses. What remains in the long run is a degenerated/corrupted free-market economy. Taught this way, economics is revealed as the story of intra-sectoral cross-over exploitation between firms and between households.
— AXEC (@EgmontHandtke) October 29, 2026

Occasional X: Clueless economists / Price Mechanism (XIX)

“The market is a democracy. Capitalism is the consummation of the self-determination of consumers.” (Ludwig von Mises) That's one of the biggest underhanded Austrian deceptions ever. There are two markets: the goods market and the labor market. The labor market is no democracy. Here, the workers/employees have not much to say. But the real wage is determined in the interaction of the goods and labor market. Austrians ignore the latter when praising Capitalism. According to the axiomatically correct macroeconomic Law of Supply and Demand, the real wage W/P in the elementary production-consumption economy (⇓ AXEC 28a) rises with the productivity R and declines with deficit-spending/money-creation, i.e., ρE>1. The formula gets a bit more complex for the open investment economy, but basically, it is ρE that separates real wage and productivity. Put simply, the macroeconomic wedge between real wages and productivity is due to private/public deficit-spending/money-creation. It holds that the profit of the business sector is equal to the deficit spending of the household and the government sector. In the most elementary case, i.e., ρE=1 and ρD=0, the real wage is equal to productivity R. The workers get the whole product; profit is zero. Note that (i) productivity is different from (ii) the 'marginal product of labor'. Note that (i) is objective/systemic, and (ii) is subjective/behavioral; it depends on the assumption of constrained optimization. Note that (i) is methodologically right and (ii) is wrong. Ultimately, the market is not a democratic allocation system but a quasi-Darwinian selection mechanism that increases the survival chances of the rich and decreases them for the poor. ρE>1 and ρD>0 favors the rich. That's how the Invisible Hand works. Democracy gets lost in the process. For more details, see Clueless economists / Price Mechanism (XI) https://t.co/iVKYSeXSU3
— AXEC (@EgmontHandtke) October 29, 2026

Occasional X: The foul spirit of political economics (CDXVIII)

“You have yet to answer any basic question about YOUR model.” (RFB) With the self-declaration as an economist, every economist has to answer the basic question of how the economy works. He has to answer it to the public, not specifically to any hopelessly deranged member of the Austrian political agenda-pusher gang like RFB. My answer is given with the Economics God Equation (⇓ AXEC25e). The Equation embodies the open simulation of the elementary production-consumption economy from t=0 to infinity, with the change rates as random variables. The variable ∏ means a random path. Put simply, you have the development of the most elementary economy in one equation. That's awesome, indeed, compared to the heap of inconclusive Austrian psycho-social blather. The God Equation is based on a set of systemic axioms. Austrian economics is based upon the Action Axiom, which boils down to the tautology: people act purposefully. Nobody can deny this, but nothing follows from it. The God equation is publicly available on the Internet, but neither you nor Grok AI have found/understood it. To summarize the discussion correctly: The answer to 'how the economy works' has been given with the God Equation. As an Austrian, you have not realized anything. That's quite natural. Austrianism is the last refuge of scientifically incompetent mathophobe political agenda pushers. RFB is living proof.
— AXEC (@EgmontHandtke) October 29, 2026

October 28, 2026

Occasional X: Clueless economists / Employment (XXXIX)

“No. Keynes noted that downward wage rigidity was not the problem of unemployment. Income effect:lower wage lowers consumption and so profit. MPL is not the marginal revenue, marginal sale is and that falls with lower w. In a wage-led economy Un may rise with lower wages.” (Eric Tymoigne) Employment theory has been wrong since the Founding Fathers. Keynes was no exception. For details, see Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster https://t.co/GQLh697Omw The axiomatically correct macroeconomic Employment Law (⇓ AXEC62d) tells one how ― in the elementary case ― the employment L depends ― under the condition of product market clearing ― on ρE and ρF. The factor cost ratio ρF is composed of wage rate W, the inverse productivity R, and price P. The ratio ρE depends on (public/private) deficit-spending/money-creation, i.e., deficit-spending ρE>1 is Keynes's pseudo-revolutionary idea; ρE=1 means budget-balancing. The Law consists of measurable variables and is testable if generalized. The macroeconomic price mechanism is embodied in ρF. An increasing price P means falling employment L, and an increasing wage rate means increasing employment. A falling price increases employment. A rising price decreases employment. The closer ρF is to 1, the higher is employment. This is contrary to the microeconomic microbrain logic. For more on the axiomatically correct employment theory, see Cross-references: Employment https://t.co/RfA1hj72qQ
— AXEC (@EgmontHandtke) October 28, 2026

Occasional X: The foul spirit of political economics (CDXVII)

Link to Article; scroll for the comments

Comment on onebornfree

Occasional X: The foul spirit of political economics (CDXVI)

My farewell gift! Here is the formal representation of what von Mises called 'the evenly rotating economy' (⇓ AXEC225e). “The evenly rotating economy (ERE) is a hypothetical economic model introduced by Austrian economist Ludwig von Mises in his book Human Action to describe a state of final equilibrium.” (Google AI) Needless to emphasize, von Mises never properly formalized the elementary economic system
— AXEC (@EgmontHandtke) October 28, 2026

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Knowledge only — no opinion

Science does not explain everything, but non-science explains nothing.

Neither orthodox nor heterodox economics satisfies the scientific criteria of material and formal consistency.

Economists cannot explain how the economy works. The Profit Theory is false since Adam Smith. There is much opinion and little knowledge.

Opinion is the realm of political economics, knowledge is the realm of theoretical economics.

Political economics is scientifically worthless.

Theoretical economics is built upon clearly stated premises, i.e., upon a set of axioms.

Orthodoxy got the axiomatic foundations wrong and Heterodoxy has none at all.

Economics is a failed science. Economists are incompetent scientists.

Profit

Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they all fail to capture the essence of the market economy.

Because of this, economists have nothing to offer in the way of a scientifically founded economic policy guidance.

The hybrid science

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component.

In gestalt-psychological terms the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-component must always be in the foreground. This fallacy compares to geo-centrism. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

There are systemic laws but no behavioral laws. Systemic laws have the same methodological status as physical laws.

Neither Orthodoxy nor Heterodoxy can tell what the systemic laws of the actual monetary economy are.

Whether the outcome of the human/system-interaction is good or bad is a politcal question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works - no less, no more.

Narrative vs.Theory

Psychological, sociological or behavioral assumptionism cannot yield anything other than a gossip model of the world. Second-guessing the agents is not economic analysis.

Science deals exclusively with propositions that can in principle be decided by objective means. The rest is opinion, faith, phantasy, motive speculation, allegation, hallucination, myth, paranoia, ink-blot association, psychology, philosophy, in one word: storytelling.

Storytelling is the original mode of communication in the social realm — except science.

Political economics is storytelling and, by default, the natural habitat of confused confusers. Walrasianism, Keynesianism, Marxianism, Austrianism are social narratives and not scientifically valid representations of reality.

"The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions." (Fisher)

In marked contrast, theoretical economics lives up to the standards of material and formal consistency. A scientific theory is the best mental representation of reality that is humanly possible.

Theory starts with a set of objective and consistent axioms.

Paradigm Shift

"The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy." (Feynman)

"As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction." (Nell)

"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)

"Is it not a fact, which stares at us from the histories of all sciences, that it is much more difficult for the human mind to forge the most elementary conceptual schemes than it is to elaborate the most complicated superstructure when those elements are well in hand?" (Schumpeter)

"The task of producing knowledge against the grain requires imagination." (Mirowski)

"A new idea is extremely difficult to think of. It takes a fantastic imagination." (Feynman)

"The scientific imagination dreams of explanations and laws." (Peirce)

"It is brilliance of imagination which makes the glory of science." (Evans)

"... 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." (Clower)

Selftest and to watch for

You apply one of these items

• supply-demand-equilibrium,

• general equilibrium,

• marginal utility,

• well-behaved production functions,

• total income = value of output,

• total income = wages + profits,

• I=S,

• wage rate down - employment up,

• behavioral axioms?

Then you are out of science because of unnoticed material or formal inconsistency.

Every economist who uses the concept of equilibrium is scientifically incompetent because she/he failed to notice that equilibrium is an economic nonentity.

Practically this means: as soon as the word equilibrium appears in an economic text it can be thrown into the waste basket. The same holds for all other nonentities.

The vast majority of economists deals mainly with nonentities. This is why Walrasianism, Keynesianism, Marxianism, Austrianism is scientifically worthless.

Since Adam Smith, economic policy guidance has no sound scientific foundations.

To be replaced (1)

The core premises of Orthodoxy are uncertain and false and this fully explains the failure of the research program.

“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: 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)

The inescapable Paradigm Shift consists of the move from this obsolete hard core to the superior set of structural axioms.

To be replaced (2)

The fundamental equations of macroeconomics have been formulated by Keynes in two lines.

"Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment."

This elementary syllogism is demonstrably false. The demonstration consists in the proof that Keynes could not solve the Profit Puzzle. Neither did Post-Neo-New-Keynesians.

In the most general terms, the economics Paradigm Shift consists in switching from the behavior-centric bottom-up approach to the structure-centric top-down approach. This is comparable to the Copernican turn from geo-centrism to helio-centrism.

Consensus

Economics is a science without scientists. Because they are ignorant of the elementary difference between profit and income, the present generation of economists has not made and cannot make a significant contribution to the discussion about how the actual economy works.

Every orthodox or heterodox economist can convince himself/herself that their profit theory is defective.

Every non-economist can — by applying elementary logic — convince himself that conventional profit theories are false. See 'How the intelligent non-economist can refute every economist hands down'.

Because the profit theory is false the whole of conventional economic theory has to be rejected.

"What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse." (McCauley)

No scientist will ever accept Walrasianism, Keynesianism, Marxianism, or Austrianism. These approaches are logically and/or empirically refuted. This is the actual methodological state-of-art. Walrasians, Keynesians, Marxians, or Austrians are still at the proto-scientific stage. These approaches cannot be improved, only abandoned.

Economists are a public nuisance because they have an opinion on everything but knowledge of nothing.

About me

“Bottom line is that your profit law is just a definition you made up nobody else agrees with, nobody. You are all alone with your precious tautology.” Barkley Rosser

“In any event, your entire theory is based on you doing macro accounting in wacky fashion that nobody agrees with.” Brian Romanchuk

"Your stuff is at least original: it's quite cool after a couple of decades at this to see a fresh Economics. But real promises are not advanced: they were around for millennia until the Greeks obscured them with Metaphysics." Chris Cook

"No mate, they're you-blockers. You have all the personality traits of a crank, and the rest of them have tired of you. You could be 100% right, and you'd still die as your only follower." Steve Keen

"What you are doing fills is all with joy, your constructive critique is most welcome!"

Achim Truger,

German Council of Economic Experts,

in a failed attempt to be ironic

"200+ years of thought and yet you are the only one who gets it—or even understands your argument. Thank god we have you, pseudonymous Twitter user. Otherwise no one would know."

William Luther

Assistant Professor of Economics

in a failed attempt to be funny

"Egmonts profit law is the perfect equation that demonstrates this in action. Put the equation into a spreadsheet and then add government spending and watch how it flows into profits. Enter in some debt (-Sm) and watch too how that flows into profits. It can't go anywhere else."

Dean

About the rest of economics

Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism are mutually contradictory, axiomatically false, materially/ formally inconsistent. Economics is a failed science.

“There are three classes of people: those who see. Those who see when they are shown. Those who do not see.” Leonardo da Vinci

In economics, the overwhelming majority belongs to Class III. This explains why economics is after 200+ years still at the proto-scientific level.

The obvious task for every economist is to advance from cargo cult science and political agenda-pushing to science. This is absolutely beyond the means of Class III people.

For 200+ years now, economists are not scientists but agenda pushers, useful idiots, clowns in the political Circus Maximus.

Nopopop

This blog does not add to any popular/un- popular opinion.

This blog does not hand out advice about how to avoid taxes, to get rich on the stock market, to be successful in business, to increase the wealth of nations, to run an economy, to maximize welfare, to prevent national/global bankruptcy, to improve the institutional setup of society, to get out of national/global depression, nor about how to save humankind or any subgroup thereof.

This blog is about the true theory of the actual monetary economy.

"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)

Focus

Science is of primary interest and importance. Scientists are of secondary interest.

With regard to science, most people lose focus easily because of a natural preference for anecdotes and gossip over facts or subjectivity over objectivity.

Hence, Schumpeter once considered it necessary to remind his habitually disoriented fellow economists: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

Science is about true/false and nothing else.

Disclaimer

Missing Blog-Reference links: AXEC does not guarantee that their comments can at any time be recovered from where they have been posted intitially because the availability depends on the publication policy of the blog owner which is implicitly accepted on entering a debate. See also: 'Economists: Incompetent? Stupid? Corrupt?'

Texts: Parts of arbitrary length of any of the author's texts is and will be used again by the author in papers, books, websites, blogs, and other media without explicit reference. The right to make corrections or minor textual improvements on reutilization is reserved. Therefore, it is always a good idea to double-check for the latest version.

Caution: Do not expect a corroboration of your political view. Neither a refutation. Political economics has been scientifically worthless since Adam Smith. Politics has to be separated from economics because it is categorically different from science. The best science can do and has always done is to prove beyond reasonable doubt that you have been objectively wrong or ignorant until now. Science goes beyond the naive common sense of today and becomes the sophisticated common sense of tomorrow.

See also Terms of Use and Legal at www.AXEC.org

Outlook

To recall, while political economics is storytelling, theoretical economics adheres to scientific standards.

The first task of theoretical economics is to get the axiomatic foundations right. This is what J. S. Mill called the opus magnum. Neither Orthodoxy nor Heterodoxy came up with a reasonable solution to this day. This explains the secular stagnation of economics.

There is no serious alternative to structural axiomatic economics. This is not a matter of opinion but of proof. The sole criteria are material and formal consistency.

All of economics has to be reconstructed from the ground up.

Major economic policy implication

The price mechanism does not work as standard economics hypothesizes. The axiom-based Employment Law states that overall employment increases if the average wage rate increases relative to average price and productivity. This gives one the lever to improve the employment situation all over the world and to fend off deflation without rising debt and without artificial capacity growth. To increase the average price relative to the average wage rate and productivity increases unemployment.

Right policy depends on true theory.

“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)

Lacking the true theory, economists promote for more than 200 years opinion instead of knowledge.