Occasional X: How it works (DXXXII)

Why the Worst Get on Top is the title of Ch. 10 in Friedrich Hayek's book The Road to Serfdom. In the free-market economy, profit may provide a strong incentive to corruption/organized crime. According to quasi-Darwinian logic, the most corrupt survives. The proof is given in table AXEC221b ⇓. Microfoundations are methodologically false; therefore, 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 initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 16. For a start, the price is the dependent variable here. 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 wage 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 Qm. 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. On closer inspection, economics is revealed as the story of intra-sectoral cross-over exploitation among the firms of the business sector and among the households of the household sector. Sociologically, this means there are no classes with a common interest. Ultimately, the market is not primarily an allocation mechanism but a quasi-Darwinian selection mechanism that increases the survival chances of the corrupt and decreases them for the honest. This is why guilds have emerged historically. Basically, they are self-organized associations of the honest against the corrupt, with honor as the guiding behavioral principle. Honor was replaced with the freedom of licit/illicit profit maximisation, which favors the corrupt.

— AXEC (@EgmontHandtke) November 1, 2026

Occasional X: How it works (DXXXI)

“If only 4% of gains went to innovators and we got so much innovation, what if property rights were tightened? What if they could appropriate 5% instead? How much more innovation would we get?” (Vincent Geloso) Innovators and creative geniuses are the most exploited group in the free-market system. Business has captured the real wealth creators. As a rule of thumb, not those who create and ultimately enhance the productivity of the economic system get wealthy, but those who employ or sponsor them — or simply steal their ideas. Of course, the group/generations of innovators and creative geniuses deserve 100 percent of the gains. How could they appropriate it? For details, see How it works (DXXX) https://t.co/ibUuwn8flm

— AXEC (@EgmontHandtke) November 1, 2026

Occasional X: How it works (DXXX)

“Generations of students learned economics through the Samuelson and Nordhaus textbook. But my favorite article of his is another one: 'Schumpeterian Profits in the American Economy: Theory and Measurement,' from 2004. For every 100 euros of value that an innovator creates, they keep just a little over 2. We get the other 98. … It's worth remembering this whenever someone proposes heavily taxing the fortunes of entrepreneurs, as if they were a burden on society. The innovator already keeps a minimal slice of the value they create. Taxing that slice yields little and puts everything else at risk.” (Pedro Santa Clara) The obvious swindle is to verbally equate innovators and entrepreneurs. They are as different as can be. Innovators and creative geniuses are the most exploited group in the free-market system. Business has captured the real wealth creators. As a rule of thumb, not those who create and ultimately enhance the productivity of the economic system get eventually wealthy, but those who employ or sponsor them — or simply steal their ideas. The real creative genius Tesla died poor, with a charity from the firm he helped to create and prosper.‡ In the end, the royalties go elsewhere. “Nordhaus wanted to know how much of the value created by innovation stays with the innovator. … The answer: about 2.2%. The rest went to society, especially to consumers, in the form of lower prices and better products.” (Pedro Santa Clara) Innovators and creative geniuses cannot be presented as the heroes of the free-market system. They enhance the productivity of a firm, but the enhanced profits are taken by the firm's owners. That scientists/inventors work for firms is a historical accident and in NO way intrinsic to science. To the contrary. Genuine scientists, for example, are fed up with working under the direction of a management with entirely different incentives or constantly begging for funding from the oligarchy. Seen from the perspectives of merit and the freedom of science, this is as perverse as it gets — in any case for basic research. Time for a new business model ⇒ A rough business plan for science https://t.co/fvOOBCrRgV Toward the New Academy https://t.co/4lOOZdZkox ‡ Sources “In early 1891, George Westinghouse explained his financial difficulties to Tesla in stark terms, saying that, if he did not meet the demands of his lenders, he would no longer be in control of Westinghouse Electric and Tesla would have to 'deal with the bankers' to try to collect future royalties. The advantages of having Westinghouse continue to champion the motor probably seemed obvious to Tesla and he agreed to release the company from the royalty payment clause in the contract. Six years later Westinghouse purchased Tesla's patent for a lump sum payment of $216,000 as part of a patent-sharing agreement signed with General Electric ….” (Wikipedia) “At this time, Westinghouse Electric & Manufacturing Company began paying him $125 (equivalent to $3,010 in 2025) per month in addition to paying his rent. Accounts of how this came about vary. Several sources claim that Westinghouse was concerned, or possibly warned, about potential bad publicity arising from the impoverished conditions in which their former star inventor was living. The payment has been described as being couched as a 'consulting fee' to get around Tesla's aversion to accepting charity.” (Wikipedia) “J.P. Morgan stopped funding Nikola Tesla … around 1903–1904 because Tesla's project lacked a viable business model for making money.” (Google AI)

— AXEC (@EgmontHandtke) November 1, 2026

Occasional X: Clueless economists / Money (CXLXVIII)

“Why do we use money? This should be the fundamental question of a monetary economics course. Although it seems like a somewhat obvious question, the use of money is anything but trivial when we look at it analytically through the prism of economic theory; particularly the ideal models described by Walrasian general equilibrium.” (Königs) Walrasian general equilibrium is known to be proto-scientific garbage. It's the worst possible starting point for Monetary Theory. The axiomatically correct macroeconomic approach is summarized in the table below AXEC237c ⇓ . Microfoundations are methodologically false; the economic system is based on three macroeconomic axioms (lines 1-3). As a result, the market-clearing price P is analytically determined by the relationship between the quantity produced/supplied/bought O=X and the nominal demand Ec. Budget-balancing means that nominal demand is equal to income, here Ec=Yw. The labor time L washes out and plays no role in the price determination. In the monetary economy, the resulting market-clearing and budget-balancing price for a one-good economy is P=:W/R, i.e., the price is equal to unit labor costs (line 5). Profit is zero (line 11). The workers get the entire product O. In the general case of non-budget-balancing, the market-clearing price is shown in line 9. In general, nominal demand depends on income and the expenditure ratio. The expression ρE*Yw implies an income-dependent demand curve. The household sector provides the labor input L and gets the wage income Yw. There is no other income in the elementary case. At this logical point, money enters the picture in line 16. It is of no interest here how money evolved historically. Here, money is not needed for facilitating the exchange of goods, but for paying the wage bill. The households, in turn, spend their wage income on buying the consumption goods output O. Thus, money returns to the business sector. Transaction money is here provided (at zero cost, i.e., no fee, no interest) by the Central Bank in the form of fiat money. By sequencing the initially given period length of one year into months, the idealized transaction pattern is displayed in line 16 in the table below. It is assumed that the monthly income Y/12 is paid out at mid-month. In the first half of the month, the daily spending of Y/360 increases the current overdrafts of the households. At mid-month, the households change to the positive side and have current deposits of Y/24 at their disposal. This amount reduces continuously towards the end of the month. This pattern is exactly repeated over the rest of the year. So, transaction money comes from the Central Bank; it is zero at the beginning and at the end of a given period. The average quantity of transaction money depends on the transaction pattern κ, total employment L, and the wage rate W. Money is created out of nothing and returns to nothing. There is no such thing as a fixed quantity of money. Money is present and absent depending on the time frame of observation. So, the Central Bank creates the needed fiat money out of nothing according to the changing demands due to the transactions between the household and the business sector. Transaction money is determined endogenously — “that is, as a result of the interactions of other economic variables…” (Wikipedia). There is no such thing as a 'supply of money'. The wage rate W and employment L are determined in the interaction of the household and the business sector. The Central Bank simply provides the wage bill, whatever it is. The graphic reduces formally to the money axiom in line 16. In the symmetric case Ec=Yw, the average quantity of money depends on the transaction pattern κ, the wage rate W, and employment L. If employment increases, the average stock of transaction money increases. Because W and P are formally related in line 9, there also appears a statistical correlation between price and average stock of transaction money. Both depend on the expenditure ratio ρE (lines 9 and 18). The point to start with is that both the market-clearing price and the average quantity of money depend on the expenditure ratio. This indirect relationship makes it appear that there is a correlation between the quantity of money and price. However, there is no causality from M to P. Money becomes a store of value if the expenditure ratio is ρE>1. In the most elementary case, the household sector dissaves, i.e., Ec>Yw, and the business sector makes a profit Qm as shown in line 11. At the end of the period, the business sector has a stock of money at the Central Bank equal to profit Qm. And this is the point. The concept of macroeconomic profit does not appear in legacy economics. The representative economist obviously does not know that the creation of money is intimately connected with the creation of profit. In other words, they do not understand how the economic system works. For details about the axiomatically correct approach, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFrVUX

— AXEC (@EgmontHandtke) November 1, 2026

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

“RIP to an absolute lion of the field.” (Noah Kaufman) The usual abuse of obituaries for the glorification of scientifically incompetent political agenda pushers of economics as a failed/fake science. For details, see The foul spirit of political economics https://t.co/F4Vc3v2q9e

— AXEC (@EgmontHandtke) November 1, 2026

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

“Bill Nordhaus was a pioneer of the economic analysis of climate change for which he won the Nobel Prize in Economics in 2018.” (Florian Ederer) “William Nordhaus is the co-author of the textbook Economics. This textbook was 'first published in 1948, and it immediately became the authority for the principles of economics courses.' (Amazon, product information) There is Orthodoxy with microfoundations, and there is Keynesianism with macrofoundations. Both Walrasian microfoundations and Keynesian macrofoundations are provably false, i.e., materially/formally inconsistent. In the Samuelson/Nordhaus synthesis, the defective Walrasian micro axioms and Keynes’s defective macro axioms were cobbled together. Needless to emphasize that both halves do not logically fit together. The Samuelson/Nordhaus textbook has the lowest scientific content of all textbooks ever written. And nothing substantial has improved in the last 70 years. Supply-Demand-Equilibrium will forever stand out as the silliest construct in the history of science, and it is still at the core of economics teaching. William Nordhaus cannot by any stretch of the imagination be taken seriously as a scientist, except in a Cargo Cult Science. Feynman defined it as follows: “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.” Indeed, they have not realized for 80+ years that economics is proto-scientific garbage, and they even award a cargo cult Nobel to the co-author of a cargo cult textbook.” (AXEC) For details, see Graphic Fire Economists https://t.co/Ezt6UE0WQW False on principle https://t.co/b3fMTV55bi Economics has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. As a representative economist, William Nordhaus never understood science. He misled generations of students.

— AXEC (@EgmontHandtke) November 1, 2026

Occasional X: Clueless economists / Price Mechanism (XX)

“Liberty is competition and incessant conflict, the mother of all progress, in which only the most capable can triumph, and the weakest, as in nature, are condemned to annihilation.” (Gustave Le Bon) Not true. Instead, profit may provide a strong incentive to corruption/organized crime. In the free-market economy, not the most 'capable' but the most corrupt survives. 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 initial conditions of market-clearing and budget-balancing, this yields the price P in line 16. The price is the dependent variable here. 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 wage 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 Qm. 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. On closer inspection, economics is revealed as the story of intra-sectoral cross-over exploitation among firms and among households. Ultimately, the market is not primarily an allocation mechanism but a quasi-Darwinian selection mechanism that increases the survival chances of the corrupt and decreases them for the honest.

— AXEC (@EgmontHandtke) October 31, 2026

For more about the quasi-Darwinian process, see AXECquery.