If we only had classes

Comment on David Ruccio/Jamie Morgan on “Capital and class’*

Blog-Reference and Blog-Reference

Since Adam Smith/Karl Marx, economists have not figured out how the price and profit mechanism works. Because economists do not know what profit is, distribution theory is a mess. Ruccio/Morgan maintain that this is no accident: “Mainstream economics in general tends to deflect attention from the existence of inequality (e.g., by focusing on growth, output, and the price level versus distribution) and from the economic and social problems created by inequality ….”

The fact is, though, that not only orthodox economists but also heterodox economists like Ruccio/Morgan themselves get profit and distribution theory utterly wrong. The bad news for the general public is that economics is a failed science, and economists are fake scientists. For lack of valid scientific knowledge in the past 200+ years, economists have never been helpful in bringing about the Good Society.

The root defect of distribution theory is that economists do not know to this day what profit is. What has to be done is a Paradigm Shift, that is, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― have to be buried in the darkest corner of the Flat-Earth-Cemetery.

The new paradigm starts with three macroeconomic axioms that consistently define the elementary production-consumption economy: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Y_w=WL wage income Y_w 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. #1, #2

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price is given by P=W/R (1), i.e., the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. It translates into W/P=R (2), i.e., the real wage is equal to productivity.

Monetary profit/loss of the business sector is defined as Q_m≡C−Y_w, and monetary saving/dissaving of the household sector is defined as S_m≡Y_w−C. It always holds Q_m≡−S_m, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving. Vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget-balancing C=Y_w, total monetary profit is zero.

In the elementary production-consumption economy, workers get the whole product, and profit is zero at any level of employment. The wage rate W can be doubled or halved; this does not matter, the real wage is always equal to the productivity. So, where does profit come from?

Macroeconomic profit depends, in the most elementary case, solely on deficit spending, that is, on the increase of the household sector’s debt. It does NOT depend on labor time, or wages, or productivity, or risk-taking, or monopoly power, or exploitation, or on psychological factors like greed or utility maximization.#3

In the elementary production-consumption economy, the wage rate for all employees (employees = labor = working-class = blue-collar workers + white-collar workers + management + executives) is equal, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because of C=Y_w. This is as equal as one can get for a start.

Obviously, there is NO such thing as antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up, the market-clearing price goes up according to (1) and the real wage remains unchanged according to (2).

Now, the employees are arbitrarily split into two groups of equal size. The wage rate of group 1 is then increased by a factor of 1.5, and the wage rate of group 2 is halved, thus that the total wage income Y_w=WL=W₁L₁+W₂L₂ remains unchanged. All other things, i.e., output O, consumption expenditures C, and the market-clearing price P remain unchanged.

Accordingly, the real wage of group 1, i.e., W₁/P, increases 1.5-fold, and the real wage of group 2 halves. The macroeconomic profit is still zero because of C=Y_w. The unchanged real product O is redistributed among the employees; that is, group 1 is better off at the expense of group 2.

The profit of the business sector is zero before and after wage discrimination. So, it is NOT the case that the capitalists, defined as owners of the firm, are better off through wage discrimination. The redistribution of output O happens WITHIN the working class. There is NO exploitation of workers by capitalists.

Now, the business sector is split into two identical firms, and firm 1 is supposed to cut the wage rate W₁ arbitrarily by half. From this follows that the market-clearing price P declines if all other variables are unchanged. Firm 2 is affected because total wage income Y_w falls, and with it consumption expenditures C and the market-clearing price P.

The reduction of the wage rate W₁ increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1, we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down ― profit up. This fits the time-honored stereotype of wages and profits as antagonists. Exactly at this point, the idea of class war strikes the naive observer with the force of a revelation.#4, #5

The error/mistake/blunder of economists since the Classicals has been to generalize what is true for a single firm, and this is known as the Fallacy of Composition.

If profit has been zero in the initial period because of budget-balancing C=Y_w, then firm 2 makes a loss which is exactly equal to firm 1’s profit. Hence, the arbitrary wage rate cut of firm 1 does NOT increase the profit of the business sector as a whole but only REDISTRIBUTES profit/loss between the firms that constitute the business sector.

Seen from the perspective of a single firm, the antagonism of wages and profits is real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2, and the workers of firm 2 are better off at the disadvantage of the workers of firm 1, because at a lower market-clearing price, they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged, and the same is true for the household sector as a whole. If there is exploitation, it happens WITHIN the sectors.

For the economy as a whole, the antagonism of wages and profits is an optical illusion. The concept of exploitation of the working class by the capitalist class has to be replaced by the concept of cross-over exploitation WITHIN the classes.

When Capitalism is roughly defined as ownership of the firms that make up the business sector by profit-seeking capitalists, then the capitalists, taken as a whole, cannot increase overall profit by lowering wages. Only the individual capitalist can do this at the expense of the other capitalists. On closer inspection, it turns out that there is NO capitalist class with a common class interest.

The understanding of the phenomenon of cross-over exploitation quite naturally leads to the conclusion that it would be institutionally advantageous to have classes. Imagine there is an institutionalized capitalist class that represents the interests of the business sector as a whole. From the class standpoint, it makes NO sense at all that one firm increases its profit by slashing wages and at the same time reduces the profits of the rest of the business sector. This is a silly zero-sum game. The fundamental construction defect of historically evolved capitalism is that it does NOT function according to class interest but according to the myopic interest of individual capitalists. This does NOT lead to an optimal outcome for the economy as a whole.

It would be much better to have a capitalist class that embodies the interests of the business sector as a whole and a working class that embodies the interests of the employees as a whole, and to let them negotiate all economic issues and solve all economic problems. The socially most destructive effect of the current institutional order is the phantasmagoric class war that is produced by the Fallacy of Composition.

Economists have always been the sand sacks on the way to the Good Society because, in their bottomless scientific incompetence, they never understood the concepts of profit, classes, and cross-over exploitation.

Retarded folks like Ruccio/Morgan are still trapped in the Fallacy of Composition: “And it is important to remember that the growth of corporate profits is both a condition and consequence of the stagnation of workers’ wages.” False! Instead, it is important to remember that the growth of corporate profit is the mirror image of the growth of government sector and household sector debt. There has NEVER been an antagonism between overall wage income and macroeconomic profit. #6

Profit and distribution theory are false since Adam Smith. Economists ― both orthodox AND heterodox ― have a 200+ years track record of incompetence/stupidity/corruption, and are the main obstacle on the way to the Good Society.

Egmont Kakarot-Handtke


* Real-World Economics Review

#1 Capitalism, poverty, exploitation, and cross-over exploitation
#2 Graphic, AXEC31 Elementary Production-Consumption Economy
#3 For details of the big picture, see cross-references Profit
#4 Ricardo and the invention of class war
#5 Profit for Marxists
#6 There is NO such thing as a “labor share of income”

Related 'The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?' and 'Major Defects of the Market Economy' and 'Income Distribution, Profit, and Real Shares' and 'The Coherency of Money, Profit, Price, and Distribution' What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example' and 'Debunking Squared' and 'When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism' and 'The Emergence of Profit and Interest in the Monetary Circuit' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Truth by definition? The Profit Theory has been axiomatically false for 200+ years'.

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AXEC109i

Capitalism, poverty, exploitation, and cross-over exploitation

Comment on David Ruccio on ‘“Capitalism was built on the exploitation and suffering of black slaves and continues to thrive on the exploitation of the poor”’

(A symbol has been changed in the meantime, i.e., C and Ec are interchangeable)

Blog-Reference

Since Adam Smith and Karl Marx, economists have not figured out how the price and profit mechanism works. For this reason, they do not understand to this day the relationship between discrimination, profit, exploitation, and poverty. #1

Because economics is a failed science, economists can neither solve economic nor social problems. Economic debate always and everywhere degenerates within a split second into political rhetoric, moralizing, scapegoating, mutual motive speculation, and sitcom blather.

So, what first of all has to be done is to rise above the proto-scientific level of political economics. The utter failure of economics is due to microfoundations. Economics has to be based on macrofoundations.

The elementary production-consumption economy

The macrofoundations approach starts with objective-systemic axioms that define the elementary production-consumption economy: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Y_w=WL wage income Y_w 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.

Under the conditions of market-clearing X=O and budget-balancing C=Y_w in each period, the price is given by P=W/R (1), i.e., the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. It translates into W/P=R (2), i.e., the real wage is equal to the productivity. For the graphical representation, see at Graphic. #2

Monetary profit of the business sector is defined as Q_m≡C−Y_w, and monetary saving of the household sector is defined as S_m≡Y_w−C. It always holds Q_m≡−S_m, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving. Vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget-balancing, C=Y_w total monetary profit is zero.

Macroeconomic profit depends, in the most elementary case, solely on deficit spending, that is, on the increase of the household sector’s debt. It does NOT depend on labor time, or wages, or productivity, or risk-taking, or monopoly power, or exploitation, or greedy capitalist. #3, #4

In the elementary production-consumption economy, the wage rate for all employees (employees = labor = working-class = blue-collar workers + white-collar workers + management + executives) is equal, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because of C=Y_w.

Obviously, there is NO antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up, the market-clearing price goes up according to (1) and the real wage remains unchanged according to (2).

All changes in the system are reflected by the market-clearing price. As a matter of principle, the elementary production-consumption economy can go on indefinitely at any level of employment L.

The living standard of the employees is, with equal labor time per person, alone defined by the productivity. So, poverty in one production-consumption economy is due to the lower productivity compared to the other economy.

Social discrimination

Now the employees are arbitrarily split into two groups of equal size. The wage rate of group 1 is then increased by the factor 1.5, and the wage rate of group 2 is halved, thus that the total wage income Y_w=WL=W₁L₁+W₂L₂ remains unchanged. All other things, i.e., output O, consumption expenditures C, and the market-clearing price P, remain unchanged.

Accordingly, the real wage of group 1, i.e., W₁/P, increases 1.5-fold, and the real wage of group 2 halves. The macroeconomic profit is still zero because of C=Y_w. The unchanged real product O is redistributed among the employees; that is, group 1 is better off at the expense of group 2. The relative poverty of group 2 is due to social discrimination among the employees and has nothing to do with capitalism, here defined as ownership of the business sector/firms.

The profit of the business sector is zero without discrimination and with discrimination. So, it is NOT the case that the capitalist class exploits group 2, but that group 1 of the working class exploits group 2 of the working class. Exploitation and poverty are ultimately an issue WITHIN the working class and NOT between the working class and the capitalist class.

Cross-over exploitation

The business sector is now split into two identical firms, and firm 1 is supposed to cut the wage rate W₁ arbitrarily by half. From this follows that the market-clearing price P declines if all other variables are unchanged. Firm 2 is affected because total income Y_w falls, and with it consumption expenditures C and the market-clearing price P.

The reduction of the wage rate W₁ increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1, we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down ― profit up. This fits the time-honored stereotype of wages and profits as antagonists.

The error/mistake/blunder of economists since the Classicals has been to generalize what is true for a single firm, and this is known as the Fallacy of Composition.

If profits have been zero in the initial period because of budget-balancing C=Y_w, then firm 2 makes a loss that is exactly equal to firm 1’s profit. Hence, the arbitrary wage rate cut of firm 1 does NOT increase the profit of the business sector as a whole but only REDISTRIBUTES profit/loss between the firms that constitute the business sector.

Seen from the perspective of a single firm, the antagonism of wages and profits is absolutely real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off at the disadvantage of firm 2, and the workers of firm 2 are better off at the disadvantage of the workers of firm 1, because at a lower market-clearing price, they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged, and the same is true for the household sector as a whole. If there is exploitation, it happens within the sectors. A partial wage rate change leads only to a redistribution of profits between the firms and of output between the workers. A global wage rate change leads under the condition of budget balancing and market clearing only to a price change in the same direction.

For the economy as a whole, the antagonism of wages and profits is an optical illusion. The concept of exploitation of the working class by the capitalist class has to be replaced by the concept of cross-over exploitation WITHIN the classes. This makes the idea of class struggle obsolete.

When Capitalism is roughly defined as ownership of the firms that make up the business sector by profit-seeking capitalists, then the capitalists taken as a whole cannot increase overall profit by discrimination among the workers according to race, religion, gender, nationality, or any other social criterion. Only the individual capitalist can increase his profit through discrimination at the expense of the other capitalists. The individual capitalist’s pursuit of profit does NOT increase the profit of capitalists as a whole. The inner contradictions of capitalism lie within the classes and not between them. In the strict sense, classes ― defined by a common class interest ― do not exist.

Overall monetary profit cannot be increased by social discrimination among the employees, but is given by the macroeconomic Profit Law Q_m≡Y_d+(I−S_m)+(G−T)+(X−M). So, exploitation or other social pathologies are NOT a feature of the capitalist economy per se, but of pathological individuals. The major defects of the market system lie elsewhere. #5

Egmont Kakarot-Handtke


#1 Ricardo and the invention of class war
#2 Graphic AXEC31 Elementary production-consumption economy

#3 The profit theory is false since Adam Smith
#4 Profit for Marxists
#5 Major Defects of the Market Economy

Related 'Making the economy the focus of the economists’ dialogue' and 'Karl Marx, fake scientist' and 'No exploitation, no classes' and 'Mathematical Proof of the Breakdown of Capitalism'. For details of the big picture, see cross-references Profit.

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Graphic AXEC221a

PsySoc — the scourge of economics

Comment on David Ruccio on ‘The fundamental truth about American economic growth’

Blog-Reference

You quote a recent Science article: “... that we’re seeing right now, with the insurgent campaigns of Donald Trump and Bernie Sanders and elite hopes that they will just fade away, are ‘early skirmishes in a coming class war’.” (See intro)

It is not so much the prediction of a coming class war in the U.S. that is false but the explanation within the framework of economics.

The crucial point is that economics deals — in the first place — not with individual human behavior or society at large. This is the realm of Psychology, Sociology, Anthropology, History, Political Science, Philosophy, etcetera. Insofar as economics deals with behavioral assumptions like utility maximization, greed, power-grabbing, etcetera, it is a dilettantish variant of Psycho-Sociology or PsySoc.

The authors of the Science article argue that it is wrong to explain the problems of the U.S. economy by ‘pathologizing the poor’ and that it is necessary to turn ‘attention to the pathologies of the rich.’ (See intro)

It should be pretty obvious that economic problems cannot be explained or solved by Psychology. It is known since the ancient Greeks that psychologism is the way stupid people explain the world, i.e. flashes of lightning fly from the sky because Zeus is angry. The pathology explanation is on the same scientific level as the Zeus explanation, that is, it is exactly at intellectual ground zero.

There is some irony in the fact that the most famous predictor of imminent class war had been very explicit about the vacuousness of psychologism: “To prevent possible misunderstanding, a word. I paint the capitalist and the landlord in no sense couleur de rose. But here individuals are dealt with only in so far as they are the personifications of economic categories, embodiments of particular class-relations and class-interests. My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them.” (Marx, 1906, M.9)

On closer inspection, however, Marx only replaced subjective psychologism with objective sociologism. Instead of pathological individuals we now have ‘embodiments of economic categories.’ This is somewhat better but still not good enough. What, then, is the real subject matter of economics?

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 or SysHum.

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 objectively given system components. The economic system has its own logic which is different from the behavioral logic of humans. Systemic logic is what Adam Smith called the Invisible Hand.

The history of the U.S. economy since around the 1920s could be retold quite realistically as tumbling from crisis to crisis with idiots, criminals, sociopaths, swindlers, fakers, etc. grabbing for power and money.

To do so, however, is not the proper task of Theoretical Economics. Economics has to explain how the actual economic system works and this implies explaining economic crises or an eventual breakdown by structural defects and not by psychological or social pathologies (2015; 2014). In other words, the pain comes from the broken leg and not from evil spirits. The economy breaks down because of the overall loss, and society breaks down for other reasons. These things have to be kept properly apart.

This said, is not to deny that Donald Trump could be the harbinger of the economic and intellectual breakdown of the U.S. To be quite clear, this is a serious problem of Political Science but by no stretch of the imagination of Theoretical Economics, which is science in marked contrast to Political Economics, which is — and that is the fundamental truth —  folk-psychological garbage and brainless gossip.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Mathematical Proof of the Breakdown of Capitalism. SSRN Working Paper Series, 2375578: 1–21. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL

Related 'Economics: ‘a tale told by an idiot, full of sound and fury’?' and 'Confounding sociology and economics' and 'The happy end of the social science delusion' and 'Economics: the honeypot for know-nothingers' and 'Love and hate in economics: the PsySoc shell game' and 'Hijackers, agenda pushers, PsySocs and other morons' and 'How to get out of the Econ 101 PsySoc woods' and 'Economics is NOT a social science' and 'Psychologism: how morons explain the world'. For details of the big picture see cross-references Not a Science of Behavior.

Marx’s bicentennial ― nothing to discuss, nothing to celebrate

Comment on Tom Hickey on ‘Steve Keen — Karl Marx sacrificed logic on the altar of his desire for revolution’

Blog-Reference

What economists produce is not so much scientific knowledge but some mixture of propaganda, how-to-get-rich quackery, disinformation, and entertainment. The four main approaches ― Walrasianism, Keynesianism, Marxianism, and Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal economic concept of profit wrong. With the pluralism of provably false theories, economics sits squarely at the proto-scientific level.

Economics is one of the most embarrassing scientific failures of all time. Economic policy guidance has NEVER had sound scientific foundations. And it does not matter at all whether this guidance has been more rightist or more leftist, more capitalist or more communist. Because of this, the discussions of economists of different schools never had any scientific relevance and have roughly the same entertainment value as a wrestling show.

The irrelevance of Steve Keen’s critique of Marx consists in the fact that both so-called economists have no idea of the foundational economic concept of profit. #1, #2 Everybody knows from methodology that when the premises are false, the whole analytical superstructure is false. Or in the words of Aristotle: “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.”

Economics started as Political Economy. Marxianism is not so much economics as Sociology, Anthropology, History, Political Science, Philosophy, Psychology, and agenda-pushing. #3 Marx got the pivotal concepts of profit, exploitation, and class wrong. #4, #5 The axiomatically correct profit theory tells everybody that macroeconomic profit is determined in the most elementary case by dissaving = growth of household and public sector debt #6 and NOT by exploitation and that there is NO antagonism between wages and profits for the economy as a whole.

Economists of ALL camps are cargo cult scientists and have not gotten their foundational concepts straight in the last 200+ years. Nothing to celebrate on Marx’s bicentennial but the persistence of economists’ stupidity and corruption. #7, #8

Egmont Kakarot-Handtke


#1 Profit for Marxists
#2 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#3 It is not quite clear which agenda Marx was pushing. See Karl Marx, Prussian government agent
#4 Capitalism, poverty, exploitation, and cross-over exploitation
#5 Ricardo and the invention of class war
#6 Keynes, Lerner, MMT, Trump and exploding profit
#7 Economists: scientists or political clowns?
#8 The end of political economics

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Graphic AXEC109

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REPLY to Tom Hickey on May 19

Schopenhauer called Hegel “A flat-headed, insipid, nauseating, illiterate charlatan.” No wonder that Hegel appealed to Marx and later on to other flat-headed philosophers like Tom Hickey.

The bad luck of philosophers is that philosophy is entirely irrelevant to economics, which means for the philosopher Tom Hickey that he is in the wrong place at an economics blog.

MMT, clearly, is a program for the one-percenters. #1 Why do MMTers like Bill Mitchell and Tom Hickey demonstrably wave the Marx flag? Something is wrong here.

Marx is known as a lousy economist #2 and political agenda pusher, and, most of all, for his claim that the working class will one day fully replace the capitalist class due to the law of social dialectics. Quite naturally, this sociological/historical hypothesis appeals more to the ninety-nine-percenters than to the one-percenters.

Bill Mitchell, Tom Hickey, and the rest of the sales team use Marx in order to make MMT palatable to the ninety-nine-percenters. #3, #4

An intelligent Marxist/MMTer (who is indeed as rare as a unicorn) would simply create some extra money, but NOT for deficit spending, which only boosts macroeconomic profit according to the axiomatically correct Profit Law Public Deficit = Private Profit, but for continuously buying shares on Wall Street and successively taking over the control of all big corporations. No social revolution is needed. In fact, nothing is easier than abolishing capitalism. #5 Why do MMTers waste so much time with the Job Guarantee and other social programs?

#1 MMT and the promotion of Wall Street's idea of social policy

#2 Karl Marx, fake scientist

#3 MMT and grassroots movements

#4 Political economics: Who hijacks British Labour?

#5 How the American working class can bring overall profits down to zero without bloody revolution

MMT’s true program

Comment on Bill Mitchell/Thomas Fazi on ‘Seize the Means of Production of Currency ― Part 2’

Blog-Reference and Blog-Reference

Bill Mitchell and Thomas Fazi tell the representatives of the Labour Party and the general public: “There is no MMT program! The ‘Labour’s own economic programme’ will be implemented, if they gain office, in the context of a monetary system that is best understood through the MMT lens and the principles outlined in ― Seize the Means of Production of Currency ― Part 1.”#1

The Labour Party’s representatives, though, are too stupid to live: “Trying to set up a comparison to show ‘Labour’s own economic programme’ is superior or more sensible demonstrates Meadway’s complete lack of understanding of what MMT is. It is such a basic error that he should disqualify himself from further discussion until he takes the time to understand this key difference between a ‘lens’ that allows for understanding and a policy program.”

And this is MMT’s true program in a nutshell: Serve the Oligarchy/Undermine the Labour Party.

Modern Monetary Theory ― or the lens as MMTers like to call it ― is refuted on all counts.#2 The macroeconomic Profit Law entails Public Deficit = Private Profit, which means that the central MMT policy recommendation of deficit-spending/money-creation benefits the Oligarchy and certainly not the membership of the Labour Party. In other words, MMTers attempt “… to get citizens and workers to accept ― demand even ― policies that are not in their class interest.”

Accordingly, MMTers vehemently attack the two traditional economic planks of Labour: budget-balancing over the business cycle and taxing the rich.

Budget-balancing in any shape or form is anathema for MMT.

With regard to taxes, which are, according to MMT, not needed at all for funding government programs but only in the improbable case of inflation, Bill Mitchell and Thomas Fazi rhetorically ask: “Does this mean that we shouldn’t ‘tax the rich’? The present authors’ values indicate we are all for taxing the rich. But not to get their money. Rather, the rich should pay higher taxes in order to deprive them of their purchasing power, which translates into economic and political power. This is not a minor issue. Ultimately, fuelling the notion that we need the rich folk’s money to ‘[pay for] our schools and our caring services’, as the likes of Jeremy Corbyn and John McDonnell never tire of repeating, is a dangerous and misguided narrative for progressives to engage in. Not only because it fuel damaging myths about how the monetary system works, but also because it also elevates the rich and high-income earners to an indispensable status that is unwarranted.

As Pavlina Tcherneva, from the Levy Economics Institute, notes in her excellent response to Doug Henwood’s rather loopy attack on MMT…: I would say that Henwood (like other “tax-the-rich-to-pay-for-progress” lefties) is tethered to the wealthy by an imaginary umbilical cord that holds his progressive agenda hostage to his oppressors. To me, this is the definition of self-induced paralysis. Time to cut the cord. MMT has a profound emancipatory power and the Left would do well to awaken to its potential. Progressives should come to terms with the fact that the incomes and taxes paid by the rich do not enhance the capacity of a currency-issuing government to provide first-class public services and infrastructure.”

Deficit-spending/money-creation and not taxing the rich are clearly in the interest of the Oligarchy. The policy guidance of MMT, whose proponents call themselves Progressives, is definitely NOT in the class interest of Labour members and voters.

If the general public finds all this perplexing, however, they should not blame MMTers: “If the reader finds all this perplexing, it is because for the past forty or so years policymakers and mainstream economists and commentators have peddled a series of false myths about how modern monetary systems work.”

The claim: “There is no MMT program!” is plain fraud. The true program of MMT is to brainwash WeThePeople. If anything, deficit-spending/money-creation and not taxing the rich, and driving a wedge between Labour leadership and membership, are in the class interest of the Oligarchy. Bill Mitchell and Thomas Fazi are neither scientists nor Friends-of-the-People but useful idiots of the Oligarchy.

Egmont Kakarot-Handtke


#1 MMT: A new myth for WeThePeople
#2 For the full-spectrum refutation of MMT, see cross-references MMT

Related 'MMT: A Trojan Horse for Labour courtesy of the Oligarchy' and 'No MMT illusions! YOU are going to pay for it' and 'How MMT fools the ninety-nine-percenters' and 'How to pay for the war and to be bamboozled by economists' and 'Just one more day: How deficit-spending postpones the breakdown of Capitalism' and 'For MMT = For the Oligarchy' and 'Links on MMTers push Wall Street’s agenda' and 'The not so funny MMT vs Neoliberalism slapstick' and 'Economics has arrived at the bottom of the proto-scientific shithole' and 'MMT has an offer that Labour cannot refuse' and 'Some nasty MMT surprises behind the time horizon' and 'Prophet Stephanie divines the seizure of the means of production of currency' and 'State capture ― time to switch rhetoric' and 'MMT sucks'.

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AXEC142

Links on James Petras’ ‘Big Business Strikes Back: The Class Struggle from Above’

Blog-Reference*

Economics is a failed/fake science. To this day, economists do not know what profit is. By consequence, they got the concept of class struggle badly wrong.

If we only had classes
Ricardo and the invention of class war
Capitalism, poverty, exploitation, and cross-over exploitation
Profit: after 200+ years still elusive
The Profit Theory is False Since Adam Smith
Keynesianism as ultimate profit machine
Karl Marx, fake scientist
Economists: scientists or political clowns?
For details of the big picture see cross-references Profit

Egmont Kakarot-Handtke


* James Petras, Big Business Strikes Back: The Class Struggle from Above PDF

#Economics #FailedScience #FakeScience #CargoCultScience #ScientificIncompetence #Economists #PoliticalEconomics #OrthodoxEconomics #HeterodoxEconomics #Pluralism #ProfitTheory #DistributionTheory #NewEconomicThinking #DeleteEconomics #ParadigmShift #NewParadigm #Science #Axiomatization

Nietzsche, entropy, full employment, and NO class war

Comment on David Ruccio on ‘Utopia and work’

Blog-Reference

David Ruccio resumes: “The goal of mainstream economists is to get everybody to work. As a result, they celebrate capitalism for creating full employment — and worry that capitalism will falter if not enough people are working.” However, philosophers have long been aware that full employment is not such a good idea: “According to Friedrich Nietzsche …, the dignity of labor was invented as one of the ‘needy products of slavedom hiding itself from itself.’ That’s because, in Nietzsche’s view (following the Greeks), labor is only a ‘painful means’ for existence and existence (as against art) has no value in itself. Therefore, ‘labour is a disgrace’.”

Let us, first of all, take folk psychology out of the issue. Labor must be seen against the background of entropy. Entropy brings humans eventually down to zero. The intake of goods, energy, etc., slows this process down. The production of goods, though, requires labor input.

Imagine the following initial state. Every living person gets a plot of land in the form of a hexagon. This land delivers all that the person needs. We can put as many hexagons together as we like. Hexagonland is large and symmetrical. There is no scarcity of land or resources. Each occupant works L_i=9 hours per day, has 1 hour of leisure, and needs 14 hours for regeneration. The necessary and sufficient output is O_i per day. There is no boss, no exploitation, no slavedom, no government. Whether the Hexagonians think that labor is a disgrace is a matter of indifference. If they stop working, they produce no output, entropy takes over, and they drop dead in a little while. This is the original material human condition. Labor is a means to counteract entropy. Without external limitations or disturbances, it can go on for an indefinite time.

Now, we switch to the monetary economy. The elementary production-consumption economy is given with this set of macroeconomic axioms: (A0) The objectively given and most elementary systemic configuration consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Y_w=WL wage income Y_w 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.

Under the conditions of market-clearing X=O and budget-balancing C=Y_w in each period, the price is given as P=W/R (1), i.e., the market-clearing price is always equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.

From (1) follows the real wage as W/P=R (2). The output of the i-th worker is O_i=RL_i. For a start, it is assumed that individual labor time L_i and output O_i are exactly identical to the situation in Hexagonland. Up to this point, the material situation of the people of Hexagonland has not changed. What has changed is that they work in a firm, get an income, and spend it on consumption goods.

The graphical representation of the elementary production-consumption economy is shown under the label of Graphic. #1

Monetary profit of the business sector is defined as Q_m≡C−Y_w and monetary saving of the household sector is defined as S_m≡Y_w−C. It always holds Q_m+S_m=0, or Q_m=−S_m, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving. Vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing C=Y_w total monetary profit is zero.

So, the profit of the business sector is zero, the workers get the whole output O, and the real wage is equal to the productivity.

Now, the organization of the production process is improved through the division of labor, and the productivity increases. With unchanged individual and total labor time, total output O increases. The market-clearing price falls according to (1) and the real wage increases according to (2). The profit of the business sector is still zero because of C=Y_w.

From the observer standpoint, the economy has two limiting paths open, (i) individual labor time L_i is kept unchanged and output O_i increases, or (ii) output O_i is kept constant and labor time L_i is reduced. If productivity is increasing over time, individual labor time L_i goes asymptotically to zero.

Let us call this the Diogenes Solution. Curiously, Nietzsche, when he speaks of  ‘the’ Greeks in the preface to The Greek State, never mentions Diogenes. In order not to erect another False-Hero-Memorial, though, it should be mentioned that Diogenes was also a practical economist who was banished from Sinope “when he took to debasement of currency” (Wikipedia). Money creation is NOT meant with the Diogenes Solution, but fixing the output O_i at some cultural minimum = maximum.

It holds for both limiting paths and all combinations in between that the real wage is equal to the productivity, the workers get the whole output, and macroeconomic profit is zero. So, as productivity increases, the Legitimate Sovereign can choose between more material wealth or more leisure or a combination of the two. For the business sector, all combinations are indifferent because profit is zero in all cases as long as the household sector’s budget is balanced, i.e., C=Y_w. Macroeconomic profit depends neither on labor time nor on productivity. This is a bit surprising for economists and philosophers who are still stuck in the old world of Walrasian, Keynesian, Marxian, and Austrian economics, exploitation, and class war. #2

Egmont Kakarot-Handtke


#1 Graphic AXEC31 The elementary production-consumption economy
#2 Ricardo and the invention of class war

Related 'Capitalism, poverty, exploitation, and cross-over exploitation' and 'Employment theory as an example of proto-scientific soapbubbling' and 'The set screws of overall and individual employment' and 'True macrofoundations: the reset of economics.

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REPLY to Sandwichman on Jun 21

The Lump-of-Labor Fallacy is NOT solvable by comparing/confronting the statements of politicians on the issue of full employment, as you do in your post War is Peace, Freedom is Slavery, Ignorance is Strength.

For the scientifically/philosophically correct answer, see the Diogenes Solution in Nietzsche, Entropy, Full Employment, and NO Class War

Profit/Distribution: cross-references

Posts and abstracts

• Keynes―Marx―Profit: The abysmal scientific failure of economics   here
• Profit: The most powerful formula of economics   here
• Profit   here
• MMTers: too stupid for simple math   here
• There are NO crank scientists in economics because economics is NOT a science   here
• How Randall Wray takes the piss out of the House Budget Committee   here
• Marx and Marxists ― too stupid for the elementary algebra of profit   here
• Exploding the Household Fallacy   here
• Gosh! the One Percent have gotten $21 trillion richer: Links on Distribution   here
• Keynes ― the poster boy for the weakness of the economist’s mind   here
• The dirty secret of Capitalism: Economists have NO idea how Capitalism works   here
• Profit analysis ― another exercise in economic deception   here
• Profit and Distribution Theory is false for 200+ years   here
• Economics: failure, fake, fraud   here
• Macroeconomics: Economists are too stupid for science   here
• Safe assets ― how the State pampers the Oligarchy   here
• The CCC ― a monument of economists’ utter scientific incompetence   here
• Yes, economists are really that stupid   here
• Dear idiots, it is deficit spending that creates the distribution people complain about   here
• Dear idiots, MMTers are Wall Street’s agenda pushers   here
• The public-debt and private-profit pushers   here
• How counterfeiters save America with an extra profit and make WeThePeople pay for it   here
• Some nasty MMT surprises behind the time horizon   here
• Basics of Value Theory   here
• MMT: Distribution is the drawback NOT Inflation   here
• Profit and macrofoundations   here
• Deficit-spending, public debt, and macroeconomic profit/loss   here
• Links on James Petras’ ‘Big Business Strikes Back: The Class Struggle from Above’   here
• MMT and the overall political corruption of economics   here
• Very busy these days: Wall Street’s agents   here
• MMT, Warren Mosler, and the little helpers from Wall Street and Academia   here
• If we only had classes   here
• Heterodox economics: When stupidity becomes a public danger   here
• Why the MMT benefactors of humanity never talk about profit   here
• There is NO such thing as a “labor share of income”   here
• Good news for the one-percenters   here
• Go! ― test the Profit and Employment Law   here
• Economists simply don’t get it   here
• How to get rid of inflation and deflation   here
• How Keynesians, Lernerians, MMTers make the oligarchy great   here
• The Magic Money Tree is real ― too bad that the magic is a fraud   here
• The inexorable paradigm shift in economics   here
• Wikipedia and the promotion of economists’ idiotism (II)   here
• Truth by definition? The Profit Theory has been axiomatically false for 200+ years   here
• MMT: How mathematical incompetence helps the Kelton-Fraud   here
• The Kelton-Fraud   here
• Profit: after 200+ years, economists are still in the woods   here
• It has been said before but economists still don’t get it   here
• Nietzsche, entropy, full employment, and NO class war   here
• The Third Way: Towards the Happy Zero-Tax economy   here
• How economists missed out on the essential relationship of economics   here
• The demise of phony experts: macroeconomics is provably false   here
• How MMT enlightens Washington   here
• Profit and the Private-Property-Irrelevance Theorem   here
• Profit: after 200+ years still elusive   here
• Marx today   here
• Capitalism, poverty, exploitation, and cross-over exploitation   here
• The curious non-existence of profit in economics   here
• Note on “Era of Austerity coming to an end...”   here
• DSGE and profit―forget it! MMT and profit―forget it!   here
• MMT is idiocy and fraud   here
• Fiscal policy and the Humpty Dumpty Fallacy here
• The perennial conundrum: profit and distribution   here
• Ricardo and the invention of class war   here
• Profit, income, and the Humpty Dumpty Fallacy   here
• MMT = proto-scientific junk + deception of the 99-percenters   here
• Down with idiocy!   here
• Keynes, Lerner, MMT, Trump and exploding profit   here
• The profit theory is false since Adam Smith   here
• Economists understand neither Capitalism nor Socialism   here
• Saving NEVER equals investment   here
• MMT: Just political heat, no scientific light   here
• MMT: Money-making for the one-percenters   here
• The profit effect of a Job Guarantee   here
• National Accounting: scientific incompetence or political fraud?   here
• Profit and the decline of workers’ nominal share   here
• MMT ― the economics moron as problem solver   here
• Where modern macroeconomics went wrong   here
• Why economists don’t know what profit is   here
• Rectification of MMT macro accounting   here
• Karl Marx, fake scientist    here
• Profit and the decline of labor’s nominal share   here
• MMT and the magical profit disappearance   here
• Economists: scientists or political clowns?   here
• Profit and stupidity   here
• Just revealed: IS-LM is dead for 80+ years   here
• Profit and distribution: a primer   here
• Where MMT got macro wrong   here
• Austerity and the idiocy of political economists   here
• Rethinking the Distribution   here
• Where economics went wrong   here
• A vacuous analysis of profits and productivity   here
• Windmill economics   here
• Profit and price ― solving the mystery   here
• How the 99 percent can bring overall profit of the 1 percent legally down to zero in 2017   here
• Inequality: Market failure or theory failure?   here
• Income distribution: No market failure but theory failure   here
• The economic machine is broken? Don’t call the heterodox repairman!   here
• The distribution theory is false because the profit theory is false   here
• Macro for dummies   here
• The monetary circuit and how economists got it wrong   here
• Why economists know nothing   here
• Economists still don’t get Econ 101 right   here
• Rethinking the Profit Law   here
• Rethinking deficit spending   here
• How to end the Punch and Judy show about profit   here
• The thing with profit and exploitation   here
• Wikipedia and the promotion of economists’ idiotism (I)   here
• The final implosion of MMT   here
• Economics between science and magic   here
• A new episode of one of the worst blunders of economics   here
• Keynesian macrofoundations are defective   here
• The general theory of scientific incompetence   here
• How Keynes got macro wrong and Allais got it right   here
• Keynesianism: The triumph of blathering over thinking   here
• Clueless about money and profit   here
• Demystifying employment theory and policy   here
• The unfinished Keynes (III)  here
• Making the economy the focus of the economists’ dialogue   here
• Stock prices, profit, and other self-fulfilling idiocies   here
• History and future of the monetary economy   here
• There is no thrift paradox, or, How economists fell over their own feet   here
• Enough! Economists, retire now!   here
• The actual distribution is unacceptable? Do NOT seek economic advice!   here
• Fatal defects of profit and market theory   here
• The scientific self-elimination of Heterodoxy   here
• The tiny little problem with economics   here
• The great economic equations   here
• Hayek or how economists miss their subject matter for more than 200 years   here
• The unintended consequences of deficit spending   here
• Economic policy has gone wrong because economic theory has gone wrong   here
• High profits and low economics   here
• The solemn burial of marginalism   here
• How Keynes messed macro up   here
• As Napoleon said: don’t listen to economists   here
• How the American working class can bring overall profits down to zero without bloody revolution   here
• Profit, marginalism, and other anomalies   here
• Your profit theory is false   here
• “As goes GM, so goes America” — A rather ordinary fallacy of composition here
• How the intelligent non-economist can refute every economist hands down   here
• Wages and profits are NOT the components of income   here
• Heterodoxy, too, is scientific junk   here
• Confounding sociology and economics   here
• The very real problem of zero scientific utility   here
• No culpa, only stultitia   here
• Who said what to whom — and does it matter?  here
• Essentials of Constructive Heterodoxy: profit  here
• Income, profit, distributed profit: a radical simplification  here
• Refocusing the debt/profit issue  here
• The Profit Law  here
• Inequality, wage, and profit  here
• Kalecki's wrong definition of profit and income  here
• The universal Profit Law and the multitude of unique historical circumstances  here
• The profit theory is false since Adam Smith. What about the true distribution theory?  here
• What the Top 20 heterodox economists say  here
• Profit for Marxists  here
• Where is profit?  here
• Profit is the key  here
• Flawed logic  here

Profit is the pivotal concept for the analysis of how the economy works. Without a correct profit theory, economics is vacuous. The conventional profit theory is logically indefensible. Economists have no true conception of the most important phenomenon in their universe.

Working papers

• How the intelligent non-economist can refute every economist hands down   SSRN
• The profit theory is false since Adam Smith. What about the true distribution theory?  SSRN
• The emergence of profit and interest in the monetary circuit   SSRN
• Profit for Marxists   SSRN
• Primary and Secondary Markets   SSRN
• Debunking squared   SSRN
• Understanding profit and the markets: the Canonical Model   SSRN
• Income distribution, profit, and real shares   SSRN
• When Ricardo saw profit, he called it rent: on the vice of parochial realism  SSRN
• Schumpeter and the essence of profit   SSRN
• Uniform profit ratios   SSRN
• Keynes' missing axioms   SSRN

Meta references

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Graphic AXEC143d AXEC® Profit Law and Balances Equation (with the increasing complexity of the economy)

Socialism and scientific incompetence

Comment on David Ruccio on ‘Socialism and exploitation’

Blog-Reference and Blog-Reference on Feb 14

There is no such thing as economics. There are TWO fundamentally different types of economics: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda; the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics, anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

For non-economists, the most important thing to realize is that theoretical economics (= science) has been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. Economics is a failed science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.

As a result, since Adam Smith/Karl Marx economic policy guidance NEVER had sound scientific foundations. Economists of all colors sell proto-scientific garbage in the bluff package of science.

This, of course, also holds for Marxianism:

• Marx’s profit theory is provably false. #1
• As a consequence, the concepts of exploitation and class are false. Marx lacks the concept of cross-over exploitation. #2, #3
• Because the foundational concepts are false, Marx’s whole analytical superstructure is false.
• Because the theory is defective, Marxian economic policy guidance was bound to fail from the very beginning. #4, #5
• After-Marxians have not spotted Marx’s foundational blunder to this day. #6, #7
• Marxians are scientifically incompetent just like non-Marxians and altogether are only employable as useful political idiots.

Because both Capitalism and Socialism have no sound scientific foundations, their respective economic policies are not much more than blind political agenda pushing. Never forget that both left-wing and right-wing economists do NOT know what profit is and how the actual monetary economy works.

David Ruccio concludes: “Workers, especially young workers, are suffering the consequences of increased exploitation and beginning to look beyond capitalism, to different ways of organizing the U.S. economy and society.” If so, what is their winning formula? Go for it but do NOT think that economists have any solutions for you or that they are of any help. Forget this Capitalism/Socialism thing. For 200+ years, economists have been incompetent blatherers who are too stupid for the elementary mathematics that underlies macroeconomics. Independent of their political color, economists have always been a real hazard to their fellow citizens. #8

Egmont Kakarot-Handtke


#1 Profit for Marxists
#2 Capitalism, poverty, exploitation, and cross-over exploitation
#3 If we only had classes
#4 Ricardo, too, got profit theory wrong
#5 Ricardo and the invention of class war
#6 MMT and Marxism ― blather as immunizing stratagem
#7 MMT ― backstop or advanced life support for the Oligarchy?
#8 Econogenics in action

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REPLY to Tom Hickey, Clint Ballinger on Feb 16

Profit and rent are, in the final analysis, the same thing. Ricardo messed things up, and in 200+ years, economists still have not realized it. #1, #2, #3


#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#2 Ricardo, too, got profit theory wrong
#3 Ricardo and the invention of class war

Occasional Tweets: Cross-over exploitation and internal class struggle

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

To this day, economists do NOT understand the concepts of #Profit, #CrossOverExploitation, and #Class.

Capitalism, poverty, exploitation, and cross-over exploitationhttps://t.co/eoT7bMyStZ

— E.K-H (@AXECorg) November 9, 2021

For more about class see AXECquery,

For more about cross-over exploitation see AXECquery.