Truth by definition? The Profit Theory has been axiomatically false for 200+ years

Comment on Brian Romanchuk on ‘Primer: The Kalecki Profit Equation (Part I, II)’

Blog-Reference and Blog-Reference

(i) You said in the intro: “This article continues the discussion of the Kalecki Profit Equation. The Kalecki Profit Equation is an account identity (a statement that is true by definition) that determines the level of aggregate business sector profits in terms of other national accounts variables. The full equation is somewhat imposing, so the strategy employed here is to build up the equation by starting off with a simplified model economy that results in a brief equation, then adding new terms progressively.”

(ii) You say in your latest post: “Egmont, the expression ‘I could care less’ best summarises my views on this topic. If a ‘senior MMTer’ wrote something that contradicts standard accounting identities, feel free to take it up with said ‘senior MMTer.’ I cannot recall reading anything like that, so as far as I am concerned, you are beating up on a straw man. (The complaint I saw revolved around MMTers using ‘saving’ to refer to sectoral balances, and not the standard national accounting version. Since ‘saving’ and ‘investing’ are commonly used to refer to things not matching the national accounting definition, I view that as grasping as straws.)”

In (i) you say that you are dealing with “an account identity (a statement that is true by definition)”. In (ii) you say that there are standard accounting identities. Now, the standard identities are also known to be “true by definition”. In fact, this is a very common phrase in economics.

Simple logic tells everyone that wildly different accounting identities cannot all be “true by definition”. Economists have obviously a serious problem with understanding the elementary mathematical logic of accounting. This problem is unsolved since Keynes. After-Keynesians still claim that Keynes’ famous I=S is an accounting identity.#1

Kalecki came up with a quite different accounting identity: “The economy is closed (there is no international trade) and there is no public sector. With these assumptions Kalecki derives the following accounting identity: P+W=Cw+Cp+I where P is the volume of gross profits (profits plus depreciation), W is the volume of total wages, Cp is capitalists’ consumption, Cw is workers’ consumption and I is the gross investment that have been made in the economy. Since we have supposed workers who do not save (that is W=Cw in the preceding equation), we can simplify the two terms and arrive at: P=Cp+I. This is the famous profits equation, which says that profits are equal to the sum of investment and capitalists’ consumption.” (Wikipedia)#2

Kalecki’s profit equation is axiomatically false, that is, beyond repair.#3

In my post ‘The final implosion of MMT’ I came up with the axiomatically correct accounting equation for the most elementary economic configuration, Qm≡−Sm #4, which you commented on with the blog post ‘Fun With Accounting Identities’#5: “An article with the flamboyant title ‘The final implosion of MMT’ by Egmont Kakarot-Handtke caught my eye. As I observed at Mike Norman Economics, this was probably just an attempt to troll people. That said, I think it provides another useful example of national accounting works (or does not work...).”

You did not get the point then and I commented: “Which part of Qm≡−Sm do you not understand? The equation says: at the heart of national income accounting is an identity — the business sector’s deficit (surplus) equals the household sector’s surplus (deficit).” and summarized “The current state of economics is that national accounting is provably false and that economic theory is axiomatically defective and that the ‘throng of superfluous economists’ (including Brian Romanchuk) has no clue and cannot rise above brain-dead blathering.”

Now, your post ‘Primer: The Kalecki Profit Equation (Part I)’ starts with (Model 1 Profits) = −(Household savings), in symbols, Qm≡ −Sm.

In principle, it is a good thing that you corrected your false assertions about macroeconomic accounting and adopted the axiomatically correct macroeconomic Profit Law. However, you are deceiving the general reader by attributing it to Kalecki.

I hereby inform you publicly that false attribution not only constitutes a violation of the standards of scientific discussion/publication but also of Wikimedia’s ‘Creative Commons Attribution-Share Alike 4.0 International’ as well as the International Copyright © and Trademark ® Laws. The correct attribution of the Model 1 to Model 5 profit equations is to AXEC/Egmont Kakarot-Handtke.#6, #7, #8

Egmont Kakarot-Handtke


#1 For details of the big picture see cross-references Refutation of I=S
#2 Wikipedia Michał Kalecki The profit equation
#3 Refutation of Kalecki’s profit equation:

• What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
• The monetary circuit and how economists got it wrong
• Kalecki got it wrong, Allais got it right
• Kalecki: the man who missed it by a hair's breadth
• Kalecki’s wrong definition of profit and income
• Loanable funds ― no hoax, just breathtaking stupidity
• Macro for dummies (II)
• Economists: scientists or political clowns?
• Profit and stupidity
• How the Intelligent Non-Economist Can Refute Every Economist Hands Down

#4 AXEC Oct 31, 2016, The final implosion of MMT
#5 BondEconomics Nov 1, 2016, Fun With Accounting Identities
#6 Rectification of MMT macro accounting
#7 DSGE and profit―forget it! MMT and profit―forget it!
#8 Keynes’s Missing Axioms

Immediately preceding MMT: How mathematical incompetence helps the Kelton-Fraud.

Related Wikipedia and the promotion of economists’ idiotism (II).

The monetary circuit and how economists got it wrong

Comment on Peter Cooper on ‘The Monetary Circuit & Compatibility of Marx, Kalecki and Keynesian Macro’

Blog-Reference and Blog-Reference

The heteconomist Peter Cooper says: “There appears to be a considerable degree of compatibility between Marx and various Kalecki- and Keynes-influenced approaches to macroeconomics.” (See intro)

The compatibility consists in the fact that all these approaches are provably false. In other words, until this day neither orthodox nor heterodox economists have managed to give a formally consistent description of the monetary circuit. The blatant incompetence of economists is the ultimate reason why economics is a failed science.

The current state of economics is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false.

For the short refutation of Kalecki, Keynes, Minsky, and Keen see Heterodoxy, too, is proto-scientific garbage#1 The complete formal proofs are given in separate papers.#2

Debunking is necessary but insufficient. As Blaug put it: “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.” What is needed is to move on from falsified approaches to the materially and formally correct theory. In methodology, this is called a Paradigm Shift.#3 The opus magnum consists of replacing false Walrasian microfoundations and false Keynesian macrofoundations with entirely new macrofoundations.#4 Nothing less will do.

The true theory does not emerge from the mixing of failed approaches. The true theory satisfies the well-defined criteria of material and formal consistency. What the heteconomist Peter Cooper offers is as inconsistent as one can get.

Both Orthodoxy and Heterodoxy never came to grips with science, with the foundational concept of profit, and with the working of the monetary circuit, we happen to live in.

Egmont Kakarot-Handtke


#1 Heterodoxy, too, is proto-scientific garbage
#2 Profit for Marxists and Debunking Squared
#3 The Emergence of Profit and Interest in the Monetary Circuit
#4 From Orthodoxy to Heterodoxy to Metadoxy

Related 'Why economists know nothing' and 'Rethinking MMT' and 'The false foundations of economics' and 'Wikipedia and the promotion of economists’ idiotism' and 'From false micro to true macro: the new economic paradigm' and 'The final implosion of MMT' and 'Economists still don’t get Econ 101 right' and 'Kalecki got it wrong, Allais got it right' and cross-references Kalecki.

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COMMENT on peterc on Dec 20

You write “Hi Magpie. Kalecki is starting from accounting identities. In particular, in the simplest model:
Income = Wages + Gross Profit
Income = Consumption + Gross
Investment Proceeds = Prime Cost + Wages + Gross Profit.”

Note that the first equation, i.e. Income = Wages + Gross Profit, is already false. For proof see (2011; 2012; 2014)

References
Kakarot-Handtke, E. (2011). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL

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REPLY to peterc on Dec 22 and additional Blog-Reference

You compare Marx, Kalecki, and Keynes. The first thing a logically talented person notes is that the three authors use different definitions of profit and income. Now, a logically talented person knows (i) only one approach can be true, or (ii), all three are false. This has been known for more than 2700 years: “There are always many different opinions and conventions concerning any one problem or subject-matter ... This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion ... on the other.” (Popper, 1994)

The intellectual Lumpenproletariat has no problem with scrambling an arbitrary number of contradictions in their confused brains but for a scientist this is unacceptable: “[economists] pursue the consistency of the theories they make, for he who contradicts himself proves nothing.” (Klant, 1988)

Because the definitions of income and profit by Marx, Kalecki, and Keynes are inconsistent these three authors prove NOTHING. You can find the proof of inconsistency elsewhere.#1 From this proof follows that the widely used definition Income = Wages + Profits is false. And since Kalecki starts with this definition he, too, is false and his whole analytical superstructure falls apart. It is as simple as that.

You say: “You can start from your own definitions, but this doesn’t really have a bearing on Kalecki, who did not share the same starting position.”

It is a widespread self-delusion among the intellectual Lumpenproletariat that everybody is entitled to make his own definitions. This is NOT the case.#2 It should be pretty obvious that all physicists apply the same definitions of energy, work, velocity, potential/kinetic energy etcetera, and that these foundational concepts are consistently defined. And this explains why physics is a success while economics never rose above the level of incoherent blather.#3

What is known for 2300+ years* ― except to economists ― is: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen, 2009)

So what has to be done instead of comparing the proto-scientific garbage of Marx, Kalecki, and Keynes is to move from their false macrofoundations to true macrofoundations.


#1 Debunking Squared
#2 Humpty Dumpty is back again
#3 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

* Short overview The Stillbirth of Science in Greece

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Wikimedia AXEC183

Unit circle

Kalecki: cross-references

Posts

1. Profit   here
2. Mindfuck or the Eternal Return of dead economic theories   here
3. The Levy/Kalecki Profit Equation is false   here
4. Kalecki and Keynes: The double macroeconomic false start   here
5. Keynes, Kalecki, MMT, and the accidental invention of the perpetual profit machine   here
6. Economists simply don’t get it   here
7. Truth by definition? The Profit Theory has been axiomatically false for 200+ years   here
8. MMT: How mathematical incompetence helps the Kelton-Fraud   here
9. The first to leave the sinking MMT ship?   here
10. Hooray! The formalization issue is finally settled   here
11. Profit: after 200+ years, economists are still in the woods   here
12. The monetary circuit and how economists got it wrong   here
13. MMT: How mathematical incompetence helps the Kelton-Fraud   here
14. Economists — sloppy, stupid, or scientifically incompetent?  here
15. Refocusing the debt/profit issue  here
16. Kalecki: the man who missed it by a hair's breadth  here
17. Kalecki got it wrong, Allais got it right  here
18. Kalecki's wrong definition of profit and income  here
19. The pluralism of nonsense is still nonsense  here
20. Yes, orthodox economics is poor science, but can Heterodoxy raise hope?  here
21. Confused Confusers  here
22. A failure of reason  here
23. Who takes Orthodoxy or Heterodoxy seriously?  here
24. What the 20 top heterodox economists say  here
25. From anything goes to nothing goes right ― economists' silly excuses  here

Working papers

• What is Wrong With Heterodox Economics? Kalecki's Profit Theory as an Example   SSRN
• Profit for Marxists   SSRN
• The Profit Theory is False Since Adam Smith   SSRN

For more about Kalecki see AXECquery.

Meta-references

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Twitter Aug 18, 2020

#Economics#FailedScience#Economists#StupidOrCorruptOrBoth

The Levy/Kalecki Profit Equation is falsehttps://t.co/cTbCmCsiI7

and cross-referenceshttps://t.co/IFclXX52ux#MacroEconomics #ProfitTheory #ScientificIncompetence #DefundEconomics #FireEconomists #ScrapTheLot

— E.K-H (@AXECorg) August 17, 2020

Related 'Macroeconomics and the fake History of Economic Thought'

Kalecki and Keynes: The double macroeconomic false start

Comment on Lars Syll on ‘Kalecki and Keynes on the loanable funds fallacy’

Blog-Reference and Blog-Reference and Blog-Reference on Nov 22

Like Keynes, Kalecki got the foundational concepts of profit/income/saving wrong. Lars Syll and the rest of retarded After-Keynesians, though, have not realized anything to this day.

Lars Syll quotes Kalecki: “It should be emphasized that the equality between savings and investment … will be valid under all circumstances. In particular, it will be independent of the level of the rate of interest which was customarily considered in economic theory to be the factor equilibrating the demand for and supply of new capital. In the present conception investment, once carried out, automatically provides the savings necessary to finance it. Indeed, in our simplified model, profits in a given period are the direct outcome of capitalists’ consumption and investment in that period. If investment increases by a certain amount, savings out of profits are pro tanto higher …”

There NEVER was and NEVER will be an equality of saving and investment of any sort. This is one of the greatest blunders in the history of the cargo cult science called economics.#1

Keynes defined the formal foundations of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This elementary two-liner is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et al.)

The elementary version of the axiomatically correct macroeconomic Profit Law reads Q_m≡I−S_m with Q_m as monetary profit and S_m as monetary saving. And this means that since Keynes/Hicks ALL I=S/IS-LM models are false.

Kalecki added profit and distributed profit to the macroeconomic equations. With profit distribution and the consumption/saving out of distributed profit, the expanded Profit Law reads Q_m≡Y_d+I−S_m.#2 Again, investment and saving are NEVER equal. There NEVER has been or will be such a thing as an equilibrium or an accounting identity I=S. Both Kalecki and Keynes were too stupid for the elementary mathematics that underlies macroeconomics.#3

Kalecki’s and Keynes’ macroeconomics is proto-scientific garbage. Because the profit theory is false, the whole analytical superstructure is false, including, of course, the theory of employment, interest, and money.

Because of this, both Kaleckian and Keynesian policy guidance NEVER has had sound scientific foundations.#4

Egmont Kakarot-Handtke


#1 For details of the big picture see cross-references Refutation of I=S
#2 For details see cross-references Kalecki
#3 Wikipedia and the promotion of economists’ idiotism (II)
#4 Keynes, Kalecki, MMT, and the accidental invention of the perpetual profit machine

Related 'Keynesians ― terminally stupid or worse?' and 'Keynes’s Missing Axioms' and 'Is Nick Rowe stupid or corrupt or both?' and 'I is never equal S and even Nick Rowe will eventually grasp it' and 'Truth by definition? The Profit Theory has been axiomatically false for 200+ years'

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Wikimedia AXEC139d

Kalecki: the man who missed it by a hair's breadth

Comment on Lars Syll on 'Kalecki on wage-led growth'

Blog-Reference

Kalecki addressed two important questions:
(i) the relationship between profit and employment,
(ii) and the difference between a partial wage rate change and an overall wage rate change.

To take the second point first: Kalecki was perfectly right in pointing out that even if it were true that a partial wage cut could increase employment in one firm, it would be a Fallacy of Composition to maintain that this holds for the economy as a whole. For a consistent analysis of the partial-global interrelations, see (2014a; 2014b).

With regard to point (i), Kalecki has to be praised for being the first to take macroeconomic profit explicitly into the picture. However, he got the relationship between profit and distributed profit wrong (2011b; 2013b; 2011a).

This can be regarded as a trivial offense because Keynes did not get it right either: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, pp. 12-13, 16)

Or, to jump directly to the present, Keen did not get it right either (2013a).

Or, to take the broader picture: Neither Classicals, nor Walrasians, nor Marshallians, nor Keynesians, nor Marxians, nor Institutionalists, nor Monetary Economists, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists ever came to grips with profit (cf. Desai, 2008).

In sum: The profit theory has been false since Adam Smith, and Kalecki is NO exception.

Kalecki recognized that profit is the pivotal concept for the analysis of how the economy works. In marked contrast to his fellow economists, he did not take Walras' zero profit economy for one moment seriously. Yet he stumbled at the very last step: he did not get the formal foundations of economics right. With regard to scientific incompetence, Orthodoxy and Heterodoxy are one big family.

Egmont Kakarot-Handtke


References
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011a). The Emergence of Profit and Interest in the Monetary Circuit. SSRN Working Paper Series, 1973952: 1–23. URL
Kakarot-Handtke, E. (2011b). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2013a). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2013b). The Emergence of Profit and Interest in the Monetary Circuit. World Economic Review, 2: 106–118. URL
Kakarot-Handtke, E. (2014a). Towards Full Employment Through Applied Algebra and Counter-Intuitive Behavior. SSRN Working Paper Series, 2456184: 1–25. URL
Kakarot-Handtke, E. (2014b). The Truly General Theory of Employment: How Keynes Could Have Succeeded. SSRN Working Paper Series, 2406891: 1–25. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

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Wikimedia AXEC121i

Kalecki got it wrong, Allais got it right

Comment on Lars Syll on 'Kalecki and the loanable funds doctrine'

Blog-Reference

It is not exactly a great performance. After more than two hundred years, economists still have no clear idea of the fundamental concepts of income and profit. As Schumpeter already observed: “At all times, including the present, in judging from the standpoint of the requirements of each period ... the performance of economic theory has been below reasonable expectation and open to valid criticism.” (1994, p. 19)

The point to start with is the official acknowledgment of the New Palgrave Dictionary: “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)

Because the profit theory is false, the income theory is false, by consequence the saving theory is false, and this results in a defective loanable funds theory. With regard to the relationship of saving and investment Kalecki dug at the right site but not deep enough.

The correct relationship is given by Q_re≡I−S (2011, p. 8, eq. (13)) and (Allais, 1993, p. 69)
Legend: Q_re retained profit, S saving, I investment expenditure.

If it happens that household sector saving S is zero then, as a corollary, retained profit Q_re is equal to investment I, and the business sector as a whole is in the position to finance investment entirely 'out of its own pocket'. However, firms with retained profits may prefer to keep their money in the bank.

If it happens that household saving is equal to investment expenditure then, as a corollary, retained profit is zero and the household sector as a whole is in the position to fully finance the investment of the business sector. However, households with new period savings may prefer to keep their money in the bank (instead of buying bonds from the business sector, for example).

Since household sector saving is NEVER equal to business sector investment reality will be found between these two limiting cases.

The situation becomes a bit more complex when the fact is taken into account that the household sector may consist of savers and dissavers (2014).

The build-up of financing relationships (credits, bonds, stocks, etc) within and between the sectors is in an intricate way related to the flow magnitudes saving and investment. However, what Kalecki got wrong in the first place was the relationship between profit, distributed profit, and retained profit.

It will be interesting to observe how long it takes economists to realize that the theoretical superstructures of Kalecki, Keynes, Walras, and their post-, new-, and neo-derivatives rest on a logically untenable conception of income and profit. No doubt, methodologists, and scholars of the history of economic thought will sooner than later have the unique chance to see a Paradigm Shift in real-time. More than two hundred years without a correct understanding of income and profit should be enough.

Egmont Kakarot-Handtke


References
Allais, M. (1993). Les Fondements Comptable de la Macro-Économie. Paris: Presses Universitaires de France, 2nd edition.
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–15. URL
Kakarot-Handtke, E. (2014). Loanable Funds vs. Endogenous Money: Krugman is Wrong, Keen is Right. SSRN Working Paper Series, 2389341: 1–17. URL
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.

For more on Kalecki and wage-led growth see this blog. For details of Kalecki's failure see cross-references Kalecki. For the correct formal foundations of theoretical economics see here.

Mindfuck or the Eternal Return of dead economic theories

Comment on David Andolfatto on ‘Kalecki on the Political Aspects of Full Employment’

Blog-Reference and Blog-Reference

The state of economics is this: theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.

The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong. What we have is the pluralism of provably false theories.

Obviously, economists violate the core principle of science, i.e. bury refuted theories for good: “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)

The characteristic of science is ‘Conjecture and Refutation’, i.e. to ensure the material and formal consistency of a theory, to bury a theory at the Flat-Earth-Cemetery if refuted, and to replace it with something better. The characteristic of non-science, i.e. religion, politics, and common sense, is to endlessly repeat the same silly stories and the same false claims and only to defend/adapt them by ever more intricate reinterpretations.

Non-science means to keep everything in the swamp between true and false where “nothing is clear and everything is possible” (Keynes). Science means to get out of the swamp.

Economics is NOT science. Economists are NOT scientists but political agenda pushers.#1 The very characteristic of agenda-pushing is meta-communication or what the Ancients called sophistry or what the Moderns call mindfuck.

Science tries to figure out whether a given statement that relates to a real-world subject matter is true or false. Scientific truth is well-defined by material/formal consistency. Mindfuck is not about reality but about what others say or think about reality and the motivation behind it.

Kalecki is a case in point. He argues
“[1] Absent full employment policy the ‘state of confidence’ will produce business cycles. Under laissez-faire then, industry leaders can credibly use this fact to exert a powerful indirect control over government policy.
[2] Supporting obviously beneficial public sector investments leads to a slippery slope. The government may wish to encroach in other areas in competition with private enterprise.
[3] In a perpetually full employment economy, the threat of unemployment vanishes as a discipline device for employers. As well, the social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow, leading to political instability.”

Obviously, Kalecki speculates about what goes on in the heads of politicians, workers, and the captains of industry. Obviously, Kalecki is NOT concerned about how the economic system works. He is NOT doing science but brain-dead folk psychology.#2

Thinking hard about how the actual economy works will eventually lead to the true employment theory. Mindfuck, on the other hand, will never get out of the self-referential cycle of second-guessing and motive-imputation.#3

Kalecki, to be sure, is but one incompetent scientist in the history of economics mindfuck which is euphemistically called the history of economic thought. No thought there, merely political blather.

Kalecki, to be sure, is refuted on all counts.#4, #5, #6 High time for Mr. Andolfatto to bury him and end those proto-scientific mindfuck exercises.

Egmont Kakarot-Handtke


#1 There are NO crank scientists in economics because economics is NOT a science
#2 Cross-references NOT a Science of Behavior
#3 The economist as storyteller
#4 Truth by definition? The Profit Theory has been axiomatically false for 200+ years
#5 Kalecki got it wrong, Allais got it right
#6 For details of the big picture see cross-references Kalecki

Related 'The problem with economics as a discipline' and 'Economic narratives are for the scientific garbage dump' and 'Economics ― the science that never was' and 'Ending the pluralism of provably false economic theories with the long-overdue Paradigm Shift' and 'Stop Recycling Dead Economic Theories, Start the Paradigm Shift'.

MMT: How mathematical incompetence helps the Kelton-Fraud

Comment on Brian Romanchuk on ‘Primer: The Kalecki Profit Equation (Part I, II)’

Blog-Reference and Blog-Reference

Under the title “Kalecki Profit Equation”, Brian Romanchuk, presents 5 equations of increasing complexity referring to monetary economies of increasing complexity. This approach is obviously based on two of my posts.#1, #2 Insofar it is correct, however, Brian Romanchuk still gets some essentials wrong.#3, #4 As a result, with his mathematical incompetence, he in effect helps the Kelton-Fraud.#5 Needless to emphasize that a mathematician is supposed to detect and correct logical errors/contradictions and to secure formal consistency by strictly applying the axiomatic-deductive method.

To make matters short, a concise formal summary of the main points, which have been elaborated at length elsewhere, is given on Wikimedia.#6

• Macroeconomic profit has to be derived from consistent macrofoundations. All microfounded profit theories are a priori false.#7

• First of all, the distinction between monetary profit (coll. money-in-the-cashbox/bank = tangible/measurable balance) and nonmonetary profit (coll. paper profit) is essential. Eq. (i)

• To speak of the “Kalecki Profit Equation” is utterly misleading. Kalecki’s equation is formally defective and this has been demonstrated already in a 2011 working paper.#8.

• Eq. (iv) refutes all Keynesian and After-Keynesian I=S/IS-LM models from Hicks to Krugman and beyond.#9

• From the axiomatically correct Profit Law for the open economy with government and profit distribution, eq. (vi), follows the AXEC balances equation, eq. (vii), (I−S)+(G−T)+(X−M)−(Q−Yd)=0 which directly compares to the defective MMT balances equation (I−S)+(G−T)+(X−M)=0.

• The MMT balances equation features prominently in MMT presentations#10 for hiding the macroeconomic fact that Public Deficit = Private Profit.#11

Whether Brian Romanchuk does not realize that his Model 5 equation is inconsistent with the MMT balances equation or whether he intentionally obfuscates the issue is a matter of indifference. What counts at the end of the day is that he is in effect promoting the scientific and political fraud of MMT.#5

Egmont Kakarot-Handtke


#1 DSGE and profit―forget it! MMT and profit―forget it!
#2 Rectification of MMT macro accounting
#3 Profit: after 200+ years, economists are still in the woods
#4 The first to leave the sinking MMT ship?
#5 The Kelton-Fraud
#6 Wikimedia AXEC143d Profit Law and Balances Equation
#7 The Profit Theory is False Since Adam Smith
#8 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#9 Keynes’s Missing Axioms
#10 Down with idiocy!
#11 MMT and the magical profit disappearance

Related 'Bill Mitchell, MMT’s fake scientist' and 'MMT: Academic snake oil for the people' and 'Cryptoeconomics ― the best of Bill Mitchell’s spam folder' and 'Political economics: Who hijacks British Labour?' and 'MMT: another case of inverted economics'.

Immediately following Truth by definition? The Profit Theory has been axiomatically false for 200+ years.

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REPLY to Joe Leote on Jul 7

You say: “Applying a national accounting model with specified ‘heroic’ assumptions Minsky uses the Kalecki profit identity to conclude that profits = investment.”

Yes, Kalecki came up with his profit definition and Minsky with his and Keen with his and anybody else with theirs.#1

As the ancient Greeks already observed: “There are always many different opinions and conventions concerning any one problem or subject-matter…. This shows that they are not all true. For if they conflict, then at best only one of them can be true.” (Popper)

The fact is that NONE of them is true. To this day, economists do not get the foundational concept of their subject matter straight.


#1 Heterodoxy, too, is proto-scientific garbage

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REPLY Joe Leote on Jul 7

You say “The majority of statements are neither true nor false.” True, indeed, 99.9 percent of statements are just brain-dead blather. The 0.1 percent is science.

Every layperson who is confronted with the statement: Mr. A has been murdered and you are the murderer, understands immediately the concept of scientific truth. Truth is (i) a binary concept, i.e. there is only true/false with NOTHING in between, and (ii), truth is objective, that is provable in principle, and (iii), that it is worth every effort to find out the truth even if we cannot be absolutely sure that we will be successful.

Scientific truth is well-defined for 2300+ years by formal and material consistency. However, there is the large swamp of cargo cult science (Feynman) where, as Keynes said, “nothing is clear and everything is possible.”

In the swamp, vagueness, indeterminacy, inconclusiveness, confusion dressed up as complexity, unresolved contradictions, storytelling, filibuster, gossip, finicky scholasticism (Popper), known/unknown unknowns, nonentities, vacuous doubt, silly beliefs, and the Humpty Dumpty Fallacy are the prevailing components of communication.

Economists are swampies.#1, #2 Economics is a failed science. To this day, economists have NOT gotten the foundational concept of their subject matter ― profit ― right. All microfounded (Walrasian) and macrofounded (Keynesian) models are provably false. Economists do not know how the economy works. Economics is a cargo cult science. The “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a fraud.

To claim that there is no truth is an immunizing stratagem (Popper) of failed/fake/ stupid/corrupt proto-scientific blatherers.#3

You are on the wrong side of the demarcation line between science and non-science.


#1 Lousy scientists
#2 Economists ― medics or barber-surgeons?
#3 Failed economics: The losers’ long list of lame excuses

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REPLY to Joe Leote on Jul 7

Kalecki’s profit equation is formally defective and this has been demonstrated already in a 2011 working paper.#1 The correct “Kalecki” equation is given with eq. (v) in the Wikimedia compilation.#2

The compilation settles the profit issue.#3


#1 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#2 Wikimedia AXEC143c Profit Law and Balances Equation
#3 For details see cross-references Profit

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REPLY to Brian Romanchuk on Jul 8 and Blog-Reference MNE on Jul 9

You say: “From my perspective, the issue is straightforward: do we want to model the operation of the industrial capitalist system that we have? If so, we need to stick with the definition of profit that capitalists use, …”

False! Capitalists know as much about capitalism as fishes know about water ― nothing. This is long known: “… these people who live and move among the facts often, or mostly, cannot of themselves put together any precise reasonings about them.” (Bagehot, 1885)#1

This is why scientists redefine everyday concepts rigorously: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)#2

The elementary production-consumption economy is, for a start, defined by three macro axioms (Y_w=WL, O=RL, C=PX), two conditions (X=O, C=Y_w), and two definitions (monetary profit/loss Q_m≡C−Y_w, monetary saving/dissaving S_m≡Y_w−C). From this follows Q_m≡−S_m, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt.#3

Capitalists don’t know this. Like goldfishes, they know only how to swim in their little pond but have no idea where the water comes from.


#1 Bagehot’s wisdom and the silliness of modern economists
#2 How to get out of the swamp of ignorance
#3 Profit theory in less than 5 minutes

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REPLY Roger Sparks on Jul 10 and Blog-Reference MNE

You say: “It is hard to distinguish whether owner income comes from investment, hours worked, skill, or some other feature associated with ownership.”

This is entirely beside the point. Obviously, you do not understand how macroeconomic profit and microeconomic profit are related.#1, #2

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, innovation, capital, power, monopoly, risk, greed, choice, etcetera. These factors affect only the DISTRIBUTION of profit between firms. Macroeconomic profit is in the most elementary case given with Qm≡−Sm, that is, profit comes from the growth of the household sector’s debt.

The crucial point is this: Brian Romanchuk’s Model 5 equation can immediately be transformed into this balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0 which directly compares to the MMT balances equation (I−S)+(G−T)+(X−M)=0.

Brian Romanchuk argues: “Now I have no idea what he’s going on about the MMT equation. If I am not mistaken, the MMT equation is a sectoral balances equation, and does not tell us about profit. People who care about accounting identities argue that the ‘senior MMTers’ are pulling some technical legerdemain with the definition of saving used. However, I do not deeply care about accounting identitities, so I really never looked into this alleged controversy.”

So-called accounting identities are elementary algebra. If Brian Romanchuk does not see that his profit equation ⇒ balances equation directly contradicts the MMT balances equation he is an incompetent mathematician.

Worse, the MMT balances equation obscures the fact that Public Deficit = Private Profit and is used to politically deceive the ninety-nine-percenters.#3 Either Brian Romanchuk is an incompetent mathematician or he is complicit in the MMT fraud.

Either way, his two posts about the “Kalecki Profit Equation” go down the scientific drain.


#1 Zero-sum capitalism
#2 Capitalism, poverty, exploitation, and cross-over exploitation
#3 Down with idiocy!

Profit: after 200+ years, economists are still in the woods

Comment on Brian Romanchuk on ‘Primer: The Kalecki Profit Equation (Part I)’

Blog-References and Blog-Reference

“A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008)#1 Isn’t this strange? Economists never get tired of producing microeconomic and macroeconomic models and of giving policy advice and do not know what profit is? Strange but true, the fact is that Walrasians, Keynesians, Marxians, Austrians, MMTers, and Pluralists are groping in the dark. Because of this, the whole of economics is scientifically worthless.

The ultimate blunder of economics is that both microfoundations and macrofoundations are provably false. As a result, one has multiple profit theories but not the materially and formally correct one.

Brian Romanchuk discusses the Kalecki profit equation and the Levy profit equation. This is a rather pointless exercise because all these equations are provably false.#2, #3, #4, #5, #6

Because economists messed up macroeconomics, more specifically, the axiomatic foundations of economics,#7, #8 economics still stands at square one.

To make the argument short, the macroeconomic Profit Law for the open economy with a government is given as Q=Q_m+Q_n with Q_m=Y_d+(I−S_m)+(G−T)+(X−M). Legend: Q total profit, Q_m monetary profit, Q_n nonmonetary profit,#9 Y_d distributed profit, S_m monetary saving, I investment expenditures,#10 G government spending, T taxes, X export, M import. Because all variables are measurable, the Profit Law is testable.

From the axiomatically correct Profit Law follows immediately that Keynes’ I=S and MMT’s balances equation (X−M)+(G−T)+(I−S)=0 are provably false.#11

The Profit Law is an important relationship for the monetary economy. For 200+ years now, the Profit Theory is false because economics has not been correctly macro-axiomatized.#12 As Mirowski put it “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”

Egmont Kakarot-Handtke


#1 Profit: after 200+ years still elusive
#2 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#3 Rethinking deficit spending
#4 Kalecki got it wrong, Allais got it right
#5 Heterodoxy, too, is proto-scientific garbage
#6 For details of the big picture see cross-references Profit/Distribution
#7 From false micro to true macro: the new economic paradigm
#8 Essentials of Constructive Heterodoxy: Profit
#9 Primary and Secondary Markets
#10 Squaring the Investment Cycle
#11 Rectification of MMT macro accounting
#12 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?

Related 'DSGE and profit―forget it! MMT and profit―forget it!' and 'The curious non-existence of profit in economics' and 'MMT and grassroots movements' and 'Macroeconomics for retarded economists' and 'The final implosion of MMT' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?' and 'Mathiness is NOT the problem — scientific incompetence is' and 'Economists: only good at excuses' and 'Ricardo and the invention of class war' and 'The Common Error of Common Sense: An Essential Rectification of the Accounting Approach' and 'MMT: How mathematical incompetence helps the Kelton-Fraud'.

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Wikimedia AXEC137b Macrofoundations

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REPLY to djrichard on Jul 2

You say: ”I’ve been looking for something that gives a treatment/overview on Kalecki’s equation.”

The real question is why economists in general and you, in particular, don’t know what profit is. The short answer is that economists are scientifically incompetent. In fact, Walrasians, Keynesians, MMTers, Marxians, Austrians, and Pluralists have NO idea of profit ― the pivotal concept of their subject matter. From the viewpoint of science, economics is a failure, from the viewpoint of the general public, economics is a fraud.#1

In order to establish material consistency, one needs measurement and one of the most important measurement tools of economics is National Accounting. The importance of National Accounting for testing economic models is comparable to CERN for testing in physics. Economists neither understand the significance nor the elementary mathematics of National Accounting.

Economic theory and accounting are like hands and gloves. Therefore, it is of utmost importance that the foundational concepts are consistently defined and the SAME in theory and accounting. It is the worst mistake to play accounting against theory/model. At a deeper level, they have a common conceptual/formal core, i.e. the axioms of economics.

Because the nominal magnitudes of accounting are a subset of a comprehensive theory that is composed of nominal and real variables, the concepts have to be consistently defined in theory and then applied one-to-one in National Accounting. Theory has to take the lead.

It holds: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen) The fact is that Walrasian microfoundations and Keynesian macrofoundations are axiomatically false.#2 This is why economics is a failed science and why Michal Kalecki’s and Brian Romanchuk’s profit theory is false.#3

#1 DSGE and profit―forget it! MMT and profit―forget it!

#2 The miracle cure of economists’ micro-macro schizo

#3 For details see cross-references Kalecki

Keynes, Kalecki, MMT, and the accidental invention of the perpetual profit machine

Comment on Lars Syll on ‘Kalecki on wage-led growth’

Blog-Reference

Like Keynes, Kalecki got profit wrong. Lars Syll and the rest of retarded After-Keynesians have not realized anything to this day.#1

Keynes defined the formal foundations of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This elementary syllogism is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et. al)

The elementary version of the axiomatically correct macroeconomic Profit Law, which is measurable with the precision of two decimal places, reads Q_m≡I−S_m with Q_m as monetary profit of the business sector and S_m as monetary saving of the household sector. And this means that since Keynes/Hicks all I=S/IS-LM models are false.

Keynesian macroeconomics is proto-scientific garbage. Because the profit theory is false, the rest is false including, of course, employment theory and the theory of money.#2

Kalecki’s profit theory is not any better.#3, #4 And therefore, his employment theory, too, is provably false.

The axiomatically correct employment theory tells one that overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. So, there are two policy levers, and what has to be done is to combine demand-led and wage-led expansion in order to get out of unemployment.

The post-Keynesian preoccupation with demand is ultimately counterproductive because each increase in deficit spending increases macroeconomic profit. From the axiomatically correct macroeconomic Profit Law Qm≡(I−Sm)+(G−T)+(X−M)+Yd follows inter alia Public Deficit = Private Profit.#5

Keynes, Kalecki, MMTers, and Lars Syll are seen as Progressives who promote policies that benefit WeThePeople. This is just one more propaganda swindle in the long history of political economics. These fake Progressives have never done anything else than push the agenda of the Oligarchy. After all, this is what all economists do since Adam Smith/Karl Marx.#6, #7

Egmont Kakarot-Handtke


#1 Demand-led and wage-led growth
#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#3 Truth by definition? The Profit Theory has been axiomatically false for 200+ years
#4 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#5 Keynes, Lerner, MMT, Trump, Biden, and exploding profit
#6 Mission impossible: economists join WeThePeople
#7 Why do workers not tar and feather economists?

Related 'Keynesianism as ultimate profit machine' and 'It’s the price and profit mechanism, stupid!'.

For details of the big picture see cross-references Profit and cross-references Employment.

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Wikimedia AXEC145 The public-deficit component of the macrofounded Profit Law

The failure of Post Keynesianism

Comment on V. Ramanan on ‘Michal Kalecki On The Effect Of Wages On Employment’

Blog-Reference and Blog-Reference

Kalecki is cited as follows: “… a wage rise … leads ― contrary to the precepts of classical economics ― to an increase in employment. Conversely, a fall in wages … leads to a decline in employment.”

This statement is correct, however, the underlying macroeconomics is defective. More precisely, Kalecki’s profit theory is provably false. Because of this, the rest of his analytical superstructure is false. Kalecki provides an example of the phenomenon that true statements apparently follow from false theories. In order to sort things out, though, one needs the true theory.

For details see:
► NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather
► Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
► The key relationship between employment and growing/shrinking debt
► Why Post Keynesianism Is Not Yet a Science
► Truth by definition? The Profit Theory has been axiomatically false for 200+ years
► Cross-references Kalecki

Egmont Kakarot-Handtke


Related 'Kalecki and Keynes: The double macroeconomic false start' and 'The monetary circuit and how economists got it wrong' and 'Forget Keynes' and 'Keynes and Keynesianism are scientifically worthless'. For details of the big picture see cross-references Keynesianism and cross-references Refutation of I=S.

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Wikimedia AXEC138

The Levy/Kalecki Profit Equation is false

Comment on Alex Barrow/Macro Ops on ‘Minsky and the Levy/Kalecki Profit Equation’

Blog-Reference (Link)

Alex Barrow comes directly to the point: “Let’s kick things off with the Levy/Kalecki Profit Equation. The Profit Equation is just a macroeconomic accounting identity for how the global economy actually operates. Specifically, it answers the question as to where ‘Profits’ come from and thus, growth.”#1

And this is the answer: “The actual accounting identity looks like this: Profits before tax = + Investment – Nonbusiness saving + Dividends + Corporate profits taxes. This accounting identity, which like any identity holds true under any circumstance, is just saying that corporate profits are the direct result of net investment minus nonbusiness (Households + Government + rest of world) saving before dividends and corporate taxes are paid out.”

And this is the rationale: “Well, if you pull back and look at the global economy as a whole, it’s a closed system. It's closed in the sense that profits aren’t magically appearing from anywhere outside of the global economy. But profits obviously aren’t a zero sum game. If one company earns profits it doesn’t necessarily mean that another company somewhere has to be operating at a loss. There wouldn’t be any growth if that was the case. So, where do profits come from then?”

Yes, where? “The answer is in net investment, which is a positive sum game. If we divide the economy into our four aggregate entities (1) US Corporations (2) Households (3) All levels of US Government and (4) the Rest of the World (RoW) and look at them as a whole, there needs to be net positive investment as a whole for their to be profits. Profits are essentially the result of expanding balance sheets (increases in debt). The more balance sheets expand the lower interest rates need to drop in order to decrease debt servicing costs and keep the cost of capital down for marginally profitable firms — essentially keep the economy from going into free fall.”

Alex Barrow, respectively his source, derives the Profit Equation with the help of the identity method. More specifically:

“II. FINDING THE SOURCES OF PROFITS: THE IDENTITY METHOD
Profits, Saving, and Investment
Aggregate profits, after corporate income taxes and dividends have been paid out, are the wealth the business sector accumulates during a period of time. Of course, businesses are not the only ones accumulating wealth ― households, government, and foreign entities also do so. The wealth the business sector accumulates is equal to the total new wealth created in the economy less that accumulated by the other sectors. In economics, the accumulation of wealth is called saving, and the creation of wealth is called investment. By common sense, the new wealth the economy accumulates equals the new wealth the economy creates; that is, saving equals investment.” and “But no matter what accounting system one uses, saving will always equal investment.”#2

This is NOT correct. On closer inspection, common sense gets the accounting identity  mathematically wrong.#3 To make matters short, here is the proof.#4, #5

The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The economy consists of the household and the business sector which, in turn, consists initially of one giant fully integrated firm. (A1) 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 as the dependent variable is given by P=W/R. The elementary production-consumption economy is shown on Wikimedia.#6

The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. it holds X=O. The condition of budget balancing, i.e. C=Y_w, is now skipped. The monetary saving/dissaving of the household sector is defined as S≡Y_w−C. The monetary profit/loss of the business sector is defined as Q≡C−Y_w. Ergo Q≡−S.

The balances add up to zero. The mirror image of household sector saving S is business sector loss −Q. The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.

In other words, saving is NOT equal to investment (because there is NO investment in the elementary production-consumption economy) but saving is equal to loss.

So, Alex Barrow’s assertion is false: “ it [the global economy as a whole] is a closed system. Its closed in the sense that profits aren’t magically appearing from anywhere outside of the global economy. But profits obviously aren’t a zero sum game.” No, but profit/loss of the business sector and dissaving/saving of the household sector is a zero-sum game, i.e. Q+S=0.

When more sectors are added, the macroeconomic Profit Law reads with increasing complexity:
(i) Q≡−S in the elementary production-consumption economy,
(ii) Q≡I−S in the elementary investment economy,
(iii) Q≡(I−S)+(G−T)+Y_d in the investment economy with government deficit/surplus (G−T), and distributed profit Y_d.

The macroeconomic Profit Law fully replaces the false Profit Equations of Levy/Kalecki.#7-#12 The fact that the Profit Equation and the Profit Law look similar at the surface does not alter the fact that the Profit Equation is “educated common sense” (Stigum) and lacks proper scientific foundations.

Crucial conclusions: The monetary economy breaks down ― at the latest ― if macroeconomic profit Q turns negative. At the moment, the U.S. economy is on full life-support of the government, i.e. the government deficit (G−T) is where the greater part of profit actually comes from. It is the government that prevents “the economy from going into free fall”.

The policy of deficit-spending/money-creation clearly benefits the Oligarchy because it increases macroeconomic profit according to the Profit Law which entails Public Deficit = Private Profit. Thus the Oligarchy’s financial wealth and public debt (currently $22 trillion) grow in lockstep. The Profit Law explains the extremely skewed distribution of income and financial wealth.

Economists claim since Adam Smith that the free market economy is self-regulating and self-optimizing if left to itself. In reality, it is just the opposite: the real part of the economy is kept on life support by the State, and the monetary/financial part is kept on life support by the Central Bank.

Economics is proto-scientific garbage for 200+ years now because it does not get the foundational concept of profit right and the Levy/Kalecki Profit Equation is an integral part of the overall failure.

Egmont Kakarot-Handtke


#1 Macro Ops
#2 The Jerome Levy Forecasting Center, Where Profits Come From
#3 Wikipedia and the promotion of economists’ idiotism (II)
#4 Controlled demolition of MMT ― an exercise in elementary logic
#5 For details of the big picture see cross-references Refutation of I=S and cross-references Profit/Distribution
#6 Wikimedia AXEC31 Elementary production-consumption economy

#7 Profit: after 200+ years, economists are still in the woods
#8 Truth by definition? The Profit Theory has been axiomatically false for 200+ years
#9 MMT Progressives: The knife in the back of WeThePeople
#10 MMT and grassroots movements
#11 Kalecki and Keynes: The double macroeconomic false start
#12 MMT: How mathematical incompetence helps the Kelton-Fraud

Related 'Are economics professors really that incompetent? Yes!' and 'Refuting MMT’s  Macroeconomics Textbook' and '#DrainTheScientificSwamp' and 'Macroeconomics: Drain the scientific swamp' and 'Is Nick Rowe stupid or corrupt or both?' and 'Keynes, Kalecki, MMT, and the accidental invention of the perpetual profit machine' and 'The failure of Post-Keynesianism' and 'Kalecki got it wrong, Allais got it right' and 'Rethinking deficit spending' and 'MMT Progressives: The knife in the back of WeThePeople' and 'Keynes’s Missing Axioms'.

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Wikimedia AXEC143d Profit Law (with increasing complexity) and Balances Equation

Heterodoxy, too, is proto-scientific garbage

Comment on Lars Syll on ‘What went wrong with economics?’

Blog-Reference and Blog-Reference and Blog-Reference on Jan 4, 2018, adapted to context

Science is defined by material and formal consistency. If a theory/model fails on one criterion it is scientifically worthless. With regard to formal consistency, there is no way around “... he who contradicts himself proves nothing” (Klant, 1988, p. 113). But formal consistency alone also proves nothing.

The actual state of economics is this: Orthodoxy has failed on both counts. Therefore, all hopes rest on Heterodoxy. The crucial question is, does Heterodoxy satisfy the indispensable methodological criteria? Let us have a look at Profit Theory.

The profit theories of Keynes, Kalecki, Minsky, Keen are different (Marx, Mises/Hayek, and others could be added). They cannot all be correct at the same time. As there is only one Law of the Lever, there can be only one objective Profit Law for the economy as a whole. This is not the case.

(i) Keynes: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010, pp. 12-13, 16)

(ii) “Kalecki derived this relationship in an extremely concise, elegant and intuitive way. He starts by making simplifications which he later progressively eliminates. These assumptions are:
• Divide the whole economy into two groups: workers, who earn only wages and capitalists,    who earn only profits.
• Workers do not save.
• The economy is closed (there is no international trade) and there is no public sector.

With these assumptions Kalecki derives the following accounting identity:



where P is the volume of gross profits (profits plus depreciation), W is the volume of total wages, Cp is capitalists consumption, Cw is workers consumption and I is the gross investment that has been made in the economy. Since we have supposed workers who do not save (that is, to say in the preceding equation), we can simplify the two terms and arrive at:



This is the famous profits equation, which says that profits are equal to the sum of investment and capitalist’s consumption.” (Wikipedia: Kalecki, 2015)

(iii) Minsky: “The simple equation 'profit equals investment' is the fundamental relation for a macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure.” (2008, p. 161)

(iv) Keen: “Total income = Wages plus Profits” (2011, pp. 366, 146) and “... national income resolves itself into wages and profits” (2010, p. 12).

It is quite obvious that heterodox economists, like their orthodox counterparts, have NO idea of what profit is (2014). Hence, they fail to capture the essence of the market economy. Because of this, economists have nothing to offer in the way of scientifically founded advice.

“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, 1991, p. 30)

The true theory satisfies the criteria of material/formal consistency. All that Orthodoxy and Heterodoxy have currently to offer are contradicting opinions; neither came ever to grips with science, with profit, and with the working of the economy we happen to live in.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kalecki, M. (2015). The Profit Equation. Wikipedia. URL
Keen, S. (2010). Solving the Paradox of Monetary Profits. Economics E-Journal, 4(2010-31). URL
Keen, S. (2011). Debunking Economics. London, New York: Zed Books, rev. edition.
Klant, J. J. (1988). The Natural Order. In N. de Marchi (Ed.), The Popperian Legacy in Economics, 87–117. Cambridge: Cambridge University Press.
Minsky, H. P. (2008). Stabilizing an Unstable Economy. New York, Chicago, San Francisco: McGraw Hill, 2nd edition.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

Preceding Economics is an abysmal failure of reason.

Related 'PsySoc — the scourge of economics' and 'Economics: ‘a tale told by an idiot, full of sound and fury’?' For details of the big picture see cross-references Profit in particular 'Keynesianism as ultimate profit machine' and cross-references Heterodoxy.

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REPLY to Neil Wilson on Jan 5, 2018

You say: “The approach, I think, is simply to determine that economics is a defunct discipline like alchemy.”

The problem with incompetent folks and mainstream basher like Lars Syll and you is that traditional Heterodoxy has failed for 150+ years to develop a suitable alternative to the maximization-and-equilibrium phantasm: “... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend)

As Nell put it: “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.”

Neither Lars Syll nor you have ever constructed anything of scientific value.#1, #2, #3


#1 Say hello to Lars Syll, Keynes’ last parrot
#2 Don Lars and the axiomatic windmill
#3 The stupidity of Heterodoxy is the life insurance of Orthodoxy