Occasional Tweets: The futile attempt to recycle Marginalism (II)

 

#DearIdiots#LearnEcon#Marginalism is long dead. The axiomatically correct formula reads for the most elementary case W/P=R, i.e. real wage W/P equals productivity R.

True macrofoundations: the reset of economicshttps://t.co/VcInqsJ4f7 pic.twitter.com/EpU8qVVByp

— E.K-H (@AXECorg) March 16, 2022

 

#Econ101

The standard neoclassical labor supply and labor demand model is proto-scientific garbage.

Marginalism is the landmark of scientific incompetencehttps://t.co/e8WmHvNz3O

The solemn burial of Marginalismhttps://t.co/9MVsTvNma4

— E.K-H (@AXECorg) March 17, 2022

For more about marginalism see AXECquery.  

Marginalism is the landmark of scientific incompetence

Comment on Chris Dillow on ‘Limits of marginal productivity theory’

Blog-Reference

You conclude: “It could be that marginal product theory — just like simple-minded talk of incentives — is as much ideology as science.”

It could also be that it is merely the usual brainless waffling that economists are widely known for.

Standard economics is built upon this set of hardcore propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to  equilibrium states.” (Weintraub, 1985, p. 147)

Marginalism follows logically from the behavioral assumption of constrained optimization HC2. What can be said with certainty is that the whole set of Walrasian axioms is methodologically inadmissible. By implication, standard marginalistic distribution theory falls flat.

It is of utmost importance to realize that the concept of marginal productivity is long dead. So it is a welfare-diminishing waste of time to mention, criticize, and discuss it.

The root defect of the familiar distribution theories is that the representative economist cannot even tell the difference between income and profit (2012; 2014). This is not exactly a noteworthy achievement.

Marginal distribution theory is the widely visible landmark of economists’ scientific incompetence. The elimination of mental misery demands a Paradigm Shift from microfoundations as embodied in HC1/HC5 to macrofoundations.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2012). Income Distribution, Profit, and Real Shares. SSRN Working Paper Series, 2012793: 1–13. 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
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

***

COMMENT 'The zero productivity of economists' on Apr 20

All feathers are subject to the Law of Gravitation, but the trajectory of a flying feather on a windy day is a random walk with a downward bias. The underlying law is totally obscured by historical accidents. The very characteristic of a scientist is to abstract from the unique historical accidents, while the dilettante is inextricably glued to it. Every economist could know this from J. S. Mill: “Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of ‘abstract speculation.’” (1874, V.55)

To tackle the problem of distribution by looking at a concrete case of wage-setting at Aston Villa is a fine example of the methodological blunder that is rampant in economics. This nuisance comes under the general heading of methodological individualism.

“It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994, p. 1)

This research program has abysmally failed. The scientific productivity of economists has been consistently zero since Jevons/Walras/Menger. How does it come that their wages have been greater than zero? In economics, to be sure, there is no relationship between performance and reward at all.

Economics is not a science but an employment program for wannabe scientists. Keynes once proposed “to fill old bottles with banknotes, bury them at suitable depths in disused coalmines” and then “to dig the notes up again”. This is pretty much the same thing as discussing the marginal productivity theory over and over again. To make economics a science, first of all, requires burying economists “at suitable depths in disused coalmines.”

Methodological individualism is finished. Marginalism is finished. For the correct distribution theory, see (2014).


References
Arrow, K. J. (1994). Methodological Individualism and Social Knowledge. American Economic Review, Papers and Proceedings, 84(2): 1–9. 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
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On the Definition of Political Economy; and on the Method of Investigation Proper To It. Library of Economics and Liberty. URL

Related 'The solemn burial of Marginalism'.

For more about marginalism, see AXECquery.

Paul the Menace

Comment on Paul Krugman on ‘Donald the Menace’

Blog-Reference

Paul Krugman presents himself as an economist, however, his main occupation is not economics but politics. In his capacity as a political commentator, he points out that the institution of the presidency has been hijacked by an incompetent and dangerous person.

This comment is the unintended proof that the institution of academic economics has been hijacked by agenda pushers and incompetent scientists.

Krugman defines himself as follows: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” What he completely overlooks is that maximization-and-equilibrium is not a scientifically acceptable starting point, that is, the acceptance of maximization-and-equilibrium is disqualifying for an economist.

Economists are not very smart. History shows that they swallow every logical blunder hook, line and sinker provided it is presented in the form of an easy-to-grasp narrative. The most prominent example in the history of economic thought is the diamond-water paradox. It goes as follows: “The paradox of value (also known as the diamond-water paradox) is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.”#1

The paradox is solved by ‘thinking at the margin’ which is advertised as the outstanding characteristic of an economist. Accordingly, the price of diamonds is high relative to water because the marginal utility of diamonds is high relative to the marginal utility of water which in turn is normally more abundant than diamonds.

The idiotism of the answer is obvious, except for an economist. Water and diamonds cannot be compared in this way because water is consumed, i.e. it vanishes, and the very characteristic of diamonds is that they are NOT consumed but, just the opposite, they are the proverbial eternal store of value. Because of this, the determination of the prices of perishable and durable goods follows entirely DIFFERENT principles. The first thing to notice is that there is NO such thing as “the” market but that there are at least TWO entirely different types of markets.#2 This alone makes it clear, that the economist’s one-size-fits-all supply-demand-equilibrium explanation must be false.

By consequence, what in the first analytical step has to be done is to determine the relative prices of two perishable goods within the framework of what Keynes called the ‘monetary theory of production’. Barter models are out from the outset. The correct starting point is a pure hand-to-mouth economy where, for example, bread and wine are produced in two firms and fully consumed by the households in one and the same period. The stock of goods is zero at the beginning and at the end of the period. The total number of working hours is given and the wage rate is, for a start, equal in the bread and wine production. The wage income is fully spent. Because total consumption expenditures are equal to total wage income total profit of the business sector is zero.#3

For this elementary two-goods hand-to-mouth economy we get with a little algebra for the relative price of bread and wine Pb/Pw=Rw/Rb, that is, the relative price is inverse to the productivities, that is, the relative price or the exchange ratio is OBJECTIVELY given and INDEPENDENT of marginal utility. In other words, the production conditions determine relative prices. This amounts to a refutation of marginalism which is a subjective concept.

To see this more clearly, let us assume that the preferences of the households change from one period to the next. In order to cut out the details of the adaptation process, it is assumed that the household sector tells the business sector that it wants more wine and less bread. Accordingly, the business sector shifts labor from bread production to wine production. Because the wage rate is equal to total wage income and total consumption expenditures do not change. Only the partitioning of total expenditures changes according to the new preferences, that is, expenditures for wine go up and expenditures for bread go down. With a little algebra we arrive under the condition of market clearing and zero profit in both firms again at Pb/Pw=Rw/Rb, that is, a change of preferences or marginal utilities has NO effect on relative prices. In other words, demand is NOT a determinant of price. Changes in the partitioning of demand lead to a change of quantities and NOT to price changes.

This result plainly refutes marginalism. This gives a pause to recall where marginalism came from. Ultimately, marginalism can be traced back to the importation of calculus into economics and the translation of formalism into the BEHAVIORAL assumption of utility maximization under constraints. This assumption is part of the Walrasian axiom set which is given by: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

The upshot is that not only constrained optimization (HC2) is forever unacceptable as an axiom but rational expectations (HC4) and equilibrium (HC5), too. Therefore, marginalism or, more precisely, the microfoundations approach has already been dead in the cradle 140+ years ago. The representative economist and Paul Krugman have not realized this until this very day. The water-diamond story is still told as exemplary for how economists think ‘at the margin’ and every student generation since Walras/Jevons/Menger swallows this methodological crap without turning an eyelid.

Maximization-and-equilibrium economists like Krugman are groping in the dark with regard to the two most important features of the market economy: the profit mechanism and the price mechanism. And this means that their economic policy advice lacks a sound scientific foundation. And this, in turn, means that they are a hazard to their fellow citizens roughly on a par with ‘Donald the Menace’.#4

Egmont Kakarot-Handtke

#1 Wikipedia
#2 Primary and Secondary Markets
#3 The Logic of Value and the Value of Logic and The Value of Water and Diamonds: Back to Square One and The Pure Logic of Value, Profit, Interest
#4 Economists and the destructive power of stupidity

Related 'Scientific suicide in the revolving door' and 'Krugman is not an economist'

Occasional Tweets: Marginalism ― proto-scientific garbage for 150+ years

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

There is NO such thing as supply-demand-equilibrium.

Marginalism is the landmark of scientific incompetencehttps://t.co/e8WmHvNz3O

The solemn burial of marginalismhttps://t.co/9MVsTvNma4

— E.K-H (@AXECorg) August 22, 2021

For more about marginalism see AXECquery. 

Putting the production function back on its feet

Comment on Steve Keen on ‘Incorporating energy into production functions’

Blog-Reference

Orthodox economics messed up the theory of production, but Heterodoxy never developed a viable replacement despite the fact that, with Georgescu-Roegen’s approach, it had already been on the right track (1970; 1971). Georgescu-Roegen was quite clear about “... the completely faulty form by which standard economics represents a production process” (1979, p. 318), but he failed to see that it was not enough to rectify the theory of production. What had to be replaced then and still has to be done is to scrap standard economics as a WHOLE. Partial improvements are as pointless as adding just another epicycle to the geocentric model. Nothing less than a Paradigm Shift will do.

The whole analytical superstructure of Orthodoxy is based upon this set of hardcore propositions a.k.a. axioms:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, 1985, p. 109)

HC3 introduces marginalism, which is the all-pervasive principle of Orthodoxy. Needless to emphasize that marginalism is proto-scientific garbage.

In order to be applicable, marginalism requires some auxiliary assumptions. One of them is the concept of a well-behaved production function. This concept implicitly excludes increasing returns (2011a). As every economist knows from Adam Smith’s pin factory, though, the beauty and triumph of capitalism consist exactly of increasing returns due to the division of labor and the mechanization of a growing number of sub-processes.

Thus, the green-cheese behavioral assumption HC3 ultimately determines the analytical representation of the physically objective production process: “Indeed, here we find the neoclassical economist dictating the laws of physics to the physicist!” (Mirowski, 1995, p. 328). It is impossible to surpass the scientific incompetence of economists.

Steve Keen is perfectly right: “Arguably, therefore, the production functions used in economic theory — whether spouted by mainstream Neoclassical or non-orthodox Post Keynesians — deserve to ‘collapse in deepest humiliation.’" In very practical terms, this means that NO economic journal can accept papers that contain a Cobb-Douglas or any other well-behaved production function without violating scientific standards.

All these half measures, though, do not cut much ice. The very task of constructive Heterodoxy is to fully replace Orthodoxy as defined by HC1/HC6 and by implication the obsolete production function. For the correct approach and the correct sequential production function, see (2011b, Sec. 4).

Egmont Kakarot-Handtke


References
Georgescu-Roegen, N. (1970). The Economics of Production. American Economic Review, Papers and Proceedings, 60(2): 1–9. URL
Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Cambridge: Cambridge University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic
Issues, 13(2): 317–328. URL
Kakarot-Handtke, E. (2011a). Increasing Returns and Stability. SSRN Working Paper Series, 1921267: 1–19. URL
Kakarot-Handtke, E. (2011b). Matter Matters: Productivity, Resources, and Prices. SSRN Working Paper Series, 1946874: 1–21. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.

For more about the production function, see AXECquery.

***

Graphic AXEC106m

Occasional Tweets: Marginalism ― the best-mumified stillbirth in the history of cargo cult science

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth#Jevons

Marginalism is the landmark of scientific incompetencehttps://t.co/e8WmHvNz3O

The solemn burial of marginalismhttps://t.co/9MVsTvNma4

— E.K-H (@AXECorg) September 1, 2021

For more about Jevons see AXECquery.

For more about microfoundations see AXECquery.

***

Twitter Feb 25, 2019 Mummies worship is not regarded as a perversity among economists. As a matter of fact, it is the initiation ritual. The different sects have different ― spiritual or real ― mummies. Utility maximizers, for example, worship Bentham's mummy at the entrance of the Student Centre at the University College London (UCL). From the standpoint of science, economics is still at the animistic stage.

Twitter Mar 7, 2023

No false-hero memorials (II)

Comment on Barkley Rosser on ‘Martin Weitzman RIP’

Blog-Reference and Blog-Reference

The failed scientist and applause troll, attention/reputation manager, political agenda pusher, crime hunter, academic busybody, storyteller, and falsifier of the history of economic thought, Barkley Rosser takes the opportunity to erect the next false-hero memorial.

These are Barkley Rosser’s quality criteria: “But he was always further out on the edge of respectability, even though his career always looked respectable on the surface: a PhD from MIT under Robert Solow and holding positions at Yale, MIT, and Harvard since 1989, as well as regularly publishing in top journals from 1965 on.”

This translates into: During his academic career, he was most of the time either indirectly or directly on the payroll of billionaire-sponsors. #1

What about the contributions of real scientific worth?

“This famous paper reasonably argued that in a world of non-certainty regarding costs and benefits of environmental policies, the use of a tax versus a quantity control, such as cap and trade depended on the relative slopes of the marginal cost and marginal damage functions. If the former is steeper then a price-oriented policy such as a tax is preferred whereas if the marginal damage function is steeper than a quantity-oriented policy such as cap and trade would be preferred.”

This translates into Martin Weitzman never realizing that Marginalism and the Totem-of-the-Micro are proto-scientific garbage since Jevons/Walras/Menger. #2

With all these credentials, Martin Weitzman was, of course, a worthy candidate for the faux Nobel: “Several of us here had long advocated that he share the first Nobel Prize to be given for environmental economics.” #3

Yes, obituaries have always been the best place to plant myths. And nobody does this better than Barkley Rosser, the promoter of fake science and suppressor of genuine science.

For the scientific community, it holds vis-à-vis all cargo cult scientists: RIP at the Flat-Earth Cemetery.

Egmont Kakarot-Handtke


#1 “MIT is giving Jeffrey Epstein’s tainted donation to a charity, but Harvard says it won’t do the same”. Twitter
#2 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#3 Links on the Economics Nobel

Related 'The Palgrave Dictionary ― a comprehensive collection of false-hero memorials' and 'Economics textbooks ― tombstones at the Flat-Earth-Cemetery' and '“I never learned maths, so I had to think” ― another false-hero memorial' and 'What comes first: eco-self-destruction or oeco-self-destruction?'.

***

REPLY to Barkley Rosser on Sep 1

You say: “Egmont, your vacuous profit law is completely irrelevant to whether or not marginal social cost curves or marginal social damage curves regarding environmental problems are useful or meaningful concepts.”

The Profit Law is not at issue in the given context. What is at issue is the irrelevance of Marginalism, which is already dead for 150+ years because it consists of plain NONENTITIES. So, the question “whether global warming is better addressed by using taxes or some kind of quantity control” is at the same level as How many angels can dance on a pinpoint?

Standard economics is based on these hardcore propositions: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

This set is chock-full of NONENTITIES. The whole of Marginalism derives from the core behavioral assumption HC2, which is a NONENTITY like the Tooth Fairy or the Easter Bunny. From the Walrasian axioms, the triad SS-function―DD-function―equilibrium is derived. Leijonhufvud called this defective analytical tool the Totem of the Micro/Totem of the Macro. Because there is NO such thing as supply-demand-equilibrium the whole of economics is vacuous.

It is plain to every person with more than two brain cells that any analysis that crosses an upward-sloping and a downward-sloping curve is proto-scientific idiocy. So, every economist who blunders about “relative slopes of the marginal cost and marginal damage functions” is either stupid or corrupt or both.

Global warming is an issue for scientists. It is generally known by now that economists are fake scientists, so they have NOTHING to contribute to the discussion. Actually, global warming is used by academic economists under the label of the Green New Deal to deceive WeThePeople. #1, #2 Instead of defunct microfoundations, MMTers apply macrofoundations that are dead since Keynes. Both microfoundations and macrofoundations are provably false, so economists have NOTHING to add to a scientific discussion.

If you were a scientist, you would not push for the erection of false-hero memorials but instead, push for the end of the 200+ years of mob rule of incompetent scientists and political fraudsters.


#1 MMT and the Green New Deal: Where is the snag? (I)+(II)
#2 Bill Mitchell’s dishonorable discharge from the sciences

***

REPLY to Barkley Rosser on Sep 2

“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)

The fact is that both microfounded and macrofounded economics are provably false. Economists do not know how the monetary economy works. There is no valid Employment-, Profit-, Distribution-, or Money Theory. So, economic policy guidance has NEVER had sound scientific foundations since the days of Adam Smith.

The fact is that the so-called free market economy is on the life support of the State, and Wall Street is on the life support of the Central Bank. Macroeconomic profit is, in the main, produced by public deficits. Financial wealth grows in lockstep with public debt. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the State’s legislative, executive, and judiciary institutions.

The proof has been given that economists are too stupid for the elementary math that underlies macroeconomics. #1 Because macroeconomics and microeconomics are materially/formally inconsistent, economists have NOTHING to contribute to the solution of any problems between unemployment and global warming.

So, what is lacking in economics is the true theory. Economics is a scientific failure. This is bad enough. But then comes the absurdity on top of all the proto-scientific garbage, which consists of rewarding fake scientists with the faux Nobel. #2


#1 Deficit cheerleaders ― the Oligarchy’s useful idiots, Aug 27
#2 Links on the Economics Nobel

***

REPLY to Barkley Rosser on Sep 5

You say: “Let us get real. There is a very serious problem known as global warming. Do you deny that it exists?”

I say: Let us get real. There is a very serious problem in economics of scientific failure/fake/fraud. Do you deny that it exists?

You abuse an obituary to distract from the fact that economists have to this day no valid theory about how the economy works, and that they are too stupid for the elementary math that underlies macroeconomics, and that their policy guidance has no sound scientific foundations since Adam Smith. Instead, you portray economists as saviors of the planet and humanity.

Economics is not a science. Economists are incompetent scientists. Martin Weitzman was part of an institutional system that is rigged from textbooks to peer reviews to the faux Nobel. Do you deny that it exists and that you, too, are part of it?

Wren-Lewis’s methodological double whammy

Comment on Simon Wren-Lewis on ‘Whatever happened to the General Theory’

Blog-Reference and Blog-Reference on Feb 4

Keynes’ lasting scientific contribution relates to methodology. He spoke it out loud so that every fellow economist could hear it: Throw over the classical axioms and put theoretical economics on new foundations: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)

With the revolutionary shift in mathematics and physics from Euclidean to non-Euclidean axiomatics (Hilbert, Einstein) before his eyes, Keynes called his fellow economists to arms: “Something similar is required to-day in economics.” (1973, p. 16)

Consequently, Keynes formulated the foundational syllogism of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (1973, p. 63)

This elementary two-liner is conceptually and logically defective because Keynes did not come to grips with profit and therefore “discarded the draft chapter dealing with it” (Tómasson et al., 2010, p. 12). As a result, all I=S models including the Keynesian multiplier are false (2014).

To see the enormity of intellectual failure one has to let this sink in: Keynes had no idea of the fundamental concepts of his discipline, viz. profit and income. This did not hinder him to push his economic policy agenda. As a matter of fact, Keynes’s policy proposals never had a sound theoretical foundation but were at best commonsensical.

After-Keynesians, including Wren-Lewis, did not realize until this day that there is something fundamentally wrong with Keynes’s two-liner and I=S but still hallucinate about ex-ante/ex-post.#1

In the neoclassical synthesis of Samuelson, Keynes’s new non-Euclidean axioms and the old Euclidean axioms of marginalism were cobbled together. Textbooks consisted of two well-balanced halves: micro and macro. Needless to emphasize that both halves did not fit together.

The inconsistency was never resolved but gradually all returned to the pre-Keynesian formal foundations of marginalism. As Krugman put it on his blog “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” These two concepts “were already central to economic thought in the previous century.” (Woodford, 1999, p. 2)

Now, it can be shown that the axiomatic foundations of the neoclassical paradigm are methodologically inadmissible.#2 Needless to emphasize that the promoters of NCCR, including Wren-Lewis, never got the point.

So we have two indicators of the logical incapacity of present-day economists: Keynesians are for more than 80 years in the dark. Sorta-kinda neoclassicals are for more than 150 years in the dark.

Because they have disqualified themselves neither Keynesians nor neoclassicals can be taken seriously. Marginalism has been a dead research program from the very start and things have not improved until DSGE. Just the contrary.

As Keynes said, the fault is in the premises.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
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
Woodford, M. (1999). Revolution and Evolution in Twentieth-Century Macroeconomics. Mimeo, 1–32. URL

#1 I=S: Mark of the Incompetent
#2 Addendum to ‘Musings on Whether We Consciously Know More or Less than What Is in Our Models’

The solemn burial of Marginalism

Comment on Chris Dillow on ‘Limits of marginal productivity theory’

Blog-Reference

In order to tackle the problem of wages, profits, and employment, economics has to switch from microfoundations to macrofoundations. The Paradigm Shift is achieved as follows.

(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.

These premises are certain, true, and primary, and therefore satisfy ALL methodological requirements. The macro axiom set contains NO NONENTITIES like utility, maximization, equilibrium, or a well-behaved production function. For the graphical representation of the absolute formal minimum set, see under the label of Graphic #1.

At any given level of employment L, the wage income Y_w that is generated in the consolidated business sector follows by multiplication by the wage rate W. On the real side, output O follows by multiplication with the productivity R. Finally, the price P follows as the dependent variable under the conditions of (i) budget balancing, i.e., C=Y_w, and (ii) market-clearing, i.e., X=O. Note that the ray in the southeastern quadrant is NOT a linear production function; the ray tracks ANY underlying production function. Note also that the wage rate W is an AVERAGE if the individual wage rates are different among the employees, which is normally the case. These details are not needed at the beginning, but come later with DIFFERENTIATION.

Under the conditions of (i) market-clearing and (ii) budget-balancing in each period, the price is derived as P=W/R (1), i.e., the market-clearing price is, in the most elementary case, equal to unit wage costs. This is the elementary form of the macroeconomic Law of Supply and Demand, which, in a later step, has to be generalized for an arbitrary number of markets.

The first thing to notice is that the real wage W/P is invariably equal to the productivity R according to (1). So, for the economy as a WHOLE, the marginal principle does NOT hold. The real wage is NOT equal to marginal productivity — because there is NO marginal productivity — because there is NO such thing as a well-behaved production function. The real wage is equal to productivity in the most elementary case (see Graphic #2).

Marginalism MUST ASSUME a well-behaved production function in order to make the green cheese assumption of constrained optimization work. This is methodologically ILLEGITIMATE and known since antiquity as petitio principii. To fool around with assumed NONENTITIES is like kindergarten kids playing with Spiderman, Tooth Fairy, and Easter Bunny.

For the economy as a WHOLE holds: If the wage rate W is lowered, the market-clearing price P falls. If the number of working hours L is increased, the price remains constant, provided productivity R does not change. If productivity decreases, the price P rises. If productivity increases, the price falls. In any case, labor gets the whole product, and profit for the business sector as a whole is invariably zero. So, the next question is, where does profit come from? This question has NEVER been answered by standard economics. So economists have NO idea of the most important phenomenon of their subject matter.

All changes in the system are reflected by the market-clearing price. The most elementary economy is REPRODUCIBLE for an indefinite number of periods under the interim condition of no external limitations. With further DIFFERENTIATION, one eventually arrives at the axiomatically correct Employment Law #3 and eventually at a single firm, that is, at microeconomics.

What is standard economics? Krugman put it thus: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

And this is why Krugman and the rest of standard economics are a failure. If the premises are false, the whole theoretical superstructure implodes with karmic necessity. It is as simple as that: garbage in, garbage out. This methodological truism, though, is forever beyond the ant horizon of marginalist losers.

Egmont Kakarot-Handtke


#1 Graphic AXEC31 Elementary production-consumption economy with market-clearing and budget-balancing
#2 The formula for the general case is given on Graphic AXEC28.
#3 Graphic AXEC62 The structural-systemic Employment Law

Related 'Putting the production function back on its feet' and 'Mathiness and the Ur-Blunder' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?' and 'Sending Solow’s growth model to the dump of proto-scientific history'.

Related 'Marginalism is the landmark of scientific incompetence'.

The worthlessness of value theory

Comment on Matias Vernengo on ‘Why do we need a theory of value?’*

Blog-Reference and Blog-Reference

Matias Vernengo correctly observes: “The theory of value and distribution is at the heart of economics. … However, most economists have no clue about it, about the centrality of value.”

Then he summarizes the main approaches:

• “Let me start with the authors of the surplus approach. In fact, a bit earlier with the economists that would eventually be known as Mercantilists (if you can talk about a school). If we are allowed to generalize and simplify, the latter believed that the wealth of nations depended essentially on maintaining trade surpluses and accumulating precious metals. Profits were essentially the result of buying cheap and selling dear, or profits upon alienation, which indicates that, for Mercantilists, profits were generated in the exchange process.”

• “Classical political economy authors, starting with William Petty, emphasize the determination of profits in the process of production, as a residual of output, once the conditions for the reproduction of the productive system were satisfied. So profits are not the result of selling high and buying low, something that could result from the mere fluctuation of market prices, but from the ability to produce beyond what was needed for the simple material reproduction of society. … So the normal rate of profit is needed to determine prices, and prices are needed to determine the normal rate of profit. This was well understood by both Ricardo and Marx.”

• “In other words, for a coherent theory of output, accumulation, international trade, technological change and more (taxation, etc.) you need a theory of value and distribution. That is also the case in the mainstream. Marginalism developed in the last quarter of the 19th century, both as a result of the lack of analytical solution in that period for the problems of the LTV and as a reaction to radical revival of the theory (Marxism). The important distinction is that while classical political economy authors dealt only with objective factors, and considered demand as given when determined value and distribution, marginalism incorporated subjective preferences as central for the explanation of long term normal prices, and prices and quantities were determined simultaneously.”

Let us make it short here: the theory of value/profit/distribution is false since Adam Smith. #1, #2 However, Matias Vernengo, too, has no clue about what profit is and how the monetary economy works.

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) Yw=WL wage income Yw 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=Yw in each period, the price as the dependent variable is given by P=W/R (1a). The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. The elementary production-consumption economy is shown in picture AXEC31. #2

The macroeconomic Law of Supply and Demand (1a) implies W/P=R (1b), i.e., the real wage is always equal to the productivity, no matter how the wage rate W is set. Labor gets the whole product.

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=Yw, is now skipped. The monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S.

The balances add up to zero. The mirror image of household sector saving S is the 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.

Ramifications: (i) The business sector’s revenues can only be greater than costs if, in the simplest of all possible cases, consumption expenditures are greater than wage income. (ii) In order that profit comes into existence for the first time in the elementary production-consumption economy, the household sector must run a deficit at least in one period. This presupposes the existence of a credit-creating entity. (iii) Profit is, in the most elementary case, determined by the increase and decrease of the household sector’s debt. There is a close relation between profit/loss and the expansion/contraction of debt for the economy as a whole. (iv) Wage income is the factor remuneration of labor input. Profit is not a factor income. Since capital is nonexistent in the elementary production-consumption economy, profit is not functionally attributable to capital. (v) There is no relation at all between profit, capital, marginal, or average productivity. (vi) The value of output is, in the general case, different from the sum of factor incomes. This is the defining property of the monetary economy. (vii) Profit is a factor-independent residual and qualitatively different from wage income. Therefore, it is an elementary mistake to maintain that total income is the sum of wages and profits.

In brief, to this day, Walrasians, Keynesians, Marxians, Austrians, MMTers, and Matias Vernengo have no clue about profit and, as a consequence, about value and distribution. They will all be buried at the darkest corner of the Flat-Earth Cemetery.

Egmont Kakarot-Handtke


* Naked Keynesianism
#1 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#2 Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
#3 Graphic AXEC31 Elementary production-consumption economy

Related 'The Logic of Value and the Value of Logic'.

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REPLY to André on Jul 23

You say: “Price is not directly related to costs, be it wages or any other costs. A theory that relies on relations between prices and costs is lacking, to put it mildly.”

Observing one firm and then generalizing for the economy as a whole is called the Fallacy of Composition. This fallacy is the main reason why economics is proto-scientific garbage to this day.

Take, for a start, the most elementary case that the households fully spend their wage income on consumption, i.e., C=Yw, and that there are two products. Under the condition of market clearing and W1=W2=W, the prices are given by P1=W/R1 and P2=W/R2. The profits in both firms are zero, i.e., Q1≡C1―Yw1=0, Q2≡C2―Yw2=0, C=C1+C2, Yw=Yw1+Yw2, C=Yw, Q=Q1+Q2=0.

For relative prices, i.e., the exchange relation, holds P1/P2=R2/R1 in the most elementary case with equal wages. The exchange relation between the two goods is determined by the objectively given productivities.

Now firm 1 increases the price P1. The households pay more for good 1 but keep total consumption expenditures unchanged, i.e., C=Yw, so they spend less on good 2. P2 falls under the condition of market-clearing. As a result, firm 1 now makes a profit and firm 2 makes a loss, and the total profit of the business sector Q is zero as before.

Alternatively. Firm 1 increases the price P1. The households pay more for good 1 but keep expenditures on good 2 constant, that is, total consumption expenditures C are now greater than wage income Yw. In other words, the household sector deficit-spends or dissaves. In this case, the profit of the business sector as a whole Q is greater than zero. It holds Q≡−S, i.e., the total profit of the business sector is equal to the total dissaving of the household sector. The balances of the two sectors add up to zero, i.e., Q+S=0. One may call this the Law of the Conservation of Value.

One cannot do Price Theory and Value Theory without taking the macroeconomic balances equation into account. #1 OK, you can because you are a scientifically incompetent blatherer, to put it mildly.


#1 The Pure Logic of Value, Profit, Interest

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REPLY to André on Jul 23

You say: “Price is not necessarily related to costs, and this is a fact. If you ignore facts, you are just like a mainstream economist - ie, no scientist at all.”

Indeed, price is not necessarily related to costs. This is a well-known triviality. I treat this case in the section that starts with “Now firm 1 increases the price P1.” and in the section that starts with “Alternatively. Firm 1 increases the price P1.”

So, the point at issue is that you make a trivial statement about the price-setting capacity of a single firm. This is not “realism” but dumb partial analysis. The Walrasians can be criticized for many things, but their point is valid that Marshallian partial analysis is worthless and has to be replaced by total analysis because of the interdependence of markets.

The interdependence of markets is a reality. It is nowhere to be found in your trivial examples. You simply do not get the essential point of price/value theory, to put it mildly.

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#PointOfProof

Jul 24
post still missing

Econ 101: Supply-Demand-Equilibrium is dead for 150+ years

Comment on Dirk Ehnts on ‘The problem with the supply curve’

Blog-Reference and Blog-Reference

Dirk Ehnts reports: “Steve Keen uses a 1952 paper to make a very important point about neoclassical economics: There is a problem with the supply curve.” and concludes: “Microeconomics, the behavior of firms and households, is very important. Starting the subject by repeating theories that should have long been discarded blocks more relevant approaches from being taught. These new approaches could provide proper foundations of the behavior of firms and households if they are not based on ‘economic laws’ that are refuted by reality.”

All this is true, of course, but ultimately not very helpful: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Because traditional Heterodoxy consistently failed at this methodological barrier, economics students are still taught the ‘Totem of the Micro’, i.e. supply-demand-equilibrium. #1

The lethal blunder of microeconomics, though, does not start with the supply curve but with the neo-Walrasian axiom set: “HC1 There exist economic agents. HC2 Agents have preferences over outcomes. HC3 Agents independently optimize subject to constraints. HC4 Choices are made in interrelated markets. HC5 Agents have full relevant knowledge. HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states.” (Weintraub, 1985)

The pivotal propositions are HC3 and HC6. Methodologically, they are NONENTITIES like the Easter Bunny and Spiderman. The behavioral axiom HC3 makes economics marginalistic. #2, #3 In order to make constrained optimization work, a well-behaved production function is required. The production function is NOT the result of real-world observations but is implied by HC3. #4, #5, #6 The supply curve, in turn, follows from the assumed production function. So HC3 is the ultimate reason why there “is a problem with the supply curve”.

From this follows that the microfoundations HC1/HC6 have to be discarded. And this is the end of Econ 101 as we know it. Economics textbooks have been worthless since Samuelson’s first edition in 1948. #7

The end of proto-scientific economics, though, is the beginning of scientific economics, which is no longer based on false microfoundations but on true macrofoundations. #8, #9, #10

From the devastating critique of supply-demand-equilibrium follows the necessity of a Paradigm Shift. Traditional Heterodoxy never performed the Paradigm Shift but was content with the endless repetition of how “unrealistic” Orthodoxy is.

Because of this, both Orthodoxy and traditional Heterodoxy go down the scientific drain.

Egmont Kakarot-Handtke


#1 Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn
#2 The solemn burial of marginalism
#3 Marginalism is the landmark of scientific incompetence
#4 Putting the production function back on its feet
#5 Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?
#6 Mathiness and the Ur-Blunder
#7 The father of modern economics and his imbecile kids
#8 Essentials of Constructive Heterodoxy: The Market
#9 How to Get Rid of Supply-Demand-Equilibrium
#10 The Law of Supply and Demand: Here It Is Finally

Related 'There is NO such thing as supply-demand-equilibrium' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Why you should NEVER use supply-demand-equilibrium' and 'The monstrous utility-supply-demand-equilibrium failure'. For details of the big picture, see cross-references Econ 101/Old Curriculum/New Curriculum and cross-references Paradigm Shift and the textbook Sovereign Economics. The macroeconomic Law of Supply and Demand is shown under the label of Graphic AXEC64

For more about supply-demand-equilibrium see AXECquery.

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Graphic AXEC121i

Occasional X: Clueless economists / Science (CXC)

#Economics#FailedFakeScience

“'Marginalism' is the essence of good economics.” (Deirdre Nansen McCloskey)

No. Actually, Marginalism is the epitome of scientific failure.

For 200+ years, economics has claimed to be science but never was. The major approaches (Walrasianism,…

— AXEC (@EgmontHandtke) September 1, 2025

Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?

Comment on Brian Romanchuk on ‘Forecastability And Economic Modelling’

Blog-Reference and Blog-Reference

“The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables. Work on this line is laying the foundations of the economics of the future . . .” (Schumpeter, 1946)

The future is now, and economists still do NOT have the paradigmatic simple core model but a heap of incommensurable and contradicting constructions. Pluralism may have its merits elsewhere, but it is the worst thing that can happen in science. 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, in economics, ALL models are axiomatically false. It holds: “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.” (Aristotle, 300 BC) The fact is that the premises of current models are neither certain, true, nor primary.

Brian Romanchuk’s SIM model is a case in point. He enumerates his key premises as follows.

• The model is a straightforward three-sector model, with a household sector, business sector, and government. 
• The household consumption function is defined in terms of a pair of propensity to consume parameters (out of income, out of wealth). …
• The business sector is constrained to break even, …
• Government policy is specified in terms of government consumption and a fixed tax rate.

Brian Romanchuk starts with macrofoundations, which is correct. But then he assumes a consumption function, which is a NONENTITY, and break-even for the business sector, which kills the model already at this early stage because a zero profit economy is the most idiotic NONENTITY of them all.

Let us contrast this with the standard microfoundations approach. The whole analytical superstructure of Orthodoxy is based upon this set of hardcore propositions a.k.a. axioms:

• HC1 There exist economic agents.
• HC2 Agents have preferences over outcomes.
• HC3 Agents independently optimize subject to constraints.
• HC4 Choices are made in interrelated markets.
• HC5 Agents have full relevant knowledge.
• HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub)

HC3 introduces marginalism, which is the all-pervasive principle of Orthodoxy. HC3, though, and HC5 and HC6 are plain NONENTITIES. #1

In order to be applicable HC3, requires a lot of auxiliary assumptions, most prominently a well-behaved/differentiable production function. #2 Taken together, all axioms and auxiliary assumptions then crystallize to supply-function/demand-function/equilibrium or what Leijonhufvud famously called the Totem of Micro. #3

The methodological fact of the matter is that ALL models that take just one NONENTITY into the premises are a priori false. #4

So, because these premises are NOT “certain, true, and primary” they cannot be used for model building: expected utility, rationality/bounded rationality/animal spirits, constrained optimization, well-behaved production functions, supply/demand functions, simultaneous adaptation, equilibrium, first/second derivatives, total income=value of output, I=S, real-number quantities/prices, ergodicity. Every theory/model that contains just one NONENTITY goes straight into the wastebasket.

The standard microfoundations approach, with all its variants and derivatives up to DSGE, is methodologically false. The same holds for Keynes’ macrofoundations and all After-Keynesian variants.

To put NONENTITIES into the premises is the defining characteristic of fairy tales, science fiction, theology, Hollywood movies, politics, proto-science, and the senseless model bricolage of scientifically incompetent economists. #5

Egmont Kakarot-Handtke


#1 The solemn burial of marginalism
#2 Putting the production function back on its feet
#3 Equilibrium and the violation of a fundamental principle of science
#4 The future of economics: why you will probably not be admitted to it, and why this is a good thing
#5 How to restart economics

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Graphic AXEC121e

Marginal madness

Comment on Nick Rowe on ‘Equalising the twin markups in a monopolistically competitive macroeconomy’

Blog-Reference and Blog-Reference

Your treatment of profit is partial and marginalistic. Marginalism is defined by the Walrasian axiom set = microfoundations. Because the Walrasian axioms are provable false your treatment of profit is false. Marginalism has already been dead in the cradle 150+ years ago.#1

For the determination of monetary profit of the economy as a whole one has to start with the most elementary case of a pure production-consumption economy without investment, government, and foreign trade.#2 In this elementary economy three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Y_w, (ii) C is less than Y_w, (iii) C is greater than Y_w.

In case (i) the monetary saving of the household sector S_m≡Y_w−C is zero and the monetary profit of the business sector Q_m≡C−Y_w, too, is zero.
In case (ii) monetary saving S_m is positive and the business sector makes a loss, i.e. Q_m is negative.
In case (iii) monetary saving S_m is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Q_m is positive.

It always holds Q_m≡−S_m, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law. Total profit is distributed among the firms that comprise the business sector.

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, capital, power, monopoly, waiting, risk, greed, the smartness of capitalists, or any other subjective factors. Total profit/loss is objectively determined in the most elementary case by the change of the household sector’s debt.#3

Egmont Kakarot-Handtke


#1 For details see First Lecture in New Economic Thinking.
#2 The macrofoundations approach starts with three objective-systemic (= behavior-free) axioms: (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. For a start it holds X=O.
#3 For more details see cross-references Profit

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REPLY to Nick Rowe on Jul 5

You say: “Capitalists may consume too. Workers may save too.”

True. In this case, the Profit Law reads Q_m≡Y_d−S_m. This generalization, though, does not alter the fact that your treatment of profit is false.*

* For details of the big picture see cross-references Profit

A particularly silly critique

Comment on Lars Syll on 'Piketty and the elasticity of substitution'

Blog-Reference see also later Blog-Reference

“A particularly technical and effective critique of Piketty is ... that for capital returns to be consistently higher than the overall growth of the economy – or “r > g” as framed by Piketty – ... the elasticity of substitution between capital and labor, which needs to be greater than 1 for r to be consistently higher than g.” (quote from the intro)

In order to buy this argument, one has to buy its premises and these premises are known to be false. The first rule of scientific inquiry has been aptly put by Davidson:

“..., before accepting the conclusions of any economist’s model as applicable to the real world, the careful student should always examine and be prepared to criticize the applicability of the fundamental postulates of the model; for, in the absence of any mistake in logic, the axioms of the model determine its conclusions.” (2002, p. 41), see also (Keynes, 1973, p. xxi)

The elasticity argument presupposes the existence of production function with convenient properties. There is no such thing. And any graduate student could know this.

“Orthodox economists operate with concepts like continuous substitutability in consumption and production, positively sloped industry supply curves, and well-behaved aggregate production functions, for which there is little or no empirical support, because they are wedded to a political myth of the market as a self-regulating mechanism.” (Blaug, 1984, p. 973)

Not only there is empirical support lacking, but any undergraduate student of physics also laughs out loud when confronted with an economist's production function: “The idea of a path-independent transformation of one set of physical objects into another violates so many physical laws that one can only marvel at the audacity of those who wrap themselves in the banner of physics before marching off to do battle with the opponents of production functions.” (Mirowski, 1995, p. 327)

An effective critique does not waste time with the green cheese assumptionism economists are famous for.

Suffice it to mention that capital, profit maximization, decreasing returns, equilibrium, and many other notions of marginalism are NONENTITIES.

The worst thing of all, though, is that economists are talking about distribution without knowing what profit is: “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10), for the correct approach see (2014; 2014)

The discussion about the elasticity of substitution is in no way different from the discussion about how many angels can dance on the point of a pin.

That the graduate students at MIT are not aware of this, is a small surprise. They even accept supply-demand-equilibrium as an explanation. What is a real surprise is that this shallow argumentation is taken seriously on this blog.

To be as clear as possible: Marginalism is Zombie-Economics (Quiggin, 2010).

Egmont Kakarot-Handtke


References
Blaug, M. (1984). Review: Why Economics is Not Yet a Science. Economic Journal, 94(376): 972–973. URL
Davidson, P. (2002). Financial Markets, Money and the Real World. Cheltenham, Northampton: Edward Elgar.
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. (2014a). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Kakarot-Handtke, E. (2014b). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan. (1936).
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, Oxford: Princeton University Press.

Profit, Marginalism, and other anomalies

Comment on Larry Summers on ‘Corporate profits are near record highs. That’s a problem’

Blog-Reference

You write: “The rate of profit under standard assumptions reflects the marginal productivity of capital.”

Only for economists who have not yet realized that marginalism is dead for more than 150 years. The Profit Law for the 2-sector economy reads Qm≡Yd+I−Sm (2014, p. 8, eq. (18)). Legend: Qm monetary profit, Yd distributed profit, I investment expenditures, Sm monetary saving.

When the profit theory is false, then the rest of the economic theory is false. The reason why the profit development appears “anomalous” to you is that you simply do not know what profit is.#1

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL

#1 How the intelligent non-economist can refute every economist hands down

For details of the big picture see cross-references Profit

Immediately following How the American working class can bring overall profits down to zero without bloody revolution.

Occasional Tweets: The futile attempt to recycle Marginalism (I)

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

Marginalism ― the best-mumified stillbirth in the history of cargo cult sciencehttps://t.co/4OoVHEPuy4

— E.K-H (@AXECorg) February 22, 2022

For more about microfoundations see AXECquery.

For more about cargo cult science see AXECquery. 

Needed: The Worst of the Worst of economics blogs

Comment on Barkley Rosser on ‘EconoSpeak In The Top 100 Economics Blogs’

Blog-Reference

Every good thing/institution is eventually messed up or abused. This is the social version of the Second Law of Thermodynamics which says that the total entropy of an isolated system can only increase over time. This holds for the internet in general and for economics blogs in particular: total stupidity increases over time if not actively reversed.

Since economics is a science, the basic idea of the econblogosphere is to contribute to the dissemination and growth of knowledge. Accordingly, the econblogosphere becomes dysfunctional if it increases opinion (= doxa) instead of knowledge (= episteme).#1 The econblogosphere reaches the entropic maximum when it consists entirely of obsolete/ falsified models/theories, political propaganda, sitcom gossip, and disinformation.

Crap thrives in the Circus Maximus and the whole issue is not new in economics: “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)

Marginalism has already been dead in the cradle 150+ years ago but it returns as Marginal Revolution at the top of Prateek Agarwal’s Top 100 list. Some people still have not realized that Standard economics/Marginalism has been refuted on all methodological counts long ago and is scientifically indefensible.

In order to prevent the institutional degeneration of the econblogosphere, some attention management is necessary. It consists of a positive list of blogs that foster the growth of scientific knowledge and a negative list of blogs that inhibit science.

While we have any number of journalistic Top 10/100 lists that rely on the naive metric of clicks or prestige or popularity or optical/communicative attractiveness a Top 10 list of qualitatively deficient and manipulative blogs is lacking. Occasionally, one hears the complaint that posts have been blocked or removed.

It is unknown to what extent scientific standards are violated in the econblogosphere.#2 The scientific community is based on the principle of self-governance, so the obvious question to ask is whether the economic societies could establish something like a systematic ex-post peer review including an Evidence Center for the collection and verification of complaints about agenda-pushing/censorship/suppression/manipulation/ fraud.

It should be obvious that the national economic societies cannot tolerate members that violate what has been called Feynman Integrity on their internet blogs.#3

What economics needs is not only an objective list of innovative blogs that push the necessary paradigm shift but also the Top 10 of disinformation, political propaganda, and violation of scientific standards. Prateek Agarwal’s list ― whether intentionally or unintentionally does not matter ― stabilizes and reinforces established stupidity, scientific incompetence, and the political corruption of both orthodox and heterodox economics.

Economics is a failed science and Prateek Agarwal’s list provides a comprehensive overview of the proto-scientific mess.

Egmont Kakarot-Handtke


#1 See also ‘Economics between cargo cult, farce, and fraud’ and 'Media-fake-farce-fraud-storytelling-macro' and 'Economics and truth' and Economics: The pluralism of false theories is over' and 'Economists: Incompetent? Stupid? Corrupt?'
#2 The censorship on EconoSpeak is a case in point.
#3 Feynman Integrity, fake science and the econblogosphere

Related 'Feynman Integrity, fake science, and the econblogosphere' and 'Cryptoeconomics ― the best of Lars Syll’s spam folder' and 'Cryptoeconomics ― the best of Bill Mitchell’s spam folder' and 'Cryptoeconomics ― the best of Real-World Economics Review’s spam folder' and 'Cryptoeconomics ― the best of Mark Thoma’s spam folder' and 'Cryptoeconomics ― the best of Nick Rowe’s spam folder' and 'Needed: the Top 10 of substandard economics blogs'.

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REPLY to Barkley Rosser on Jun 11

You say: “… let me note that your big point about making a distinction between retained and distributed profits has absolutely nothing to do with any of the standard axioms of Walrasian neoclassical economics, or of the axioms or assumptions made by any of the other schools of economic thought, nothing.”

That is (i) correct and (ii) shows that you do not understand what a paradigm shift is all about. This is what Wikipedia has to say: “A paradigm shift, …, is a fundamental change in the basic concepts and experimental practices of a scientific discipline. Kuhn contrasted these shifts, which characterize a scientific revolution, to the activity of normal science, which he described as scientific work done within a prevailing framework (or paradigm).”#1

The keywords are “fundamental change in the basic concepts …” which means more specifically the REPLACEMENT of false concepts by true concepts.#2 For this simple reason, the structural-systemic axioms have “absolutely nothing to do with any of the standard axioms of Walrasian neoclassical economics, or of the axioms or assumptions made by any of the other schools of economic thought, nothing.” Indeed, true and false are binary and have NOTHING in common, never had, never will.

You are consistently on the false side of the true/false divide.


#1 For details of the big picture see cross-references Paradigm Shift
#2 First Lecture in New Economic Thinking

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REPLY to Barkley Rosser on Jun 12

Economics is NOT a science, and economists are NO scientists. The objective of science is the true theory with truth well-defined as material and formal consistency. In economics, the situation is this: there is political economics and theoretical economics, and 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. Walrasianism, Keynesianism, Marxianism, Austrianism is axiomatically false. The four main approaches are scientifically indefensible.

This is not a big problem for the representative economist because he is ― to begin with ― NOT in the science business but in the politics business. The irreconcilable difference between scientific and political thinking has been made clear by Peirce: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. … A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack)

The representative economist is NOT a scientist but a political agenda pusher. The four main approaches are NOT science but what Feynman called cargo cult science or what we have come to call fake.

Now fake is one thing but corruption is another thing. That you are talking utter nonsense on this blog is one thing but that you and your sidekick Sandwichman are blocking/framing/ removing posts on EconoSpeak is another thing.

Taken in isolation, EconoSpeak is merely a nuisance. But EconoSpeak is not an unfortunate aberration but symptomatic for the whole of economics as it presents itself in the econblogosphere.

I have not yet posted on all blogs that are on Prateek Agarwal’s Top 100 list but I have posted on a representative sample of orthodox and heterodox blogs. What I have practically experienced is that EconoSpeak is not the proverbial rotten apple in the barrel but that the whole barrel is spoiled.#1

My actual list of the Rotten Dozen, i.e. the tip of the iceberg, is based on a raw estimation of suppressed/removed posts over a longer time span and reads: 1 Real-World Economics Review blog, 2 Economist’s View, 3 Lars P. Syll blog, 4 EconoSpeak, 5 Uneasy Money, 6 Billy blog, 7 Information Transfer Economics, 8 bradford-delong.com: Grasping Reality with Both Hands, 9 Roger Farmer’s Economic Window, 10 evonomics, 11 Institute for New Economic Thinking, 12 Worthwhile Canadian Initiative.

Time to get these stupid and corrupt political folks and the rest of Prateek Agarwal’s Top 100 list out of economics. The paradigm shift is overdue.


#1 For details of the bigger picture see cross-references Political Economics

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REPLY to Barkley Rosser on Jun 12

You say: “I would say I am doing better on empirical outcomes of forecasting here than you are.”

Of course, you are. Prediction/forecasting is since time immemorial the preferred artifice of political/religious brainwashers and con artists. Science does not predict.#1 But on YouTube, you get as many predictions of the imminent economic collapse, WW3, and the Second Coming of Christ as you wish.

If you want to refute the systemic axiom set why do you not simply promote the testing of the structural-axiomatic Phillips curve?#2 In science, empirical testing, not futile blathering and stuttering LOL decides the matter.


#1 See ‘Science does NOT predict the future’ and ‘Prediction/Forecasting’ and ‘Macro poultry entrails reading’ and ‘Enough! Economists, retire now!’
#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

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REPLY to Barkley Rosser on Jun 13

The title of this thread is: “EconoSpeak In The Top 100 Economics Blogs”. Top 10/100 charts are a well-established instrument of attention-, reputation-, and trend management. Every high school dropout in the marketing and PR business knows how to apply this simple and cost-effective instrument for selling crap to the crowd and telling the herd where to run.

To apply this instrument in the entertainment industry, though, is one thing, to apply it in the sciences is another thing. In the sciences, the primary objective is NOT the growth of popularity but the growth of knowledge. To award something like Oscars in the sciences is nothing less than a takeover by the all-devouring Circus Maximus and the inevitable transmogrification of scientists into sitcom clowns.

As everybody knows by now, economics is a cargo cult science and since 200+ years as Political Economy integral part of the Circus Maximus, so a Top 100 list of economics blogs seems to be sorta-kinda appropriate.

Whatever Prateek Agarwal thinks he is doing or whatever he is trying to achieve does not matter. What he in fact does is to stabilize and reinforce established stupidity, scientific incompetence, and the political corruption of both orthodox and heterodox economics. The fact is that Walrasianism, Keynesianism, Marxianism, Austrianism is scientifically indefensible.

So, NOTHING that is said and proposed and argued for or against by the representative economist on the economics blogs has a sound scientific foundation.#1 Economists do not know what profit is, this is a proven fact.#2 Because of this, economics blogs have been ― until recently ― the biggest self-debunking show on earth.

In order to get out of the proto-scientific swamp, what is needed as a first step is a Top 10/100 list of blogs ranked according to the degree of stupidity, scientific incompetence, and violation of scientific standards. As Barkley Rosser and his sidekick Sandwichman have proven again on this thread, EconoSpeak deserves to be at the top of the Top 100 chart of proto-scientific rubbish and political blather.

#1 Just another wreck
#2 Profit and the collective failure of economists

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REPLY to Barkley Rosser on Jun 14

You say: “many of these people look to us to help provide this understanding and maybe even some policy answers.”

Yes, but other people have already realized that they will NOT get any help from economists, just the contrary: “… Napoleon claimed that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner)

This, for example, is true for employment policy.#1 Because employment theory is false economists bear the intellectual responsibility for the social devastation of mass unemployment from the Great Depression onward.#2

You cite the big challenges (global warming, rising income inequality, speculative bubbles). The idea that orthodox or heterodox economists solve these questions is ridiculous because economists cannot make two steps without falling over their own feet. Here is the classical case: “His Collected Writings show that he [Keynes] 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.)

And so it goes on for 80+ years. After-Keynesians cannot tell to this day what macroeconomic profit is.#3 And you hallucinate: “Oh, and we all know what profits are.”

Economists have not solved the Profit Puzzle to this day and there are not more than ten persons around the world who understand the significance of the conceptual disaster at the very heart of economics.#4 You are certainly not among them.

Because economists cannot solve the elementary questions of their subject matter they are unfit for solving any problem humanity might have. And this will last until the inescapable paradigm shift happens.


#1 Unemployment is high because economics is false
#2 Economists and the destructive power of stupidity
#3 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#4 “A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008, p. 10)

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#PointOfProof