“Equations that transformed the world.” (MathFiles)
— AXEC (@EgmontHandtke) May 18, 2026
For the field of economics, see ⇒
The great economic equationshttps://t.co/sUiSaCV5G0 pic.twitter.com/SGH8ik9gdn
For more about equations, see AXECquery.
Showing posts sorted by relevance for query title:equations. Sort by date Show all posts
Showing posts sorted by relevance for query title:equations. Sort by date Show all posts
May 18, 2026
Occasional X: Great economic equations (II)
April 7, 2026
Occasional X: Great economic equations (I)
“17 equations that changed the world.” (The Math Flow)
— AXEC (@EgmontHandtke) April 7, 2026
The No. 18 is the First Economic Law. ⇓
For details, see ⇒
The great economic equationshttps://t.co/sUiSaCV5G0 pic.twitter.com/GQuibIzbRt
For more about equations, see AXECquery.
May 21, 2015
If anyone has better foundational equations, please come forward
Comment on Lars Syll on ‘Why the ergodic theorem is not applicable in economics’
Blog-Reference
There is no way around it: each theory rests on a tiny set of foundational propositions: “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.” (Schumpeter, 1946, p. 3)
Orthodoxy's behavioral axioms are now generally known to be false.
Constructive Heterodoxy's reasonably small number of equations is given with Graphic AXEC137b.
As long as you [Dave Taylor] cannot state your premises clearly with a few simple equations, you cannot go beyond political filibuster. It is pretty clear by now that economics has had more than enough of this stuff.
Political economics is part of the entertainment industry. Traditional Orthodoxy and Heterodoxy are sitcoms. Only theoretical economics is science. Science is about the real world.
Egmont Kakarot-Handtke
References
Schumpeter, J. A. (1946). The Decade of the Twenties. American Economic Review, 36(2): 1–10. URL
Blog-Reference
There is no way around it: each theory rests on a tiny set of foundational propositions: “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.” (Schumpeter, 1946, p. 3)
Orthodoxy's behavioral axioms are now generally known to be false.
Constructive Heterodoxy's reasonably small number of equations is given with Graphic AXEC137b.
As long as you [Dave Taylor] cannot state your premises clearly with a few simple equations, you cannot go beyond political filibuster. It is pretty clear by now that economics has had more than enough of this stuff.
Political economics is part of the entertainment industry. Traditional Orthodoxy and Heterodoxy are sitcoms. Only theoretical economics is science. Science is about the real world.
Egmont Kakarot-Handtke
References
Schumpeter, J. A. (1946). The Decade of the Twenties. American Economic Review, 36(2): 1–10. URL
May 12, 2016
The great economic equations
Comment on Matias Vernengo on 'The great economic equations'
Blog-Reference
The First Economic Law is shown on Graphic AXEC06, and it connects the fully integrated business sector, the household sector, the market, and the income distribution (2014, eq. (12)):
Blog-Reference
The First Economic Law is shown on Graphic AXEC06, and it connects the fully integrated business sector, the household sector, the market, and the income distribution (2014, eq. (12)):
The First Economic Law is derived from the macroeconomic axiom set and is for economics what the Pythagorean Theorem is for geometry. The Profit Law is implicit in this foundational equation, as well as the macroeconomic Law of Supply and Demand and the Employment Law. The axioms relate to a period of a given length.
From the First Economic Law, which holds for one period, follows the Economics God Equation, which embodies the open stochastic simulation of the elementary production-consumption economy from period t=0 to infinity. See Graphic AXEC25:
From the First Economic Law, which holds for one period, follows the Economics God Equation, which embodies the open stochastic simulation of the elementary production-consumption economy from period t=0 to infinity. See Graphic AXEC25:
The God Equation comprises the paths of the period variables (2020, pp. 23-26). The paths describe the history of the variables constituting the system's history.
The Keynesian multiplier 1/1−c is provably false. For the correct employment multiplier, see (2012, eq. (39)). To arrive at the correct economic key equations, one has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations as given by the axiom set. #1
All models that are not formally compatible with the systemic macrofoundations are provably false and therefore scientifically unacceptable.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2014). The Synthesis of Economic Law, Evolution, and History. SSRN Working Paper Series, 2500696: 1–22. URL
All models that are not formally compatible with the systemic macrofoundations are provably false and therefore scientifically unacceptable.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2014). The Synthesis of Economic Law, Evolution, and History. SSRN Working Paper Series, 2500696: 1–22. URL
Kakarot-Handtke, E. (2020), Sovereign Economics, Books on Demand, BOD
For details of the big picture, see cross-references Axiomatization and cross-references Paradigm Shift
For more about equations, see AXECquery.
***
Graphic AXEC121i Macrofoundations
Graphic AXEC 112c Systemic Laws
June 23, 2019
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) 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. The elementary production-consumption economy is shown under the label Graphic. #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=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 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)+Yd in the investment economy with government deficit/surplus (G−T), and distributed profit Yd.
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 Graphic 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'.
Graphic AXEC143d Profit Law (with increasing complexity) and Balances 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) 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. The elementary production-consumption economy is shown under the label Graphic. #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=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 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)+Yd in the investment economy with government deficit/surplus (G−T), and distributed profit Yd.
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 Graphic 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'.
***
April 13, 2010
September 11, 2010
April 13, 2010
May 18, 2016
The worst economic equation
Comment on Matias Vernengo on 'The great economic equations'
Blog-Reference
Economics abounds with logical/mathematical blunders. Keynes’ I=S is the worst error/ mistake measured by overall methodological fallout.
1. The argument
Keynes formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (1973, p. 63)
This elementary syllogism is conceptually defective because Keynes never came to grips with profit (Tómasson et al., 2010, p. 12). This is fatal for an economist.
2. Rectification
The Keynesian premises have to be replaced by the correct macrofoundations. This 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) 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.
For the graphical representation of this ABSOLUTE formal MINIMUM, see Graphic AXEC31
(A1) to (A3) asserts: At any given level of employment L, the wage income Yw that is generated in the consolidated business sector follows by multiplication with 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=Yw, and (ii) market clearing, i.e., X=O.
Under the conditions (i)|(ii), the price is derived in each period as P=W/R, i.e., the market-clearing price is, in the most elementary case, equal to unit wage costs which vary over successive periods.
In the next period, the households save, i.e., condition (i) is now lifted. The result is shown with Graphic AXEC33
Consumption expenditures C fall below Yw, and with it the market-clearing price P. The product market is cleared due to (ii), and there is no such thing as inventory investment, i.e., I=0. Monetary saving of the household sector is given by Sm≡Yw−C.
The business sector makes a monetary loss which is equal to the household sector’s saving, i.e., Qm≡−Sm. Therefore, loss is the exact counterpart of saving; by consequence, profit is the exact counterpart of dissaving. This is the most elementary form of the Profit Law. It follows directly from the profit definition Qm≡C−Ym and the definition of household sector saving. The sector balances always add up to zero, i.e., Qm+Sm=0.
Saving and investment are NEVER equal, neither ex-ante nor ex-post. Saving/dissaving is complementary to loss/profit.
The correct profit equation for the investment economy reads Qm≡Yd+I−Sm. Legend: Qm monetary profit, Yd distributed profit, Sm monetary saving, I investment expenditures.
3. Conclusion
(a) I=S is the worst economic equation. All I=S/IS-LM models from Keynes to Krugman are provably false (2014). (b) The multiplier is formally defective. (c) All microfounded profit theories are provably false. (d) The representative economist has NOT gotten (a) to (c) to this very day.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. 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
Related 'The great economic equations' and cross-references Refutation of I=S.
Blog-Reference
Economics abounds with logical/mathematical blunders. Keynes’ I=S is the worst error/ mistake measured by overall methodological fallout.
1. The argument
Keynes formulated the formal core of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (1973, p. 63)
This elementary syllogism is conceptually defective because Keynes never came to grips with profit (Tómasson et al., 2010, p. 12). This is fatal for an economist.
2. Rectification
The Keynesian premises have to be replaced by the correct macrofoundations. This 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) 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.
For the graphical representation of this ABSOLUTE formal MINIMUM, see Graphic AXEC31
(A1) to (A3) asserts: At any given level of employment L, the wage income Yw that is generated in the consolidated business sector follows by multiplication with 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=Yw, and (ii) market clearing, i.e., X=O.
Under the conditions (i)|(ii), the price is derived in each period as P=W/R, i.e., the market-clearing price is, in the most elementary case, equal to unit wage costs which vary over successive periods.
In the next period, the households save, i.e., condition (i) is now lifted. The result is shown with Graphic AXEC33
Consumption expenditures C fall below Yw, and with it the market-clearing price P. The product market is cleared due to (ii), and there is no such thing as inventory investment, i.e., I=0. Monetary saving of the household sector is given by Sm≡Yw−C.
The business sector makes a monetary loss which is equal to the household sector’s saving, i.e., Qm≡−Sm. Therefore, loss is the exact counterpart of saving; by consequence, profit is the exact counterpart of dissaving. This is the most elementary form of the Profit Law. It follows directly from the profit definition Qm≡C−Ym and the definition of household sector saving. The sector balances always add up to zero, i.e., Qm+Sm=0.
Saving and investment are NEVER equal, neither ex-ante nor ex-post. Saving/dissaving is complementary to loss/profit.
The correct profit equation for the investment economy reads Qm≡Yd+I−Sm. Legend: Qm monetary profit, Yd distributed profit, Sm monetary saving, I investment expenditures.
3. Conclusion
(a) I=S is the worst economic equation. All I=S/IS-LM models from Keynes to Krugman are provably false (2014). (b) The multiplier is formally defective. (c) All microfounded profit theories are provably false. (d) The representative economist has NOT gotten (a) to (c) to this very day.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
Keynes, J. M. (1973). The General Theory of Employment Interest and Money. 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
Related 'The great economic equations' and cross-references Refutation of I=S.
October 6, 2010
November 10, 2010
December 18, 2020
Occasional Tweets: The sectoral balances equation
#MMTservesTheRich#DeficitSpendingMoneyCreation is gov policy since time immemorial. #MMT is the new packaging. The #ProfitLaw Q≡(G−T)+(I−S) implies #PublicDeficitIsPrivateProfit. The primary purpose of the public budget has always been the self-alimentation of the #Oligarchy.
— E.K-H (@AXECorg) December 18, 2020
#MMTers are too stupid for the elementary algebra that underlies #MacroEconomics, more specifically, the #SectoralBalances equation
— E.K-H (@AXECorg) December 18, 2020
MMT=False → (I−S)+(G−T)+(X−M)=0,
True → (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
Quick MMT 101 refutationhttps://t.co/M1rzHCv4DR
In the equation (I−S)+(G−T)+(X−M)=0, the household sector is present with the variable S, i.e. saving, which is defined as the balance of wage income Yw and consumption expenditures C.
— E.K-H (@AXECorg) December 18, 2020
Wikipedia and the promotion of economists’ idiotism (I)https://t.co/UatINJt5nd
#LearnEconomics
— E.K-H (@AXECorg) December 18, 2020
You obviously do NOT realize that this is not “my” equation but the official MMT equation (photo). The cited Wikipedia entry is original MMT stuff. And it is PROVABLY false. Seehttps://t.co/3x9c31peUB pic.twitter.com/PynbyNb8F3
My research tells me that
— E.K-H (@AXECorg) December 18, 2020
(i) the balances equation features prominently in the MMT textbook
Refuting MMT’s Macroeconomics Textbookhttps://t.co/nIAJmF1Om7
(ii) profit does NOT appear in the MMT equation
MMT and the magical profit disappearancehttps://t.co/kFmaB8XDkk
March 29, 2022
Occasional Tweets: A real joke ― to this day, economists get the foundational equation of macroeconomics wrong
#Economics#FailedScience#FakeScience
— E.K-H (@AXECorg) March 29, 2022
Since Keynes, #Economists get the #SectoralBalances equation wrong. Here is the axiomatically correct #ProfitLaw and its derivatives:
Profit Law: The most powerful formula of economicshttps://t.co/lnw6QFadOE pic.twitter.com/7hDacNPbr8
November 10, 2010
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