Moral incompetence or scientific incompetence?

Comment on Editor on 'University economics departments must share the blame'

Blog-Reference

Hugh Goodacre blames academic economics for its indirect or even direct justification of the financial sector's culture of ruthless money-making. And he gives weight to his argument by quoting Krugman stating that 'the economist is a maximizing-minimizing kind of guy.'

It is simply naive to suggest that people in the financial sector (i) need a justification for money-making, and (ii) that they need academic economics for that purpose.

History shows that for any ruthless person in whatever walk of life Darwinism delivers a far stronger justification than the extremum principle. Economics has copied this principle simply from physics and physics ultimately had it from religion.

“Already Maupertuis considered his minimum principle as proof that the world, where among many virtual movements the one leading to maximum effect with minimum effort is realized, is the ‘best of all worlds and work of a purposeful creator. Euler made a similar remark: ‘Since the construction of the whole world is the most eminent and since it originated from the wisest creator, nothing is found in the world which would not show a maximum or minimum characteristic.’ ...” (von Bertalanffy, 1969, p. 75)

Nobody blames physics or religion for the latest financial crisis.

The extremum principle is an almost instinctive and tautological way of explanation: “Throughout its history, the idea of some ‘Fundamental Assumption’, some basic ‘Economic Principle’ about human conduct, from which much or most of economics can ultimately be deduced, has been deeply rooted in the procedure of economic theory. Some such notion is still, in many quarters, dominant at the present time. For example, it has recently been stated that the task of economics is ‘to display the structure and working of the economic cosmos as an outgrowth of the maximum principle’.” (Hutchison, 1937, p. 636)

When Krugman states that 'the economist is a maximizing-minimizing kind of guy' he affirms the trivial fact that he has studied economics and that he thinks that he has understood what economics is all about. And here the problem begins.

Let us make it short: No way leads from a behavioral assumption (optimization or otherwise) to the understanding of how the economy works (2014). The crucial point is that standard economics is based on behavioral axioms (McKenzie, 2008) and this is not a solid enough foundation: “. . . if we wish to place economic science upon a solid basis, we must make it completely independent of psychological assumptions and philosophical hypotheses.” (Slutzky, quoted in Mirowski, 1995, p. 362)

Economists owe the world the true economic theory, that is, a theory that satisfies the scientific standards of material and formal consistency and that explains how the economy works.

Economists have not delivered. That economics is not yet science is the only fact that university departments justly can be blamed for.

Egmont Kakarot-Handtke


References
Hutchison, T. W. (1937). Expectation and Rational Conduct. Zeitschrift für Nationalökonomie / Journal of Economics, 8(5): 636–653. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
McKenzie, L. W. (2008). General Equilibrium. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–18. Palgrave Macmillan, 2nd edition. URL
Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.
von Bertalanffy, L. (1969). General Systems Theory. New York: Braziller.

Complexity, scientific incompetence, and the art of asking the right questions

Comment on Peter Radford on ‘Economic Ignorance?’

Blog-Reference

Peter Radford arrived at the following insight: “Economies are devilishly complicated things. They are full of obstreperous and notoriously difficult subject matter. Notably people. And people, as we all know, do the darnedest things. They, for instance, change their minds and sometimes even contradict themselves — with a straight face too. This makes plotting and explaining their activity very hard.” (see intro)

Since Newton's and Adam Smith's days, when economists ask themselves why they have failed in both relative and absolute terms, one invariably hears the same complexity-uncertainty-hard-stuff refrain.

“There is a property common to almost all the moral sciences, and by which they are distinguished from many of the physical; this is, that it is seldom in our power to make experiments in them. ... We therefore study nature under circumstances of great disadvantage in these sciences; being confined to the limited number of experiments which take place (if we may so speak) of their own accord, without any preparation or management of ours; in circumstances, moreover, of great complexity, and never perfectly known to us; and with the far greater part of the processes concealed from our observation.” (J. S. Mill, 1874, V.51)

Or: “Years ago I heard Mr. Cobden say at a League Meeting that ‘Political Economy was the highest study of the human mind, for that the physical sciences required by no means so hard an effort.’” (Bagehot, 1885, PE. 13)

Or: “The motives and conditions are so numerous and complicated, that the resulting actions have the appearance of caprice, and are beyond the analytic powers of science.” (Jevons, 1911, p. 15)

Or: “Knight accuses the positivists of overlooking the complexity and uncertainty of testing in all sciences and argues at length that positivist views of science are particularly inappropriate to economics, which, like all sciences of human action, must concern itself with reasons, motives, values and errors, not just causes and regularities.” (Hausman, 1989, p. 118)

Or: “Economics is a strange sort of discipline. ... too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998, pp. x-xi)

We know from the history of science that Ptolemy's theory of planetary motion was very complex — in the end, he dealt with more than 20 epicycles — and that the complexity vanished completely when the vantage point changed. Could it be that complexity is not in the subject matter but in the observer's mind? Could it be that economists observe and argue, like Ptolemy, from the wrong vantage point?

“Others, the inexperienced students, make guesses that are very complicated, and it sort of looks as if it is all right, but I know it is not true because the truth always turns out to be simpler than you thought.” (Feynman, 1992, p. 171)

Could complexity simply be an indicator of dilettantism or confusion?

Imagine for a moment an aircraft flying from, say, New York to Paris. Now we can ask why. One way to answer the question is to speculate about the motives and reasons of the passengers, the pilot, the crew, the flight controllers, and the greedy managers and stockholders of the airline. The other way to look at flight is to think about the laws of aerodynamics, thermodynamics, and so forth.

We could know in advance that there is no such thing as ‘laws’ of human behavior that could explain flying, not to speak of a particular flight. Real scientists have always been well aware of this.

“The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown, 2011, p. 211)

Hume and Adam Smith, though, missed this crucial methodological point and subscribed to the primacy of what was called the Science of Man.

“It is evident, that all the sciences have a relation, greater or less, to human nature: and that however wide any of them may seem to run from it, they still return back by one passage or another. Even. Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of MAN; since the lie under the cognizance of men, and are judged of by their powers and faculties.” (Hume, 2012, Introduction), original upper-case

By anchoring economics firmly in the social sciences, Hume and Smith set the discipline on the wrong track and programmed failure: “...there has been no progress in developing laws of human behavior for the last twenty-five hundred years.” (Hausman, 1992, p. 320), see also (Rosenberg, 1980, pp. 2-3)

Ergo: economics is not a science of behavior (Hudík, 2011); economists have to change their vantage point; economics has to be redefined. Note well that all this has nothing to do with the manifest misapplication of mathematics in standard economics.

Old definition, subjective-behavioral: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
New definition, objective-structural: “Economics is the science that studies how the monetary economy works.”

In non-technical terms, this is what a Paradigm Shift, a.k.a. new economic thinking, is all about.

Egmont Kakarot-Handtke


References
Bagehot, W. (1885). The Postulates of English Political Economy. Library of Economics and Liberty. URL
Brown, K. (2011). Reflections on Relativity. Raleigh: Lulu.com.
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hausman, D. M. (1989). Economic Methodology in a Nutshell. Journal of Economic Perspectives, 3(2): 115–127. URL
Hausman, D. M. (1992). The Inexact and Separate Science of Economics. Cambridge: Cambridge University Press.
Hudík, M. (2011). Why Economics is Not a Science of Behaviour. Journal of Economic Methodology, 18(2): 147–162.
Hume, D. (2012). A Treatise of Human Nature. Project Gutenberg EBook. URL
Jevons, W. S. (1911). The Theory of Political Economy. London, Bombay, etc.: Macmillan, 4th edition. 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
Rosenberg, A. (1980). Sociobiology and the Preemption of Social Science. Oxford: Blackwell.
Solow, R. M. (1998). Foreword, volume William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press, 3rd edition.

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Twitter/X May 12, 2026

Economists’ three-layered scientific incompetence

Comment on Asad Zaman on ‘Project: A heterodox macro textbook’

Blog-Reference and Blog-Reference

Economics is a failed science. This means more specifically for the history of economic thought: Orthodoxy has failed to produce anything of real scientific value and Heterodoxy has failed to develop a superior alternative. Thus, economics is stuck since its inception at the proto-scientific level “... we know little more now about ‘how the economy works,’ or about the modus operandi of the invisible hand than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations.” (Clower, 1999, p. 401)

The failure of economics is provable and therefore no longer a matter of debate.

1st layer: Wrong subject matter

Since Adam Smith, economics claims to be a science. It started as a mixture/intersection of sociology and political science: “The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.” (J. S. Mill, 1874, V.39)

Economics has been understood as Political Economy. Economists saw themselves as agenda pushers for some greater good and science as a means to that end. The idea of pure science, i.e. the completely independent pursuit of knowledge, never occurred to the inventors of utility maximization.

With respect to the subject matter, there is no difference between Mill and Marx “My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, ...” (Marx, 1906, M.9)

With Jevons/Walras/Menger the focus shifted to methodological individualism and economics became a mixture/intersection of psychology, sociology, and political science.

Economics is NOT a science of individual/social/political behavior — this is the social science delusion#1 — but of the behavior of the monetary economy. Accordingly, the correct definition of the subject matter is objective/structural/systemic: “Economics is the science which studies how the monetary economy works.”

As a consequence, the Copernican turn in economics consists of the methodological switch from behavior-centered bottom-up, i.e. microfoundations, to structure-centered top-down, i.e. macrofoundations of the world economy. All Human-Nature issues are the subject matter of other disciplines (psychology, sociology, anthropology, biology/Darwinism, political science, philosophy, etcetera) and are taken in from these by way of multi-disciplinary cooperation. To paraphrase J. S. Mill: ‘Economics as a systems science presupposes all the physical and social sciences; it takes for granted all such of the truths of those sciences as are concerned with the working of the economic system.’ (cf. Mill, 1874, V.29)

Economists must, first of all, stop the dilettantish dabbling in the so-called social sciences and in politics and focus on their proper subject matter. What they have collectively produced so far in their own domain is scientific garbage.

2nd layer: Wrong axiomatization

Orthodoxy defines itself briefly as “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman)

More explicitly and formally, i.e. axiomatically, Orthodoxy has been defined as “The [neo-Walrasian] program is organized around the following hardcore propositions:
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)

The fact of the matter is that there is no such thing as an equilibrium in the economy. Methodologically, HC6 is what is known since antiquity as petitio principii. This is an indefensible methodological blunder. Likewise for HC3.

HC6 and HC3 are methodologically unacceptable as axioms. Because of this the whole set of hardcore propositions — the sorta-kinda starting point — breaks apart and with it the WHOLE theoretical superstructure of Orthodoxy.

Keynes identified the pivotal methodological blunder correctly “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)

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 syllogism 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) and with it the WHOLE Post-Keynesian theoretical superstructure.

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

So, we have two reliable indicators of the intellectual incapacity of present-day economists: Keynesians are for more than 80 years in the dark. Sorta-kinda Neoclassicals are for more than 140 years in the dark. Because they have methodologically disqualified themselves neither Keynesians nor Walrasians can be taken seriously. The same holds for Marxists and Austrians. Economic policy advice has until this day no sound theoretical foundations because economic theory itself has no sound axiomatic foundations.

3rd layer: Wrong formalization

“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, Posterior Analytics)

Certain/true/primary premises are hard to come by “There is no more fertile source of error than apparently trivial premises.” (Schumpeter, 1994, p. 269)

To state one’s hardcore premises consistently is the indispensable methodological minimum, to formalize them correctly is an additional step. The pivot of formalization is “Formal axiomatic systems must be interpreted in some domain ... to become an empirical science.” (Boylan et al., 1995, p. 198)

Debreu in his axiomatization of Walrasianism did explicitly the opposite, that is, he disconnected “Allegiance to rigor dictates the axiomatic form of the analysis where the theory, in the strict sense, is logically entirely disconnected from its interpretations.” (Debreu, 1959, p. x)

Debreu missed the crucial point: “From the axiomatic point of view, mathematics appears thus as a storehouse of abstract forms — the mathematical structures; and it so happens — without our knowing why — that certain aspects of empirical reality fit themselves into these forms, as if through a kind of preadaptation. ... It is only in this sense of the word ‘form’ that one can call the axiomatic method a ‘formalism’.” (Bourbaki, 2005, p. 1276)

NOT ALL mathematical structures incorporate a ‘certain aspect of empirical reality’, which means, that there is a “whole crop of monster-structures, entirely without application” (Bourbaki, 2005, p. 1275, fn. 9).

Debreu’s axiomatization of Walrasian General Equilibrium is a mathematical monster-structure that is due to Debreu’s misunderstanding of what formalization is all about. For parallel fatal mistakes with regard to the applicability of mathematical operations in the theory of value see (Barzilai, 2016).

In sum: economists misapply on a regular basis what they take from the ‘storehouse of abstract forms’. The problem is not the application of mathematics per se but the dilettantish application. Generally speaking, the economic content and the mathematical form do not fit together. Hence, the ultimate methodological blunder of what is widely criticized as mathiness has always been this “Knight lamented that there are many members of the economic profession who are ‘mathematicians first and economists afterwards.’ The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (Georgescu-Roegen, 1979, p. 317)

A mathematical form that has no interpretation in the monetary economy is vacuous at best and misleading at worst. Because of this, no economic policy proposals can ever be derived from such a model, or, to put the other way round, all policy proposals derived from incorrectly formalized models have no more scientific value than a horoscope.

The cumulated three-fold blunder of orthodox and heterodox economics manifests itself in one of the greater embarrassments in the history of science, that is, that the representative economist cannot tell the difference between the elementary concepts of income and profit.#2 This is like a physicist who cannot tell the difference between potential and kinetic energy. After more than 200 years of dilettantism and failure, there is no place for Walrasians, Keynesians, Marxians, and Austrians in the scientific community.

Egmont Kakarot-Handtke


References
Barzilai, J. (2016). Slutsky’s Mathematical Economics. Scientific metrics working paper, 1–5. URL #3
Bourbaki, N. (2005). The Architecture of Mathematics. In W. Ewald (Ed.), From Kant to Hilbert. A Source Book in the Foundations of Mathematics, Volume II, 1265–1276. Oxford, New York: Oxford University Press.
Boylan, T. A., and O’Gorman, P. F. (1995). Beyond Rhetoric and Realism in Economics. Towards a Reformulation of Economic Methodology. London: Routledge.
Clower, R. W. (1999). Post-Keynes Monetary and Financial Theory. Journal of Post Keynesian Economics, 21(3): 399–414. URL
Debreu, G. (1959). Theory of Value. An Axiomatic Analysis of Economic Equilibrium. New Haven, London: Yale University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
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.
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. 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
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL
Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.

#1 For a full-horizon overview see Meta-References.
#2 How the intelligent non-economist can refute every economist hands down
#3 For the full scope of economists' mathematical incompetence see Jonathan Barzilai, Scientific Metrics Publications

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REPLY  comment on larrymotuz of Feb 12

I have replaced the neo-Walrasian axioms HC1 to HC6 with the objective-structural set of foundational propositions nHC1 to nHC3. See The creative destruction of Wren-Lewis.

This is what a Paradigm Shift is all about. For more details see cross-references Paradigm Shift.

The objective-structural set of foundational propositions yields testable equations, e.g. for employment and profit. See Have data, lack theory

You or anybody else can test the equations at any time. I will certainly accept an empirical refutation. This is how science works.

You take as hardcore proposition 4): “We eat without full knowledge of nutrients in the foods we eat, but, if we can afford it, we are naturally inclined to eat balanced diets.”

Could it be that you have seen too much health channel advertising or do you really think this is heterodox economics?

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Amazon, Jonathan Barzilai, April 5, 2022

Occasional Tweets: Economic advisers ― scientific incompetence/fraud in action

 

#Economics#FailedScience#FakeScience#Economists#StupidOrCorruptOrBoth

Economic policy guidance NEVER has had sound scientific foundations. #Economists are NOT #Scientists but #Clowns/#UsefulIdiots in the political #CircusMaximus.

Cross-referenceshttps://t.co/tcf7JJQr5o pic.twitter.com/qgp3NkZOdp

— E.K-H (@AXECorg) May 14, 2021

Economists’ scientific incompetence is worse than the plague

Comment on Michael Roberts on ‘Ending the pandemic slump — a return to Keynes?’

Blog-Reference and Blog-Reference

Michael Roberts summarizes the situation: “The Great Lockdown has tipped the global economy into recession in 2020 on a scale not witnessed since the 1930s.” And “UNCTAD economists note … that the world economy was already heading for a slump before the pandemic hit.”

This leads quite naturally to the question: “What economic policies should be adopted to end this ‘lockdown slump’ and avoid or reduce the hit to the livelihoods of billions? That depends on the analysis of the causes of the slump itself.”

Right, good policy depends on true theory. The problem of economics as a science is this: “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)

And here is the snag: to this day, economists do NOT have the true theory but many silly opinions. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. Economics is a failed science. As lousy scientists, economists are a hazard to their fellow citizens — not any different from quack doctors.#1

This has never hindered economists to give economic policy advice: “UNCTAD economists openly follow the Keynesian ‘explanation’ for the lost decade … since 2009. And their solution is a re-adoption of Keynesian policies to manage capitalism better. For UNCTAD, slumps start with a collapse in demand ie in investment spending and above all in household consumption.”

At this point, Michael Roberts begs to differ: “In a capitalist, profit-making, economy, it is profits and profitability that drive investment and when profitability drops, investment in the means of production and in labour will contract, leading to unemployment and loss of consumer incomes and demand.” And “Indeed, on occasion even Keynes recognised that profitability (which he called the ‘marginal efficiency of capital’) was an important factor in causing slumps.” As he said: “Unemployment … exists because employers have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit.”#2

And Michael Roberts continues: “You see, in the last 40 years, the share of profits in the national incomes of the major economies has risen at the expense of wages and so the crisis of capitalist production is ‘wage-led’ not ‘profit-led’.”

And then he finishes off UNCTAD: “There is no mention of profit or profitability in the whole of the long UNCTAD report. Instead we are asked to accept that slumps are caused by low wages and consumption and by low investment caused by a switch to financial speculation leading to ‘instability’.”

We can cut off the policy argument here because it is pointless. Obviously, there is something fatally wrong with the theoretical foundations and the concept of profit. The blunder is evident in the expression “share of profits in the national incomes”.

Because profit is NOT income (it is a difference of flows and not a flow like wage income) there is NO such thing as a “share of profits in the national incomes”.#3-#5

Because economists get the foundational economic concept of profit wrong the whole analytical superstructure of economics is false ― provably false. This means that economic policy NEVER has had sound scientific foundations. For 200+ years now political economics is nothing but brain-dead agenda-pushing. UNCTAD and Michael Roberts are no exception. Like the rest of the profession, both have no idea of what profit is.

Egmont Kakarot-Handtke

#1 Iatrogenic economics

#2 Keynes, too, got profit theory badly wrong. See Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics

#3 The Profit Law for the 3-sector economy is given by Qm≡Yd+(I−Sm)+(G−T)

#4 Wikipedia, economics, scientific knowledge, or political agenda pushing?

#5 Links on McKinsey’s ‘A new look at the declining labor share of income in the United States’

For more about iatrogenic economics, see AXECquery.

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Source: Michael Robert's Blog

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REPLY to Matt Franko on Oct 1

You say: “Yes... They have big problems recognizing Minuends, Subtrahends and Differences.”

Indeed, this is the Flow-Balance Inconsistency (not to be confused with the Stock-Flow Inconsistency). In simple terms, “they” are too stupid for the elementary algebra that underlies macroeconomics.#1, #2

The Flow-Balance Inconsistency makes that the whole of MMT is proto-scientific garbage ― only good for trolling and deceiving #WeThePeople.

#1 Is Nick Rowe stupid or corrupt or both?

#2 For more about the Humpty Dumpty Fallacy, see AXECquery.

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AXEC172

MMT: How mathematical incompetence helps the Kelton-Fraud

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

Blog-Reference and Blog-Reference

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

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

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

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

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

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

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

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

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

Egmont Kakarot-Handtke


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

Related 'Bill Mitchell, MMT’s fake scientist' and 'MMT: Academic snake oil for the people' and 'Cryptoeconomics ― the best of Bill Mitchell’s spam folder' and 'Political economics: Who hijacks British Labour?' and 'MMT: another case of inverted economics' and 'Truth by definition? The Profit Theory has been axiomatically false for 200+ years'.

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REPLY to Joe Leote on Jul 7

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

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

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

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


#1 Heterodoxy, too, is proto-scientific garbage

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REPLY Joe Leote on Jul 7

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

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

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

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

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

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

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


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

***

REPLY to Joe Leote on Jul 7

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

The compilation settles the profit issue. #3


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

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

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

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

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

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

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


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

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REPLY Roger Sparks on Jul 10 and Blog-Reference MNE

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

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

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

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

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

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

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

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


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

Occasional Tweets: Economists ― 200+ years of scientific incompetence (IV)

 

#Economics

The history of economic thought is the history of scientific failure. #Walrasianism, #Keynesianism, #Marxianism, #Austrianism et al. are axiomatically false & materially/formally inconsistent & ALL got #Profit wrong. Historians still have not figured that out. pic.twitter.com/9InBLWMSNC

— E.K-H (@AXECorg) July 5, 2023

Stanley Fischer: Rewarding scientific incompetence

Comment Stanley Fisher on ‘Reflections on Macroeconomics Then and Now’

Blog-Reference

Stanley Fischer starts the meaty part of his talk with: “I will start by briefly sketching the structure of a basic macro model. The building blocks of this model are similar to those used in many macro models, including FRB/US, the Fed staff's large-scale model, and a variety of DSGE models used at the Fed and other central banks and by academic researchers.
The structure of the model starts with the standard textbook equation for aggregate demand for domestically produced goods, namely:
1. AD = C + I + G + NX;
2. Next is the wage-price block, which is based on a wage or price Phillips curve.” (See intro)

We can stop already here because this is definitively the false start. In order to see where things went wrong one has to return to the very beginnings of macroeconomics. Keynes defined the formal foundations 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 and logically defective because Keynes never came 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 (2011; 2014). Neither the proponents nor the opponents of mainstream macro got this point to this day. Stanley Fischer is only one among the many.

When the foundational economic concept of profit is inconsistently defined then the whole theoretical superstructure is a flawed construction without any scientific value whatsoever. No policy recommendation can be drawn from such a model. Because of this, the macro policy discussions from Keynes/Hicks/Samuelson/Friedman onward have been surrealistic. All participants lacked the correct profit theory and this continues to this day.

First of all, Keynes’ fundamental equations of macroeconomics have to be fully replaced.#1 This yields (i) the correct Profit Law (2014, eq. (18)), and (ii), the correct Employment Law/ Phillips Curve (2012, eq. (33)).

Because the first two building blocks of Fischer’s ‘basic macro model’ are false the whole thing is worthless. During his long career, Fischer obviously did not get the point. He never understood the pivotal phenomenon of economics and, clearly, when one does not understand profit one cannot understand how the economy works.

Already J. S. Mill tried to excuse economics as ‘separate science’. Its distinctive features are (i) the foundational concepts profit/income are inconsistent for more than 200 years, (ii) the FRB/US, the Fed and other central banks, as well as academic researchers blindly apply false models, and (iii), evident scientific incompetence is not punished but rewarded.

As an urgent first step, economics has to be excluded from the sciences, and both orthodox and heterodox economists have to be thrown out of the scientific community.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
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

#1 Finalizing the Keynesian Revolution and Toward the true economic axioms.

AXEC172a Scientific incompetence

 

The Fisher Effect — a specimen of scientific incompetence

Comment on David Glasner on ‘Once Upon a Time When Keynes Endorsed the Fisher Effect’

Blog-Reference

The Fisher Effect is ultimately the result of a design flaw of the monetary order/ institutions. As a rule, the monetary order is not consciously designed but the outcome of piecemeal institutional change in historical time. As we know from biological evolution, this leads regularly to suboptimal outcomes with regard to structure/functionality, which, however, become only visible in hindsight. The cecum is a case in point, but biology is full of weird and suboptimal constructions.

The Fisher Effect should not occur in a well-designed monetary order because it violates the principle of the neutrality of money. To see this clearly, one has to change the methodological perspective.

Our analytical framework is given with the elementary production-consumption economy.* The business sector consists of two firms: one that produces the consumption good, and the other that produces money and credit, which is called the central bank. The central bank stands here for the whole banking industry (for details see 2015, Sec. 7).

For simplicity, only the limiting case of a zero-profit economy is considered. Then, in the consumption goods-producing firm, this condition holds in the most elementary case

(1) Pc X=W Lc

Price Pc times quantity sold X equals wage rate W times labor input Lc. This reduces to the case of market-clearing to

(2) Pc=W/Rc

The market-clearing price is equal to unit wage costs W/Rc, with Rc standing for the productivity in consumption good production.

For the central bank holds

(3) Jo OVD=Jd DEP+W Lb

that is, rate of interest Jo on the asset side (here current overdrafts) times overdrafts OVD equals rate of interest Jd on the liability side (here current deposits) times deposits DEP plus wage rate W times labor input in the banking industry Lb. Strictly speaking, OVD and DEP are the average stocks per period.

Both sides of the central bank's balance sheet are equal, that is, current overdrafts OVD equals current deposits DEP. Current deposits are here identical to the quantity of money. For simplicity, the rate of interest on the liability side Jd, is set to zero. This reduces (3) to

(4) Jo OVD=W Lb

All real variables (labor input, productivity, output, etc) remain unchanged for the time being. The real side is frozen.

In the next period, the wage rate W in (1) and (4), which is here identical for simplicity, is doubled. As a consequence, Pc in (2) doubles under the conditions of market clearing, zero profit, and no real changes.

When W doubles in (4) on the right-hand side, then either Jo or OVD must double on the left-hand side. The correct solution is that the interest rate Jo remains constant, and the asset side = current overdrafts = OVD is doubled. Because both sides of the central bank’s balance sheet are always equal, the liability side = current deposits = DEP = quantity of money has also to be doubled.

In real terms, the situation remains unchanged for all agents. And this is as it should be, according to the neutrality principle. In the historically given monetary order, however, neither the asset nor the liability side of the consolidated balance sheet of the banking industry is properly adapted. Only for this reason, the rate of interest, here Jo in (4), changes.

Therefore, in a well-designed monetary order, the interest rate Jo is like a real variable that remains absolutely constant no matter what the rate of inflation or deflation is. It is, so to speak, the pole star of the economic firmament. The Fisher Effect is only an artifact, a historical accident, a freak phenomenon. In their analysis, neither Fisher nor Keynes ever rises above parochial realism.

This scientific incompetence is — not a matter of ‘once upon a time’ — but the defining characteristic of the representative economist.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL

* Graphic AXEC31

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ICYMI (comment on Frank Restly of Dec 1 on Dec 2)

The zero profit economy is defined by the absence of profit and loss. And this is, as I clearly stated, a ‘limiting case’ to start with. The general case is discussed in my papers. Please help yourself on SSRN.

I have excluded profit/loss in my post about the Fisher Effect in order to avoid a discussion about profit theory which is defective since Adam Smith. See the post Profit and the collective failure of economists.

I am well aware that a risk-free economy is different from a zero profit economy and that a central bank cannot set both price and quantity. But that is not the issue here. The issue is that the Fisher Effect is ultimately caused by a constructional flaw of the monetary order.

For the other defects see Major Defects of the Market Economy.

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ICYMI (comment on Frank Restly of Dec 2 on Dec3)

The representative economist does not understand basic methodological principles. “There can be no doubt whatsoever that a problem which has not yet been solved in all its aspects under its simplest conditions will be still more difficult to tackle if other, ‘more realistic’ assumptions are being made.” (Morgenstern, 1941, p. 373)

The zero-profit condition is the simplest condition, therefore it is the correct starting point.

It is the very characteristic of the representative economist that he cannot rigorously focus on one line of argument and that he has the attention span of a goldfish.#1 In my posts you will not find the statement that ‘workers live forever, equipment does not wear out, and accidents and natural disasters do not happen.’

Could it be that you can neither read nor think but only waffle?

By the way, that science is the art of abstraction from irrelevant detail is known since 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)


References
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
Morgenstern, O. (1941). Professor Hicks on Value and Capital. Journal of Political Economy, 49(3): 361–393. URL

#1 One entirely sufficient reason for the shutdown of economics.

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ICYMI (comment on David Glasner of Dec 2 on Dec 4)

It seems, that not only Frank Restly can neither read nor think.

In eq. (3) of my post of Dec 1 the rate of interest Jd on the central bank's liability side explicitly appears and is subsequently set to zero in order to focus the argument. The rate of interest on financial assets is discussed in my papers on multiple occasions (please help yourself on SSRN).

It should be known by now that it is rather silly to argue that a lot of phenomena are missing in an extremely simplified example and thereby distract from the point at issue.

Note that the introduction of the rate Jd does not change the essential point of my argument. Every serious student can verify this by following the References.

The urgently required New Thinking in economics does not consist in the exegesis of obsolete authors (‘some defunct economist’ in Keynes’s apt terminology) and in playing old academic games. As Peirce nicely put it on a similar occasion: “[The pragmatist] is none of those overcultivated Oxford dons — I hope their day is over — whom any discovery that brought quietus to a vexed question would inevitably vex because it would end the fun of arguing around it and about it and over it.” (1931, 5.520)


References
Peirce, C. S. (1931). Collected Papers of Charles Sanders Peirce, volume I. Cambridge: Harvard University Press. URL

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ICYMI (comment on Frank Restly of Dec 3 on Dec 4)

You ask: “Then what exactly do you mean by a zero loss economy?”

I mean exactly that profit/loss is set to zero and thereby taken out of the picture for the time being in order to streamline the argument. This means that I deal with profit/loss on another occasion#1 and by no stretch of a feeble imagination that it escaped my notice that profit/loss occurs in the real world.

What I have shown, indeed, is that the profit theory is false since Adam Smith. If you intend to educate yourself have a look at my website.#2

Did you ever realize that the original Walrasian model (ni bénéfice ni perte) and the original Keynesian model are zero profit economies? [ni bénéfice ni perte = no profit no loss]

In the general case, the overall profit of the business sector as a whole is positive according to the Profit Law Qm≡Yd+I−Sm and in this case, all your objections go up in smoke. The essential point of my post of Dec 1, though, remains unaffected.


#1 Profit and the collective failure of economists
#2 Profit is the key

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ICYMI (comment on David Glasner of Dec 5 on Dec 7)

Let us agree that the Fisher effect is about (i) the difference between nominal and real interest rates and (ii) that there are many real interest rates because there are many types of real assets.

Here is the Wikipedia definition of the Fisher effect: “...the Fisher effect is the proposition by Irving Fisher that the real interest rate is independent of monetary measures, specifically the nominal interest rate and the expected inflation rate. The term "nominal interest rate" refers to the actual interest rate giving the amount by which a number of dollars or other unit of currency owed by a borrower to a lender grows over time; the term "real interest rate" refers to the amount by which the purchasing power of those dollars grows over time — that is, the real interest rate is the nominal interest rate adjusted for the effect of inflation on the purchasing power of the loan proceeds.

The relation between the nominal and real rates is given by the Fisher equation, which states ... that the real interest rate equals the nominal interest rate minus the expected inflation rate.”

In my example, the lender rate, the borrower rate, and the price of the consumption good appear. What I have shown is that in a well-designed monetary order the rate of interest is constant, no matter what the rate of inflation/deflation is. This means that the concept of expected inflation falls flat and with it the distinction between nominal and real interest rate. Therefore, the Fisher equation as a whole falls flat.

Your answer of Dec 3 is that my example is irrelevant because the expected future price has no effect. False. My example is relevant because it shows that the Fisher equation describes a freak phenomenon that appears because of a flaw in the monetary order.

Now, if there is something fundamentally wrong with the Fisher equation there is no need to go further and to look deeper into the concept of own rates of various real assets.

What seems to be pretty obvious is that neither Fisher nor Keynes got the fundamental economic relationship right. This refers to interest rate/inflation, interest/profit, and profit/income. So there is no need for a lengthy elaboration of the finer points of their confusion.

I agree, let things stay where they stay at the moment. It is certainly much more rewarding to go beyond refuted concepts and authors.

National Accounting: scientific incompetence or political fraud?

Comment on David Graeber on ‘Accounting error spells chaos for global economy’

Blog-Reference and Blog-Reference

You say “Last month I noticed what appears to be a glaring error in the UK’s Office of Budget Responsibilities’ calculations of household debt levels — one with potentially frightening implications for the stability of the financial system as a whole.”

You have indeed identified a foundational error of macroeconomics. It exists already since Keynes and relates to profit theory. In simple terms, Keynes never understood what profit is and neither pro-Keynesians nor anti-Keynesians realized the blunder in Keynes’ foundational macro equations. Thus, the blunder sneaked into National Accounting and became eventually an essential part of MMT. For details see
• Economists: just too stupid for counting
• The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
• Rectification of MMT macro accounting

Egmont Kakarot-Handtke


Related 'Some fatal flaws of MMT' and 'Economists’ perennial trouble with accounting' and 'Profit' and 'The GDP-death-blow for the economics profession'. For more details of the big picture see cross-references Accounting.

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REPLY to Tom Hickey, MRW, Matt Franko on Sep 25

(i) Compared to the entirely faulty MMT accounting#1 the UK’s Office of Budget Responsibilities graphics at least includes the business sector explicitly.

(ii) The correct balances equation for total profit reads Q_m≡Y_d+(I−S_m)+(G−T)+(X−M) [1] or rearranged (I−Q_m)+(Y_d−S_m)+(G−T)+(X−M)=0 [2] which says that the balances of the business sector, the household sector, the government sector, and the Rest of World add up to zero.#2 Hence, the sum of positive balances is always symmetrical to the sum of negative balances. This rearranged equation  (I−S_m)+(G−T)+(X−M)−(Q_m−Y_d)=0 finally compares to the false MMT equation (I−S)+(G−T)+(X−M)=0. The difference (Q_m−Y_d) denotes retained profit.

(iii) It is doubtful whether the UK’s Office of Budget Responsibilities got the balances equation [2] right.#3

(iv) That much is sure: the MMT balances equations are as false as can be. Because of this, the analytical superstructure of MMT is scientifically worthless. MMT policy has NO sound scientific foundations.

#1 MMT and the magical profit disappearance
#2 For more details see cross-references MMT
#3 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

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REPLY to Matt Franko on Sep 26

The correct four-sector balances equation for the business sector’s total monetary profit reads Q_m≡Y_d+I−S_m+G−T+X−M. Profit is the pivotal magnitude of the market economy. This magnitude does NOT appear in the MMT balances equations. So, MMT misses the essence of economics. MMTers have not realized until this very day that their approach is lethally flawed.* MMTers have zero scientific/mathematical/accounting competence.

As a self-declared specialist in Accounting Science it should be easy for you to refute the equation above. Of course, you cannot — and nobody else of the scum of sciences called MMT can.

* For the full-spectrum refutation see cross-references MMT

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REPLY to Matt Franko on Sep 26

You say “They [MMTers] don’t see the ‘business sector’s total monetary profit’ as the ‘essence of economics’.... and they don’t have to... they are more interested in the general economic welfare ....”

If you do not know that 2+2=4 you are out as a mathematician. If you do not know what energy is you are out as a physicist. If you do not know what profit is you are out as an economist. In all cases, it does not help you much to pretend to be mainly interested in general human welfare.

Non-swimmers are not hired by Baywatch even if they assert that their highest ambition is to save fellow humans from drowning.

The fact is that MMTers do not understand the foundational concept of economics. Worse, because they do not understand that Public Deficit = Private Profit they do not realize that MMT policy is directly AGAINST general human welfare.

Macro accounting is the faithful recording of all economic transactions between the business and the household sector, the application of elementary mathematics, and the drawing of balances after the conclusion of a period of predetermined length. If done by intelligent persons, this yields the total monetary profit of the business sector in the most elementary case as Q_m≡−S_m which is identical with the auditable real quantity in the aggregate cash box. This formula is the core of profit theory and the indelible shame of economics is that economists in general and MMTers, in particular, do not understand after 200+ years what any person of average intelligence is supposed to understand in 20 minutes.*

* How the intelligent non-economist can refute every economist hands down

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REPLY to wilwon32 on Sep 26

You say “I could understand E K-H’s argument that business profitability is a prerequisite for survival in a competitive situation; I do not understand why profitability is a prerequisite for a desirable economic system to be constructed.”

The point is NOT what people think about profit or that profit is needed for survival or that the profit motive is morally good/bad. All this is the subjective side of profit. The point is to figure out the objective Profit Law and to verify it with the help of National Accounting, which is one of the most important measurement tools in economics. This is the objective side of profit.

The subjective side of profit is the proper business of psychology, sociology, and other so-called social sciences. The objective side of profit is the subject matter of economics.

The scandal of economics is that none of the main approaches, including MMT, can give you the Profit Law. Or, as Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” Economists simply do not know what profit is. And this means that the whole of economics, including MMT, is proto-scientific garbage.

You cannot construct the Good Society if you do not know how the economy works and what the economic laws are just as you cannot get three hundred coffee-sipping dullards in an aluminum box off the ground without knowing the laws of aerodynamics and thermodynamics. Psychology and sociology are not of much help.

The claim that economists in general or MMTers, in particular, contribute to the realization of the Good Society is one of the worst jokes of all time.

Ditch scientific incompetence!

Comment on Lars Syll on ‘Ditch physics envy!’

Blog-Reference

It was one of Mirowksi’s worst idiocies to introduce in his More Heat Than Light the term ‘physics envy’ in analogy to Freud’s ‘penis envy’. To psychologize derails every discussion because the focus turns from ‘Is the other guy’s argument true or false?’ to ‘What are the other guy’s real motives?’.

Schumpeter has settled this issue once and for all: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

Science is about true/false and NOTHING else. Kate Raworth, though, has never heard anything of Schumpeter, methodology, and the rules of scientific discourse: “… a critical discussion is well-conducted if it is entirely devoted to one aim: to find a flaw in the claim that a certain theory presents a solution to a certain problem.” (Popper)

Kate Raworth recounts the history of economic thought: “In the 1870s, a handful of aspiring economists hoped to make economics a science as reputable as physics.”

It was NOT AT ALL a problem of reputation. Economists realized that ― after Newton ― their confused psychological and philosophical blather was no longer taken seriously: “The backward state of the Moral Sciences can only be remedied by applying to them the methods of Physical Science, duly extended and generalized.” (Mill). And: “Like most of his fellow moral philosophers, Hume thought it was worth a try to make all sciences as rigorous as Newtonian physics.” (Redman)

Being scientifically incompetent, economists engaged in what Feynman called cargo cult science, that is, they imitated without deeper understanding. What hit their eyes was the most outstanding feature of the Scientific Revolution, i.e. the discovery of physical laws.

Economists’ tried to apply the concept of law to sociology or psychology or something in-between called Human Nature.

“The fundamental problem, therefore, of the social science, is to find the laws according to which any state of society produces the state which succeeds it and takes its place.” (Mill)

“Intrinsically, it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results.” (Marx)

“That Political Economy informs us of the laws which regulate the production, distribution, and consumption of wealth. … This definition is free from the fault which we pointed out in the former one. It distinctly takes notice that Political Economy is a science and not an art; that it is conversant with laws of nature, not with maxims of conduct, and teaches us how things take place of themselves, not in what manner it is advisable for us to shape them, in order to attain some particular end.” (Mill)

“The foundation of political economy and, in general, of every social science, is evidently psychology. A day will come when we shall be able to deduce the laws of social science from the principles of psychology …” (Pareto)

“From the above considerations the following seems to come out as the correct and complete definition of Political Economy: ― ‘The science which treats of the production and distribution of wealth, so far as they depend upon the laws of human nature.’ Or thus ― ‘The science relating to the moral or psychological laws of the production and distribution of wealth’.” (Mill)

That there is NO such thing as a behavioral/social/historical law has been known to scientists (in contradistinction to economists) in ALL ages: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown)

The scientific incompetence of economists consisted in the fact that they defined economics as social science instead of a systems science and that they did not realize their fundamental methodological blunder to this day. Standard economics is built upon microfoundations = BEHAVIORAL axioms.

There are NO laws of human behavior/nature/action, neither psychological nor social nor historical, but there are SYSTEMIC laws of the monetary economy, e.g. the Profit Law.

To argue with ‘physics envy’ is entirely beside the point. The problem of economists is NOT envy but stupidity.

What Kate Raworth has figured out is: “People and money are not so obedient as gravity, as it turns out, so no such laws exist.” True, there are NO behavioral laws. This has been known in ALL ages. But there are SYSTEMIC laws. Unfortunately, the folk psychologist and hobby economist Kate Raworth has not figured them out.

The conclusions from the manifest failure of Orthodoxy AND Heterodoxy are: (i) to ban psychology, sociology and all Human-Nature blather from economics, (ii) to retire the whole bunch of incompetent scientists, and (iii), to focus on the question of how the market system works.

Egmont Kakarot-Handtke


Related ‘The Science-of-Man fallacy’ and ‘The economist as moralist’ and ‘The Synthesis of Economic Law, Evolution, and History’  and ‘Mathematical Proof of the Breakdown of Capitalism’ and 'How Heterodoxy became the venue for science’s scum' and 'How to overcome the manifest silliness of Econ 101 and save the economy'

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COMMENT on Nanikore on Apr 22

You say: “Society does not follow Darwinian Laws, which the author fails to note also had a big impact on the philosophical foundations of classical Anglo-Saxon economics that emerged during its Victorian Era formative stages.”

This is way beside the point because economics is NOT about society ― this is the subject matter of SOCIOLOGY ― but about how the actual monetary economy works. Economics is faux sociology since J. S. Mill. #1

Fact is, economists got their subject matter wrong. And this is why the representative economist has to this day NO idea what the pivotal magnitude of her/his subject matter, i.e., profit, is.

Imagine you are shown an airplane taking off for Paris. Now you are asked to explain how it so happens that planes fly. As a scientifically incompetent commonsenser, you explain that this flight takes place because the passengers have a variety of motives to go to Paris, and the crew and the pilot have theirs and that the airline wants to make big profits, and so on. Everybody easily understands your ‘explanation’ because this is how Verstehen works since kindergarten.

The competent scientist, in contradistinction, avoids all Human-Nature blah blah and explains flight by the interaction of a bunch of physical laws, e.g., aerodynamics, thermodynamics, gravity, and so on.

It is the same with economics: utility maximization or profit maximization or other human motives do NOT get the economy off the ground. Only the systemic laws, e.g., the Profit Law, can explain what makes the economy fly or crash.

The fact is that neither orthodox nor heterodox economists know to this day the objective systemic laws of the monetary economy. This does not stop them from giving economic policy advice.

You say: “The natural place of economics is in the humanities”. This is true insofar as both the humanities and economics are OUTSIDE of science. The term ‘social science’ is an oxymoron and a euphemism for cargo cult science. #2 Since the founding fathers, economics is faux sociology, or metaphorically, the Forrest Gump of science. #3


#1 John Stuart Mill as a social science founder
#2 The non-existence of economics
#3 The Science-of-Man fallacy