Ricardo, too, got profit theory wrong. Sad! Comment on Sandwichman on ‘No Other Way of Keeping Profits Up’
In his letter of 1829 To the Heads of the University of Oxford, One of the Old School asked: “ARE THE PRINCIPLES OF POLITICAL ECONOMY WHICH GOVERNMENT IS ACTING ON TRUE OR FALSE?”#1
He got the following answer in the Westminster Review.#2
“The first of the principles which ‘the old school’ think so erroneous, is the well-known doctrine of Mr. Ricardo, that, putting rent out of the question, the price of every commodity consists wholly of wages and profits.”
Ricardo is known for having asserted: “… profits would be high or low in proportion as wages were low or high.” (1981, p. 110) However, things are not as straightforward as they seem.
The WR now goes on to filibuster: “In this nomenclature low and high have no reference to amount; they indicate only proportion. If a commodity should at one time sell for ten shillings, of which the labourer received nine, and should afterwards sell for twenty, of which the labourer received fifteen, this, according to Mr. Ricardo’s nomenclature, would be a fall of the labourer’s wages. Though he would receive a larger amount, he would have a smaller proportion. And proportion is all that Mr. Ricardo considers.”
“This strange use of words, like every other deviation from ordinary language, has produced much obscurity. It has some times led even such men as Mr. Ricardo and Mr. M'Culloch into inconsistency. Our readers may imagine how it has confused Mr. Blackwood’s correspondent. He has not the least glimmering of the meaning of the writers whom he attacks, but goes on heaping abuse on economists for propositions in which they understand by the word low wages a low proportion, while he supposes them to mean a small amount.”
“But he [Ricardo] is not consistent. When he says, that ‘whatever raises the Wages of labour, lowers the Profits of stock,’ he considers Wages as a proportion. When he says that ‘high Wages encourage population,’ he considers wages as an amount. Even Mr. M'Culloch, who has clearly explained the ambiguity, has not escaped it. He has even suffered it to affect his reasonings. In his valuable essay ‘On the rate of wages,’ he admits that ‘when Wages are high the Capitalist has to pay a larger share of the produce of industry to his labourers,’ An admission utterly inconsistent with his general use of the word, as expressing the amount of what the labourer receives, which, as he has himself observed, may increase while his proportion diminishes.”
The profit theory has not improved since 1829. As Mirowski put it “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”
The error/mistake/blunder of Ricardo’s profit theory is that it is a generalization of what can be observed at the microeconomic level, that is, it is a Fallacy of Composition. The profit for the economy as a whole has to be derived from macroeconomic axioms.#3
Monetary profit for the economy as a whole is defined as Qm≡C−Yw (C consumption expenditures, Yw wage income) and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing C=Yw total monetary profit is zero.
Macroeconomic profit depends in the most elementary case alone on deficit spending, that is, on the change of private or public debt. It does NOT depend on labor time, or wages, or productivity, or monopoly power, or greedy managers. More specifically:
• The business sector’s revenues can only be greater than costs if, in the simplest of all possible cases, consumption expenditures are greater than wage income.
• Macroeconomic profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit-maximizing behavior, nor on markup setting, nor on risk-taking.
• In order that profit comes into existence for the first time in the pure production-consumption economy, the household sector must run a deficit at least in one period. This presupposes the existence of a credit creating entity.
• Profit/loss is, in the most elementary case, determined by the increase and decrease of household sector’s debt.
• Monopoly power/rent-seeking is irrelevant for macroeconomic profit and affects only the DISTRIBUTION of total profit BETWEEN firms.
• There is no relation at all between profit, capital, marginal or average productivity.
• Innovation and efficiency are irrelevant for the profit of the business sector as a whole.
• Profit is a factor-independent residual and qualitatively different from wage income (difference of flows vs flow). Therefore, it is an elementary mistake to maintain that total income is the sum of wages and profits.#4
Microfounded profit theory suffers from three methodological blunders: the Fallacy of Insufficient Abstraction, the Fallacy of Composition, and the Humpty Dumpty Fallacy. The Principles of Political Economy were false in 1829 and are false until this very day.
Oh my, Egmont on the attack with his crank theory of profit. In your list of supposed fact about profit, the only ones true are that it has little to nothing to do with persona characteristics of capitalists and it is not tied to some average or marginal productivity of capital, although it may be tied to markups and risk taking.
Also, the "fallacy of insufficient abstraction" and the "Humpty Dumpty fallacy" appear to be inventions of yours, Egmont, not generally recognized or accepted ones. Charging somebody with committing a fallacy you have made up is a joke.
Regarding the first one, that you think people may not be being sufficiently abstract is tied to your notorious unwillingness to face facts or data, which have never supported your theory of profit.
I dissent from my colleague, Barkley, and commend you, Egmont for ENGAGING with my post in a very constructive way. I would love to know who the author of the Blackwood's article was and will keep an eye out for any leads.
As for this: "Macroeconomic profit depends in the most elementary case alone on deficit spending, that is, on the change of private or public debt."
I think you are on to something. I am not convinced that your formulation is as original or definitive as you seem to believe but in very general terms, it does seem to me that debt is fundamental to ROI, a fact that is concealed by lumping together payments for "abstinence" with fees for entrepreneurial services.
Like Ricardo, I consider the most elementary case, i.e. wage income and profit. The axiomatically correct macroeconomic Profit Law says for the general case Qm=Yd+(I−Sm)+(G−T)+(X−M). Legend: Qm monetary profit, Yd distributed profit, I investment expenditures, Sm monetary saving, G government expenditures, T taxes, X exports, M imports.
All variables are measurable with the accuracy of two decimal places. Therefore, the Profit Law can be tested, in principle, for every country around the globe. There can be no doubt that it will be confirmed without exception.
Sandwichman
The link #2 to the article in the Westminster Review works probably better from my blog. See https://axecorg.blogspot.de/2018/02/ricardo-too-got-profit-theory-wrong-sad.html
This will be my last post on this thread, especially since it is just a repeat of something said previously more than once. You state that every variable in your general formulation "are measurable...z' and that supposedly your "Profit Law can be tested, in principle..." and then the howler "There can be no doubt that it will be confirmed without exception."
Oooooooooooops! But while you have been asked to do so many times, you have never offered a shred of evidence to support this claim that data will support your crank theory. And evidence does not support it. Sorry.
The only thing that is funnier here is that you regularly claim to be the only scientific economist around, but you have never sullied your hands with a discussion of actual empirical data, with, I suppose the excuse that doing so would involve the "fallacy of insufficient abstraction."
You say “But while you have been asked to do so many times, you have never offered a shred of evidence to support this claim that data will support your crank theory. And evidence does not support it.”
Instead of gossiping about the sex life in the House of Saud you should have done some methodological homework, You may have stumbled across Popper’s meme of conjectures and refutation. And you may have realized that there is theoretical physics which provides the conjectures and experimental physics which does the testing. Both tasks require different talents/tools and are normally performed by different people.
Your scientific education apparently ended with the story of Galileo throwing cannon balls from the Leaning Tower of Pisa in order to prove his Law of Falling Bodies. In modern science, the division of labour is firmly institutionalized.
The first calculation of the deflection of light by mass was published by Johann Georg von Soldner in 1801. Einstein calculated the relativistic deviation of light two times. Ironically, he got it wrong the first time in 1908 without realizing it until 1915. Luckily for him, the First World war prevented testing. It was Eddington (and two other expeditions to Brazil and Russia) who tried in 1919 to actually test = measure the deviation during a solar eclipse. Einstein did NOT test relativity himself. The same goes for Higgs and the testing in CERN. Note that the folks at CERN had to build first the biggest and most expensive machine in human history. Something that was obviously beyond the means of the theoretical physicist Higgs.
No scientist ever came up with the idea that Einstein or Higgs should have tested their theories themselves or with the brain-dead critique that they have “never sullied their hands” with actual empirical data.
So, theoretical physics provides the testable formula and experimental physics does the testing. Likewise, theoretical economics provides the formula, and the econometricians do the testing.
Here is my challenge: MMT asserts in the Keynesian tradition that the macroeconomic balances equation reads (I−S)+(G−T)+(X−M)=0 while I claim that the axiomatically correct balances equation reads (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.
I wonder how long it takes to test such a clear-cut alternative and why neither Post Keynesians, Anti-Keynesians, MMTers nor you can get their asses up and “sully their hands” and settle this fundamental economic question once and for all. Wouldn’t it be a field day for you to PROVE me wrong?
I understand, as an economist, you are busy 24/7 with the WaPo gang, the CIA/SVR meeting, and the sex life in the House of Saud.
Note that One of the Old School challenged the scientific status of economics: “That which bears the name of Political Economy, is now taught at your University, …, as a science equally true in its principles with Geometry. If it be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
Note also that economics is still “a mass of fictions”. And the reason why economics is a failed/fake science is that economists can to this day not tell what profit and income is.
Note also that the ‘refutation’of One of the Old School is a semantic shell game that messes up simple algebra.
“In this nomenclature low and high have no reference to amount; they indicate only proportion. If a commodity should at one time sell for ten shillings, of which the labourer received nine, and should afterwards sell for twenty, of which the labourer received fifteen, this, according to Mr. Ricardo’s nomenclature, would be a fall of the labourer’s wages. Though he would receive a larger amount, he would have a smaller proportion. And proportion is all that Mr. Ricardo considers.”
Ricardo defined total income Y as sum of wages W and profits P, i.e. Y=W+P. This gives after transformation 1=1/(1+P/W)+1/(1+W/P) with 1/(1+P/W) = share of wages and 1/(1+W/P) = share of profits. And yes, One of the Old School is right, if wages rise the share of wages increases and the share of profits decreases. The absolute amount and the share move in the SAME direction. However, the critics of One of the Old School confuse themselves by simultaneously increasing wages and profits but in different proportion, i.e. wages from 9 to 15 and profit from 1 to 5. Wages seem to rise but actually fall IN RELATION to profit and this is why the share of wages falls. No ambiguity here, no paradox, all plain and simple algebra.
The one thing that the alleged refutation of One of the Old School proves is the utter scientific incompetence of economists. Ricardo got profit theory wrong and neither Walrasianism, Keynesianism, Marxianism, Austrianism, nor Barkley Rosser has realized it until this day. Not to speak of rectification.
As One of the Old School clearly saw in 1829, these folks are disgracing their universities. High time to throw them out.
Who wrote the letter "To the Heads of the University of Oxford"? Is the writer referring to Richardo's dogma when he/she refers to "Political Economy"? Brenda R.
And yes, by political economy he is referring to the doctrines of Ricardo, McCulloch and, specifically, Nassau Senior, who had just been appointed a chair at Oxford.
OK, Sandwichman, I shall engage you while ignoring the person you claimed engaged you, while not doing so in any particularly insightful or even accurate way.s So, what you poste is the front end of a talk/lecture/message/I am not sure what to some muckety mucks at the University of Oxford at some unidentified date (that is actually important here). The reason for the latter is that beyond a certain date (I have not gone to check exactly when, sorry), Malthus was at Oxford, where, indeed, he was the very first Professor of Political Economy ever in Great Britain. So other date is important because if it is early enough, Malthus was not in the audience, but late enough he was in the audience, and the discussion clearly must be seen in light of the discussions and debates between Malthus and Ricardo, with Malthus and Oxford more generally siding with aristocrats and the Tories, while Cambridge tended to side with the rising bourgeoisie capitalists and the Whigs (Ricardo was never at Cambridge though). So, on policy Ricardo was almost certainly to some extent addressing an at least somewhat hostile audience.
What this message looks to me like is mostly a defense of political economy as a scientific enterprise, although without much of a theory of either profits or wages being presented or discussed, although maybe I missed it, aside from him expressing sympathy and concern for his many countrymen who were very poor and clearly suffering from very low wages (and it is known that he accepted a subsistence theory of wages, which Malthus also accepted).
In any case, neither Ricardo nor Malthus viewed the question of the distribution of national income as being one between just profits and wages, but also with land rent in there as a third and important category, which was the centerpiece of the debate between Ricardo and Malthus, with them largely agreeing on the underlying theory, and with if Malthus being in the audience as a professor of political economy, Ricardo supporting the idea that political economy is important and scientific and thus worthy of having a professor of it employed at Oxford, with the two of them reportedly personal friends even as they disagreed on policy.
So they both saw rising population pushing farming further into the extensive margin of poorer and poorer land, with both of them accepting a theory of rent that it depended on the difference in yields between the best and the poorest farmland. So as population grew (and "pressed against the means of subsistence" as Malthus put it), the share of national income going to land rent received by the aristocracy rose, while there was downward pressure put on capitalist profits, given that wages are at subsistence and cannot go lower. Effectively, food prices are rising, which puts pressure for nominal wages to rise, which in a non-inflationary world pushes profits down. This was essentially Ricardo's "Iron Law of Wages," which is really about profits and land rents.
While there were other issue, the sharpest policy difference was over trade, with Ricardo supporting importing grain, mostly from North America, to lower food prices and allow profits to stay up, although with this lowering land rents. Malthus opposed this, saying aristocrats hired people with their higher land rents so avoiding unemployment as long as protectionism remained in place.
The excerpt was from the Sept. 1829 Blackwoods and it specifically addressed Ricardo's aassertion, "There is no other way of keeping profits up, but by keeping wages down" from On Protection to Agriculture published in 1822. At the time, Nassau Senior was Drummond professor of political economy at Oxford. The author was David Robinson, who styled himself "One of the Old School."
I am not particularly interested in attacking (or defending) Ricardo's analysis here, other than to point out that it was founded on a substance theory of value, which is untenable. My impression is that Robinson also subscribed to a substance theory of value, which readily leads to two (or 3 or 4) diametrically-opposed analyses.
Interesting, Sandwichman. Here is a joke. When I wrote above, I had not noticed the highlighted statement about profits and wages, which does not appear in the body of the text shown. So it was quite late, well after Malthus had ceased being a prof of pol econ at Oxford.
What is weird is that the highlighted quote is in conflict with much of what Ricardo wrote.=, notably in his Principles of Political Economy. In short elsewhere he definitely argued that it was possible to keep profits up by keeping land rent down, with allowing grain imports as a way of doing that. As it is, whatever Robinson and Senior were writing, I see no reference either positive or negative to a "substance theory of value" in the quote provided. As it was, Ricardo largely accepted and put forward a labor theory of value, with Marx drawing on Ricardo's views on this, adding to it famously his theory of surplus value.
All right, now I get it. Robinson or somebody else wrote the main piece in 1829 and only quote Ricardo at the beginning. It is true that at one point Ricardo said that but elsewhere, especially in his 1815 Essay on Profits and the Rent of Land, he put forward the argument I made above, that profits could be increased by owering land rents by ending protectionism against grain imports. That essay was in reply to two earlier essays by Malthus that supported such protectionism, although after food prices shot up very sharply in 1815-16 in UK, Malthus wrote another essay supporting limited imports of grain to moderate that surge.
BTW, Ricardo died in 1823, so was no longer around when apparently this piece was written. Malthus died in 1834, so was still alive. Oh, it was not Oxford, but the East India Company College in Hertfordshire in 1806 that Malthus got his initial appointment as a Professor of History and Political Economy.
Labor theory of value is a "substance" theory. A commodity has a value of X because it has X worth of labor embedded in it. Marginal utility is also a substance theory because a commodity supposedly has X worth of "utility" embedded in it. A non-substance theory is more like Keynes's beauty contest. Commodity is worth what you think other people think other people think it is worth...
Your restless attempt to mess up any issue is not even comical. You simply cannot resist the temptation to parade your absolutely irrelevant knowledge of biographical and historical detail. As always, you are missing the essential point.
The essential point is the alleged antagonism between wages and profits which provided the economic argument for Marx’s sociological/political concept of class struggle.
Sandwichman’s introductory quote “There is no other way of keeping profits up, but by keeping wages down.” (David Ricardo) clearly defines the point at issue.
The Westminster reply starts “The first of the principles which ‘the old school’ think so erroneous, is the well-known doctrine of Mr. Ricardo, that, putting rent out of the question, the price of every commodity consists wholly of wages and profits.”
“… putting rent out of the question” means focusing on the relationship between wages and profits and putting rent aside for the moment.
This, of course, is unacceptable for the confused confuser Barkley Rosser because he has a lot to parade about rent and Malthus and Oxford and Cambridge and who was alive and who was dead.
This drivel is, as always, pure disinformation.
The point at issue is that Ricardo’s theory of profit and rent is provably false.#1
This, in turn, means that Political Economy has no scientific merits, a fact that One of the Old School did not fail to mention “That which bears the name of Political Economy, is now taught at your University, …, as a science equally true in its principles with Geometry. If it be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
This is as true today as it was in 1829 because profit theory is still false, or as the Palgrave Dictionary puts it “A satisfactory theory of profits is still elusive.” (Desai, 2008)
Egmont Kakarot-Handtke
#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
The issue of substance theories has been dealt with exhaustively by Mirowski in More Heat Than Light.
So we know definitively that both the Labour Theory of Value and the Utility Theory of Value are dead and buried just like the Flat Earth Theory.
The only interesting question is now where the exit of the scientific graveyard is. Or, as Feynman put it “The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.”
I guess I disagree with you about "substance" theories of value, and, frankly, I do not see why being such a theory is a big deal or not. Certainly the MU theory is not a substance theory. It is entirely subjective, just as the beauty contest theory is. On the labor theory side, well, for physical commodities labor may be changing substance, but for services there may be no substantial change involved. And keep in mind that the LTV measures value by socially necessary labor time, not some substance.
Frankly, I am not sure what the big deal is here with this issue, either way.
Entirely subjective? Only if one assumes "subjects" without volition. Preferences are exogenous. This is a shell game. The alleged subjectivity occurs OUTSIDE of the exchange process thus allowing the GIVEN preferences to be treated as substances within MU analysis. "Opportunity cost" is a set of nested Russian dolls that goes on forever. Turtles all the down. But then there is always a "simplifying assumption" such as "revealed" preferences that simply substitutes an objective data point for the elusive subjective utility.
Astrology at least says it is doing what it is doing. Marginal utility theory waves its arms around and then does something contrary to what it claims to do.
Some guy makes a "simplifying assumption" 85 years ago as a premise. The premise gets baked into a conclusion. 35 years later, the conclusion becomes a presumptive fact. Premise has been long forgotten. Another 35 years pass and economists attack anyone who questions the forgotten premise because the conclusion makes it true. The fallacy is called "begging the question."
The underlying PREMISE of political economy and of economics is that THERE IS A CERTAIN QUANTITY OF WORK TO BE DONE. The "lump of labor" is FUNDAMENTAL to "economic thinking" and the way that economists disavow the foundation of their very own fetish is to project it on to others.
It is true that standard neoclassical theorizing takes preferences as exogenous, something I at least know is not true. But I do not see how that makes utility "substantive." And while one can drag opportunity cost into the story, and the Austrians have especially liked to, it is not at all a necessary part of aubjective theories of value.
If you want to argue that U theory is "substantive," I would suggest that you drag in a materialist theory of consciousness and emphasize how preferences or utility or whatever are ultimately just a bunch of electrical impulses in our physical brains, or whatever. Howvever, again, I am not sure what the importance is of distinguishing between "substantive" and non-subatantive theories of value is.
let us consider briely the simple (it not mathematically so) pure exchange model of Arrow-Debreu-McKenzie. It has no production and thus no "substantives" from that side, with their simply being an exogenously given set of goods (is exogeneity the key to the apparently questionable quality of "subtantitiveness"?). Yes, the model does then allow for an exogenous set of purely subjective preferences, with a general equilibrium then popping out of that, assuming that the preferences fulfill certain axioms.
Now my problem with that apparatus is that those axioms of preference happen to be empirically false in general, without dragging into a detailed account of that. This leads me to behavioral and other approaches to all this, which do not depend on worrying about whether or not variables or concepts involved depend on "substance" or not, for good or evil.
Again, at the bottom line, I am not sure what is involved here, but I do not think it has anything to do with either the endogeneity of preferences or the tendency of some economists to have made too big o a deal about opportunity cost.
"I am not sure what the importance is of distinguishing between 'substantive' and non-substantive theories of value is."
What's the difference between life and death?
What's the difference between static and dynamic?
The difference between substantive and non-substantive theories is that you can't do static analysis of the latter. So what you do instead is put the preference cat in an 'exogenous' Schrödinger box where it is simultaneously both alive and dead. Of course if you LOOK in the box, the cat is EITHER alive or dead but nobody can ever look in the box since it is only hypothetical.
Neoclassical analysis doesn't make daft, untrue assumptions because it want to. It does so because it must. There is no other way to have it both ways.
OK, now I am really confused. So, fine, the preference cat is "non-substantive." I thought I said that. I also thought that it was/is the "substantive" theories that you disprove of.
Honestly, Sandwichman, I am not trying to pick a fight here. I simply do not know what is going on with this. But then, heck, as we all know I am an unscientific fraud, so it should not be surprising that I have trouble figuring things out, :-).
"Honestly, Sandwichman, I am not trying to pick a fight here. I simply do not know what is going on with this."
Barkley,
My point is that you are SUPPOSED to be confused. It is a shell game, a three-card Monte. What I am trying to tell you is that there is no "right answer" as to where the pea is -- or the fucking queen of hearts. The pea/queen is dropped in AFTER you have chosen the "wrong" shell/card.
Poor, dumb Kaka-root thinks he can overturn "unscientific" economics with "scientific" economics. You, Barkley, on the other hand, keep trying to get to the bottom of this by digging in a sand pile with a teaspoon. There is no "bottom." It is deflection and deflection and deflection.
Economic analysis was and is no doubt undertaken by sincere people who thought and still think that they could solve "the economic problem." Meanwhile economics-as-ideology, in service to the plutocracy, renders all that moot. Economics is like "Marxism" in the Soviet Union. Is that an analogy you can understand?
Well, S-man, if you are going to play that game, you should understand that my late old man proved the better version of Gödel's Incompleteness Theorem, and I have a paper coming out in the Journal of Evolutionary Economics with Simone Landini and Mauro Gallegati on the implications of that theorem for economics, which is a deep jump into such matters.
But I am not going to discuss that in detail here. Those interested in what I have to say on it should check on my easily found website, where I have some other papers on the matter, although I have over the years attempted to eschew getting into my late father's ideas, usually getting dragged in by others wanting to coauthor with me for obvious reasons, with one exception I shall not highlight, which was published in a math journal, unsurprisingly.
Yeah, duh, we do nor know our asses from a hole in the ground. Duh. What else is new?
So, to get back to the main issue, where both S-man and the execrable Egmont decided that they were in it together being really serious, neither of them has even recognized the point I made from Ricardo that rent is the third category of income, which they both choose to dismiss, although S-man at least should know better.
As it is, some recent lit on the Piketty findings has suggested that part of the problem with his results has come from his also refusal to separate land rent out, which he has dumped into "profits" and "returns to cspital," with in fact a substantial amount of his reasonably accurately measured finding of increase in returns to this aggregated "capital" actually being a massive increase in returna to land rent.
So in fact the failure of either of you to recognize Ricardo's 1815 argument that land rent is important is important. While Ricardo thought wages could go no lower, so rising land rent would drive down profits, today actually happening rising land rent is holding down wages rather than profits.
Relax, Barkley, I am not suggesting you are the bad guy or that you do bad economics. Just that however good the economics you do is, it won't amount to a pimple on a rat's ass.
You are a "content provider." You don't get to decide if your "content" goes viral... and STAYS viral. The gatekeepers do that. And the gatekeepers work for the plutocrats.
To put it another way, you are a sandwich-man, Barkley. You wander the streets aimlessly in your shabby professor's jacket, toting a signboard... passing out leaflets. I'm a sandwich-man too. The difference is that I know I'm a sandwich-man.
Barkley Rosser says: “So, to get back to the main issue, where both S-man and the execrable Egmont decided that they were in it together being really serious, neither of them has even recognized the point I made from Ricardo that rent is the third category of income, “
False. I gave you the reference to my paper about rent. Here, once more.#1 The whole point of this thread is to clarify first the relation between wages and profits which is the pivot of all of economics. Your repeated attempts to draw attention away from the point at issue is ridiculous. Your assertion “neither of them has even recognized the point I made from Ricardo that rent is the third category of income” is provably false.” Anybody can check it anytime by browsing the posts above.
Sandwichman says: “The ‘lump of labor’ is FUNDAMENTAL to ‘economic thinking’ and the way that economists disavow the foundation of their very own fetish is to project it on to others.”
False. First of all, there is NO such thing as economic thinking. There is merely the blathering of confused confusers.#2 And you and Barkley Rosser are here and now providing the Smoking Gun proof.
Second, NOT the lump-of-labor is fundamental to economic thinking but profit. Who does not understand what profit is does not understand how the economy works. This applies to all economists between Ricardo and Barkley Rosser/Sandwichman.
You muddleheads do not even understand the existential problem of economics. Marx did: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”
Marx saw the problem but he could not solve it. He drowned in the semantics of the Labour Theory of Value just as the Neoclassicals later on drowned in the verbiage of the Utility Theory of Value.
Just like Ricardo, Marx got the profit theory wrong.#3 The correct answer to the existential problem of economics is that the “capitalist class as a whole” can only “draw out of circulation what was not previously in it” if either the household sector or the government sector throws more into the circulation than they take out, that is, if they run a deficit, that is, if they increase their debt. And this is something that can be observed and measured with the accuracy of two decimal places. The axiomatically correct profit theory is given with this general balances equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 which fully replaces the false After-Keynesian balances equation (I−S)+(G−T)+(X−M)=0.
Sandwichman says: “Poor, dumb Kaka-root thinks he can overturn ‘unscientific’ economics with ‘scientific’ economics.”
Economics is, according to its self-definition since 200+ years, a science. And everybody who doubts it is reminded each year in no uncertain terms with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. This Prize, of course, is a fraud because economics is a proto-science or what Feynman called a cargo cult science that has not even managed to get its foundational concepts consistently together. The dire consequences were pointed out by One of the Old School back in 1829: “If it [economics] be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
The muddleheads of economics sit squarely in the swamp where “nothing is clear and everything is possible”. (Keynes) And when they are told that their inconclusive blather is cargo cult science they pull the ejection seat and claim that there is no scientific truth because of ontological uncertainty and because of Heisenberg and Gödel.#4
It is absurd in the extreme when scientific morons who have not gotten the foundational concepts of their own discipline right and fail at the elementary mathematics of accounting waffle about advanced physics and mathematics. On this score, Barkley Rosser and Sandwichman never disappoint the audience: “Well, S-man, … I have a paper coming out in the Journal of Evolutionary Economics with Simone Landini and Mauro Gallegati on the implications of that theorem for economics, which is a deep jump into such matters.”
We are all looking forward to Barkley Rosser’s jump from the 10m springboard into the empty swimming pool.#5, #6
Egmont Kakarot-Handtke
#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
#2 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2207598
#3 Karl Marx, fake scientist http://axecorg.blogspot.de/2017/08/karl-marx-fake-scientist.html
#4 Failed economics: The losers’ long list of lame excuses http://axecorg.blogspot.de/2017/01/failed-economics-losers-long-list-of.html
#5 How economists shoot themselves non-stop in the methodological foot http://axecorg.blogspot.de/2017/03/how-economists-shoot-themselves-non.html
#6 The insignificance of Gödel’s theorem for economics http://axecorg.blogspot.de/2015/04/the-insignificance-of-godels-theorem.html
You are probably right, S-man, that I am also wandering around in a sandwich board most of the time. I do seem to have scored an occasional hit from time to time, but they are pretty random. Hard to get past those darned gatekeepers. You either have to sneak under their legs or run fast around them when they get distracted occasionally.
I explained that I try to stay out of my old man's turf, but occasionally get dragged in by others (this latest time by the estimable Simone Landini, very much an outsider, but plenty smart and insightful who needed my help). But when you seemed to throw contradictions at me, well, you seemed to have retreated into the Godel, as it were.
Again, neither of you is really dealing with this matter of land rent, with some fairly serious studies suggesting this is playing a big role now in our falling labor income share. Heck, look at the oil industry alone.
Of course Egmont simply ignores the issue because he has simply defined land rent as non-existent, wages and profits being all there is, with him citing Marx on this with one hand while then dismissing Marx because he did not use Egmont's crackpot formulation of what profit is. As it is, S-man, you should know better, in all your sandwich-boaarded lumpiness, :-).
I'm not addressing the question about land rent here because it is off-topic. What is rent? An anarchist pamphlet from 1892 stated, boldly, "Rent is taxation; taxation, rent..."
Rent is profit as it appears in the agricultural industry. Economically, a farm is not different from a firm. Ricardo did not understand what profit is and things have not improved in the meantime. The foundational concepts of economics are ill-defined since 200+ years. Well done, soapbox economists!
Egmont Kakarot-Handtke
#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
“That in their appearances things are often presented in an inverted way is something fairly familiar in every science, apart from political economy. (Marx)
“But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical.” (Marx)
“People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, . . . , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (Mill)
Rent is profit as it appears in the agricultural industry. The bigots of common sense don’t get it since Ricardo. The blather of the bigots of common sense is until this day called economics.
42 comments:
Ricardo, too, got profit theory wrong. Sad!
Comment on Sandwichman on ‘No Other Way of Keeping Profits Up’
In his letter of 1829 To the Heads of the University of Oxford, One of the Old School asked: “ARE THE PRINCIPLES OF POLITICAL ECONOMY WHICH GOVERNMENT IS ACTING ON TRUE OR FALSE?”#1
He got the following answer in the Westminster Review.#2
“The first of the principles which ‘the old school’ think so erroneous, is the well-known doctrine of Mr. Ricardo, that, putting rent out of the question, the price of every commodity consists wholly of wages and profits.”
Ricardo is known for having asserted: “… profits would be high or low in proportion as wages were low or high.” (1981, p. 110) However, things are not as straightforward as they seem.
The WR now goes on to filibuster: “In this nomenclature low and high have no reference to amount; they indicate only proportion. If a commodity should at one time sell for ten shillings, of which the labourer received nine, and should afterwards sell for twenty, of which the labourer received fifteen, this, according to Mr. Ricardo’s nomenclature, would be a fall of the labourer’s wages. Though he would receive a larger amount, he would have a smaller proportion. And proportion is all that Mr. Ricardo considers.”
“This strange use of words, like every other deviation from ordinary language, has produced much obscurity. It has some times led even such men as Mr. Ricardo and Mr. M'Culloch into inconsistency. Our readers may imagine how it has confused Mr. Blackwood’s correspondent. He has not the least glimmering of the meaning of the writers whom he attacks, but goes on heaping abuse on economists for propositions in which they understand by the word low wages a low proportion, while he supposes them to mean a small amount.”
“But he [Ricardo] is not consistent. When he says, that ‘whatever raises the Wages of labour, lowers the Profits of stock,’ he considers Wages as a proportion. When he says that ‘high Wages encourage population,’ he considers wages as an amount. Even Mr. M'Culloch, who has clearly explained the ambiguity, has not escaped it. He has even suffered it to affect his reasonings. In his valuable essay ‘On the rate of wages,’ he admits that ‘when Wages are high the Capitalist has to pay a larger share of the produce of industry to his labourers,’ An admission utterly inconsistent with his general use of the word, as expressing the amount of what the labourer receives, which, as he has himself observed, may increase while his proportion diminishes.”
The profit theory has not improved since 1829. As Mirowski put it “... one of the most convoluted and muddled areas in economic theory: the theory of profit.”
The error/mistake/blunder of Ricardo’s profit theory is that it is a generalization of what can be observed at the microeconomic level, that is, it is a Fallacy of Composition. The profit for the economy as a whole has to be derived from macroeconomic axioms.#3
See part 2
Part 2
Monetary profit for the economy as a whole is defined as Qm≡C−Yw (C consumption expenditures, Yw wage income) and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing C=Yw total monetary profit is zero.
Macroeconomic profit depends in the most elementary case alone on deficit spending, that is, on the change of private or public debt. It does NOT depend on labor time, or wages, or productivity, or monopoly power, or greedy managers. More specifically:
• The business sector’s revenues can only be greater than costs if, in the simplest of all possible cases, consumption expenditures are greater than wage income.
• Macroeconomic profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit-maximizing behavior, nor on markup setting, nor on risk-taking.
• In order that profit comes into existence for the first time in the pure production-consumption economy, the household sector must run a deficit at least in one period. This presupposes the existence of a credit creating entity.
• Profit/loss is, in the most elementary case, determined by the increase and decrease of household sector’s debt.
• Monopoly power/rent-seeking is irrelevant for macroeconomic profit and affects only the DISTRIBUTION of total profit BETWEEN firms.
• There is no relation at all between profit, capital, marginal or average productivity.
• Innovation and efficiency are irrelevant for the profit of the business sector as a whole.
• Profit is a factor-independent residual and qualitatively different from wage income (difference of flows vs flow). Therefore, it is an elementary mistake to maintain that total income is the sum of wages and profits.#4
Microfounded profit theory suffers from three methodological blunders: the Fallacy of Insufficient Abstraction, the Fallacy of Composition, and the Humpty Dumpty Fallacy. The Principles of Political Economy were false in 1829 and are false until this very day.
Egmont Kakarot-Handtke
#1 Blackwood’s Magazine (courtesy EconoSpeak)
https://www.dropbox.com/s/rwawqtpgu7lfy69/One%20of%20the%20old%20School%20Letter%20to%20the%20Heads%20Blackwoods%20%20Edinburgh%20Magazine%201829.jpg?dl=0
#2 Westminster Review
https://books.google.de/books?id=g3YIAAAAIAAJ&pg=PA510&lpg=PA510&dq=%22To+the+heads+of+the+University+of+Oxford%22&source=bl&ots=XQ7kQRx0zc&sig=-SvbOcSwqOEpl38Csd0ghB1kKKc&hl=en&sa=X&ved=0ahUKEwi_xNGV1aXZAhWIyKQKHU_2CNoQ6AEILjAB#v=onepage&q=%22To%20the%20heads%20of%20the%20University%20of%20Oxford%22&f=false
#3 The profit theory is false since Adam Smith
https://axecorg.blogspot.de/2017/11/the-profit-theory-is-false-since-adam.html
#4 Profit, income, and the Humpty Dumpty Fallacy
https://axecorg.blogspot.de/2018/02/profit-income-and-humpty-dumpty-fallacy.html
Oh my, Egmont on the attack with his crank theory of profit. In your list of supposed fact about profit, the only ones true are that it has little to nothing to do with persona characteristics of capitalists and it is not tied to some average or marginal productivity of capital, although it may be tied to markups and risk taking.
Also, the "fallacy of insufficient abstraction" and the "Humpty Dumpty fallacy" appear to be inventions of yours, Egmont, not generally recognized or accepted ones. Charging somebody with committing a fallacy you have made up is a joke.
Regarding the first one, that you think people may not be being sufficiently abstract is tied to your notorious unwillingness to face facts or data, which have never supported your theory of profit.
I dissent from my colleague, Barkley, and commend you, Egmont for ENGAGING with my post in a very constructive way. I would love to know who the author of the Blackwood's article was and will keep an eye out for any leads.
As for this: "Macroeconomic profit depends in the most elementary case alone on deficit spending, that is, on the change of private or public debt."
I think you are on to something. I am not convinced that your formulation is as original or definitive as you seem to believe but in very general terms, it does seem to me that debt is fundamental to ROI, a fact that is concealed by lumping together payments for "abstinence" with fees for entrepreneurial services.
Barkley Rosser
Like Ricardo, I consider the most elementary case, i.e. wage income and profit. The axiomatically correct macroeconomic Profit Law says for the general case Qm=Yd+(I−Sm)+(G−T)+(X−M). Legend: Qm monetary profit, Yd distributed profit, I investment expenditures, Sm monetary saving, G government expenditures, T taxes, X exports, M imports.
All variables are measurable with the accuracy of two decimal places. Therefore, the Profit Law can be tested, in principle, for every country around the globe. There can be no doubt that it will be confirmed without exception.
Sandwichman
The link #2 to the article in the Westminster Review works probably better from my blog. See
https://axecorg.blogspot.de/2018/02/ricardo-too-got-profit-theory-wrong-sad.html
Egmont Kakarot-Handtke
One of the Old School = "David Robinson, Yorkshire-born freelance journalist in London, Tory extremist, terminated by Blackwood in 1831"
See "David Robinson and the Tory macroeconomics of Blackwood’s Edinburgh Magazine," Salim Rashid, History of Political Economy 10:2, 1978, pp.258-70
This will be my last post on this thread, especially since it is just a repeat of something said previously more than once. You state that every variable in your general formulation "are measurable...z' and that supposedly your "Profit Law can be tested, in principle..." and then the howler "There can be no doubt that it will be confirmed without exception."
Oooooooooooops! But while you have been asked to do so many times, you have never offered a shred of evidence to support this claim that data will support your crank theory. And evidence does not support it. Sorry.
The only thing that is funnier here is that you regularly claim to be the only scientific economist around, but you have never sullied your hands with a discussion of actual empirical data, with, I suppose the excuse that doing so would involve the "fallacy of insufficient abstraction."
Barkley Rosser
You say “But while you have been asked to do so many times, you have never offered a shred of evidence to support this claim that data will support your crank theory. And evidence does not support it.”
Instead of gossiping about the sex life in the House of Saud you should have done some methodological homework, You may have stumbled across Popper’s meme of conjectures and refutation. And you may have realized that there is theoretical physics which provides the conjectures and experimental physics which does the testing. Both tasks require different talents/tools and are normally performed by different people.
Your scientific education apparently ended with the story of Galileo throwing cannon balls from the Leaning Tower of Pisa in order to prove his Law of Falling Bodies. In modern science, the division of labour is firmly institutionalized.
The first calculation of the deflection of light by mass was published by Johann Georg von Soldner in 1801. Einstein calculated the relativistic deviation of light two times. Ironically, he got it wrong the first time in 1908 without realizing it until 1915. Luckily for him, the First World war prevented testing. It was Eddington (and two other expeditions to Brazil and Russia) who tried in 1919 to actually test = measure the deviation during a solar eclipse. Einstein did NOT test relativity himself. The same goes for Higgs and the testing in CERN. Note that the folks at CERN had to build first the biggest and most expensive machine in human history. Something that was obviously beyond the means of the theoretical physicist Higgs.
No scientist ever came up with the idea that Einstein or Higgs should have tested their theories themselves or with the brain-dead critique that they have “never sullied their hands” with actual empirical data.
So, theoretical physics provides the testable formula and experimental physics does the testing. Likewise, theoretical economics provides the formula, and the econometricians do the testing.
Here is my challenge: MMT asserts in the Keynesian tradition that the macroeconomic balances equation reads (I−S)+(G−T)+(X−M)=0 while I claim that the axiomatically correct balances equation reads (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.
I wonder how long it takes to test such a clear-cut alternative and why neither Post Keynesians, Anti-Keynesians, MMTers nor you can get their asses up and “sully their hands” and settle this fundamental economic question once and for all. Wouldn’t it be a field day for you to PROVE me wrong?
I understand, as an economist, you are busy 24/7 with the WaPo gang, the CIA/SVR meeting, and the sex life in the House of Saud.
Egmont Kakarot-Handtke
Sandwichman
Note that One of the Old School challenged the scientific status of economics: “That which bears the name of Political Economy, is now taught at your University, …, as a science equally true in its principles with Geometry. If it be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
Note also that economics is still “a mass of fictions”. And the reason why economics is a failed/fake science is that economists can to this day not tell what profit and income is.
Note also that the ‘refutation’of One of the Old School is a semantic shell game that messes up simple algebra.
“In this nomenclature low and high have no reference to amount; they indicate only proportion. If a commodity should at one time sell for ten shillings, of which the labourer received nine, and should afterwards sell for twenty, of which the labourer received fifteen, this, according to Mr. Ricardo’s nomenclature, would be a fall of the labourer’s wages. Though he would receive a larger amount, he would have a smaller proportion. And proportion is all that Mr. Ricardo considers.”
Ricardo defined total income Y as sum of wages W and profits P, i.e. Y=W+P. This gives after transformation 1=1/(1+P/W)+1/(1+W/P) with 1/(1+P/W) = share of wages and 1/(1+W/P) = share of profits. And yes, One of the Old School is right, if wages rise the share of wages increases and the share of profits decreases. The absolute amount and the share move in the SAME direction. However, the critics of One of the Old School confuse themselves by simultaneously increasing wages and profits but in different proportion, i.e. wages from 9 to 15 and profit from 1 to 5. Wages seem to rise but actually fall IN RELATION to profit and this is why the share of wages falls. No ambiguity here, no paradox, all plain and simple algebra.
The one thing that the alleged refutation of One of the Old School proves is the utter scientific incompetence of economists. Ricardo got profit theory wrong and neither Walrasianism, Keynesianism, Marxianism, Austrianism, nor Barkley Rosser has realized it until this day. Not to speak of rectification.
As One of the Old School clearly saw in 1829, these folks are disgracing their universities. High time to throw them out.
Egmont Kakarot-Handtke
Who wrote the letter "To the Heads of the University of Oxford"? Is the writer referring to Richardo's dogma when he/she refers to "Political Economy"? Brenda R.
Brenda,
See above. David Robinson was the author.
And yes, by political economy he is referring to the doctrines of Ricardo, McCulloch and, specifically, Nassau Senior, who had just been appointed a chair at Oxford.
OK, Sandwichman, I shall engage you while ignoring the person you claimed engaged you, while not doing so in any particularly insightful or even accurate way.s
So, what you poste is the front end of a talk/lecture/message/I am not sure what to some muckety mucks at the University of Oxford at some unidentified date (that is actually important here). The reason for the latter is that beyond a certain date (I have not gone to check exactly when, sorry), Malthus was at Oxford, where, indeed, he was the very first Professor of Political Economy ever in Great Britain. So other date is important because if it is early enough, Malthus was not in the audience, but late enough he was in the audience, and the discussion clearly must be seen in light of the discussions and debates between Malthus and Ricardo, with Malthus and Oxford more generally siding with aristocrats and the Tories, while Cambridge tended to side with the rising bourgeoisie capitalists and the Whigs (Ricardo was never at Cambridge though). So, on policy Ricardo was almost certainly to some extent addressing an at least somewhat hostile audience.
What this message looks to me like is mostly a defense of political economy as a scientific enterprise, although without much of a theory of either profits or wages being presented or discussed, although maybe I missed it, aside from him expressing sympathy and concern for his many countrymen who were very poor and clearly suffering from very low wages (and it is known that he accepted a subsistence theory of wages, which Malthus also accepted).
In any case, neither Ricardo nor Malthus viewed the question of the distribution of national income as being one between just profits and wages, but also with land rent in there as a third and important category, which was the centerpiece of the debate between Ricardo and Malthus, with them largely agreeing on the underlying theory, and with if Malthus being in the audience as a professor of political economy, Ricardo supporting the idea that political economy is important and scientific and thus worthy of having a professor of it employed at Oxford, with the two of them reportedly personal friends even as they disagreed on policy.
So they both saw rising population pushing farming further into the extensive margin of poorer and poorer land, with both of them accepting a theory of rent that it depended on the difference in yields between the best and the poorest farmland. So as population grew (and "pressed against the means of subsistence" as Malthus put it), the share of national income going to land rent received by the aristocracy rose, while there was downward pressure put on capitalist profits, given that wages are at subsistence and cannot go lower. Effectively, food prices are rising, which puts pressure for nominal wages to rise, which in a non-inflationary world pushes profits down. This was essentially Ricardo's "Iron Law of Wages," which is really about profits and land rents.
While there were other issue, the sharpest policy difference was over trade, with Ricardo supporting importing grain, mostly from North America, to lower food prices and allow profits to stay up, although with this lowering land rents. Malthus opposed this, saying aristocrats hired people with their higher land rents so avoiding unemployment as long as protectionism remained in place.
Barkley,
The excerpt was from the Sept. 1829 Blackwoods and it specifically addressed Ricardo's aassertion, "There is no other way of keeping profits up, but by keeping wages down" from On Protection to Agriculture published in 1822. At the time, Nassau Senior was Drummond professor of political economy at Oxford. The author was David Robinson, who styled himself "One of the Old School."
I am not particularly interested in attacking (or defending) Ricardo's analysis here, other than to point out that it was founded on a substance theory of value, which is untenable. My impression is that Robinson also subscribed to a substance theory of value, which readily leads to two (or 3 or 4) diametrically-opposed analyses.
Interesting, Sandwichman. Here is a joke. When I wrote above, I had not noticed the highlighted statement about profits and wages, which does not appear in the body of the text shown. So it was quite late, well after Malthus had ceased being a prof of pol econ at Oxford.
What is weird is that the highlighted quote is in conflict with much of what Ricardo wrote.=, notably in his Principles of Political Economy. In short elsewhere he definitely argued that it was possible to keep profits up by keeping land rent down, with allowing grain imports as a way of doing that. As it is, whatever Robinson and Senior were writing, I see no reference either positive or negative to a "substance theory of value" in the quote provided. As it was, Ricardo largely accepted and put forward a labor theory of value, with Marx drawing on Ricardo's views on this, adding to it famously his theory of surplus value.
All right, now I get it. Robinson or somebody else wrote the main piece in 1829 and only quote Ricardo at the beginning. It is true that at one point Ricardo said that but elsewhere, especially in his 1815 Essay on Profits and the Rent of Land, he put forward the argument I made above, that profits could be increased by owering land rents by ending protectionism against grain imports. That essay was in reply to two earlier essays by Malthus that supported such protectionism, although after food prices shot up very sharply in 1815-16 in UK, Malthus wrote another essay supporting limited imports of grain to moderate that surge.
BTW, Ricardo died in 1823, so was no longer around when apparently this piece was written. Malthus died in 1834, so was still alive. Oh, it was not Oxford, but the East India Company College in Hertfordshire in 1806 that Malthus got his initial appointment as a Professor of History and Political Economy.
Labor theory of value is a "substance" theory. A commodity has a value of X because it has X worth of labor embedded in it. Marginal utility is also a substance theory because a commodity supposedly has X worth of "utility" embedded in it. A non-substance theory is more like Keynes's beauty contest. Commodity is worth what you think other people think other people think it is worth...
Barkley Rosser
Your restless attempt to mess up any issue is not even comical. You simply cannot resist the temptation to parade your absolutely irrelevant knowledge of biographical and historical detail. As always, you are missing the essential point.
The essential point is the alleged antagonism between wages and profits which provided the economic argument for Marx’s sociological/political concept of class struggle.
Sandwichman’s introductory quote “There is no other way of keeping profits up, but by keeping wages down.” (David Ricardo) clearly defines the point at issue.
The Westminster reply starts “The first of the principles which ‘the old school’ think so erroneous, is the well-known doctrine of Mr. Ricardo, that, putting rent out of the question, the price of every commodity consists wholly of wages and profits.”
“… putting rent out of the question” means focusing on the relationship between wages and profits and putting rent aside for the moment.
This, of course, is unacceptable for the confused confuser Barkley Rosser because he has a lot to parade about rent and Malthus and Oxford and Cambridge and who was alive and who was dead.
This drivel is, as always, pure disinformation.
The point at issue is that Ricardo’s theory of profit and rent is provably false.#1
This, in turn, means that Political Economy has no scientific merits, a fact that One of the Old School did not fail to mention “That which bears the name of Political Economy, is now taught at your University, …, as a science equally true in its principles with Geometry. If it be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
This is as true today as it was in 1829 because profit theory is still false, or as the Palgrave Dictionary puts it “A satisfactory theory of profits is still elusive.” (Desai, 2008)
Egmont Kakarot-Handtke
#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
Sandwichman
The issue of substance theories has been dealt with exhaustively by Mirowski in More Heat Than Light.
So we know definitively that both the Labour Theory of Value and the Utility Theory of Value are dead and buried just like the Flat Earth Theory.
The only interesting question is now where the exit of the scientific graveyard is. Or, as Feynman put it “The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.”
Egmont Kakarot-Handtke
Sandwichman,
I guess I disagree with you about "substance" theories of value, and, frankly, I do not see why being such a theory is a big deal or not. Certainly the MU theory is not a substance theory. It is entirely subjective, just as the beauty contest theory is. On the labor theory side, well, for physical commodities labor may be changing substance, but for services there may be no substantial change involved. And keep in mind that the LTV measures value by socially necessary labor time, not some substance.
Frankly, I am not sure what the big deal is here with this issue, either way.
Entirely subjective? Only if one assumes "subjects" without volition. Preferences are exogenous. This is a shell game. The alleged subjectivity occurs OUTSIDE of the exchange process thus allowing the GIVEN preferences to be treated as substances within MU analysis. "Opportunity cost" is a set of nested Russian dolls that goes on forever. Turtles all the down. But then there is always a "simplifying assumption" such as "revealed" preferences that simply substitutes an objective data point for the elusive subjective utility.
Astrology at least says it is doing what it is doing. Marginal utility theory waves its arms around and then does something contrary to what it claims to do.
Some guy makes a "simplifying assumption" 85 years ago as a premise. The premise gets baked into a conclusion. 35 years later, the conclusion becomes a presumptive fact. Premise has been long forgotten. Another 35 years pass and economists attack anyone who questions the forgotten premise because the conclusion makes it true. The fallacy is called "begging the question."
The underlying PREMISE of political economy and of economics is that THERE IS A CERTAIN QUANTITY OF WORK TO BE DONE. The "lump of labor" is FUNDAMENTAL to "economic thinking" and the way that economists disavow the foundation of their very own fetish is to project it on to others.
Sandwichman,
It is true that standard neoclassical theorizing takes preferences as exogenous, something I at least know is not true. But I do not see how that makes utility "substantive." And while one can drag opportunity cost into the story, and the Austrians have especially liked to, it is not at all a necessary part of aubjective theories of value.
If you want to argue that U theory is "substantive," I would suggest that you drag in a materialist theory of consciousness and emphasize how preferences or utility or whatever are ultimately just a bunch of electrical impulses in our physical brains, or whatever. Howvever, again, I am not sure what the importance is of distinguishing between "substantive" and non-subatantive theories of value is.
let us consider briely the simple (it not mathematically so) pure exchange model of Arrow-Debreu-McKenzie. It has no production and thus no "substantives" from that side, with their simply being an exogenously given set of goods (is exogeneity the key to the apparently questionable quality of "subtantitiveness"?). Yes, the model does then allow for an exogenous set of purely subjective preferences, with a general equilibrium then popping out of that, assuming that the preferences fulfill certain axioms.
Now my problem with that apparatus is that those axioms of preference happen to be empirically false in general, without dragging into a detailed account of that. This leads me to behavioral and other approaches to all this, which do not depend on worrying about whether or not variables or concepts involved depend on "substance" or not, for good or evil.
Again, at the bottom line, I am not sure what is involved here, but I do not think it has anything to do with either the endogeneity of preferences or the tendency of some economists to have made too big o a deal about opportunity cost.
"I am not sure what the importance is of distinguishing between 'substantive' and non-substantive theories of value is."
What's the difference between life and death?
What's the difference between static and dynamic?
The difference between substantive and non-substantive theories is that you can't do static analysis of the latter. So what you do instead is put the preference cat in an 'exogenous' Schrödinger box where it is simultaneously both alive and dead. Of course if you LOOK in the box, the cat is EITHER alive or dead but nobody can ever look in the box since it is only hypothetical.
Neoclassical analysis doesn't make daft, untrue assumptions because it want to. It does so because it must. There is no other way to have it both ways.
OK, now I am really confused. So, fine, the preference cat is "non-substantive." I thought I said that. I also thought that it was/is the "substantive" theories that you disprove of.
Honestly, Sandwichman, I am not trying to pick a fight here. I simply do not know what is going on with this. But then, heck, as we all know I am an unscientific fraud, so it should not be surprising that I have trouble figuring things out, :-).
"Honestly, Sandwichman, I am not trying to pick a fight here. I simply do not know what is going on with this."
Barkley,
My point is that you are SUPPOSED to be confused. It is a shell game, a three-card Monte. What I am trying to tell you is that there is no "right answer" as to where the pea is -- or the fucking queen of hearts. The pea/queen is dropped in AFTER you have chosen the "wrong" shell/card.
Poor, dumb Kaka-root thinks he can overturn "unscientific" economics with "scientific" economics. You, Barkley, on the other hand, keep trying to get to the bottom of this by digging in a sand pile with a teaspoon. There is no "bottom." It is deflection and deflection and deflection.
Economic analysis was and is no doubt undertaken by sincere people who thought and still think that they could solve "the economic problem." Meanwhile economics-as-ideology, in service to the plutocracy, renders all that moot. Economics is like "Marxism" in the Soviet Union. Is that an analogy you can understand?
Well, S-man, if you are going to play that game, you should understand that my late old man proved the better version of Gödel's Incompleteness Theorem, and I have a paper coming out in the Journal of Evolutionary Economics with Simone Landini and Mauro Gallegati on the implications of that theorem for economics, which is a deep jump into such matters.
But I am not going to discuss that in detail here. Those interested in what I have to say on it should check on my easily found website, where I have some other papers on the matter, although I have over the years attempted to eschew getting into my late father's ideas, usually getting dragged in by others wanting to coauthor with me for obvious reasons, with one exception I shall not highlight, which was published in a math journal, unsurprisingly.
Yeah, duh, we do nor know our asses from a hole in the ground. Duh. What else is new?
So, to get back to the main issue, where both S-man and the execrable Egmont decided that they were in it together being really serious, neither of them has even recognized the point I made from Ricardo that rent is the third category of income, which they both choose to dismiss, although S-man at least should know better.
As it is, some recent lit on the Piketty findings has suggested that part of the problem with his results has come from his also refusal to separate land rent out, which he has dumped into "profits" and "returns to cspital," with in fact a substantial amount of his reasonably accurately measured finding of increase in returns to this aggregated "capital" actually being a massive increase in returna to land rent.
So in fact the failure of either of you to recognize Ricardo's 1815 argument that land rent is important is important. While Ricardo thought wages could go no lower, so rising land rent would drive down profits, today actually happening rising land rent is holding down wages rather than profits.
Relax, Barkley, I am not suggesting you are the bad guy or that you do bad economics. Just that however good the economics you do is, it won't amount to a pimple on a rat's ass.
You are a "content provider." You don't get to decide if your "content" goes viral... and STAYS viral. The gatekeepers do that. And the gatekeepers work for the plutocrats.
To put it another way, you are a sandwich-man, Barkley. You wander the streets aimlessly in your shabby professor's jacket, toting a signboard... passing out leaflets. I'm a sandwich-man too. The difference is that I know I'm a sandwich-man.
Oh, damn! I should have said "wandering the streets in your father's Gödel." Too late now.
Barkley Rosser, Sandwichman
Barkley Rosser says: “So, to get back to the main issue, where both S-man and the execrable Egmont decided that they were in it together being really serious, neither of them has even recognized the point I made from Ricardo that rent is the third category of income, “
False. I gave you the reference to my paper about rent. Here, once more.#1 The whole point of this thread is to clarify first the relation between wages and profits which is the pivot of all of economics. Your repeated attempts to draw attention away from the point at issue is ridiculous. Your assertion “neither of them has even recognized the point I made from Ricardo that rent is the third category of income” is provably false.” Anybody can check it anytime by browsing the posts above.
Sandwichman says: “The ‘lump of labor’ is FUNDAMENTAL to ‘economic thinking’ and the way that economists disavow the foundation of their very own fetish is to project it on to others.”
False. First of all, there is NO such thing as economic thinking. There is merely the blathering of confused confusers.#2 And you and Barkley Rosser are here and now providing the Smoking Gun proof.
Second, NOT the lump-of-labor is fundamental to economic thinking but profit. Who does not understand what profit is does not understand how the economy works. This applies to all economists between Ricardo and Barkley Rosser/Sandwichman.
You muddleheads do not even understand the existential problem of economics. Marx did: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”
Marx saw the problem but he could not solve it. He drowned in the semantics of the Labour Theory of Value just as the Neoclassicals later on drowned in the verbiage of the Utility Theory of Value.
Just like Ricardo, Marx got the profit theory wrong.#3 The correct answer to the existential problem of economics is that the “capitalist class as a whole” can only “draw out of circulation what was not previously in it” if either the household sector or the government sector throws more into the circulation than they take out, that is, if they run a deficit, that is, if they increase their debt. And this is something that can be observed and measured with the accuracy of two decimal places. The axiomatically correct profit theory is given with this general balances equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 which fully replaces the false After-Keynesian balances equation (I−S)+(G−T)+(X−M)=0.
See part 2
Part 2
Sandwichman says: “Poor, dumb Kaka-root thinks he can overturn ‘unscientific’ economics with ‘scientific’ economics.”
Economics is, according to its self-definition since 200+ years, a science. And everybody who doubts it is reminded each year in no uncertain terms with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. This Prize, of course, is a fraud because economics is a proto-science or what Feynman called a cargo cult science that has not even managed to get its foundational concepts consistently together. The dire consequences were pointed out by One of the Old School back in 1829: “If it [economics] be not a science, but a mass of fictions, you are, by teaching it, deeply disgracing your University, and destroying your own reputation as men of science.”
The muddleheads of economics sit squarely in the swamp where “nothing is clear and everything is possible”. (Keynes) And when they are told that their inconclusive blather is cargo cult science they pull the ejection seat and claim that there is no scientific truth because of ontological uncertainty and because of Heisenberg and Gödel.#4
It is absurd in the extreme when scientific morons who have not gotten the foundational concepts of their own discipline right and fail at the elementary mathematics of accounting waffle about advanced physics and mathematics. On this score, Barkley Rosser and Sandwichman never disappoint the audience: “Well, S-man, … I have a paper coming out in the Journal of Evolutionary Economics with Simone Landini and Mauro Gallegati on the implications of that theorem for economics, which is a deep jump into such matters.”
We are all looking forward to Barkley Rosser’s jump from the 10m springboard into the empty swimming pool.#5, #6
Egmont Kakarot-Handtke
#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
#2 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2207598
#3 Karl Marx, fake scientist
http://axecorg.blogspot.de/2017/08/karl-marx-fake-scientist.html
#4 Failed economics: The losers’ long list of lame excuses
http://axecorg.blogspot.de/2017/01/failed-economics-losers-long-list-of.html
#5 How economists shoot themselves non-stop in the methodological foot
http://axecorg.blogspot.de/2017/03/how-economists-shoot-themselves-non.html
#6 The insignificance of Gödel’s theorem for economics
http://axecorg.blogspot.de/2015/04/the-insignificance-of-godels-theorem.html
You are probably right, S-man, that I am also wandering around in a sandwich board most of the time. I do seem to have scored an occasional hit from time to time, but they are pretty random. Hard to get past those darned gatekeepers. You either have to sneak under their legs or run fast around them when they get distracted occasionally.
I explained that I try to stay out of my old man's turf, but occasionally get dragged in by others (this latest time by the estimable Simone Landini, very much an outsider, but plenty smart and insightful who needed my help). But when you seemed to throw contradictions at me, well, you seemed to have retreated into the Godel, as it were.
Again, neither of you is really dealing with this matter of land rent, with some fairly serious studies suggesting this is playing a big role now in our falling labor income share. Heck, look at the oil industry alone.
Of course Egmont simply ignores the issue because he has simply defined land rent as non-existent, wages and profits being all there is, with him citing Marx on this with one hand while then dismissing Marx because he did not use Egmont's crackpot formulation of what profit is. As it is, S-man, you should know better, in all your sandwich-boaarded lumpiness, :-).
I'm not addressing the question about land rent here because it is off-topic. What is rent? An anarchist pamphlet from 1892 stated, boldly, "Rent is taxation; taxation, rent..."
http://econospeak.blogspot.ca/2015/11/evil-effect-of-robot-rent-and-taxation.html
Sandwichman
Rent is profit as it appears in the agricultural industry. Economically, a farm is not different from a firm. Ricardo did not understand what profit is and things have not improved in the meantime. The foundational concepts of economics are ill-defined since 200+ years. Well done, soapbox economists!
Egmont Kakarot-Handtke
#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
"Rent is profit as it appears in the agricultural industry."
Also gibberish is gibberish as it appears in the gibberish industry.
Sandwichman
“That in their appearances things are often presented in an inverted way is something fairly familiar in every science, apart from political economy. (Marx)
“But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical.” (Marx)
“People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, . . . , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.” (Mill)
Rent is profit as it appears in the agricultural industry. The bigots of common sense don’t get it since Ricardo. The blather of the bigots of common sense is until this day called economics.
Egmont Kakarot-Handtke
Egmont,
A few more questions:
Do you have any disciples?
What do they call themselves?
Handkites?
Kakarotarians?
What is your micro-economic theory?
Do you have a job?
How do you get along with your colleagues at work?
Sandwichman
You still have not answered the foundational question of economics: What is macroeconomic profit and how is it related to wages?
Egmont Kakarot-Handtke
Egmont,
I don't have to answer YOUR questions. I am not a TROLL on YOUR blog.
Go away.
Questionnaire back to Sandwichman
no
n/a
n/a
look it up in my working papers on SSRN
no
n/a
Egmont Kakarot-Handtke
JFTR
“To determine the laws which regulate this distribution, is the principal problem in Political Economy .” (Ricardo, Principles, 1821, Works, I, p. 5)
The Law of Distribution for the production-consumption economy is shown on Wikimedia
https://commons.wikimedia.org/wiki/File:AXEC134.png
The Law presupposes the axiomatically correct definition of monetary profit Qm and total nominal income Y.
Egmont Kakarot-Handtke
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