At Jacobin, Seth Ackerman did an interview with J.W. Mason about The Class Struggle on Wall Street that considers the trade-off between relative profit and wage shares of income. Whether you agree with his analysis or not, Josh teases out some of the implications of the relationship, both for profit expectations and for political prospects.
One assertion I would question is "there is absolutely no reason to expect an uptick in inflation." Well, yes, no one expects the Spanish Inquisition, either. While there may indeed be no reason to expect inflation, inflation's chief weapon is surprise... surprise and fear... and ruthless efficiency,
And this is also why I think it would be impossible to empirically confirm Egmont Kakarot-Handtke's "law" of profit. There is no "real" yardstick with which to measure aggregate profit. If Egmont is right that "[m]acroeconomic profit depends in the most elementary case alone on deficit spending, that is, on the change of private or public debt," then he is wrong that his profit "law" can be tested empirically and "will be confirmed without exception."
Josh Mason also talks about the "tightrope we have to walk" in thinking about the relationships between profits, wages, inflation and productivity. Not only is the rope tight, it is also tied in knots with "inflation" and "productivity" referring to ratios between incomes, costs and outputs. Egmont's theory reminds us of yet another tightrope -- the tightrope central bank authorities must walk between inflating the money supply through the expansion of credit and persuading the public that such inflation is not inflationary.
The conventional persuader is unemployment. One doesn't have to subscribe to the NAIRU doctrine that insufficient unemployment accelerates inflation to concede that policy-induced unemployment tips the scales against wage increases and thus insulates the profit share of income from the latent inflationary consequences of credit expansion. Yes, the trick here is how to sustain compound profit inflation without accelerating price inflation! How to debase the coin of the realm without debasing the coin of the realm. It's a beauty contest.
There is, after all, no other way of keeping profits up!
Ricardo said it first, as usual. Marx said it second. I'm just taking notes.
ReplyDeleteI think your coin of the realm formulation gets it nicely. Capitalists need the monetary system to be flexible, insofar as they need money to set the process of production in motion (and also to meet their financial commitments). But they need the monetary system to be rigid, objective, to ensure tha tthe money they end up with guarantees them command over commodities (and human beings!) Over the past 200 years a lot of magic forumlas -- from the real bills doctrine to the Taylor rule -- have been proposed to reconcile these two poles, but I don't think there's any automatic way to do it.
That's just it, there is no way to expand credit indefinitely AND indefinitely maintain confidence in price stability. But both are necessary to system stability. I suspect that with the big deficits looming from tax cuts, the fed will (must?) act preemptively to head off inflation before it rears its ugly head -- thus the anxiety on Wall St. about the Fed applying the brakes. Or, alternatively, what happens if they don't...
ReplyDeleteNote on Sandwichman’s ‘Rumble on Wall St. ― No Other Way of Keeping Profits Up!
ReplyDeleteYou say “And this is also why I think it would be impossible to empirically confirm Egmont Kakarot-Handtke’s ‘law’ of profit. There is no ‘real’ yardstick with which to measure aggregate profit. If Egmont is right that ‘[m]acroeconomic profit depends in the most elementary case alone on deficit spending, that is, on the change of private or public debt,’ then he is wrong that his profit ‘law’ can be tested empirically and ‘will be confirmed without exception’.”
You are wrong, of course. What you overlook is that there are TWO kinds of profit: monetary profit Qm and nonmonetary profit Qn. Monetary profit emerges in the production-consumption economy and can be measured with the accuracy of two decimal places in all countries with a proper system of National Accounting and at least one intelligent economist. Countries that do not satisfy these conditions may be called scientific shitholes.
Therefore, the structural/systemic/behavior-free/objective/macroeconomic Profit Law#1 will be confirmed without exception in all (non-shithole) countries around the globe.
The market economy, though, consists of TWO entirely different types of markets: the primary markets of the production-consumption economy and the secondary markets of all kinds of real and financial assets.#2 In these markets, non-monetary profits/losses Qn emerge through the re-evaluation of assets. These re-evaluations are highly subjective and can, at the moment at least, be entirely fictitious/fraudulent.
So, there are TWO theories of value and there are TWO entirely different kinds of profits, i.e. objective/measurable monetary profit Qm and subjective and currently not reliably measured non-monetary profit Qn.
As you can see from the correct axiomatic foundations,#3 total profit is given with the 4th axiom as Q=Qm+Qn. The macroeconomic Profit Law relates to Qm and is provably true.#4
Egmont Kakarot-Handtke
#1 First Fundamental Law vs. Fundamental theorem of income distribution
https://axecorg.blogspot.de/2014/12/first-fundamental-law-vs-fundamental.html
#2 Primary and Secondary Markets
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1917012
#3 Wikimedia
https://commons.wikimedia.org/wiki/File:AXEC88.png
#4 For details of the big picture see cross-references Profit
http://axecorg.blogspot.de/2015/03/profit-cross-references.html
Ricardo and the invention of class war
ReplyDeleteComment on Sandwichman on ‘No Other Way of Keeping Profits Up’
Ricardo asserted the seemingly obvious “There is no other way of keeping profits up, but by keeping wages down.” This assertion is pure common sense, plain and immediately convincing as “the sun goes up”. Needless to emphasize that both assertions are scientifically false.#1
By asserting an antagonism between wages and profits, Ricardo provided the economic underpinning for Marx’s sociological/political concept of class struggle or class war.
In the following the proof is given that there is NO antagonism between wages and profits and that classes are an optical illusion.
The pure production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.#2
Under the conditions of market clearing X=O and budget balancing C=Yw in each period the price is given by P=W/R (1), i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the Law of Supply and Demand. It translates into W/P=R (2), i.e. the real wage is equal to the productivity. For the graphical representation see Wikimedia.#3
Monetary profit is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0 or Qm=−Sm, in other words, the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law. It says that profit/loss has NOTHING to do with labor time, wages, productivity, greed, monopoly, power etcetera but with the change of private and public debt.
In the pure production-consumption economy, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because C=Yw. All changes in the system are reflected by the market clearing price. As a matter of principle, the pure production-consumption economy can go on indefinitely at any level of employment L. The living standard of the workers is defined alone by the productivity.
Obviously, there is NO such thing as an antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up the market clearing price goes up according to (1) and the real wage remains unchanged according to (2).
This means, first of all, that Ricardo’s theory of profit and rent is proto-scientific garbage. This is fatal for Marx who built on Ricardo.
See part 2
Part 2
ReplyDeleteThe business sector is now split into two identical firms and firm 1 is supposed to cut the wage rate W1 arbitrarily by half. From this follows that the market clearing price P declines if all other variables are unchanged. Firm 2 is affected because total income Yw falls and with it consumption expenditures C and the market clearing price P.
The reduction of the wage rate W1 increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1 we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down ― profit up. This fits the time-honored stereotype of wages and profits as antagonists.
The error/mistake/blunder of Ricardo et al. was to generalize what is true for a single firm and this is known as Fallacy of Composition.
If profit has been zero in the initial period because of budget balancing C=Yw then firm 2 makes a loss which is exactly equal to firm 1’s profit. Hence, the arbitrary wage rate cut of firm 1 does NOT increase the profit of the business sector as a whole but only REDISTRIBUTES profit/loss between the firms that constitute the business sector.
Seen from the perspective of a single firm, the antagonism of wages and profits is absolutely real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2 and the workers of firm 2 are better off to the disadvantage of the workers of firm 1 because at a lower market clearing price they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged and the same is true for the household sector as a whole. If there is exploitation it happens within the sectors. A partial wage rate change leads only to a redistribution of profits between the firms and of output between the workers. A global wage rate change leads under the condition of budget balancing and market clearing only to a price hike.
For the economy as a whole, the Ricardian antagonism of wages and profits is an optical illusion. This has a bearing on the political notion of classes. Because Ricardo’s profit theory is false Marx’s theory of class war is false. What looks like exploitation is, in fact, cross-over exploitation WITHIN the Marxian classes.
The myopic agents, workers and capitalists alike, are blind to these interdependencies and therefore prone to the Fallacy of Composition. This is excusable. But that economists suffer from the same delusions is inexcusable.
As One of the Old School put it in 1829 “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.”#5
Egmont Kakarot-Handtke
#1 Ricardo, too, got profit theory wrong. Sad!
https://axecorg.blogspot.de/2018/02/ricardo-too-got-profit-theory-wrong-sad.html
#2 For details see ‘Profit for Marxists’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301
#3 Wikimedia, Pure Production-Consumption Economy
https://commons.wikimedia.org/wiki/File:AXEC31.png
#4 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119
#5 The real problem with the economics Nobel
https://axecorg.blogspot.de/2016/09/the-real-problem-with-economics-nobel.html
Well, Egmont, you forget that if the owners of capital BELIEVE that profits are a subtraction from wages (and/or vice versa) and act accordingly it becomes a self-fulfilling prophecy. Sorry, Egg, but if you can't comprehend this then it is futile for me to try to comprehend your theory of how it "REALLY" is.
ReplyDeleteSandwichman,
ReplyDeleteOf course this is Egmont's response to a challenge to actually be scientific and deal with facts and data. When I recently poked him on this point he essentially said that gathering data is beneath him, he is no mere Galileo dropping things off the Leaning Tower of Pisa. But I never demanded that he either gather the data or even go around running regressions, perish the thought, merely that he cite some empirical studies that would support his claims, which he simply avoids doing because he knows they will not do so.
Of course he has now been open about his game. His theory of profit depends on a special definition of profit that neatly and tautologically must be true by definition, so incapable of being disproven by any data, which, of course will be using "false" definitions of profit that are not Egmont's. No way out.
BTW, again, Ricardo did make that statement about wages must go down for profits to go up, but elsewhere, as in his 1815 essay responding to Malthus, he allowed as how profits might go up by having land rent go down by importing cheap grain from abroad.
And I was at least partly wrong about Oxford being all Tory. In 1829 when Senior was Drummond Professor of Political Economy there, he was actually a Whig.
Yes, Senior was a very highly connected Whig. Did a special study for the Home Secretary on how to suppress trades unions. Was major force in Poor Law reform. Senior's successor as Drummond prof at Oxford was William Forster Lloyd, whose lectures presented a very, very interesting critique of the poor law reform. Lloyd is best known for the "tragedy of the commons," which Garrett Harding badly misinterpreted. Lloyd's point was actually that disposed poor people had a RIGHT to welfare aid from the community.
ReplyDeleteSandwichman
ReplyDeleteYou say “Well, Egmont, you forget that if the owners of capital BELIEVE that profits are a subtraction from wages (and/or vice versa) and act accordingly it becomes a self-fulfilling prophecy.”
Obviously, you have never heard of the Invisible Hand. It does not matter what people believe they are doing. They think they follow their own interest but, in fact, promote the overall optimum optimorum. Self-delusion is the whole point of the free market system and the ultimate justification since Mandeville’s Private Vices = Public Benefits. Of course, this is economic storytelling and proto-scientific garbage.
Overall net-profits does NOT come into existence because people dream or hallucinate about them but ultimately because of the increase of private/public debt. This is the Invisible Hand. If the budget is balanced C=Yw there is NO overall profit, NO matter what capitalists believe or how they act. With regard to profit there is NO self-fulfilling prophecy only the Iron-Objective-Eternal-Testable Profit Law.
My proof shows how the Invisible Hand works. What people believe is NOT AT ALL a matter of economics but of psychology and sociology.
Take notice that economics is NOT a science of Human Nature/motives/beliefs/expectations/behavior/action but a system science. Economics has since 200+ years been on the wrong track and has produced nothing but folk psychology and folk sociology. Economics is a failed science because economists are incompetent scientists who suffer from the social science delusion.#1
The Profit Law consists of measurable variables. It is testable and it will be corroborated without exception in all countries with a scientific infrastructure without bothering one second about people’s silly beliefs.
Egmont Kakarot-Handtke
#1 For details of the big picture see Failed/Fake scientists
https://axecorg.blogspot.de/2015/11/failedfake-scientists-cross-references.html
Egmont: "Obviously, you have never heard of the Invisible Hand."
ReplyDeleteAu contraire, my dear Egmont. The "invisible hand" is a lump of labor, (EXPLETIVE DELETED).
http://econospeak.blogspot.ca/2018/02/is-invisible-hand-lump-of-labor.html
Sandwichman
ReplyDeleteYou say “The ‘invisible hand’ is a lump of labor”
Obviously, you have not realized that your lump-of-labour (EXPLETIVE DELETED) has already been refuted. See
Unemployment is the outcome of political economics
https://axecorg.blogspot.de/2016/09/unemployment-is-outcome-of-political.html
Egmont Kakarot-Handtke
Oh, Egmont. An assertion is not a "refutation."
ReplyDeleteBarkley Rosser
ReplyDeleteScientific standards are well-defined: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
Because a theory must satisfy TWO criteria ― material AND formal consistency ― it is sufficient for a refutation to prove that it is EITHER materially OR formally inconsistent.
I have proven that Ricardo’s profit/distribution theory is formally inconsistent. More specifically, that Ricardo committed the Fallacy of Composition and the Humpty Dumpty Fallacy by defining total income as sum of wage income and profit.#1, #2 More specifically, the macroeconomic definition of total income as Y=W+P translates algebraically into 1=1/(1+P/W)+1/(1+W/P) and this translates verbally into Ricardo’s pivotal claim “… profits would be high or low in proportion as wages were low or high.” (Principles, p. 110) but because the premise is false Ricardo’s assertion is false.
By consequence, Ricardian economics is refuted. Now, the ball is in your field. If you do not agree with me ― and you obviously don’t ― you have to demonstrate where my logical error/mistake/blunder lies. Blah blah is NOT sufficient.
What you could alternatively do is to demonstrate that I am empirically wrong because from the axiomatically correct profit theory follows the general balances equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 while from Ricardo’s false profit theory follows the Post Keynesian balances equation (I−S)+(G−T)+(X−M)=0.
The experimentum crucis – which of the two equations is empirically true? – has never been performed for the simple reason that macroeconomics runs since Keynes blindly on the false profit theory and the false Post Keynesian balances equation.#3 MMT is smoking gun proof.
But again, the ball is in your field. If you know in your profound academic erudition that there is an empirical study which has corroborated the Post Keynesian balances equation or refuted my balances equation it is your scientific duty to present it in the current discussion. Again, blah blah is NOT sufficient.
As One of the Old School said: “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.”
Egmont Kakarot-Handtke
#1 Ricardo, too, got profit theory wrong. Sad!
https://axecorg.blogspot.de/2018/02/ricardo-too-got-profit-theory-wrong-sad.html
#2 Profit, income, and the Humpty Dumpty Fallacy
https://axecorg.blogspot.de/2018/02/profit-income-and-humpty-dumpty-fallacy.html
#3 How Keynes got macro wrong and Allais got it right
https://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
Interesting approach Egmont, getting you farther than anyone else I know of, but I still see a lot of problems with it. You claim objectivity over a model consisting of two sectors: firms and households. The problem is that not only all activity is happening endogenously but its"axioms" are construed from endogenously obtained elements as well. How can you be certain that your point of view is from the outside looking in? Or, objective in regards to what definition? It all looks like would-be-subjective/inductive thinking to me, because the "axioms" you come up with are inherently insufficient to glean a systematic meaning, or purpose, from.
ReplyDeleteAs far as I know, even subjective logic requires that a model in its entirety be delineated from its axioms; and thus, that it cannot already contain those axioms nor any of its elements beforehand. This would make your model inductive and twice removed from being objective; so not necessarily wrong, in that it may well enable you to draw some correct specific inferences, but any certainty is out. The only way to possibly get back to objective logic is by claiming that as a human being and in part creator of the economic system (part God of it if you will), you know the overriding purpose of it all; which then would become axiomatic, but making your set of endogenous "axioms" at best uncertain for the rest of time.
Instead you claim to have discovered a macroeconomic Profit Law, but
there is a real problem with that too. You "axiomatically" split total profit Q into Qm (monetary profit) and Qn (non-monetary profit). If the system allows the latter to become part of the former and/or vice-versa however, then not only are these not "entirely different kinds of profits" as you claim but you'll have to show a common numeraire as well, or the premise and hence your theory of profit is false, even if you manage to draw the right conclusion. Come to think of it, what is your theory of money? Every factor/element in your identities numerated in the latter needs it!
Your "general balances equation" is in conflict with your frequent
ridicule of the existence of economic equilibrium. Haven't been around much lately, did I miss something? But never mind... what makes you now think that such a static depiction has merit in a known to be dynamically operating economy; where in the absence of returns, capital is deemed worthless? Would you agree that purpose, while not derivable mathematically from the general balances equation, is yet important to all economic agents? And finally for now, in order to use investments (I) in a meaningful equation, you and by implication the Post Keynesians you claim to follow up on will first need a comprehensive theory of that ephemeral capital. Got one?
John V
vertegaa@vcn.bc.ca
ReplyDeleteA theory must satisfy TWO criteria ― material AND formal consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing. This is known since 2000+ years: “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)
So, the first problem to solve is the Starting Problem. J. S. Mill put it thus: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.”
Krugman, for one, is quite explicit about how he has solved the starting problem: “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, of course, is an idiot. Maximization and equilibrium cannot serve as axioms because they are NOT certain, true, and primary. For various methodological reasons, given elsewhere#1, I propose to start with this core of macroeconomic and behavior-free axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
These premises are certain, true, and primary, and therefore satisfy all methodological requirements. All variables are measurable in principle. The set of premises is minimalistic, that is, Occam’s Razor has been applied and the set cannot be reduced further, only expanded. The set contains no nonentities like utility, constrained maximization, equilibrium, and no normative assertions.
You can NOT refute these axioms by doubting and nagging, only by replacing them with a superior set. Or, in Feynman’s words: “The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.” (Feynman)
I am sure that you cannot do it, and nobody else, for that matter because you cannot have an axiom set for the most elementary production-consumption economy with less than three axioms. The set (A1)/(A3) replaces the neo-Walrasian set and the Keynesian set of foundational propositions.
See part 2
Part 2
ReplyDeleteYou say: “because the ‘axioms’ you come up with are inherently insufficient to glean a systematic meaning, or purpose, from.” Yes, but the idea that some purpose must be put into the axioms indicates that you do not yet fully understand what axiomatization is all about.
You say: “You ‘axiomatically’ split total profit Q into Qm (monetary profit) and Qn (non-monetary profit). If the system allows the latter to become part of the former and/or vice-versa however, then not only are these not ‘entirely different kinds of profits’ as you claim but you’ll have to show a common numeraire as well, or the premise and hence your theory of profit is false, …”
Perhaps the terminology is a bit unfamiliar. Both monetary Qm and nonmonetary profit Qn are nominal magnitudes, e.g. Dollar, Yen, Euro etc., but monetary profit can be read off a bank account or touched in the cash box, non-monetary profit is the not-yet realized increase of an asset’s value or what is commonly called a paper profit.#2
You say “Come to think of it, what is your theory of money? Every factor/element in your identities numerated in the latter needs it!”
True, accordingly, money has already been treated extensively elsewhere.#3
You say “what makes you now think that such a static depiction has merit in a known to be dynamically operating economy.”
The ‘general balances equation’ is not static and has nothing to do with equilibrium. It is more like reading a speedometer in a moving car.#4
Egmont Kakarot-Handtke
#1 For details of the big picture see cross-references Axiomatization
http://axecorg.blogspot.de/2014/12/axiomatization-cross-references.html
#2 Primary and Secondary Markets
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1917012
#3 For a start see Fixing the loanable funds blunder
https://axecorg.blogspot.de/2017/08/fixing-loanable-funds-blunder.html
#4 The Synthesis of Economic Law, Evolution, and History
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2500696
Two questions, Egmont:
ReplyDelete1. What is your motivation for expending what must be considerable time, effort and frustration in promulgating your "science"?
2. Do you ever experience self-doubt or are you 100% certain that your discovery is 100% foolproof?
Sandwichman
ReplyDeleteYou ask: “What is your motivation for expending what must be considerable time, effort and frustration in promulgating your ‘science’?”
Moot question as you could know from Schumpeter: “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.”
More clues for the clueless are to be found in ‘A heap of scientific rubbish’
http://axecorg.blogspot.de/2016/08/a-heap-of-scientific-rubbish.html
Yous ask: “Do you ever experience self-doubt or are you 100% certain that your discovery is 100% foolproof?”
No, yes. More clues for the clueless are to be found in ‘John Hicks, fake scientist’
https://axecorg.blogspot.de/2017/09/john-hicks-fake-scientist.html
Egmont Kakarot-Handtke
Egmont:
ReplyDeleteApparently Aristotle forgot to add: ..."existing in the natural physical world". The Sophists long before him had already made the distinction between those things and those made by men.
The first problem to tackle is following up on the Sophists, by realizing that everything economic concerns accounts. Accounts aren't primary, they follow on what is accounted for.
All your axioms involve accounts; and accounting, being a deductive discipline, follows its own set of fundamental assumptions. This puts you even farther behind in proving your claim to be objective. Actually, apart from not being primary, there is no way that your premises can be objectively certain and true either. I guess by your own criterion, that makes you an idiot too?
No need to nag and doubt your set of three axioms; as, unless you set me straight, refutation follows from the above. FWIW, as well as placating Feynman, I have my own set of three axioms (www.vcn.bc.ca/~vertegaa/preface2.pdf) and whether these are superior or not I'll leave up to the reader to decide. I'm currently working on updating its index page and expect it, plus a whole lot of other stuff, to be available in about a month or so.
You're not saying much about objectivity, i.e. your quasi-subjective approach, anymore; having a hard time with countering my arguments? Furthermore, while it may very well be true that I "do not yet fully understand what axiomatization is all about", given that you seem to hold that with the right set of axioms and deductive reasoning any system can be shown to contain enough information to fully explain its own meaning, I don't think you are capable of teaching me much. Or do you perhaps also hold that the economy is meaninglessly meandering through time? In which case though, all your energy spent in trying to change anything is surely wasted, no?
I'm afraid "For a start see" doesn't cut it as a theory of money by a mile. As you may know the seminal work on money according to Schumpeter was written as a 600+ pg. PhD thesis by a fellow named Koopmans in the 30s. Problem with it was that its author never got the nerve up to defend it, causing him to forgo on his doctorate. Why?? The dissertation was written in German, did you investigate it in your quest to destroy conventional economics? Point is, a comprehensively true theory of money hasn't been written yet.
You write: "The ‘general balances equation’ is not static and has nothing to do with equilibrium. It is more like reading a speedometer in a moving car."
Huh? Making up your own jargon now I see. In spite of the built-in redundancy emphasis of your expression, equa/equi no longer means equal and libra no longer means balance/scale. Why don't you go all the way with this quackery and instead of calling it a general balances equation identify it as an economic speed indicator. You'll be nicely mixing up scalar with vector magnitudes but what the heck... nuff said.
John V
There you go, John V., you have simultaneously committed both the Fallacy of Insufficient Abstraction and the Humpty Dunpty Fallacy, both of them taught in all classes of logic and philosophy for well over a century and known even to some schoolchildren, at least those not yet shot to death by gun wielding mass murderers. Shame on you.
ReplyDelete"No, yes."
ReplyDeleteThat's what I thought.
vertegaa@vcn.bc.ca
ReplyDeleteRoughly speaking, the distinction between science and non-science corresponds to the ancient Greek’s distinction between episteme (= knowledge) and doxa (= opinion). Aristotle relates to episteme while the Sophists relate to doxa: “Sophistry is a productive art, human, of the imitation kind, copy-making, of the appearance-making kind, uninformed and insincere in the form of contrary-speech-producing art.” Economics has never risen above sophistry.
You say: “All your axioms involve accounts; “ False. The 2nd axiom, i.e. O=RL, involves NO accounts. Only the subset of nominal variables Yw, C reappears in macro accounting. The axioms involve elementary algebra, and accounting is only part of the story.
Thank you for the link to your preface. I have read your three axioms and, as you let me know “I don’t think you are capable of teaching me much”, you dispense me from the obligation to comment on them.
Here some minor points for general clarification.
You say: “You’re not saying much about objectivity, i.e. your quasi-subjective approach,” I have clearly stated that economics is not a social science but a system science. Accordingly, it has to be based on objective axioms. My approach is objective-structural-systemic and this is exactly what makes it superior.
You say: “Or do you perhaps also hold that the economy is meaninglessly meandering through time?” Meaning is a religious/philosophical/psychological category which is NOT axiomatizable, to begin with. You are still lost in the social science delusion.
You mention Koopmans’ monetary theory and ask: “The dissertation was written in German, did you investigate it in your quest to destroy conventional economics?”
No. Koopmans was one of the founding fathers of General Equilibrium Theory. If he had a superior theory of money it did not reappear in GT, see Hahn: ‘On some problems of proving the existence of an equilibrium in a monetary economy.’ Anyway, Koopmans has not realized in time that Walrasian equilibrium is a dead end and therefore he failed the scientific competence test.
“At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin.” (Blaug, 1997)
The GT folks have put equilibrium in the axioms and this is a rather ordinary petitio principii.#1
By the way, I just stumbled across a quote of Hahn which makes my point: “It is pretty clear that usable economics will have to be of some sort of macro character. But what sort?” This dovetails with my meme: “If it isn’t macro-axiomatized it isn’t economics.”
With regard to the balances equation, I retract the metaphor with the speedometer. The balances equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 relates to a period of given length and shows the accounting balances = residuals of the four sectors (business, household, government, RoW). It has NOTHING to do with equilibrium. The beauty of the axiomatically correct balances equation is that it is testable against the After-Keynesian balances equation.
With regard to empirical testing, things do not end with the balances equation. From the objective systemic axioms follows the rather complex Employment Law which is ideally suited for a test against the Phillips curve.#2
I do not see that anything comparable follows from your axioms which resemble more a declaration of human rights.
Egmont Kakarot-Handtke
#1 Petitio principii — economists’ biggest methodological mistake
http://axecorg.blogspot.de/2016/05/petitio-principii-economists-biggest.html
#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2130421
"I retract the metaphor with the speedometer."
ReplyDeleteBy "yes, no," you meant "no, yes," then?
Barkley Rosser
ReplyDeleteThe Humpty Dumpty Fallacy ― one of the worst idiocies of economics
In the elementary investment economy, macroeconomic profit Q is defined as the sum of profit in the consumption goods industry, i.e. Qc≡C−Ywc, and the investment goods industry, i.e. Qi≡I−Ywi, that is, Q≡(C−Ywc)+(I−Ywi) or Q≡C+I−Yw (i). Profit Q is greater than zero if the value of output C+I is greater than total wage income Yw.
Now, Humpty Dumpty introduces a redundant definition by saying that profit may be called “income of the business sector” and that this “income” can be added up with the wage income of the household sector to “total income” Ψ thus
(a) Ψ≡Q+Yw and now (i) is rewritten
(b) Q+Yw ≡C+I and then, hey presto,
(c) Ψ≡C+I that is, “total income” is “by definition” identical to “value of output” or in the usual sloppy parlance “income = value of output” which obviously contradicts (i) and ― strangely enough ― makes profit disappear.
This definitional idiocy can be traced back to Keynes “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT p. 63)
Egmont Kakarot-Handtke
vertegaa@vcn.bc.ca
ReplyDeleteThe first sentence of your preface reads: “The methodology used in our quest to establish how the economy of ours functions, involves persuasion by logical reasoning that existing theories either got it all wrong, or are at least lacking in consistency to be able to explain how an economy in a human-central world works.”
Feynman said: “Perhaps it is because their horizons are limited in this way that some people are able to imagine that the centre of the universe is man.” (Feynman)
Persons with a limited horizon invariably end up in the so-called social sciences where they are doing cargo cult science. Cargo cult science comes in the format of the sitcom with much storytelling, second-guessing other people’s motives, plain common sense arguments of the type ‘the sun goes up’, moralizing, and appeal to emotions. People like explanations in the form X happened because A did Y to B because he is a good/bad person and good/bad persons are supposed to act in this way as we know since Adam and Eve. The emotionally charged narrative is the only form non-scientists can connect the dots and make sense of reality.
The scientists’ certain knowledge of reality is incorporated in a theory. A theory satisfies the criteria of material and formal consistency. The true theory is the humanly best mental representation of reality.
The truth value of a theory does not in any way depend on the understanding of non-scientists or whether they like/dislike it. Populism is non-existent in science.
Populism is the dominant form of communication in the political realm where the appearance of majority assent is needed because legitimacy is defined in this way.
In the preface you appeal directly to the populace: “The purpose of this book is to explain what an economy is and how it works; and it will set out to do so in a way that aspires to make it understandable for just about everyone moderately educated.”
This tells everyone that you are in the business of political agenda pushing and by implication entirely out of science.
Your three axioms bear this out: “1. our economy is an all human-made systematic construct of accounts, having boundaries that are open to a natural existence into which we are born and live as aspiring to better ourselves beings, and whose price to do so all the economy's accounts are made-up from; 2. it exists for the sole purpose of adding an extensive variety of use-values to humanity, that couldn’t as commonly be obtained in the absence of a formal economic structure, whereby the exogenously existent living standards of human beings are to be enhanced in perpetuity; and 3. no one can be denied the opportunity to participate in it on the supply side. Short of criminal behaviour towards the stated second axiom, there are no exceptions to the third one; since there are no longer opportunities for human beings to make a living outside of an economy, it is a human right’s issue.”
This axiom set does not contain the words profit or income nor does from it ever logically follow what profit is, and this is sufficient to prove that it relates to society but not to the economy. So what you are defining with your three axioms is the subject matter of sociology but not economics. You make the same economics-is-a-social-science mistake as Orthodoxy and traditional Heterodoxy.
Note that there is NO way that leads from the understanding of human behavior to the understanding of the behavior of the economic system. All human-centered approaches invariably crash against the methodological wall of the Fallacy of Composition. In other words, if it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
Your "doxa" about the "distinction between science and non-science" is supposed to convince me of what? I'm quite happy with my human-made macroeconomic system not being scientific, as it would be silly in the utmost degree to apply science on a system of accounts. I leave that specific "skill" to you, and you can keep on making a fool of yourself forever if you so desire.
ReplyDeleteWithout, what you call its subset variables, Yw and C, O is entirely meaningless; which proves that output doesn't escape from being a booked quantity either. You're clasping at straws. The according to you "objective axioms*" upon which your entire "system science" is based have been exposed as fake. You don't _have_ a science to promulgate or fall back on, making the rest as well as your entire follow-up post** "doxa" or sophistry by your own definition. What you've got is an interesting inductive model that, with some more or less valid givens, is able to expose a lot of folly coming from the economics profession, but that's about the extent of it. I'm done again debating. Good luck.
John V
* Egmont's "contribution" to philosophy.
** Feynman's quote in which he talks about nature is out of context. The economic system is an all human-made subset of the natural world into which we are born and live. In that world, of course humans are central to its own subset(s). Insinuating that this means humanity to be the center of the universe, if not deceptive, is just more silliness demonstrating your desperation.