Sunday, January 31, 2016

Egmont Kakarot-Handtke — Economists cannot do the simple math of profit — better keep them out of politics

This gives one the most elementary version of the profit law: profit is positive if the households dissave (increase debt/decrease financial assets) and negative if the households save. So profit for the economy as a whole has nothing to do with productivity, the wage rate, or risk or any other of the usual explanations which stem from the observation of a single firm. In fact, exactly here is where error/mistake comes in because what is true for a single firm is not true for the economy as a whole. This logical blunder is well-known as fallacy of composition.…
AXEC: New Foundations of Economics

See also

Philosophical Economics
The [Kalecki-Levy] Corporate Profit Equation Derived, Explained, Tested: 1929-2013


NeilW said...

The mistake in this approach is equating 'profit' with 'retained profit', i.e. corporate savings.

And unsurprisingly corporate savings have exactly the same effect on the economy as any other private sector savings - a paradox of thrift effect.

Profit in flow is just the wages of capitalists. I'm really starting to dislike this separation between 'labour' and 'capital' as though the latter somehow are not a bunch of people as well.

You can't lump capitalists together any more than you can lump labour together. The salary package negotiations of your average manager in the primary employment sector is completely different from your average fast food worker in the secondary labour market.

The group classification is obsolete.

Tom Hickey said...

The group classification is obsolete.

Right. There have been several transformations since the factors were first elaborated in classical economics. More nuance is needed.