Saturday, November 26, 2016

Egmont Kakarot-Handtke — The thing with profit and exploitation

The Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive.” (Desai, 2008)
This perhaps surprises the general public: economists do not know until this day what profit is. By consequence, they have NO idea about how the monetary economy works. More specifically, economics consists of four main approaches, Walrasianism, Keynesianism, Marxianism, Austrianism, and NONE of them gets profit right.#1
As a consequence, economic policy guidance never had sound scientific foundations. Because economists never captured the essence of the market economy, whatever they have said for or against capitalism, communism or socialism has been based upon provable false theories about how the monetary economy works....
AXEC: New Foundations of Economics
The thing with profit and exploitation
Egmont Kakarot-Handtke | University of Stuttgart - Institute of Economics and Law

17 comments:

Unknown said...

What he writes is a bunch of bull. His analysis suffers from the same lacunae that he accuses others off. Tom i don't think that this article adds anything to the debate.

Tom Hickey said...

My point is that profit theory is something worth debating, since economists don't agree on it and there is good reason to think that it is a key piece in the puzzle.

I happen to like the surplus value theory in that it seems intuitive that land and natural resources are common goods and only become economically valuable through "labor," at a minimum gathering. A log doesn't become firewood until it is gathered and chopped.

It seems evident, too, that land ownership did not arise out of use as Locke imagines but rather out of enclosure of the commons and legal title provided institutionally in some way that generally involved expropriation historically.

Profit from ownership of capital does look a lot like rents from land ownership in that neither involve work and appear to expropriate value above production cost, which is labor's wages.

That's not a profit theory itself but possibly the germ of one.

I don't think that EKH's argument is obvious flawed, either. As matter of fact, the division of surplus value is not simply expropriation from labor by capital but more complicated since different interests with different and fluctuating levels of power are operative.

Bob said...

Policy prescriptions are worth debating; pretty theories are not.

AXEC / E.K-H said...

Tom Hickey

There are three things that are intertwined but have to be analytically kept apart: (i) Theory of Value, (ii) Theory of Profit for the economy as a whole, (iii) Distribution of overall profit between sub-sectors (production, banking, land use, etc.) and individual firms.

The Law of Value says that relative prices are inverse to the productivities.#1 This Law replaces the Labour Theory of Value.

The Profit Law for the pure consumption economy says that OVERALL profit depends on the expenditure ratio and the distributed profit ratio.#2

It holds in particular:
• Overall profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit maximizing behavior.
• In order that profit comes into existence for the first time in the pure consumption economy the household sector must run a deficit at least in one period.
• Profit is, in the simplest case, determined by the increase and decrease of household sector’s debt. There is a close relation between profit/loss and the expansion/contraction of credit for the economy as a whole.
• Wage income is the factor remuneration of labor input. Profit is not a factor income. Since capital is nonexistent in the pure consumption economy profit is not functionally attributable to capital.
• There is no relation at all between profit, capital, marginal or average productivity.
• Profit has no real counterpart in the form of a piece of the output cake. Profit has a monetary counterpart.
• The existence and magnitude of overall profit does not depend on the ownership of the firms that comprise the business sector.
• The value of output is, in the general case, different from the sum of factor incomes. This is the defining property of the monetary economy.
• Profit is a factor-independent residual and qualitatively different from wage income. Therefore, it is an elementary mistake to maintain that total income is the sum of wages and profits.#3
• There is no antagonism between total wages and total profits, and the distribution of consumption good output has nothing at all to do with profit.
• Innovation and efficiency are irrelevant for the profit of the business sector as a WHOLE. It is a FALLACY OF COMPOSITION to trivially generalize what can be observed in an individual firm.

In sum: The classical/neoclassical and Keynesian/Post-Keynesian Theories of Value/Profit are provable false.

Egmont Kakarot-Handtke

#1 ‘The Pure Logic of Value, Profit, Interest’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1838203

#2 ‘Essentials of Constructive Heterodoxy: Profit’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575110

#3 See also ‘When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119

Andrew Anderson said...

A very interesting thing to me is that in the Bible profit is good but profit taking ISN'T(!) good - at least from one's fellow countrymen.

Go figure and part of the answer is common stock as private money since that requires neither dividends (profit taking) nor usury.

AXEC / E.K-H said...

Andrew Anderson

You say: “A very interesting thing to me is that in the Bible profit is good but profit taking ISN’T(!) good ...”

It is common knowledge that the Bible belongs to the sphere of religion/belief/storytelling and that economics belongs to the sphere of science/knowledge/proof.

Both spheres do not mix, never have, never will. Your post is out of place.

Egmont Kakarot-Handtke

jrbarch said...

@EKH

It is also common knowledge that human beings sat around their campfires and told stories, danced, made music – out of a feeling for life and existence (replaced these days by the internet). Your science is just one of those stories that occupy the human persona, and your belief in its absolute superiority just mind and ego. I have read physicists who will not go there. You can’t stop the story telling with a story. The universe is bigger than that. When you build up a wall of concepts, best not to chuck the ladder.

From out of the same human being came both religion and science (and politics, philosophy, active intelligence, creativity, idealism, healing, communication, transport, organisation ....) - and that which generated ALL, persists. It also generates kindness and compassion, the essence of a human being – an absence of expression of which is a large part of the fiasco (story) of human social-political-economy. Which formula in the global accounts have you devised for Love?

IMHO science would be much better off investigating Love as a conditioning energy, essential to character - a prerequisite for all learning and growing. Its presence or absence is the defining, evolutionary, self constructive/destructive energy, conditioning the race. There is more in the human heart than mind can ever reach or imagine. It can understand, but only after the heart has given up some its secrets; and the bucket of mind is prepared, empty, attuned, receptive, and below. That too (the Ageless Wisdom) is a part of human history and the evolving human persona. That too, is Knowledge. Ignorance is a vacuum, into which arrogance surely rushes - also a large part of human history - especially the social-political-economy.
I have no idea whether or not AKT has something to add to the economic storytelling of any value. But I do know it would be a battle, and in gentleness is the greater strength, in simplicity is the greater wisdom. I also know a human being in essence is very very simple – Love is the radiance of that essence. (Not very ‘scientific’ I know).

Just look at a classroom full of primary kids: - the teacher knows instantly which ones have been loved. The dysfunctional ones have had little care; or have been mistreated, abused, hated – a lot of these belong to a new wave of ‘parents’ who are ice addicts etc. There is your social-political-economy.

AXEC / E.K-H said...

jrbarch

It is common knowledge that content and level of economic discussion is far below zero. There is NO need for you or anybody else to deliver more examples.

For details see ‘FakeNews, FakeScience: economics in the information age’
http://axecorg.blogspot.de/2016/11/fakenews-fakescience-economics-in.html

Egmont Kakarot-Handtke

jrbarch said...

EKH

! huh huh ....

jrbarch said...

To be clear EKH, I have no issue with an intellectual approach to physics or economics; or anything else. But for me, mind is limited.

I do have an issue with ‘trust me, I’m a scientist’. I have seen architects and planners asking for the same reverence - and look at the mess that is a modern city. Next thing you know the scientist will be wearing crown, ring, staff, vestments, insignia, and getting around on a portable throne. Genuflect when they walk into the room - while the poor pope will be drabbed in a hessian cassock. For me, science is also a religion, dealing with the garment of the Divine and the forces that flow within it. Society, politics and the economy are a religion; a belief system. There are those who believe in the Divine; there are those who disbelieve in the Divine. Both are Believers. It is better to know. There are those who believe in the human sciences, and there are those who are its critics. It is better to know what a human being actually is.

For me, money, the whole shebang, is actually very simple. A human being starts off greedy, progresses to being selfless, and leaves both behind to become conscious and a part of the underlying reality of humanity, and all of existence.

In this sense the Bhagavad-Gita is a ‘scientific’ document depicting the human condition. Patanjali’s aphorisms a scientific method. For me, the age of belief systems is rolling back, the curtain is slowly lifting; a new wave is rolling in and the old receding, on whose crest you are riding, determined to fight. The broadest possible outlook is always the best. A human being has a heart, and in that heart lays our true potential and destiny. I have come across some physicists whose studies have inspired them to turn within: - that is where intellect leads to eventually, because it wants to discriminate between what is real and what is not. My Australian aboriginal brothers call our society ‘white Dreaming’. Consciousness is the determining factor of expression on the outside.

All I am saying in essence is good luck; and let’s not erect science as another altar – it demeans us. When you look in the mirror of life, you will not see your ego staring back at you – that’s should be a clue.

AXEC / E.K-H said...

jrbarch

You say: “I do have an issue with ‘trust me, I’m a scientist’.”

There is NO issue at all, there is only your abysmal ignorance and confusion. Science is NOT about trust or credibility or belief or authority, but only about proof, more specifically, about the logical and empirical consistency of a theory. A theory in turn is the best humanly possible mental representation of reality.

Since the ancient Greeks introduced the distinction of opinion (= doxa) and knowledge (= episteme) NO scientist has ever said believe me. As Popper put it: “... a critical discussion is well-conducted if it is entirely devoted to one aim: to find a flaw in the claim that a certain theory presents a solution to a certain problem.”

So, there is NO issue at all. I have given you the Profit Law and if you have qualms with it you are invited to refute it. Of course, you cannot. But you can endlessly waffle about Love, the Divine, your Australian aboriginal brothers and all the other good vibration stuff.

Here is the ultimate test to practically find out the difference between doxa and episteme for yourself: You have the choice to board an aircraft that has been designed/constructed by your good vibration folks and one that has been designed/constructed by scientists/engineers. Whom do you REALLY trust?

OK, and now get out of economics.

Egmont Kakarot-Handtke

jrbarch said...

EKH

I am not ignorant; nor am I confused. I know exactly what belief is.

I would board the aircraft designed by engineers, but not one piloted by a scientist.

Economics is still mainly a veil over greed and power, which laugh at Theory. Human nature has to be faced first imho.

Human history tells me this too. Everyone looks to ‘science’ to pull the human being up out of the mess they are in. My point is mind created the problems in the first place, and you cannot use the same tool to fix things. Ego compounds the problem (I have sat in universities and watched professors arguing while their egos fried). Check out Wiki: Cognitive biases. Mind alone, is not enough.

That is a large step for any academic to take: - ‘mind alone, is not enough’. Should be written on the portals of the universities across the land. You will find the same thought in the Upanishads: ‘The worldly mind is born in darkness, lives in darkness, dies in darkness’. What would cause someone to say this? Write it down as a service to others. So I ‘find a flaw in the claim’ that science will eventually lift man out of his stupidity; because I see with utter clarity – mind, including intellect, are not enough. Mind goes around and around and around. Then you die. You will probably disagree. Some things have to be experienced for themselves.

I think the whole of human potential is in the heart. Experience, revelation, insight, vision, comes first; the mind follows. That has always been the way. Have never once been into ‘good vibration stuff’ in my life – ha! I am speaking practically, sincerely, from my own experience here: - for me, the whole of human potential is in the heart. Children learn (what they can) of love from their mothers; their fathers are too busy competing, theorising, pontificating, grasping. Love is why women are the more intelligent. For me, love is the only energy available to the human being, which can transmute, transform, and transcend human nature; that is my experience. Mind is not enough.

You cannot issue a command to me or anyone else, to get in or out of anything: - you have no authority, other than to yourself.

I should warn you, if you want to argue endlessly about all of this stuff, you will not knock me from my perch. Nor do I wish to change your perceptions and reality – they are your business. I am simply a part of an outlook on life that values the human heart, and knows it is my duty to say so; without shoving it down people’s necks. I am very wary of the ‘religious’ aspect of science, despite your claims for its theoretical purity. Human nature plagues scientists too. People decide what is important, for themselves.

You might have a tiny little bit of respect for the fact I am not telling you to get out of economics, or life.

Bob said...

jrbarch

You of all people should know that this character will not be receptive to your message. It's like giving a pill to a cat :)

jrbarch said...

Actually, it has taken me 3~4 years to learn that properly Bob, so I guess EKH is right in that I’m not that bright. I kept thinking there must be a way to talk to the mind and maybe spark an interest in the heart. Even though every success has always been from one heart to another. In the end, we know no subject until we have experienced it for ourselves. Words like that seem like mumbo jumbo to the mind: - for anyone who has experienced it, it is ‘abc’. I can understand the desire to want certainty. Mind has never been able to explain to a human being who they are: - everything else follows or gets lost, from that. We wandered out of Africa looking for ourselves and have forgotten why .... Hence we do dumb stuff. And are addicted to the daily ‘news’ cycle. It’s not really new at all .... I guess I’ll have to call my ‘aboriginal brothers’ ‘family’ now so I’m not mistaken for being ‘spiritual’: - although I feel so close to them and are so sorry about the devastation they have endured, I don’t see why they are not my brothers. Have been watching ‘First Contact’ lately, and on Aus tv last night. David Oldfield did a wonderful job of portraying arrogance and hubris and even a human streak in the end when he sat among children, innocently doing the white thing, which pleased him no end. The others had their eyes opened: - feeling first, mind second. :-)!!

Bob said...

You talk to people about their interests. Sometimes those interests will come from the mind, or the heart, or both. And those interests can change over time.
If you were talking with professor Bill Mitchell about his academic work, you'd find his approach cerebral. His interest in economics comes primarily from the mind. His interest in the Phillips Curve comes from both mind and heart. He could have just as well admitted that he isn't concerned about the plight of the unemployed, that his life's work is purely an academic exercise on his part. But we know from his writings (and presentations) that his motivations are from the heart.

What can be learned from the writings of AXEC/HAL 9000?

jrbarch said...

I always think of Bill as the Ayres Rock of the Australian economic landscape; the rest of them stumble around in the cities and barely know he is there. And definitely a rock with a strong pulse.

Bob said...

Can you expand on that metaphor?

To climb Ayres Rock is to experience more than a Pressure Drop ;)