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The Present State of Economics: Errors and Omissions Excepted

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Post-Crash Economics

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Abstract

More and more often, confidence in the professional qualifications of individuals representing certain occupational groups which formerly were held in high esteem has started to erode. Dismissing scientific evidence and ignoring expert opinion has become a feature of political discourse around alternative truth. In part this is self-inflicted as various statements that are publicized with the aura of academic certainty do not stand up to closer scrutiny. Alas, this applies particularly to economics, which is often held up as the supreme discipline of social sciences. It suffices to take a look on page one of reasonably respectable printed media to recognize how important economics is in contemporary society. In this chapter, we highlight some issues from micro- and macroeconomics that are critical.

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Notes

  1. 1.

    Since the outbreak of the ‘Great Recession’ in 2008, quite a few disapproving assessments of mainstream economics have been published. The criticism presented here does not capture all aspects and differs in some respects from other sceptical appraisals, for instance, Weeks (2014).

  2. 2.

    See the chapter by Jones in this volume on the use and measurement of utility and the assumptions behind the ‘law of diminishing marginal utility ’. Cf. also Barzilai (2014).

  3. 3.

    With regard to the following, cf. Helmedag (1994), pp. 15 ff.

  4. 4.

    Sombart (1916), p. 34, own translation from German.

  5. 5.

    Often, Adam Smith is invoked as authority for this opinion. However, in his magnum opus, the invisible hand is merely mentioned once. Cf. Smith (1976) [1776], p. 478.

  6. 6.

    Most remarkably, General Equilibrium Theory has failed to prove the ‘law of demand ’ in general. Cf. Kirman (1989).

  7. 7.

    This point of criticism plays a major role in the book by Keen first published in 2001 (2011a).

  8. 8.

    In fact, full shop shelves suggest that vendors regularly set ‘production prices ’ that is to say they increase costs per unit by a mark-up, whereas customers determine the quantities sold. Regrettably, a theory regarding origin and magnitude of the ‘trade margin’ is wanting in the usual assortment.

  9. 9.

    Regarding the rise of the now dominant approach, cf. Bharadwaj (1994). This has happened in spite of early warnings from the horse’s mouth: ‘… the proportion of supply to demand , or demand to supply, has become almost an axiom in political economy , and has been the source of much error in that science’. Ricardo 1970 [1817], p. 382.

  10. 10.

    For another breakdown of the profit equation that especially unveils the dependency on real unit labour costs, refer to Helmedag (2016). Section VII resumes this line of thought.

  11. 11.

    Cf. Helmedag (1994), pp. 56 ff. for a summary.

  12. 12.

    Marx (1974) [1859], p. 132, own translation from German.

  13. 13.

    Yet, the debtor will be liable not only to repay the sum borrowed at a later time from his assets or income but also interest due.

  14. 14.

    Accordingly, the central bank will be the only institution to show the circulating cash on its liabilities side. For a sketch of the history of money and a brief description of deposit money creation, refer to Helmedag (2013) or Ehnts (2016a).

  15. 15.

    Even with a reserve rate of 100% banks may create unlimited amounts of deposits. In this case, the central bank is forced either to close them or to provide the reserves necessary. Since central banks are also responsible for financial stability, they probably choose the latter alternative.

  16. 16.

    According to Keen (2011b), the exogenous money supply is the key weakness of prevailing macroeconomics.

  17. 17.

    Incidentally, a more detailed examination raises doubts about the deep-seated belief that a central bank might combat inflation either by reducing the money supply (formerly) or via hiking the interest rate (presently). Cf. Helmedag (2009a, 2009b).

  18. 18.

    See Wray (2012) for an exposition of government spending in the US and Forstater (2006) for a discussion of history of economic thought.

  19. 19.

    This was also what Keynes argued during the Great Depression. Cf. Ehnts (2016b).

  20. 20.

    Revealingly, the great classical theorists Smith , Ricardo and Marx , in conclusion, shared the view that the rate of profit declines in the course of development, and accumulation thus comes to an end sooner or later.

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Authors and Affiliations

  1. Department of Economics, Chemnitz University of Technology, Chemnitz, Germany

    Dirk H. Ehnts & Fritz Helmedag

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  1. Dirk H. Ehnts
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Editors and Affiliations

  1. Department of Economic Studies, University of Dundee, Dundee, United Kingdom

    Omar Feraboli

  2. Department of Economic Studies, University of Dundee, Dundee, United Kingdom

    Carlo J. Morelli

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Ehnts, D.H., Helmedag, F. (2018). The Present State of Economics: Errors and Omissions Excepted. In: Feraboli, O., Morelli, C. (eds) Post-Crash Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-65855-1_7

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  • DOI: https://doi.org/10.1007/978-3-319-65855-1_7

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