October 5, 2017

Saving NEVER equals investment

Comment on Anonymous on ‘Why is MMT so popular?’

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Yous say “the real story is savings equals investment plus net production.”

THIS is the real story: Keynes got the paradigm shift from microfoundations to macrofoundations wrong. His methodological blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)#1, #2

The axiomatically correct macro relationships are:
Qm=−Sm                                 in the case of the pure production-consumption economy,
Qm=I−Sm                                in the case of the investment economy,
Qm=(I−Sm)+Yd+(G−T)+(X−M)    in the general case.
Legend: Qm monetary profit, Sm monetary saving, I investment expenditures, Yd distributed profit, G government expenditures, T taxes, X export, M import.

All I=S and IS-LM models are provably false.#3

Egmont Kakarot-Handtke

#1 How Keynes got macro wrong and Allais got it right
#2 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#3 For the details of the bigger picture see cross-references Refutation of I=S


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