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Good to have you back Nick. We plebs need you

Not Trampis: Thanks! Yes, I was a long time away from blogging. Various reasons.

I look forward to your posts, but I have no idea what this post is about. A brief non-jargon explanation of what this post is about would be ever so welcome. (I have a doctorate from a fine, fine school and am a professor, but I am lost here and would like to be found.)

ltr: sorry. Maybe I've been away from blogging too long, and my writing/presentation skills have got rusty. Maybe I will re-write it someday.

Let me try this:

In Intro micro when we do monopolistic competition we tell students what the long run equilibrium looks like and how we get there, by firms producing where MR=MC to maximise profits, and firms entering or exiting the "industry" to bring profits to zero. I want to do the same for macro. It's not just one "industry" (whatever precisely that means) that is monopolistically competitive; it's the whole economy.

Does that help?

In Intro micro when we do monopolistic competition we tell students what the long run equilibrium looks like and how we get there, by firms producing where MR=MC to maximise profits, and firms entering or exiting the "industry" to bring profits to zero. I want to do the same for macro. It's not just one "industry" (whatever precisely that means) that is monopolistically competitive; it's the whole economy.

Does that help?

[ This is a fine help and just what I at least needed.

Thank you, and do blog happily on and I will look forward to each post. ]

Marginal madness
Comment on Nick Rowe on ‘Equalising the twin markups in a monopolistically competitive macroeconomy’

Your treatment of profit is partial and marginalistic. Marginalism is defined by the Walrasian axiom set=microfoundations. Because the Walrasian axioms are provable false your treatment of profit is false. Marginalism has already been dead in the cradle 140+ years ago.#1

For the determination of monetary profit of the economy as a whole one has to start with the most elementary case of a pure consumption economy without investment, government, and foreign trade.#2 In this elementary economy three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

In case (i) the monetary saving of the household sector Sm≡Yw-C is zero and the monetary profit of the business sector Qm≡C-Yw, too, is zero.
In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative.
In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.

It always holds Qm+Sm=0 or Qm=-Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law. Total profit is distributed among the firms that comprise the business sector.

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, capital, power, monopoly, waiting, risk, greed, the smartness of capitalists, or any other subjective factors. Total profit/loss is objectively determined in the most elementary case by the change of the household sector’s debt.#3

Egmont Kakarot-Handtke

#1 For details see ‘First Lecture in New Economic Thinking’
http://axecorg.blogspot.de/2017/05/first-lecture-in-new-economic-thinking.html

#2 The macrofoundations approach starts with three objective-systemic (= behavior-free) 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. For a start it holds X=O.

#3 For more details see cross-references Profit
http://axecorg.blogspot.de/2015/03/profit-cross-references.html

Egmont:

Capitalists may consume too. Workers may save too. And it's saving in the form of money that matters for the AD curve. And this post is not about the AD curve anyway.

Nick Rowe

You say: “Capitalists may consume too. Workers may save too.”

True. In this case the Profit Law reads Qm≡Yd+Sm. This, though, does not alter the fact that your treatment of profit is false.*

Egmont Kakarot-Handtke

* For details see cross-references Profit
http://axecorg.blogspot.de/2015/03/profit-cross-references.html

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