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Pillars of Mainstream
Macroeconomics Toppled, Says an Article Published in the July Issue of The American Journal of Economics and Sociology
Reisman
shows that the fact that the value of a loaf of bread equals the value of the
flour required to produce it plus the value added by the baker in its production,
does not entitle one to forget the value added by the baker and view the
value of the bread as counting simply the value of the flour. He shows that
if one keeps in mind that what the value of the loaf of bread equals is the
value of the flour plus the value added by the baker, then the value of the
bread still counts nothing other than the value of the bread, not the value
of the flour.
Reisman
accuses contemporary macroeconomics of a double violation of the laws of
mathematics: namely, arbitrarily ignoring parts of equations (such as the
value added by the baker to the flour) and then adding up equations, or parts
of equations, that, being alternative, mutually exclusive formulations of the
same facts, are not properly subject to addition. Thus, while the value of a
loaf of bread can be formulated alternatively as equal to the value of the
loaf of bread, or to the value of the flour required to produce it plus the
value added by the baker, or to the value of the wheat plus the values added
by both the baker and the miller, it is still, in all three cases, always
equal just to the value of the loaf of bread. The conclusion of contemporary
economics that by means of these formulations the value of the loaf of bread
counts not only its own value but also that of the flour and wheat requires
first illegitimately ignoring the value added by the baker and the values
added both by the baker and miller, and then adding up these three mutually
exclusive equations (or what remains of them).
Reisman
goes on to argue that since the value of final products counts only itself,
the only way to include the value of the intermediate products is to go out
and count them. Failure to do so, he claims, has made the contemporary
concepts of gross domestic product (
While
the implications of Reisman's article are radical, especially for such
matters as the respective roles of saving and consumption in spending and
income formation, as far as pure aggregate economic accounting is concerned,
his concept of Gross National Revenue can easily be related to the
contemporary macroeconomic accounting aggregates. Subtracting aggregate
business costs from sales revenues, for example, reduces GNR to National
Income, i.e., essentially the sum of profits plus wages. Subtracting those
same costs from the productive and consumption expenditures that constitute
GNR reduces these expenditures to the sum of consumption expenditure plus net
investment. Subtracting all such costs except depreciation cost reduces GNR
to
Reisman,
who is Professor of Economics at Pepperdine
University's Graziadio School of Business and
Management in Los Angeles and the author of "Capitalism: A Treatise on
Economics" (Ottawa, Illinois: Jameson Books, 1996), says that acceptance
of his approach would move economics sharply in the direction of the classical
and Austrian schools and much further away from Keynes. Click here to read Reisman's article in pdf format. Go or Return to the Essays Menu
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