The Chimera of Macroeconomics

  In various regards on the supply side, we doubt that the law of diminishing returns has anything to do with the economy in general and the economic growth in particular. In this age of softness, moreover, the lion’s share of GDP is taken by services at least in Anglo-America; something like 75% to 80%.                          What’s service got to do with it, the law of diminishing returns? At any rate, some of us may recall the “network effect,” the polar opposite of the famous law, in most every service industries.    Vice Versa. Suppose we are running on the job of cutting cookies. In general, the combination is one hand ( h ) with one cutter ( c ): For the sake of convenience, let us assume that “the capital to labor ratio,” often denoted as k= K/ L , initially to be the unity ( k= 1c/ 1h= 1 in naked ). The conventional wisdom tells us that when the ratio decreases, i.e. Δ k <0 , th...

  When macroeconomists refer to “empirical science,” they might unwittingly think of Eternity. Take the “ Cambridge Quantity equation ” M= k ∙ I (John R. Hicks, 1937) of liquidity preference ( M d for “ money demand ” in macroeconomics) for example. Then, we juxtapose for the sake of comparison the same with to the popular proposition “ The money supply M is an exogenous policy variable chosen by a central bank, such as the Federal Reserve ” ( Gregory Mankiw , Macroeconomics ); “money supply” is often denoted as M s . By definition, both demand and supply are as at a moment (T 0 in the time dimension).              Let us step into the so-called “money market.” What if the market is not in “ equilibrium ,” or M s ≠ M d = k ∙ I ? Oh, that’s a peanut: The “I ” (for the “nominal” GDP) as the only “endogenous free variable” momentarily varies so as to push the money market back in equilibrium. Got that? The Truth ...