The Chimera of Macroeconomics

  Opening a text book on Principles of Economics, one of the first things we come across is “Demand.” Fact one, demand is for marginal benefit, or utility per unit of the product. Fact two, the value of utility is accounted for in the sovereign currency unit . Fact three, the demand exists with no regard to the Supply and a price. The price would be the “opportunity cost” of grabbing the unit of good or service .                Fact four, “Demand” is periodic (T -1 , or per period) because no household would buy any product once and for good. This is taken for granted and rarely specified in textbooks. Incidentally, each and every one of us has by creation blind spots in our visionary system. Consequently, we in general and macroeconomists in particular often miss the periodicity out, with or without FOMO.              Now let us put “Demand for Money”...

J.M. Keynes once commented, or is said as such, that he was the only non-Keynesian in the room. Probably he was right.              First, he in the 1936 book suggests the liquidity preference function, M= L(i) , to the effect that the interest rate is the cause and “money demand” the effect. Strangely however, his Disciples rebut that the interest rate is to be determined endogenously of their model even as they before anything else buy into “liquidity preference.” The unintended consequence: One of the two causal directions of contradiction must be wrong.              Second, the Master discredits in so many words the classical loanable funds “theory” of interest rate. The following year and on, J.R. Hicks and Alvin Hansen, among other macroeconomists, resurrected the so-called “theory” to use it as another pillar of the “fairly well working” IS-LM model. As for...