Framing the ontology of political economy

"Senseless research is related to unforeseen discoveries. The role of the non-existent exists; the function of the imaginary is real; and logic teaches us that the false implies the true. It seems, therefore, that the history of the mind may be summed up in these terms: it is absurd by what it seeks, it is great by what it finds. »

Paul Valéry³

Eight main questions

Four cardinal points

In an Objective Political Economy (OPE), the four cardinal points are, in alphabetical order, competition, employment, money, and income⁴. At each of these points, two questions of general interest arise.

On competition: is the market's regulatory force not driven by price comparability? That is, can prices — wages and dividends included — be effectively compared without complex calculation, thereby enabling the freedom of choice?
On employment : what is the dynamic between capital accumulation and profit that guarantees a state of full employment? Which rules of public financial management best provide for obtaining this benefit?
On money: how do these public financial management rules, coupled with price-comparability-driven competition, provide what is necessary to preserve the long-term purchasing power of placements in savings accounts, loan securities, shares of corporate capital, and individual business capital? What about exchange rates with the currencies most used in international trade, as well as national trade balances with The Nagging Problem of the Balance of Payments (the title of a book published by Jacques Rueff in 1965)?
For incomes, what trends normally affect their national totals? If the complete distribution of these totals is not regulated by a tamper-proof key, where is there an arbitrary division and what does it imply to assume it?

Economy and justice

The two questions just raised about income — which trends normally affect its national totals, and where an arbitrary share arises once the full distribution of those totals is fixed by no inviolable key — are, at bottom, questions of justice. Two assertions answer them.

The economy can be just. Its own species of justice is commutative justice — the justice whose object is exchange. An economic exchange is a commutation of transferable properties, and where the price rests on an objective value each co-exchanger gets his money's worth; the exchange thereby produces honesty. This answers those who hold the economy to be, strictly speaking, amoral⁶ — a field carrying no justice of its own, so that justice must be founded on bases external to it. On the income side, those external bases are the progressive tax scale, the redistribution of working time, and the transfer that goes under the name of a "universal income"⁶; yet they rest on no firm ground of their own. Article 13 of the Declaration of the Rights of Man and of the Citizen of 1789 requires that —

"For the maintenance of the public force, and for the expenses of administration, a common contribution is indispensable; it must be distributed equally among the citizens, according to their capacities.”

— and everything turns on that one word, equally: in proportion to income, or graduated through progressive scales? The things that are seen and the things that are not seen (Bastiat) make it doubtful that a progressive average rate of tax serves the common good, and the sufficiency of receipts, better than a proportional one; and redistributing working time shares, not work, but unemployment. Resting on dominant opinion rather than on criteria, these rival bases of justice deliver an arbitrary, interventionist settlement in want of a ground.

The economy alone does not deliver social justice. The distribution of the national totals is a matter of distributive justice, which exchange does not adjudicate but which falls to the balance of the EPCE relation kept on sufficient profit rather than on capital gain — the condition of full employment and of secure funded pensions (chapters 7 and 12) — and to collective subjectivity, the natural manager of the distribution of total labor income (chapter 9). The Initial Propositions of Economic Science set out below supply, for economic exchange, the criteria of the equity of the price proper to each of its categories, and hand the distribution of the totals back to the political community, to be assumed in full knowledge of the facts.

Public life bears the consequence. An organic law governing public finances, and a tax reform whose stated grounds make no explicit reference to the economic theory that inspires them, are democratically defective, since they carry out a concealed political project. The same holds, mutatis mutandis, for the platforms of political parties and of the unions, employers' organizations included. "Social dialogue" and "social refoundation" are, before anything else, matters of economics — and of the justice proper to it.

Four scientific on-call duties

Definable set logic

The logic of finite sets is based on the axiomatic specifications of each of the two possible definitions of any such set:

"in extension" by an exhaustive list of the elements of the whole under consideration;
"in intention" by a statement of a property common to these elements and to them alone.

Conceptual Foundations of Accounting

The acquis is that of the conceptual foundations of double-entry accounting. The distinction between stock (balance sheet) and flow accounts (income and expenses) is fundamentally objective. It logically implies other distinctions, two of which are particularly important for both practical and theoretical purposes: the distinction between stocks which are of financing (liabilities) and investment (assets), and the distinction between expenditures which strictly speaking are either charges or investments.

Economics can be the subject of an exact science

The refusal that also helps a lot to bend to the methodological rigors of objective political economy is that of a systematically negative answer, to the question: can economics be the subject of an exact science? Answering in the affirmative does not at all imply the assertion that any phenomenon qualified as economic can be accurately described and predicted by this science!

On the other hand, only the accreditation of the idea that economics can be the subject of an exact science, however limited the field, will lead to the recognition of a great historical fact. Economic theory has been scientifically misled. By his claim to make his conception of the human condition prevail, his space for investigation has been too extensive. His terminological flippancy has made it a kind of phlogiston, the fluid that the ancient chemists had imagined to explain combustion, right down on some of its fundamentals (marginal usefulness, especially in its neoclassical version). His postulate that all prices have in common more than being economic exchange-values has led to the error of reasoning called ‘petitio principii’; if this is really so, it is to be deduced from an investigation of the formation of prices by category of economic exchange, and not to be taken as proven before it has been proved.

A set of initial economic propositions

Political economy

Since the first twenty years of the nineteenth century, and at the initiative of the Frenchman Jean-Baptiste Say and then the Englishmen Robert Malthus and David Ricardo (before John Stuart Mill and Alfred Marshall, among others), the titles of treatises on economic theory often include the expression "political economy" (Traité d'—, 1615, Antoine de Montchrestien).⁷

Etymologically, a theory is a continuation – from the Greek thêoria, "procession, parade".

Logically, such a sequence is made up of propositions – in the sense of the Latin propositio, "statement". Under these conditions, rehabilitating a political economy or undertaking to reconstruct one better shaped by assembling a set of primary propositions, is part of a tradition; with the merits of the latter, on the one hand, and methodologically perfectible on the other.

The basis of a theory of the commodity

Without having a theory of the commodity as its basis — an intentional definition of the commodity, a taxonomy of all commodities into subtypes that are themselves intentionally definable — a theory of commodity exchange is constructed as if taking into consideration the classes of objects exchanged could not avoid truncating and biasing primordial economic reality. Since the first chapters of economics textbooks do not yet include a theory of the commodity, an original gap is perpetuated, while it is obvious that mistaking bladders for lanterns constitutes a permanent danger when it comes to exchanges and transfers of objects that make their owners more or less comfortable. Etc.

Figure 1 – General operating model of the economy

The income generator and it two controllers

The income generator

Within each nation, whether it is confederal or not, the income itself is exclusively income from labor for some and placement income for others. They are generated by all economic exchanges, both domestic and cross-border. Downstream of the generator, all economic transfers constitute an additional distributor, ultimately financed entirely by levies on income as well as legacies.

Bequests, including inheritance taxes and, when this levy is deemed to be too little to reduce the disparity of private assets, the addition of a wealth tax with its perverse effects, the use of which pays the price. The creation of economic wealth is exclusively provided by the generator which, at the same time, provides for the distribution of income before any redistribution. This leads to a problem as crucial as it is one of civilization: what are the mechanisms of distribution before any redistribution? Are they, for some of their cogs, intangible and, for others, modular? Does Yield capitalism tend to make the effects of these mechanisms more justified than the priority given to the race for capital gain? Is the maximization, in the natural (logical) slope of the market economy, that of placement income and the assets that provide it, or that of total income from labor? It is impossible for a defense of the general interest and an economic policy to be as relevant as possible without having correct answers to these questions in their foundations.

In the generator, two interconnected controllers are integrated. For those who have studied them closely enough, their acronyms EPCE and RPP' remind us that the initial E and the final E of one are those of Employment — Employment > Profit > Capital > Employment — and that the initial R of the other is that of rate of return, R, productivity P, profitability P': TPIP'.

The EPCE controller — Employment > Profit > Capital > Employment

The E P C E controller can be represented by an isosceles triangle, inscribed in a circle, with its vertices labeled Employment (E), Profit (P), and Capital (C). The system operates in a clockwise direction, following a steady clockwise rotation.

Figure 2 - EPCE regulator

This model reveals a powerful dynamic: the controller restores full employment more rapidly when its impulses are strengthened by avoiding self-financing from benefits. By shifting away from retained earnings, we directly enhance the appeal and variability of new placements in capital (C), as their effective yield becomes the primary driver of such placements. This creates a virtuous cycle, making capital injections more attractive and responsive than when their returns are diluted — even if this means the prospects for capital gains (capital gains) are less spectacular or, as in the case of cooperatives, entirely excluded.

The RPP’ controller — rate of return R, productivity P, profitability P’

As for the image that best gives the idea of what the R P Pprime">R P P' relationship is, it is that of a Roberval balance whose beam rotates around an axis mounted on a cylinder. The first plateau is that of rate of return R, the scourge revolves around productivity P that the evolution of techniques increases, and the other plateau is that of profitability P'. The definitions of R, P and P' are such that any rate of return R is equal to a productivity P multiplied by a profitability P'. It is as safe as when, on a bank statement, the sum of the debits is different from the sum of the credits, then the final balance is different from the initial balance.

The TPIP' controller adjusts the profitability levels P' to the rate of return constraints R and the productivity performance P', the rate of return constraints R coming largely from the EPCE controller. National productivity P controls the evolution of the national total income. The increases in other productivity P are reflected in the decrease in competition in the sales profitability P' of enterprises.

Adam Smith, Jean-Baptiste Say, David Ricardo and Karl Marx have pointed to the tendency towards the equalization of return (rate of profit on capital) between the sectors of enterprises of the same nationality (mining, manufacturing, finance, transport, wholesale and retail trading, among others). Today, this teaching is in disuse. This does not mean that the trend in question is no longer a natural economic law. The objective political economy holds that RPP regulation intervenes not only between sectors of enterprises and enterprises in the same sector, but also up to the levels of the same ownership of the supplies sold by the enterprises; see Chapter 11.

The asymptotic decline in national profitability P' makes the market economy a producer of the maximization of total labor income under the constraint of a sufficient average of rate of return R of placements. Then this maximization is joint:

full employment longer than underemployment.
the incessant approximation of the prices at which enterprises sell to their sufficient level.
income from real placements as a gradual replacement for pay-as-you-go pensions which, for reasons set out in Chapter 7, have the incorrigible disadvantage of not participating in the extension of periods of full employment.

The desired shift from capital gain capitalism to yield capitalism

But there is a general condition for obtaining these results. The full and prompt operation of the generator’s controllers must, deliberately, be preferred to the race for capital gain. Yield Capitalism, in which cooperatives have their place, must, politically, have prevailed over the business of capital gain. In other words, the capitalism of sufficient profit and full employment must have stopped the acceleration of the race for maximum enrichment for the big landowners, senior executives and higher-ranking politicians.

Chronic underemployment may be mainly due to a public levy (taxes + loans) that is so heavy and growing that it increasingly hampers the functioning of the EPCE">EPCE relationship, with the result that the national stock of capital is not up to the level necessary to increase the stock of sustainable jobs (capital, within the meaning of commercial enterprise law: the contributions of the members). In this case, it is distressing to have to note that the political class, which has its hands on the levers of such a country's economic policy, is proving incapable of explaining to its voters why public charges (operating expenses, subsidies, financial amortization of debt) must be reduced, vigorously and sustainably: because they have become a main cause of underemployment. It could not be more logical that the prescription for the activation of the EPCE">EPCE and RPP controllers should include what has been too quickly called "the golden rule", i.e. the concomitant compliance with two rules of public financial management – see economic policy 2.

The avenue of sound economic exchange

Defiance and weariness on the one hand, self-protection through silence on the other

Frédéric Bastiat formulated a social law of selection when he noted: "The public is made in such a way that it distrusts what is simple as much as it tires of what is not." To this mistrust as well as to this weariness, the academic authorities, the editors-in-chief and the highest elected authorities contribute as long as they refrain from openly taking sides for or against the innovation of the Objective Political Economy or any other attempt to publish the product of a really fundamental economic research but, a suspicious omen in many eyes, not yet academic or otherwise endorsed by a well-established institution.

This circumspection, which is very much in line with one of Auguste Detoeuf's impeccable aphorisms, "The human being who has arrived no longer moves",⁸ is all the more prudent because there is something much more compromising in the innovation of the Objective Political Economy than the theoretical rupture. From the first chapter, on growth, of the Major Economic Policy Guidelines , which take up the organic reforms detected during the assembly of the Primary Propositions of Economic Science, the implicit criticism of imperatives jumps out at the eyes, cruelly for those who are willing to remember having proclaimed that the provisions to be replaced by better or no ones were the right ones or the right ones. only possible.

By and for the euthanasia of rentiers, ostracism against the impartial spectator

We have overlooked the point of view of the impartial observer. We have clung too much to biased observations and errors of reasoning that create mirages. We have relied too much on the balance of power as the main line of conduct. We have been too satisfied with expedients, including compassion that gives a clear conscience when in the end it often proves to be counterproductive. In what we have inherited that is most solid, we have sold off too much. We have not had the courage to fully assume that in peacetime financial crises are above all the result of intellectual errors that lead to major management errors.

The precedent of ordoliberalism, born in Fribourg in the 1930s

The breakthrough of a new grand boulevard is nevertheless within our reach. Calling it "the avenue of sound economic exchange" will not, today, make its project more often enthuse than it will leave indifferent, or that it will excite here and there pre-programmed hostility. Coming from the left and the right in the democratic symbolism of today, the best socialism and the best liberalism converge economically and politically towards an Ordoliberalism. The latter is of the type that some twenty young professors and researchers of law and economics at the University of Freiburg began to cultivate in 1932, and which, from 1948 onwards, had as its fruit, by means of the Soziale Marktwirtschaft, what is retrospectively called the "German miracle".

Seven retrograde taboos

Economically, liberal socialism and social liberalism must take part in overthrowing seven taboos, so as to minimize structural unemployment, maximize total labor income, and secure the wage differentials deemed appropriate. Each taboo pins a real ill on a false cause; in every case the true cause is a distortion of economic exchange — a departure from sound economic exchange:

Taboo 1. The claim that robotization and globalization are why fewer and fewer jobs provide those who hold them with a decent income. The real cause is a distortion of economic exchange, not the technology — for example the distortion of commodity futures markets, whose financiarization detaches price formation from supply and demand, and thus from the decent income that sound economic exchange affords. Paul Fabra pressed this diagnosis against the globalization “alibi” (see «Pouvoir d’achat et mondialisation», Les Échos, 16 May 2008, reproduced in the Appendix).
Taboo 2. The claim that inequality cannot be reduced without at least as much, or more, monetary redistribution through public finances. This overlooks the distribution that sound economic exchange performs of its own accord, upstream: the wage differentials it sets before any fiscal transfer.
Taboo 3. The claim that there is no employment without employer contributions, and no dividends without a substantial share of profits diverted to the enterprise’s self-financing. A double distortion of economic exchange: the former distorts the wage exchange, the latter the shareholder exchange.
Taboo 4. The claim that rentiers must be minimized — save through pay-as-you-go pensions, held to cushion competitive shocks. This distorts economic exchange; within sound economic exchange the shock-absorbing role is better served by à la carte retirement with actuarial neutrality and funded placements.
Taboo 5. The claim that there must be no major privatization — least of all of medical care and its insurance — and no substantial reduction of the welfare state, except through IPOs and enterprises of enterprises. This distorts economic exchange; sound economic exchange can furnish these economic securities through insurance-type exchange and actuarial mutualization — with refundable shares as collective property — rather than fiscal transfer.
Taboo 6. The claim that sufficient growth now requires a large buffer of subsidies and of the financing charges of public debt. This distorts economic exchange; sound economic exchange sustains growth by linking it to placements in share capital and to a public levy disciplined by two rules, not to a subsidy-and-debt buffer.
Taboo 7. The claim that no country secures its population’s prosperity without enterprises bent on maximizing “creation of value for the shareholder.” What its advocates leave unsaid is that this so-called value creation is mainly, or only, capital gain — a highly pernicious distortion of economic exchange, to be distinguished from yield.

Five healing wounds

Politically, turning one's back on the sound-exchange economy is an increasingly disastrous mistake in the long run:

It is taking a step backwards in the application of the principle of subsidiarity, making civil society less and less able to take charge of itself.
It transforms the contribution to the common good of the political class on the one hand into a skin of sorrow in terms of its usefulness, and on the other hand into a flying carpet at the expense of the community in terms of the wages and allowances of elected officials and senior executives of the public service.
It perpetuates and multiplies social fractures.
It makes immigration too tempting and integration too difficult.
It increases the use of propaganda to pretend that these evils were only in adaptation to globalization and the overcoming of xenophobic nationalisms.