supply&demand – crit ortho econ

“Supply and demand is interesting because it represents the fundamental interaction between a buyer and a seller, scaled up to large numbers. It plays a huge role in neoclassical theory, not just in introductory textbooks, but in mathematical models used by e.g. macroeconomists, and also by the entire narrative that the forces of supply and demand lead to equilibrium. (The forces are never specified, but are assumed to cancel out.) In this picture, price changes are assumed to be due to external perturbations, rather than fundamental uncertainty. The quantum approach views the economy as a dynamic system (e.g. the entropic force model) and allows you to make probabilistic predictions about things like transaction volume.” David Orrell 7/2021 Supply and Demand Deconstructed by by Blair Fix

Prices are caused by supply and demand, right? So say neoclassical economists. If you’ve bought their fairy tale, I recommend you watch the video below. In it, Jonathan Nitzan demolishes the neoclassical theory of prices. It’s a master lesson in how to deconstruct a theory. 2010 Is it all “Supply & Demand”? By Steve Keen 2013 Steve Keen on the Law of Demand – In the last post, I raised the question whether the “law of demand” is (1) an analytic a priori or (2) synthetic a posteriori statement. The conclusion that, to assert anything of the real world, it must be considered a synthetic a posteriori statement is a straightforward and logical requirement. Nevertheless, how is the law of demand “proved” in neoclassical economics? I review what Steve Keen says in Chapter 3 of Debunking Economics: The Naked Emperor Dethroned? (rev. edn. 2011). pp. 38–73. …

…In the end, the only satisfactory formulation of the “law of demand” is as a general empirical principle, or synthetic a posteriori statement, to the effect that for many goods (but not all), when the price falls, demand increases (though there are important exceptions). And for many goods (but not all), when the price rises, demand falls (though there are important exceptions). But, at that point, one wonders why it should be called “a law” at all. An equally important consequence is that there is no reason to assume equilibrium prices can be found in all markets, which further undermines the basis of neoclassical general equilibrium theory and the Austrian economic notion of effective economic coordination by flexible prices.

The technical “law of demand,” with its ceteris paribus condition, seems to remain a strange analytic a priori statement of marginal relevance to the real world, given that its proof consists in inventing an imaginary world with only one consumer and one commodity.”