General Formal Foundations of the Virtuous Deficit–Profit Symmetry and the Vicious Debt Deflation

Abstract

A comprehensive dynamic model of the monetary economy that produces the key characteristics of a debt deflation has been presented recently by Steve Keen as an alternative to conventional approaches. His model is based on a double-entry bookkeeping methodology but lacks an acceptable profit theory. In this respect it is not different from familiar approaches. Clearly, a deficient profit theory prevents a proper understanding of how the real world economy works. The present paper takes an entirely different route and places the core of Fisher’s debt deflation theory into the context of the consistent structural axiomatic approach.

Keywords: new framework of concepts, structure-centric, axiom set, income, profit, distributed profit, quantity of money, credit expansion, maximum debt/income ratio, annuity, positive feedback, built-in instability

JEL Classification: E12, E31, E50