Three fables/parables of mainstream economics

A guy called JB Clark and his accomplices have eliminated from (neoclassical) Economics the concept of “land” as a particular type of capital, with a “fertility” and thus a “rent”. This was done to counter arguments that “land” generates “rent” thanks to its natural, intrinsic “fertility” and this windfall should therefore be specially taxed.

Also JB Clark and his accomplices have this reduced all “capital” to a single “jelly”, that is to dollars in practice, by using delusional handwaving called the “Cobb-Douglas production function”, in order to “prove” the central truthiness of neoclassical Economics, that absent government regulation income is uniquely determined to productivity, which cannot be proven if there are even just 2 different types of “capital”.

This makes contemporary Economists pretty much blind to the economics of mined energy, and of the unique advantages of extracting it in nearly ready-made form from mineral sources.

For example R Gordon’s argument (of which I have read only a summary) is fatally and let me say grossly and obviously flawed by his misconception that the primary cause of productivity growth is “Great Inventions”, when instead it has been the adoption of fuels, coal first and oil later, which are much cheaper and much more energy dense than ordinary agricultural “food”.

The driver of a combine harvester is more productive than 50 men with sickles not because the dozer is a “Great Invention” that is far more efficient than 50 sickles, but because the diesel powering it is far cheaper and more energy dense than the bread (and maybe cheese) used to feed the 50 men powering the sickles.

A car is far more productive than a horse drawn cart not because the petrol engine is a “Great Invention” that is far more efficient than a horse, but because its “food” (petrol) is much cheaper and lighter than the “food” (oats) powering the horse.

The great waves of productivity growth have been (nearly) entirely driven by the adoption of better (much cheaper, rather energy denser) fuels, and then, yes, optimizing the machinery using them, machinery that is however not very useful scrap without those fuels.

Seen from a pre-JB Clark point of view coal-fields and oil-fields have been the most fertile land ever discovered, capable of a “food” yield many many times larger and many many times cheaper than the most fertile land of Kansas or Ukraine, a fantastic windfall that has driven down dramatically the price of “food” for the past hundred years. It is this immense windfall that has “proven” both Malthus and Marx wrong.

The problem is that a third great fuel, cheaper and energy denser than oil, has not been found yet, and we have already optimized coal and fuel consumption as far as it is feasible, and the marginal fertility of coal-field and oil-field land is falling constantly.

This is indeed in part made clearer by looking at the energy cost of new energy, but it goes further than that.

«Representative agent models are — as I have argued at length here — rather an evasion whereby issues of distribution, coordination, heterogeneity»
But if you mention the Arrow-Debreu-Lucas models, and the Sonnenschein-Mantel-Debreu theorem, you must also mention the “three fables” from J.B. Clark:
https://www.aeaweb.org/articles?id=10.1257/089533003321165010
«Samuelson (1962) called three key “parables”:
1) The real return on capital (the rate of interest) is determined by the technical properties of the diminishing marginal productivity of capital;
2) a greater quantity of capital leads to a lower marginal product of additional capital and thus to a lower rate of interest, and the same inverse, monotonic relation with the rate of interest also holds for the capital/output ratio and sustainable levels of consumption per head;
3) the distribution of income between laborers and capitalists is explained by the relative factor scarcities/supplies and marginal products.»
The Arrow-Debreu-Lucas model assumptions are specifically designed to support the three fables/parables, and in particular number 3, and that is all about distribution. And Economics is all about “internal consistency” with those three fables/parables.