Blog-Reference
For everyone interested in MMT and the current state of the debate, Bill Mitchell and Warren Mosler have provided a “fairly precise account” of the “essence of MMT”.#1 This account is used here as a canonical reference for the final refutation of MMT. The following is a concise verbal summary, formal proofs have been given elsewhere.#2
1. MMT is bad theory
The fatal analytical blunder is to be found under the heading “Principle 3: The Public Debt story.” It goes as follows: “In trying to understand, the issuance of public debt, we note that funds spent by the State into the non-government sector (for goods and services) is either lost to the economy when taxes are paid, or remains in the economy as savings until used to pay taxes. That is just a matter of accounting. The ‘savings’ are stored as financial assets in various forms. As a matter of accounting between the sectors, a government fiscal deficit … adds net financial assets (adding to non-government savings) available to the non-government sector and a fiscal surplus has the opposite effect.”
The whole MMT blunder/fraud sits in the term “non-government sector”, sometimes also referred to as “private sector” or “private domestic sector”.
There is NO such thing as the “non-government sector”, there is the business sector and the household sector and the balance of the household sector is saving/dissaving and the balance of the business sector is profit/loss. And both cannot be lumped together to “saving of the non-government sector”. Methodologically, this is called the Humpty Dumpty Fallacy. This fallacy makes macroeconomic profit disappear. Notice that the word profit ― the pivotal magnitude of economics ― is not to be found in Mitchell’s/Mosler’s canonical summary of MMT principles. This alone is disqualifying for economic theory.
MMT gets macroeconomic accounting wrong. Both MMTers and anti-MMTers do not understand the elementary mathematics that underlies macroeconomics. They are scientifically incompetent. The representative economists cannot tell to this day which of the two macroeconomic relations is true/false: (i) (I−S)+(G−T)+(X−M)=0 (ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.
Eq. (i) represents a zero-profit economy and constitutes the formal foundation of MMT. Obviously, MMT academics do not know what they are talking about. MMT is proto-scientific garbage, i.e. a bunch of inconsistent slogans with an emotionally reinforced common-sense plausibility.
2. MMT is bad policy
With regard to the government’s budget, the axiomatically correct sectoral balances equation (ii) boils down to Public Deficit = Private Profit, i.e. (G−T)=Qm. This piece of pure economic analysis translates into the political insight that MMT’s policy of deficit-spending/money-creation is nothing but a free lunch for the Oligarchy.
Politically, self-styled MMT Progressives claim to promote the cause of WeThePeople. This claim is false. The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life support. MMTers are false saviors of humanity.
3. MMTers are bad people
At least, one could say, MMTers care for the unemployed, vulnerable, and poor. Not really. The MMTers resemble a man who prints counterfeit money, say a million, and distributes it with great fanfare among the poor of the town. The media praise him as a fine example of social responsibility and charity. The economic effect of the matter, though, is that the workers are the real benefactors who unwittingly are made to share their real income with the poor. The redistribution of output is effected by a barely noticeable price hike. In real terms, the ostensible MMT do-gooder does in fact NOTHING. MMT’s social policy is a hot-air PR stunt.
In addition to social hypocrisy, MMTers are guilty of violating scientific standards, suppressing/blocking/censoring critique/refutation/exposure in the econblogosphere, of disinformation, and of phrase-mongering.
Finally, MMTers not only deceive the general public but actively try to subvert genuine social grassroots movements.
4. Delete MMT ― Paradigm Shift ― New Paradigm
Being indefensible, MMT goes straight down the drain. However, “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug) Mere critique of MMT does not help much. Macroeconomics, including the Theory of Money, has to be reconstructed from the ground up.
The new Paradigm is the final nail in the coffin of MMT.
Methodological rule No 1: One has to start with the simplest possible economic configuration. The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price is given by P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.
The price is determined by the wage rate, which takes the role of the nominal anchor, and the productivity. From (1) follows W/P=R (2), i.e. the real wage is equal to productivity. Ultimately, productivity determines the real value of money.
If one wants absolute price stability in the elementary production-consumption economy from beginning to eternity one has to apply the simple rule: change of wage rate = change of productivity. This prevents both inflation and deflation.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.
In the analytical beginning, there is no state and no central bank. The firm pays the monthly wages with a standardized IOU and declares that this conveniently denominated title will be unconditionally accepted at the firm’s store. The employees accept that the IOUs discharge their wage claim against the firm. Since the household sector’s budget is balanced by the initial condition C=Yw, whatever the firm issues, returns until the end of the period under consideration. The firm creates IOUs and destroys them again within a short time span, i.e. a month. No IOUs are carried over to the next period. The firm’s IOU is a pure transaction medium that is continuously created out of nothing and then again destroyed. There is NO such thing as a fixed physical Quantity of Money.
The firm’s rule for IOU-creation is IOU=kYw, i.e. the nominal volume of IOUs is strictly proportional to the wage bill. The creation of money is NOT tax-driven but wage-driven.
As a result, one has a fiat money economy with absolute price stability. No taxes are needed to force the workers to accept the firm’s privately created money. If all stick to the rules, they get an inflation-free fiat money economy, and if the productivity increases over time, the real wage of the workers increases.
Problems arise, of course, if corruption sneaks in. For example, if the firm issues IOU’s in excess of the wage bill and the money is spent by a third party. This causes a price hike (NO inflation) and the real wage falls below the productivity. The business sector makes a profit that is equal to the excess IOUs. This is what MMT’s policy of deficit-spending/ money-creation amounts to when the smokescreen of political slogans is taken away.
In the next step, the creation of the firm’s private IOUs is replaced by the creation of public money by the central bank. The role of the state is to define the legal framework for the smooth and corruption-free functioning of the fiat money system.
5 Conclusion
A fiat money economy with perfect price stability and full employment is possible in principle. This economy, though, is institutionally different from the runaway economy that has historically developed. The actual economy functions only because of a permanently growing public debt. The role of the state is defined by the Profit Law Public Deficit = Private Profit. The very survival of the capitalistic economy depends on the state. The idea of a state-free efficient supply-demand-equilibrium capitalistic economy that maximizes overall welfare is a figment of the imagination. The Invisible Hand of the market economy belongs to the state who hands out overall profit and thus indefinitely postpones the breakdown of the system.
Progressive economic policy consists of creating new institutions that guarantee a crisis-free functioning of the fiat money economy.
MMT is a falsified economic theory. It is scientifically unacceptable and has to be fully replaced by a new macroeconomic approach. The best thing that can be said of MMT is that Walrasianism, Keynesianism, Marxianism, Austrianism are even worse.
Egmont Kakarot-Handtke
#1 When two original MMT developers get together to discuss their work
#2 For the full-spectrum refutation of MMT see cross-references MMT
Related 'MMT: The fusion of Wall Street and Academia' and 'Economics: A pointless left-right wrestling show' and 'Are economics professors really that incompetent? Yes!' and 'MMT: Time to say goodbye'.
Immediately preceding MMT Progressives: The knife in the back of WeThePeople.
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REPLY to Noah Way on Dec 23You say: “My guess is that this would not serve your purpose as you are seeking personal advancement in a narrow, largely non-scientific academic field and that nothing else matters.”
You can speculate until you are blue in the face. What matters is facts and proof. The fact is that MMT is refuted on all counts.
Your bad luck is that there is nobody at the MMT troll school who can read a simple economic equation and explain to you what refutation means.
Refutation means that MMT is out and that MMTers are out. As Hume said, “... when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.”
However, with your thought-reading capabilities, you can perhaps make a spectacular career move from troll to a soothsayer.
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REPLY to Clint Ballinger on Dec 25You cite me: “The employees accept that the IOUs discharge their wage claim against the firm” and ask: “Why would they do that?”.
It is a bit schizo that you have left the discussion already three times with: “Anyway, can quit wasting my time now at least.” and then come back with some silly question.
When you go to the supermarket you end up with a heap of various items. You, like everybody else, do not carry the items home one by one but put them in a shopping bag and henceforth handle the bag and forget the individual items until you unpack the bag again. Although each step in the process is rather simple, a lot of things can go wrong between packing and unpacking, and what arrives at home is sometimes not the same as what has been bought.
For the person of a delivery service, it is completely irrelevant what items are in the bags and parcels and containers which they transport from A to B.
It is analogous in methodology. It makes good sense to put a heap of details in a conceptual bag and then forget the details for a while and operate with the bag. This logical operation is called abstraction. Many people fail already at this first step and fall into the Fallacy of Insufficient Abstraction.
The statement: “The employees accept that the IOUs discharge their wage claim.” is a conceptual bag. In a post, one uses many conceptual bags because it is neither desirable nor necessary to deal with the implicit details.
For the question of how the monetary economy works it is NOT necessary to unpack the behavioral bag and to elaborate on the question of why people do what they do. What is more, to deal with motives and mental processes is the proper business of psychology/ sociology and NOT of economics.
For the economist, it is sufficient to know that the worker accepts a token as wage, e.g. an entry on his electronic account at the central bank, and it is useless to exhaust oneself with psycho-sociological speculation about why he does so.
The problem of economics is that people love to speculate about other peoples’ motives and behavior despite the fact that already the ancient Greeks knew that this is a futile exercise. This is how the representative economist got lost in the wood of utility maximization and became a proto-scientific laughing stock.
Economics is a systems science and therefore the whole PsySoc stuff is put into a conceptual bag that functions like a black box where only input and output are of interest.
The difference between the competent and the incompetent scientist is that the latter gets lost in motivational and behavioral speculation which is triggered by the WHY question.#1 Needless to emphasize that the PsySoc-WHY never leads to an objectively verifiable answer but only to the clueless blather that is the hallmark of economic debates.
The issue of economics is how the economic system works and NOT why people prefer strawberry yogurt over raspberry yogurt. The answer to the first question is (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 and it is testable with the precision of two decimal places.
So, my answer to your silly question “Why would they do that?” is, pick it out of your nose.
#1 YouTube, Richard Feynman on Why Questions
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REPLY to Clint Ballinger on Dec 25You say: “Why would someone work all day for a token that is not usable in their general society? And what would make a token usable in general society (not just the Firm’s store)? ”.
The analysis starts, for good methodological reasons, with one giant firm. This is, obviously, an analytical limiting case. Therefore, the analysis proceeds by differentiation, that is, by splitting the business sector successively into two and more firms. Differentiation is the inverse operation to aggregation. Differentiation is methodologically superior because it avoids the Fallacy of Composition.
With more firms, it becomes obvious that private IOUs become exponentially more awkward and that a public IOU a.k.a. money is needed as a transaction medium.
In science, you have to identify the logical origin and NOT the historical origin. Physicists, for example, do not figure out the laws of thermodynamics by asking who invented the fire and why and how and when and where did it happen. Science and History are different things.
Being storytellers, though, MMTers try to give a psycho-social historical account. This is pointless.
If you were a bit smarter you would have googled all the answers#1 and thus avoided exposing yourself as a dumb and lazy troll.
#1
► Essentials of Constructive Heterodoxy: Money, Credit, Interest
► Exchange in the Monetary Economy
► Reconstructing the Quantity Theory
► The ultimate ― analytical ― origin of money
► Money: from silly stories to the true theory
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REPLY to Clint Ballinger on Dec 26Let us sum up:
1. MMT is bad theory
2. MMT is bad policy
3. MMTers are bad people
4. MMT has been replaced by the new macrofounded Paradigm
5. Conclusion
MMT is another falsified economic theory. Its material/formal inconsistency is proved according to universally valid scientific criteria. Needless to emphasize that MMTers do not understand this, after all, they have not realized to this day that their foundational sectoral balances equation is mathematically false. In this respect, they are not different from their mainstream colleagues who have not realized for 150+ years that supply-demand-equilibrium is proto-scientific garbage.
MMTers are unable to follow the logical steps of proof and cannot accept refutation. They have never risen above the level of storytelling. Clint Ballinger, in particular, has not realized to this day that there is a difference between an argument and verbal diarrhea.#1
Get it, MMTers, you are refuted once and for all. Your sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false and has been replaced by (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.
Now, stop your desperate blathering and bury yourself in a footnote in the already over-embarrassing history of so-called economic thought.
#1 The creation and value of money and near-monies
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REPLY to Clint Ballinger on Dec 26As Keynes said, the proper starting point for economic analysis is the monetary theory of production. The elementary production-consumption economy consists of the household sector and the business sector which in turn consists initially of one giant fully integrated firm. Starting with the simplest configuration, money then evolves logically (NOT historically) as follows.
(i) The worker Y produces 5 pieces of stuff and gets at the end of the day a slip of paper saying: Firm X owes Mr. Y 5 pieces of stuff. Worker Y goes to the firm’s store, presents the slip of paper, takes the stuff, goes home, and consumes all with his family. This repeats day after day. Worker Y has no reservations about accepting the firm’s IOU but complains that it is a bit inconvenient that he has to personally go to the firm’s store and identify himself.
(ii) The firm increases fungibility by changing the text on the IOU to Firm X owes the bearer of this slip of paper 5 pieces of stuff. Now, Mr. Y’s wife or children or anybody else can go to the firm’s store and get the stuff. Needless to emphasize that this opens the door to counterfeiting and that the firm has to take measures to prevent abuse.
(iii) Because the firm introduces the division of labor, nobody can tell any longer how much the individual worker has produced. The overall productivity increases and on average each worker produces now, say, 20 pieces of stuff. The firm changes to paying wages. The text on the IOU changes to Firm X owes the bearer of this slip of paper 100 $. Worker Y goes to the store and buys 20 pieces of stuff for the price of 5 $ each.
(iv) The economy grows and the number of firms and products multiplies. The mutual acceptance of private IOUs becomes a complexity issue. Therefore, private IOUs are replaced by universally acceptable central bank IOUs. The text on the note says now The National Central Bank owes the bearer of this note 100 $. Each worker and each firm accepts central bank money. Central bank money is created out of nothing with the firms’ wage payments and destroyed with the firms’ repayments which are equal to households’ consumption expenditures. The notes are 'backed' by the business sector’s output. The real value of money is determined by the productivity, it holds W/P=R with W wage rate per hour, P price of one unit of stuff in $, R productivity stuff per hour.
(v) In the final step, notes are abolished and worker Y gets at the end of the day the four characters 100 $ on his central bank account. He pays for stuff by swiping a card and authorizing the transactions. The central bank handles all transactions, i.e. paying wages and buying stuff.
(vi) The central bank/state can allow private banks to create fiat money and to carry out transactions.
It goes without saying that each step of the progressive abstraction of physical money to pure information processing requires institutional/legal precautions. The acceptance of IOU’s/fiat money is the precondition of doing business/participating in the economy. The alternative is working in the garden and bartering parts of the output.
Taxation is NOT needed to get a monetary production economy going. The state is indispensable, though, for implementing the institutional/legal framework.
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REPLY to Noah Way on Dec 27You say: “You just have to love how Egmont bashes Keynes and then uses him as the basis for bus economic analysis.”
Keynes saw the necessity of a Paradigm Shift#1 but he messed up the move from microfoundations to macrofoundations.#2 He has to be praised for the former and bashed for the latter. No contradiction here.
MMT has to be praised for debunking mainstream monetary theory but bashed for messing up macrofoundations.#3 No contradiction here.
#1 “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight — as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (GT)
#2 Keynes and the logical brilliance of Bedlam
How Keynes got macro wrong and Allais got it right
Keynes, the methodologist
What Keynes really meant but could not really prove
#3 Wikipedia and the promotion of economists’ idiotism
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REPLY to Clint Ballinger on Dec 27You cite: “private IOUs are replaced by universally acceptable central bank IOUs” and ask “What makes them ‘universally acceptable’?”
With one firm, which is a logical limiting case, the creation/destruction of money according to the ‘needs of trade’ (Banking School term) in the form of private IOUs is no problem.
With multiple firms/products, the need for money changers arises if the worker of firm A wants to spend his wage=IOU of A on the stuff of firm B which pays its workers with B-IOUs. So, there has to be an intermediary exchange of A-IOUs against B-IOUs. This is a bit awkward and becomes prohibitive if the number of private money issuers increases.
So, if the state steps in and changes the monetary order within a certain geographical territory and issues public IOUs people rejoice because the transaction costs fall precipitously.
There are NO taxes needed to force public IOUs=fiat money upon the people because they appreciate the huge gains of transaction efficiency.
Problems with fiat money arise only with abuse/corruption, that is, with MMT’s deficit-spending/money-creation.#1
#1 Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople
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REPLY to Noah Way on Dec 27You say: “Please cite previous/existing implementations of MMT and their bad effects on the 99%.”
MMT policy boils down to deficit-spending/money-creation. This policy is not new,#1, #2 only the progressive social fig-leaf and the permanence are new. Roughly speaking, MMT adds social deficit-spending to military deficit-spending. According to the macroeconomic Profit Law, i.e. Public Deficit = Private Profit, MMT’s permanent deficit policy amounts to a permanent free lunch for the Oligarchy, stealth taxation for the 99-percenters, and a heavily skewed distribution of income and financial wealth.#5
Roughly speaking, most of what is sick with the economy and in particular distribution is a direct or indirect result of the long-standing policy of deficit-spending/money-creation.#6
MMT’s social policy is just another political fraud and you are, wittingly or unwittingly does not matter, part of it.#7
#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 Keynesianism as ultimate profit machine
#3 MMT, money creation, stealth taxation, and redistribution
#4 The profit effect of a Job Guarantee
#5 Profit and the decline of labor’s nominal share (I)
#6 Full employment through the price mechanism
#7 MMT and the promotion of Wall Street's idea of social policy
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REPLY to Clint Ballinger on Dec 28You ask: “Why are there Firms in your model? Where do they come from?”
Taken to its logical end, all evolutionary questions ultimately arrive at the Big Bang as first cause. However, for the purpose of analysis, usually a more recent event is taken as a logical starting point. In science, the premises of analysis are clearly stated as a set of axioms.
For example, the Walrasian program is “organized around the following hardcore propositions: HC1 There exist economic agents, HC2 …” (Weintraub)#1
Thus, the question “Why are there humans in your model? Where do they come from?” is not answered at all by neoclassical economists. Of course, it could be answered by any kindergartner with: because my parents had sex. However, instead of saying that humans come from the equilibrium of supply and demand of sex, economists cut the infinite regress short by axiomatizing “HC1 There exist economic agents”. Nobody, except perhaps Clint Ballinger, has any qualms with accepting the first neoclassical axiom. In fact, the trouble comes with the rest of the microfoundations HC2 to HC6.
Likewise, the set of macrofoundations that fully replaces microfoundations is introduced by (A0): “The objectively given and most elementary systemic configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.”#2
This is how the firm comes axiomatically into existence: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)#3
Of course, one can always regress further back in the direction of the Big Bang. And if you were not so stupid/lazy you would have found out that this has already been done.#4, #5
Roughly speaking, the reorganization of multiple individual labor inputs to a phased division of labor/specialization results in a productivity increase. Remember Adam Smith’s story of the pin factory? The organizational entity that realizes the intricate division of labor for the production and marketing of stuff is called the firm. In the second step, the firms that make up the business sector are more specifically defined as legal entities. Analysis proceeds from the simple to the complex.
Note that the logical origin of the firm is something quite different from the historical origin. Economic theory deals with the logical origin of the abstract entity firm. The historical evolution of the corporation in country X or Y is an entirely different matter.
Of course, most people prefer historical storytelling to axiom-based analysis. And this is why economics is still at the proto-scientific level. MMTers, for example, have not realized to this day that their sectoral balances equation is false. Needless to emphasize that the MMTer Clint Ballinger never asks where his incompetence comes from.
#1 The creative destruction of Wren-Lewis
#2 True macrofoundations: the reset of economics
#3 Why economists know nothing
#4 Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices
#5 Nietzsche, entropy, full employment, and NO class war
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REPLY to Clint Ballinger on Dec 28You hallucinate: “But also ‘the money that has been created out of nothing has to be destroyed eventually.’ Your money would not have value without taxation, in your own words.”
In the most elementary case, the central bank creates money out of nothing as deposits for the business sector on the liability side of its balance sheet which is exactly balanced by overdrafts of the business sector on the asset side.#1, #2
The deposits are then transferred as wages to the household sector.
The deposits then return to the business sector because consumption expenditures are, for a start, equal to wage income.
The return of the deposits amounts to repayment and successively reduces the overdrafts of the business sector until both sides of the central bank’s balance sheet are again zero.
Money (= central bank deposits) has been created and destroyed by the autonomous transactions between the business and the household sector. No taxes are involved. The real value of money is determined by the productivity of current production, i.e. W/P=R, NOT by taxation.
#1 The Fisher Effect ― another piece of nincompoop-economics
#2 MMT: Just another political fraud
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REPLY to Clint Ballinger on Dec 28You hallucinate: “The business sector makes a profit and provides goods and services. You believe the business sector/(firms’) profit comes from deficit spending and both deficit spending and business profit should be done away with via a 100% tax on business profit (which also gives value to your ‘currency’). You want to nationalize all businesses basically.”
I do not “believe” that the business sector/(firms’) profit comes from deficit spending but I PROVE that Public Deficit = Private Profit. A fact that is deliberately obfuscated by MMTers.#1
I do not “believe” that “business profit should be done away with via a 100% tax on business profit. You better re-read my ‘The Third Way: Towards the Happy Zero-Tax Economy’#2 where the feasibility of a Zero-Tax economy is demonstrated. This logical limiting case shows also that the value of money does NOT depend on taxation because taxes are zero.
To show the feasibility of a Zero-Tax economy is NOT to propose 100% taxation of profits. If you do not understand anything do not recount it in your confused Pidgin but simply post a link to the original. This is a tried and tested method to exclude misrepresentation.
You say: “There is a reason there is a business sector. Private organizations can often produce more than the sum of all of its individuals’ production.” Yes, welcome to economics, this is common knowledge at least since Adam Smith’s pin factory. And yes, I have dealt with the productivity effect of collaborative production elsewhere.#3
You say: “How this increased production is distributed is a political question, not an economic question.” No, in the elementary production-consumption economy holds W/P=R. As a consequence, any productivity increase translates directly into a real-wage increase. Take notice that profit for the business sector as a whole does NOT AT ALL depend on productivity.#4 This is the Fallacy of Composition, the mass grave of imbeciles.
And so your hallucinations and misrepresentations go on and on. Every single argument of yours is false and has already been refuted elsewhere. Any smart kindergartner can google it and make up their own mind.#5
MMT is refuted. MMT is a political fraud. MMT is scientifically indefensible. Your senseless filibuster only confirms what everybody knows already.
#1 MMT and the magical profit disappearance
#2 The Third Way: Towards the Happy Zero-Tax Economy
#3 Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices
#4 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#5 For the full-spectrum refutation of MMT see cross-references MMT
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REPLY to Clint Ballinger on Dec 29You say: “Egmont writes ‘All that has to be done is to distribute the full amount of monetary profit, i.e. Qm=G, to the...Sovereign.’ That is a 100% Tax on profits.”
Profit distribution and taxation are different things. The usual procedure is as follows: (i) the firm calculates its profit at the end of the year, (ii) a decision has to be made whether to distribute all or part of the profit to the shareholders or to retain it, (iii) the dividend is then paid out to shareholders. The total amount of distributed profit is given by Yd=DN with D dividend and N number of shares.
The shareholders are either private persons or other firms or pension funds or charitable trusts or hedge funds or foreign countries, you name it.
It may also happen that local/regional/central government entities are shareholders. In this case, “the state” gets a dividend. This, though, is still profit distribution and NOT taxation. As always, Clint Ballinger gets the essentials of economics wrong.
Retarded MMTers do not realize it, but the Zero-Tax economy is the logical implication of MMT principles. MMT says that taxes are not needed to fund spending. So, let’s do away with it! The budget deficit G−T is then equal to government spending G because of T=0. This is maximum deficit-spending/money-creation, the implicit ideal of MMT.
According to the axiomatically correct macroeconomic Profit Law, it holds Public Deficit = Private Profit, i.e. Qm=G. The business sector makes the maximum profit because the budget deficit is maximal.
Now let us assume for simplicity that profit is fully distributed to the shareholders and that the firms are fully owned by the Oligarchy then, clearly, we have a 100% government feeding of the Oligarchy. That is an economic perversion. To my knowledge, no constitution in the world defines the role of the state as feeding the Oligarchy.
This logical limiting case, though, is the implicit ideal of MMT policy guidance. No problem with this, but MMTers should not call themselves Progressives who care and fight for the people.
However, there is another MMT principle that can be applied: The government can create money out of nothing and buy anything that is for sale.
So, let the government buy all shares of the business sector. Now, the government is the sole shareholder and receives distributed profits. In the 100% case, distributed profit Yd is equal to the public deficit G. There is NO taxation. The government as a shareholder gets a dividend. Dividends are NOT taxes.
Although the Zero-Tax economy does not violate any MMT principles, MMTers do not like it. The Zero-Tax economy proves that taxes do NOT drive money and do NOT give value to the currency because of T=0. In addition, as agenda pushers of the Oligarchy, MMTers want profits to be distributed to the Oligarchy and not the state. MMTers need the state only for deficit-spending.
The question is, though, if the government can buy anything with self-created money according to the fundamental MMT principle why should it not buy the stock market?
The economist as a scientist is absolutely indifferent about profit distribution or any other political issue because he knows that this is ultimately an institutional decision of the Legitimate Sovereign. The economist is NOT the Legitimate Sovereign. MMTers, too, are NOT the Legitimate Sovereign but creatures from the proto-scientific gutter.
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REPLY to Noah Way on Dec 29In economics, psychobabble does not help. Dunning-Kruger does not help. Only proof counts. Refute this
false (I−S)+(G−T)+(X−M)=0 MMT,
true (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 AXEC.
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REPLY to Bob Roddis on Dec 30You say: “There is no ‘profit law’. Every film company on the planet could make a movie in a one year period that flops and costs more than it earns. … There is nothing to argue about here. There simply is no ‘profit law’.”
Take notice that the Profit Law, i.e. Qm≡Yd+(I−Sm)+(G−T)+(X−M)#1, is a macroeconomic relation. Needless to emphasize that (i) a single firm on the microeconomic level can make either profit or loss, and (ii), that the business sector as a whole can make either profit or loss. So Profit Law is only an abbreviation of Macroeconomic Profit/Loss Law.
Indeed, the Profit Law tells one in no uncertain terms that the market economy will eventually break down BECAUSE of macroeconomic losses.#2
There is nothing to argue about here: (i) you do not understand the difference between the macro- and the micro-level, (ii) you run straight into the Fallacy of Composition, (iii) you cannot read a simple equation.
You are even more stupid than Clint Ballinger and Noah Way put together. Who would have thought that this is possible?
#1 Wikimedia AXEC143 Profit Law
#2 Mathematical Proof of the Breakdown of Capitalism
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REPLY to Clint Ballinger on Dec 30You hallucinate: “He [Egmont] has reinvented Coase, Bravo.”
I reinvent nothing but start axiomatically with (i) there exists a household and a business sector, (ii) the household sector consists of households, (iii) the business sector consists of firms, (iv) at the beginning, the business sector consists of one giant firm.
Coase was committed to methodological individualism which starts with the axiom HC1 There exist economic agents. Because of this, he had to explain the firm. With his phony explanation, Coase goes down the scientific drain together with the whole of Walrasianism.
Microfoundations is a failed approach as even you should have realized by now. This requires a Paradigm Shift from microfoundations to macrofoundations. And macrofoundations start with (A0) There exists a household and a business sector.
By the way, MMT is macrofounded. The sectoral balances equation (I−S)+(G−T)+(X−M)=0 is a macroeconomic relation, although a logically defective one. It may have escaped your attention, but the elementary analytical units of MMT are sectors and not individuals. MMT neither needs nor has a theory of the firm but simply postulates it. Therefore, to cite Coase in defense of MMT is a bit gaga.
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REPLY to Bob Roddis on Dec 30You quote: “Indeed, the Profit Law tells one in no uncertain terms that the market economy will eventually break down BECAUSE of macroeconomic losses.” and exclaim: “That allegation is totally baseless and a bunch of nonsense.”
Let us reduce the Macroeconomic Profit/Loss Law, in short, the Profit Law, to Qm≡I−Sm. This equation says, as long as the business sector’s investment expenditures I are greater than the household sector’s saving Sm, the monetary profit of the business sector Qm is positive. If the growth of the capital stock, expressed by I, slows down, macroeconomic profit falls and may even turn negative, i.e. become a loss. This means, firms break down, unemployment increases, and the banking system has to write down debt, which, in turn, may lead to a banking crisis. The process is self-reinforcing and if this lasts longer, the economy breaks down. Every recession gives you a foretaste of what happens if the algebraic sign of Qm switches from positive to negative.
So, roughly speaking, if growth ends, that is, if it goes to zero, the market economy will break down. This is NOT a “baseless allegation” but follows straight from the Profit Law which consists of measurable variables and is therefore testable. Your problem is that you do not know how the economy works and what science is. This you have in common with Clint Ballinger and Noah Way.
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REPLY to Bob Roddis on Dec 30You say: “Your statements are nothing but a proposed model, a model that has no relationship to reality and which is not helpful in understanding reality. Your model is certainly is not ‘axiomatic’.”
My guess is that you have looked up the word axiom five minutes ago in some folk encyclopedia.
I am not going to explain the relationship between a set of economic axioms, a model, and reality to a hopeless Austrian blatherer. All the more so because this information has been made publicly available long ago.#1, #2, #3, #4, #5
Axiomatization is the first step of any scientific analysis: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; …). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper)
Needless to emphasize that “statements belonging to the theoretical system” must be empirically testable.
Economics has to be built upon clearly stated premises, i.e. upon a set of axioms.
By the way, what are your axioms? You have none! Yeah, soapbox economists just blather off-the-cuff and need no bloody axioms.
#1 True macrofoundations: the reset of economics
#2 How to restart economics
#3 Don Lars and the axiomatic windmill
#4 AXEC Blogspot Axioms
#5 Wikimedia AXEC137b New Foundations of Economics
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REPLY to Noah Way on Dec 30You say: “Axioms only apply to logic and mathematics. As such science does not have any axioms.”
You are dumb as a bag of hammers. Newton’s Principia starts with the famous ‘Axioms or the Laws of motion’.
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REPLY to Noah Way on Dec 31Ask you scientific gutter buddy Bob Roddis, even the Austrians apply axiomatization: “The action-axiom is the basis of praxeology in the Austrian School, and it is the proposition that all specimens of the species Homo sapiens, the Homo agens, purposely utilize means over a period of time in order to achieve desired ends.”#1
#1 Wikipedia, Action axiom
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REPLY to Noah Way on Dec 31You say: “Newton’s Laws are not axioms. They were theories that became laws because they have been supported by rigorous and repeated testing.”
Good, let’s put methodology aside for a moment and have an experimentum crucis. This is my challenge to MMTers, refute this empirically:
false (I−S)+(G−T)+(X−M)=0 MMT,
true (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 AXEC.
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REPLY to Noah Way, Clint Ballinger, Bob Roddis, etcetera on Dec 31Let’s sum up before 2018 ― the year when MMT was refuted on all counts ― ends. MMT is materially and formally inconsistent. The arguments of all sides are before everyone’s eyes for evaluation.
It has been proved
• MMT is bad science,
• MMT is bad policy,
• MMTers are bad people.
MMT is out of science. MMT is political agenda pushing. MMT academics are scientifically incompetent. MMTers deceive the general public about the ultimate effects of their policy on distribution. MMT policy is not progressive as claimed, i.e. for the benefit of the ninety-nine-percenters, but for the benefit of the one-percenters.
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Twitter exchange