Occasional X: Clueless economists / Profit (CXXVIII)

#Economics#AllYouNeedToKnow

The simplified 3-sector Profit Law Qm≡(G−T)+(I−Sm)+Yd implies PublicDeficit = PrivateProfit, ie., (G−T)>0. ⇓ Therefore, the MMT policy of deficit-spending/money-creation is a free lunch for the WeTheOligarchy. Why MMTers claim they are the… pic.twitter.com/BhQhhbbRSd

— AXEC (@EgmontHandtke) January 28, 2026

Occasional X: The futile attempt to recycle MMT (CXLV)

 

#MMT#BadScienceBadPolicyBadPeople

“There is no such thing as tax and spend.” (Richard Phillips)

Tax and spend as well as spend and tax is a matter of indifference. At the end of the day, all that counts is whether spending is greater than tax in a given period or vice versa.… pic.twitter.com/6VAz4ZjDk5

— AXEC (@EgmontHandtke) March 22, 2025

Occasional Xs: What economists really do (CLXVI)

 

With (consumptive) Gov #Expenditures G and #Taxes T there are 2 issues (1) the #Volume G=T & the #Composition of G, T & (2) the #Deficit G>T. The #ProfitLaw ⇓ implies #PublicDeficitIsPrivateProfit. That's why the #Oligarchy's loudspeakers promote #DeficitSpendingMoneyCreation. pic.twitter.com/p4N6rt9s66

— E.K-H (@AXECorg) February 9, 2024

Criminals and the Monetary Order

Comment on Paul Koning on ‘If Nick’s tech-fueled counterfeiting story doesn’t explain why bank IOUs beat out coins, what does?’

Twitter-Reference and Blog-Reference on Oct 23

In order to determine the effects of criminals on the monetary order, one first needs a description of the elementary production-consumption economy. This economy is constructed from scratch with the following 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) Y_w=WL wage income Y_w 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=Y_w 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. For the graphical representation, see AXEC31.

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. The firm issues private money that takes the material form of a slip of paper. It is assumed that the total monthly wage is Y_w/12 = 100 monetary units (Euro, Dollar, Ruble, Yuan, etc.). The household sector fully spends its period income, so consumption expenditures C per period are equal to wage income Y_w, i.e., C=Y_w, i.e,. 1,200=1,200

The IOUs are created out of nothing by the firm, handed over to the household sector in the form of wages, return in the form of consumption expenditures, and are thereby destroyed. There is NO such thing as a fixed quantity of money.

The value of money follows from (1) and is given by W/P=R (2), i.e., the real wage W/P is equal to the productivity R. The value of money depends solely on the production conditions of the economy and NOT on the material value of the firm’s IOUs, which is virtually zero.

The difference between the real value of money (= R) and the lower real production costs of IOUs opens an opportunity for criminals. What happens if counterfeiters exploit this difference?

It is assumed that the counterfeiters bring the fake IOUs at the demand side into circulation, that is, they buy stuff. The market-clearing price is determined by P'=(C+C')/O, which is higher than P=C/O=W*L/R*L=W/R. Because the new real wage W/P' is lower, the part of total output O that the wage income recipients receive is lower, and the difference O−O' goes to the counterfeiters as booty. The redistribution of output is carried out via the price. The higher market-clearing price does not signal increased natural scarcity but indicates that the hidden hand of criminals is at work.

For the business sector as a whole, profit is defined as Q≡C−Y_w. Under the initial condition of budget-balancing C=Y_w, macroeconomic profit is zero. With the counterfeiters’ additional expenditures, C' the business sector posts a profit of Q=C'. Because the business sector gets more IOUs back than it had issued in the form of wages, macroeconomic profit in a private money economy takes the form of surplus IOUs.

In a world of honest people, IOUs could be a functionally satisfactory type of money. In a world of crooks, though, the incentives for corruption have to be eliminated. One obvious way to close the difference between the high real value of money and the low real production costs is to increase the production costs, for example, by replacing the cheap data carrier paper with the expensive data carrier gold/silver. This, of course, runs against the principle of economic efficiency.

Let us now replace private money with public money, which is produced by the Central Bank. Instead of issuing its own IOUs, the business sector now becomes the debtor of the Central Bank in the form of overdrafts and gets uno actu deposits of the same amount. Central Bank deposits are money. These deposits are used for wage payments and subsequently for the households’ purchases of the consumption good. Thus, the business sector’s overdrafts are again reduced to zero. The idealized transaction pattern is shown on AXEC98.

Money is created out of nothing and is again zero at the end of the period. Money consists of a number on the liability side of the Central Bank’s balance sheet that is exactly equal to the number on the asset side. The real value of money is not in these numbers but depends on the productivity R.

The average stock of transaction money is given as M=κY_w, with κ determined by the payment pattern. In other words, the ‘quantity of money’ M is determined by the autonomous transactions of the household and business sector and created out of nothing by the Central Bank in the form of deposits and overdrafts. The economy never runs out of money.

In this monetary system, the challenge for criminals consists of creating a deposit on their own account and an overdraft on somebody else’s. Again, the Central Bank’s counter-measures consist of driving up the production costs of counterfeit money by making their IT systems impenetrable.

In a fiat money system, the production of counterfeit money assumes an entirely different form and a gigantic dimension. If the Central Bank creates money on behalf of the State and the amount G is spent into the economy with taxes left at zero, the effect is the same as money-printing by the counterfeiter. The market-clearing price P'=(C+G)/O increases, and the part of the output that is available to the wage income receivers diminishes. The redistribution of output happens via the price mechanism. The real wage is now lower than productivity. All this is non-transparent to the general public, who is told that the invisible hand pushes the levers of the price mechanism.

With the State’s additional expenditures G, the business sector posts a profit Q=G or Q=G−T in the general case of a budget deficit. So, it holds Public Deficit = Private Profit. Because the business sector gets more deposits back than it had spent in the form of wages, macroeconomic profit in a public money economy takes the form of an increase in the stock of Central Bank deposits, i.e., money. The counterpart of the business sector’s deposits is overdrafts of the State. The financial wealth of the business sector grows in lockstep with public debt. The general public is not aware that it owns the public debt, which has to be repaid at some unknown date in the future.

Public deficit spending is the wrong way to inject money into the economy. This way is NOT different from bringing counterfeit money into the economy. Both the printing of counterfeit money and public deficit spending have, in real terms, the same negative effect on WeThePeople. The only difference is that private counterfeiting is illegal, but public deficit spending is legal.

The foundational defect of the fiat money system is NOT that the Central Bank can create money out of nothing and charge interest to cover its costs, or that the money is not backed by gold; the defect is that the Central Bank enables the State’s deficit-spending, which worsens the real situation of WeThePeople and increases the financial wealth of the Oligarchy.

From the macroeconomic perspective, running a public deficit is as criminal as printing counterfeit money. The first rule for a Central Bank is NOT to keep inflation at 2% but to prevent surpluses and deficits and keep the public deficit at zero.

In a well-designed corruption-free monetary order, the Central Bank is by law committed to a Schwarze-Null/Black-Zero government budget. Fighting inflation or unemployment requires other tools.

Egmont Kakarot-Handtke


Related 'The right and the wrong way to bring money into the economy' and 'Swabian housewife vs Wall Street loan shark' and 'Deficit cheerleaders ― the Oligarchy’s useful idiots' and 'How to pay for the war and to be bamboozled by economists' and 'Keynes, Lerner, MMT, Trump, etc. and exploding profit' and 'Pareto-efficiency, Hayek’s marvel, and the invisible executor' and 'Is MMT good for WeThePeople or for the Oligarchy?' and 'How counterfeiters save America with an extra profit and make WeThePeople pay for it' and 'Reconstructing the Quantity Theory (I)'.

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Twitter/X Mar 24, 2024

Twitter/X Feb 19, 2025,  Blackhole economics: How to make it untraceable

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Grok's summary, Mar 15, 2025

The article titled "Criminals and the monetary order" was published on October 22, 2019, on the AXEC: New Foundations of Economics blog (https://axecorg.blogspot.com/2019/10/criminals-and-monetary-order.html). It is a commentary on Eric Lonergan and Mark Blyth's post "The night of the living dead — why monetarist and Keynesian economists love a crisis" from their blog, Philosophy of Money. Below is a summary of the key points from the article:

Summary

1. Critique of Monetarists and Keynesians:
   • The article begins by referencing Lonergan and Blyth’s argument that both monetarist and Keynesian economists thrive on crises because these situations allow them to implement their preferred policies—quantitative easing (QE) for monetarists and deficit spending for Keynesians. The author, Egmont Kakarot-Handtke, frames this as a "zombie fight" between two outdated economic paradigms.
2. Failure to Address Profit:
   • Kakarot-Handtke argues that both monetarists and Keynesians fail to understand the fundamental role of profit in the monetary economy. He asserts that neither school of thought has adequately grasped the systemic laws governing the market economy, particularly the relationship between profit and the monetary order.
3. The Role of the State and Central Bank:
   • The article outlines an alternative view of the monetary system, emphasizing that the state is essential for establishing the institutional framework of the monetary order, but it should not directly inject money into the economy. Instead, an accommodative central bank should facilitate autonomous transactions between households and businesses.
   • Money, in this view, is described as a "generalized IOU" created and destroyed through transactions between the household and business sectors, with its value determined by the equation W/P = R (where W is nominal wages, P is the price level, and R is productivity).
4. Criticism of Deficit Spending and QE:
   • Kakarot-Handtke criticizes both QE (a monetarist tool) and deficit spending (a Keynesian tool) as policies that disproportionately benefit the "Oligarchy" (a term he uses to refer to the wealthy elite). He argues that these policies lead to increased financial wealth for the few while burdening the public with debt, without addressing the underlying structural issues of the economy.
5. Profit Law and Distributional Effects:
   • The author introduces his macroeconomic "Profit Law," asserting that public deficits translate directly into private profits (Public Deficit = Private Profit). He claims that policies like QE and deficit spending exacerbate wealth inequality by channeling benefits to the financial sector and the rich, rather than supporting the broader population ("WeThePeople").
6. Call for a New Monetary Order:
   • Kakarot-Handtke advocates for a monetary system where the central bank supports growth by ensuring an adequate supply of transaction money, without the state or central bank interfering in autonomous market transactions. He contrasts this with the current system, which he sees as favoring criminals and the oligarchy through "legalized counterfeiting" (e.g., money creation that benefits the elite).
7. Political and Ethical Dimensions:
   • The article concludes with a broader critique of economics as a discipline, accusing it of being a form of "political economics" that serves the interests of the powerful rather than pursuing scientific truth. Kakarot-Handtke calls for a shift toward a scientifically grounded understanding of the monetary economy, free from the influence of political agendas.

Key Takeaways

• The author views both monetarist and Keynesian policies as flawed and outdated, arguing that they fail to address the central role of profit and instead perpetuate a system that benefits the wealthy elite.
• He proposes a monetary system where the state sets up the institutional framework, and the central bank facilitates transactions without direct intervention, ensuring money serves as a neutral medium rather than a tool for enriching the few.
• The critique is framed as both an economic and ethical argument, highlighting the distributional consequences of current policies and their failure to serve the broader public.

This summary reflects the content and arguments presented in the blog post as of its publication date, October 22, 2019.

***

Twitter/X Mar 17,2025, Could be the computers for the "production of counterfeit money"

Fraud comes always in the cloak of charity, salvation, or the threat of doom

Comment on Jacob Weindling on ‘What Is Modern Monetary Theory and Why Is It So Important to the Green New Deal?’*

Blog-Reference

Jacob Weindling asserts: “… the question of … how do you pay for the Green New Deal?’ has already been answered. The HuffPo piece was written by Professor of Economics and Public Policy at Stony Brook University, Stephanie Kelton, who was also the Chief Economist for the Democrats on the U.S. Senate Budget Committee. Yesterday, she posted a thread outlining some legitimate economic questions that MMT claims to answer.” and “The question of how to pay for the Green New Deal is pretty silly when you take a step back and look at the larger issue at hand. Scientists are nearly in unanimous agreement that unless we do something unprecedented in the next twelve years, the Earth will become irreversibly hostile to human life in twenty years, with an estimated cost of $69 trillion to deal with this apocalyptic future.”

Jacob Weindling is either a confused blatherer or a fake Progressive agenda pusher. #1

The answer to the question “How are you going to pay for it” has two progressive answers: the genuine and the fake. The genuine Progressive answers: simple, by cutting military spending. #2 The fake Progressive answers: simple, by deficit-spending/money-creation.

MMTers are fake Progressives. In fact, MMTers are agenda pushers for the Oligarchy. How can one be sure of it?

Economically, there are two questions for government spending (i) on what is the money spent (e.g., (ia) administrative-, (ib) military-, (ic) social budget, etcetera), and (ii) is government spending G less, equal, or greater than taxation T, i.e., (iia) G<T, (iib) G=T, (iic) G>T? Needless to emphasize that these questions are constantly confused, whether intentionally or unintentionally, does not matter. The question is further confused by lumping it together with the full employment policy.

MMTers claim that the answer to almost all economic/social problems is permanent deficit-spending/money-creation, with some caveats with regard to inflation.

Now, MMT policy has one property that makes it disadvantageous for WeThePeople and advantageous for the Oligarchy, #3, #4, #5, i.e., because of the macroeconomic Profit Law, it holds Public Deficit = Private Profit. So, no matter how the money is allocated between administrative, military, social, and environmental spending, as long as there is deficit-spending/money-creation, the Oligarchy makes a profit equal to the deficit. #6

As a rule of thumb, the financial wealth of the Oligarchy grows in lockstep with the public debt. In other words, the fabulous wealth in the U.S. is the mirror image of fabulous public debt ($21.5 trillion).

No matter what MMTers claim that permanent public deficit spending is good for, #6 it is ultimately good for the permanent self-alimentation of the Oligarchy.

While MMTers have hitherto posed as friendly helpers for the unemployed and socially disadvantaged, they now sell deficit spending as the last hope for saving humanity and the planet.

MMT is proto-scientific garbage and social fraud. This is what economics has been since Adam Smith/Karl Marx. Economics is failed/fake science. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.

Egmont Kakarot-Handtke


* Paste
#1 MMT Progressives: stupid or corrupt or both?
#2 What the world wants and how to pay for it using military expenditures
#3 How MMT makes everybody happy
#4 MMT, money creation, stealth taxation, and redistribution
#5 Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople
#6 MMT: If you’ve got a problem, I don’t care what it is, let me help

Related 'The Kelton-Fraud' and 'Down with idiocy!' and 'Stephanie Kelton on how to become fabulously wealthy' and 'MMT sucks' and 'MMTers are NOT Friends-of-the-People'.

The creation and value of money and near-monies

Comment on Clint Ballinger on ‘Of Bitcoins and balance sheets: the real lesson from Bitcoin’

Blog-Reference

Clint Ballinger argues: “The national government creates the numeraire for the system (the 'Dollar' in the US, the 'Pound' in the UK, etc.) and, in addition to spending directly into the economy in that numeraire, the government allows a public/private system (publicly regulated private banking system) to operate with the same numeraire. This creates a single system for the public, but in fact, arises from two separate but linked balance sheet expansions.
But why do the tokens from either of these balance sheet expansions have and maintain value?
The government maintains the value of its balance sheet tokens by demanding that some of its tokens, once a year, must be paid back to the government. This guarantees that everyone in that nation will accept and value the tokens from the national balance-sheet expansion.
The tokens that arise from the public/private bank balance-sheet expansion maintain their value analogously ― by the obligation to repay bank loans.
Together, the obligation to pay taxes and the obligation to repay bank loans maintain the value of a currency. Note that both of these rest on the government/legal system of a nation.”

The claim that the value of money depends ultimately on the taxing power of the state is, of course, plain MMT nonsense.

Time to finally settle the theory of money. Because economics is a failed science, it has to be reconstructed from scratch. Walrasian microfoundations and Keynesian macrofoundations have to be scrapped.

As the new analytical starting point, 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) Y_w=WL wage income Y_w 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=Y_w 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. For the graphical representation, see Figure 1. #1

The price is determined by the wage rate, which takes the role of the nominal numéraire, and productivity. The quantity of money is NOT among the price determinants. This puts the commonplace Quantity Theory to rest.

The real value of money is ultimately given by productivity. From (1) follows W/P=R, i.e., real wage = productivity. The value of money has NOTHING AT ALL to do with the taxing power of the state. In the production-consumption economy with budget balancing and market clearing, the wage income receivers always get the whole output O=RL.

Monetary profit for the economy as a whole is defined as Q_m≡C−Y_wand monetary saving as S_m≡Yw−C. It always holds Q_m≡−S_m, 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.

What is needed for a start is two things: (i) a central bank that creates money on its balance sheet in the form of deposits, and (ii) a legal system that declares the central bank’s deposits as legal tender.

Deposit money is needed by the business sector to pay the workers who receive the wage income Y_w per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e., if C=Y_w.

Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income. This time sequence is no problem for the central bank because the temporary overdrafts vanish with wage payments.

For the case of a balanced budget C=Y_w, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown in Figure 2. #2

The household sector’s deposits/overdrafts are ZERO at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the central bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an ACCOMMODATIVE role and simply supports the AUTONOMOUS market transactions between the household and the business sector.

From this follows the average stock of transaction money as M=κY_w, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the AUTONOMOUS transactions of the household and business sector and created out of nothing by the central bank. The economy NEVER runs out of money if the central bank does a good job.

The transaction equation reads M=κY_w=κPX=κPRL in the case of budget balancing and market clearing, and this yields the commonplace correlation between the average stock of money M and price P for a given employment level L, except for the fact that M is the DEPENDENT variable.

Money comes into existence on the balance sheet of the central bank as soon as the central bank enters an overdraft for the business sector on the asset side and a deposit of an equal amount on the liability side (step 1). This deposit is then transferred to the household sector as wage payment (step 2) and returns in the form of consumption expenditures (step 3). #3

Now, commercial banks are introduced. They can create and destroy ‘money’ technically exactly in the same way as the central bank, except for the fact that it is bank money and not central bank money. The crucial condition for the functioning of the two-monies system is that the business sector and household sector accept bank money as practically identical to central bank money.

To be sure, in the strict sense, bank deposits are NOT money; only central bank deposits are money. This becomes clear as soon as the households/firms try to exchange huge amounts of bank money for central bank money. This is known as a bank run. In this case, the central bank has to step in and help the banks out with the one and only genuine money. The best way to prevent bank runs from ever happening is the unconditional guarantee of the central bank to exchange bank money anytime and in any amount into central bank money.

So, the private sector = banks can create near-money that works under the appropriate institutional conditions just as central bank money. The real value of near money is the same as central bank money. Acceptance and the real value of money and near-money do NOT depend on the state’s taxing power.

Problems arise if money is not brought into circulation in the right way. Roughly speaking, as long as the central bank or the private banks or whoever else finances the wage bill Yw, and the wage rate W moves exactly with the productivity, the price P remains according to (1) absolutely constant. The real value of money/near money rises and falls ultimately with productivity.

However, if the money is brought into circulation at the demand side, such that the household sector takes up credit and spends it on consumption goods, things are radically different. The market-clearing price rises, and this reduces the real value of wage income. The output is now redistributed between income spenders and credit spenders, i.e. P₁=(C+C_cr)/O > P=C/O with C=Y_w and O=X. #4

Secondly, the business sector now makes a profit, i.e., Q_m=C_cr. It holds that the household sector’s deficit (dissaving) is equal to the business sector’s surplus (profit). If the money is brought into circulation by the government’s deficit spending it holds Public Deficit = Private Profit. Hence, MMTers as champions of state money creation and deficit-spending are ultimately ― knowingly or unknowingly does not matter ― agenda-pushers for the one-percenters. #5

With regard to Bitcoin, it follows that it is not even remote money, like a traveler’s check, for example, because the issuer does not guarantee to exchange it back at any time one-to-one into bank money or central bank money. The value of Bitcoin depends solely on the expectation that another private person will eventually exchange it for money or near-money or a financial or real asset. #6

Egmont Kakarot-Handtke


#1 Graphic AXEC31 Elementary production-consumption economy
#2 Graphic AXEC98 Idealized transaction pattern, household sector, balanced budget
#3 Basics of monetary theory: the two monies
#4 MMT, money creation, stealth taxation, and redistribution
#5 MMT is ALWAYS a bad deal for the 99-percenters
#6 Primary and Secondary Markets

Related 'The ultimate ― analytical ― origin of money'.

For more details about money, see AXECquery.

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REPLY to Matt Franko, Tom Hickey Dec 30

In the political realm, there is rhetoric, storytelling, and obfuscation. In the scientific realm, there is axiomatization, consistency/proof, and clarity.

In the political realm, Humpty Dumpty rules: “‘When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ ‘The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all’.” #1

In the scientific realm, Aristotle rules: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

Economists never got above the level of proto-scientific storytelling and political agenda pushing. #2

Money is clearly defined and measurable with the precision of two decimal places. Money (liability side of the central bank’s balance sheet) is different from bank money, near-money, remote-money, pseudo-money, quasi-money, counterfeit money, crypto money, clay tablets, bullion, IOU, etcetera.

Needless to emphasize that the representative economist in general, and the MMTer in particular, have until this very day NO clear idea of the basic concepts of his subject matter, e.g. profit, income, money, and so on. But he has a lot to blather about democracy, the mob, and liberalism.


#1 Humpty Dumpty is back again
#2 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

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Specifics of the creation of E-Money/eMoney, cryptocurrency, etc.

Twitter Aug 21, 2021

Twitter Jan 28, 2022 #CryptoIsCrime

Twitter Nov 11, 2022

Twitter Nov 18, 2022

Twitter Nov 19, 2022 Media promotion of crypto and FTX

Twitter Nov 22, 2022