MMT, money, value, and transcendental Capitalism

Comment on Peter Cooper on ‘Currency Acceptance, Currency Value, and Transcending Capitalism’

Blog-Reference and Blog-Reference

Peter Cooper argues: “A currency’s role as public utility hinges on currency acceptance. A currency expresses (marxist) value in the sphere of commodity production so long as it represents an amount of socially necessary abstract labor. If so, it is relevant to distinguish two questions: (i) what drives acceptance of the currency? and (ii) what determines the value of the currency?”

Peter Cooper answers the question of acceptance: “Government has the authority to impose taxes (and other obligations) on members of the community and specify what will be accepted in payment. In principle, this authority is bestowed upon government by the community and, ideally, will be exercised in a democratically accountable way.”

This is not correct. Imagine an elementary production-consumption economy consisting of the household sector and the business sector.#1, #2, #3 The business sector pays the wage income Y_w with own IOUs, and the households, in turn, fully spend the IOUs for buying the consumption good output from the business sector, i.e. C=Y_w. The workers will accept the business sector’s IOU’s as payment if they can be reasonably sure that the creation/destruction of IOUs is fraud-safe. This can best be achieved if the business sector’s IOUs are replaced by the central bank’s generalized IOUs, i.e. by fiat money. The acceptance of fiat money does NOT depend on the taxing power of the state but on institutional safeguards.

Peter Cooper answers the question of value: “In Marx’s theory, ‘value’ (defined as socially necessary labor time) governs commodity production and exchange.”

This is not correct because Marx’s Theory of Value is provably false. Marx got profit, exploitation, and classes wrong.#4 To this day, Marx and Marxians lack the concept of cross-over exploitation.#5

From the true macrofoundations follows the macroeconomic Law of Supply and Demand as shown on Wikimedia.#6 It says:

(i) An increase of the expenditure ratio ρ_E≡C/Y_w leads to a higher market clearing price (the Greek letter ρ stands for ratio). An expenditure ratio ρ_E greater than 1 indicates deficit-spending/dissaving/credit-expansion, a ratio ρ_E less than 1 indicates saving/credit-contraction.

(ii) An expenditure ratio greater than 1 makes that macroeconomic profit, i.e. Q≡C−Y_w or Q≡(ρ_E−1)Y_w, is greater than zero.

(iii) Deficit spending, i.e. the move from ρ_E=1 to ρ_E greater than 1 causes a one-off price hike but NOT inflation.

From the macroeconomic Law of Supply and Demand follows the purchasing power of the wage a.k.a. the Value of Money as W/P=R in the elementary case of budget balancing, i.e. of C=Y_w or ρ_E=1. In other words, the Labour Theory of Value is false since the founding fathers. Value does NOT depend on socially necessary labor time.#7 The Value of Money depends on productivity R.

When the government sector is added the macroeconomic Profit Law reads Q≡(G−T)+(I−S) or Public Deficit (G−T) = Private Profit Q if I and S are taken out of the picture for a moment.

So, profit in transcendental Capitalism does NOT depend on the exploitation of the workers but on the deficit spending of the government sector and the household sector. Roughly speaking, transcendental Capitalism is state-sponsored.#8 The accumulated sponsoring is measured by the public debt which stands currently at $22 trillion. The so-called free-market economy is already for a long time on full life-support of the state.#9

Egmont Kakarot-Handtke


#1 This is the true core of macroeconomic premises: (A0) The objectively given and most elementary systemic 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.
For a start X=O, i.e. market-clearing holds. The ratio ρ_E≡C/Y_w is called the expenditure ratio; ρ_E=1 indicates budget balancing of the household sector.
#2 True macrofoundations: the reset of economics
#3 MMT is dead
#4 The thing with profit and exploitation
#5 Capitalism, poverty, exploitation, and cross-over exploitation
#6 Wikimedia AXEC101 Law of Supply and Demand, elementary production-consumption economy
#7 Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
#8 No future for Socialism and Capitalism
#9 Keynes, Lerner, MMT, Trump, Biden, and exploding profit

Related 'The objective value of money'. and 'MMT: fundamentally false' and 'Warren Mosler: scientific dilettante and political fraudster' and 'MMT: The fusion of Wall Street and Academia' and 'Rethinking the Profit Law' and 'Basics of Value Theory' and 'Mathematical Proof of the Breakdown of Capitalism'.

Basics of Value Theory

Comment on Peter Cooper on ‘Developments in Value Theory’

Blog-Reference and Blog-Reference

Value and Profit Theory are false since Ricardo and Marx.#1, #2

In order to see where Value Theory fails, one has to start with the most elementary version of what Keynes called the “monetary theory of production”.

As the analytical starting point, the elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) 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). The price P is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. This translates into W/P=R (2), i.e. the real wage is equal to the productivity. Eq. (1) is the macroeconomic Law of Supply and Demand.

Monetary profit/loss of the business sector is defined as Q≡C−Y_w (3) and monetary saving/dissaving of the household sector is defined as S≡Y_w−C (4). It always holds Q+S=0, or Q≡−S (5), in other words, the business sector’s nominal surplus = profit equals the household sector’s nominal deficit = dissaving. Vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. Under the initial condition of budget-balancing C=Y_w, total monetary profit is zero. Eq. (5) is the most elementary version of the macroeconomic Profit Law.

What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which 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.

For the case of a balanced budget C=Y_w, the idealized transaction pattern of deposits/overdrafts of the household sector at the central bank over the course of one period is shown on Wikimedia.#3

The household sector’s deposits/overdrafts are zero at the beginning and end of the period. Money 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 supports the autonomous market transactions between the household and the business sector. From this follows the average stock of transaction money as M=kY_w (6), with k determined by the transaction pattern.

If employment L is doubled, the average stock of transaction money M doubles. In a well-designed fiat money economy, growth is not hampered by a lack of the transaction medium. NO capitalist with a sack of gold coins is needed to advance the wage bill.

In sum, (i) money is a generalized IOU, (ii) money is created and destroyed by the transactions between the household and the business sector, (iii) the value of money is given by (2) W/P=R, i.e. is equal to the productivity, (iv) the workers get the whole product, (v) profit is zero.

Because there is only labor input in the elementary production-consumption economy, eq. (2) represents the essence of the Labour Theory of Value.

Eq. (2) can be generalized for two different products and then the Law of Value says P₁/P₂=R₂/R₁, i.e. the price relation is inverse to the productivity relation, that is, the whole price structure is objectively determined by the productivities. Note that macroeconomic profit is zero because of budget balancing, i.e. C=Y_w. Macroeconomic profit does only appear if C>Y_w and this has NOTHING AT ALL to do with capitalists or value creation.

A well-defined monetary market economy is different from the wooly idea of capitalism. Profit has NOTHING to do with surplus value or exploitation but with deficit-spending/ dissaving of the household sector. Profit cannot be attributed to a factor. This is the fundamental methodological defect of classical and neoclassical Distribution Theories.

Egmont Kakarot-Handtke


#1 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#2 Profit for Marxists
#3 Wikimedia AXEC98  Idealized transaction pattern

Related 'Value — the Bermuda Triangle for economic theories' and  'The Pure Logic of Value, Profit, Interest' and 'The Value of Water and Diamonds: Back to Square One' and 'The Logic of Value and the Value of Logic' and 'The Logical Interface Between Objective Macrofoundations and Subjective Valuations'.

Links on MMT is politically open and applicable to both Capitalism and Socialism

Comment on Peter Cooper on  ‘MMT is Politically Open and Applicable to Both Capitalism and Socialism’

Blog-Reference and Blog-Reference on Feb 10

Peter Cooper asserts: “Modern Monetary Theory (MMT) offers an understanding of sovereign (and non-sovereign) currencies that is applicable to a wide range of economic systems, including capitalist and socialist ones. Irrespective of the personal political preferences of its proponents, the theoretical framework in itself is neutral on the appropriate balance between public sector and private sector activity, or the relative merits of capitalism and socialism.”

This is not the case.

In the course of an enumeration of MMT’s essential features, Peter Cooper mentions “Government deficit equals non-government surplus.” and explains “Basic accounting relationships apply irrespective of a society’s politics. Funds created through government spending that have not been taxed back are held as financial assets by non-government.”

It is methodologically true, of course, that “Basic accounting relationships apply irrespective of a society’s politics”, however, MMT’s fundamental accounting relationship, i.e. the sectoral balances equation, is logically/mathematically false. Because of this fundamental blunder, the rest of MMT is scientifically worthless and neither applicable to capitalism or socialism.

The correct accounting relationship states Public Deficit = Private Profit.

For the proof see
► Rectification of MMT macro accounting
► What and where is profit?
► “But economics is not pure mathematics or logic” No, it is pure blather
► Stephanie Kelton’s legendary Plain-Sight-Ink-Trick

Egmont Kakarot-Handtke

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Links on Michael Roberts’ ‘The Green New Deal and changing America’

Blog-Reference on Feb 10

Calgacus cites: “Many of the MMT school don’t appear to understand (or at least don’t admit) that the very existence of MMT as a body of knowledge directly opposes ruling capitalist class interests.” and comments “Ohh, they almost all understand and admit it. They’re just quiet about it.”

To speak of MMT as a “body of knowledge” is a silly joke. MMTers have not even understood that their foundational sectoral balances equation is false. Descriptions of the operational details of Treasury/FED interactions are useful information but NOT scientific knowledge.

To maintain that “MMT directly opposes ruling capitalist class interests” is either self-delusion or fraud. Because of the macroeconomic Profit Law, i.e. Public Deficit = Private Profit, the MMT policy of deficit-spending/money-creation guarantees a permanent free lunch for the Oligarchy. For details see
► Keynes, Lerner, MMT, Trump and exploding profit
► Fraud comes always in the cloak of philanthropy, salvation, or threat of doom
► Socialism and scientific incompetence
► MMT and Marxism ― blather as immunizing stratagem

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Links on Lars Syll’s ‘Paul Samuelson–an economist in “the business of dishonesty”’

Blog-Reference on Feb 8

The problem with Samuelson is NOT silly policy advice but scientific incompetence. See
► The father of modern economics and his imbecile kids
► There is NO such thing as “smart, honest, honorable economists”

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Link on Bruce Wilds' ‘Deficit Spending Main Driver Of American Economy!’

Blog-Reference on Feb 5

Tom Hickey replies: “And Accounting 101 shows why this is wrong. Basic accounting shows that public debt increases private saving. The funding sources is currency issuance. The funds government net spends in aggregate are exactly equal to the funds that the private sector net saves in aggregate.”

Take notice that the assertion “public debt increases private saving” is provably false. Economists are too stupid for macroeconomic accounting. Because of the macroeconomic Profit Law, it holds Public Deficit = Private Profit.#1


#1 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick

MMT: scientific incompetence or political fraud?

Comment on Peter Cooper on ‘Unfulfilled Potential’

Blog-Reference and Blog-Reference

There is the political realm where, in principle, everyone is admitted. The currency in the political realm is opinion. Opinion is different from knowledge and the fact of the matter is that it is most of the time false or merely superficially plausible.

Accordingly, there are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Theoretical economics (= science) has been body-snatched by political economists (= agenda pushers). For the general public, science clones are virtually indistinguishable from scientists: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

What is missing in political economics is the true theory of how the actual economic system works.#1 The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. There is no such thing as a scientifically true economic theory, merely the pluralism of provably false theories.

Political economics is easy to recognize. Political economists do not talk about how the economy works but about freedom, liberty, democracy, overall welfare, justice, ethics, the conscience of a liberal/conservative, folk psychology/sociology, nationalism/globalism, and the bad elite versus the good little guy. Political economics ― right-wing, left-wing does not matter ― has produced NOTHING of scientific value in the last 200+ years.#2

MMT is no exception. MMTers stand for a series of political priorities, first and foremost sovereignty: “… a government’s monetary sovereignty creates a potential for meaningful social progress. But it is only a potential, and can only be fulfilled through genuine democracy conducted by an informed citizenry.” (Cooper)

There is nothing to say against the political program of MMT except that it is backed by an economic theory and that this theory is provably false. The problem with MMT is this:
• it is based on inconsistent accounting identities,#3
• it is scientifically worthless,
• it amounts to a wellness program for the one-percenters,#4
• it falsely claims to benefit the little guy.#5

Either MMTers are in a state of scientific self-delusion or they are just another political fraud like Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism.

Egmont Kakarot-Handtke


#1 The economist as stand-up comedian
#2 Economics: 200+ years of scientific incompetence and fraud
#3 Rectification of MMT macro accounting
#4 MMT and the magical profit disappearance
#5 MMT is NOT an alternative to neoliberalism and Why Bernie Sanders is unintentionally a godsend for the one-percenters

Related 'MMT: for the record'. For the full-spectrum refutation of MMT see cross-references MMT.

MMT: NO sound scientific foundations

Comment on Peter Cooper on ‘Short & Simple 19 ― Sectoral Balances in a Closed, Demand-Determined Economy’

Blog-Reference and Blog-Reference

In economics, it is important to separate politics and science. While anybody can make a plausible and populistic economic policy proposal, the economist can NOT. What the economist says must be backed up by the true theory. The economist who lacks the true theory is at one level with the cranks that populate the political arena.

“A sure sign of a crisis is the prevalence of cranks. It is characteristic of a crisis in theory that cranks get a hearing from the public which orthodoxy is failing to satisfy. In the thirties, we had Major Douglas, and social credit — it can all be done with a fountain pen — and Warren and Pearson who convinced President Roosevelt that raising the dollar price of gold would raise the price of everything else and bring the slump to an end. The cranks are to be preferred to the orthodox because they see that there is a problem. Nowadays we have plenty of cranks taking up the problems that the economists overlook.” (Robinson)

Not much has changed since Joan Robinson. The only difference between the ordinary crank and the economist is that the latter has a diploma.

The policy MMT stands for is backed in the main by Keynesian macroeconomics. The thing about Keynesianism is that it is scientifically worthless since the General Theory, that is, provably false, that is, materially and formally inconsistent. The thing about MMTers is that they are mindlessly repeating Keynes’ awkward blunders.

Peter Cooper combines key Keynesian macro identities with particular behavioral assumptions to provide a theory of income determination. The behavioral equations add causation to the model. The starting point is given with the macro identity S+T=G+I.

When the government sector is taken out for a moment, i.e. G, T = 0, then the equation reduces to the formal core of the General Theory, i.e. to I=S. To recall: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)#1

All I=S/IS-LM models are false because Keynes’ premise “Income = value of output” is false.#2 Scientists know since Aristotle that if the premises are false the whole theoretical superstructure falls apart. Because only “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.”

Because Peter Cooper starts from a false premise, i.e. the macro identity S+T=G+I, there is no use at all to add causal equations and then to derive economic policy conclusions. The only sensible thing to do is to throw this rubbish without further ado into the wastebasket.

The proof has been given that Q_m≡−S_m in the elementary production-consumption economy and Q_m≡I−S_m in the investment economy. In plain text, the proof says that saving and investment are NEVER equal.#3 So, Keynesianism and, by implication, MMT is refuted on all counts.#4

Note that not only Peter Cooper’s model is refuted but ALL models that contain I=S back to Wicksell and even further.#5

Egmont Kakarot-Handtke


#1 Keynesians ― terminally stupid or worse?
#2 How Keynes got macro wrong and Allais got it right
#3 For more details see cross-references MMT
#4 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#5 Going beyond Wicksell, Keynes, and MMT

Immediately following Rectification of MMT macro accounting.

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Wikimedia AXEC157 Employment multiplier for the elementary investment economy

MMT: soapbox economics just like the others

Comment on Peter Cooper on ‘The Social Economy and the Potential Inherent in Currency Sovereignty’

Blog-Reference and Blog-Reference

Ninety-nine percent of human communication is storytelling, and only one percent is science. Scientific knowledge is embodied in the true theory. The true theory is the best possible mental representation of reality. Scientific knowledge satisfies two criteria: material and formal consistency. The economist needs the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

MMTers do NOT have the true theory. They do not even know what a theory looks like: “A scientific deductive system (‘scientific theory’) is a set of propositions in which each proposition is either one of a set of initial propositions … or a deduced proposition … in which some (or all) of the propositions of the system are propositions exclusively about observable concepts (properties or relations) and are directly testable against experience.” (Braithwaite)

MMTers do not have the true theory but they have a story. The storyline goes like this

(i) “At the macro level, a lack of monetary demand in the present will result in unemployment or underemployment of workers who otherwise could be contributing to the development of technology and future productive capacity.”

(ii) “In the prevailing economic system, money matters. Not only will production for exchange fail to occur when demand for future output is expected to be weak, but production will typically not even take place until monetary expenditure has occurred. In most lines of business, capitalist firms need to pay wages before the production process is complete and output sold.”

(iii) “It is not just that, by definition, spending equals income. It is that spending, logically, is the determiner of income and income the mere result.”

(iv) “We know, of course, where the money comes from. There are essentially only two origins: lending (whether public or private) and government spending. The money, from inception, must be created ex nihilo for capitalist production actually to take place.”

(v) “… a currency-issuing government’s capacity to override profit imperatives makes possible a broadening and enriching of social life, a reshaping of the workplace and resetting of economic priorities, ….”

The MMT storyline contains an employment theory (i), a money theory (ii), (iv), an income-expenditure model (iii), and a profit theory (v). All these elements are false because MMT is built upon this false premise: “It is not just that, by definition, spending equals income.” MMT builds on a macroeconomic income and profit definition that is false since Keynes’s General Theory.#1

As Aristotle said 2300+ years ago: “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.”

The pivotal premise of MMT is neither certain, true, nor primary. Because the premise is false the whole theoretical superstructure is false.#2 This property MMT shares with Walrasianism, Keynesianism, Marxianism, and Austrianism. Economics is proto-scientific garbage since Adam Smith and MMT are part of it.

Egmont Kakarot-Handtke

#1 For the point-by-point refutation of MMT see cross-references MMT
#2 As Thomas Aquinas put it: “Quia parvus error in principio magnus est in fine.” or “A small mistake in the beginning is a big one in the end.”

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Screenshot Aug 29

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Screenshot Aug 31

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REPLY to Dean on Aug 31

You ask: “What would happen if everyone was no longer allowed to save with the proviso that if any household or business was then on the brink of insolvency the govt bailed them out in order to get them back to solvency?”

For the investment economy, the elementary Profit Law reads Qm≡I−Sm. Legend: Qm monetary profit, I: investment expenditures, Sm monetary saving/dissaving. The business sector’s investment expenditures and the household sector’s saving/dissaving are completely independent and NEVER equal.

So if saving Sm is set to zero overall monetary profit Qm goes up.#1


#1 For more details see Keynesians ― terminally stupid or worse?.

Debunking MMT’s hallucinatory income-expenditure model

Comment on Peter Cooper on ‘Short & Simple 18 ― Income Determination in a Closed Economy’

Blog-Reference and Blog-Reference

Peter Cooper discusses income determination in a closed economy but, curiously, neither the word profit nor distributed profit appears once in his article. But equilibrium appears which is known to be a NONENTITY. Hence the reality-content of his standard MMT model is zero or even less.

In the following, a sketch of the formally and empirically correct price-, employment-, profit-, and income theory is given.#1 The elementary version of the objective-structural-macroeconomic Employment Law (Wikimedia AXEC62) reads

From this equation follows:
(i) An increase in the expenditure ratio ρ_E leads to higher employment (the Greek letter ρ stands for ratio). An expenditure ratio ρ_E greater than 1 means dissaving=credit expansion, a ratio ρ_E less than 1 means saving. The expenditure ratio fully replaces the consumption function.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment.

The complete AND testable Employment Law is a bit longer and contains in addition profit distribution, public deficit spending, and import/export.

Item (i) and (ii) cover Keynes’ arguments about aggregate demand. The factor cost ratio ρ_F as defined in (iii) embodies the price mechanism which, however, does not work as the representative economist hallucinates. As a matter of fact, overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. THIS is the key to full employment policy.

The axiomatically correct Profit Law reads Q_m≡I−S_m. Legend: Q_m monetary profit/loss, I investment expenditure, S_m monetary saving/dissaving. The business sector’s investment expenditures and the household sector’s saving/dissaving are completely independent and NEVER equal.

The Profit Law gets a bit longer when distributed profit import/export and government are included.

Note that overall profit and by consequence, the income distribution has NOTHING to do with productivity or low wages, or market power. These and other factors affect only the DISTRIBUTION of overall profit BETWEEN firms. What holds on the firms’ level does NOT hold for the economy as a WHOLE. Note also that Keynes, Marx, Kalecki, Keen, Minsky, and other heterodox economists got profit PROVABLY wrong.#2

Keynes’ approach is macrofounded but incomplete because he had no deeper understanding of the profit and price mechanism. MMT builds on Keynes’ defective income and profit definitions and this yields, of course, a materially and formally inconsistent income-expenditure-equilibrium model.

Egmont Kakarot-Handtke


#1 For the comprehensive treatment see Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster.
#2 Heterodoxy, too, is proto-scientific garbage

For the full-spectrum refutation of MMT see cross-references MMT.

MMT’s two shots in the head

Comment on Peter Cooper on ‘Short & Simple 17 ― A Notion of Macroeconomic Equilibrium’

Blog-Reference and Blog-Reference

MMT claims to be a new paradigm. It is NOT. A paradigm is defined by its foundational propositions and Paradigm Shift means, in methodological terms, to change the axiomatic foundations. Applied to economics, this requires throwing the provably false Walrasian microfoundations and the false Keynesian macrofoundations out of the window and replacing them with an entirely new axiom set.

MMT is NOT a new paradigm because it merely recombines Walrasian and Keynesian axioms that are known to be false.

(1) Walrasian Orthodoxy is defined by these axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

The Walrasian hardcore contains three NONENTITIES ― HC2, HC4, HC5. To take equilibrium into the premises and then to establish the properties of general equilibrium is a methodological blunder that is known since antiquity as petitio principii.#1

Because equilibrium is a NONENTITY, all equilibrium models fly out of the window ― including MMT. There is NO such thing as a macroeconomic equilibrium.

(2) Keynesianism, too, is built upon false premises. The formal core of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

Keynes’ lethal blunder is in the premise Income = value of output. The same blunder reappears in the textbooks since 1948: “GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP.” (Samuelson et al.) And finally, this blunder reappears in MMT: “Total Output = Total Spending.”#2, #3

Because the premises of MMT are false the WHOLE analytical superstructure is false, which means that MMT policy guidance has no sound scientific foundations. The proponents of MMT ― Cooper, Hickey, Mosler, Wray, Mitchell, Fullwiler, Kelton, Forstater, and so on ― are scientifically incompetent. MMT is soapbox economics.#4

Egmont Kakarot-Handtke


#1 'There is NO such thing as supply-demand-equilibrium' and 'Essentials of Constructive Heterodoxy: The Market' and 'Ground Control to David Glasner' and 'Petitio principii — economists’ biggest methodological mistake' and 'Why you should NEVER use supply-demand-equilibrium' and 'Traditional Heterodoxy’s paradigmatic impotence' and 'All models are false because all economists are stupid' and 'The Law of Supply and Demand: Here It Is Finally' and 'How to Get Rid of Supply-Demand-Equilibrium
#2 Peter Cooper, Short & Simple 17
#3 For the full-spectrum refutation of MMT see cross-references MMT
#4 MMT is NOT an alternative to neoliberalism

Related 'Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother' and '10 steps to leave cargo cult economics behind for good' and 'The profit effect of a Job Guarantee' and 'Down with idiocy!'.

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REPLY to Tom Hickey on Aug 24

The topic of this thread is NOT scarcity or surplus or subsistence. Peter Cooper presents in Short & Simple 17 two vital elements of the MMT approach: macroeconomic equilibrium and the national accounting identity Y=C+I+G+X–M.

The proof has been given
(i) that equilibrium is a NONENTITY, that is, there is NO such thing as a microeconomic or macroeconomic equilibrium.#1 ALL equilibrium models are false.
(ii) that the national accounting identity is false.#2

Key insight: the MMT approach is proto-scientific garbage.#3


#1 There is NO such thing as supply-demand-equilibrium
#2 A tale of three accountants
#3 Cross-references Refutation of MMT

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REPLY  Tom Hickey on Aug 24

You say: “If there is truly a general surplus then prices should fall across the board to an equilibrium level where all resources are employed and there is no longer a surplus.”

These are the old delusional slogans from Econ 101 and they demonstrate an utter lack of understanding of how the economy and the labor market in particular works.

The elementary version of the correct (objective, systemic, behavior-free, macrofounded) Employment Law is shown on Wikimedia AXEC62:

From this equation follows inter alia:
(i) An increase in the expenditure ratio ρ_E leads to higher employment L (the Greek letter ρ stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment.

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa.#1, #2

Your statement “prices should fall across the board to an equilibrium level where all resources are employed” is Neanderthal economics. Just the opposite holds for the aggregate labor market. And, by the way, there is NO such thing as a microeconomic or macroeconomic equilibrium in economics. Equilibrium is a NONENTITY.


#1 For details see cross-references Employment/Phillips Curve
#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

A crash course in macro accounting

Comment on Peter Cooper on ‘Fiscal Policy, Sectoral Balances, and Financial Sustainability’

Blog-Reference and Blog-Reference

You say: “PRIVATE Balance + GOVT Balance + FOREIGN Balance = 0” and “This is an accounting identity, which means it always holds true.”

This is NOT the case because you messed up the elementary mathematics of accounting.#1 To see this one has to go back to the MOST ELEMENTARY economic configuration, that is, the pure production-consumption economy which consists of the household sector and the business sector.#2

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income E_c=Y_w, (ii) E_c is less than Y_w, (iii) E_c is greater than Y_w.

In case (i) the monetary saving of the household sector S_m≡Y_w−E_c is zero and the monetary profit of the business sector Q_m≡E_c−Y_w, too, is zero.
In case (ii) monetary saving S_m is positive and the business sector makes a loss, i.e. Q_m is negative.
In case (iii) monetary saving S_m is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Q_m is positive.

It always holds Q_m≡−S_m, in other words, at the heart of national income accounting is an identity — the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law.

The balances of the business sector, the household sector, the government sector, and the rest of the world are interrelated as follows Q_m≡−S_m+I+Y_d+(G−T)+(X−M), and THIS is the correct accounting identity for an open economy (X−M) with a government sector (G−T) and with the business investment I and distributed profit Y_d.

Your accounting blunder consists of lumping together the business sector and the household sector. This makes the crucial relation between profit, distributed profit, saving, and investment invisible#3 which amounts to an intended/unintended destruction of valuable information which in turn is contrary to the very purpose of accounting.

Egmont Kakarot-Handtke


#1 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#2 (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) E_c=PX consumption expenditure E_c is equal to price P times quantity bought/sold X. For a start it holds X=O. Note that ALL variables are measurable. E_c and Y_w appear in National Accounting.
#3 How Keynes got macro wrong and Allais got it right

Related 'Rectification of MMT macro accounting' and 'Down with idiocy!' and 'Is Nick Rowe stupid or corrupt or both?' and 'A tale of three accountants'. For  details of the big picture see cross-references Accounting

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REPLY to jrbarch on Jul 7

You say: “Therefore it makes perfect sense to sum businesses and households as the ‘private sector’ who hold these tax credits.”

It makes a real difference whether what you call tax credits are held by the households or by the firms. By lumping both together in what Peter Cooper calls the "private sector" this difference is made invisible.#1

If this is done unintentionally it is sheer scientific incompetence, if this is done intentionally it is what people call cooking the books. If one is not committed to science, though, it is merely brain-dead blather.

#1 For the political implications see Austerity and the idiocy of political economists.

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REPLY to jrbarch on Jul 8

Peter Cooper argues: “For the economy to grow in a financially sustainable way, the private sector should normally be allowed to maintain a financial surplus (spending less than its income). For many countries (the majority with current account deficits), this means government needs to spend more than it taxes under normal circumstances.”

Because ‘spending less than income’ is the definition of saving the condensed form of the argument reads: because the households should be allowed to save the government must dissave, because from accounting follows with mathematical certainty that for any surplus there must be a deficit of equal magnitude somewhere else in the economy.

The problem with this argument is that economists in general and Peter Cooper, in particular, do not understand the elementary mathematics of accounting.

The balances of the business sector, the household sector, the government sector, and the rest of the world are interrelated as follows Q_m≡−S_m+I+Y_d+(G−T)+(X−M). This boils down to Q_m=−S_m+(G−T) for I, Y_d, X, M = 0.

So, there are two limiting cases: (i) If the household sector’s saving S_m goes up and the government’s deficit (G−T) goes up by the same amount the profit of the business sector Q_m remains unchanged. (ii) If the household sector’s saving S_m remains unchanged and the government’s deficit (G−T) goes up the profit of the business sector Q_m goes up by the same amount. It holds Public Deficit = Private Profit.

So, the counterpart of an increased public deficit is either increased saving of the households or increased profits of the firms, or some combination of the two. Therefore, to say that the counterpart of an increased public deficit is an increased surplus of the “private sector” obscures important real-world differences.

Worse. In the past decades, US households increased their debt, that is, they were dissaving. So, BOTH private and public households ran deficits. From the formula above follows that this boosts profit Q_m TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

So, by arguing for government deficits because the “private sector should normally be allowed to maintain a financial surplus” Peter Cooper is de facto arguing for profit increases of the business sector.#1 He obscures this fact by lumping together the business sector and the household sector to the “private sector”.#2


#1 See also Keynesianism as ultimate profit machine.

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REPLY to jrbarch on Jul 9

You say: “So, to me, you are all on the same page, but with different concepts.” You are simply ill-informed. The formal foundations of MMT are logically defective and because of this MMT policy guidance has NO sound scientific foundations. For more details see these comments

• Macrofounded labor market theory
• Economics is NOT about Human Nature but the economic system
• Where MMT got macro wrong
• Rectification and generalization of MMT
• Economics as poultry entrails reading
• Rethinking MMT
• Hobson got full employment policy almost right
• How to start off at the right foot
• Australian upside-down economics
• Modern Moronomic Theory

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REPLY to jrbarch on Jul 10

You say: “you have asked me to move logically from the sectoral balances framework to your own, but I can see no reason to do so?”

There is obviously a gross misunderstanding on your side.

The purpose of my post is to inform Peter Cooper that the accounting identity he starts with is defective and that, as a consequence, the rest of his intro is garbage.

The purpose of my post is NOT to educate jrbarch. And if you “can see no reason” to think logically then simply do not. There is NO need to tell me.

Peter Cooper’s accounting identity is mathematically false. Whether you understand this or not is a matter of indifference.

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Wikimedia AXEC143d

Macroeconomics for dummies (I)

Comment on Peter Cooper on ‘Short & Simple ― Total Spending Equals Total Income’

Blog-Reference

The heteconomist Peter Cooper says: “Since every act of spending results in income for somebody else, total spending for the economy as a whole equals total income. This is true by definition and is a basic building block in macroeconomics.” (See intro)

Both, orthodox and heterodox economists subscribe to this statement as the self-evident rock-bottom truth of all of economics. Too bad that this statement is materially/logically false.

The foundational error/mistake/blunder consists of the methodological fact that the two most important magnitudes of economics — profit and income — are ill-defined.#1 In order to see this one has to go back to the most elementary configuration, that is, the pure production-consumption economy which consists only of the household and the business sector.#2

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Y_w, (ii) C is less than Y_w (iii) C is greater than Y_w.

• In case (i) the monetary saving of the household sector S_m≡Y_w−C is zero and the monetary profit of the business sector Q_m≡C−Y_w, too, is zero. The product market is cleared, i.e. X=O, in all three cases.
• In case (ii) monetary saving S_m is positive and the business sector makes a loss, i.e. Q_m is negative.
• In case (iii) monetary saving S_m is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Q_m is positive.

It always holds Q_m≡−S_m, in other words, at the heart of the monetary circuit is an identity: the business sector’s deficit equals the household sector’s surplus and the business sector’s surplus equals the household sector’s deficit. Put bluntly, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the macroeconomic Profit Law. It follows directly from the profit definition Q_m≡C−Y_w and the definition of household sector saving S_m≡Y_w−C. The causality runs from saving/dissaving of the household sector to loss/profit of the business sector.

Loss or profit is NOT income. Only distributed profit is income. The profit theory is false since Adam Smith.#3

Egmont Kakarot-Handtke


#1 How the Intelligent Non-Economist Can Refute Every Economist Hands Down and Keynes’s Missing Axioms Sec. 14-18
#2 The elementary production-consumption economy is given by three systemic axioms: (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.
#3 Essentials of Constructive Heterodoxy: Profit and cross-references Profit

Related 'The problem with macro in two words' and 'Macro for dummies (II)' and 'Macroeconomics ― dead since Keynes' and 'The canonical macroeconomic model'.

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Wikimedia AXEC121e and in newer notation AXEC121g, C and E_C are interchangeable

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REPLY to Schofield on Dec 13

Obviously, you cannot read. The point at issue is ‘Total Spending Equals Total Income’ and NOT the tautology ‘Total Contracting = Total Contracting.

Money is a related issue but an analytically different matter. See Essentials of Constructive Heterodoxy: Money, Credit, Interest.

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NOTE of peterc on 14 December 2016 at 3:11 AM:

“Hi Egmont. I’d prefer you didn’t clog up the blog with essentially the same comments you have posted at many other sites along with the numerous links to your blog and dozens of SSRN papers, most of which are basically just the same paper repeated with a different title and cosmetic alterations. (Yes, I have had a look over them in the past.)

If you do insist on posting comments here, kindly refrain from attacking other commenters (“Obviously, you cannot read”) or insulting readers (“Macro for dummies”) and state your point in a polite manner.

Unlike your contributions, the comments of Schofield and numerous others have added — and continue to add — a great deal of value to the blog. I consider your contributions basically to be graffiti, especially when they appear in response to introductory posts. They create noise, at best, and confusion at worst for newcomers to economics.

Please consider going away and not coming back unless and until you are prepared to engage in discussion in a constructive fashion.

For now, I am keeping your comments on moderation. I will exercise my right not to publish them, when I see fit, without explanation or apology.

Peter”

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#PointOfProof

The monetary circuit and how economists got it wrong

Comment on Peter Cooper on ‘The Monetary Circuit & Compatibility of Marx, Kalecki and Keynesian Macro’

Blog-Reference and Blog-Reference

The heteconomist Peter Cooper says: “There appears to be a considerable degree of compatibility between Marx and various Kalecki- and Keynes-influenced approaches to macroeconomics.” (See intro)

The compatibility consists in the fact that all these approaches are provably false. In other words, until this day neither orthodox nor heterodox economists have managed to give a formally consistent description of the monetary circuit. The blatant incompetence of economists is the ultimate reason why economics is a failed science.

The current state of economics is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false.

For the short refutation of Kalecki, Keynes, Minsky, and Keen see Heterodoxy, too, is proto-scientific garbage#1 The complete formal proofs are given in separate papers.#2

Debunking is necessary but insufficient. As Blaug put it: “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.” What is needed is to move on from falsified approaches to the materially and formally correct theory. In methodology, this is called a Paradigm Shift.#3 The opus magnum consists of replacing false Walrasian microfoundations and false Keynesian macrofoundations with entirely new macrofoundations.#4 Nothing less will do.

The true theory does not emerge from the mixing of failed approaches. The true theory satisfies the well-defined criteria of material and formal consistency. What the heteconomist Peter Cooper offers is as inconsistent as one can get.

Both Orthodoxy and Heterodoxy never came to grips with science, with the foundational concept of profit, and with the working of the monetary circuit, we happen to live in.

Egmont Kakarot-Handtke


#1 Heterodoxy, too, is proto-scientific garbage
#2 Profit for Marxists and Debunking Squared
#3 The Emergence of Profit and Interest in the Monetary Circuit
#4 From Orthodoxy to Heterodoxy to Metadoxy

Related 'Why economists know nothing' and 'Rethinking MMT' and 'The false foundations of economics' and 'Wikipedia and the promotion of economists’ idiotism' and 'From false micro to true macro: the new economic paradigm' and 'The final implosion of MMT' and 'Economists still don’t get Econ 101 right' and 'Kalecki got it wrong, Allais got it right' and cross-references Kalecki.

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COMMENT on peterc on Dec 20

You write “Hi Magpie. Kalecki is starting from accounting identities. In particular, in the simplest model:
Income = Wages + Gross Profit
Income = Consumption + Gross
Investment Proceeds = Prime Cost + Wages + Gross Profit.”

Note that the first equation, i.e. Income = Wages + Gross Profit, is already false. For proof see (2011; 2012; 2014)

References
Kakarot-Handtke, E. (2011). What is Wrong With Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. URL
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL

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REPLY to peterc on Dec 22 and additional Blog-Reference

You compare Marx, Kalecki, and Keynes. The first thing a logically talented person notes is that the three authors use different definitions of profit and income. Now, a logically talented person knows (i) only one approach can be true, or (ii), all three are false. This has been known for more than 2700 years: “There are always many different opinions and conventions concerning any one problem or subject-matter ... This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion ... on the other.” (Popper, 1994)

The intellectual Lumpenproletariat has no problem with scrambling an arbitrary number of contradictions in their confused brains but for a scientist this is unacceptable: “[economists] pursue the consistency of the theories they make, for he who contradicts himself proves nothing.” (Klant, 1988)

Because the definitions of income and profit by Marx, Kalecki, and Keynes are inconsistent these three authors prove NOTHING. You can find the proof of inconsistency elsewhere.#1 From this proof follows that the widely used definition Income = Wages + Profits is false. And since Kalecki starts with this definition he, too, is false and his whole analytical superstructure falls apart. It is as simple as that.

You say: “You can start from your own definitions, but this doesn’t really have a bearing on Kalecki, who did not share the same starting position.”

It is a widespread self-delusion among the intellectual Lumpenproletariat that everybody is entitled to make his own definitions. This is NOT the case.#2 It should be pretty obvious that all physicists apply the same definitions of energy, work, velocity, potential/kinetic energy etcetera, and that these foundational concepts are consistently defined. And this explains why physics is a success while economics never rose above the level of incoherent blather.#3

What is known for 2300+ years* ― except to economists ― is: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen, 2009)

So what has to be done instead of comparing the proto-scientific garbage of Marx, Kalecki, and Keynes is to move from their false macrofoundations to true macrofoundations.


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

* Short overview The Stillbirth of Science in Greece

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Wikimedia AXEC183

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