The value of money and the worthlessness of economics

Comment on David Glasner on ‘What’s Right and not so Right with Modern Monetary Theory’

Blog-Reference and Blog-Reference

David Glasner sets the frame: “In writing the paper, it occurred to me that it might be worthwhile to include a comment on Modern Monetary Theory inasmuch as the proposition that the value of fiat money is derived from the acceptability of fiat money for discharging the tax liabilities imposed by the governments issuing those fiat moneys, which is a proposition that Modern Monetary Theorists have adopted from the chartalist school of thought associated with the work of G. F. Knapp.”

Of course, other economists have said other things, and in the end, nobody has any idea what the value of money is. Economic reality is complex, you know, and economics ends always in the swamp where “nothing is clear and everything is possible.” (Keynes)

Walrasian microfoundations and Keynesian macrofoundations are provably false. Because economics is a failed science, it has to be reconstructed from scratch. This has already been done elsewhere #1, #2, #3, so here is the bare-bones version.

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 sector 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 AXEC31a. #4

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.

Transaction money is zero at the beginning and the end of the period under consideration, see Graphic AXEC98. #5 All transactions are handled by the central bank, which continuously creates and destroys fiat money (= deposits and overdrafts) on its balance sheet. 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. The economy never runs out of money. Money comes into the economy on the supply side.

Monetary profit for the economy as a whole is defined as Q_m≡C−Y_w, and monetary saving as S_m≡Y_w−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.

The problem with MMT is that it is bad theory #6 and bad policy #7, more specifically: MMT is a plain political fraud. #8

The Profit Law for the 3-sector case (household, business, state sector) reads Q_m≡(G−T)−S_m, which says that the business sector's profit/loss is given by the state sector's budget deficit/surplus and the household sector's dissaving/saving. For Sm=0, this boils down to (G−T)=Q_m, i.e., public deficit equals private profit. The profit of the monetary economy is, in this analytical limiting case, produced entirely by the state sector. In other words, deficit-spending/money-creation is a free lunch for the Oligarchy. Financial wealth grows in lockstep with public debt.

MMT is not a scientifically valid monetary theory but brain-dead propaganda for the benefit of Wall Street. The question is whether David Glasner does not understand how the monetary economy works or whether he is complicit in the fraud.

Egmont Kakarot-Handtke


#1 The creation and value of money and near-monies
#2 The objective value of money
#3 Sovereign Economics, Sec. 1.3, 4.6
#4 Graphic AXEC31a  Elementary production-consumption economy
#5 Graphic AXEC98 Idealized transaction pattern, household sector, balanced budget
#6 Wikipedia, economics, scientific knowledge, or political agenda pushing?
#7 MMT, money printing, stealth taxation, and redistribution
#8 Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople

Related 'MMT, money, value, and transcendental Capitalism' and 'The value of money and the worthlessness of economics' and 'The Dark-Matter Theory of Fiat Money {78a}'.

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REPLY to Matt Franko on Jul 3

I said, “The quantity of money is NOT among the price determinants. This puts the commonplace quantity theory to rest.”

You say “LOL! not for the Monetarists it’s not... Just had Bill Dudley in Bloomberg op-ed saying “banks will lend out the Reserves!” last week... QT is certainly not put to rest... it’s being used right now by policy people.”

Right, but this proves only what everybody knows by now, i.e., that policy people are IQ-wise well below room temperature. The fact that there are still flat-earthers around does not prove anything against heliocentrism. Get it, the quantity theory and monetarism are scientifically dead.

What Bill Dudley or Bloomberg or any other clown in the political Circus Maximus says is just irrelevant.

If you still take these folks seriously, better loosen the straps on your facemask. Your last brain cell is dying for lack of oxygen.

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REPLY to Matt Franko on Jul 5

You say “I submit that there are max 1,000 of us on planet earth that understand this.,. Out of 7.5 billion people.”

You are in the wrong reference frame. In science, the opinions and votes and clicks and likes of 7.5 billion people count exactly for zero.

MMT is provably false; that is what counts in science.

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REPLY to LAL, Frank Restly, Henry Rech, ralph47 on Jul 5

You constantly argue: MMTers say this and MMTers say that. It is a matter of indifference to what MMTers say because MMT is provably false. MMTers are too stupid for the elementary algebra that underlies macroeconomics. For proof, see the section 'Scientific blunder from Keynes to MMT' in #1

So, there is no need at all to listen to what MMTers say, except for the political fact that MMTers betray the general populace.

Because of the macroeconomic Profit Law, it holds that Public Deficit = Private Profit. Therefore, public deficit spending is a free lunch for the ten percenters and amounts in real terms to stealth taxation of the ninety percenters.

This, though, is only the beginning. The business sector distributes profit to the ten-percenters. The ten percenters, in turn, buy the bonds that are issued in order to consolidate the short-term liabilities of the government sector.

Then, the ninety percenters are taxed in order to pay the interest on government bonds that are in the possession of the ten percenters. This goes as long as the public debt is rolled over. This is fine for the ten-percenters as long as the central bank keeps the interest rate above zero.

All in all, public deficit spending/money creation amounts to a fourfold fraud for the benefit of the ten percenters and the detriment of the ninety percenters.

MMT is the biggest redistribution program in the history of humankind. Private financial wealth is roughly equal to public debt. MMTers are currently the worst disgrace of academic economics, which has run for 200+ years now on a very high level of scientific incompetence, stupidity, and corruption.

Your comments are beside the point and absolutely irrelevant.


#1 Profit

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REPLY to Frank Restly, Henry Rech on Jul 8

You still do not get the crucial point of monetary policy. Roughly speaking, when fiat money is brought into the economy in order to pay a growing wage bill, it is a good thing; when fiat money is brought into the economy for deficit spending, it is a criminal thing because it amounts to counterfeiting. This puts the MMT talking points into a new perspective.

• The counterfeiter never runs out of money.
• The counterfeiter never stops stealing stuff from the rest of society.
• The counterfeiter increases the profit of the business sector with his additional demand.
• The counterfeiter says that he is good for the economy and employment.
• When the economy breaks down, the counterfeiter increases deficit spending/ money creation.
• The counterfeiter 'solves' any problem from unemployment to pandemics to global warming with deficit spending/money creation.
• The counterfeiter continuously increases the public debt but says that it does not matter.
• The counterfeiter is a criminal, but never gets caught because he games the fiat money system from within.
• The counterfeiter gets valuable PR support from academia, in particular from the MMT fake science trolls.

With your ignorance and scientific incompetence, you are practically — intentionally or unintentionally does not matter — part of a gigantic political fraud.

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REPLY to Frank Restly on Jul 9

You are in the wrong reference frame. Economics is about how the monetary economy works and NOT what the Constitution says. Economics is, according to its explicit self-definition #1, a science, and the Constitution is politics. It is the foundational principle of science that both spheres must be kept apart. It is a well-known fact that politics corrupts everything it touches. It is the story of Midas, but instead of turning everything into gold, politics turns everything into shit. So, the principle of the strict separation of science and politics is constitutional for science.

The macroeconomic profit law implies Public Deficit = Private Profit. So, the MMT policy of deficit spending/money creation is clearly a free lunch for the one-percenters. #2 MMT claims that MMT policy benefits the ninety-nine percenters, while the exact opposite is true. So MMT is a political fraud. It is academics like Stephanie Kelton who promote the greatest redistribution of income and financial wealth in history. #3 The current distribution is, in the main, the result of the growth of public debt over the last 200+ years. Make no mistake, it is WeThePeople who owes the debt. And it is the one-percenters who own the financial assets.

By blowing smoke about the Constitution, you are covering the political fraud of MMT. This may be okay according to the Constitution, but it is not okay according to the principles of science.

The scientific fact of the matter is that MMT goes down the scientific toilet and you with it.


#1 “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.
#2 Keynes, Lerner, MMT, Trump, etc. and exploding profit
#3 MMT: For the record

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REPLY on Jul 10

What Is MMT? (Short Version)

MMT is the issuance of counterfeit currency in the form of deficit spending/money creation for the benefit of the one-percenters.

Genuine currency and counterfeit currency are indistinguishable because they originate from the same source: the FED. It all depends on whether additional fiat money is injected on the supply or the demand side.

MMTers are not scientists but political agenda pushers. MMT policy is to the disadvantage of the ninety-nine percenters. The counterfeiter steals from the rest of society via the anonymous price mechanism.

It is the ninety-nine percenters who owe the public debt. And it is the one-percenters who own the corresponding financial assets. Interest on public debt works like a regressive tax as long as the debt is rolled over.

Because #PublicDeficitIsPrivateProfit, MMT is the biggest redistribution program ever.

MMT is a political fraud.

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CROSS-POSTING on Jul 12

MMT – a Wall Street myth
Comment on Chris Dillow on ‘The Deficit Myth: A Review’

Chris Dillow’s main point of critique is “For me, Kelton is – albeit very lucidly – reinventing the wheel.”

This is, in fact, a compliment because MMT is proto-scientific garbage and Kelton is academic fraud. #1

MMT’s macroeconomics is provably false since Keynes, Kalecki, Lerner, etc. So, MMT policy guidance has no sound scientific foundations.

The macroeconomic Profit Law implies Public Deficit = Private Profit. This means that the greater part of the profit in the United States is actually produced by the state. The US economy has been hanging for a long time already on the state ventilator for its survival.

Among all that academic crap, MMT has the right message for Wall Street. Who is MMT’s first apostle? Right, Warren Mossler, ex-Wall Street. But Stephanie Kelton is, without a doubt, the more attractive salesperson. Economics has become part of the entertainment industry long ago, and the casting is done in Hollywood, where they know best what sells.

The rest is marketing/PR routine. Interviews, book, media hype, No. 1 on the best-seller list, and then, of course, trolling on social media. This is where Chris Dillow comes in: “Dr Kelton explain these ideas wonderfully clearly, so I recommend this book to all non-economists interested in government finances.”

MMT is itself a myth. MMT policy is NOT for the benefit of WeThePeople. MMT is the issuance of counterfeit currency in the form of deficit spending/money creation for the benefit of the one-percenters. Because PublicDeficit = PrivateProfit, MMT is the biggest redistribution program ever. MMT is a political fraud.

“Chris Dillow is a Marxian economist,” says Tom Hickey at Mike Norman Economics. There are historians who claim that Marx was already on the payroll of the financial Oligarchy.


#1 More details

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REPLY to David Glasner, Frank Restly, Henry Rech on Jul 15

It is pretty obvious that you have NO idea of how the monetary economy works. Because of this, you cannot properly assess MMT.

The underlying problem is that the monetary economy (capitalism or communism does not matter) is NOT a self-optimizing equilibrium system but eventually breaks down. #1

The Profit Law No 3 Q_m≡I−S_m tells one that macroeconomic profit is positive in a growing economy as long as the business sector’s investment is greater than the household sector’s saving. If this fails, macroeconomic profit turns into a loss, and the economy breaks down. This must eventually happen; what is unknown is the exact date. #2

However, there is a way to postpone the breakdown. The Profit Law, including the state sector, reads Q_m≡(I−S_m)+(G−T), that is, the second component of macroeconomic profit is the state sector’s deficit. It holds Public Deficit = Private Profit. #3

The MMT policy of deficit spending/money creation is ultimately a means of postponing the breakdown of the US economy. From a political standpoint, the COVID pandemic provides a good rationale to mute the budget balancers and to blow the deficit up to hitherto unknown proportions.

The volume of the deficit and the popularity of MMT #4 are good metrics for the acceleration of the breakdown.

If you intend to learn economics, I recommend the new textbook Sovereign Economics. #5


#1 Major Defects of the Market Economy
#2 Mathematical Proof of the Breakdown of Capitalism
#3 Graphic AXEC143d
#4 Keynes, Lerner, MMT, Trump and exploding profit
#5 Amazon or BoD

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#PointOfProof

before Jul 16

after Jul 16

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Failed economics and the losers’ closed circle of mutual promotion

Comment on Barkley Rosser on ‘Econospeak And Angry Bear Still On List Of Top Economics Blogs, Now For 2020’

Blog-Reference

“Intelligent Economist has again put out its annual list of the top 100 economics blogs, with some new ones and some gone, although two of those were due to retirements, especially the much-missed Economists View of Mark Thoma.”

A few points to note

• ‘Intelligent Economist’ is an oxymoron, there is no such thing as an intelligent economist. The proof is in the so-called history of economic thought.#1
• Economics is a failed science due to the utter incompetence of economists. For details see Chapter 13 ‘The indelible scientific disgrace of economics’ in the canonical textbook Sovereign Economics.#2
• All Top Ten/Hundred lists are worn-out marketing/PR gimmicks since Hollywood invented the Oscar for self-promotion and political agenda-pushing.
• Economics is not a science but has always been a part of Circus Maximus.

EconoSpeak has been shown to suppress comments, to be scientifically worthless, to push a political agenda, to erect false-hero memorials, and to look the other way when academic colleagues like MMTers deceive the general public.#3

What economics needs is a list of the most corrupt economics blogs.

Egmont Kakarot-Handtke


#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?
#2 Sovereign Economics
#3 Cross-references MMT

Related 'Needed: The Worst of the Worst of economics blogs' and 'Needed: the Top 10 of substandard economics blogs' and What the Top 20 heterodox economists say and 'Econblogosphere: The flawed Top 101'

That’s econ2020

Comment on Tom Hickey on ‘An economist explains the biggest myths about the national deficit — and how we can save the economy — Cody Fenwick’.

Blog-Reference

Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, and Pluralism are materially/ formally inconsistent and therefore scientifically worthless.

Stephanie Kelton, MMT’s emotional anchorwomen, tells the ninety-percenters that public deficit spending is good for them, while the opposite is the case.#1, #2

MMT is provably false because MMTers are too stupid for elementary algebra.#3, #4, #5

And the philosopher Tom Hickey has not realized anything but happily promotes proto-scientific garbage.

These scientifically incompetent deranged folks claim to save the economy. As the saying goes, You cannot make this stuff up.

Egmont Kakarot-Handtke


#1 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
#2 Down with idiocy!
#3 The sectoral balances obfuscation: stupidity or corruption?
#4 MMT sucks
#5 Your economics is refuted on all counts: here is the real thing

Wikipedia, economics, scientific knowledge, or political agenda pushing?

Own post, no external Blog-Reference, Wikipedia submission Jun 30*, draft formatting

Encyclopedia (disclaimer)

“An encyclopedia … is a reference work or compendium providing summaries of knowledge either from all branches or from a particular field or discipline. … The appearance of digital and open-source versions in the 21st century has vastly expanded the accessibility, authorship, readership, and variety of encyclopedia entries.” (Wikipedia). The basic idea of an encyclopedia is the unwavering commitment to episteme (= knowledge) in Plato's original meaning as the very opposite of doxa (= opinion). An encyclopedia is a summary of contemporary knowledge.

The guiding principle for establishing knowledge is the distinction true/false: “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 (hearsay, plausible myth) on the other ...” (Popper)^[1]

Scientific knowledge

Scientific truth is well-defined: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)^[2] Knowledge comes in two forms “Whatever knowledge we possess is either knowledge of particular facts or scientific knowledge.” (Russel)^[3]

Scientific knowledge takes the form of a theory. Science is binary, i.e. true/false with nothing in between. The ultimate goal of science is the true theory. Although theories are mostly rather abstract, the true theory always has consequences at the street level. As Kant put it: "There is nothing so practical as a good theory." and more detailed in ‘On the Old Saw: That May Be Right in Theory But It Won’t Work in Practice.’^[4]

So, more specifically, an encyclopedia … is a reference work or compendium providing summaries of the actual best knowledge, that is, summaries of the most advanced, i.e. best corroborated, theories with regard to formal/material consistency, of the different fields or disciplines. Refuted theories cannot be content of an up-to-date encyclopedia but have to be relocated to the Repository of Opinion, Error, Belief, Fake, and Obsolete Knowledge.

Because in any given population there is a scarcity of scientific competence and an abundance of stupidity, encyclopedias are under the constant threat of losing whatever episteme they have achieved thus far and of being drowned in inconclusive opinions or of being abused as a vehicle for propaganda. Therefore, the quality of an encyclopedia depends on the ability of the publishers/editors to apply the scientific criteria of true/false. In the 'Age of Preposterism' (Haack)^[5] this has become the main challenge.

The crucial competence for an encyclopedia is whether it succeeds in bringing episteme in and keeping doxa out.

Wikipedia failed on this score. This is proved in the following for the subject matter of economics, more specifically for the pivotal theory of profit, even more specifically for the entry Profit (economics). The inconsistency of economics has been known for a considerable time,^[6] the formal proof is repeated here in the tersest manner so that everyone can immediately do the fact check.

Exemplary proof of the inconsistency of economics

It is common knowledge that economics has been highly politicized since the founding fathers. As a result, economics has been unable to advance from proto-science to science.

It is common knowledge that economics habitually violates scientific standards: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)^[7] Or, as Hands put it: “... suppose they did reject all theories that were empirically falsified ... Nothing would be left standing; there would be no economics.”^[8]

Economists have found numerous excuses for this state of affairs: “Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that.” (Solow)^[9]

According to this self-assessment, academic scholarship and peer-reviewed publications do not satisfy the scientific criteria of reliable sources as far as economics is concerned.

Well-known methodological problems

The failure of economics started with Jevons/Walras/Menger but Arrow^[10] gave the deciding push with this methodological dictate: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.”

Mainstream profit theory is microfounded. This is a lethal methodological blunder. Because profit – the foundational concept of economics – is ill-defined the whole analytical superstructure is scientifically worthless. By consequence, economic policy guidance has never had sound foundations. This applies to left/center/right economic policy. More generally, this applies to political economy from the founding fathers to this day: “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)^[11] To overcome the scientifically untenable pluralism of provably false approaches a paradigm shift is imperative. The shift consists of moving from microfoundations to macrofoundations.

Macrofoundations

The rule to follow has been known for 2300+ years “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.” (Aristotle, Posterior Analytics)

This is the methodologically correct starter set of economic premises^[12]

(A0) The objectively given and most elementary systemic configuration of the economy consists of the household sector and the business sector which in turn consists initially of one giant fully integrated firm. It holds in simplified notation

(A1) ${\displaystyle Y_{W}=WL}$ wage income ${\displaystyle Y_{W}}$ is equal to wage rate ${\displaystyle W}$ times working hours ${\displaystyle L}$,

(A2) ${\displaystyle O=RL}$ output ${\displaystyle O}$ is equal to productivity ${\displaystyle R}$ times working hours ${\displaystyle L}$,

(A3) ${\displaystyle E_{C}=PX}$ consumption expenditures ${\displaystyle E_{C}}$ are equal to price ${\displaystyle P}$ times quantity bought/sold ${\displaystyle X}$.

These macroeconomic axioms are certain, true, and primary, and therefore satisfy all methodological requirements. The starter set is minimalist, that is, Occam’s razor has been applied and the axiom set cannot be reduced further, only expanded. The set is objective-structural and composed of measurable variables which is of obvious importance for the eventual state-of-the-art testing of the conclusions that are consistently derived from the premises. In every scientific domain, the axiom set constitutes the universe of discourse.

For a start, the following conditions are added to the premises

(C1) ${\displaystyle X=O}$ market clearing, i.e. the quantity bought/sold ${\displaystyle X}$ is equal to the quantity produced ${\displaystyle O}$.

(C2) ${\displaystyle E_{C}=Y_{W}}$ budget balancing, i.e. consumption expenditures of the household sector ${\displaystyle E_{C}}$ are equal to wage income ${\displaystyle Y_{W}}$.

Figure 1 Elementary production-consumption economy as graphical representation of the macroeconomic axioms and conditions

The graphical representation of the elementary production-consumption economy is given with the 4-quadrant chart of Figure 1.

Profit/loss and dissaving/saving

Now, the definitions of monetary saving and monetary profit are added. The sectoral balance of the household sector, i.e. monetary saving/dissaving, is defined as

$${\displaystyle S_{m}\equiv Y_{W}-E_{C}\qquad (1)}$$

The right-hand side of the symbol/operator ${\displaystyle \equiv }$, i.e. the definiens, contains variables that have been introduced with the axioms. On the left-hand side stands the derived variable, i.e. the definiendum, which is consistently connected to the original variables of the axiom set.

The sectoral balance of the business sector, i.e. monetary profit/loss, is defined as

$${\displaystyle Q_{m}\equiv E_{C}-Y_{W}\qquad (2)}$$

${\displaystyle Q_{m}>0}$ is called profit, ${\displaystyle Q_{m}<0}$ is called loss. Budget balancing implies a macroeconomic profit of zero. Nonmonetary profit ${\displaystyle Q_{n}}$ is not dealt with here.

Figure 2 Complementarity of the sectoral balances, i.e. of business sector's loss and household sector's saving. Alternatively, business sector's profit and household sector's dissaving/deficit spending

The sectoral balances are complementary

$${\displaystyle Q_{m}\equiv -S_{m}\qquad (3)}$$

At the heart of the monetary economy is an identity: the business sector's nominal surplus, i.e. profit, equals the household sector's nominal deficit, i.e. dissaving. And vice versa, the business sector's deficit, i.e. loss, equals the household sector's surplus, i.e. saving. This is the most elementary form of the macroeconomic profit law. The elementary accounting relationships are shown in Figure 2.

Another way of stating the complementarity of the sectoral balances is to add the balances up

$${\displaystyle Q_{m}+S_{m}\doteq 0\qquad (4)}$$

The sectoral balances add up to zero. The symbol/operator ${\displaystyle \doteq }$ means 'true by definition'. This is an implicit formal feature of microeconomic and macroeconomic accounting.

So, where does profit ${\displaystyle Q_{m}}$ ultimately come from? Macroeconomic profit is not made from a longer labor time ${\displaystyle L}$, not from higher productivity ${\displaystyle R}$, not from innovation/creative destruction, not from a lower wage rate ${\displaystyle W}$, not from more greed, not from exploitation, not from monopoly power, not from risk-taking, not from rent-seeking, not from wishful thinking or any other subjective factor, but in the most elementary case of the production-consumption economy from the dissaving/deficit spending of the household sector. Starting with a balanced-budget economy, macroeconomic profit presupposes credit/money creation by the banking sector (central bank and commercial banks).

Accordingly, microeconomic profit is the result of the continuous redistribution of macroeconomic profit between the firms that constitute the business sector. If macroeconomic profit is zero, i.e. if the household sector's budget is balanced, then the sum of microeconomic profits is equal to the sum of microeconomic losses. This, clearly, is an analytical limiting case. What can be observed is that macroeconomic profit has since the Industrial Revolution been most of the time greater than zero.

Major extensions

The macroeconomic profit law reads with increasing complexity

(i) ${\displaystyle Q_{m}\equiv -S_{m}}$ in the elementary production-consumption economy,

(ii) ${\displaystyle Q_{m}\equiv Y_{D}-S_{m}}$ in the production-consumption economy with distributed profit ${\displaystyle Y_{D}}$,

(iii) ${\displaystyle Q_{m}\equiv I-S_{m}}$ in the elementary investment economy with investment expenditures I,

(iv) ${\displaystyle Q_{m}\equiv Y_{D}+I-S_{m}}$ in the investment economy with profit distribution,

(v) ${\displaystyle Q_{m}\equiv (G-T)+(I-S_{m})}$ in the investment economy with government deficit ${\displaystyle G>T}$ or surplus ${\displaystyle G<T}$, Legend: ${\displaystyle G}$ government spending, ${\displaystyle T}$ taxes,

(vi) ${\displaystyle Q_{m}\equiv (EX-IM)+(G-T)+(I-S_{m})+Y_{D}}$ in the open economy with distributed profit, Legend: ${\displaystyle EX}$ export, ${\displaystyle IM}$ import.

Provably false

Keynes

Keynes defined the formal core of his General Theory^[13] on p. 63 as follows “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.”

Neither pro- nor anti-Keynesians spotted the elementary mathematical defect in Keynes' macrofoundations to this day. This amounts to scientific self-disqualification.^[14] Because of formal inconsistency, Keynesianism has to be excluded from the sciences.

Complexity level (iii) of the macro-axiomatic profit law, i.e. ${\displaystyle Q_{m}\equiv I-S_{m}}$, says that in the elementary investment economy business sector investment ${\displaystyle I}$ is never equal to household sector saving ${\displaystyle S_{m}}$ and that their difference is macroeconomic profit/loss ${\displaystyle Q_{m}}$.

Keynes wrecked the paradigm shift from microfoundations to macrofoundations. The Keynesian Revolution has been a scientific failure from the very beginning. This carried over to derivative approaches like Post-Keynesian economics or New Keynesian economics.

From Equation (v) follows the profit law for the basic three-sector economy (household, business, state) without investment as

$${\displaystyle Q_{m}\equiv \left(G-T\right)-S_{m}\qquad (5)}$$

which says that the business sector's profit/loss is given by the state sector's budget deficit/surplus and the household sector's dissaving/saving. For ${\displaystyle S_{m}=0}$ this boils down to ${\displaystyle (G-T)\doteq Q_{m}}$, i.e. public deficit equals private profit. The profit of the monetary economy is in this analytical limiting case produced entirely by the state. This case is at odds with the popular ideas of a free market economy and Laissez-faire but it is practically the new normal.

The business sector's profit is zero if the state sector's deficit is equal to the household sector's saving. If the budget deficit is greater than saving, then macroeconomic profit is greater than zero, otherwise, the business sector makes a loss. This is not a reproducible situation. The monetary economy breaks down – at the latest – when macroeconomic profit ${\displaystyle Q_{m}}$ turns negative. This does not happen as long as the household sector and the state sector combined run a net deficit.

The profit law holds for the monetary economy as given by the macroeconomic axiom set, that is, for Capitalism and Communism and everything in-between. Macroeconomic profit does not depend on the ownership of the means of production.

The government's policy of deficit spending/money creation clearly benefits the business sector because it increases macroeconomic profit according to the profit law which entails Public deficit ${\displaystyle \doteq }$ Private profit. Thus, private financial wealth and public debt grow in lockstep.

MMT

MMTers obfuscate the relationship between public deficit spending and macroeconomic profit by rearranging and redefining Equation (5) as follows

$${\displaystyle \left(Q_{m}+S_{m}\right)=\left(G-T\right)\qquad (6)}$$

i.e. by asserting that “private saving” ${\displaystyle \left(Q_{m}+S_{m}\right)}$ is equal to the public deficit ${\displaystyle (G-T)}$.^[15] Thus, the logical directionality between the sectoral balances that is formally embodied in the one-way operator ${\displaystyle \equiv }$ is by sleight of hand changed to the two-way operator ${\displaystyle =}$, and macroeconomic profit ${\displaystyle Q_{m}}$ vanishes entirely from view through the redundant definition of “private saving”. As a consequence of this mathematically/semantically incorrect operation, it is no longer apparent that the state sector's deficit spending is to the advantage of the ten-percenters and to the disadvantage of the ninety-percenters. In real terms, deficit spending amounts to stealth taxation of the household sector. In addition, the interest on public debt will be taxed and redistributed within the household sector from the ninety-percenters to the ten-percenters as long as the public debt is rolled over. This can be a very long time. The distributional consequences of public deficit spending/money creation are enormous.

How long private/public debt can grow, i.e. how long the turn from profit to loss – and by consequence, the breakdown of the economy – can be postponed, is an open question. The monetary economy lives on borrowed time, there is no such thing as an economic equilibrium.

Proof of political capture

The preceding section makes it clear that the entry Sectoral balances is provably false at the level of elementary algebra. The Wikipedia editors let this scientific blunder slip through. This casts serious doubts on the reliability of the concept of an open-source encyclopedia. Since MMT is known to be a promoter of public deficit-spending – which is economically to the advantage of the ten-percenters and to the disadvantage of the ninety-percenters – Wikipedia has effectively become a tool of political agenda pushing. This is obvious from the Section 'Austerity in the view of the sectoral balances approach.'

What has been proved above for the entry Sectoral balances can be proved for many more economics entries. So, Wikipedia is unreliable with regard to the subject matter of economics.

The inescapable reset

The commitment to methodological individualism translates into the verbalized neo-Walrasian axiom set: “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)^[16]

From these microfoundations, supply-demand-equilibrium is derived and then it goes on to General Equilibrium and ends with the welfare theorems. Because methodological individualism is false, the behavioral microfoundations HC1/HC5 are false. Because the axioms are false, the analytical superstructure is false. As a result, mainstream economics is a cargo cult science: “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.” (Feynman)

This is common knowledge: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)^[17]

The long-overdue new conceptual approach, i.e. the paradigm shift consists of this replacement of foundational premises:

• Old definition, subjective-behavioral, microfoundations: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses." (Robbins)^[18]
• New definition, objective-systemic, macrofoundations: Economics is the science that studies how the monetary economy works.

Summary

All microfounded profit theories are provably false.

Keynesianism is macrofounded but Keynes' macrofoundations are not correctly specified.

The major approaches – Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism – are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong.

This holds by implication for Wikipedia entries that refer to the subject matter of economics and that are not based on consistent macrofoundations. With regard to economics, academic scholarship and peer-reviewed publications do not satisfy the criteria of reliable sources for a scientific encyclopedia that is seriously committed to episteme as the very opposite of doxa.

References

1. ^ Popper, Karl (1994). The Myth of the Framework. In Defence of Science and Rationality. London, New York: Routledge. pp. 39–40.
2. ^ Klant, Joop (1994). The Nature of Economic Thought. Aldershot: Edward Elgar. p. 31.
3. ^ Russel, Bertrand (1961). The Basic Writings of Bertrand Russel. London: Routledge. p. 620.
4. ^ Kant, Immanuel; Ashton, E. B. (1974). On the Old Saw: That May be Right in Theory But It Won't Work in Practice. University of Pennsylvania Press. ISBN 978-0-8122-1058-3.
5. ^ Haack, Susan (1997-11-01). "Science, Scientism, and Anti-Science in the Age of Preposterism". Retrieved 2020-06-20.
6. ^ Kakarot-Handtke, Egmont (2020). Sovereign Economics. Norderstedt: BoD. pp. 1–26. ISBN 9783751946490.‡
7. ^ Morgenstern, Oskar (1941). "Professor Hicks on Value and Capital". Journal of Political Economy. 49 (3): 369–370. ISSN 0022-3808.
8. ^ Hands, D. Wade (2001). Reflection without Rules. Economic Methodology and Contemporary Science Theory. Cambridge, New York: Cambridge University Press. p. 404.
9. ^ Solow, Robert M (1998). Foreword to William Breit and Roger L. Ranson: The Academic Scribblers. Princeton: Princeton University Press. pp. x–xi.
10. ^ Arrow, Kenneth J. (1994). "Methodological Individualism and Social Knowledge". The American Economic Review. 84 (2): 1–9. ISSN 0002-8282.
11. ^ Stigum, Bernd (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press. p. 30.
12. ^ See Ch 1 of Ref 6.
13. ^ Keynes, John Maynard (2018). "The General Theory of Employment, Interest, and Money". doi:10.1007/978-3-319-70344-2.
14. ^ Popper, Karl (1963). Conjectures and Refutations. London: Routledge and Kegan Paul.
15. ^ "MMT: cross-references". AXEC. 2015-11-30. Retrieved 2020-06-16.
16. ^ Weintraub, E. Roy (1985). "Joan Robinson's Critique of Equilibrium: An Appraisal". The American Economic Review. 75 (2): 146–149. ISSN 0002-8282.
17. ^ Ingrao, B. and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press. p. 362.
18. ^ Robbins, Lionel (1935). An Essay on the Nature and Significance of Economic Science. London: Macmillan. p. 16.

‡ Working link

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* Submission Jun 30

Source: Wikipedia Draft

Source: Wikipedia Draft

Retraction

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Preceding Profit

Related 'Wikipedia and the promotion of economists’ idiotism (II)' and 'Wikipedia and the promotion of economists’ idiotism (I)' and 'Economics: 200+ years of scientific incompetence and fraud' and 'Your economics is refuted on all counts: here is the real thing'.