Blog-Reference and Blog-Reference
Ninety-nine percent of human communication is storytelling, 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 story line 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 2000+ 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 rubbish since Adam Smith and MMT is part of it.
#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.”
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?.