July 2, 2020

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) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price is given by P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Wikimedia.#4

The price is determined by the wage rate, which takes the role of the nominal numéraire, and the 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 the 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.#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 Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law.

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

The Profit Law for the 3-sector case (household, business, state sector) reads Qm≡(G−T)−Sm 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)=Qm, 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 Wikimedia AXEC31a Elementary production-consumption economy
#5 Wikimedia 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 MMT is ALWAYS a bad deal for the 99-percenters

Related 'MMT, money, value, and transcendental Capitalism' and 'The value of money and the worthlessness of economics'.

***
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 the cockroach. 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.

***
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.

***

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 what MMTers say because MMT is provably false. MMTers are too stupid for the elementary algebra that underlies macroeconomics. For the proof see 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 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 which 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 four-fold 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 runs 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
***

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.

***
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 to gold politics turns everything to 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 owns 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, 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

***
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 owes the public debt. And it is the one-percenters who owns 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.

***
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 hangs 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 doubt, the more attractive sales-person. 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 in the 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 already Marx was on the payroll of the financial Oligarchy.


#1 More details

***

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#3 Qm≡I−Sm 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 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 Qm≡(I−Sm)+(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 is a good metric 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 Wikimedia AXEC143d
#4 Keynes, Lerner, MMT, Trump and exploding profit
#5 Amazon or BoD

***
#PointOfProof
before Jul 16
after Jul 16

***