Occasional X: Clueless economists / Money (CXLVII)

“You've always been told that the German hyperinflation of 1923 was a tragic economic accident. A natural catastrophe that befell the Weimar Republic. It's a lie.” (Auguste Bardamu)

Hyperinflation is not a 'natural catastrophe' but provably false theoretical economics.

The… pic.twitter.com/hKoaxYXns2

— AXEC (@EgmontHandtke) July 15, 2026

Occasional X: The foul spirit of political economics (CCLXXXVI)

“Inflation is taxation without legislation.” (Milton Friedman)

No. Inflation is ultimately for the gain of the Oligarchy, because price and profit rise in lockstep with government deficit-spending. ⇓

Milton Friedman never understood profit and, by logical consequence, how the… pic.twitter.com/r0lhDKCREz

— AXEC (@EgmontHandtke) April 27, 2026

Occasional Tweets: Forget the Quantity Theory

 

The axiomatically correct macroeconomic #LawOfSupplyAndDemand tells one how the avg #Price P moves for any #Employment level under the condition of #MarketClearing as a function of avg #WageRate W, avg #Productivity R & #DeficitSpendingMoneyCreation ρE.⇒https://t.co/UmRrHlfxsu pic.twitter.com/e70iI9k5Wa

— E.K-H (@AXECorg) May 1, 2023

Occasional Tweets: The futile attempt to recycle the Quantity Theory

 

#LearnEconomics#Inflation is a #MacroEconomic phenomenon that is described by the elementary macroeconomic #LawOfSupplyAndDemand. It tells one that the #QuantityOfMoney is NOT among the #PriceDeterminants but #DeficitSpendingMoneyCreation ρE>1 is. pic.twitter.com/KK2jAHo0hJ

— E.K-H (@AXECorg) February 16, 2022

For more about the Quantity Theory see AXECquery. 

Putting the Quantity Theory of inflation to rest

Comment on Blair Fix on ‘Energizing exchange: Learning from econophysics’ mistakes’

Blog-References

Macroeconomics is provably false since Keynes.#1 The correct macrofoundations are given with this set of axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) 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) E_c=PX consumption expenditure Ec is equal to price P times quantity bought/sold X.

Under the conditions of market-clearing X=O and budget-balancing E_c=Y_w in each period, the price as dependent variable is given by P=W/R, 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

The macroeconomic price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. The quantity of money is NOT among the price determinants.

Monetary profit for the economy as a whole is defined as Q_m≡E_c−Y_w and monetary saving as S_m≡Y_w−E_c. It always holds that the sectoral balances add up to zero, i.e. Q_m+S_m=0. In other words, the business sector’s deficit=loss equals the household sector’s surplus=saving and vice versa, the business sector’s surplus=profit equals the household sector’s deficit=dissaving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget-balancing E_c=Y_w, monetary profit is zero.

What is needed next is two things (i) a Central Bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system that declares the Central Bank’s deposits as legal tender. These conditions define a fiat money system without commercial banks as intermediaries.

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 E_c=Y_w.

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

For the case of a balanced budget C=Y_w, the idealized transaction sequence of deposits/overdrafts of the household sector at the Central Bank over the course of one period is shown on AXEC98:

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

From this follows the average stock of transaction money as M=κY_w, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the Central Bank. The economy never runs out of money.

The transaction equation reads M=κY_w=κE_c=κPRL in the case of budget balancing and market clearing, and this yields the commonplace correlation between the average stock of money M and price P for a given employment level L and productivity R, except for the fact that M is the dependent variable. If P doubles, M doubles, and P doubles if W doubles, with the real variables L and R fixed.

Inflation ensues under the conditions of market-clearing and budget-balancing if the wage rate rises faster than the productivity, and deflation ensues in the opposite case. Under the condition of L and R constant, one always gets the commonplace correlation between the average stock of money M and price P, with the causality running from P to M.

For the general case, the elementary macroeconomic price formula states P=ρ_EW/R with ρ_E≡E_c/Y_w. ρ_E>1 represents deficit-spending, and this implies that a period deficit produces a one-off price hike. So, if ρ_E=1 in the initial period and ρ_E=2 in the next period, then the price doubles.

The transaction equation reads for the general case M=κ sup {Y_w, E_c} or M=κ sup {1, ρ_E}Yw and this means that if E_c is greater than Y_w then E_c determines the quantity of transaction money. So, if E_c doubles, i.e., ρ_E=2, then M doubles. In this case, the old Quantity Theory correlation between P and M reappears.

However, this does NOT lead to inflation as a process over multiple periods. If ρ_E=2 again in the next period, then the price P remains at the elevated level but does not rise further. So, the continuous deficit spending of the household sector does NOT cause inflation. (Only successive increases of the expenditure ratio ρ_E lead to successive price hikes.)

However, the average stock of transaction money increases continuously.#2 The transaction pattern in the case of continuous dissaving is shown on AXEC99

As a mirror image, the deposits of the business sector at the Central Bank increase continuously because the profit of the business sector is equal to the dissaving/deficit-spending of the household sector. So, the average quantity of money in the system increases continuously but the price remains stable at the elevated level for a given ρ_E. There is NO proportionality between M and P and this means that the commonplace Quantity Theory is refuted.

Egmont Kakarot-Handtke

#1 Macroeconomics without Keynes

#2 Money and time

Additional link: Michael D. Bordo and Mickey D. Levy, Do Enlarged Fiscal Deficits Cause inflation: The Historical Record

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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Macroeconomics and the vacuous History of Economic Thought

Comment on George Akerlof on ‘What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years’*

Own post and Blog-Reference and Blog-Reference on Nov 7

Napoleon is supposed to have said, “History is a myth agreed upon.” or “History is a set of lies people have agreed upon”. This, of course, also holds for the History of Economic Thought.

Economics has been a scientific failure for 200+ years. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives — are mutually contradictory, axiomatically false, and materially/formally inconsistent. Yet, on top of the heap of proto-scientific garbage, George Akerlof tries to erect a false-hero memorial for MIT: “The primary public policy lesson of Keynesian economics ― that we now knew how to respond to economic downturns ― had been a hard-won fight. It had been fought for decades, with high stakes: nothing less than the maintenance of full employment, rather than lapses into the Great Depression.” and “The great public policy question of the day ― how to fight underemployment ― had thus also been solved. This message, significantly homegrown at MIT, was revolutionary relative to the thinking of the early 1930s, when economists could reach no clear consensus regarding how to restore full employment.”

This is a clear case of auto-hypnosis, which is the defining characteristic of economists, and it traditionally finds expression in the self-propagation of economics as the Queen of Social Sciences.

And this is how MIT economists pulled off their PR stunt: “At the time, Paul Samuelson of MIT was the world’s most famous living economist, known for his Foundations of Economic Analysis and for his numerous articles, but especially for his bestselling introductory textbook. Its early editions began with macroeconomics based on the keystone ‘Keynesian cross’ diagram of Samuelson’s invention, which was the uncontested heart of macroeconomics at MIT.” #1

That much is correct, Samuelson started the economics textbook industry. Needless to emphasize, economics textbooks are scientifically worthless to this day. #2, #3

And this is in detail how the hallucinatory scientific revolution happened: “As a reminder, the Keynesian cross plots income on the horizontal axis and expenditures on the vertical axis. Equilibrium occurs where income and expenditures are equal ― along a 45-degree line from the origin ― but this equilibrium could occur either as a ‘deflationary gap’ below full employment, or at full employment, or as an ‘inflationary gap’ above full employment. The analysis behind the figure explored the consequences of observing that, as Keynes had claimed, equilibrium income occurs where desired savings equals desired investment.”

The first methodological blunder was, of course, to apply the equilibrium concept. Samuelson failed to realize that equilibrium is a NONENTITY. #4, #5, #6, #7. The second fatal blunder was inherited directly from Keynes.

The formal basis of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This elementary syllogism is conceptually and logically defective because Keynes did not come to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)#8

Let this sink in: Keynes had no idea of macroeconomic profit.

Because the foundational concepts of profit/income are ill-defined, the whole analytical superstructure of Keynesianism is provably false. Samuelson, though, did not realize that the Keynesian macrofoundations were fatally flawed, and neither did Post Keynesians, New Keynesians, and Anti-Keynesians to this day. #9, #10, #11

Practically, this means that economic policy guidance has NO sound scientific foundations since Adam Smith. Economists bear the intellectual responsibility for the social devastation of economic crises. #12

Because both Walrasian microfoundations and Keynesian macrofoundations are defective, the so-called Keynesian-Neoclassical Synthesis is provably false; in particular, all IS-LM models #13, #14, and all Phillips-Curves #15, #16 (except the original one) are proto-scientific garbage.

This, of course, is not the conclusion of George Akerlof. The standard excuse for permanent failure is that economists are struggling scientists and prone to error and neglect like anybody else: “The Keynesian-neoclassical synthesis that had emerged by the early 1960s put constraints on macroeconomics. Foremost, it divorced macroeconomists from working on financial stability. Luckily, after the crash of 2008, the prior work of finance economists has been belatedly acknowledged, and the subfield of macro stability has also emerged as quite possibly the most vibrant research frontier in economics.”

The general public appreciates the humbleness of what it is told are Nobel-worthy scientific geniuses. #17 These repeating We-were-a-bit-wrong-then-but-now-we-are-vibrantly-on-the-right-track confessions are part of the PR stunt called economics. The fact of the matter is: economics is NOT science but political agenda-pushing, and economists are NOT scientists but clowns and useful idiots in the political Circus Maximus. #18

The History of Economic Thought, including the History of Macroeconomic Thought #19, is a fake from Adam Smith onward to George Akerlof and beyond. All this stuff ends up with absolute necessity at the Flat-Earth Cemetery.

Egmont Kakarot-Handtke


* George A. Akerlof, What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years, Journal of Economic Perspectives Vol. 33
#1 “The Keynesian cross diagram is a formulation of the central ideas in Keynes’ General Theory. It first appeared as a central component of macroeconomic theory as it was taught by Samuelson in his textbook, Economics: An Introductory Analysis.” (Wikipedia)
#2 The father of modern economics and his imbecile kids
#3 To this day, economists have produced NOT ONE textbook that satisfies scientific standards
#4 Equilibrium and the violation of a fundamental principle of science
#5 There is NO such thing as supply-demand-equilibrium
#6 What Keynes really meant but could not really prove
#7 Proof of the inherent instability of the market economy
#8 Keynes ― the poster boy for the weakness of the economist’s mind
#9 The elementary production-consumption economy is, for a star,t defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (Qm≡C−Yw, Sm≡Yw−C). Legend: Yw wage income, W wage rate, L employment, O output, R productivity, C consumption expenditures, P price, X quantity bought/sold.

From these macrofoundations follows the market-clearing price P=W/R (1), which defines the core of inflation/deflation theory, and the average amount of fiat money M=κYw (2).

It always holds Q≡−S (3), in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving, and vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Eq. (3) refutes the Keynesian I=S. For the elementary investment economy holds Q≡I−S. Saving and investment are NEVER equal, neither ex-ante nor ex-post.
#10 Economics for Economists
#11 Keynes’s Missing Axioms
#12 Econogenics in action
#13 The IS-LM macro imbeciles
#14 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#15 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#16 Links on the Phillips Curve
#17 Scrap the EconNobel
#18 There is NO such thing as “smart, honest, honorable economists”
#19 Wikipedia History of macroeconomic thought

Related 'Failed economics: The losers’ long list of lame excuses' and 'Why Post Keynesianism Is Not Yet a Science' and 'Cross-references: Kalecki' and 'Squaring the Investment Cycle'.

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REPLY to Barkley Rosser on Nov 4

You say: “And thus has what to do with this thread, Egmontt? Not a damn ed thing, near as I can tell, and you have bored us with this stuff previously numerous times.”

Time to face reality. The readers of EconoSpeak are tired of your kill-and-dump murder stories (Bin Laden, Khashoggi, Al-Baghdadi). You may be bored reading that macroeconomics is proto-scientific garbage since Keynes. However, it is certainly a sensation for the EconoSpeak audience to learn that your whole academic cohort got the elementary algebra of macro wrong. From this, one may conclude that your foreign policy comments, too, are worth even less than a fart.

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REPLY to Barkley Rosser on Nov 5

I=S ⇒ false macro algebra ⇒ Keynes et al.
Q≡I−S ⇒ correct algebra.

The formal proof has been given in the References, which were not uploaded because of space restrictions at EconoSpeak. See #9.

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REPLY to Barkley Rosser on Nov 7

You say: “You have just confirmed that I am right and verified that you are mathematically incompetent and innumerate. There is no algebra problem here. The issue is simply one of competing definitions.”

When confronted with a clear-cut true/false question, the swampies of economics always take the emergency exit of ‘That’s just a matter of definition’. This is excuse No. 26 from my 54-item compilation of economists’ brain-dead methodological blather: “The issue is largely definitional and, as Lewis Carroll pointed out, everyone is entitled to his own definitions. (Blinder)”#1 This is the Humpty Dumpty Fallacy.#2 Definitions have to be consistent. The methodological fact of the matter is that the definitions of profit/income/ saving have been inconsistent for 200+ years.

You say: “So, Egmont, as I have pointed out here on numerous occasions, the US National Income and Product Accounts (NIPS), whose practices are imitated in nearly all nations now, defines investment and savings in a way that I=S, simply by definition.”

Keynes’ I=S rests on the premise “Income = value of output”#3, which is provably false because it implies that macroeconomic profit is zero, which is obviously NOT the case. So I=S is NOT true “simply by definition” but empirically false. Q≡I−S is materially and formally correct. The remaining question is whether economists are too stupid for elementary algebra or whether they intentionally let profit disappear from the sectoral balances equations.#4-#10

I am well aware of the practice of NIPS accounting, and I have shown in detail where it goes wrong.#11 See, in particular, section 1.9 Cooked transaction recording.

As a fake scientist, you do not address the clear-cut challenge [I=S ⇒ false, Q≡I−S ⇒ true) but appeal to authority (NIPS) and the majority (nearly all nations).

From the fact that all national accountants define things “in a way that I=S, simply by definition,” does NOT logically follow that I=S is true, but that all national accountants are either stupid or corrupt or both.

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)

The methodological fact of the matter is that both microeconomic axioms and macroeconomic axioms are materially/formally inconsistent, and this explains why economics is not more than incoherent blather and why the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a fraud.

Economics has NEVER been anything other than brain-dead political agenda-pushing, and your Al-Baghdadi post just proves it again.


#1 Failed economics: The losers’ long list of lame excuses
#2 Humpty Dumpty is back again
#3 “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)
#4 Wikipedia and the promotion of economists’ idiotism (II)
#5 The monetary circuit and how economists got it wrong
#6 Why economists know nothing
#7 Substandard reasoners
#8 Economists’ proto-scientific methodology
#9 Mental messies and loose losers
#10 How to get out of the swamp of ignorance
#11 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

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REPLY to Barkley Rosser on Nov 8

You say: “So, Egmont, as I have pointed out here on numerous occasions, the US National Income and Product Accounts (NIPS), whose practices are imitated in nearly all nations now, defines investment and savings in a way that I=S, simply by definition.”

I say: “I am well aware of the practice of NIPS accounting and I have shown in detail where it goes wrong.#11 See, in particular, section 1.9 Cooked transaction recording.”

I conclude: “From the fact that all national accountants define things in a way that I=S, simply by definition” does NOT logically follow that I=S is true, but that all national accountants are either stupid or corrupt or both.”

You conclude: “Sorry, but this is definitional, and you do not have the rght to imposee your defnition on others, …”

I do not impose anything on anybody, I just bury macroeconomics from Keynes to Hicks to Samuelson to Akerlof to Krugman#1 to Barkley Rosser, including the peer-reviewed economic journals and textbooks of the last 80+ years, at the Flat-Earth-Cemetery.


#1 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It

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Graphic AXEC139f

Settling the MMT―Inflation issue for good

Comment on Bill Mitchell on ‘US Congress hypocrites lose the plot’

Blog-Reference and Blog-Reference on May 9

Bill Mitchell quotes five Republican Senators in the US Congress as proclaiming it is: “the duty of the Senate to condemn Modern Monetary Theory and recognizing that the implementation of Modern Monetary Theory would lead to higher deficits and higher inflation”.

Science is something quite different from politics, and senators have NOTHING AT ALL to say in the realm of science. People forget this because they have come to think that political blather, talk shows, and scientific debates are essentially the same thing. This is partially the fault of economists themselves, who for the greater part lack a proper understanding of what science is all about.

Economic discussions suffer from the fact that both microfoundations and macrofoundations are provably false. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are materially/formally inconsistent and mutually contradictory. This is why all economic discussions end in the bottomless swamp of cross-talk, interpretation, exegesis, second-guessing, and “what x REALLY meant” but for some mysterious reason could not clearly express.

To get out of the proto-scientific swamp requires a Paradigm Shift, i.e., the move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#1

From the true macrofoundations follows the macroeconomic Law of Supply and Demand as shown here. #2 It says in the elementary case:

(i) An increase in the expenditure ratio ρ_E≡E_C/Y_w leads to a higher market-clearing price (the Greek letter ρ stands for ratio). An expenditure ratio ρ_E > 1 indicates deficit-spending/dissaving/credit-expansion, a ratio ρ_E less than 1 indicates saving/credit-contraction. Dissaving/saving, in turn, affects the average amount of transaction money M.

(ii) Deficit spending, i.e., the move from ρ_E=1 to ρ_E >1, causes a one-off price hike but NOT inflation† if the deficit spending is exactly repeated period after period. #3, #4, #5, #6 A steadily rising public debt is compatible with price stability after the first hike. Only successively INCREASING budget deficits produce continuous price increases.

(iii) An increase in the ratio of wage rate to productivity W/R leads to a higher market-clearing price P. If this is repeated period after period, one gets inflation depending on the rates of change of W and R in each successive period.

Roughly speaking, the macroeconomic Law of Supply and Demand explains the price level in the elementary production-consumption economy and its development over time. The equation contains but measurable variables and is therefore testable in principle.

The relationship between the average amount of fiat money M and the expenditure ratio ρ_E, the wage rate W, and employment L is shown here. #7

Because M is the dependent variable, it does NOT cause inflation. This puts the commonplace Quantity Theory to rest.

Conclusion: The MMT policy of deficit-spending/money-creation causes a one-off price hike but NOT inflation. The lethal effect of MMT policy is on distribution.#8, #9, #10 The Weimar/Zimbabwe/Inflation shouters suffer from incurable idiocy and cannot be admitted to a serious economic discussion. The fact is that MMT policy does NOT produce inflation, but, according to the macroeconomic Profit Law, Public Deficit = Private Profit,  the Oligarchy’s financial wealth (currently about $22 trillion and counting). This public debt is the own handiwork of nobody else than the US Congress, and all worked just fine without inflation.

Egmont Kakarot-Handtke


† "In economics, inflation refers to a general progressive increase in prices of goods and services in an economy." (Wikipedia) A price hike refers to one period; inflation means successive price hikes over two or more periods, with the rates of price changes being equal or increasing. Strictly speaking, the minimum length of inflation is two periods. The standard period length is the calendar year.

#1 This is the correct core of macroeconomic axioms: (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) E_C=PX consumption expenditure E_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≡E_C/Y_w is called the expenditure ratio; ρ_E=1 indicates budget-balancing of the household sector.
#2 Graphic AXEC101 Law of Supply and Demand, elementary production-consumption economy with market-clearing and zero distributed profits.
#3 Gov-Deficits do NOT cause inflation
#4 How some MMTers got inflation wrong
#5 MMT and the inflation-red-herring
#6 Economics as tireless production of proto-scientific garbage: inflation theory as an example
#7 Graphic AXEC111b Average quantity of transaction money
#8 Deficits matter for distribution
#9 MMT: Distribution is the drawback NOT Inflation
#10 Dear idiots, government deficits do NOT cause inflation

Related 'What Keynes really meant but could not really prove' and 'Quixotic Keynes exegesis' and 'Inflation: back to basics' and 'A la recherche de l'inflation perdue' and 'The unintended consequences of deficit spending' and 'MMT: fundamentally false' and 'MMT: A free lunch for the Oligarchy' and 'Links on Inflation'.

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AXEC182a  Macroeconomic price P and profit Q_m as a function of the expenditure ratio ρ_E (and the other variables), with ρ_E >1 meaning deficit spending.

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Twitter May 29 Michael R. Strain

Economics as tireless production of proto-scientific garbage: inflation theory as an example

Comment on Brian Romanchuk on ‘Primer: Understanding The Post-Keynesian Rejection Of Mainstream Inflation Theory’

Blog-Reference and Blog-Reference and Blog-Reference

Economics is a failed/fake science, or what Feynman called a cargo cult science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit ― the pivotal concept of the subject matter ― wrong. The pluralism of provably false theories is evidence of the representative economist’s scientific incompetence.

After 200+ years, there is still no such thing as a valid profit-, employment-, or inflation theory; there is always a whole bunch of theories/models and everyone is free to pick the one that suits them politically. This guarantees that economics has remained what it is since the founding fathers: a brain-dead talk show.

Brian Romanchuk gives a vivid description of how economists produce their proto-scientific garbage: “So imagine that your boss tells you to come up with ‘an inflation model’ for some country (which is a pretty common demand for employees of central banks or investment firms). According to the Post-Keynesian theory, the ‘correct’ answer is to respond that inflation is a historical accident. However, I must point out that the theoretically correct answer is also an extremely career-limiting one, so any employee stuck in that particular situation needs to figure out what their superiors want to see, and give them exactly that (even if the model stinks).”

This characterization of the representative economist fits the definition of a pseudo-inquirer: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack)

There is no use in untangling the multiple idiocies in Brian Romanchuk’s treatment of inflation theory. What has to be done is to replace his blather with the scientifically correct approach.

In order to go back to the basics, the elementary production-consumption economy is, for a start, clearly defined by three macroeconomic axioms (Y_w=WL, O=RL, C=PX), two conditions (X=O, C=Y_w), and two definitions (profit/loss Q_m≡C−Y_w, saving/dissaving S_m≡Y_w−C).

Money is needed by the business sector to pay the workers who receive the wage income Y_w per period. The workers spend C per period. Given the two conditions, the market-clearing price is derived for a start as P=W/R (i). So, the macroeconomic price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R.

The average stock of transaction money follows for a start as M=κY_w, with κ determined by the payment pattern. In other words, the quantity of money M is determined by the AUTONOMOUS transactions of the household and business sector and created out of nothing by the central bank. This, to begin with, kills the commonplace Quantity Theory of inflation. #1, #2

The market-clearing price is given in the general case with the macroeconomic Law of Supply and Demand P = ρ_EW⁄R (ii), with ρ_E≡C/Y_w. #3 An expenditure ratio ρ_E greater than 1 indicates credit expansion = dissaving, a ratio ρ_E less than 1 indicates the opposite. In the initial period ρ_E=1, i.e., the household sector’s budget is balanced. The ratio ρ_E establishes the link between the product market and the money/capital market.

Now we have deficit spending, i.e., ρ_E greater than 1, which yields a price hike. If deficit spending is repeated period after period, the price remains at the elevated level, but there is NO inflation. No matter how long the household sector’s debt increases, there is NO accelerated price increase. The same holds for the government sector. #4

The macroeconomic Law of Supply and Demand makes it clear that inflation only occurs if the wage rate W increases in successive periods faster than productivity R. This can happen at ANY employment level. It is NOT a precondition that employment is close to the capacity limit. This is merely a false interpretation of the original Phillips Curve. #5

The explanation for the fact that inflation in the USA has been some time below the FED’s target value of 2 percent is that the rate of change of the average wage rate has been lower than the rate of change of productivity. Things become a bit more complex, of course, when foreign trade, investment etcetera are taken into account. This does not change the fact that the core of inflation theory is given with eq. (ii). This tiny equation fully replaces Brian Romanchuk’s gigantic heap of proto-scientific garbage.

Egmont Kakarot-Handtke


#1 Inflation: back to basics
#2 Attention: there are THREE types of inflation
#3 Graphic, AXEC101 Macroeconomic Law of Supply and Demand

#4 Gov-Deficits do NOT cause inflation
#5 NAIRU, wage-led growth, and Samuelson's Dyscalculia

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REPLY to Joe Leote, Jerry Brown on Sep 26

You are obviously deep in the woods. The issue is inflation theory, but now you are at employment theory. The former has already been treated above; for the latter, see
Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
Essentials of Constructive Heterodoxy: Employment

It would be a good thing if economists could get economic theory right before they pester the world with their brain-dead policy proposals: “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) … or senseless blather.

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REPLY to Crossover on Sep 26

You say: “There is also the ‘structuralist’ approach to inflation.” Indeed, almost everybody has an opinion about inflation. The problem is that the goal of science is NOT to have many contradicting opinions but the one materially/formally consistent theory: “That the settlement of opinion is the sole end of inquiry is a very important proposition.” (Peirce)

Post-Keynesianism was refuted long ago, #1, hence there is no use in trying to reanimate post-Keynesian inflation theory or to produce one more roll of proto-scientific garbage.


#1 Why Post Keynesianism Is Not Yet a Science

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REPLY to Brian Romanchuk on Sep 28 and Blog-Reference

You say: “Within modern conventional economics, there is an aversion to discussing the division of national income. (Back when economics was ‘political economy,’ this was not the case.) Standard mainstream models assume that wages and prices are determined by marginal considerations, and so the ratio between wages and prices is fixed by the shape of the production function. Conversely, post-Keynesian economics is entirely based on wage and profit shares. Although I did not discuss pricing in the articles, I would refer the reader back to my (three-part) primer on the Kalecki Profit Equation.”

There are three lethal facts to note with regard to your approach:
• The profit theory is false since Adam Smith, and because of this, the distribution theory is false, too. This includes Post-Keynesianism. #1, #2, #3, #4
• Your ‘very simple economic model, in which there is just a business sector and a household sector’ is a good start except for the fact that ‘Profits are equal to the dividends paid’. #5
• Because profit is ill-defined, income is ill-defined, and as a consequence, saving is ill-defined. Monetary profit, to begin with, is NOT a flow of income like wage income but the difference of flows. Distributed profit is income, but profit is NOT income. Distributed profit and profit are NOT the same thing. By consequence, total income is NOT the sum of wages and profits, which in turn means that there is NO “profit share of income” and by consequence no “wage share of income”. #6

This means that the sequel to your inflation post is also a vacuous blather because all is based on false premises. Your profit theory is provably false. #7 Therefore, your distribution and inflation theory are false, too. What you still have to realize is that Orthodoxy is dead and traditional Heterodoxy, including Post-Keynesianism, is dead, and that the necessary paradigm shift means to leave this heap of proto-scientific garbage behind and move on to Constructive Heterodoxy. #8


#1 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#2 Ricardo, too, got profit theory wrong
#3 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#4 Why Post Keynesianism Is Not Yet a Science
#5 The Emergence of Profit and Interest in the Monetary Circuit
#6 There is NO such thing as a “labor share of income”
#7 Truth by definition? The Profit Theory has been axiomatically false for 200+ years
#8 For details, see cross-references Constructive Heterodoxy

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REPLY to Brian Romanchuk on Sep 28 and Blog-Reference

You say: “Fine. When you can convince the accounting profession that paying dividends is an expense, I’ll re-write my text. Deal?”

I wonder, what makes you think that my mission is to convince economists in general and you in particular? The representative economist is a failed/fake scientist and has to be expelled from the sciences as fast as possible. His final resting place is the farthest corner of the Flat-Earth-Cemetery.

My mission is NOT to convince you of anything but to prove that you are too stupid for the elementary mathematics that underlies profit- and distribution theory.

For the correct treatment of distributed profit in National Accounting, see
The Common Error of Common Sense: An Essential Rectification of the Accounting Approach.

For the correct treatment of profit and distributed profit in distribution theory, see
Income Distribution, Profit, and Real Shares.

Quod erat demonstrandum.

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REPLY to stone on Oct 1

You say: “If there were profit sharing arrangements with workers, then how might that affect inflation?”

If you were a serious researcher, you would have checked Google and found out that your question has already been answered. #1

Distributed profit is itself a source of profit. The Profit Law for the elementary case of the production-consumption economy reads Q_m≡Y_d−S_m. Y_d is the distributed profit. #2

For the case of the investment economy, the Profit Law reads Q_re≡I−S_m, which is known since Allais. #3 Qre is macroeconomic retained profit.

Profit distribution/spending causes a one-off price hike but NO inflation. #4, #5

Just in case you and Brian Romanchuk start to wonder why you are so badly behind the curve, the problem is NOT in economics but in your goldfish brain and the corresponding complete lack of scientific competence.


#1 Enter in the Google search field “distributed profit Egmont Kakarot-Handtke”
#2 Profit Theory in less than 5 minutes
#3 How Keynes got macro wrong and Allais got it right
#4 The Structural Price Mechanism
#5 The final implosion of MMT

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REPLY to Brian Romanchuk on Oct 2 and Blog-Reference

You say: “I forgot what a relable source you are. My bad.”

It is too obvious that you are a fake mathematician. A genuine mathematician does not care at all about “reliability” or “credibility” or other subjective social criteria but alone about objective proof.

If you had done the routine job of a competent scientist, you would have found out two things:
(i) The equation Q_re≡I−S_m is logically true given the correct macroeconomic axioms and is objectively testable because all variables are measurable with the precision of two decimal places.
(ii) That this equation has been derived independently by Allais on a different route. #1

According to Wikipedia, Allais was a major proponent of mathematical economics, and as a winner of the economics Nobel in 1988, he certainly satisfies your standard of “reliability”.

So, what you would have done as a genuine mathematician is to check the references and then to perform a little exercise in elementary algebra. The fact is that you are a scientifically incompetent blatherer.


#1 How Keynes got macro wrong and Allais got it right

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REPLY to Brian Romanchuk on Oct 2

You say: “I suggest that you give this article a rest. Please wait until I write another article before regurgitating your stories.”

There is no need to produce another heap of proto-scientific garbage. Either you present the proof that the Allais/AXEC equation Q_re≡I−S_m is materially/logically inconsistent, or you shut up completely.

Keynesianism and I=S/IS-LM are dead for 80+ years, but the representative economist still doesn’t get it. #1,#2 There is no refutation of the axiomatically correct Profit Law, though. #3 So, what should anybody wait for? Failed/fake scientists are simply left behind the curve. #4


#1 Why Post Keynesianism Is Not Yet a Science
#2 Economists simply don’t get it
#3 Go! ― test the Profit and Employment Law
#4 Forget mainstream economics, scrap MMT, move on to the new Paradigm

It has been said before but economists still don’t get it

Comment on Nick Rowe on ‘Hydraulic Monetarism’

Blog-Reference and Blog-Reference

Nick Rowe concludes: “I’ve said all this before (and it’s all in Yeager and Clower and others). But maybe I’ve said it clearer this time.”

It has been said before: microfounded economics from utility maximization to supply-demand-equilibrium is false for 150+ years but one fraction of economists do not grasp it (= Orthodoxy) and the other fraction has never come forward with a superior alternative (= Heterodoxy). The theory of money circles in the endless loop of repetition ― except for MMT.

MMT has made the valid point that orthodox monetary theory is stuck with ridiculous barter stories and entirely misses the reality of fiat money. Fiat money does not circulate but is permanently created and destroyed. So, there is no fixed stock of money, to begin with. Let us call this lethal blunder of Orthodoxy the Moneybag Fallacy.

The Moneybag Fallacy was rectified by Wicksell and his giro system but for some reason, the news never illuminated the mental darkness of the Quantity Theory folks.

In the monetary economy, there is no direct barter, i.e. part of the stock of good 1 against part of the stock of good 2, but indirect barter, i.e. flow of labor time against the flow of goods. Money is created by wage payments and destroyed by consumption expenditures. In the most elementary case C=Y_w, that is, consumption expenditures are equal to wage income, that is, money is zero at the beginning of the period under consideration, is then created and destroyed through the transactions between the business and the household sector, and is zero at the end of the period. NO moneybag there! No circulation there! NO hydraulics there!

In the elementary production-consumption 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.#1

It always holds Q_m≡−S_m, in other words, at the heart of the monetary economy 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.

In case (ii)

• the household sector ends up with a stock of money = deposits at the central bank and the business sector ends up with overdrafts,
• the change of the household sector’s stock is given by ΔM=Y_w−C,
• the economy falls into recession.

In case (iii) it is just the other way round.

The household sector’s stock at the end of period t is given as the discrete numerical integral M_t=∑ΔM+M₀ with M₀=0.

Both the commonplace Quantity Theory and Hydraulic Monetarism is proto-scientific garbage.

Egmont Kakarot-Handtke


#1 Money and time

Related 'MMT: Richard Murphy’s battle-for-money hoax' and 'Nick Rowe’s soapbubbling about money' and 'Money: from silly stories to the true theory' and 'Rectification and generalization of MMT' and 'MMT sucks'.

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REPLY to Nick Rowe on Jun 26

You said in the intro: “If everyone wants to increase their stock of land, and the aggregate stock of land does not increase to satisfy their desire, there is nothing they can do in aggregate, and there is nothing they can do as individuals.”

To compare money with land is as gaga as it gets. MMTers don’t get tired of shouting from every rooftop that money is produced out of nothing at almost no cost. As a matter of principle, the economy NEVER runs out of transaction money if the central bank understands what their primary task is.#1, #2

The apparatus of supply-demand-equilibrium is inapplicable to fiat money. To speak of a money “supply” is the Moneybag Fallacy all over again.

If every household “wants to increase their stock of money” they reduce their consumption expenditures. In this case, C is less than Yw and the deposits of the household sector (= money) increase and the overdrafts of the business sector increase also because the business sector makes a loss and both sides of the central bank’s balance sheet are always equal.

The same holds for a gold-coin economy. If the business sector pays the workers in gold coins and they fully spend their income, i.e. C=Yw, then the coins return to the business sector. If the households save, i.e. C less than Yw, then the household sector’s stock of coins increases until the end of the period under consideration and the business sector’s stock decreases. The business sector makes a macroeconomic loss and this triggers a recession.

In the elementary production-consumption economy, nobody can stop the households from increasing their stocks of money as long as they receive a wage income. The form of money, fiat money or gold coins, is irrelevant.

The household sector’s stock of money develops according to the discrete numerical integral M_t=∑ΔM+M₀, and the business sector’s stock is the exact mirror image except for the initial stock which, however, is zero in a fiat money system.#3

Economists never got the relationship between macroeconomic flows, differences of flows, change of stocks, and stocks straight.


#1 The creation and value of money and near-monies
#2 MMT: Richard Murphy’s battle-for-money hoax
#3 Reconstructing the Quantity Theory

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REPLY to Benjamin Cole, louis, Majromax, Jeremy Fox, Frank Restly, Roger Sparks on Jun 27

The history of money from the cowrie shell to bullion to coins to notes and to the credit card shows a clear tendency of progressive abstraction. The conclusion of the history of money is that money is information and that the concrete forms of monies are nothing but different data carriers. In the monetary economy of the digital age, the ultimate data carrier is the server at the central bank.

The pathetic blunder of monetary theory is the Fallacy of Insufficient Abstraction. Your idiocy consists of getting caught by the numerous outer forms of money. The abstract essence of the phenomenon is this: Money = Information. There is no ambiguity about money. Money is deposits at the central bank. Bank deposits are near money, not money.#2 And all other historical forms have to be treated as surrogates/substitutes/prefigurations of the real thing.

The theory of money is macro. Some people have realized this: “However, Post Keynesians and Circuitists both hold strongly to the view that the orthodox approach of firstly analyzing a barter economy, and then adding on money as an afterthought, is unhelpful as a foundation for any economic analysis.” (Fontana)

So, you are way behind the curve. The theory of money has to be built upon macrofoundations and not upon silly microeconomic barter or casino stories. The analytical framework is given by the ‘monetary theory of production’. (Keynes)

The remark “I have seen casino chips used for cash in Las Vegas” is not a contribution to the theory of money but proof that the representative economist has no idea about how the monetary economy works and how money functions. It is a wonder of Nature that a dead brain does not impair the faculty of blathering in the econblogosphere.


#1 Money: from silly stories to the true theory
#2 Basics of monetary theory: the two monies

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REPLY to Frank Restly on Jun 28

You say: “Simplistic stripped down models can aid in understanding ― it all depends on your audience.”

Because economics is a science the primary audience is the scientific community. The scientific community never had any problems with stripped down models but with FALSE models.

The story of how Zeus threw his thunderbolt at Typhon is NOT a stripped down model of how electricity works but a false model. The same holds for all barter stories. The defining characteristic of the economy is that labor time is exchanged for IOUs/money and money is exchanged for goods. The subject matter of economics is NOT barter or barter with a money-good but the ‘monetary theory of production’ (Keynes).

So, the most simplistic stripped down model in economics has to be a macro model. The ultimate methodological blunder of economics is microfoundations.

The scientific failure of economics is due to economists clinging to microfoundations. A scientist needs to read the microeconomic axioms#1 only once and knows for sure that they are proto-scientific garbage. And methodology tells us that if the axiomatic foundations are false the whole analytical superstructure is false.

Not to see that monetary theory has to be macrofounded is the disqualifying scientific blunder of Nick Rowe. It is not the only one.#3


#1 “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)
#2 Buddha on the microeconomic men in the dark
#3 Nick Rowe’s soapbubbling about money
► Is Nick Rowe stupid or corrupt or both?
► I is never equal S and even Nick Rowe will eventually grasp it
► Cryptoeconomics ― the best of Nick Rowe’s spam folder
► Getting out of IS-LM = Getting out of despair
► Nick Rowe: Bury me at the end of coal-pit
► Macro poultry entrails reading
► Worthless Canadian model bricolage
► The Humpty Dumpty methodology

***

REPLY to Jacques René Giguère on Jul 4

You say: “Money, cowrie shells or script, was formalized when the village grew too big and exceeded the Dunbar limit.”

You confound historical storytelling with scientific theory. A historical account of the various forms of money is NO substitute for the theory of money, just as the history of the burning of Rome, London, San Francisco etcetera is no substitute for the theory of thermodynamics.

The theory of money has to be embedded in a consistent macroeconomic framework or in what Keynes called the ‘monetary theory of production’.#1, #2

The subject matter of economics is how the actual monetary economy works and NOT historical storytelling.#3


#1 The ultimate ― analytical ― origin of money
#2 How money emerges out of nothing ― the functional account
#3 It has been said before but economists still don’t get it