Occasional X: Clueless economists / Money (CXLXXV)

“That money is a store of value is absolutely wrong. Money is a receipt issued at purchase and extinguished when buyer turn seller.” (Scott Cahill) Scott Cahill has never had any idea of the difference between transaction money and money as a store of value. Let's clarify some basics about the two with the summary in table AXEC237e ⇓. Microfoundations are methodologically false. First, a Paradigm Shift is required. Therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 5. The price is the dependent variable here. That's a starting condition. Methodologically, the formula in line 5 replaces the silly Supply-Demand-Equilibrium cross. Line 9 delivers the generalization with ρE≠1. In the initial state, the price is equal to unit wage costs W/R. The workers get the whole product O. The profit Qm for the business sector is zero. Price increases can come only from wage rate increases or from productivity decreases. The quantity of money is not a determinant. The methodologically right approach to start with in Monetary Theory is that transaction money is pure fiat money at the Central Bank. How money developed historically is not an issue. Symmetric fiat money is zero at the beginning and the end of a given period; see line 16. It is periodically created out of nothing and returns to nothing. There's no problem here; money is endogenous. It's a medium. The quantity of the medium is determined by the autonomous transactions between the business and the household sector. (i) If the wage rate W doubles in line 5, the price doubles, and the average quantity of transaction money M doubles in line 16. It is still zero at the period's beginning and end. If tested, this yields a proportionality between price P and the average quantity of transaction money M. However, this is NOT causality. The common cause is the doubling of the wage rate W. However, empirically this correlation between P and M seems to be a strong indication that the Quantity Theory holds. (ii) If the real variable employment L is doubled, output O in line 2 and wage income Yw in line 1 double. The market-clearing/budget-balancing price P remains unchanged in line 5. The average quantity of transaction money M doubles in line 16. Now, there is no relationship between the price and the average quantity of transaction money. The Quantity Theory fails. Reality is a mix of (i) and (ii). That money is created out of nothing and backed by nothing is NOT the critical point of a fiat money system. In period 0, the transactions between the business sector and the household sector are symmetrical. At the beginning, transaction money is zero. Monthly, the households receive wage income and spend it successively on consumption. This increases and reduces their deposits at the Central Bank. The business sector mirrors the transaction. Thus, deposits and overdrafts are always equal. At the end of the initial period, transaction money is again zero. The average stock of transaction money is calculated in lines 16, 17. If the household sector saves in period 1, its deposits increase. This gives rise to losses Qm in line 11. Accordingly, the business sector's overdrafts increase. The average quantity of money M in lines 16, 17 increases because of the household sector's saving. Here, money as a store of value emerges. In period 2, one has both: money as a transaction medium and money as a store of value. In period 3, the households dissave, and the business sector makes a profit, according to line 11. Over all periods, the sum of profit/loss is zero. Things are rather simple as long as ρE=1. As soon as balances appear, i.e., ρE≠1, complexity increases and money as a store of value logically emerges from transaction money. The store-of-value money can also be used to buy financial assets. It then vanishes again. But that's a different story.

— AXEC (@EgmontHandtke) November 11, 2026

Occasional X: Clueless economists / Money (CXLXXIV)

“It is an indisputable fact that quantity theory is nothing but a tautology. There is another point too. Cochrane has also pointed this out. Correlation does not imply causation. The direction of the relationship between inflation and the money supply is not from the money supply to inflation, as foolish monetarists claim, but more strongly from inflation to the money supply.” (Baki Demirel) No, money is not among the determinants of the price. That's false macroeconomics. The microbrained representative economist has never had any idea of the difference between transaction money and money as a store of value. Let's clarify some basics about transaction money with the summary in table AXEC237d ⇓. Microfoundations are methodologically false. First, a Paradigm Shift is required. Therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 5. The price is the dependent variable here. That's a starting condition. Methodologically, the formula in line 5 replaces the silly Supply-Demand-Equilibrium cross. In the initial state, the price is equal to unit wage costs W/R. The workers get the whole product O. The profit Qm for the business sector is zero. Price increases can come only from wage rate increases or from productivity decreases. The quantity of money is not a determinant. The methodologically right approach to start with in Monetary Theory is that transaction money is pure fiat money at the Central Bank. Symmetric fiat money is zero at the beginning and the end of a given period; see line 16. It is periodically created out of nothing and returns to nothing. There's no problem here; money is endogenous. It's a medium. The quantity of the medium is determined by the autonomous transactions between the business and the household sector. (i) If the wage rate W doubles in line 5, the price doubles, and the average quantity of transaction money M doubles in line 16. It is still zero at the period's beginning and end. If tested, this yields a proportionality between price P and the average quantity of transaction money M. However, this is NOT causality. The common cause is the doubling of the wage rate W. However, empirically this correlation between P and M seems to be a strong indication that the Quantity Theory holds. (ii) If the real variable employment L is doubled, output O in line 2 and wage income Yw in line 1 double. The market-clearing/budget-balancing price P remains unchanged in line 5. The average quantity of transaction money M doubles in line 16. Now, there is no relationship between the price and the average quantity of transaction money. The Quantity Theory fails. Reality is a mix of (i) and (ii). That money is created out of nothing and backed by nothing is NOT the critical point of a fiat money system. The point is whether money is injected (i) on the left side of the business sector's national account in the form of wages, or (ii) on the right side in the form of additional nominal demand, i.e., in the form of deficit spending. This gives rise to profit Qm in line 11 and the average quantity of money M in lines 16, 18, because of ρE>1. Here, money as a store of value emerges. The case of deficit-spending/money-creation, i.e., increasing consumptive public debt, is equivalent to bringing counterfeit money into circulation, which in real terms amounts to stealing stuff from WeThePeople. National debt is roughly equal to the financial wealth of WeTheOligarchy. Ultimately, most of WeTheOligarchy's financial wealth is printed by the Central Bank. This is not a 'problem', but the defining characteristic of Capitalism. The problem with the Central Bank is NOT that it creates fiat money out of nothing, but that it creates profit out of nothing. If the Central Bank is only allowed to create transaction money to meet the needs of businesses and households, then fiat money is the most economical solution. The problems arise with sectoral balances, i.e., ρE≠1, and with licit/illicit money creation. For the axiomatically correct Monetary Theory, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFrVUX

— AXEC (@EgmontHandtke) November 11, 2026

Occasional X: Clueless economists / Money (CXLXXIII)

“Essential reminder. Inflation is always a monetary phenomenon.” (Daniel Lacalle) No, money is not among the determinants of the price. That's false macroeconomics. The microbrained representative economist has never had any idea of the difference between transaction money and money as a store of value. Let's clarify some basics about transaction money with the summary in table AXEC237d ⇓. Microfoundations are methodologically false. First, a Paradigm Shift is required. Therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 5. The price is the dependent variable here. That's a starting condition. Methodologically, the formula in line 5 replaces the silly Supply-Demand-Equilibrium cross. In the initial state, the price is equal to unit wage costs W/R. The workers get the whole product O. The profit Qm for the business sector is zero. Price increases can come only from wage rate increases or from productivity decreases. The quantity of money is not a determinant. The methodologically right approach to start with in Monetary Theory is that transaction money is pure fiat money at the Central Bank. Symmetric fiat money is zero at the beginning and the end of a given period; see line 16. It is periodically created out of nothing and returns to nothing. There's no problem here; money is endogenous. It's a medium. (i) If the wage rate W doubles in line 5, the price doubles, and the average quantity of transaction money M doubles in line 16. It is still zero at the period's beginning and end. If tested, this yields a proportionality between price P and the average quantity of transaction money M. However, this is NOT causality. The common cause is the doubling of the wage rate W. However, empirically this correlation between P and M seems to be a strong indication that the Quantity Theory holds. (ii) If the real variable employment L is doubled, output O in line 2 and wage income Yw in line 1 double. The market-clearing/budget-balancing price P remains unchanged in line 5. The average quantity of transaction money M doubles in line 16. Now, there is no relationship between the price and the average quantity of transaction money. The Quantity Theory fails. Reality is a mix of (i) and (ii). That money is created out of nothing and backed by nothing is NOT the critical point of a fiat money system. The point is whether money is injected (i) on the left side of the business sector's national account in the form of wages, or (ii) on the right side in the form of additional nominal demand, i.e., in the form of deficit spending. This gives rise to profit Qm in line 11 and the average quantity of money M in lines 16, 18, because of ρE>1. Here, money as a store of value emerges. The case of deficit-spending/money-creation, i.e., increasing consumptive public debt, is equivalent to bringing counterfeit money into circulation, which in real terms amounts to stealing stuff from WeThePeople. National debt is roughly equal to the financial wealth of WeTheOligarchy. Ultimately, most of WeTheOligarchy's financial wealth is printed by the Central Bank. This is not a 'problem', but the defining characteristic of Capitalism. The problem with the Central Bank is NOT that it creates fiat money out of nothing, but that it creates profit out of nothing. If the Central Bank is only allowed to create transaction money to meet the needs of businesses and households, then fiat money is the most economical solution. The problems arise with sectoral balances, i.e., ρE≠1, and with licit/illicit money creation. For the axiomatically correct Monetary Theory, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFrVUX

— AXEC (@EgmontHandtke) November 11, 2026

Occasional X: Clueless economists / Money (CXLXXII)

“M= PY/V or PY = MV? You'd think after decades of extremely sophisticated causal econometrics, the most basic correlation isn't causation of all would not keep resurfacing. Money tracks nominal income in every theory, including FTPL, because central banks supply money passively, and demand is proportional to nominal income.” (John Cochrane) The microbrained representative economist has been weak on macroeconomics in general and the Theory of Money in particular. He has never had any idea of the difference between transaction money and money as a store of value. Let's clarify some basics with the summary in table AXEC237d ⇓. Microfoundations are methodologically false. First, a Paradigm Shift is required. Therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 5. The price is the dependent variable here. That's a starting condition. Methodologically, the formula in line 5 replaces the silly Supply-Demand-Equilibrium cross. In the initial state, the price is equal to unit wage costs W/R. The workers get the whole product O. The profit Qm for the business sector is zero. The methodological right approach to start with in Monetary Theory is that transaction money is pure fiat money at the Central Bank. Symmetric fiat money is zero at the beginning and the end of a given period; see line 16. It is periodically created out of nothing and returns to nothing. There's no problem here; money is endogenous. If the wage rate W doubles in line 5, the price doubles, and the average quantity of transaction money M doubles in line 16. It is still zero at the period's beginning and end. If tested, this yields a proportionality between price P and the average quantity of transaction money M. However, this is NOT causality. The common cause is the doubling of the wage rate W. However, empirically this correlation seems to be a strong indication that the Quantity Theory holds. If the real variable employment L is doubled, output O in line 2 and wage income Yw in line 1 double. The market-clearing/budget-balancing price P remains unchanged in line 5. The average quantity of transaction money M doubles in line 16. Now, there is no relationship between the price and the average quantity of transaction money. The Quantity Theory fails. That money is created out of nothing and backed by nothing is NOT the critical point of a fiat money system. The point is whether money is injected (i) on the left side of the business sector's national account in the form of wages, or (ii) on the right side in the form of additional nominal demand, i.e., in the form of deficit spending. The case of deficit-spending/money-creation, i.e., increasing consumptive public debt, is equivalent to bringing counterfeit money into circulation, which in real terms amounts to stealing stuff from WeThePeople. National debt is roughly equal to the financial wealth of WeTheOligarchy. Ultimately, most of WeTheOligarchy's financial wealth is printed by the Central Bank. This is not a 'problem', but the defining characteristic of Capitalism. The problem with the Central Bank is NOT that it creates money out of nothing, but that it creates profit out of nothing. If the Central Bank is only allowed to create transaction money to meet the needs of businesses and households, then fiat money is the most economical solution. The problems arise (i) with sectoral balances, and (ii) with illicit money creation. For the axiomatically correct Monetary Theory, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFrVUX

— AXEC (@EgmontHandtke) November 10, 2026

Occasional X: Clueless economists / Money (CXLXXI)

“A famous quote by Milton Friedman says that “inflation is always and everywhere a monetary phenomenon.” A natural question, then, is whether money supply growth is a reliable predictor of inflation. A new analysis covers this topic.” (Michael McCracken & Lillian Fu, St. Louis Fed) Milton Friedman has been weak on macroeconomics in general and the Theory of Money in particular. He has never had any idea of the difference between transaction money and money as a store of value. Let's clarify some basics with the help of table AXEC237d ⇓. Microfoundations are methodologically false. First, a Paradigm Shift is required. Therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 5. The price is the dependent variable here. That's a starting condition. Methodologically, the formula in line 5 replaces the silly Supply-Demand-Equilibrium cross. In the initial state, the price is equal to unit wage costs W/R. The workers get the whole product O. The profit Qm for the business sector is zero. The methodological right approach to start with in Monetary Theory is that transaction money is pure fiat money at the Central Bank. Symmetric fiat money is zero at the beginning and the end of a given period; see line 16. It is periodically created out of nothing and returns to nothing. There's no problem here; money is endogenous. If the wage rate W doubles in line 5, the price doubles, and the average quantity of transaction money M doubles in line 16. It is still zero at the period's beginning and end. If tested, this yields a proportionality between price P and the average quantity of transaction money M. However, this is NOT causality. The common cause is the doubling of the wage rate W. However, empirically this seems to be a strong indication that the Quantity Theory holds. If the real variable employment L is doubled, output O in line 2 and wage income Yw in line 1 double. The market-clearing/budget-balancing price P remains unchanged in line 5. The average quantity of transaction money M doubles in line 16. There is no relationship between the price and the average quantity of transaction money. The Quantity Theory fails. That money is created out of nothing and backed by nothing is NOT the critical point of a fiat money system. The point is whether money is injected (i) on the left side of the business sector's national account in the form of wages, or (ii) on the right side in the form of additional nominal demand, i.e., in the form of deficit spending. The case of deficit-spending/money-creation, i.e., increasing consumptive public debt, is equivalent to bringing counterfeit money into circulation, which in real terms amounts to stealing stuff from WeThePeople. National debt is roughly equal to the financial wealth of WeTheOligarchy. Ultimately, most of WeTheOligarchy's financial wealth is printed by the Central Bank. This is not a 'problem', but the defining characteristic of Capitalism. The problem with the Central Bank is NOT that it creates money out of nothing, but that it creates profit out of nothing. If the Central Bank is only allowed to create transaction money to meet the needs of businesses and households, then fiat money is the ideal solution. The problems arise with sectoral balances. For the axiomatically correct Monetary Theory, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFstKv

— AXEC (@EgmontHandtke) November 9, 2026

Occasional X: Clueless economists / Money (CXLXX)

“By the late 1960s, France noticed the gap between printed dollars and actual gold and started converting. Nixon stopped this by closing the gold window on August 15, 1971. Pure fiat with no anchor whatsoever.” (Handre) The storyteller Handre is weak on macroeconomics in general and the Theory of Money in particular. He has never had any idea of the difference between transaction money and money as a store of value. Let's clarify some basics with the help of table AXEC237c ⇓. Microfoundations are methodologically false. First, a Paradigm Shift is required. Therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. Under the initial analytical conditions of market-clearing and budget-balancing, this yields the price P in line 5. The price is the dependent variable here. That's a starting condition. The formula in line 5 replaces the silly Supply-Demand-Equilibrium cross. In the initial state, the price is equal to unit wage costs W/R. The workers get the whole product O. The profit Qm for the business sector is zero. The methodological right approach to start with in Monetary Theory is that transaction money is pure fiat money at the Central Bank. Symmetric fiat money is zero at the beginning and the end of a given period; see line 16. It is periodically created out of nothing and returns to nothing. There's no problem here; money is endogenous. If the wage rate W doubles in line 5, the price doubles, and the average quantity of transaction money M doubles in line 16. It is still zero at the period's beginning and end. If tested, this yields a proportionality between price P and the average quantity of transaction money M. However, this is NOT causality. The common cause is the doubling of the wage rate W. However, empirically this seems to be a strong indication that the Quantity Theory holds. If the real variable employment L is doubled, output O in line 2 and wage income Yw in line 1 double. The market-clearing/budget-balancing price P remains unchanged in line 5. The average quantity of transaction money M doubles in line 16. There is no relationship between the price and the average quantity of transaction money. It is now assumed that transaction money is backed by gold and the stock of gold is limited. As a consequence, the doubling of employment L cannot happen if M cannot increase proportionally, because the ratio of M to gold is fixed. The gold anchor becomes a brake that hinders the economy's real growth and the proper functioning of the fiat system. The obvious solution is to cut the anchor. This happened in 1971. It has no inflationary consequences. The real growth goes on smoothly. That money is created out of nothing and backed by nothing is NOT the critical point of a fiat money system. The point is whether money is injected (i) on the left side of the business sector's national account in the form of wages, or (ii) on the right side in the form of additional nominal demand, i.e., in the form of deficit spending. The case of deficit-spending/money-creation, i.e., increasing consumptive public debt, is equivalent to bringing counterfeit money into circulation, which in real terms amounts to stealing stuff from WeThePeople. National debt is roughly equal to the financial wealth of WeTheOligarchy. Ultimately, most of WeTheOligarchy's financial wealth is printed by the Central Bank. This is not a 'problem', but the defining characteristic of Capitalism. The problem with the Central Bank is NOT that it creates money out of nothing, but that it creates profit out of nothing. If the Central Bank is only allowed to create transaction money to meet the needs of businesses and households, then fiat money is the ideal solution. The problems arise with sectoral balances. For the axiomatically correct Monetary Theory, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFrVUX

— AXEC (@EgmontHandtke) November 9, 2026

Occasional X: Clueless economists / Money (CXLXIX)

“If you double everyones money (cash/debt), prices will increase roughly 2x.” (Tony Watson) That's the sloppy Quantity Theory. It is plausible, but failed/fake science. Tony Watson has never had any idea of the difference between transaction money and money as a store of value. He has no idea of economics in general, and the Theory of Money, in particular. The first thing in Monetary Theory is that transaction money is zero at the beginning and the end of a given period; see line 16 in AXEC237c ⇓. It is periodically created out of nothing and goes back to nothing. There's no problem here; money is endogenous. If the wage rate W doubles in line 5, the price doubles, and the quantity of transaction money doubles in line 16. It is still zero at the period's beginning and end. If tested, it yields a proportionality between price P and the quantity of transaction money M. However, this is NOT causality. The common causality is the doubling of the wage rate. For 200+ years, economics has claimed to be a science. But it still is not. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. As a result, economic policy guidance has never had valid scientific foundations. The Quantity Theory is a good example of this. That money is created out of nothing and backed by nothing is NOT the critical point of a fiat money system. The point is whether money is injected (i) on the left side of the business sector's national account in the form of wages, or (ii) on the right side in the form of additional nominal demand, i.e., in the form of deficit spending. The case of deficit-spending/money-creation, i.e., increasing consumptive public debt, is equivalent to bringing counterfeit money into circulation, which in real terms amounts to stealing stuff from WeThePeople. National debt is roughly equal to the financial wealth of WeTheOligarchy. Ultimately, most of WeTheOligarchy's financial wealth is printed by the Central Bank. This is not a 'problem', but the defining characteristic of Capitalism. The problem with the Central Bank is NOT that it creates money out of nothing, but that it creates profit out of nothing. If the Central Bank is only allowed to create transaction money to meet the needs of businesses and households, then fiat money is the ideal solution. The problems arise with sectoral balances. For the axiomatically correct Monetary Theory, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFrVUX

— AXEC (@EgmontHandtke) November 7, 2026

Occasional X: The futile attempt to recycle Austrianism (CXXXVII)

“Rothbard put it in italics, so Alex Pollock read it twice at the Summit: 'The natural tendency of the state is inflation.' Money is normally got by producing something. There is another way—create it, and produce nothing.” (Mises Media) The Founding Fathers defined economics as a social science, and accordingly, it has been based on subjective/behavioral assumptions/axioms. In Austrianism, it's the Praxeology Axiom. This has been the methodological ur-mistake. Actually, economics is about how the economy works. It is a systems science, and NOT a social science. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory, axiomatically false, and materially/formally inconsistent. They all got profit wrong. When the subject's foundational concepts are inconsistent, the entire analytical superstructure is scientifically worthless. Consequently, economic policy guidance has never had valid scientific foundations. To this day, it has no scientific truth-value but only political use-value. Austrianism is a case in point. Ludwig von Mises never understood profit, and by logical consequence, how the economic system works. That's self-defeating. The free-market economy runs on profit. Macroeconomic profit is given by the axiomatically correct Profit Law Qm≔(I−Sm)+(G−T)+(X−M)+Yd. The Law implies PublicDeficit-Is-PrivateProfit Qm≔(G−T)>0, i.e., macroeconomic profit is (co-)produced by deficit-spending/money-creation, i.e., the growth of public debt. In free-market economies, public debt has increased with minor interruptions for over 200 years. Therefore, Qm≔(G−T)>0 is a critical element of the economy's survival. The minimum requirement of a free-market economy is that macroeconomic profit is greater than zero, i.e., Qm≥0. If Qm<0, recession/depression/breakdown results. This is the main economic principle; all other explanations of how the economy works are secondary at best. Utility/profit maximization or free people on free markets or competition or hard work or innovation or the entrepreneur or optimal allocation do not keep the economy above the zero-profit cutoff. Scientifically, it's rather simple: no macroeconomic profit, no economy. But economists are only look-alike scientists. They have never had enough brains to understand the objective, systemic facts, i.e., the existential preconditions. Free-market economies are temporarily saved from breakdown by the deficit-spending/money-creating duo of Treasury/Central Bank, i.e., the State. This means that the Austrian premise that the unfettered free-market economy is a self-adjusting, self-stabilizing, and self-optimizing system is axiomatically false. Austrianism is failed/fake science. Neither von Mises nor the sorry bunch of followers ever understood what keeps the economy going. On the contrary, Austrianism claims that the State is the root of all evil. That's moral blaming, not science. Rothbard was a silly agenda pusher, not a competent scientist. Because Austrianism is axiomatically false, its Theory of Money is false. For the axiomatically correct approach, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFstKv

— AXEC (@EgmontHandtke) November 5, 2026

Occasional X: The futile attempt to recycle Austrianism (CXXXVI)

“Before Carl Menger published his Principles of Economics in 1871, mainstream economic thought was a muddle of half-truths, moral philosophy dressed as science, and a value theory so broken it could not explain why water costs less than diamonds. The classical school, anchored by Adam Smith and David Ricardo, gave the world the labor theory of value. Price, they believed, derived from the labor embedded in production.” (Handre) Adam Smith/David Ricardo were scientifically incompetent, and Menger was no better. The most obvious mistakes with his value theory are: (i) First of all, water and diamonds are different kinds of goods. Water is produced and consumed in one period; diamonds are forever. Menger confounded perishable consumption goods with non-financial assets, i.e., a physical store of value; i.e., he confounded non-durables and durables. Methodologically, this means getting the relationship between flows and stocks wrong. (ii) The marginal utility of one person does not matter much, because the market transforms a great number of diverse subjective valuations into one objective price for all. Menger fails to show how this transformation works. For the correct answer, see The Logical Interface Between Objective Macrofoundations and Subjective Valuations https://t.co/8NXaiPVsHv (iii) The question of value does not arise outside the economic system, where labor gets a wage, and the output is sold on the market. The Value Theory presupposes a monetary economy. The marginal utility of water for some freak guy in the desert is irrelevant to the market price of water. (iv) The subjective value has ultimately to be backed up by an objective amount of money. The subjective value of water may be high, but if the agent can maximally spend his income and if his income is very small, the thirsty person cannot buy enough water and leaves the market to die in some dark corner. The survivors understand that the market is not primarily an efficient information mechanism but a quasi-Darwinian selection mechanism that makes sure, with some unintelligible Invisible-Hand trick, that the rich person survives the poor person if scarcity becomes extreme. These four methodological mistakes are sufficient to make Menger's approach scientifically worthless and all Austrian propagandists unemployed. The methodologically correct approach is summarized in table AXEC233b ⇓. Microfoundations are methodologically false; therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. The business sector is later differentiated in lines 15, 16, 17. Under the initial analytical conditions of market-clearing, i.e., X=O, and budget-balancing, i.e., Ec=Yw, this yields the price P in line 5. For a start, the price is the dependent variable here. This is a starting condition that is lifted later. In the initial state, the price is equal to unit wage costs W/R in line 5. The workers get the whole product O. The profit Qm for the business sector as a whole is zero. Now, the condition of budget balancing is lifted, i.e., nominal demand is not determined by income. Accordingly, the two market-clearing prices depend on the respective expenditure ratios ρE1, ρE2 and unit wage costs W1/R1, W2/R2 in lines 18, 19. The measurable expenditure ratio is a proxy for the consolidated multitude of unmeasurable individual subjective values. As a result, relative prices are given in line 20. For the special case of budget balancing, i.e., ρE1=1, ρE2=1, and equal wages W1, W2, in both production lines, the relative price is equal to the inverse productivities. It is not proportional to labor time input. This result can be projected back to the original Labour Theory of Value and amounts to a refutation. It reveals the scientific incompetence of Austrian economists from Menger onward.

— AXEC (@EgmontHandtke) November 3, 2026

Occasional X: The futile attempt to recycle Austrianism (CXXXV)

“For decades, classical economists like Adam Smith struggled to explain why water was cheap, while diamonds, largely useless luxuries, commanded a fortune. Austrian economist Carl Menger solved the diamond-water paradox by pioneering the concept of subjective marginal utility, pointing out that economists had mistakenly concluded that 'value in use' and 'value in exchange' were entirely separate concepts driven by production costs.” (Creative Deduction) Adam Smith was scientifically incompetent, and Menger was no better. The most obvious mistakes with his value theory are: (i) First of all, water and diamonds are different kinds of goods. Water is produced and consumed in one period; diamonds are forever. Menger confounded perishable consumption goods with non-financial assets, i.e., a physical store of value; i.e., he confounded non-durables and durables. Methodologically, this means getting the relationship between flows and stocks wrong. (ii) The marginal utility of one person does not matter much, because the market transforms a great number of diverse subjective valuations into one objective price for all. Menger fails to show how this transformation works. For the correct answer, see The Logical Interface Between Objective Macrofoundations and Subjective Valuations https://t.co/8NXaiPW0x3 (iii) The question of value does not arise outside the economic system, where labor gets a wage, and the output is sold on the market. The Value Theory presupposes a monetary economy. The marginal utility of water for some freak guy in the desert is irrelevant to the market price of water. (iv) The subjective value has ultimately to be backed up by an objective amount of money. The subjective value of water may be high, but if the agent can maximally spend his income and if his income is very small, the thirsty person cannot buy enough water and leaves the market to die in some dark corner. The survivors understand that the market is not primarily an efficient information mechanism but a quasi-Darwinian selection mechanism that makes sure, with some unintelligible Invisible-Hand trick, that the rich person survives the poor person if scarcity becomes extreme. These four methodological mistakes are sufficient to make Menger's approach scientifically worthless and all Austrian propagandists unemployed. The methodologically correct approach is summarized in table AXEC233b ⇓. Microfoundations are methodologically false; therefore, the elementary production-consumption economy is given with three macroeconomic axioms in lines 1, 2, 3. The business sector is later differentiated in lines 15, 16, 17. Under the initial analytical conditions of market-clearing, i.e., X=O, and budget-balancing, i.e., Ec=Yw, this yields the price P in line 5. For a start, the price is the dependent variable here. This is a starting condition that is lifted later. In the initial state, the price is equal to unit wage costs W/R in line 5. The workers get the whole product O. The profit Qm for the business sector as a whole is zero. Now, the condition of budget balancing is lifted, i.e., nominal demand is not determined by income. Accordingly, the two market-clearing prices depend on the respective expenditure ratios ρE1, ρE2 and unit wage costs W1/R1, W2/R2 in lines 18, 19. The measurable expenditure ratio is a proxy for the consolidated multitude of unmeasurable individual subjective values. As a result, relative prices are given in line 20. For the special case of budget balancing, i.e., ρE1=1, ρE2=1, and equal wages W1, W2, in both production lines, the relative price is equal to the inverse productivities. It is not proportional to labor time input. This result can be projected back to the original Labour Theory of Value and amounts to a refutation. It reveals the scientific incompetence of Austrian economists from Menger onward.

— AXEC (@EgmontHandtke) November 2, 2026

Occasional X: How it works (DXXX)

“Generations of students learned economics through the Samuelson and Nordhaus textbook. But my favorite article of his is another one: 'Schumpeterian Profits in the American Economy: Theory and Measurement,' from 2004. For every 100 euros of value that an innovator creates, they keep just a little over 2. We get the other 98. … It's worth remembering this whenever someone proposes heavily taxing the fortunes of entrepreneurs, as if they were a burden on society. The innovator already keeps a minimal slice of the value they create. Taxing that slice yields little and puts everything else at risk.” (Pedro Santa Clara) The obvious swindle is to verbally equate innovators and entrepreneurs. They are as different as can be. Innovators and creative geniuses are the most exploited group in the free-market system. Business has captured the real wealth creators. As a rule of thumb, not those who create and ultimately enhance the productivity of the economic system get eventually wealthy, but those who employ or sponsor them — or simply steal their ideas. The real creative genius Tesla died poor, with a charity from the firm he helped to create and prosper.‡ In the end, the royalties go elsewhere. “Nordhaus wanted to know how much of the value created by innovation stays with the innovator. … The answer: about 2.2%. The rest went to society, especially to consumers, in the form of lower prices and better products.” (Pedro Santa Clara) Innovators and creative geniuses cannot be presented as the heroes of the free-market system. They enhance the productivity of a firm, but the enhanced profits are taken by the firm's owners. That scientists/inventors work for firms is a historical accident and in NO way intrinsic to science. To the contrary. Genuine scientists, for example, are fed up with working under the direction of a management with entirely different incentives or constantly begging for funding from the oligarchy. Seen from the perspectives of merit and the freedom of science, this is as perverse as it gets — in any case for basic research. Time for a new business model ⇒ A rough business plan for science https://t.co/fvOOBCrRgV Toward the New Academy https://t.co/4lOOZdZkox ‡ Sources “In early 1891, George Westinghouse explained his financial difficulties to Tesla in stark terms, saying that, if he did not meet the demands of his lenders, he would no longer be in control of Westinghouse Electric and Tesla would have to 'deal with the bankers' to try to collect future royalties. The advantages of having Westinghouse continue to champion the motor probably seemed obvious to Tesla and he agreed to release the company from the royalty payment clause in the contract. Six years later Westinghouse purchased Tesla's patent for a lump sum payment of $216,000 as part of a patent-sharing agreement signed with General Electric ….” (Wikipedia) “At this time, Westinghouse Electric & Manufacturing Company began paying him $125 (equivalent to $3,010 in 2025) per month in addition to paying his rent. Accounts of how this came about vary. Several sources claim that Westinghouse was concerned, or possibly warned, about potential bad publicity arising from the impoverished conditions in which their former star inventor was living. The payment has been described as being couched as a 'consulting fee' to get around Tesla's aversion to accepting charity.” (Wikipedia) “J.P. Morgan stopped funding Nikola Tesla … around 1903–1904 because Tesla's project lacked a viable business model for making money.” (Google AI)

— AXEC (@EgmontHandtke) November 1, 2026

Occasional X: Clueless economists / Money (CXLXVIII)

“Why do we use money? This should be the fundamental question of a monetary economics course. Although it seems like a somewhat obvious question, the use of money is anything but trivial when we look at it analytically through the prism of economic theory; particularly the ideal models described by Walrasian general equilibrium.” (Königs) Walrasian general equilibrium is known to be proto-scientific garbage. It's the worst possible starting point for Monetary Theory. The axiomatically correct macroeconomic approach is summarized in the table below AXEC237c ⇓ . Microfoundations are methodologically false; the economic system is based on three macroeconomic axioms (lines 1-3). As a result, the market-clearing price P is analytically determined by the relationship between the quantity produced/supplied/bought O=X and the nominal demand Ec. Budget-balancing means that nominal demand is equal to income, here Ec=Yw. The labor time L washes out and plays no role in the price determination. In the monetary economy, the resulting market-clearing and budget-balancing price for a one-good economy is P=:W/R, i.e., the price is equal to unit labor costs (line 5). Profit is zero (line 11). The workers get the entire product O. In the general case of non-budget-balancing, the market-clearing price is shown in line 9. In general, nominal demand depends on income and the expenditure ratio. The expression ρE*Yw implies an income-dependent demand curve. The household sector provides the labor input L and gets the wage income Yw. There is no other income in the elementary case. At this logical point, money enters the picture in line 16. It is of no interest here how money evolved historically. Here, money is not needed for facilitating the exchange of goods, but for paying the wage bill. The households, in turn, spend their wage income on buying the consumption goods output O. Thus, money returns to the business sector. Transaction money is here provided (at zero cost, i.e., no fee, no interest) by the Central Bank in the form of fiat money. By sequencing the initially given period length of one year into months, the idealized transaction pattern is displayed in line 16 in the table below. It is assumed that the monthly income Y/12 is paid out at mid-month. In the first half of the month, the daily spending of Y/360 increases the current overdrafts of the households. At mid-month, the households change to the positive side and have current deposits of Y/24 at their disposal. This amount reduces continuously towards the end of the month. This pattern is exactly repeated over the rest of the year. So, transaction money comes from the Central Bank; it is zero at the beginning and at the end of a given period. The average quantity of transaction money depends on the transaction pattern κ, total employment L, and the wage rate W. Money is created out of nothing and returns to nothing. There is no such thing as a fixed quantity of money. Money is present and absent depending on the time frame of observation. So, the Central Bank creates the needed fiat money out of nothing according to the changing demands due to the transactions between the household and the business sector. Transaction money is determined endogenously — “that is, as a result of the interactions of other economic variables…” (Wikipedia). There is no such thing as a 'supply of money'. The wage rate W and employment L are determined in the interaction of the household and the business sector. The Central Bank simply provides the wage bill, whatever it is. The graphic reduces formally to the money axiom in line 16. In the symmetric case Ec=Yw, the average quantity of money depends on the transaction pattern κ, the wage rate W, and employment L. If employment increases, the average stock of transaction money increases. Because W and P are formally related in line 9, there also appears a statistical correlation between price and average stock of transaction money. Both depend on the expenditure ratio ρE (lines 9 and 18). The point to start with is that both the market-clearing price and the average quantity of money depend on the expenditure ratio. This indirect relationship makes it appear that there is a correlation between the quantity of money and price. However, there is no causality from M to P. Money becomes a store of value if the expenditure ratio is ρE>1. In the most elementary case, the household sector dissaves, i.e., Ec>Yw, and the business sector makes a profit Qm as shown in line 11. At the end of the period, the business sector has a stock of money at the Central Bank equal to profit Qm. And this is the point. The concept of macroeconomic profit does not appear in legacy economics. The representative economist obviously does not know that the creation of money is intimately connected with the creation of profit. In other words, they do not understand how the economic system works. For details about the axiomatically correct approach, see the working paper ⇒ The Dark-Matter Theory of Fiat Money https://t.co/0QSqFFrVUX

— AXEC (@EgmontHandtke) November 1, 2026

Occasional X: The futile attempt to recycle Austrianism (CXXXIII)

“Carl Menger is truly one of the greatest economists of all time. His subjectivist theory of value and marginal utility was absorbed both (obviously) by the Austrian school, either in part (by Bohm-Bawerk, Von Wieser and Hayek), or in full (Lachmann), by the London School (Smart, Wicksteed, Robbins), and even mathematically (by his son Karl), his idea of “causal-genetic” analysis proceeded the idea of process analysis, and his work on money (Geld) was far ahead of his time. Truly was he (almost) without rival.” (Nikolai Rostov) Austrianism is failed/fake science to this day, but Nikolai Rostov is too incompetent to get it. He is part of a very large crowd. Economics has defined itself as a social science and accordingly has been based on subjective/behavioral assumptions/axioms. This is the methodological ur-mistake. Actually, economics is about how the economy works. It is a systems science. The basic economic entity is NOT the exchange of goods between two people and has NOTHING to do with drowning or thirsting people valuing water, but with the elementary production-consumption economy, which is shown below (⇓ AXEC225e). For a start, the workers produce one good, which is later differentiated. The output per period is O, which depends on the labor input L and the productivity R. The workers get an income Yw, which depends on the labor input L and the wage rate W. For a start, the wage rate is equal for all. Differentiation comes later. The workers spend their entire income Ec=Yw, and buy the entire output X=O. Thus, the circle is closed, and there are no balances. The balances of profit, loss, saving, dissaving, change in inventory, etc., come later. The initial nominal and real closing is a double condition, which has NOTHING to do with the concept of equilibrium. These conditions are practically never met, and this is why nominal and real balances appear. The most important balance is the macroeconomic profit of the business sector. A balance is a difference of flows, i.e., a change of stock. Austrians never understood what macroeconomic profit was. This is scientifically disqualifying. As a first result, the real wage W/P is equal to the productivity R. There is no subjectivity in the real wage. The workers need the output for their survival; that's where the subjective value comes from, but they cannot get more than they produce. The price, as the dependent variable, is determined as P=W/R. This is how the many subjective values transform into the one objective market price. The market is the place where the immeasurable individual subjectivity is transformed into the measurable collective objectivity. The science of economics deals with the objective price, not with the subjective value, which is a completely arbitrary figment of the momentary psychological condition. One can endlessly speculate about subjective values and expectations and keep economics at the proto-scientific level, i.e., in the swamp where 'nothing is clear and everything is possible.' (Keynes) Carl von Menger never understood economics. Neither did his low-IQ followers. Austrianism is not science but political agenda pushing. It is failed science, but it is kept alive because of political sponsorship – not because of scientific merit. Austrian think tanks have not much to do with thinking, but more with the blubber of silly salespeople.

— AXEC (@EgmontHandtke) October 15, 2026

Occasional X: How it works (DXXIV)

“Since the end of 2019, US corporate profits after tax are up 76%. Nominal GDP - the total value of everything the economy produces - is up just 48%. That is not all clever management and artificial intelligence. A large part of it is redistribution. For almost 60 years, workers’ share of US national income - the labour share - hovered around 78% once you strip out the business cycle. Today it is down to 72%, the lowest since 1963, which is as far back as my data go. What workers have lost, companies have gained. This is where Michał Kalecki comes in.” (Lars Christensen) Neither Lars Christensen nor Michał Kalecki ever understood profit. As a logical consequence, they never understood how the economic system works. For details, see Cross-references: Kalecki https://t.co/FemYl1aA8M The monetary economy in general, and the US economy, in particular, thrives on growing private/public debt. If this growth stops, the economy implodes. Macroeconomic profit Qm is given by the axiomatically correct Profit Law Qm:=(I−Sm)+(G−T)+(X−M)+Yd. The Law implies Qm:=(G−T)>0, i.e., macroeconomic profit is (co-)produced by deficit-spending/money-creation, i.e., the growth of public debt. The minimum requirement for a free-market economy is that macroeconomic profit is greater than zero, i.e., Qm≥0. If Qm<0, recession/depression/breakdown results. The free-market economy is continuously saved from breakdown by the deficit-spending/money-creating duo Treasury/Fed, i.e., the State. This means that the premise of mainstream economics, i.e., that the unfettered free-market economy is a self-adjusting, self-stabilizing, and self-optimizing system, is axiomatically false. This means that economics is a failed/fake science. Ultimately, this means that the representative economist is scientifically incompetent. Michał Kalecki was no exception. Currently, President Trump explodes the public debt. This increases macroeconomic profit Qm according to the Profit Law.

— AXEC (@EgmontHandtke) October 9, 2026

Occasional X: Clueless economists / Money (CXLXVI)

“Economists Ignore One of Capitalism's Biggest Problems: Banks Create Money out of Nothing.” (Steve Keen)

Steve Keen has never had any idea of the difference between transaction money and money as a store of value. He had no idea of economics in general, and the Theory of Money,… pic.twitter.com/bq7NecWWmU

— AXEC (@EgmontHandtke) September 27, 2026

Occasional X: How it works (DIV)

“There are only four ways to make money. Labor. Capital. Arbitrage. Insurance.” (Rendex)

Rendex forgot the most important way: deception/ fraud.

There are two kinds of profit: (i) profit from the production/consumption cycle Qm, and (ii) profit from value changes Qn. The point… pic.twitter.com/gywUTinYwG

— AXEC (@EgmontHandtke) August 17, 2026

Related 'Gold-making, wine from water, M―C―M', perpetuum mobile, free lunch, beating the stock market, and the perennial human dream'

 

Occasional X: Clueless economists / Money (CXLXI)

 

“The characteristic which has been traditionally supposed to render gold especially suitable for use as the standard of value, namely, its inelasticity of supply, turns out to be precisely the characteristic which is at the bottom of the trouble.” (J. M. Keynes, quoted by… pic.twitter.com/ecaeRq7A3M

— AXEC (@EgmontHandtke) August 8, 2026

Occasional X: How it works (CDXCIX)

 

“The first and most important equation in the world of money looks like this:

FV = PV × (1 + r)^n

That is it. Five symbols. Let me translate them into human.

FV = future value. What your money will be worth later.
PV = present value. What you have now.
r = rate of return per… pic.twitter.com/q7EJR3IjUc

— AXEC (@EgmontHandtke) August 5, 2026

Occasional X: Clueless economists / Money (CXLV)

“God I love Hoppe. It’s such a simple yet obvious question. How can pieces of paper make a society richer? It can’t.” (Michael)

Hoppe never understood economics in general, and the Theory of Money in particular. He's the go-to guy for low-IQ philosophers.

For the axiomatically…

— AXEC (@EgmontHandtke) July 5, 2026

Related 'The objective value of money' 

Occasional X: Clueless economists / Money (CXXXI)

“Mises demonstrated in 1912 that every generalized medium of exchange requires, in its historical origin, a prior non-monetary value.” (Miguel Hernández)

von Mises never understood profit, and by logical consequence, how the economic system works. This is self-disqualifying. To…

— AXEC (@EgmontHandtke) April 18, 2026