MMT, money, value, and transcendental Capitalism

Comment on Peter Cooper on ‘Currency Acceptance, Currency Value, and Transcending Capitalism’

Blog-Reference and Blog-Reference

Peter Cooper argues: “A currency’s role as public utility hinges on currency acceptance. A currency expresses (marxist) value in the sphere of commodity production so long as it represents an amount of socially necessary abstract labor. If so, it is relevant to distinguish two questions: (i) what drives acceptance of the currency? and (ii) what determines the value of the currency?”

Peter Cooper answers the question of acceptance: “Government has the authority to impose taxes (and other obligations) on members of the community and specify what will be accepted in payment. In principle, this authority is bestowed upon government by the community and, ideally, will be exercised in a democratically accountable way.”

This is not correct. Imagine an elementary production-consumption economy consisting of the household sector and the business sector. #1, #2, #3 The business sector pays the wage income Y_w with its own IOUs, and the households, in turn, fully spend the IOUs for buying the consumption good output from the business sector, i.e., C=Y_w. The workers will accept the business sector’s IOU’s as payment if they can be reasonably sure that the creation/destruction of IOUs is fraud-safe. This can best be achieved if the business sector’s IOUs are replaced by the central bank’s generalized IOUs, i.e., by fiat money. The acceptance of fiat money does NOT depend on the taxing power of the state but on institutional safeguards.

Peter Cooper answers the question of value: “In Marx’s theory, ‘value’ (defined as socially necessary labor time) governs commodity production and exchange.”

This is not correct because Marx’s Theory of Value is provably false. Marx got profit, exploitation, and classes wrong.#4 To this day, Marx and Marxians lack the concept of cross-over exploitation. #5

From the true macrofoundations follows the macroeconomic Law of Supply and Demand as shown here. #6 It says:

(i) An increase in the expenditure ratio ρ_E≡C/Y_w leads to a higher market-clearing price (the Greek letter ρ stands for ratio). An expenditure ratio ρ_E greater than 1 indicates deficit-spending/dissaving/credit-expansion, a ratio ρ_E less than 1 indicates saving/credit-contraction.

(ii) An expenditure ratio greater than 1 makes that macroeconomic profit, i.e., Q≡C−Y_w or Q≡(ρ_E−1)Y_w, greater than zero.

(iii) Deficit spending, i.e., the move from ρ_E=1 to ρ_E greater than 1, causes a one-off price hike but NOT inflation.

From the macroeconomic Law of Supply and Demand follows the purchasing power of the wage, a.k.a. the Value of Money, as W/P=R in the elementary case of budget balancing, i.e., of C=Y_w or ρ_E=1. In other words, the Labour Theory of Value is false since the founding fathers. Value does NOT depend on socially necessary labor time.#7 The Value of Money depends on productivity R.

When the government sector is added, the macroeconomic Profit Law reads Q≡(G−T)+(I−S) or Public Deficit (G−T) = Private Profit Q if I and S are taken out of the picture for a moment.

So, profit in transcendental Capitalism does NOT depend on the exploitation of the workers but on the deficit spending of the government sector and the household sector. Roughly speaking, transcendental Capitalism is state-sponsored.#8 The accumulated sponsoring is measured by the public debt, which currently stands at $22 trillion. The so-called free-market economy has already, for a long time, been on full life-support of the State.#9

Egmont Kakarot-Handtke


#1 This is the true core of macroeconomic premises: (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) C=PX consumption expenditure 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≡C/Y_w is called the expenditure ratio; ρ_E=1 indicates budget balancing of the household sector.
#2 True macrofoundations: the reset of economics
#3 MMT is dead
#4 The thing with profit and exploitation
#5 Capitalism, poverty, exploitation, and cross-over exploitation
#6 Graphic AXEC101 Law of Supply and Demand, elementary production-consumption economy
#7 Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
#8 No future for Socialism and Capitalism
#9 Keynes, Lerner, MMT, Trump, Biden, and exploding profit

Related 'The objective value of money'. and 'MMT: fundamentally false' and 'Warren Mosler: scientific dilettante and political fraudster' and 'MMT: The fusion of Wall Street and Academia' and 'Rethinking the Profit Law' and 'Basics of Value Theory' and 'Mathematical Proof of the Breakdown of Capitalism'.

Economists’ silly kindergarten games

Comment on Barkley Rosser on ‘Robert J. Samuelson Denounces Economists’

Blog-Reference

Barkley Rosser refers to a Washington Post article: “However, today he [Robert Samuelson] has written on ‘What economists don’t know,’ which comes across as a pretty big spanking for economists, among whom he does not make much differentiation. We are all pretty much as ignorant as each other and just plain not willing to admit it, given that we are also all (actually here he admits not all) trying to ‘gain and retain political relevance and power’.” and “Indeed, we like to think that we have exposed this Establishment for its high crimes and misdemeanors, at least on a few occasions, even if we ourselves sometimes make erroneous remarks as well on various matters (and, of course, we get visited by good old Egmont from time to time, whose denunciations of all economists except for himself and maybe one or two others makes Samuelson’s complaints look like high praise).”

Under the headline ‘What economists don’t know’, Robert Samuelson criticizes the profession for bad forecasting performance. This, indeed, is a silly game that economists play with great enthusiasm in order to entertain their audience. This only proves that economists do not understand what science is all about. Genuine scientists do not participate in the prediction game because they know “The future is unpredictable”. (Feynman) Prophesy, the forerunner of pseudo-scientific forecasting, is known since time immemorial to be a tool of social programming/manipulation/psycho-terror.

Scientific ‘prediction’ does not predict the future but the observable empirical consequence of a theory.#1, #2, #3 If successful, the theory is corroborated, otherwise, it is refuted. The bottom line of the prediction brouhaha is: scientists do not predict the future, only charlatans do, and only morons take them seriously.

The second point to note is that Egmont does NOT denunciate economists but refutes their approaches. More specifically, he proves that Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT are axiomatically false, materially/formally inconsistent, mutually contradictory and that all approaches get the foundational concept of the subject matter ― profit ― wrong. In brief, it is demonstrably true that economics is proto-scientific garbage and that economists are scientifically incompetent.#4, #5, #6 This includes, of course, the political agenda pushers Robert Samuelson and Barkley Rosser.

Egmont Kakarot-Handtke


#1 Scientists do not predict
#2 Prediction does not work? Try retrodiction first
#3 Predictably confused
#4 Economists: scientists or political clowns?
#5 Economics a science? Surely you're joking, Mr. Cochrane
#6 Economics: The greatest scientific fraud in modern times

Related 'Economics debate ― just another variant of hardcore wrestling' and 'Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage' and 'Economics: ‘a tale told by an idiot ... signifying nothing’'.

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ADDENDUM on May 16

Barkley Rosser is pleased about Robert Samuelson’s civility: “Also, it must be admitted that RJS does say complimentary things about most economists he deals with as being ‘extremely smart’ and ‘public spirited’ and ‘generous with their time,’ albeit ‘with a few exceptions’.”

Another silly kindergarten game economists play is the peer-recommendation/reciprocal-hype/self-congratulation game. Reality is different: economists are either stupid or corrupt or both. For details see There is NO such thing as “smart, honest, honorable economists”.

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REPLY to Barkley Rosser on May 16

You ask: “Does this absolute statement you make that there are ‘no’ smart or honest or honorable economists apply to you as well? Or are you not an economist?”

When I deal with how the economy works and prove that Keynes’ macroeconomic proposition I=S is false because Keynes got macroeconomic profit wrong, I am an economist. When I deal with how the economics profession works I am a sociologist.

You are right in pointing out that absolute statements may lead to paradoxes. An issue that has been dealt with under the heading of auto-reference by Luhmann and recursion/self-reference by Hofstadter and Russel’s Paradox by mathematicians.#1 Not to forget this ‘extremely smart’ Crete philosopher Epimenides. The finer points of logic, though, are a moot point among the confused confusers of economics.

To this day, both the microfoundations and macrofoundations of economics are provably false but economists have not realized it. So, Robert Samuelson’s self-referential characterization of economists as ‘extremely smart’ and ‘public spirited’ and ‘generous with their time’ only confirms what is long known, i.e. that economists are not scientists but stand-up comedians in the political Circus Maximus who senselessly repeat their ridiculous prophesy stunts.

If Robert Samuelson (and the rest of his ilk including Barkley Rosser) is an economist I am NOT an economist and vice versa. There is nothing paradoxical here.


#1 “In the foundations of mathematics, Russell’s paradox (also known as Russell’s antinomy), discovered by Bertrand Russell in 1901, showed that some attempted formalizations of the naïve set theory created by Georg Cantor led to a contradiction. The same paradox had been discovered in 1899 by Ernst Zermelo but he did not publish the idea, which remained known only to David Hilbert, Edmund Husserl, and other members of the University of Göttingen.” (Wikipedia)

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REPLY to Barkley Rosser on May 17

You proudly present your ancestors: “As a matter of fact this is a family specialty, with me writing papers on these, such as ‘On the Foundations of Mathematical Economics’ that appeared a few years ago in New Mathematics and Natural Computation, with a couple more in the publication pipeline (with yours probably still empty I gather).”

Obviously, you still have not realized that the foundations of mathematical economics are false. See Barzilai and the crumbling of the unsafe citadel. See, in particular, the Open Letter to the President of the American Economic Association.

For proof that people who call themselves economists are too stupid for the elementary mathematics that underlies macroeconomics see #DrainTheScientificSwamp.

There are political economics and theoretical economics. Political economists are agenda pushers, and theoretical economists are scientists. Political economists are fake scientists and have to be expelled from economics. See Who is really a scientist?

There is no contradiction. You are a P-economist and I am a T-economist. It is absolutely correct to say that an [T-] economist is NOT an [P-] economist and vice versa. It sounds only paradoxical for people who have not realized that economics has been captured long ago by useful political idiots and is a cargo cult science since Adam Smith/Karl Marx.

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REPLY to Barkley Rosser on May 18

Why don’t you simply read the post There is NO such thing as “smart, honest, honorable economists”?

Excerpt: The fact of the matter is that the four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal concept of the subject matter ― profit ― wrong.

For 200+ years now, economists do not know what profit is. Because of this foundational blunder, economics is scientifically worthless. And because of this, economic policy guidance NEVER had sound scientific foundations. And because of this, economists are the major cause of economic crises. By default, every economic mess is econogenic unless proven otherwise.

Economics is for 200+ years at the proto-scientific level. What is long overdue is a Paradigm Shift. This cannot happen with the given personage. Economists’ modus operandi is to simply ignore scientific standards and to imperturbably recycle falsified theories: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)

Krugman, for example, who is on the list of “smart, honest, honorable economists” has not realized to this day that Keynes’ I=S is false for 80+ years and still recommends IS-LM as a useful model.

Economists are not smart because they have not figured out to this day what profit is and how the monetary economy works. They are neither honest nor honorable because what they are doing for 200+ years now is NOT science but political agenda-pushing.

Economics debates ― just another variant of hardcore wrestling

Comment on Bill Mitchell on ‘Inflation hysteria as central bankers discuss yield curve control’

Blog-Reference and Blog-Reference

“Hardcore wrestling (also known as Garbage Wrestling) is a form of professional wrestling that eschews traditional concepts of match rules in favor of matches that take place in unusual environments, using foreign objects that are not normally permitted. … The term garbage wrestling is attributed to Japanese wrestler Giant Baba who used it originally to describe a style of wrestling which required little wrestling athletic ability and often involved no wrestling at all, which is rather common in much of hardcore wrestling.” #1

This is an accurate description of the degenerate state of economics.

Economics defines itself as science and, as a consequence, economics debates are supposed to have scientific content and form. It is well-known what this entails: “And a critical discussion is well-conducted if it is entirely devoted to one aim: to find a flaw in the claim that a certain theory presents a solution to a certain problem.” and “Thus critical discussion is essentially a comparison of the merits and demerits of two or more theories (usually more than two). . . . The chief demerit is inconsistency, including inconsistency with the results of experiments that a competing theory can explain.” (Popper)

The most striking feature of economics is schizophrenia: there are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics, anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.

As a consequence, economics debates are not much more than intellectual hardcore wrestling. #2, #3, #4

Bill Mitchell complains: “It is also a pity that journalists who have jumped on the ‘we hate the MMT’ train don’t spend at least a few seconds conducting research to see if the MMT experts might have said or have written something about the topic they were inferring MMT was related to.” and “I did this search in Google: Zimbabwe+MMT.” and “Surrounding those entries are the hysterical criticisms of MMT, none of which … goes anywhere near to understanding what actually happpening as historical fact in Zimbabwe that set up the conditions for the hyperinflationary episode. They all just repeat the lie that the hyperinflation was caused by out-of-control fiscal defcits and wrongly associate MMT with the policies that Robert Mugable followed.”

All this is accurate, of course. What is false is the unspoken message that economics debates are about establishing the scientific truth of the point at issue. They are NOT, for the simple reason that economics is not science but political agenda-pushing. #5, #6

Academic MMTers, like their mainstream colleagues, are NOT legitimate members of the scientific community because they are not really committed to scientific standards and ethics. MMT is provably false. #7 MMT policy guidance has NO sound scientific foundations. MMTers deceive the general public by claiming that MMT policy is for the benefit of WeThePeople. Like mainstreamers, MMTers ignore refutation and use all features of social media to suppress substantive critique. What they are debating instead with great enthusiasm is easy-to-refute slogans like ‘Zimbabwe’, which are thrown in by journalists who bear the sign of idiocy on their foreheads.

There is no such thing as a scientific debate in economics because economics is fake science. MMTers, clearly, are not scientists but agenda pushers for the Oligarchy. #7 The same holds for their opponents.

Egmont Kakarot-Handtke


#1 Fandom Hardcore wrestling
#2 Economics a science? Surely you are joking, Mr. Cochrane
#3 MMT vs Mainstream: examining proto-scientific garbage in detail
#4 Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
#5 Economics: The greatest scientific fraud in modern times
#6 Economists: “a bevy of camp-following whores”
#7 For the full-spectrum refutation of MMT, see cross-references MMT

Related 'Settling the MMT―Inflation issue for good' and 'The not so funny MMT vs Neoliberalism slapstick' and 'Macroeconomics: Economists are too stupid for science' and 'Economics as storytelling and entertainment for the masses' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and Economics: A pointless left-right wrestling show' and 'From true/false to hardcore wrestling and back'. For details of the big picture, see cross-references Political Economics/Stupidity/Corruption.

For more about economists' hardcore wrestling, see AXECquery.

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Twitter Nov 17, 2021 Perhaps an even better metaphor for economic debate: pillow fight

Twitter Dec 19, 2021

Twitter Oct 22, 2022

Links on Asad Zaman’s ‘Defining Islamic Economics’

Blog-Reference*

There is NO such thing as Islamic, Christian, Buddhist, etcetera economics. Economics defines itself as a science and is therefore fundamentally different from religious beliefs/political ideologies. Science deals with knowledge. Non-scientists know NOTHING. Political/religious economists are NOT scientists but stupid/corrupt storytellers.

“There are always many different opinions and conventions concerning any one problem or subject-matter (such as the gods). This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other ...” (Popper)

To this day, though, economics is NOT a science but political/religious agenda pushing in a scientific/social bluff package. Economics claims to be a science but has not yet managed to live up to the ideal. Strictly speaking, economics is a fraud.

For details see:
► The Supreme Being handed over these Twelve Economics Commandments
► If religion is opium of the people, economics is crack of the people
► Economics is not science, not religion, but proto-scientific garbage
► Confounding Is and Ought: the economist as moralist
► Beware of the moralizing economist
► Knowledge vs. Belief
► What is so great about cargo cult science? or, How economists learned to stop worrying about failure
► Fake religion, fake science, fake news, and false complaints
► Scientists and science actors
► Throw them out! Orthodox and heterodox economists are unfit for science

Egmont Kakarot-Handtke


* An Islamic WorldView

Related 'Economics a science? Surely you're joking, Mr. Cochrane' and 'Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage' and 'Economics: Science or cheap talk?' and 'Pre-truth and post-truth in economics' and 'Refutation of Asad Zaman’s heterodox methodology: all arguments you ever need' and 'Zamanomics' and 'Economics: The greatest scientific fraud in modern times' and 'The inexorable Paradigm Shift in economics'. For details of the big picture see cross-references Political Economics/Stupidity/Corruption.

Economics a science? Surely you're joking, Mr. Cochrane

Comment on John Cochrane on ‘Smith, MMT, and science in economics’

Blog-Reference and Blog-Reference

MMTers assert that mainstream economics is defective. MMTers are right. Mainstreamers, in turn, assert that MMT is defective. Mainstreamers are right.

The fact of the matter is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and that all get the foundational concept of the subject matter ― profit ― wrong. Economics is a failed science. As a consequence, discussions between mainstream and MMT never get above the talk-show level.#1, #2, #3

John Cochrane freely admits that he did not “read about things [MMT] in some detail, ideally from original sources, before reviewing them, which I have not done. Life is short.” Yes, but fortunately it is long enough to waste it on brain-dead blather.

John Cochrane has not realized that orthodox economics, which he represents, is proto-scientific garbage. Neither does he refute MMT in a scientifically correct way by proving material/formal inconsistency.#4 He simply echoes Noah Smith’s slander of MMT as a Guru-based theory.

After having himself exposed as an incompetent scientist, John Cochrane goes fully off-topic by extensively waffling about the “sociology of science”. This “sociology” is essentially a description of how contemporary academic economics works. It confirms what Feynman has described long ago as cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

What is still missing in economics after 200+ years is the true theory. Economics is a failed science. This is the common denominator of mainstream economics and MMT. Both are refuted on all counts.#5

Life is short ― trivially true ― so, in no case waste it with the fake science of economics, not with the proto-scientific garbage of mainstream and MMT, and not with the confused blatherers who call themselves scientists but have never been anything else than clowns in the political Circus Maximus.

Egmont Kakarot-Handtke


#1 MMT vs Mainstream: examining proto-scientific garbage in detail
#2 The not so funny MMT vs Neoliberalism slapstick
#3 Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage
#4 For the full-spectrum refutation of MMT see cross-references MMT
#5 Economics: The greatest scientific fraud in modern times

Related 'Economics is a science? You must be joking!' and 'What is so great about cargo cult science? or, How economists learned to stop worrying about failure' and 'MMT is better than mainstream economics but still not good enough' and 'Macroeconomics: Economists are too stupid for science' and 'From Keynes’ fatal blunder to the true economic model' and 'Links on capital-T Truth, stupidity, corruption'.

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 ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage

Comment on Peter Cooper on ‘Currency Value in Terms of Socially Necessary Labor’

Blog-Reference

There is NOT ONE concept in economics that is clearly defined and consistently adhered to. #1 Because of this, every economic debate ends with karmic necessity in the swamp of cross-talk, interpretation, and second-guessing of “what Keynes [or anybody else, for that matter] REALLY meant.” #2 One of the worst examples is the double-whopper Value of Money. In 200+ years, economists have not made up their minds about what value and what money are and how both are related.

Peter Cooper, according to the preeminent philosopher Tom Hickey, “the preeminent authority on the relationship of Marx and MMT”, has no scruples to again display his lamentable incompetence: “An economy’s minimum wage equates a unit of the currency to an amount of labor time. For instance, in Marxist terms, a minimum wage of $15/hour sets a dollar equal to 4 minutes of simple labor power. At a macro level, this enables currency value to be defined in terms of simple labor. There are, however, at least two ways in which this connection between currency value and labor could be drawn. One way would be to adopt a labor command theory of currency value. In effect, modern monetary theory (MMT) takes this approach. A second way would be to link the value of the currency to the commodity labor power. Adopting the second approach leads to a definition of currency value that is distinct from the MMT definition but closely (and simply) related to it.”

Let us forget the blather and settle the matter here and now ― once and for all.

The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) 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) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price as the dependent variable is given by P=W/R (1a). The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. The elementary production-consumption economy is shown under the label of Graphic. #3

What is needed for a start are two things: (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii) a legal system which declares the central bank’s deposits as legal tender.

Deposit money is needed by the business sector to pay the workers who receive the wage income Yw 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 C=Yw. Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income.

For the case of a balanced budget C=Yw, the idealized transaction pattern of deposits/ overdrafts of the household sector at the Central Bank over the course of one period is shown under the label Graphic. #4

The household sector’s deposits/overdrafts are ZERO at the beginning and end of the period. Money 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 supports the autonomous market transactions between the household and the business sector. From this follows the average amount of transaction money (commonly referred to as stock) as M=κYw, with κ determined by the transaction pattern. If employment L is doubled, the average amount of transaction money M doubles. In a well-designed fiat money economy, growth is not hampered by a lack of a transaction medium. Money is endogenous and neutral.

The macroeconomic Law of Supply and Demand (1a) implies W/P=R (1b), i.e., the real wage is always equal to the productivity, no matter how the wage rate W is set. In other words, the real value of money in the elementary production-consumption economy is equal to the productivity R and has NOTHING to do with “socially necessary labor”.

Ramifications: (i) The State is needed for the institutional setup of the monetary order, (ii) the State is NOT needed for injecting money into the economy, (iii) what is needed is an accommodative Central Bank, (iv) neither the State nor the Central Bank interferes with the autonomous transactions of the household and business sector, (v) money is a generalized IOU, (vi) money is created and destroyed by the transactions between the household and the business sector, (vii) the value of money is given by W/P=R (1b), i.e. is equal to the productivity, (viii) the value of money does NOT depend on the (average) amount of money M, (ix) the functionality of monetary institutions and the value of money does NOT depend on the taxing power of the State.

Bottom line: both Marx and MMT got the Value of Money wrong. Unfortunately, “the preeminent authority on the relationship of Marx and MMT” and the rest of the MMT crowd #5 lack the brain-power to grasp it. Fortunately, they still have enough blather-power available to pollute the econblogosphere with proto-scientific garbage.

Egmont Kakarot-Handtke


#1 Mad but true: 200+ years after Adam Smith economists still have no idea what profit is
#2 Marshall and the Cambridge School of plain economic gibberish
#3 Graphic AXEC31 Elementary production-consumption economy
#4 Graphic AXEC98 Idealized transaction pattern
#5 Refuting MMT’s Macroeconomics Textbook

Related 'Value — the Bermuda Triangle for economic theories' and 'The creation and value of money and near-monies' and 'The Theory of Value and the worthlessness of economics' and 'How to get out of psychology/sociology/wish-wash' and 'Basics of Value Theory' and 'Here is the long-overdue scientific death certificate for Marx and Marxists' and 'The objective value of money' and 'MMT and Marxism: A debate between proto-scientific zombies' and 'Neoclassics and MMT ― much like pest and cholera' and 'Rethinking the Profit Law' and 'How to end the Punch and Judy Show about profit' and 'The thing with profit and exploitation' and 'The Logic of Value and the Value of Logic' and 'The Value of Water and Diamonds: Back to Square One'.

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REPLY to Detroit Dan on May 8

You say: “Interesting discussion, Calcagus and Andre. Thanks.”

Not so. The value of money is given by W/P=R as derived above for the most elementary case. The rest is uninteresting troll-talk, claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage.

Both MMT and Marxianism are refuted on all counts. #1


#1 For the detailed refutation of specific points, go to the AXEC blog and search for ‘Peter Cooper’ (the preeminent authority on the relationship of Marx and MMT according to the preeminent philosopher Tom Hickey).

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REPLY to Calgacus on May 11

You say: “Basically, I think everyone agrees with the labor theory of value. … I think empirical work shows that prices are explained by labor with correlation of 95% or something. Joan Robinson said something like- what other choice is there? The problem is formulating the labor theory of value, just right.”

Indeed, that’s the problem of any theory.

The elementary production-consumption economy is, for a star,t defined by three macro axioms (Yw=WL, O=RL, C=PX) and two conditions (X=O, C=Yw). This yields the macroeconomic Law of Supply and Demand as P=W/R.

Now imagine two countries that are equal in all real respects except for productivity. Clearly, the market-clearing price is lower in the country with higher productivity. So, the purchasing power of the wage, a.k.a. the value of money is higher, it holds W/P=R.

Note that in both countries, the labor input L is exactly the same. But this does not matter because the value of money does not depend on “Socially Necessary Labor” or other figments of the poor imagination of socially unnecessary economists.