Refocusing the debt/profit issue

Comment on Arthurian on 'The first of the great powers to reduce private debt will be the world's next hegemon'

Blog-Reference

The two Figures in Debunking Squared (2013) have been characterized in the text as 'straightforward graphical demonstration'. Whether you call the four-quadrant representation of the elementary production-consumption economy a model or a graph is of no great importance.

It is a bit unfortunate that you obviously cannot interpret the Figures. However, if you prefer a strictly formal argument, you could turn to the working papers that have been listed in the References. You find the elementary equations that underlie the graphical representation also here and there (2015, p. 2) and here.

You say you like the summary: 'Total income is the sum of wage income and distributed profit and not of wage income and profit.' However, that is not a matter of personal taste but of the correct formal representation of the pure consumption economy. If you do not get this most elementary case right, you are lost.

The key argument is that because total income is not (i) the sum of wages and profits but of (ii) wages and distributed profit, all approaches that are based on (i) are untenable, and this includes Keen's approach (and Keynes', and Kaldor's, and Kalecki's, and Minsky's, and so on).

The fact of the matter is that both orthodox and heterodox economists cannot tell the difference between the fundamental economic magnitudes of income and profit. This means that they are outside of science.

From the formally correct approach follows for the elementary production-consumption economy: As soon as private/public households pay off their debts, the economy breaks down. It does not matter whether the debt consists of overdrafts, mortgages, bonds, or any other of the myriad forms. The consistent inclusion of the banking sector is an entirely separate issue (2011a; 2011b).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2011a). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–26. URL
Kakarot-Handtke, E. (2011b). Reconstructing the Quantity Theory (II). SSRN Working Paper Series, 1903663: 1–19. URL
Kakarot-Handtke, E. (2013). Debunking Squared. SSRN Working Paper Series, 2357902: 1–5. URL
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL

Which breakdown?

Comment on Erik S. Reinert on ‘Capitalism collapses when money flows to the financial sector per se’

Blog-Reference

Capitalism breaks down because of immanent logical necessity (no crisis and no criminals and no banksters needed) as soon as private and/or public households start to redeem their debt in the aggregate (i.e. new credit, rollovers, and redemption netted out). See Mathematical Proof of the Breakdown of Capitalism.

This is a result of the correct profit theory. Profit theory has been messed up by economists (2014), including Marx. See Profit for Marxists.

How did Walrasians, Keynesians, Marxians, and Austrians mess up profit theory and with it the rest of theoretical economics? Because they have, in the main, been occupied with political economics. Schumpeter identified the ultimate cause of the failure of economics: “In this and many analogous cases, of which modern economics is another deplorable example, economists indulged their strong propensity to dabble in politics, to peddle political recipes, to offer themselves as philosophers of economic life, and in doing so neglected the duty of stating explicitly the value judgments that they introduced into their reasoning.” (1994, p. 19)

Agenda pushing is different from thinking. What political economists have delivered is plain scientific garbage. Obviously, the intellectual collapse of economists long precedes the factual breakdown of the market economy. Let’s face the fact: both orthodox and heterodox economists are natural-born scientific losers.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL
Schumpeter, J. A. (1994). History of Economic Analysis. New York: Oxford University Press.

Related 'Time to get rid of political economics' and 'Free academia from economics' and 'The utter senselessness of political economics' and 'Political economics and intellectual corruption' and 'Hayek: mad, bad, or just another incompetent economist?' and 'Mathematical Proof of the Breakdown of Capitalism'.

Occasional X: There is an absolute limit to the growth of public debt (II)

#Economics#AllYouNeedToKnow

“Is there any economic limit to the deficit? I know of course about the political limits. People say you can't increase the national debt too fast or too much.” (John F. Kennedy, according to James Tobin)

“JFK was assassinated shortly after this…

— AXEC (@EgmontHandtke) January 12, 2026

Occasional X: Clueless economists / Breakdown (XI)

 

#Economics#AllYouNeedToKnow

“Therefore, the number of depressions that followed after a large deficit is zero.” (Grok)

Yes, and why is this so?

The free-market economy runs on profit. Macroeconomic #Profit Qm is given by the axiomatically correct Profit Law/Balances Equation…

— AXEC (@EgmontHandtke) July 20, 2025

Occasional Tweets: The free-market economy is on the State ventilator (I)

 

The 3-sector #ProfitLaw Q≡(G−T)+(I−S)+Yd implies #PublicDeficitIsPrivateProfit. Thus, #DeficitSpendingMoneyCreation is a #FreeLunch for the #Oligarchy. Growing #PublicDebt is the lifeblood of the so-called #MarketEconomy which is artificially kept alive by #Treasury / #Fed. pic.twitter.com/4tNxNhcaGs

— E.K-H (@AXECorg) July 18, 2022

The answer to the existential question of economics whether the "existing economic system is, in any significant sense, self-adjusting" (Keynes) is NO. For details see 'What Keynes really meant but could not really prove'. 

Occasional Xs: How it works (CXXXVIII)

 

The #ProfitLaw implies #PublicDeficitIsPrivateProfit. #DeficitSpendingMoneyCreation is a #FreeLunch for the #Oligarchy. Their #FinancialWealth grows with #PublicDebt which is owed by #WeThePeople. So, #DebtBrake→ #ProfitBrake→ #BreakdownOfCapitalism. ⇒https://t.co/nsoHK9OIaP pic.twitter.com/rtZt1hc9Ks

— E.K-H (@AXECorg) November 27, 2023

Occasional X: How it works (CDXLIII)

#Economics#AllYouNeedToKnow

“It’s not primarily that interest income is 'stimulating' demand in the Keynesian sense.” (James Young)

James Young does not understand what profit is, and by consequence, how the economy works. Therefore, the rest of his macroeconomics has no valid…

— AXEC (@EgmontHandtke) January 24, 2026

Occasional Tweets: Is the US-Oligarchy suicidal? (I)

 

The 3-sector #ProfitLaw Q≡(G−T)+(I−S)+Yd implies #PublicDeficitIsPrivateProfit. So, #DeficitSpendingMoneyCreation is a #FreeLunch for the #Oligarchy which is the #LifeFormula of #Capitalism. Adherence to the #DebtCeiling would be #Suicide for the so-called #FreeMarketEconomy. pic.twitter.com/bnm5QjtsJX

— E.K-H (@AXECorg) May 8, 2023

Occasional X: The growth of public/private debt is the life elixir of Capitalism (VIII)

#Economics#AllYouNeedToKnow

“Debt is brutal and it has been hurting people for 1,000s of years.” (David Graeber Institute)

David Graeber never understood how the economic system works. This is obvious from his sado-masochistic language (brutal, hurting).

Here are the…

— AXEC (@EgmontHandtke) July 23, 2025

Crisis and Methodology: Some Heterodox Misunderstandings {31a}

Working paper at SSRN

Working paper at ARCHIVE

Whether justified by the concrete circumstances or not, an economic crisis is, by simple association, taken as an implicit refutation of the invisible hand vision and the underlying theory. The fundamental heterodox critique locates the source of apparent theoretical difficulties at the level of methodology. Although acceptable in principle, this belief involves some actual misunderstandings with regard to the respective roles of deterministic laws and deductive reasoning. In order to clarify these, the present paper revisits some key episodes in the history of economic methodology.

Occasional Xs: How it works (CLXXVII)

 

The US #Economy runs on #Profit. The #ProfitLaw ⇓ implies that the greater part is produced by #DeficitSpendingMoneyCreation. So, #PrivateFinancialWealth ≈ #PublicDebt. #Capitalism/#MarketEconomy/#StockMarket are saved from #BreakDown by #Fed/#Treasury i.e. the #State. pic.twitter.com/q3Ub3lRlJR

— E.K-H (@AXECorg) January 5, 2024

Occasional X: Clueless economists / Breakdown (XXII)

“Private credit could be one of the biggest busts we've ever seen on Wall Street, rcwhalen is warning on Bloomberg TV. ” (Russian Market)

Several things eventually can lead to a breakdown.

The U.S. economy runs on profit. Macroeconomic profit is given by the axiomatically…

— AXEC (@EgmontHandtke) March 8, 2026

Occasional X: How it works (CCCXXIII)

 

#Economics#AllYouNeedToKnow

“The [US] government…has spent more on interest payments than any other category but Social Security, defense and health care.” (Jeff Cox)

And no one saw this coming ― except AXEC ⇒
From the debt economy to the gift economy: how America is…

— E.K-H (@AXECorg) January 15, 2025

Occasional Xs: Clueless economists / Breakdown (I)

 

The US #Economy runs on #Profit. The 3-sector #ProfitLaw Q≡(G−T)+(I−S)+Yd implies that the greater part is produced by #DeficitSpendingMoneyCreation. The #MarketEconomy is saved from collapse by ever higher doses of #Fed/#Treasury #MoneyInjections. ⇒https://t.co/ATzyx3Cwnt

— E.K-H (@AXECorg) October 14, 2023

Occasional Xs: The relationship between crisis → deficit-spending → macroeconomic profit (II)

 

The #ProfitLaw implies #PublicDeficitIsPrivateProfit, i.e. the #Oligarchy thrives on #DeficitSpendingMoneyCreation. Growing #PublicDebt has been their #SurvivalFormula for 200+ yrs. #DebtBrake means #ProfitBrake. Its removal is the Oligarchy's No.1 political priority everywhere. pic.twitter.com/PcxoC4BjL7

— E.K-H (@AXECorg) January 5, 2024

Related 'Economists ― in times of crisis, it is impossible to overlook whose song they are singing' and 'Keynes, Lerner, MMT, Trump, Biden, and exploding profit'

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AXEC143f

Occasional X: Clueless economists / Science (CLXVIII)

 

#Economics#AllYouNeedToKnow

“At most, the numbers and maths are proxies for underlying emotions and power relations that both transcend and precede human numbers systems.” (Brett Scott)

No, the “numbers and maths” are proxies for underlying objective/structural/systemic…

— AXEC (@EgmontHandtke) May 21, 2025

Related 'Mathematical Proof of the Breakdown of Capitalism'.

Occasional X: Clueless economists / Breakdown (XVII)

#Economics#AllYouNeedToKnow

“This isn’t just about the U.S. anymore. Every major economy in the world is borrowing faster than it’s growing.” (NoLimit)

It looks like this is the beginning of the endgame.

The free-market economy a.k.a. Capitalism, runs on profit. Macroeconomic…

— AXEC (@EgmontHandtke) December 22, 2025

Occasional X: How it works (CDXVIII)

#Economics#AllYouNeedToKnow

“Even at $30 trillion, America has the wealth to pay off its debt. The real question is whether Americans are willing to be taxed more or have their government spend less.” (Tabarrok & Cowen)

Tabarrok & Cowen do not understand profit and, by…

— AXEC (@EgmontHandtke) December 4, 2025

Occasional Tweets: There is no such thing as central bank independence (II)

 

#LearnEconomics

The market economies are in #BreakDown mode. So, the CBs pump up the #FinancialMarkets & the Treasuries apply #DeficitSpendingMoneyCreation. The 3-sector #ProfitLaw Q≡(G−T)+(I−S)+Yd implies #PublicDeficitIsPrivateProfit i.e. a #FreeLunch for the #Oligarchy. pic.twitter.com/0i0oftvjEH

— E.K-H (@AXECorg) December 19, 2022

Occasional X: How it works (CCXXIII)

 

“Government deficits create private wealth.” (Richard Murphy)

The #FreeMarketEconomy runs on #Profit. Macroeconomic profit is given by the axiomatically correct #ProfitLaw / #BalancesEquation (I−Sm)+(G−T)+(X−M)−(Qm−Yd)≐0. The Profit Law implies…

— E.K-H (@AXECorg) August 4, 2024