“inflation is always and everywhere a monetary phenomenon—milton friedman was correct” (Time Preference)
— AXEC (@EgmontHandtke) March 21, 2026
The axiomatically correct macroeconomic Law of Supply and Demand ⇓ tells one how ― in the elementary case ― the avg price P moves under the condition of market clearing as a… pic.twitter.com/zK63LqD9tJ
Showing posts sorted by relevance for query label:Money. Sort by date Show all posts
Showing posts sorted by relevance for query label:Money. Sort by date Show all posts
March 21, 2026
Occasional X: Clueless economists / Price Mechanism (XII)
October 14, 2023
Occasional Xs: How it works (LXXIII)
The US political system is an #Oligarchy with Congress/Treasury/Fed/BigBusiness as integral parts. The #ProfitLaw ↓ implies #PublicDeficitIsPrivateProfit. The growth of #PublicDebt generates #Profit/#Interest. #PrintingMoney is how the Oligarchy self-generates #FinancialWealth. pic.twitter.com/qYpfG1S3Rm
— E.K-H (@AXECorg) October 14, 2023
August 3, 2018
The MMT-Yawner: Government is not a household
Comment on Bill Mitchell on ‘The government is not a household and imports are still a benefit’
Blog-Reference
Everybody got the MMT meme by now. Unfortunately, neither MMT academics nor the social media sales force ever understood its full implications.
It is trivially true that “… a government is not a household. It has a wider remit (objectives) than a household and must consider a broad range of concerns when it uses its currency-issuing capacity to shift real resources (as goods and services) from the non-government sector to the government sector to fulfill its elected mandate.” (Mitchell)
The problem comes in with the ‘use of currency-issuing capacity’ because there is, as always, good and bad use of a capacity. It is trivially true that Organized Crime, in the definition of the Organized Crime Control Act OC≅OCCA has the capacity to print money and ‘to shift real resources (as goods and services) from the non-government sector to the OC≅OCCA sector.’
So, from the currency-issuing capacity of the government does NOT follow that it is a good policy to resort to deficit-spending/money-creation. In fact, it is a bad policy. Translated into MMT jargon: government is NOT a household, but it is NOT a counterfeiter either.
The crucial distinction is this. The correct way to bring additional fiat money into circulation is to finance a growing wage bill. The incorrect way is to spend the additional money on goods and services, i.e., current output. This is analogous to going on a shopping spree with counterfeit money.
The first thing to grasp is: it is the household sector that pays in real terms in the form of a tiny price hike, which is indistinguishable from a random price fluctuation. A government that resorts to deficit-spending/money-creation does NOT “fulfill its elected mandate” but in effect applies stealth taxation to the household sector.
The second thing to grasp is that because of the macroeconomic Profit Law, i.e., Public Deficit = Private Profit, deficit-spending/money-creation increases macroeconomic profit by exactly the same amount.
The correct way for the central bank to inject out-of-thin-air money into the economy is by financing a growing wage bill. The incorrect way is the counterfeit-money-printers' way. #1, #2
True, the government is not a household. But equally true, the government is not OC≅OCCA either. Why Bill Mitchell claims that by deficit-spending/money-creation government fulfills its “elected mandate” is anybody’s guess.
Egmont Kakarot-Handtke
#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 The Kelton-Fraud
The use of AXEC: New Foundations of Economics is regulated by Copyright © and Trademark ® Laws. For details, see Terms of Use.
This covers all publications/blog posts, in particular
AXEC
AXECorg blogspot
SSRN and other depositories.
AXEC142
Blog-Reference
Everybody got the MMT meme by now. Unfortunately, neither MMT academics nor the social media sales force ever understood its full implications.
It is trivially true that “… a government is not a household. It has a wider remit (objectives) than a household and must consider a broad range of concerns when it uses its currency-issuing capacity to shift real resources (as goods and services) from the non-government sector to the government sector to fulfill its elected mandate.” (Mitchell)
The problem comes in with the ‘use of currency-issuing capacity’ because there is, as always, good and bad use of a capacity. It is trivially true that Organized Crime, in the definition of the Organized Crime Control Act OC≅OCCA has the capacity to print money and ‘to shift real resources (as goods and services) from the non-government sector to the OC≅OCCA sector.’
So, from the currency-issuing capacity of the government does NOT follow that it is a good policy to resort to deficit-spending/money-creation. In fact, it is a bad policy. Translated into MMT jargon: government is NOT a household, but it is NOT a counterfeiter either.
The crucial distinction is this. The correct way to bring additional fiat money into circulation is to finance a growing wage bill. The incorrect way is to spend the additional money on goods and services, i.e., current output. This is analogous to going on a shopping spree with counterfeit money.
The first thing to grasp is: it is the household sector that pays in real terms in the form of a tiny price hike, which is indistinguishable from a random price fluctuation. A government that resorts to deficit-spending/money-creation does NOT “fulfill its elected mandate” but in effect applies stealth taxation to the household sector.
The second thing to grasp is that because of the macroeconomic Profit Law, i.e., Public Deficit = Private Profit, deficit-spending/money-creation increases macroeconomic profit by exactly the same amount.
The correct way for the central bank to inject out-of-thin-air money into the economy is by financing a growing wage bill. The incorrect way is the counterfeit-money-printers' way. #1, #2
True, the government is not a household. But equally true, the government is not OC≅OCCA either. Why Bill Mitchell claims that by deficit-spending/money-creation government fulfills its “elected mandate” is anybody’s guess.
Egmont Kakarot-Handtke
#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 The Kelton-Fraud
Related 'Criminals and the monetary order'.
***
AXEC143d Macroeconomic Profit Law for an increasing number of sectors, which implies Public Deficit (G−T) = Private Profit Qm
***
REPLY to ANC Driver on Aug 5The use of AXEC: New Foundations of Economics is regulated by Copyright © and Trademark ® Laws. For details, see Terms of Use.
This covers all publications/blog posts, in particular
AXEC
AXECorg blogspot
SSRN and other depositories.
***
AXEC142
March 16, 2026
Occasional X: Clueless economists / Money (CXI)
“I'm looking to rebuild society and recapitalize society on sound money that nobody can control and manipulate.” (Jack Mallers, quoted by Fiat Archive)
— AXEC (@EgmontHandtke) March 16, 2026
The very characteristic of fiat money is that its production costs are close to zero, but it can buy stuff with a price much… pic.twitter.com/0dvJRzdjaq
September 18, 2015
How to start off on the right foot
Comment on Bill Mitchell on ‘When one false starting premise leads to progressive confusion’
Blog-Reference
You say “... a current article ... shows that if one starts from a wrong premise the conclusions will lead one astray no matter how noble the intentions are. Progressives have to get the basics of macroeconomics correct before they launch into critiques of this and that.” (See intro)
This, indeed, is the crucial point of all of theoretical economics and, in turn, becomes the precondition of economic policy: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
Successful economic policy critically depends on the correct economic theory and the whole theoretical superstructure ultimately hinges on a handful of foundational premises. As you say, wrong premises lead straight away to utter confusion (see also 2013).
In order to avoid the Garbage-in-Garbage-out Fallacy, the most important task of the economist is to see to it that his premises are true. And this is what the great methodologist and economist J. S. Mill has told his utterly disoriented fellows.
“What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)
Standard economics has been built upon wrong premises and it is pretty obvious by now that it is a failed approach. Every economic analysis must start with the definition of the objective structure of the monetary economy because it is this structure, a.k.a. reality, that determines the outcome of individual and collective human action (2014). The monetary economy is the meta-context of every partial analysis.
Standard economics starts with the behavioral assumption of constrained optimization and this means getting off on the wrong foot. MMT starts with the objective structure of the monetary economy. This, clearly, is the right foot. However, what is still missing is an explicit and formally consistent definition of the set of foundational propositions that constitutes the new approach.
This task is of overriding importance. As you say: “You can see that if you start off with a false premise ... how quickly one descends into a flawed analysis.” Or, as J. S. Mill and the methodologists of all times have said: mind your axioms. The representative economist never got this crucial point.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Related 'Modern Moronomic Theory'
For details of the big picture see cross-references Axiomatization
Blog-Reference
You say “... a current article ... shows that if one starts from a wrong premise the conclusions will lead one astray no matter how noble the intentions are. Progressives have to get the basics of macroeconomics correct before they launch into critiques of this and that.” (See intro)
This, indeed, is the crucial point of all of theoretical economics and, in turn, becomes the precondition of economic policy: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
Successful economic policy critically depends on the correct economic theory and the whole theoretical superstructure ultimately hinges on a handful of foundational premises. As you say, wrong premises lead straight away to utter confusion (see also 2013).
In order to avoid the Garbage-in-Garbage-out Fallacy, the most important task of the economist is to see to it that his premises are true. And this is what the great methodologist and economist J. S. Mill has told his utterly disoriented fellows.
“What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill, 2006, p. 746)
Standard economics has been built upon wrong premises and it is pretty obvious by now that it is a failed approach. Every economic analysis must start with the definition of the objective structure of the monetary economy because it is this structure, a.k.a. reality, that determines the outcome of individual and collective human action (2014). The monetary economy is the meta-context of every partial analysis.
Standard economics starts with the behavioral assumption of constrained optimization and this means getting off on the wrong foot. MMT starts with the objective structure of the monetary economy. This, clearly, is the right foot. However, what is still missing is an explicit and formally consistent definition of the set of foundational propositions that constitutes the new approach.
This task is of overriding importance. As you say: “You can see that if you start off with a false premise ... how quickly one descends into a flawed analysis.” Or, as J. S. Mill and the methodologists of all times have said: mind your axioms. The representative economist never got this crucial point.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL
Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, Volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Related 'Modern Moronomic Theory'
For details of the big picture see cross-references Axiomatization
January 23, 2023
Occasional Tweets: The futile attempt to recycle 'famous economists' (I)
#Econ#NoFalseHeroMemorials
— E.K-H (@AXECorg) January 23, 2023
“Economics is the study of the economy, not the study of economists.” (R. Reis)
'Irving Fisher who is most famous for his #equation: MV=PT' NEVER understood how the #Economy works.
For the correct average-stock-of-transaction-money equation see pic.twitter.com/hGg0YSTMcD
September 30, 2017
MMT: Money-making for the one-percenters
Comment on Stephanie Kelton/Op-Ed on ‘Congress can give every American a pony (if it breeds enough ponies)’
Blog-Reference
Stephanie Kelton explains how the economy works. For laypersons, the point to grasp is that government spending comes before taxation:
“1. Congress approves the spending, and the money gets spent (S)
2. The government collects some of that money in the form of taxes (T)
3. If 1>2, Treasury allows the difference to be swapped for government bonds (B).”
The point is, of course, that it does NOT matter much whether (S) comes before (T) or vice versa, this is merely a question of cash management, the point is whether total spending (S) is greater, equal, or less than total taxes (T) in the period under consideration, i.e. whether one has a government deficit, a zero balance, or a surplus at the end of the current budget period.
The crucial point is NOT that the government can make money appear out of nowhere like magic, which has always been trivial; the crucial point is what happens in the economy. Stephanie Kelton does not tell us, most probably because she has no idea.
What the layperson cannot see is that MMT has NO sound scientific foundations. The MMT models are based on Keynesian macroeconomics, which was refuted long ago. #1 Because it is defective, the MMT macro has to be fully replaced.
As the correct analytical starting point, the pure production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) 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, the price is given by P=C/X=W/R, i.e., the market-clearing price is in the initial period equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation, see Figure 1. #2
Monetary profit for the economy as a whole is defined as Qm≡C−Yw, and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0 or Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.
Now, the government decides that in the next period, every American should get a pony. So, government expenditures in period 1 are Cg1, and taxes T are zero. The government runs a deficit; the money comes from the Central Bank, i.e., is created out of nothing.
It is assumed for simplicity that the business sector doubles initial employment L0, i.e. L1=2L0. The wage rate W remains unchanged, and therefore total wage income doubles, i.e. Yw1=W2L0. Under the condition of budget balancing, the household sector’s consumption expenditures, too, double Ch1=Yw1=2WL0.
So, total expenditures are Ch1+Cg1=2Ch0+Cg1, that is, are more than double the expenditures in the initial period. On the other hand, output exactly doubles O1=RL1=R2L0. The market-clearing price is now P1=C1/X1=(2Ch0+Cg1)/2X0=P0+Cg1/2X0, that is, the market-clearing price rises while employment and output double. This is a one-shot increase and has NOTHING to do with inflation. The price increase affects the redistribution of real output between the household and the government sector.
The profit of the business sector was zero in the initial period and is now positive, i.e. Qm=Cg1, i.e., equal to the budget deficit. It always holds Public Deficit = Private Profit. This configuration can go on for an indefinite time with public debt vis-a-vis the central bank rising continuously, with the business sector’s pile of cash rising continuously, and with the number of ponies rising continuously and with price stability. Quite obviously, nobody has any reason to complain. In Stephanie Kelton’s words: “Just imagine how high those poll numbers would climb if everyone understood how easy it would be for Congress to pony up.”
It is remarkable that the word profit does not appear once in Stephanie Kelton’s op-ed, but the word pony appears eight times. Never were more ponies used to propagate a profit booster program for the one-percenters. #3
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Graphic AXEC31 Elementary production-consumption economy
#3 For the full-spectrum refutation of MMT, see cross-references MMT
Related 'MMT: The one deadly error/fraud of Warren Mosler' and 'Selling public debt with Ricardo’s tear gland rhetoric' and 'Down with idiocy!' and 'Political economics: Who hijacks British Labour?' and 'MMT: Just another political fraud'.
You say: “The govt bond accounting is Cash Basis (see US Daily Treasury Statement) while I don’t think the other terms in your equations are accounted for in Cash Basis ... they are accounted using a Modified Accrual Basis.”
The difference between Cash Basis and Accrual Basis plays no role in the present context. Monetary profit Qm is equal to the increase of the business sector’s deposits at the central bank, which, in turn, is equal to the increase of the government sector’s overdrafts at the central bank because both sides of the central bank’s balance sheet are ALWAYS equal (as everyone knows from their accounting course, except Matt Franko). If and when the government consolidates its debt by selling bonds or T-bills, or whatever to the business sector is independent of the development of the debt in a certain period. In the present context is important to realize that Public Deficit = Private Profit. It is of NO interest here if and how the deficit = increase of overdrafts is ultimately funded. #1, #2
Needless to emphasize that the household sector will be taxed somewhere in the future in order to pay back the government’s debt. So, the households get their ponies on credit without realizing it, while the business sector gets its profit for good. The payback part is entirely missing from the pony story. Stephanie Kelton’s wonderful proposal is like the auto dealer saying I give you this brand new car for free, please confirm my generosity with your signature at the end of this credit agreement.
Stephanie Kelton is a scientifically incompetent economist, and MMT is Trump University economics.
#1 Fixing the loanable funds blunder
#2 Reconstructing the Quantity Theory (I)
Each government entity, each firm, and each bank around the world has incoming payments and outgoing payments. These are not synchronized, and therefore, there is a smart guy, let us call him the cash or liquidity manager or treasurer, whose main task is to maintain constant financial solvency.
Imagine the following situation. The cash manager knows that the government spends the amount G on ponies on Jan 1 and that taxes T are paid on Dec 31. It holds G=T. So, the cash manager has to take up credit for one year either from the banking system or by selling some short-term paper. Vice versa, the taxes come in on Jan 1, and the ponies are bought on Dec 31. So, the cash manager can buy some ultra-safe paper and hold it for one year. No cash manager in this world has any problem with handling both situations. At the end of the year, both cases amount to the SAME, except for the interest. The cash manager has NO long-term financing problem.
Things are different if T is less than G. If this happens year after year, government debt increases continuously, and the cash manager eventually starts to issue government bonds of different maturities and to roll them over again and again. The growing government debt is the problem that alarms people, and NOT the bridging of the short-term gaps between outgoing payments and incoming taxes.
The obvious mistake of Stephanie Kelton’s op-ed is to confound the two cases of short-term cash deficits and long-term budget deficits. Short-term cash deficits become budget deficits if T < G.
Why Stephanie Kelton forgets to mention that Public Deficit = Private Profit and that people have to pay for the ponies in the form of deferred budget surpluses, which are needed to eventually redeem the accumulated public debt, is a bit mysterious. But then, perhaps this is absolutely normal at Trump University.
You quote Wray, “money is a cross-balance sheet RELATIONSHIP”. Yes, trivially true and known since the Middle Ages, but MMTers are too stupid to do the accounting properly. For the proof, see #1, #2.
It is the most remarkable feature of MMT that macro profit does not appear in the balance equations. By consequence, MMTers miss the most important “cross-balance sheet relationship”, that is, Government Deficit = Profit of the business sector. The fact is that MMTers got profit theory wrong, and this is disqualifying for every economist. #3
Accounting is elementary mathematics, and one needs no Theoretical Computer Scientists to do it. The signature of arithmetic consists of addition, multiplication, and successor function symbols, the equality and less-than relation symbols, and a constant symbol for 0. (Wikipedia) That’s all, but MMTers fail already at the level of elementary logic.
You say “The government does not need a cash manager because the job of the government is to be financially INsolvent.” The cash manager of the government coordinates and bridges the gaps between outgoing and incoming payments. As long as the budget is balanced, i.e. G=T, the job of the government’s cash manager is essentially the same as the non-government’s cash manager. Their deficits = overdrafts at the credit side of the central bank’s balance sheet create uno actu deposits at the debit side = money. The only difference between the non-government cash manager and the government’s cash manager is that the central bank cannot limit the deficit creation = money creation of the latter. The point is, though, that the newly created money lands one-to-one as profit on the accounts of the business sector. Take all the technicalities of cash management away, then MMT’s pony program turns out to be a profit booster program. It seems that some Wall Street folks understand this better than Stephanie Kelton.
At the end of the whole exercise, a sub-group of the general public is left with some ponies, and all of the general public is indirectly left with the government’s debt. Whether the debt takes the form of overdrafts-deposits (= money) at the central bank or assets-liabilities in the form of bonds is a separate issue. Overdrafts-deposits (= money) is the most convenient and cheapest form of government debt.
The accumulated debt can be carried over for an indefinite time, but this makes it only invisible but not disappear. The household sector is ― indirectly via the government ― left with the debt, and the business sector is left with profit, which is held either in cash = deposits at the central bank/banking sector or in government paper. Government paper is Triple-A quality and carries interest, which makes the folks in the business/banking sector even happier.
As long as the debt is revolved, all is fine. Interest for the public debt is reliably taken from the household sector and transferred to the bond-holding business/banking sector. But the market economy breaks down as soon as the household sector starts to redeem private or/and public debt, which must happen eventually because this is the very nature of debt. #4
What Stephanie Kelton is ― knowingly or unknowingly does not matter ― actually doing under the banner of social programs is to boost the profit of the business/banking sector and to postpone the breakdown of the economy. In political terms, this is what the MMT dog & pony act in the LA Times is all about. MMT is just another example of the scientifically degenerate state of economics.
#1 Rectification of MMT macro accounting
#2 A tale of three accountants
#3 Why economists don’t know what profit is
#4 Mathematical Proof of the Breakdown of Capitalism
You say: “G−T does not equal the net amount of Treasuries issued... G is Accrual, and T is Accrual... Treasury issuance is Cash...”
Roughly speaking, G and T are the sums of transactions that take place during one period on the Income Statement/Profit-Loss Accounts, while the buying and selling of government securities are transactions that are recorded on the balance sheet.
G and T are flows, while cash and the amounts of diverse government securities are stocks. The difference of flows Δ=G−T of the government sector changes the stock of money by Δ.
All this has NOTHING to do with the difference between Accrual Basis and Cash Basis Accounting. For the interrelationship between macro flows, their balances, and stocks, see #1, #2. For the basics of National Accounting, see Wikipedia.#3
#1 Essentials of Constructive Heterodoxy: Money, Credit, Interest
#2 Essentials of Constructive Heterodoxy: Financial Markets
#3 Wikipedia “National accounts broadly present output, expenditure, and income activities of the economic actors (households, corporations, government) in an economy, including their relations with other countries’ economies, and their wealth (net worth). They present both flows (measured over a period) and stocks (measured at the end of a period), ensuring that the flows are reconciled with the stocks.”
Related 'MMT: Just political heat, no scientific light' and 'The profit effect of a Job Guarantee'
Blog-Reference
Stephanie Kelton explains how the economy works. For laypersons, the point to grasp is that government spending comes before taxation:
“1. Congress approves the spending, and the money gets spent (S)
2. The government collects some of that money in the form of taxes (T)
3. If 1>2, Treasury allows the difference to be swapped for government bonds (B).”
The point is, of course, that it does NOT matter much whether (S) comes before (T) or vice versa, this is merely a question of cash management, the point is whether total spending (S) is greater, equal, or less than total taxes (T) in the period under consideration, i.e. whether one has a government deficit, a zero balance, or a surplus at the end of the current budget period.
The crucial point is NOT that the government can make money appear out of nowhere like magic, which has always been trivial; the crucial point is what happens in the economy. Stephanie Kelton does not tell us, most probably because she has no idea.
What the layperson cannot see is that MMT has NO sound scientific foundations. The MMT models are based on Keynesian macroeconomics, which was refuted long ago. #1 Because it is defective, the MMT macro has to be fully replaced.
As the correct analytical starting point, the pure production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) 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, the price is given by P=C/X=W/R, i.e., the market-clearing price is in the initial period equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation, see Figure 1. #2
Monetary profit for the economy as a whole is defined as Qm≡C−Yw, and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0 or Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.
Now, the government decides that in the next period, every American should get a pony. So, government expenditures in period 1 are Cg1, and taxes T are zero. The government runs a deficit; the money comes from the Central Bank, i.e., is created out of nothing.
It is assumed for simplicity that the business sector doubles initial employment L0, i.e. L1=2L0. The wage rate W remains unchanged, and therefore total wage income doubles, i.e. Yw1=W2L0. Under the condition of budget balancing, the household sector’s consumption expenditures, too, double Ch1=Yw1=2WL0.
So, total expenditures are Ch1+Cg1=2Ch0+Cg1, that is, are more than double the expenditures in the initial period. On the other hand, output exactly doubles O1=RL1=R2L0. The market-clearing price is now P1=C1/X1=(2Ch0+Cg1)/2X0=P0+Cg1/2X0, that is, the market-clearing price rises while employment and output double. This is a one-shot increase and has NOTHING to do with inflation. The price increase affects the redistribution of real output between the household and the government sector.
The profit of the business sector was zero in the initial period and is now positive, i.e. Qm=Cg1, i.e., equal to the budget deficit. It always holds Public Deficit = Private Profit. This configuration can go on for an indefinite time with public debt vis-a-vis the central bank rising continuously, with the business sector’s pile of cash rising continuously, and with the number of ponies rising continuously and with price stability. Quite obviously, nobody has any reason to complain. In Stephanie Kelton’s words: “Just imagine how high those poll numbers would climb if everyone understood how easy it would be for Congress to pony up.”
It is remarkable that the word profit does not appear once in Stephanie Kelton’s op-ed, but the word pony appears eight times. Never were more ponies used to propagate a profit booster program for the one-percenters. #3
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
#2 Graphic AXEC31 Elementary production-consumption economy
#3 For the full-spectrum refutation of MMT, see cross-references MMT
Related 'MMT: The one deadly error/fraud of Warren Mosler' and 'Selling public debt with Ricardo’s tear gland rhetoric' and 'Down with idiocy!' and 'Political economics: Who hijacks British Labour?' and 'MMT: Just another political fraud'.
***
REPLY to Matt Franko on Sep 30You say: “The govt bond accounting is Cash Basis (see US Daily Treasury Statement) while I don’t think the other terms in your equations are accounted for in Cash Basis ... they are accounted using a Modified Accrual Basis.”
The difference between Cash Basis and Accrual Basis plays no role in the present context. Monetary profit Qm is equal to the increase of the business sector’s deposits at the central bank, which, in turn, is equal to the increase of the government sector’s overdrafts at the central bank because both sides of the central bank’s balance sheet are ALWAYS equal (as everyone knows from their accounting course, except Matt Franko). If and when the government consolidates its debt by selling bonds or T-bills, or whatever to the business sector is independent of the development of the debt in a certain period. In the present context is important to realize that Public Deficit = Private Profit. It is of NO interest here if and how the deficit = increase of overdrafts is ultimately funded. #1, #2
Needless to emphasize that the household sector will be taxed somewhere in the future in order to pay back the government’s debt. So, the households get their ponies on credit without realizing it, while the business sector gets its profit for good. The payback part is entirely missing from the pony story. Stephanie Kelton’s wonderful proposal is like the auto dealer saying I give you this brand new car for free, please confirm my generosity with your signature at the end of this credit agreement.
Stephanie Kelton is a scientifically incompetent economist, and MMT is Trump University economics.
#1 Fixing the loanable funds blunder
#2 Reconstructing the Quantity Theory (I)
***
REPLY to Matt Franko on Oct 1Each government entity, each firm, and each bank around the world has incoming payments and outgoing payments. These are not synchronized, and therefore, there is a smart guy, let us call him the cash or liquidity manager or treasurer, whose main task is to maintain constant financial solvency.
Imagine the following situation. The cash manager knows that the government spends the amount G on ponies on Jan 1 and that taxes T are paid on Dec 31. It holds G=T. So, the cash manager has to take up credit for one year either from the banking system or by selling some short-term paper. Vice versa, the taxes come in on Jan 1, and the ponies are bought on Dec 31. So, the cash manager can buy some ultra-safe paper and hold it for one year. No cash manager in this world has any problem with handling both situations. At the end of the year, both cases amount to the SAME, except for the interest. The cash manager has NO long-term financing problem.
Things are different if T is less than G. If this happens year after year, government debt increases continuously, and the cash manager eventually starts to issue government bonds of different maturities and to roll them over again and again. The growing government debt is the problem that alarms people, and NOT the bridging of the short-term gaps between outgoing payments and incoming taxes.
The obvious mistake of Stephanie Kelton’s op-ed is to confound the two cases of short-term cash deficits and long-term budget deficits. Short-term cash deficits become budget deficits if T < G.
Why Stephanie Kelton forgets to mention that Public Deficit = Private Profit and that people have to pay for the ponies in the form of deferred budget surpluses, which are needed to eventually redeem the accumulated public debt, is a bit mysterious. But then, perhaps this is absolutely normal at Trump University.
***
REPLY to Calgacus on Oct 1You quote Wray, “money is a cross-balance sheet RELATIONSHIP”. Yes, trivially true and known since the Middle Ages, but MMTers are too stupid to do the accounting properly. For the proof, see #1, #2.
It is the most remarkable feature of MMT that macro profit does not appear in the balance equations. By consequence, MMTers miss the most important “cross-balance sheet relationship”, that is, Government Deficit = Profit of the business sector. The fact is that MMTers got profit theory wrong, and this is disqualifying for every economist. #3
Accounting is elementary mathematics, and one needs no Theoretical Computer Scientists to do it. The signature of arithmetic consists of addition, multiplication, and successor function symbols, the equality and less-than relation symbols, and a constant symbol for 0. (Wikipedia) That’s all, but MMTers fail already at the level of elementary logic.
You say “The government does not need a cash manager because the job of the government is to be financially INsolvent.” The cash manager of the government coordinates and bridges the gaps between outgoing and incoming payments. As long as the budget is balanced, i.e. G=T, the job of the government’s cash manager is essentially the same as the non-government’s cash manager. Their deficits = overdrafts at the credit side of the central bank’s balance sheet create uno actu deposits at the debit side = money. The only difference between the non-government cash manager and the government’s cash manager is that the central bank cannot limit the deficit creation = money creation of the latter. The point is, though, that the newly created money lands one-to-one as profit on the accounts of the business sector. Take all the technicalities of cash management away, then MMT’s pony program turns out to be a profit booster program. It seems that some Wall Street folks understand this better than Stephanie Kelton.
At the end of the whole exercise, a sub-group of the general public is left with some ponies, and all of the general public is indirectly left with the government’s debt. Whether the debt takes the form of overdrafts-deposits (= money) at the central bank or assets-liabilities in the form of bonds is a separate issue. Overdrafts-deposits (= money) is the most convenient and cheapest form of government debt.
The accumulated debt can be carried over for an indefinite time, but this makes it only invisible but not disappear. The household sector is ― indirectly via the government ― left with the debt, and the business sector is left with profit, which is held either in cash = deposits at the central bank/banking sector or in government paper. Government paper is Triple-A quality and carries interest, which makes the folks in the business/banking sector even happier.
As long as the debt is revolved, all is fine. Interest for the public debt is reliably taken from the household sector and transferred to the bond-holding business/banking sector. But the market economy breaks down as soon as the household sector starts to redeem private or/and public debt, which must happen eventually because this is the very nature of debt. #4
What Stephanie Kelton is ― knowingly or unknowingly does not matter ― actually doing under the banner of social programs is to boost the profit of the business/banking sector and to postpone the breakdown of the economy. In political terms, this is what the MMT dog & pony act in the LA Times is all about. MMT is just another example of the scientifically degenerate state of economics.
#1 Rectification of MMT macro accounting
#2 A tale of three accountants
#3 Why economists don’t know what profit is
#4 Mathematical Proof of the Breakdown of Capitalism
***
REPLY to Matt Franko on Oct 1You say: “G−T does not equal the net amount of Treasuries issued... G is Accrual, and T is Accrual... Treasury issuance is Cash...”
Roughly speaking, G and T are the sums of transactions that take place during one period on the Income Statement/Profit-Loss Accounts, while the buying and selling of government securities are transactions that are recorded on the balance sheet.
G and T are flows, while cash and the amounts of diverse government securities are stocks. The difference of flows Δ=G−T of the government sector changes the stock of money by Δ.
All this has NOTHING to do with the difference between Accrual Basis and Cash Basis Accounting. For the interrelationship between macro flows, their balances, and stocks, see #1, #2. For the basics of National Accounting, see Wikipedia.#3
#1 Essentials of Constructive Heterodoxy: Money, Credit, Interest
#2 Essentials of Constructive Heterodoxy: Financial Markets
#3 Wikipedia “National accounts broadly present output, expenditure, and income activities of the economic actors (households, corporations, government) in an economy, including their relations with other countries’ economies, and their wealth (net worth). They present both flows (measured over a period) and stocks (measured at the end of a period), ensuring that the flows are reconciled with the stocks.”
Related 'MMT: Just political heat, no scientific light' and 'The profit effect of a Job Guarantee'
July 24, 2025
Occasional X: Clueless economists / Money (XXXIV)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) July 24, 2025
“Your federal taxes are incapable of paying for anything because they are recorded and destroyed upon receipt. The Operational Reason Why Federal Taxes are Not Revenue for the Federal Government.” (Real Progressives)
MMT's foundational balances… pic.twitter.com/hBrFbZ8tdS
January 30, 2026
Occasional X: Clueless economists / Money (LXXXVIII)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) January 30, 2026
“… so full of shit — where to start! (Phil Waller)
Phil Waller has no idea how the economy works, in particular, how fiat money works.
Start with the axiomatically correct monetary theory, see
The Dark-Matter Theory of Fiat Money {78a}…
November 20, 2018
MMT and Marxism: A debate between proto-scientific zombies
Comment on Jehu on ‘MMT is right … which (paradoxically) is why it is wrong’
Blog-Reference
Jehu argues: “I approach the core assumptions of MMT from the perspective of Marx’s labor theory of value not from the perspective of bourgeois neoclassical theory.”
Unfortunately, the core assumptions of Marx are also false. Fact is that Marx never understood what profit is. #1 This is what Marxianism, Walrasianism, Keynesianism, Austrianism, and MMT have all in common. #2
From this follows that economics is a failed/fake science and economic debate between the different schools has never been more than brain-dead political blather.
Not only is Marxian profit theory provably false, but also the theory of money: “It is not simply that the fiat no longer expresses the value of commodity, inconvertible fiat expresses the values of all commodities as zero. Since a unit of fiat contains no value, in an exchange it expresses the value of the commodity for which it is exchanged as zero.”
This is plain BS. The value of fiat money is given in the elementary case of the production-consumption economy as P=W/R or W/P=R, i.e, the real wage is equal to the productivity. #3
Jehu, though, comes close to the secret charm of MMT, which boils down to the formula Public Deficit = Private Profit: “Here is the thing: MMT can show how it is possible for the state to use MMT to prop up profits; instead, they choose to lobby support for more abuses by the state. They begin with the argument that if the ‘private sector’ (i.e., the capitalists) choose to save more than they can invest productively, the state is obligated to make this excessive accumulation possible by running deficits and borrowing the excess savings (capital) that can’t be invested profitably. In the long run, private firms could not accumulate more profits than they can invest profitably if the state did not run the deficits (and thus issue interest paying treasury bonds) that make this possible.” And “Not surprisingly, Kelton is now Chief Economist, U.S. Senate Budget Committee, where she is educating dumb congresspersons on the basic facts of modern money theory.” #4
MMT’s policy guidance does NOT promote the cause of WeThePeople but of the Oligarchy.#5 It does NOT matter at all whether deficit-spending/money-creation is caused by military or social spending, the axiomatically correct Profit Law says Public Deficit = Private Profit. It is deficit-spending per se that feeds the Oligarchy.#6 The MMTers' demonstrative care for the unemployed, the environment, the elderly, the sick, and the poor is a fig leaf for pushing Wall Street’s agenda.
Jehu, the retarded Marxist, beats MMT for the wrong reasons, but the beating is justified because MMT is full-blown proto-scientific garbage ― paradoxically ― just like Marxianism.
Egmont Kakarot-Handtke
#1 Profit for Marxists
#2 See cross-references Profit
#3 The creation and value of money and near-monies
#4 The Kelton-Fraud
#5 MMT: Money-making for the one-percenters
#6 How MMT makes everybody happy
200+ years after Smith/Marx, you still do not understand that economics from Smith/Marx up to MMT is proto-scientific garbage, so that’s something.#1
#1 Marx’s bicentennial ― nothing to discuss, nothing to celebrate
You have studied economics and do not know what profit is? You are beyond help. Neither goodness nor I nor anybody else will school you or relieve you of your ignorance.
REPLY to Jehu on Nov 25
You ask: “Wait, wha… I thought money was debt! Is everything debt now?”
The general macroeconomic Profit Law Qm≡Yd+(I−S)+(G−T)+(X−M) boils down to Public Deficit = Private Profit. Loosely speaking, profit is the mirror image of a growing public debt. Politically speaking, MMT’s deficit-spending/money-creation is a program for the permanent self-alimentation of the Oligarchy. #1, #2
Marxists, in their utter stupidit,y have not figured this out in the past 200 years. #3 Ultimately, profit does NOT originate from exploitation but from growing public/private debt. #4, #5
There is no need for “Looking forward to the book PROFIT: The first 5000 Years.” For details of the big picture, see cross-references Profit. #6
Of course, there is a relationship between deficit-spending/money-creation, debt, and money. #7
The first thing Marxists have to realize is that the pivotal concept of exploitation has to be replaced by cross-over exploitation. This, of course, is too much for their two brain cells.
#1 MMT: A free lunch for the Oligarchy
#2 Keynes, Lerner, MMT, Trump. Biden, and exploding profit
#3 Profit for Marxists
#4 Capitalism, poverty, exploitation, and cross-over exploitation
#5 Ricardo and the invention of class war
#6 Cross-references Profit
#7 The creation and value of money and near-monies
Blog-Reference
Jehu argues: “I approach the core assumptions of MMT from the perspective of Marx’s labor theory of value not from the perspective of bourgeois neoclassical theory.”
Unfortunately, the core assumptions of Marx are also false. Fact is that Marx never understood what profit is. #1 This is what Marxianism, Walrasianism, Keynesianism, Austrianism, and MMT have all in common. #2
From this follows that economics is a failed/fake science and economic debate between the different schools has never been more than brain-dead political blather.
Not only is Marxian profit theory provably false, but also the theory of money: “It is not simply that the fiat no longer expresses the value of commodity, inconvertible fiat expresses the values of all commodities as zero. Since a unit of fiat contains no value, in an exchange it expresses the value of the commodity for which it is exchanged as zero.”
This is plain BS. The value of fiat money is given in the elementary case of the production-consumption economy as P=W/R or W/P=R, i.e, the real wage is equal to the productivity. #3
Jehu, though, comes close to the secret charm of MMT, which boils down to the formula Public Deficit = Private Profit: “Here is the thing: MMT can show how it is possible for the state to use MMT to prop up profits; instead, they choose to lobby support for more abuses by the state. They begin with the argument that if the ‘private sector’ (i.e., the capitalists) choose to save more than they can invest productively, the state is obligated to make this excessive accumulation possible by running deficits and borrowing the excess savings (capital) that can’t be invested profitably. In the long run, private firms could not accumulate more profits than they can invest profitably if the state did not run the deficits (and thus issue interest paying treasury bonds) that make this possible.” And “Not surprisingly, Kelton is now Chief Economist, U.S. Senate Budget Committee, where she is educating dumb congresspersons on the basic facts of modern money theory.” #4
MMT’s policy guidance does NOT promote the cause of WeThePeople but of the Oligarchy.#5 It does NOT matter at all whether deficit-spending/money-creation is caused by military or social spending, the axiomatically correct Profit Law says Public Deficit = Private Profit. It is deficit-spending per se that feeds the Oligarchy.#6 The MMTers' demonstrative care for the unemployed, the environment, the elderly, the sick, and the poor is a fig leaf for pushing Wall Street’s agenda.
Jehu, the retarded Marxist, beats MMT for the wrong reasons, but the beating is justified because MMT is full-blown proto-scientific garbage ― paradoxically ― just like Marxianism.
Egmont Kakarot-Handtke
#1 Profit for Marxists
#2 See cross-references Profit
#3 The creation and value of money and near-monies
#4 The Kelton-Fraud
#5 MMT: Money-making for the one-percenters
#6 How MMT makes everybody happy
***
REPLY to Jehu on Nov 21200+ years after Smith/Marx, you still do not understand that economics from Smith/Marx up to MMT is proto-scientific garbage, so that’s something.#1
#1 Marx’s bicentennial ― nothing to discuss, nothing to celebrate
***
REPLY to Jehu on Nov 22You have studied economics and do not know what profit is? You are beyond help. Neither goodness nor I nor anybody else will school you or relieve you of your ignorance.
***
REPLY to Jehu on Nov 25
You ask: “Wait, wha… I thought money was debt! Is everything debt now?”
The general macroeconomic Profit Law Qm≡Yd+(I−S)+(G−T)+(X−M) boils down to Public Deficit = Private Profit. Loosely speaking, profit is the mirror image of a growing public debt. Politically speaking, MMT’s deficit-spending/money-creation is a program for the permanent self-alimentation of the Oligarchy. #1, #2
Marxists, in their utter stupidit,y have not figured this out in the past 200 years. #3 Ultimately, profit does NOT originate from exploitation but from growing public/private debt. #4, #5
There is no need for “Looking forward to the book PROFIT: The first 5000 Years.” For details of the big picture, see cross-references Profit. #6
Of course, there is a relationship between deficit-spending/money-creation, debt, and money. #7
The first thing Marxists have to realize is that the pivotal concept of exploitation has to be replaced by cross-over exploitation. This, of course, is too much for their two brain cells.
#1 MMT: A free lunch for the Oligarchy
#2 Keynes, Lerner, MMT, Trump. Biden, and exploding profit
#3 Profit for Marxists
#4 Capitalism, poverty, exploitation, and cross-over exploitation
#5 Ricardo and the invention of class war
#6 Cross-references Profit
#7 The creation and value of money and near-monies
December 2, 2023
Occasional Xs: The futile attempt to recycle MMT (LVI)
#Econ#MMT
— E.K-H (@AXECorg) December 2, 2023
The crucial point is whether #Money is injected at (i) the supply or (ii) the demand side. In case (ii) it's #CounterfeitCurrency.
The ultimate ― analytical ― origin of moneyhttps://t.co/TdYOJnxRIy
Criminals and the Monetary Orderhttps://t.co/Iq1lVxePy1 pic.twitter.com/WPAgRb9dwD
October 20, 2021
Occasional Tweets: Basically, it is about the takeover of the means of production of curreny
#Economics#BadScienceBadPolicyBadPeople
— E.K-H (@AXECorg) October 20, 2021
The hostile takeover of the means of production of currency goes on.
MMT: The communicative war on budget-balancershttps://t.co/U6wPSDLcpw
Deficit cheerleaders ― the Oligarchy’s useful idiotshttps://t.co/XX5wLu3cSJ
For more about the means of production of curreny see AXECquery.
October 30, 2023
Occasional Xs: How it works (LXXXVII)
The US #Polity is an #Oligarchy with Congress/Treasury/Fed/BigBusiness as integral parts. The #ProfitLaw ⇓ implies #PublicDeficitIsPrivateProfit. With #DeficitSpendingMoneyCreation i.e. growing #PublicDebt they steadily increase their #FinancialWealth. #InEquality is built in. pic.twitter.com/CUzLgvyZlD
— E.K-H (@AXECorg) October 30, 2023
For details of the big picture see cross-references Profit/Distribution.
June 4, 2018
Neoclassics and MMT ― much like pest and cholera
Comment on Lars Syll on ‘From Wicksell to Le Bourva and MMT’
Blog-Reference and Blog-References and Blog-Reference on Jun 5
Compared to neoclassical economics, MMT looks like an improvement. But this is a rather small feat because, compared to the proto-scientific garbage of mainstream economics, almost everything is an improvement. #1
However, after 150+ years of repetition, the critique of neoclassical economics has turned out to be pointless: “… it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)
Does MMT beat the old theory? No! MMT is macrofounded, this is the improvement compared to microfounded Neoclassics, but the macrofoundations are inconsistent. #2 Methodology tells us that if the foundations are false, the whole analytical superstructure is false.
MMT’s strong points are advertised as follows: “… a strong focus on balance sheets as opposed to theoretical models based on assumptions that are necessary for the mathematics to work. There is also a strong consensus that monetary theory is positive, not normative. Further relevant areas of agreement are found with respect to the idea of Chartalism when it comes to the origin and value of money; the endogeneity of money regarding bank creation of deposits; the role of the money market in the economy and the missing link to inflation; the monetary circuit and the link from debt to income; and the effects of deficit spending.” (Ehnts, Barberoux) and “… MMT [is] also updated macroeconomics based on not only the existing monetary systems but also by bringing together previous contributions, notably Wynne Godley’s stock-flow consistent modeling, Abba Lerner’s functional finance, and Hyman Minsky’s financial instability theory and job guarantee proposal.” (Hickey)
The problem is that all these elements do not fit consistently together because the underlying macroeconomic balance sheet mathematics, i.e., the sectoral balances equation, is provably false. #3, #4 From the scientific standpoint, MMT is as inconsistent and worthless as neoclassical economics. The policy guidance of both schools has NO sound scientific foundations.
The two main blunders of MMT are value and distribution theory
Egmont Kakarot-Handtke
#1 Stop beating mainstream economics ― it is long dead
#2 For the full-spectrum refutation of MMT, see cross-references MMT
#3 Keynesians ― terminally stupid or worse?
#4 Rectification of MMT macro accounting
#5 The objective value of money
#6 Austerity and the political games Progressives play
Related 'Poor Wicksell — abused as a testimonial for MMT' and 'Macro imbeciles'.
Immediately following The Third Way: Towards the Happy Zero-Tax economy.
You say: “E.K-H keeps claiming that a public sector deficit benefits the 1% not the 99%. Complete nonsense: if a deficit is targeted on the 99%, then the deficit would benefit the 99%, amazing as that might seem.”
As Marx already told all Flat-earthers and Flat-thinkers: “But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical.”
The point of science is to figure out what appearance is and what reality is.
So let us assume the government creates money and distributes it to the households according to a social criterion. Let the total amount be A, the number of beneficiary households be n, and the amount per household a, then A=na.
In this case, two things happen:
(i) If all beneficiary households spend this money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output under the conditions of market clearing.
(ii) The profit of the business sector increases because of Qm1=C1−Yw in comparison to Qm0=C0−Yw=0, with C1 greater C0. The difference between C1 and C0 is the amount A, i.e., the deficit-spending/money-creation of the government sector.
The real situation of the household sector remains unchanged because the price hike counteracts the nominal demand increase. The situation of the business sector as a whole improves, i.e., monetary profit Qm rises from Qm0=0 to Qm1=A. In other words, Public Deficit = Private Profit.
So, the social measure of the government only redistributes the output O between the ninety-nine-percenters. The real situation of the household sector as a whole does NOT change at all. The whole act is called stealth taxation #1 because the price hike reduces the real quantity, the wage income receivers can buy with their wage income Yw.
So, yes, E.K-H keeps claiming (i) that a public sector deficit benefits the 1% not the 99%, (ii) MMT is a political fraud, and (iii) Ralph Musgrave is a clueless blatherer who does not know how the monetary economy works.
#1 MMT, money creation, stealth taxation, and redistribution
You cite from my answer to Ralph Musgrave: “If all beneficiary households spend this money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output under the conditions of market clearing.” and then go on to claim: “That isn’t always true; the deeper a depression is ― and that will make such a distribution more likely ― the less true it is.”
Note that there are TWO issues here: (i) real and nominal distribution and (ii) employment. My answer to Ralph Musgrave addressed the issue of distribution under the condition of given employment.
This, of course, does not mean that it escaped my attention that there is also a relationship between money-creation/deficit-spending and employment. In fact, I addressed it on multiple occasions. #1, #2
The point is that you are too stupid/lazy to look up with the omnipresent Search Function what I have written about employment/NAIRU/wage-led growth and the whole Neoclassical/Keynesian/MMT garbage that fills the textbooks and blogs. #3
The axiomatically correct employment theory says (i) yes, of course, it is possible to increase employment through money-creation/deficit spending, (ii) it is better economic policy to apply the price-mechanism for this purpose #3 because (iii) deficit-spending causes unintentionally/intentionally the distributional effects that are before everybody’s eyes #4 and produce a lot of hypocritical surprises and communicative hyperventilation.
All these relationships between deficit-spending, employment, and distribution are well-understood, albeit NOT by MMT academics who are either scientifically incompetent or politically corrupt or both.
#1 Full employment through the price mechanism
#2 Full employment, the Phillips Curve, and the end of Gaganomics
#3 For details of the big picture, see cross-references Employment
#4 Keynes, Lerner, MMT, Trump and exploding profit
Blog-Reference and Blog-References and Blog-Reference on Jun 5
Compared to neoclassical economics, MMT looks like an improvement. But this is a rather small feat because, compared to the proto-scientific garbage of mainstream economics, almost everything is an improvement. #1
However, after 150+ years of repetition, the critique of neoclassical economics has turned out to be pointless: “… it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)
Does MMT beat the old theory? No! MMT is macrofounded, this is the improvement compared to microfounded Neoclassics, but the macrofoundations are inconsistent. #2 Methodology tells us that if the foundations are false, the whole analytical superstructure is false.
MMT’s strong points are advertised as follows: “… a strong focus on balance sheets as opposed to theoretical models based on assumptions that are necessary for the mathematics to work. There is also a strong consensus that monetary theory is positive, not normative. Further relevant areas of agreement are found with respect to the idea of Chartalism when it comes to the origin and value of money; the endogeneity of money regarding bank creation of deposits; the role of the money market in the economy and the missing link to inflation; the monetary circuit and the link from debt to income; and the effects of deficit spending.” (Ehnts, Barberoux) and “… MMT [is] also updated macroeconomics based on not only the existing monetary systems but also by bringing together previous contributions, notably Wynne Godley’s stock-flow consistent modeling, Abba Lerner’s functional finance, and Hyman Minsky’s financial instability theory and job guarantee proposal.” (Hickey)
The problem is that all these elements do not fit consistently together because the underlying macroeconomic balance sheet mathematics, i.e., the sectoral balances equation, is provably false. #3, #4 From the scientific standpoint, MMT is as inconsistent and worthless as neoclassical economics. The policy guidance of both schools has NO sound scientific foundations.
The two main blunders of MMT are value and distribution theory
- “In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them.” (Syll) This is simply false, the value of money is independent of taxation. #5
- Because Public Deficit = Private Profit, the money creation/deficit spending in all economic situations, as proposed by MMTers, has detrimental consequences for distribution. MMT policy proposals ultimately amount to agenda pushing for the one-percenters. #6
Egmont Kakarot-Handtke
#1 Stop beating mainstream economics ― it is long dead
#2 For the full-spectrum refutation of MMT, see cross-references MMT
#3 Keynesians ― terminally stupid or worse?
#4 Rectification of MMT macro accounting
#5 The objective value of money
#6 Austerity and the political games Progressives play
Related 'Poor Wicksell — abused as a testimonial for MMT' and 'Macro imbeciles'.
Immediately following The Third Way: Towards the Happy Zero-Tax economy.
***
REPLY to Ralph Musgrave on Jun 5You say: “E.K-H keeps claiming that a public sector deficit benefits the 1% not the 99%. Complete nonsense: if a deficit is targeted on the 99%, then the deficit would benefit the 99%, amazing as that might seem.”
As Marx already told all Flat-earthers and Flat-thinkers: “But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical.”
The point of science is to figure out what appearance is and what reality is.
So let us assume the government creates money and distributes it to the households according to a social criterion. Let the total amount be A, the number of beneficiary households be n, and the amount per household a, then A=na.
In this case, two things happen:
(i) If all beneficiary households spend this money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output under the conditions of market clearing.
(ii) The profit of the business sector increases because of Qm1=C1−Yw in comparison to Qm0=C0−Yw=0, with C1 greater C0. The difference between C1 and C0 is the amount A, i.e., the deficit-spending/money-creation of the government sector.
The real situation of the household sector remains unchanged because the price hike counteracts the nominal demand increase. The situation of the business sector as a whole improves, i.e., monetary profit Qm rises from Qm0=0 to Qm1=A. In other words, Public Deficit = Private Profit.
So, the social measure of the government only redistributes the output O between the ninety-nine-percenters. The real situation of the household sector as a whole does NOT change at all. The whole act is called stealth taxation #1 because the price hike reduces the real quantity, the wage income receivers can buy with their wage income Yw.
So, yes, E.K-H keeps claiming (i) that a public sector deficit benefits the 1% not the 99%, (ii) MMT is a political fraud, and (iii) Ralph Musgrave is a clueless blatherer who does not know how the monetary economy works.
#1 MMT, money creation, stealth taxation, and redistribution
***
REPLY to Calgacus on Jun 6You cite from my answer to Ralph Musgrave: “If all beneficiary households spend this money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output under the conditions of market clearing.” and then go on to claim: “That isn’t always true; the deeper a depression is ― and that will make such a distribution more likely ― the less true it is.”
Note that there are TWO issues here: (i) real and nominal distribution and (ii) employment. My answer to Ralph Musgrave addressed the issue of distribution under the condition of given employment.
This, of course, does not mean that it escaped my attention that there is also a relationship between money-creation/deficit-spending and employment. In fact, I addressed it on multiple occasions. #1, #2
The point is that you are too stupid/lazy to look up with the omnipresent Search Function what I have written about employment/NAIRU/wage-led growth and the whole Neoclassical/Keynesian/MMT garbage that fills the textbooks and blogs. #3
The axiomatically correct employment theory says (i) yes, of course, it is possible to increase employment through money-creation/deficit spending, (ii) it is better economic policy to apply the price-mechanism for this purpose #3 because (iii) deficit-spending causes unintentionally/intentionally the distributional effects that are before everybody’s eyes #4 and produce a lot of hypocritical surprises and communicative hyperventilation.
All these relationships between deficit-spending, employment, and distribution are well-understood, albeit NOT by MMT academics who are either scientifically incompetent or politically corrupt or both.
#1 Full employment through the price mechanism
#2 Full employment, the Phillips Curve, and the end of Gaganomics
#3 For details of the big picture, see cross-references Employment
#4 Keynes, Lerner, MMT, Trump and exploding profit
February 19, 2016
Economists’ perennial trouble with accounting
Comment on Steve Keen on ‘Hey Joe, banks can’t lend out reserves’
Blog-Reference
Steve Keen says: “... the useful stuff accountants know is double-entry bookkeeping. Why don’t economists know this themselves? Today’s economists simply don’t study it ... Economists of Joe’s generation often did learn accounting as undergraduates ... but very few of them ever integrated accounting concepts with their economics.”
Accounting is elementary mathematics, and, true, it is regularly beyond the capacities of economists (2012). Unfortunately, also heterodox economists. This includes Steve Keen.
The matrix is not the best tool to present the accounting interrelationships, so I present my refutation of Keen’s argument in an alternative format under the label Graphic AXEC68.
1. In the beginning, there is only the central bank that creates overdrafts and deposits uno actu out of nothing. Overdrafts stand here for all forms of direct loans to the household or the business sector. The deposits of the central bank are money and are used for transactions between the household and the business sector. Other forms of money are kept out of the picture.
2. The banking sector is now split between the central bank and commercial banks. The central bank creates 10 monetary units (million, billion, trillion, Euro, Dollar, Yuan) of overdrafts and deposits for the commercial banks only.
3. The commercial banks start their lending business and create 100 monetary units of overdrafts and deposits for the business sector. The deposits of the commercial banks are the transaction money used by the business sector to pay wages and by the household sector to buy consumption goods. The ratio of central bank deposits (= reserves) to business overdrafts is here 10 %, i.e., 10/100 units) and it is assumed that this is the maximal ratio. So, the commercial banks have here reached their limit of money creation. It is the central bank’s turn to act.
4. In the course of quantitative easing, the central bank takes over 5 monetary units of business sector overdrafts (= loans) from the commercial banks. The ratio of central bank deposits to business overdrafts is now 15.8 %, i.e., 15/95. So the commercial banks have excess reserves. With regard to the 10 % limit, they need 9.5 units of central bank deposits but have 15.
5. The commercial banks now again take up their lending business and increase overdrafts to the business sector by 55 units. Of course, the same increase takes place on the debit side (= business deposits +55). The ratio of central bank deposits to business overdrafts is now again 10 %, i.e., 15/150).
In a strict sense, it is misleading to say that commercial banks lend out reserves. In an elementary credit economy, the commercial banks create overdrafts and deposits uno actu out of nothing. The reserve ratio is not a practical but a legal limit.
So, literally, it is right to say that commercial banks do not lend out reserves. But it is obvious that between step 4 and step 5, the banks have excess reserves and therefore are in the position to create money in the form of bank deposits for the business and the household sector. Between steps 4 and 5, the credit multiplier is indeed greater than 0. Steve Keen’s conclusion, “Therefore, the $1.4 trillion of excess reserves that QE has created in the USA alone has added precisely $0 to the lending power of banks” is false.
The lending power is there, but of no use if the household and business sectors prefer to deleverage (Koo, 2009).
The real problem of QE is that the central bank takes toxic loans off the commercial/ investment banks' balance sheets and thus protects them from losses.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Koo, R. C. (2009). The Holy Grail of Macroeconomics. Lessons from Japan’s Great Recession. Singapore: Wiley.
Related 'Accounting for dummies' and 'Accounting basics' and 'End of confusion' and 'Either stupid or duplicitous' and 'Unaccountable' and cross-references Accounting
COMMENT on Asad Zaman and John Hermann on Feb 21
The two criteria of science are formal and material consistency (Klant, 1994, p. 31). The latter is established by empirical testing. How important this is for genuine scientists, one may glean from the fact that physicists have built ‘the world’s most expensive and complex experimental facilities to date’ (CERN, Wikipedia) in order to test a hypothesis that was put forth around 1964 by six theoretical physicists.
This vividly contrasts with the silly methodological motto of most economists, i.e., “it is better to be roughly right than precisely wrong!” (Davidson, 1984, p. 574)
The analog to the physicists’ fervor of measurement would be to install a giant facility that records every economic transaction in real-time according to the principles of accounting. This facility then delivers the exact numbers (two digits) of total income per period, consumption expenditures, saving, and so on. And these numbers are the rock-solid foundation of empirical testing.
Curiously, economists have never shown any ambition to build such a facility. Worse, economic theory is not even built upon concepts that correspond with what could actually be produced with such a gigantic bookkeeping machine. Just the contrary, economic theory has been built upon concepts like utility or equilibrium, and it should have been evident from the very start that there is no testable correspondence to these green cheese concepts in the real world. Thus, the scientific failure of economics was methodologically pre-programmed 150 years ago.
What most economists have not realized to this day is that accounting is pivotal to their discipline. Their manifest incompetence consists of not understanding the elementary mathematics that underlies accounting (2012). This is the real mathiness problem.
“Somewhere between the Political Arithmetician, alias the National Income Accountant, and the Financial Analyst, alias the Accountant, lies the task of the quantitative economist’s analytical role and none of the theoretical or applied tasks of these two pragmatic and paradigmatic figures requires anything more than arithmetic, statistics, and the rules of compound interest. These, in turn, require nothing more than an understanding of the conditions under which systems of equations can and cannot be solved. But what kind of quantities do these equations encapsulate as parameters, constants, and variables? Surely, the kind of quantities that enter the equations of the Political Arithmetician and the Accountant cannot be other than rational or natural numbers — negative and non-negative? Eminent theorists, working in core areas of economic theory — price theory and monetary theory — have made this point in interesting ways over the past half a century.” (Velupillai, 2005, pp. 866-867)
To be sure, accounting is not all of economics. But make no mistake, above the entrance to economics as a science is inscribed the phrase: “Let None But Those Who Mastered The Elementary Mathematics of Accounting Enter Here.”
References
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.
Blog-Reference
Steve Keen says: “... the useful stuff accountants know is double-entry bookkeeping. Why don’t economists know this themselves? Today’s economists simply don’t study it ... Economists of Joe’s generation often did learn accounting as undergraduates ... but very few of them ever integrated accounting concepts with their economics.”
Accounting is elementary mathematics, and, true, it is regularly beyond the capacities of economists (2012). Unfortunately, also heterodox economists. This includes Steve Keen.
The matrix is not the best tool to present the accounting interrelationships, so I present my refutation of Keen’s argument in an alternative format under the label Graphic AXEC68.
1. In the beginning, there is only the central bank that creates overdrafts and deposits uno actu out of nothing. Overdrafts stand here for all forms of direct loans to the household or the business sector. The deposits of the central bank are money and are used for transactions between the household and the business sector. Other forms of money are kept out of the picture.
2. The banking sector is now split between the central bank and commercial banks. The central bank creates 10 monetary units (million, billion, trillion, Euro, Dollar, Yuan) of overdrafts and deposits for the commercial banks only.
3. The commercial banks start their lending business and create 100 monetary units of overdrafts and deposits for the business sector. The deposits of the commercial banks are the transaction money used by the business sector to pay wages and by the household sector to buy consumption goods. The ratio of central bank deposits (= reserves) to business overdrafts is here 10 %, i.e., 10/100 units) and it is assumed that this is the maximal ratio. So, the commercial banks have here reached their limit of money creation. It is the central bank’s turn to act.
4. In the course of quantitative easing, the central bank takes over 5 monetary units of business sector overdrafts (= loans) from the commercial banks. The ratio of central bank deposits to business overdrafts is now 15.8 %, i.e., 15/95. So the commercial banks have excess reserves. With regard to the 10 % limit, they need 9.5 units of central bank deposits but have 15.
5. The commercial banks now again take up their lending business and increase overdrafts to the business sector by 55 units. Of course, the same increase takes place on the debit side (= business deposits +55). The ratio of central bank deposits to business overdrafts is now again 10 %, i.e., 15/150).
In a strict sense, it is misleading to say that commercial banks lend out reserves. In an elementary credit economy, the commercial banks create overdrafts and deposits uno actu out of nothing. The reserve ratio is not a practical but a legal limit.
So, literally, it is right to say that commercial banks do not lend out reserves. But it is obvious that between step 4 and step 5, the banks have excess reserves and therefore are in the position to create money in the form of bank deposits for the business and the household sector. Between steps 4 and 5, the credit multiplier is indeed greater than 0. Steve Keen’s conclusion, “Therefore, the $1.4 trillion of excess reserves that QE has created in the USA alone has added precisely $0 to the lending power of banks” is false.
The lending power is there, but of no use if the household and business sectors prefer to deleverage (Koo, 2009).
The real problem of QE is that the central bank takes toxic loans off the commercial/ investment banks' balance sheets and thus protects them from losses.
Egmont Kakarot-Handtke
References
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Koo, R. C. (2009). The Holy Grail of Macroeconomics. Lessons from Japan’s Great Recession. Singapore: Wiley.
Related 'Accounting for dummies' and 'Accounting basics' and 'End of confusion' and 'Either stupid or duplicitous' and 'Unaccountable' and cross-references Accounting
***
COMMENT on Asad Zaman and John Hermann on Feb 21
The two criteria of science are formal and material consistency (Klant, 1994, p. 31). The latter is established by empirical testing. How important this is for genuine scientists, one may glean from the fact that physicists have built ‘the world’s most expensive and complex experimental facilities to date’ (CERN, Wikipedia) in order to test a hypothesis that was put forth around 1964 by six theoretical physicists.
This vividly contrasts with the silly methodological motto of most economists, i.e., “it is better to be roughly right than precisely wrong!” (Davidson, 1984, p. 574)
The analog to the physicists’ fervor of measurement would be to install a giant facility that records every economic transaction in real-time according to the principles of accounting. This facility then delivers the exact numbers (two digits) of total income per period, consumption expenditures, saving, and so on. And these numbers are the rock-solid foundation of empirical testing.
Curiously, economists have never shown any ambition to build such a facility. Worse, economic theory is not even built upon concepts that correspond with what could actually be produced with such a gigantic bookkeeping machine. Just the contrary, economic theory has been built upon concepts like utility or equilibrium, and it should have been evident from the very start that there is no testable correspondence to these green cheese concepts in the real world. Thus, the scientific failure of economics was methodologically pre-programmed 150 years ago.
What most economists have not realized to this day is that accounting is pivotal to their discipline. Their manifest incompetence consists of not understanding the elementary mathematics that underlies accounting (2012). This is the real mathiness problem.
“Somewhere between the Political Arithmetician, alias the National Income Accountant, and the Financial Analyst, alias the Accountant, lies the task of the quantitative economist’s analytical role and none of the theoretical or applied tasks of these two pragmatic and paradigmatic figures requires anything more than arithmetic, statistics, and the rules of compound interest. These, in turn, require nothing more than an understanding of the conditions under which systems of equations can and cannot be solved. But what kind of quantities do these equations encapsulate as parameters, constants, and variables? Surely, the kind of quantities that enter the equations of the Political Arithmetician and the Accountant cannot be other than rational or natural numbers — negative and non-negative? Eminent theorists, working in core areas of economic theory — price theory and monetary theory — have made this point in interesting ways over the past half a century.” (Velupillai, 2005, pp. 866-867)
To be sure, accounting is not all of economics. But make no mistake, above the entrance to economics as a science is inscribed the phrase: “Let None But Those Who Mastered The Elementary Mathematics of Accounting Enter Here.”
References
Davidson, P. (1984). Reviving Keynes’s Revolution. Journal of Post Keynesian Economics, 6(4): 561–575. URL
Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415: 1–23. URL
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield: Edward Elgar.
Velupillai, K. (2005). The Unreasonable Ineffectiveness of Mathematics in Economics. Cambridge Journal of Economics, 29: 849–872.
January 14, 2026
Occasional X: Clueless economists / Money (LXXXII)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) January 14, 2026
The problem is not so much the 'Political Pressure on the Fed' (Thomas Drechsel) but that economic theory in general, and monetary theory in particular, is provably false.
For the consistent theory, see the working paper
The Dark-Matter Theory of…
August 7, 2017
Inflation: back to basics
Comment on David Andolfatto on ‘A monetary-fiscal theory of inflation’
Blog-Reference and Blog-Reference on Aug 8
David Andolfatto argues from a sophisticated model: “In my formal model, I have a parameter that indexes the growth rate in the demand for real money/bond balances (where money and bonds take the form of USDs and USTs, respectively). In the open-economy version of my model, I have a ‘money demand growth regime’ originating from the foreign sector. In the model, this regime translates into persistent U.S. trade deficits, representing the foreign sector's desire to acquire USD/UST at an elevated pace.”
Basically, in this model, deflation/inflation is driven by what happens on the UST market. This is in line with the commonplace Quantity Theory, which holds that a smaller or broader composite called ‘quantity of money’ determines the price level.
Now, it is well-known that the familiar models, which are either from the Walrasian type (= microfoundations) or the Keynesian type (= macrofoundations), are axiomatically false. Because of this, monetary theory has to be based upon entirely new macrofoundations. #1
In order to go back to the basics, the elementary production-consumption economy is, for a start, clearly defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (profit/loss Qm≡C−Yw, saving/dissaving Sm≡Yw−C). #2
Money is needed by the business sector to pay the workers who receive the wage income Yw per period. The workers spend C per period. Given the two conditions, the market-clearing price is derived for a start as P=C/X=W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. From this follows the average stock of transaction money as M=κYw, with k determined by the payment pattern. In other words, the quantity of money M is determined by the AUTONOMOUS transactions of the household and business sector and created out of nothing by the central bank. The economy never runs out of money if the Central Bank does a good job.
The transaction formula reads M=κ sup(1, ρE) PX= κ (sup(1, ρE) RL) P, with the ratio ρE defined as C/Yw, and this yields the commonplace correlation between the quantity of money M and price P, except for the fact that M is the DEPENDENT variable.
The market-clearing price is given in the general case with the price formula, a.k.a. Law of Supply and Demand
An expenditure ratio ρE greater than 1 indicates credit expansion = dissaving, a ratio ρE less than 1 indicates credit contraction = saving. In the initial period ρE = 1, i.e., the household sector’s budget is balanced. The ratio ρE establishes the link between the product market and the money/capital market.
Now we have deficit spending, i.e., ρE greater than 1, which yields a price hike. If deficit spending is repeated period after period, the price remains on the elevated level, but there is NO inflation. No matter how long the household sector’s debt increases, there is NO accelerated price increase.
The price formula makes it clear that inflation only occurs if the wage rate W increases in successive periods faster than productivity R. This can happen at ANY employment level. It is NOT a precondition that employment is close to the capacity limit. This is merely a false interpretation of the Phillips Curve.
The current deflationary trend is caused by the fact that (worldwide) wages lag behind productivity growth. To turn this trend around, it does not matter much what happens on the market for UST, what matters is that governments/central banks engineer a coordinated worldwide increase of the average wage rate.
Egmont Kakarot-Handtke
#1 First Lecture in New Economic Thinking
#2 For the detailed description, see How the intelligent non-economist can refute every economist hands down
Related 'Essentials of Constructive Heterodoxy: Money, Credit, Interest' and 'Essentials of Constructive Heterodoxy: Financial Markets' and 'Forget Friedman, forget the Quantity Theory' and 'Gov-Deficits do NOT cause inflation' and 'Links on Inflation' and 'A la recherche de l'inflation perdue' and 'Going beyond No-Idea economics' and 'Putting economic policy on scientific foundations'
Blog-Reference and Blog-Reference on Aug 8
David Andolfatto argues from a sophisticated model: “In my formal model, I have a parameter that indexes the growth rate in the demand for real money/bond balances (where money and bonds take the form of USDs and USTs, respectively). In the open-economy version of my model, I have a ‘money demand growth regime’ originating from the foreign sector. In the model, this regime translates into persistent U.S. trade deficits, representing the foreign sector's desire to acquire USD/UST at an elevated pace.”
Basically, in this model, deflation/inflation is driven by what happens on the UST market. This is in line with the commonplace Quantity Theory, which holds that a smaller or broader composite called ‘quantity of money’ determines the price level.
Now, it is well-known that the familiar models, which are either from the Walrasian type (= microfoundations) or the Keynesian type (= macrofoundations), are axiomatically false. Because of this, monetary theory has to be based upon entirely new macrofoundations. #1
In order to go back to the basics, the elementary production-consumption economy is, for a start, clearly defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (profit/loss Qm≡C−Yw, saving/dissaving Sm≡Yw−C). #2
Money is needed by the business sector to pay the workers who receive the wage income Yw per period. The workers spend C per period. Given the two conditions, the market-clearing price is derived for a start as P=C/X=W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. From this follows the average stock of transaction money as M=κYw, with k determined by the payment pattern. In other words, the quantity of money M is determined by the AUTONOMOUS transactions of the household and business sector and created out of nothing by the central bank. The economy never runs out of money if the Central Bank does a good job.
The transaction formula reads M=κ sup(1, ρE) PX= κ (sup(1, ρE) RL) P, with the ratio ρE defined as C/Yw, and this yields the commonplace correlation between the quantity of money M and price P, except for the fact that M is the DEPENDENT variable.
The market-clearing price is given in the general case with the price formula, a.k.a. Law of Supply and Demand
Now we have deficit spending, i.e., ρE greater than 1, which yields a price hike. If deficit spending is repeated period after period, the price remains on the elevated level, but there is NO inflation. No matter how long the household sector’s debt increases, there is NO accelerated price increase.
The price formula makes it clear that inflation only occurs if the wage rate W increases in successive periods faster than productivity R. This can happen at ANY employment level. It is NOT a precondition that employment is close to the capacity limit. This is merely a false interpretation of the Phillips Curve.
The current deflationary trend is caused by the fact that (worldwide) wages lag behind productivity growth. To turn this trend around, it does not matter much what happens on the market for UST, what matters is that governments/central banks engineer a coordinated worldwide increase of the average wage rate.
Egmont Kakarot-Handtke
#1 First Lecture in New Economic Thinking
#2 For the detailed description, see How the intelligent non-economist can refute every economist hands down
Related 'Essentials of Constructive Heterodoxy: Money, Credit, Interest' and 'Essentials of Constructive Heterodoxy: Financial Markets' and 'Forget Friedman, forget the Quantity Theory' and 'Gov-Deficits do NOT cause inflation' and 'Links on Inflation' and 'A la recherche de l'inflation perdue' and 'Going beyond No-Idea economics' and 'Putting economic policy on scientific foundations'
August 3, 2025
Occasional X: Clueless economists / Money (XXXIX)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) August 3, 2025
Economics claims to be a science, but it is not. The major approaches (Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives) are mutually contradictory & axiomatically false & materially/formally inconsistent & ALL got #Profit…
March 4, 2025
Occasional X: Clueless economists / Inflation (XLIV)
#Economics#AllYouNeedToKnow
— AXEC (@EgmontHandtke) March 4, 2025
The axiomatically correct macroeconomic Law of Supply and Demand ⇓ tells one how ― in the elementary case ― the avg price P moves under the condition of market clearing as a function of avg wage rate W, inverse avg productivity R, and… pic.twitter.com/JoCiSW6RV7
August 30, 2018
Secret Champagne for the MMT gods
Comment on Michael Norman on ‘Deficit is the highest in 6 years. Where are all the MMT gods??’
Blog-Reference
Michael Norman wonders: “The deficit is now $766 bln, the highest in 6 years and the highest in 5 years as a % of GDP. Where are all the MMT gods touting this as bullish? Mosler’s still bearish. He’s been bearish for 4 years. Missed the entire rally. Kelton? Still criticizing Trump.”
The embarrassment is this: MMT is about deficit-spending/money-creation. Deficit-spending/money-creation is money-making for the Oligarchy. The macroeconomic Profit Law clearly implies Public Deficit = Private Profit.
This, however, is an economic policy that cannot be sold to the people. So, the MMT gods developed a smart communication strategy:
In brief, MMTers sell deficit-spending/money-creation as a social benefit, with Stephanie Kelton as the pepped-up Mother Theresa of Late Capitalism.#3
Now, as it happens, Mr. Trump has realized the highest public deficit in 6 years. Michael Norman of Wall Street is very excited about this, and rightly so. Mr. Trump is the straightforward implementer of MMT.#4 The embarrassment of the MMT gods consists of the obvious PR disaster that Mr. Trump did not care to put on the social fig leaf which is of overriding importance for the political credibility of MMTers.#5
But, in business and politics, only success counts. While Wall Street’s MMTer Michael Norman can openly rejoice,#6 the academic MMT gods click glasses with Mr. Trump behind closed doors, with Stephanie Kelton chiding Mr. Trump for unthinkingly busting the social cover of the MMT deficit-spenders/money-creators.
Egmont Kakarot-Handtke
#1 MMT and the magical profit disappearance
#2 For details of the big picture see cross-references MMT
#3 The Kelton-Fraud
#4 Keynes, Lerner, MMT, Trump, etc. and exploding profit
#5 MMT and grassroots movements
#6 “… at Mike Norman Economics we look at FLOWS. It gave us the bullish signal a long time ago.”
Related 'Why the British Labor Party should NOT adopt MMT' and 'MMT-Progressives: stupid or corrupt or both?' and 'MMT: If you’ve got a problem, I don’t care what it is, let me help' and 'MMT works just fine (for the Oligarchy)' and 'The memorable Kelton/Trump victory against WeThePeople'.
You say: “Ah yes now we have the ‘neo-neoliberal conspiracy!!!’”
No conspiracy, merely the peaceful pluralism of scientific incompetence and political corruption:
Blog-Reference
Michael Norman wonders: “The deficit is now $766 bln, the highest in 6 years and the highest in 5 years as a % of GDP. Where are all the MMT gods touting this as bullish? Mosler’s still bearish. He’s been bearish for 4 years. Missed the entire rally. Kelton? Still criticizing Trump.”
The embarrassment is this: MMT is about deficit-spending/money-creation. Deficit-spending/money-creation is money-making for the Oligarchy. The macroeconomic Profit Law clearly implies Public Deficit = Private Profit.
This, however, is an economic policy that cannot be sold to the people. So, the MMT gods developed a smart communication strategy:
- They made the profit effect disappear in their monetary theory with the help of a false sectoral balances equation.#1
- They put potential positive employment effects of deficit spending in the foreground.
- They tell people that public debt is not really debt but private savings.#2
- They tell people that debt does not really matter but is only some digits on an account.
- They tell people that budget-balancers are either retarded Swabian housewives or Neoliberal austerity sadists.
In brief, MMTers sell deficit-spending/money-creation as a social benefit, with Stephanie Kelton as the pepped-up Mother Theresa of Late Capitalism.#3
Now, as it happens, Mr. Trump has realized the highest public deficit in 6 years. Michael Norman of Wall Street is very excited about this, and rightly so. Mr. Trump is the straightforward implementer of MMT.#4 The embarrassment of the MMT gods consists of the obvious PR disaster that Mr. Trump did not care to put on the social fig leaf which is of overriding importance for the political credibility of MMTers.#5
But, in business and politics, only success counts. While Wall Street’s MMTer Michael Norman can openly rejoice,#6 the academic MMT gods click glasses with Mr. Trump behind closed doors, with Stephanie Kelton chiding Mr. Trump for unthinkingly busting the social cover of the MMT deficit-spenders/money-creators.
Egmont Kakarot-Handtke
#1 MMT and the magical profit disappearance
#2 For details of the big picture see cross-references MMT
#3 The Kelton-Fraud
#4 Keynes, Lerner, MMT, Trump, etc. and exploding profit
#5 MMT and grassroots movements
#6 “… at Mike Norman Economics we look at FLOWS. It gave us the bullish signal a long time ago.”
Related 'Why the British Labor Party should NOT adopt MMT' and 'MMT-Progressives: stupid or corrupt or both?' and 'MMT: If you’ve got a problem, I don’t care what it is, let me help' and 'MMT works just fine (for the Oligarchy)' and 'The memorable Kelton/Trump victory against WeThePeople'.
***
REPLY to Matt Franko on Aug 31You say: “Ah yes now we have the ‘neo-neoliberal conspiracy!!!’”
No conspiracy, merely the peaceful pluralism of scientific incompetence and political corruption:
- MMT: The one deadly error/fraud of Warren Mosler
- Down with idiocy!
- MMT is idiocy and fraud
- Cryptoeconomics ― the best of Bill Mitchell’s spam folder
- How Bill Mitchell stalks Jeremy Corbyn
***
Mike Norman Economics Sep 9
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