It has taken nearly seven years, but the time has finally arrived for the introduction of a playpen. This is an area for irrelevant, nonsensical, unwelcome comments that may initially have appeared elsewhere but have now been moved to this thread to reduce clutter in the rest of the blog.

Unfortunately, responses to the moved comments may also end up here, not because the responses are irrelevant or nonsensical or unwelcome (to the contrary, the willingness of these commenters to engage is admirable) but to place them in a context where their purpose can be understood.

If a commenter wants one or more of his or her comments removed from this thread, just indicate in the comments section and the comment(s) will be removed along with the request. The playpen itself could be removed if, at some point in the future, its reason for existence no longer applies.

This playpen has been introduced reluctantly to prevent the blog from being overrun by nonsense. Engaging with the nonsense just provokes more nonsense. Not engaging with it can be confusing for newer readers.

Thanks for everyone’s patience.

Normal transmission will resume shortly.


28 thoughts on “Playpen

  1. The magic circuit and how economists got it wrong
    Comment on heteconomist on ‘The Monetary Circuit & Compatibility of Marx, Kalecki and Keynesian Macro’

    Heteconomist says: “There appears to be a considerable degree of compatibility between Marx and various Kalecki- and Keynes-influenced approaches to macroeconomics.” (See intro)

    The compatibility consists in the fact that all these approaches are provable false. In other words, until this day neither orthodox nor heterodox economists have manged to give a formally consistent description of the monetary circuit. The blatant incompetence of economists is the ultimate reason of why economics is a failed science.

    The current state of economics is that the four main approaches Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory and axiomatically false.

    For the short refutation of Kalecki, Keynes, Minsky and Keen see ‘Heterodoxy, too, is scientific junk’#1 The complete formal proofs are given in separate papers.#2

    Debunking is necessary but insufficient. As Blaug put it: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” What is needed is to move on from falsified approaches to the materially and formally correct theory. In methodology this is called a paradigm shift.#3 The opus magnum consists in replacing false Walrasian microfoundations and false Keynesian/Marxian macrofoundations by entirely new macrofoundations.#4 Nothing less will do.

    The true theory does not emerge from a mixing of failed approaches. The true theory satisfies the well-defined criteria of material and formal consistency. What heteconomist offers is as inconsistent as one can get.

    Both, Orthodoxy and Heterodoxy never came to grips with science, with the pivotal concept of profit, and with the working of the monetary circuit we happen to live in.

    Egmont Kakarot-Handtke

    #1 Link to post
    #2 See ‘Profit for Marxists’
    and ‘Debunking Squared’
    #3 See ‘The Emergence of Profit and Interest in the Monetary Circuit’
    #4 See ‘From Orthodoxy to Heterodoxy to Sysdoxy’

  2. peterc

    You write “Hi Magpie. Kalecki is starting from accounting identities. In particular, in the simplest model:
    Income = Wages + Gross Profit
    Income = Consumption + Gross
    Investment Proceeds = Prime Cost + Wages + Gross Profit.”

    Note that the first equation, i.e. Income = Wages + Gross Profit, is already false. For the proof see (2011; 2012; 2014)

    Egmont Kakarot-Handtke

    Kakarot-Handtke, E. (2011). What is WrongWith Heterodox Economics? Kalecki’s Profit Theory as an Example. SSRN Working Paper Series, 1845803: 1–9. 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
    Kakarot-Handtke, E. (2014). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL

  3. Egmont, you appear to be denying that retained earnings are part of income, and claiming that this means (to paraphrase) all economists since Adam Smith are wrong … etc. Is it that you think only households receive income, and not firms? You can start from your own definitions, but this doesn’t really seem to have much bearing on anything.

    For example, on p. 6 of your 2011 paper on Kalecki, you write:

    Total income consists in the most elementary case of wage income and *distributed profits*. Profit and distributed profit is not the same thing. (emphasis in the original)

    Kalecki did not share the same starting position. For Kalecki:

    The *income* of capitalists or gross profits includes depreciation and undistributed profits, dividends and withdrawals from unincorporated business, rent and interest. (Kalecki, 1954, Theory of Economic Dynamics, p.45, Routledge Library Edition, (first page of chapter 3) (emphasis added)

    Clearly, Kalecki does distinguish between distributed and undistributed profit, despite your statement, also on p. 6:

    While it is straightforward to generalize Kalecki’s restrictive assumptions it has to be stressed that his definition of national income is unacceptable because it does not take into account the fundamental difference between profit and distributed profit.

    In Kalecki’s identity for a pure private closed economy, Profit equals Capitalist Consumption plus Investment minus Worker Saving. In this identity, profit includes retained earnings, as the above passage from Kalecki makes clear.

  4. peterc

    You compare Marx, Kalecki, and Keynes. The first thing a logically talented person notes is that the three authors use different definitions of profit and income. Now, a logically talented person knows (i) only one approach can be true, or (ii), all are false. This is known since more than 2000 years: “There are always many different opinions and conventions concerning any one problem or subject-matter …. This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides … was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion … on the other.” (Popper, 1994)

    The intellectual Lumpenproletariat has no problem with scrambling an arbitrary number of contradictions in their confused brains but for a scientist this is unacceptable: “[economists] pursue the consistency of the theories they make, for he who contradicts himself proves nothing.” (Klant, 1988)

    Because the definitions of income and profit of Marx, Kalecki, Keynes are inconsistent these three authors prove NOTHING. You can find the proof of inconsistency elsewhere.#1 From this proof follows that the widely used definition Income = Wages + Profits is false. And since Kalecki starts with this definition he, too, is false and his whole analytical superstructure falls apart. It is as simple as that.

    You say: “You can start from your own definitions, but this doesn’t really have a bearing on Kalecki, who did not share the same starting position.”

    It is a widespread self-delusion among the intellectual Lumpenproletariat that everybody is entitled to make his own definitions. This is NOT the case.#2 It should be pretty obvious that all physicists apply the SAME definitions of energy, work, velocity, potential/kinetic energy etcetera and that these fundamental concepts are CONSISTENTLY defined. And this explains why physics is a success while economics never rose above the level of incoherent blather.#3

    What is known since 2000+ years ― except to economists ― is: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen, 2009)

    So what has to be done instead of comparing the rubbish of Marx, Kalecki, Keynes is to move from their false macrofoundations to entirely new and CONSISTENT macrofoundations.

    Egmont Kakarot-Handtke

    #1 For example in ‘Debunking Squared’
    #2 See ‘Humpty Dumpty is back again’
    #3 See ‘Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist’

  5. A crash course in macro accounting
    Comment on Peter Cooper on ‘Fiscal Policy, Sectoral Balances and Financial Sustainability’

    You say: “PRIVATE Balance + GOVT Balance + FOREIGN Balance = 0” and “This is an accounting identity, which means it always holds true.”

    This is NOT the case because you messed up the elementary mathematics of accounting.#1 In order to see this one has to go back to the MOST ELEMENTARY economic configuration, that is, the pure consumption economy which consists only of the household and the business sector.#2

    In this elementary economy three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

    In case (i) the monetary saving of the household sector Sm=Yw-C is zero and the monetary profit of the business sector Qm=C-Yw, too, is zero.
    In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative.
    In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.

    It always holds Qm+Sm=0 or Qm=-Sm, in other words, at the heart of national income accounting is an identity — the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.

    The balances of the business sector, the household sector, the government sector and the rest of the world are interrelated as follows: Qm≡-Sm+Yd+I+(G-T)+(X-M), and THIS is the correct accounting identity for an open economy (X-M) with a government sector (G-T) and with business investment I and distributed profit Yd.

    Your accounting blunder consist in lumping together the business sector and the household sector. This makes the crucial relation between profit, distributed profit, saving and investment invisible#3 which amounts to an intended/unintended destruction of valuable information which in turn is contrary to the very purpose of accounting.

    Egmont Kakarot-Handtke

    #1 See ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach’

    #2 (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. For a start it holds X=O. Note that ALL variables are measurable. C and Yw appear in National Accounting.

    #3 See also ‘How Keynes got macro wrong and Allais got it right’

  6. You say: “Therefore it makes perfect sense to sum businesses and households as the ‘private sector’ who hold these tax credits.”

    It makes a real difference whether what you call tax credits is held by the households or by the firms. By lumping both together in what Peter Cooper calls private sector this difference is made invisible.*

    If this is done unintentionally it is sheer scientific incompetence, if this is done intentionally it is what people call cooking the books. If one not committed to science, though, it is merely brain-dead blather.

    Egmont Kakarot-Handtke

    * For the political implications see ‘Austerity and the idiocy of political economists’

  7. Peter Cooper argues: “For the economy to grow in a financially sustainable way, the private sector should normally be allowed to maintain a financial surplus (spending less than its income). For many countries (the majority with current account deficits), this means government needs to spend more than it taxes under normal circumstances.”

    Because ‘spending less than income’ is the definition of saving the condensed form of the argument reads: because the households should be allowed to save the government must dissave, because from accounting follows with mathematical certainty that for any surplus there must be a deficit of equal magnitude somewhere else in the economy.

    The problem with this argument is that economists in general and Peter Cooper in particular do not understand the elementary mathematics of accounting.

    The balances of the business sector, the household sector, the government sector and the rest of the world are interrelated as follows: Qm≡-Sm+I+Yd+(G-T)+(X-M). This boils down to Qm≡-Sm+(G-T) for I, Yd, X, M = 0.

    So, there are two limiting cases: (i) If the household sector’s saving Sm goes up and the government’s deficit (G-T) goes up by the same amount the profit of the business sector Qm remains unchanged. (ii) If the household sector’s saving Sm remains unchanged and the government’s deficit (G-T) goes up the profit of the business sector Qm goes up by the same amount.

    So, the counterpart of an increased public deficit is either increased saving of the households or increased profits of the firms or some combination of the two. Therefore, to say that the counterpart of an increased public deficit is an increased surplus of the “private sector” obscures important real world differences.

    Worse. In the past decades the US households increased their debt, that is, they were dissaving. So, BOTH the private and public households ran deficits. From the formula above follows that this boosts profit Qm TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

    So, by arguing for goverment deficits because the “private sector should normally be allowed to maintain a financial surplus” Peter Cooper is de facto arguing for profit increases of the business sector.#1 He obscures this fact by lumping together the business sector and the household sector to the “private sector”.#2

    Egmont Kakarot-Handtke

    #1 See also ‘Keynesianism as ultimate profit machine’

    #2 See also ‘Where MMT got macro wrong’

  8. You say: “So, to me, you are all on the same page, but with different concepts.” You are simply ill-informed. The formal foundations of MMT are logically defective and because of this MMT policy guidance has NO sound scientific foundations. For more details see these comments:

    Macrofounded labor market theory

    Economics is NOT about Human Nature but the economic system

    Where MMT got macro wrong

    Rectification and generalization of MMT

    Economics as poultry entrails reading

    Rethinking MMT

    Hobson got full employment policy almost right

    How to start off at the right foot

    Australian upside-down economics

    Modern moronomic theory

    Egmont Kakarot-Handtke

  9. You say: “you have asked me to move logically from the sectoral balances framework to your own, but I can see no reason to do so?”

    There is obviously a gross misunderstanding on your side.

    The purpose of my post is to inform Peter Cooper that the accounting identity he starts with is defective and that, by consequence, the rest of his intro is garbage.

    The purpose of my post is NOT to educate [name removed]. And if you “can see no reason” to think logically then simply do not. There is NO need to tell me.

    Peter Cooper’s accounting identity is mathematically false. Whether you understand this or not is a matter of indifference.

    Egmont Kakarot-Handtke

  10. Peter Cooper

    Marx’s law of the Tendency of the Rate of Profit to Fall suffers from the fact that Marx did not grasp what profit is.#1,#2 After-Marxians never corrected this lethal error/mistake.#3 In order to define the profit rate one needs the correct concept of profit and the correct concept of capital.#4 Marx had neither.

    Egmont Kakarot-Handtke

    #1 See ‘Profit for Marxists’

    #2 See ‘Profit theory in less than 5 minutes’

    #3 See ‘The magic circuit and how economists got it wrong’

    #4 See ‘Squaring the Investment Cycle’

  11. What Cooper means is the capitalist definition of profit and their definition of capital. All of which is capitalist bs.

  12. @Egmont

    Was reading some of your material. Seems your formulas are proving what I have discovered – its not mathematically possible for every entity (which is capable of becoming bankrupt) to be solvent all at the same time.

    We sometimes play monopoly at home where we get one player (the custodian) who controls one of the properties but does not own it. Because they control that property they also prevent a monopoly.of that group. This player never gets any money nor pays any out, they just roll the dice and move around for the fun of it. At the end of the game there is still always one winner. But then we ask, well who came second and its always the custodian because they still have a place to live.

  13. Dean

    Peter Copper asserts: “The accounting identities are indisputable (provided we accept the principles of accounting).”

    Fact is
    ― accounting is elementary mathematics,
    ― MMTers do not understand the underlying math of accounting,#1
    ― the accounting equations of MMT are provably false,#2
    ― these are the correct accounting identities:

    Qm≡C+G-Yw profit Qm, business sector
    Sm≡Yw-T-C saving Sm, household sector
    Bm≡T-G budget surplus Bm, government sector

    ― for THREE sectors, proper accounting yields THREE sectoral balances which add up to zero,
    ― it is either mathematical incompetence or fraud that profit does not appear in the MMT accounting identities,
    ― Peter Cooper violates the principles of accounting.

    Take away: As far as Peter Copper only parrots Bill Mitchell and Randall Wray the charge of scientific incompetence applies to these spokespersons of MMT.#3

    Egmont Kakarot-Handtke

    #1 A tale of three accountants

    #2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

    #3 For the full-spectrum debunking of MMT see cross-references

  14. Yeah, Im not arguing with anyone on the underlying math of accounting…all I really care about is proving to those that matter that its not mathematically possible for everyone to be solvent and you have demonstrated this along with a few others (proudhon and collingwood to name a couple).

  15. Dean

    You say: “Yeah, I’m not arguing with anyone on the underlying math of accounting…all I really care about is proving to those that matter that its not mathematically possible for everyone to be solvent …”

    There are opinion and brain-dead blather. This is called politics. There are knowledge and proof. This is called science.

    MMT belongs to the first category. Peter Cooper’s discussion about the sectoral balance identity demonstrates beyond any doubt that MMT is economics from suckers for suckers.

    Note that you contradict yourself in one sentence. You care about proof but not about the underlying mathematics of accounting. What does your proof, then, consist in?

    Egmont Kakarot-Handtke

  16. “What does your proof, then, consist in?”

    Your formula…business sector profit = household dissaving…you proved it for me.


  17. Hi all

    Earlier I commented on some material Egmont had linked to. It motivated me to write a piece on 100% solvency and if it was possible. Even though Egmont’s formula ‘business profits = household dissaving’ would be proof of this fact, it is obvious to me formulas are not enough. Strangely enough a friend of mine (who is following a similar cause to me) came round for a visit and when I brought up this subject he himself had to admit that he never ever considered the question and as such was unable to reconcile in his mind why 100% solvency was not possible. To add to this, when I suggested that ‘exchange’ itself is over-croweded, i.e. there is an inherent cost in exchange which exchange itself cannot meet, he also found he could not reconcile it. I tried to explain to him that the two are linked. Because exchange itself is based on competition, then its not possible for everyone to be winning (winning means being solvent – losing means being insolvent) all at the same time, therefore 100% solvency is not possible.

    I wrote this piece in an attempt to explain why 100% solvency is not possible if we ‘all’ continue to treat human needs as commodities.

    I purposely ask for any demonstration as to why I am wrong. Can anyone show that 100% solvency is possible whilst we ‘all’ continue to treat human needs as commodities?


  18. MMT’s two shots in the head
    Comment on Peter Cooper on ‘Short & Simple 17 ― A Notion of Macroeconomic Equilibrium’

    MMT claims to be a new paradigm. It is NOT. A paradigm is defined by its foundational propositions and paradigm shift means, in methodological terms, to change the axiomatic foundations. Applied to economics, this requires to throw the provably false Walrasian microfoundations and the false Keynesian macrofoundations out of the window and to replace them with an entirely new axiom set.

    MMT is NOT a new paradigm because it merely recombines Walrasian and Keynesian axioms that are known to be false.

    (1) Walrasian Orthodoxy is defined by these axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

    The Walrasian hard core contains THREE NONENTITIES ― (HC2), (HC4), (HC5). To take equilibrium into the premises and then to establish the properties of general equilibrium is a methodological blunder that is known since antiquity as petitio principii.#1

    Because equilibrium is a NONENTITY, all equilibrium models fly out of the window ― including MMT. There is NO such thing as a macroeconomic equilibrium.

    (2) Keynesianism, too, is built upon false premises. The formal core of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment.” (p. 63)

    Keynes’s lethal blunder is in the premise Income = value of output. The same blunder reappears in the textbooks since 1948: “GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP.” (Samuelson et al.) And finally, this blunder reappears in MMT: “Total Output = Total Spending.”#2, #3

    Because the premises of MMT are false the WHOLE analytical superstructure is false, which means that MMT policy proposals have no sound scientific foundations. The proponents of MMT ― Cooper, Hickey, Mosler, Wray, Mitchell, Fulwiller, Kelton, Forstater, and so on ― are scientifically incompetent. MMT is soap box economics.#4

    Egmont Kakarot-Handtke

    #1 There is NO such thing as supply-demand-equilibrium

    Essentials of Constructive Heterodoxy: The Market

    Ground Control to David Glasner

    Petitio principii — economists’ biggest methodological mistake

    Why you should NEVER use supply-demand-equilibrium

    Traditional Heterodoxy’s paradigmatic impotence

    All models are false because all economists are stupid

    The Law of Supply and Demand: Here It Is Finally

    How to Get Rid of Supply-Demand-Equilibrium

    #2 Peter Cooper, Short & Simple 17

    #3 For the full-spectrum refutation of MMT see cross-references

    #4 MMT is NOT an alternative to neoliberalism

  19. #4 MMT is NOT an alternative to neoliberalism.

    I would like to comment on this because it seems based on all the blogs I have visited in recent times, that this topic is at the heart of most of them, i.e. trying to find an alternative to neoliberalism.

    Is it not true that what neoliberalists want is free-markets and yet at the same time for the State to make laws to protect the fruits of their bargains?
    Is it not also true that those who are trying to find an alternative to neoliberalism want the fruits of competition and bargaining (i.e. money), without the competition and bargaining?
    Is it not true then that both sides, and all in between, are being a little contradictory here?

    One cannot take any resource, be it land, labour, or something created out of land/labour, and treat it as a commodity and at the same time not have both ‘markets’ and ‘state made laws’. If you don’t have a government and laws, how would you protect your commodity (with your own army???). If you don’t have a market, then how on earth are you going to profit from your commodity?

    There is no alternative to neoliberalism if you want to treat all resources as commodities because the very act of treating any resource as a commodity requires competition. Competition is the only means by which to create wealth because wealth is a right, and rights must have corresponding duties. What one ‘owns’, another must ‘owe’. This is the way the ‘law’ describes wealth. It matters not how others describe it.

    The only alternative to neoliberalism, which leaves neoliberalism where it is, is not to change capitalism at all, but to stop forcing everyone into it. Socialism is in fact forcing everyone through the capitalism door whether they want to or not. Socialism thinks it is re-distributing wealth, it is not, all it is doing is sucking more and more people down the rabbit hole and forcing them to treat everything as a commodity. All that happens is that the lower classes and the less able (at being good business people) get to touch money for a moment before it makes its way back into the hands of the upper classes and more able, leaving those down below gasping for more.

    When I studied the MABO cases, I could not help but feel that preventing Aborigines from being able to treat their land as fee-simple (as a commodity) would be the best thing for them. Aborigines, prior to white man, had absolutely no concept of wealth, money, and legal exchange. All it would take is for smart and able business men to convince Aborigines to set up shop on their own land, mortgage it of course, and before long they will have no land, it will all be in the hands of the smart businessmen. Is this not what is happening today among all us westerners? Did not the GFC prove this?

    What is ironic about all of this, is that the true captains of capitalism don’t want us being in their sand-box to begin with. We are crowding it out on this belief that we all must engage in trade and own property, based on absolutely no evidence or fact or axiom or principle at all, except on some belief that prior to money we all bartered, or on some belief that we all must operate under a division of labour.

    Today, a doctor is not a doctor, he or she is a trader. A bus driver is not a bus driver, he or she is a trader. A librarian is not a librarian, he or she is a trader.

    What I would like to see is for people to prove why on earth ‘every’ entity ‘must’ treat every human need as a commodity and must trade? Once we begin to ask this question we will start to realize that our fundamental beliefs are wrong, that capitalism and trade is not a political system but a calling in life which requires a skill-set, and which not everyone is built to do. Just like we can’t all be doctors, or bus drivers, or librarians, it is the same with being ‘traders’, we can’t all do it, it’s not mathematically possible. We only need look back a few hundred years into the history of England and Europe to see that being a merchant in life was only taken up by a few – it offered lucrative rewards but it was still risky. It was a calling, that not many dared. Today you are forced into it whether you want to or not. To me this is bordering on criminal. There is a reason why 95% of the population struggle with money.

    There is nothing wrong with capitalism provided we see it for what it is – a calling in life.

  20. Debunking MMT’s hallucinatory income-expenditure model
    Comment on Peter Cooper on ‘Short & Simple 18 ― Income Determination in a Closed Economy’

    Peter Cooper discusses income determination in a closed economy but, curiously, neither the word profit not distributed profit appears once in his article. But equilibrium appears which is known to be a NONENTITY. Hence the reality content of his standard MMT model is zero or even less.

    In the following, a sketch of the formally and empirically correct price-, employment-, profit-, and income theory is given.#1 The most elementary version of the objective structural employment equation reads:

    From this equation follows:
    (i) An increase of the expenditure ratio rhoE leads to higher employment (the Greek letter rho stands for ratio). An expenditure ratio rhoE greater than 1 means dissaving=credit expansion, a ratio rhoE less than 1 means saving. The expenditure ratio fully replaces the consumption function.
    (ii) Increasing investment expenditures I exert a positive influence on employment.
    (iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

    The complete AND testable employment equation is a bit longer and contains in addition profit distribution, public deficit spending, and import/export.

    Item (i) and (ii) cover Keynes’s arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism which, however, does not work as the representative economist hallucinates. As a matter of fact, overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. THIS is the key to full employment policy.

    The correct profit equation reads Qm≡I-Sm. Legend: Qm monetary profit, I: investment expenditure, Sm monetary saving/dissaving. Business sector’s investment expenditures and household sector’s saving/dissaving are completely independent and NEVER equal.

    The profit equation gets a bit longer when distributed profit import/export and government is included.

    Note that overall profit and by consequence the income distribution has NOTHING to do with productivity or low wages or market power. These and other factors affect only the DISTRIBUTION of overall profit BETWEEN firms. What holds on the firms’ level does NOT hold for the economy as a WHOLE. Note also that Keynes, Marx, Kalecki, Keen, Minsky and other heterodox economists got profit PROVABLY wrong.#2

    Keynes’s approach is macrofounded but incomplete because he had no deeper understanding of the profit and price mechanism. MMT builds on Keynes’s defective income and profit definitions and this yields, of course, a materially and formally inconsistent income-expenditure-equilibrium model.

    Egmont Kakarot-Handtke

    #1 For the comprehensive treatment see Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster

    #2 Heterodoxy, too, is scientific junk

  21. MMT: soap box economics just like the others
    Comment on Peter Cooper on ‘The Social Economy and the Potential Inherent in Currency Sovereignty’

    Ninety-nine percent of human communication is storytelling, only one percent is science. Scientific knowledge is embodied in the true theory. The true theory is the best possible mental representation of reality. Scientific knowledge satisfies two criteria: material and formal consistency. The economist needs the true theory: “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)

    MMTers do NOT have the true theory. They do not even know what a theory looks like: “A scientific deductive system (‘scientific theory’) is a set of propositions in which each proposition is either one of a set of initial propositions … or a deduced proposition … in which some (or all) of the propositions of the system are propositions exclusively about observable concepts (properties or relations) and are directly testable against experience.” (Braithwaite)

    MMTers do not have the true theory but they have a story. The story line goes like this:

    (i) “At the macro level, a lack of monetary demand in the present will result in unemployment or underemployment of workers who otherwise could be contributing to the development of technology and future productive capacity.”

    (ii) “In the prevailing economic system, money matters. Not only will production for exchange fail to occur when demand for future output is expected to be weak, but production will typically not even take place until monetary expenditure has occurred. In most lines of business, capitalist firms need to pay wages before the production process is complete and output sold.”

    (iii) “It is not just that, by definition, spending equals income. It is that spending, logically, is the determiner of income and income the mere result.”

    (iv) “We know, of course, where the money comes from. There are essentially only two origins: lending (whether public or private) and government spending. The money, from inception, must be created ex nihilo for capitalist production actually to take place.”

    (v) “… a currency-issuing government’s capacity to override profit imperatives makes possible a broadening and enriching of social life, a reshaping of the workplace and resetting of economic priorities, ….”

    The MMT story line contains an employment theory (i), a money theory (ii), (iv), an income-expenditure model (iii), and a profit theory (v). All these elements are false because MMT is built upon this false premise: “It is not just that, by definition, spending equals income.” MMT builds on a macroeconomic income and profit definition that is false since Keynes’s General Theory.*

    As Aristotle said 2000+ years ago: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

    The pivotal premise of MMT is neither certain, true, nor primary. Because the premise is false the whole theoretical superstructure is false. This property MMT shares with Walrasianism, Keynesianism, Marxianism, and Austrianism. Economics is proto-scientific rubbish since Adam Smith and MMT is part of it.

    As Thomas Aquinas put it: “Quia parvus error in principio magnus est in fine.” or “A small mistake in the beginning is a big one in the end.”

    Egmont Kakarot-Handtke

    * For the point-by-point refutation of MMT see cross-references

  22. Dean

    You ask: “What would happen if everyone was no longer allowed to save with the proviso that if any household or business was then on the brink of insolvency the govt bailed them out in order to get them back to solvency?”

    For the investment economy, the elementary Profit Law reads Qm≡I-Sm. Legend: Qm monetary profit, I: investment expenditures, Sm monetary saving/dissaving. The business sector’s investment expenditures and the household sector’s saving/dissaving are completely independent and NEVER equal.

    So if saving Sm is set to zero overall monetary profit Qm goes up.*

    Egmont Kakarot-Handtke

    * For more details see ‘Keynesians ― terminally stupid or worse?’

  23. “Macroeconomic profit exists and economists should know and tell what it is. Neither orthodox nor heterodox economists do it, though, because they have no idea what the pivotal concept of their subject matter is.#3”

    Are you able to elaborate more on why economists have no idea what the pivotal concept of their subject matter?

    Did Proudhon understand it?

  24. MMT: No sound scientific foundations
    Comment on Peter Cooper on ‘Short & Simple 19 ― Sectoral Balances in a Closed, Demand-Determined Economy’

    In economics, it is important to separate politics and science. While anybody can make a plausible and populistic economic policy proposal, the economist can NOT. What the economist says must be backed up by the true theory. The economist who lacks the true theory is at one level with the cranks that populate the political arena.

    “A sure sign of a crisis is the prevalence of cranks. It is characteristic of a crisis in theory that cranks get a hearing from the public which orthodoxy is failing to satisfy. In the thirties we had Major Douglas, and social credit — it can all be done with a fountain pen — and Warren and Pearson who convinced President Roosevelt that raising the dollar price of gold would raise the price of everything else and bring the slump to an end. The cranks are to be preferred to the orthodox because they see that there is a problem. Nowadays we have plenty of cranks taking up the problems that the economists overlook.” (Robinson)

    Not much has changed since Joan Robinson. The only difference between the ordinary crank and the economist is that the latter has a diploma.

    The policy MMT stands for is backed in the main by Keynesian macro. The thing about Keynesianism is that it is scientifically worthless since the General Theory, that is, provably false, that is, materially and formally inconsistent. The thing about MMTers is that they are mindlessly repeating Keynes’ awkward blunders.

    Peter Cooper combines key Keynesian macro identities with particular behavioral assumptions to provide a theory of income determination. The behavioral equations add causation to the model. The starting point is given with the macro identity S + T = G + I.

    When the government sector is taken out for a moment, i.e. G and T = 0, then the equation reduces to the formal core of the General Theory, i.e. to I=S. To recall: “Income = value of output = consumption + investment. Saving = income – consumption. Therefore saving = investment.” (p. 63)#1

    All I=S/IS-LM models are false because Keynes’ premise “Income = value of output” is false.#2 Scientists know since Aristotle that if the premises are false the whole theoretical superstructure falls apart. Because only “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

    Because Peter Cooper starts from a false premise, i.e. the macro identity S + T = G + I, there is no use at all to add causal equations and then to derive economic policy conclusions. The only sensible thing to do is to throw this rubbish without further ado into the waste basket.

    The proof has been given that Qm=-S in the pure consumption economy and Qm=I-Sm in the investment economy. In plain text, the proof says that saving and investment are NEVER equal.#3 So, Keynesianism and by implication, MMT is refuted on all counts.#4

    Note that not only Peter Cooper’s model is refuted but ALL models that contain I=S back to Wicksell and even further.#5

    Egmont Kakarot-Handtke

    #1 Keynesians ― terminally stupid or worse?

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

    #3 For more details see cross-references MMT

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

    #5 Going beyond Wicksell, Keynes, and MMT

  25. MMT: scientific incompetence or political fraud?
    Comment on Peter Cooper on ‘Unfulfilled Potential’

    There is the political realm where, in principle, everyone is admitted. The currency in the political realm is opinion. Opinion is different from knowledge and the fact of the matter is that it is most of the time false or merely superficially plausible.

    Accordingly, there is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

    Theoretical economics (= science) has been body snatched by political economists (= agenda pushers). For the general public, science clones are virtually indistinguishable from scientists: “They’re doing everything right. The form is perfect. … But it doesn’t work. … So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

    What is missing in political economics is the true theory of how the actual economic system works.#1 The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong. There is no such thing as a scientifically true economic theory, merely the pluralism of provably false theories.

    Political economics is easy to recognize. Political economists do not talk about how the economy works but about freedom, liberty, democracy, overall welfare, justice, ethics, the conscience of a liberal/conservative, folk psychology/sociology, nationalism/globalism, and the bad elite versus the good little man. Political economics ― right-wing, left-wing does not matter ― has produced NOTHING of scientific value in the last 200+ years.#2

    MMT is no exception. MMTers stand for a series of political priorities, first and foremost sovereignty: “… a government’s monetary sovereignty creates a potential for meaningful social progress. But it is only a potential, and can only be fulfilled through genuine democracy conducted by an informed citizenry.” (Cooper)

    There is nothing to say against the political program of MMT except that it is backed by an economic theory and that this theory is provably false. The problem with MMT is this:
    • it is based on inconsistent accounting identities,#3
    • it is scientifically worthless,
    • it amounts to a wellness program for the one-percenters,#4
    • it claims to support the little man.#5

    Either MMTers are in a state of scientific self-delusion or they are just another political fraud like Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism.

    Egmont Kakarot-Handtke

    #1 The economist as standup comedian

    #2 Economics: 200+ years of scientific incompetence and fraud

    #3 Rectification of MMT macro accounting

    #4 MMT and the magical profit disappearance

    #5 MMT is NOT an alternative to neoliberalism
    Why Bernie Sanders is unintentionally a godsend for the one-percenters

  26. Qm=(I–Sm)+(G-T)

    financial asset = someone elses liability + liability of government
    financial asset – someone elses liability = liability of government

    0 = liability of government

    for every man who is employed in government, another man must be seeking profits in order to provide for both himself and the man who is employed in government

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