Mind boggling stupidity

That process is repeated by the next person who gets some of proceeds of the money that the government spent, and then the next person does the same, and each time some tax is paid.

The result is that when the government creates money to spend it can pretty much guarantee that in a well controlled economy it will get its money back in tax. And that multiplier effect is what gives that money its value. This video explains that process.

Which doesn’t really explain QE now, does it?

So, the money equation:


This is not arguable, it is a definition. The amount of money we have times the number of times we use the money equals the amount of money used times the number of times it is used. It’s not just a definition it’s a tautology.

So, when V – the multiplier – falls what happens to the value of money? That’s right, we get deflation, the thing we fight by printing more money with QE. What happens when V increases? We get inflation which we fight by reducing the multiplier again (say, raising interest rates) or reducing the amount of money by open market operations like selling gilts and so on, running a budget surplus perhaps. Even, increasing tax in order to reduce that amount of money through that budget surplus.

Deflation is, of course, a rise in the value of money, inflation is a reduction of it. An increase in the multiplier reduces the value of money, a decrease in it increases.

The man understands monetary theory so well that he’s got it inverted.

12 thoughts on “Mind boggling stupidity”

  1. Back probably a decade ago when I was first introduced to Murphy through this blog and a relation I was permitted a comment which said that by this logic Zimbabwe under Mugabe before the Rand/Dollar were adopted would be a phenomenally wealthy country as would Venezuela. His response was to call me a ‘troll’ and not actually address the fundamental flaws in his analysis. A part of me has admiration for his resolve in sticking to something that is clearly nonsense in the face of a welter of evidence. Then I remember we are dealing with someone as close to pure evil as it’s possible to encounter outside the Dark Web.

  2. He is advocating a money perpetual motion machine. Spend money and get it back in tax. Net spend=zero but all kinds of goods/services created.

    Absolute cockrot.

  3. Murphy thinks that tax should be 100% of the value before tax of each transaction and 0.5+0.25+0.125+0.0625+ … =1
    However even with VAT at 20%, taxes on employed income at 25-40-odd% and mind-boggling rates on petroleum products, tax is currently only 33% of GDP, so the sum 0.3333+0.1111+0.037037+0.0123456+…=0.5
    Moar-tax Murphy reveals that what he wants is a transaction tax of 100% of value (not value-added – value).

  4. I actually read the full post and it was below a GCSE level analysis. I know the expansion of higher education has made it easier to get a job in academia, however, surely there has to be some basic standard of knowledge a person must reach to attain a paying academic position?

    Have you seen his analysis of Private Equity Tim?

  5. To test the sense, always replace the word “economy” with “weather”.

    In properly controlled weather…..

    Ah. As you were.

  6. Yes, I have seen his analysis of private equity.

    It rather jars with his claim that publicly quoted companies don;t have a sufficient shareholder block to hold management to account….

  7. “He is advocating a money perpetual motion machine. Spend money and get it back in tax. ”

    Except its always spending in the future that you get back in tax. Not spending thats already happened, for some inexplicable reason. Otherwise one might refute the argument by pointing to the massive debt we have (representing all the borrowed/printed money the UK State has spent over the last decade or so) and also the large government budget deficit and lack of increase in tax revenue.

  8. “well controlled economy” …

    Oh wait… everyone who has tried and failed didn’t Implement Things the Right Way… Check…

  9. Dear Mr Worstall

    I suspect that the definition of a well controlled economy is one that is about to go tits up.

    Just saying. For a friend.


  10. Bloke in North Dorset

    “ He was CFO of a company which was sold to Yahoo in 2005 for £28m million, which in his words ‘most of which benefited the venture capitalists’”

    I was told this story a couple of times by people who were present. When the first GSM networks being built an employee at what was to become 1-2-1 during an all employee meeting:

    Employee to CEO: Van we have a profit sharing scheme?

    CEO: only if your prepared to have a loss sharing scheme.

    Spud and those like home never, ever, quote the time when venture capitalists wrote off huge losses.

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