There's that unicorn again ...

Last time I found something totally rediculous written by an MMT theorist I remarked on facebook: "Modern Monetary Theory: one minute everything makes sense, next minute a unicorn is driving down a marshmallow freeway in a gold-plated Lamborghini with triangular wheels."

I haven't yet gotten around to creating that wonderful image, but I did see something that made me think of it again:

Inflation is caused by aggregate demand growing faster than real output capacity.

This is typical of the rubbish MMT comes up with. There is a grain of truth, but stated as it is it has no bearing on reality. It is impossible for "aggregate demand" to grow faster than "real output" in the truest sense, because everyone has to earn money before they can spend it. Saying demand grows faster than output is like saying that people are spending more money than they are earning. The only way that demand could possibly grow faster than output is if fiat money was being introduced into the system - then some people would be able to spend more money than they had earned. Who are those people? Well, they are the people who receive the new money first without producing anything in return for it - typically welfare recipients. In reality it's broader than that because new money goes everywhere bank loans and government spending go, so you cannot be definitive about it, but the fact remains that the government and banks are creating money, which is allowing some people, perhaps even most people, to spend more than they have "earned."
So the constant assertion by MMT theorists that expanding the money supply is not inflationary is simply false - it is inflationary and Friedman was quite correct when he said, "Inflation is always and everywhere a monetary phenomenon." It is a result of an increase in fiat money supplies. Government deficits are inflationary, even if bonds are issued. The only just way for a fiat money system to exist is under constant money supply conditions - no growth or reduction in the money supply at all by anyone.