thegreatdivide
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(critique of MMT by Peter Smith; cont. from #456)
"MMT is of very recent origin. It is a twenty-first-century theory; at least it is under the heading of MMT. Gravitas is added to a new theory if its origins can be traced to earlier times. The deeper its roots, the less likely it can be construed as faddish. According to its proponents, elements of MMT can be found in the work of economists of the past. Three are prominent.
The longest intelligible lineage of MMT goes back to “Chartalism”, developed by a German economist, Georg Friedrich Knapp, at the beginning of the twentieth century. Chartalism argues that money is primarily a creature of government and finds its value in exchange and as a store of value because government will accept it in discharge of debts it is owed.
Later in the century, Abba Lerner, a better-known economist in the then newly-minted Keynesian mould of the early 1940s, developed a theory of “functional finance”. Its central idea is that spending, taxing, borrowing and money issuance on the part of government should be “taken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound”.
So far, so good.
Finally, Hyman Minsky, another well-known Keynesian economist, writing from the 1960s to the mid-1990s (he died in 1996), is brought into the frame by Wray in a working paper published by the Levy Institute in January 2018. It is not at all clear to me from Wray’s account that Minsky, if he had lived on, would have supported much of MMT. However, he did refer to circumstances in which there may be “a need to supplement private incomes with socially provided incomes, so that civility and civic responsibility are promoted”. Consistent with this, Wray argues that Minsky supported government having an “employer of last resort” role to reduce unemployment. As I will explain, this idea is an integral part of MMT, as also are the ideas stemming from Chartalism and functional finance.
Some orthodox Keynesians suggest that MMT is either saying things that are wrong or saying well-known things as though they are new. American economist Thomas Palley (“Critics of MMT are right”, Review of Political Economy, 2015) is a leading example. Leaving for now the assertion that MMT is saying things which are wrong, I don’t wholly agree that it is saying things which are all well known. Yes, there is nothing which doesn’t fall out of or can’t be derived from conventional economics. Nevertheless, some things are put in a way that has instructive novelty. This is certainly the case when it comes to taxation.
MMT has a number of interrelated elements. A good place to start is with taxation; specifically, with the proposition that government expenditure provides the wherewithal to pay taxes. Commonly this is put the other way around; that government taxes in order to fund its expenditure. But, MMT has a point and one that I admit to not having until now appreciated.
Well done, Peter!
To be cont....
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