Reading L. Randall Wray‘s new book Modern Money Theory - in which the author challenges conventional (neoclassical) wisdom on modern monetary theory by replacing the usual mystifications of the nature of money with a theory that shows what’s really going on in modern monetary economies – yours truly came to think of how most mainstream economists seem to think the idea behind Modern Monetary Theory is new and originates from economic cranks.
New? Cranks? How about reading one of the great founders of neoclassical economics – Knut Wicksell.Lars P. Syll's Blog
MMT and the Wicksell connection
Lars P. Syll | Professor, Malmo University
28 comments:
From Wicksell via Lars:
"imagine a state of affairs in which money does not actually circulate at all, neither in the form of coin … nor in the form of notes, but where all domestic payments are effected by means of the Giro system and bookkeeping transfers."
They could only imagine it due to the fact that the information technology to be able to minimally implement this type of system was not available until the 1970s....
this technology advent maybe was the "game changer" that finally allowed humanity to fully (& finally?) throw off the yoke of the metals...
many morons among us of course still have "some catching up to do..."
rsp,
The fact that you can describe the creation and squirting of the various illicit channels of fiat funny money creation says absolutely nothing about its impact upon society or the "economy". As we have seen from Mr. Hickey's sheer obliviousness regarding the nature of the pricing process, the "problem of knowledge" in society and economic calculation, you MMTers actually know nothing about economics at all and what you think you know is the exact opposite of the truth.
Bob,
In "Economic Calculation", who exactly is doing the calculating?
rsp,
Hey Bob,
Is "economic calculation" or "funny money" causing the current gasoline shortage in New Jersey?
Rsp,
Hey Bob,
If people in New Jersey were willing to pay $100/gal for gasoline would it magically start to show up this afternoon? Is that their problem up there? ie not willing to pay enough this afternoon?
rsp,
Me thinks Bob doth protest too much.
In February, 2011, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow, AKA "The Top 20 Committee") named its top 20 articles of the last 100 years. Included therein was:
Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.
http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1
The “knowledge problem” is at the core of Austrian school thinking and at the core of why MMT proposals would be catastrophic. I'm perfectly happy to learn that you guys are so oblivious that you do not even know the subject matter of the topic. And your perpetual infantile name-calling is quite telling.
What else is there to say? You are obviously completely unfamiliar with the topic and you are quite proud of that ignorance.
Bob, have you ever actually run a business that you know how pricing really works in practice, theory aside. I have, and It's obvious that you don't have a clue.
have you ever actually run a business that you know how pricing really works in practice
You win the prize for the best B.S. changing of the subject for the last 3 months.
Tom,
Is the phrase: "Economic Calculation" teleological in itself?
(trying to investigate/understand the concept of teleology)
http://en.wikipedia.org/wiki/Teleology
"In modern science, an explanation that relies on teleology is avoided,"
rsp
Mises version of Austrian economics is teleological.
Mises, Human Action
Chapter 1. Acting Man.
1. Purposeful Action and Animal Reaction
Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary.
So is rational expectations in neoclassical economics.
Right out of Aristotle's "every agent acts for an end (telos).
So the social sciences are/might be ok to be teleological?
Rsp
Appeal to teleological assumptions or explanation weakens a scientific hypothesis or theory by making it philosophical rather than formal or empirical. Teleological explanation is fundamentally different from causal explanation in science. Teleological explanation is based on "final causes," which is what ends are wrt to purpose. There are no purposes or final causes in science. Modern science explains in terms of causal factors and reasons, not purposes and ends. for example, expectations are not based on purposes and ends. Rather, "rational" expectations are accounted for by actors that give reasons for their behavior, or which observers provide as reasons based on observation.
That is to say, reasons are subjective, whereas as purposes and end are at least tacitly implied to be objective. Purposes and and end cannot be used objectively in a legitimate way in science.
Causal explanation in science is expressed through necessary, sufficient, or necessary and sufficient conditionality and the arrow of time, time being one of the measures of change. Such hypotheses can be tested empirically at least in principle.
So who is doing the 'calculating'? This seems like magic thinking ....... rsp
Values are subjective but the terms of a trade are objective and empirical. A guy who trades 50 ducks now for a calf next month has his own peculiar reasons for wanting what the other guy has (and vice versa), but in this situation, we know that 50 current ducks traded for one future calf. Since barter (whether spot trades or credit trades) is clumsy, money was invented. So long as the supply of money is reasonably stable, it will tend to be more neutral. Prices stated in such sound money will tend to objectively inform us of the supply and subjective demand for most goods and services. However, fiat funny money creation distorts this important and essential process.
A simply example: Instead of someone wanting to trade for a house a certain amount of goods and services, fiat funny money might allow the bidding up of the price of a $100,000 house to $800,000 and, along the way, further purchases at the artificially higher prices are facilitated by more and more funny money loans. So long as these houses can be sold for even more than was paid, the transactions make sense (for a while). However, at some point, it will become apparent that there are no buyers in the society who actually have $800,000 worth of goods and services to exchange for the house. The price of the house collapses back to the more realistic price. Meanwhile, many people will have taken out debt to purchase these higher priced homes and are now stuck with the debt. Everyone has been following false price signals and most everyone except the most skilled financial people are poorer than they thought they were. That is a tragedy but it is all the fault of the fiat funny money system and its creation of artificial credit out of thin air. The artificial price of $800,000 which was facilitated by the funny money loans is an example of fiat money distorting economic calculation.
This subject is not that complicated. You guys purposefully do not want to understand it because it blew Keynesianism out of the water decades before there even was a Keynesianism.
Bob,
"However, at some point, it will become apparent that there are no buyers in the society who actually have $800,000 worth of goods and services to exchange for the house. "
This sounds similar to Paul Meli's point that at loan inception, balances of "money" are created for the principle but not the interest... what you are missing, is not that the system does not have the 800k, (the system DOES have that) it is that the system does not have the INTEREST on the 800k.... rsp,
I'm not missing anything. What you are missing is that the fiat funny money system has caused the essential information system of a prosperous society, a sound pricing process, to completely dis-coordinate so that nobody can tell the true amount of supply and demand in society. It is similar to what happens under socialism.
"The story of money is thus rather more complex than neoclassical economists or Austrians imagine."
http://socialdemocracy21stcentury.blogspot.se/2012/11/my-posts-on-origin-of-money.html
seems innocuous enough;
how can we have complex, adaptive sytems without variance?
No one can be 100% right or wrong in quantum evolution. Nevertheless, their emotions always claim to be.
""However, at some point, it will become apparent that there are no buyers in the society who actually have $800,000 worth of goods and services to exchange for the house. ""
This is a direct result of too high a level of private debt in relation to the level of net funds in the economy. Too much leverage results in the situation Bob has identified. It's unsustainable.
We are already there, but wouldn't be if household consumption hadn't been based on borrowing rather than real income growth. Real income growth requires deficit spending (and strong labor unions).
The economy is a system of leverage. This works because everyone is not likely to need to sell at the same time.
Your home electrical panel is designed according to similar logic. A 200 amp panel will contain some 600 amps in breakers. It works fine as long as you don't try to use every circuit at once.
Right Paul,
I look at it as that Bob sort of gets it, but then he just bails on the whole thing because he doesnt want to have to see the govt in the position of currency monopolist based on his Libertarianism...
This fear could be the source of the ignorance exhibited by a lot of both Libertarians as well as libertarians and holds them back from being able to understand how our system operates as presently configured...
rsp
I totally get it. It's you fiat funny money guys who refuse to think through the obvious fact that your beloved squirts of funny money hither and yon must distort the exchange ratios for goods and services that would exist without money. The best type of money would be money that is relatively frozen in its amount so that it approaches neutrality as best as possible.
You recoil from this analysis because the market does not cause boom/busts or unemployment. Your beloved fiat funny money does. It's all your fault. You aren't society's saviors. You are society's plague. And you can't handle it.
Hayek uses the term “equilibrium structure” to mean the supply and demand structure that would have obtained without the use of money or with completely neutral money. The distortions caused by the artificial increases in fiat money loans distort prices away from that so-called equilibrium structure in an unsustainable way which he calls “false uses”. He also states that there is no way to measure what would have been the equilibrium structure that never is allowed to come into existence. In a 1975 speech, Hayek stated:
These discrepancies of demand and supply in different industries, discrepancies between the distribution of demand and the allocation of the factors of production, are in the last analysis due to some distortion in the price system that has directed resources to false uses. It can be corrected only by making sure, first, that prices achieve what, somewhat misleadingly, we call an equilibrium structure, and second, that labor is reallocated according to these new prices. ****
The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured. ****
In contrast, the modern fashion demands that a theoretical assertion which cannot be statistically tested must not be taken seriously and has to be discarded. As a result of this belief, a theory which, in my opinion, is the true explanation has been discarded as not adequately confirmed, and a false theory has been generally accepted merely because it happens to be the only one for which statistical evidence, even though very inadequate evidence, is available.”
See the top of page 7:
http://www.flickr.com/photos/bob_roddis/7534880182/in/set-72157630494776170/
As Bill Black has documented, abuse of credit that leads to implosion can almost always be traced by to either criminal activity or activity that had been regulated and no longer was. We have to understand that this does not arise from normal use of credit but rather from abuse and the usually this abuse can be identified as arising from control fraud. Bill points out that this is well-understood by forensic experts that specialize in the field of finance and banking.
"Your beloved fiat funny money does. It's all your fault."
Hey dont pin this one on us Bob... no one here got us into this mess...
Paul Meli is proceeding to model and show SCIENTIFICALLY (ie minus the teleological explanatory statements such as "calculation") how the current system is ill designed and administered....
rsp,
Hayek uses the term “equilibrium structure” to mean the supply and demand structure that would have obtained without the use of money or with completely neutral money.
How does he know this? Has it ever been tested in practice? It's theory, Bob, theory. And theory that is not tested and cannot be tested is philosophy. Hayek was a philosopher, like Mises. I am a philosopher myself, and as they say, "It takes one to know one."
Economic theory is fine as a thought experiment. But there is a reason that many theories are not test and cannot be tested. Human social groups operate on different principles than the assumptions of the thought experiment.
I would have nothing against a modern developed economy running on that theory if it so chose, but a modern developed economy would never choose to run on it because it is socially and politically impractical to the point of being infeasible. It would never get off the ground.
Bob we get it.
Your opinions are wrong.
Hayek uses the term “equilibrium structure” to mean the supply and demand structure that would have obtained without the use of money or with completely neutral money.
How does he know this? Has it ever been tested in practice?
I thought Graeber proved this. In ancient times, A gave B 50 ducks in exchange for a calf months later. That's an example of the "equilibrium structure" of exchange that does not include injections of fiat funny money loans or government spending fiat funny money into existence out of thin air, right?
It's a name or a term for a phenomenon.
Actually, that's the Austrian question for you statists. How the hell do you statists know what is best for society in place of the prices reflecting the exchange ratios produced by the peons living, making and exchanging stuff?
Bob, my point is that the world is not going back to barter or digging gold and silver out of the ground for use in exchange. This is a thought-experiment that is of interest speculatively but it has zero application in the global economy of today.
Modern markets are not based on "economic calculation" the way it is pictured speculatively in terms of simple models, and they have not been for a long time. Centuries, in fact, in most of the developed world. To think that this is a good idea or that the world would ever return to more primitive conditions like this to solve contemporary challenges is just Luddite thinking.
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