Monday, January 30, 2017

Lars P. Syll — The origins of MMT


Knut Wicksell on credit money, and J. M. Keynes on state money aka "chartal"money, where "chartal" means a token. States issue tokens that they alone are permitted to issue whose nominal value the state sets in the unit of account it establishes. "Modern" money is both credit and chartal money rather than a commodity used as a numeraire in barter.

Max Weber also discusses this in Economy and Society: An Outline of Interpretive Sociology, p. 76 (available at Archive.org).
"Money" we call a chartal means of payment which is also a means of exchange. An organization will be called a "means of exchange," "means of payment," or "money" group insofar as it effectively imposes within the sphere of authority of its orders the conventional or legal (tormol) validity of a means of exchange, of payment, or money; these will be termed "internal", means of exchange, etc. Means used in transactions with non-members will be called "external" means of exchange.

Means of exchange or of payment which are not chartal are "natural", means. They may be differentiated (a) in technical terms, according to their physical characteristic— they may be ornaments, clothing, useful objects of various sorts — or according to whether their utilization occurs in terms of weight or not. They may also (b) be distinguished economically according to whether they are used primarily as means of exchange or for purposes of social prestige, the prestige of possession. They may also be distinguished according to whether they are used as means of ex- change and payment in internal or in external transactions.

Money, means of exchange or of payment are "tokens" so far as they do not or no longer possess a value independent of their use as means of exchange and of payment. They are, on the other hand, "material" means so far as their value as such is influenced by their possible use for other purposes, or may be so influenced.
This distinguishes money as the nominal unit of account from tokens that represent it. Randy Wray call this money versus the money thing.

Money is a cultural institution. Credit is based on contract, which was first established in custom and later in law. State money is a legal institution established by the state.

These concepts and conventions long predate contemporary analysis in the theory of money, including MMT.

Lars P. Syll’s Blog
The origins of MMT
Lars P. Syll | Professor, Malmo University

8 comments:

AXEC / E.K-H said...

Going beyond Wicksell, Keynes and MMT
Comment on Lars Syll on ‘The origins of MMT’

No doubt, with regard to the theory of money Wicksell, Keynes and MMT are superior to DSGE/RBC/New Keynesianism. However, Wicksell, Keynes and MMT failed to integrate the theory of money into a consistent macroeconomic framework.

MMTers are right: mainstream economics is a failed approach and irrecoverably lost in the parallel universe of error, inconsistency, feeble-mindedness and aberration. But MMTers are wrong in believing that MMT is firmly on the right track.#1,#2

MMT is still caught in the PsySoc trap by maintaining that economics is about human behavior. The first point to realize is that economics is about the behavior of the economic system. Economics is NOT a social science but a system science. To derive the theory of money from the history of money is therefore doomed to failure.

The second point to realize is that all variants of Keynesianism suffer from methodological self-delusion. Davidson maintains: “Post Keynesian models are designed specifically to deal with real-world problems.” And Bill Mitchell adds: “In this tradition, MMT ... is not an imaginary approach that deals with imaginary problems. It is about the real world and starts with some basic macroeconomic principles like ― spending equals income.”

Time to wake up to the fact that this ‘principle’ is provable false since Keynes applied it in the General Theory.#3 Because of this, the whole analytical superstructure of Keynesianism, Post Keynesianism and MMT breaks apart. From this in turn follows that policy guidance with regard to monetary and fiscal policy has no sound scientific foundation.#4

Monetary theory has to be based on axiomatically true macrofoundations.#5

Egmont Kakarot-Handtke

#1 See ‘The final implosion of MMT’
http://axecorg.blogspot.de/2016/10/the-final-implosion-of-mmt.html
#2 See ‘Rethinking MMT’
http://axecorg.blogspot.de/2016/12/rethinking-mmt.html
#3 See ‘Why Post Keynesianism Is Not Yet a Science’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1966438
#4 See ‘Rethinking deficit spending’
http://axecorg.blogspot.de/2016/12/rethinking-deficit-spending.html
#5 See ‘Reconstructing the Quantity Theory (I)’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1895268

Auburn Parks said...

No.wonder nobody in the mmt community takes you seriously egmont
You get one of the most profund central tenets of.post Keynesian analysis.completely wrong.

Economics is.not some natural phenomena because it.is based.on social value and social priorities. What you describe is what mainstreamers believe, that the economy is a thing unto.itself. It's not. We created the system and can change or.adjust anypart of.it we.deem fit.to. getting lost in the nominal part of.economics means ignoring what's really going on. That's why post.Keynesian takes.seriously the concept of.political economy. Which you blatantly disregard with your economics is not about human relations schtick

AXEC / E.K-H said...

Auburn Parks

Keynesianism, Post Keynesianism and MMT is provable false in the same sense as 2+2=5 is false. The fact of the matter is that the MMT folks do not even get the elementary mathematics of accounting right.

The economy is a complex system and a system is subject to systemic laws.#1 The obvious analogy is an aircraft which is subject to the laws of aerodynamics, thermodynamics, etcetera. Only the retarded folks from the economics department believe that utility maximization or animal spirits makes an aircraft fly.

Keynesianism, Post Keynesianism and MMT is provable false and because of this Keynesians, Post Keynesians and MMTers are forever unacceptable in the scientific community.#2

The good thing in economics is that morons have always an alternative career path open as political soap box blatherers in the Circus Maximus.#3

Egmont Kakarot-Handtke

#1 For details see ‘From PsySoc to SysHum’
http://axecorg.blogspot.de/2015/05/from-psysoc-to-syshum.html
and ‘Complexity and stupidity’
http://axecorg.blogspot.de/2017/01/complexity-and-stupidity.html
#2 See ‘Why Post Keynesianism Is Not Yet a Science’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1966438
#3 See ‘Political economics: a deadhead sitcom’
http://axecorg.blogspot.de/2016/11/political-economics-deadhead-sitcom.html

Ralph Musgrave said...

I agree with Auburn: I get the impression Egmont is just a professional spewer outer of pseudo intellectual drivel.

Returning to Lars Syll's article, strikes me he is wrong to suggest MMTers are interested in his "pure credit system". The proof of that is that MMTers attach importance to what they call Private Sector Net Financial Assets (PSNFA), which consists of base money plus national debt (which two are almost the same thing as pointed out by Warren Mosler and Martin Wolf, chief economics correspondent at the Financial Times).

I.e. part of the business of private banks is to settle debts owed by one non-bank entity to another. That's the "pure credit" side of their business. But there is also base money (of which dollar bills are an example). Syll appears to suggest that MMTers think dollar bills and banks reserves (also a form of base money) and national debt are totally unimportant. Well that's news to me.

Tom Hickey said...

According to MMT, money in the hands of the users is a tax credit and the government as issuer neither has nor doesn't have money.

"Money" is an artifact of accounting hence a debit-credit relationship, as are all financial assets.

That is what makes them financial assets rather than real assets.

When financial assets are used in exchange it is a monetary economy. When only real assets are used in exchange it is a barter economy.

Six said...

Egmont is a troll. I've read his link "final implosion of MMT" and it says nothing. It's a monumental waste of time.

AXEC / E.K-H said...

Tom Hickey

The theory of money has to be embedded in a consistent macroeconomic framework or in what Keynes called the ‘monetary theory of production’. MMT gives a historical account of how money came into existence as a creation of the state. This historical account is not false but methodologically it is NO substitute for the theory of money, just as the history of the burning of Rome, London and San Francisco is no substitute for the theory of thermodynamics.

There is NO way around the macrofoundation of the theory of money. And this, indeed, is the route Keynes took.

The formal foundation of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes did not come to grips with profit.

“His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit is ill-defined the WHOLE theoretical superstructure of Keynesianism is false. The foundational mistake/error/blunder carries over to Post Keynesianism and MMT. As Bill Mitchell says: “It [MMT] is about the real world and starts with some basic macroeconomic principles like ― spending equals income.”

It is pretty obvious that an economist who cannot tell the difference between the fundamental economic magnitudes profit and income is a laughing stock. This applies to Walrasians and Keynesians of all colors. It applies, of course, to the MMT folks in general and more specifically to Auburn Parks and Ralph Musgrave.

Neither Keynesians nor Post Keynesians nor MMTers will make it into the future of economics because of proven logical incompetence.

Egmont Kakarot-Handtke

TofuNFiatRGood4U said...

It's the source of Egmont's income I'm interested in. Him and a few others.