Sunday, June 3, 2018

Lars P. Syll — From Wicksell to Le Bourva and MMT


Some history of economics in light of economic history. 

The basis of MMT in accounting and balance sheets is not new, not is its operational approach to money. What is new is that those writing previous to the collapse of Bretton Woods when Nixon shut the gold window for settlement of international trade were dealing not dealing with the current monetary system. 

FDR had taken the dollar off gold decades earlier. MMT is an upgrade to previous thinking that is based on the new monetary system that most countries have adopted institutionally. MMT also updated macroeconomics based on not only the existing monetary systems but also by bringing together previous contributions, notably Wynne Godley's stock-flow consistent modeling, Abba Lerner's functional finance, and Hyman Minsky's financial instability theory and job guarantee proposal. 

Lars P. Syll’s Blog
From Wicksell to Le Bourva and MMT
Lars P. Syll | Professor, Malmo University

36 comments:

Konrad said...

“FDR had taken the dollar off gold decades earlier.”

Yes. As I have often explained here, the “gold standard” was a gimmick that politicians used when they wanted to claim that there was “no money” for social programs. Politicians ignored the gimmick whenever they wanted to create money for wars.

The “gold standard” was always a sham. No monetary system has ever been "backed" by gold. On the contrary, it is monetary systems that give monetary value to gold. If U.S. dollars did not exist, then a mountain of gold would not be worth one U.S. cent.

Likewise, it is not points on a scoreboard that give value to human teams. On the contrary, it is human effort that gives value to points. If points did not exist, then a touchdown would not be worth one point.

You have heard the saying, “He who has the gold makes the rules.” In reality, he who controls the monetary scoreboard makes the rules.

Below, Lars P. Syll screws up …

“In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver).

Let us clarify that currency items (notes and coins) are not money. Rather, they are tokens that represent money, just as marks on a scoreboard represent points. All monetary systems from the dawn of civilization have been totally based on fiat. No currency has ever had any “intrinsic value.” If gold is selling for $20 per ounce, and you have a gold coin with the words “twenty dollars” stamped on it, the gold coin still has no “intrinsic monetary value.” The coin’s monetary values derives from monetary systems, and from trading. The "intrinsic value" only exists in the human mind.

Gold and silver are commodities, not money. We do not trade gold in “gold.” We trade gold in dollars (or pounds or whatever).

What about gold coins like South African Krugerrand? Again, these are not money. They are not even currency tokens. They are commodities. A Krugerrand is a piece of gold that weights 1 troy ounce. You can trade it for something, but you cannot “spend” it like money. There are no Krugerrands registered in any bank account as money. Krugerrands are minted in the shape of coins, and are made to look like “currency,” but this is a sales gimmick. The dollar price of 1 troy ounce of gold depends on what gold is currently trading for in dollars.

Commodities are physical and limited. Dollars, however, are not physical, and not limited.

Andrew Anderson said...

My comment from Lar's site (with correction applied):


In Wray (2012), it is creditworthiness … Dirk Ehnts & Nicolas Barberoux

Who is worthy of the PUBLIC’S CREDIT but for PRIVATE GAIN? Yet because of extensive privileges from government for the banks, credit unions, etc., it is largely the public’s credit that banks, credit unions, etc. extend, not their own, especially as the cartel they are in fact.

and access to reserves at low costs that limit the extension of loans. Dirk Ehnts & Nicolas Barberoux

The reason reserves may be had at low cost is because ONLY banks, credit unions, etc. in the private sector may use our Nation’s fiat in the form of inherently risk-free account balances at the Central Bank, while the non-bank private sector is limited to unsafe, totally inadequate for modern commerce physical fiat, a.k.a. “cash.” Thus the demand for fiat is artificially low because of special privileges for the banks, etc.

Andrew Anderson said...

I was going to say, "The next time you use a debit card ask yourself why it must be through a bank and not through the Federal Reserve if a US citizen?"

But then I realized that most people use credit cards, not debit cards and a central bank, for ethical reasons, should not lend.

Of course if we had truly ethical fiat and credit creation we would have much more EQUITY and thus much less need for the legally confiscated credit the banks bribe us with in first place.

Andrew Anderson said...

Dollars, however, are not physical, and not limited. Konrad

Yes but how much price inflation the public will tolerate before ejecting those in power IS LIMITED.

Here's the problem: That the government-privileged banks, credit unions, etc. will create price inflation that generous deficit spending by the monetary sovereign WILL BE BLAMED FOR.

Of course the MMT gang has a plan for that: Regulation such that banks may, for example, finance automation that puts millions of people out of jobs but not consumer credit since the former should result in lower prices while the latter might raise them.

You see, having given little or NO THOUGHT to making bank liabilities toward the non-bank private sector GENUINE liabilities and not a sham; the MMT folks nevertheless have decided that honest accounting would not work to limit banks and therefore that banks must be restricted on the asset side, i.e. restricted as to what they can lend for.

Andrew Anderson said...

The thing is that by allowing all US citizens, for example, to have accounts at the Federal Reserve and by abolishing all other privileges for the banks, credit unions, etc. the DEMAND FOR US DOLLARS would be greatly increased therefore the SUPPLY OF US DOLLARS could be greatly increased too for a given amount of price inflation.

Therefore it is disingenuous for the MMT folks to say they are for increased spending by the monetary sovereign when they would do NOTHING to increase US domestic demand for US dollars.

What that increased spending by the monetary sovereign would accomplish per the MMT folks is:
1) Enable the banks to finance further automation to dis-employ the population WITHOUT compensating those dis-employed.
2) Employ those dis-employed as wage slaves to government (i.e. a Job Gaurantee)

Of course the rich, including bank owners, could continue to go their merry way untroubled by what could otherwise be an increasingly liberated population IF we had ethical fiat and credit creation.

AXEC / E.K-H said...

Neoclassics and MMT ― much like pest and cholera
Comment on Lars Syll on ‘From Wicksell to Le Bourva and MMT’

Compared to neoclassical economics, MMT looks like an improvement. But this is a rather small feat because compared to the proto-scientific garbage of mainstream economics almost everything is an improvement.

However, after 140+ years of repetition, the critique of neoclassical economics has turned out to be pointless: “… it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Does MMT beat the old theory? No! MMT is macrofounded, this is the improvement compared to microfounded Neoclassics, but the macrofoundations are inconsistent.#2 Methodology tells us that if the foundations are false the whole analytical superstructure is false.

MMT’s strong points are advertised as follows: “… a strong focus on balance sheets opposed to theoretical models based on assumptions that are necessary for the mathematics to work. There is also a strong consensus that monetary theory is positive, not normative. Further relevant areas of agreement are found with respect to: the idea of Chartalism when it comes to the origin and value of money; the endogeneity of money regarding bank creation of deposits; the role of the money market in the economy and the missing link to inflation; the monetary circuit and the link from debt to income; and the effects of deficit spending.” (Ehnts, Barberoux) and “… MMT [is] also updated macroeconomics based on not only the existing monetary systems but also by bringing together previous contributions, notably Wynne Godley’s stock-flow consistent modeling, Abba Lerner’s functional finance, and Hyman Minsky’s financial instability theory and job guarantee proposal.” (Hickey)

The problem is that all these elements do not fit consistently together because the underlying macroeconomic balance sheet mathematics, i.e. the sectoral balances equation, is provably false.#3, #4 From the scientific standpoint, MMT is as inconsistent and worthless as neoclassical economics. The policy guidance of both schools has NO sound scientific foundations.

The two main blunders of MMT are value and distribution theory

• “In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them.” (Syll) This is simply false, the value of money is independent of taxation.#5

• Because Public Deficit = Private Profit the money creation/deficit spending in all economic situations as proposed by MMTers has detrimental consequences for distribution. MMT policy proposals amount ultimately to agenda pushing for the one-percenters.#6

The difference between Neoclassics and MMT is on closer inspection analogous to the difference between pest and cholera. There is no difference in the scientific incompetence between orthodox and heterodox economists.

Egmont Kakarot-Handtke

#1 Stop beating mainstream economics ― it is long dead
https://axecorg.blogspot.com/2018/04/stop-beating-mainstream-economics-it-is.html

#2 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html

#3 Keynesians ― terminally stupid or worse?
https://axecorg.blogspot.com/2017/08/keynesians-terminally-stupid-or-worse.html

#4 Rectification of MMT macro accounting
https://axecorg.blogspot.com/2017/09/rectification-of-mmt-macro-accounting.html

#5 The objective value of money
https://axecorg.blogspot.com/2018/03/the-objective-value-of-money.html

#6 Austerity and the political games Progressives play
https://axecorg.blogspot.com/2018/05/austerity-and-political-games.html

Ryan Harris said...

TLDR; Usually Syll keeps them short too.

Konrad said...

ANDREW ANDERSON WROTE: “It is disingenuous for the MMT folks to say they are for increased spending by the monetary sovereign when they would do nothing to increase US domestic demand for US dollars.”

Correct.

If we don’t get the bankers under control, then things like a “jobs guarantee” and Universal Social Security will only make matters worse.

At present the bankers use rent payments and debt payments to suck all money to the top. More money in the economy will mean more money sucked to the top, with no change in poverty, homelessness, and unemployment.

Without ethical fiat and credit creation, MMT is irrelevant.

For an explanation of how unethical credit creation by private banks is literally destroying the Western Empire, I recommend the article below by Michael Hudson.

AND GET THIS: The stupid Chinese are seriously thinking about letting private Western banks into China, where the private banks will destroy China as surely as they are destroying the USA. Hudson has given many speeches in China, warning them about this. Unethical credit creation is suicide. But the Chinese don’t seem to listen.

Anyway this article is right up your alley…

https://www.counterpunch.org/2018/06/01/us-vs-china-housing-and-those-millennials/

Ralph Musgrave said...

E.K-H keeps claiming that a public sector deficit benefits the 1% not the 99%. Complete nonsense: if a deficit is targeted on the 99%, then the deficit would benefit the 99%, amazing as that might seem.

It may well be that any increase in the private sector’s stock of base money eventually ends up in the hands of the 1%, but that’s a defect in the market economy or the capitalist system or a defect in the social security system. It’s not an inherent defect I deficits.

Andrew Anderson said...

but that’s a defect in the market economy Ralph Musgrave

Once banks are 100% private with 100% voluntary depositors then they will no longer hold the economy hostage via the payment system since an additional risk-free, always liquid payment system shall exist at the Central Bank*.

Then we shall have at least two ethical options during the bust phase of the boom-bust cycle.
1) Let it (deflation) proceed since the economy can continue while the wreckage is cleared.
OR
2) Provide additional liquidity via equal fiat distributions to all citizens funded with negative yielding non-zero maturity sovereign debt.
AND/OR
3) Punish fiat hoarding via increased negative interest on large checking/debit accounts at the Central Bank.

*consisting of individual, business, local and State government, etc. debit/checking accounts.

Andrew Anderson said...

The stupid Chinese are seriously thinking about letting private Western banks into China, where the private banks will destroy China as surely as they are destroying the USA. Konrad

The US can steal a march on the rest of the world via ethical fiat and credit creation, e.g. rather than return to the folly of a gold standard to limit the SUPPLY of fiat, the US can increase the DEMAND for its fiat by allowing all its citizens (and perhaps the citizens of the ROTW, including the Chinese of course) to have inherently risk-free debit/checking accounts at the Federal Reserve itself and by eliminating all other privileges for banks.

Tom Hickey said...

The major reasons that China is thinking about opening up to US finance, it seems, is US arm-twisting. It's the US that is demanding this as an aspect of trade policy.

The US is also aiming at keeping China subservient technologically.

The Chinese are finished if they go for this, and I hope they are savvy enough to see the strategy, which is basically financial and economic warfare. and neocolonialism as parasitic acquisition of foreign assets and political control of the host through military power.

Good time to reread this from Branko

Free trade and war: a review of Avner Offer’s “The First World War: An Agrarian Interpretation”

Inequality, Foreign Investment, and Imperialism

Andrew Anderson said...

It was recently restated by Branko Milanovic (2016) in Global Inequality where, focusing on the role of high inequality before the conflict, he dubbed it an “endogenous” explanation of the war meaning that internal logic of the highly unequal capitalist societies at the turn of the 20th century predisposed them to imperialism2 which in turn caused the war. from Inequality, Foreign Investment, and Imperialism

A major reason for that inequality must be privileges for the banks and the rich, the most so-called creditworthy of what is therefore, in essence, the public's credit but for private gain.

Konrad said...

Thanks for your comment. I couldn’t figure out why China would admit foreign banks. Your comment makes sense.

Michael Hudson explains…

[1] The disastrous rise in housing prices is deliberately caused by bankers, so they can boost their profits.

[2] A property is worth whatever bankers are willing to lend for it. (Bankers create their loan money out of thin air.) Bankers are willing to make more and more reckless loans. Once a bank can package mortgages into bundles and sell the bundles to someone else, the bank doesn’t care whether or not the buyers can pay. Therefore the banks often lend to someone who lives in a property a month or two, and then defaults and moves out. Now, because of the high mortgage, the property is “worth” much more. The bank can get away with lending much more on the property, and collecting much more interest.

[3] The higher the loan value, the higher the mortgage payments. This in turn pushes up monthly rents. (In New York City the average apartment rent is now $4,500 a month.) For example, Trump’s son-in-law Kushner owns the building at 666 Fifth Avenue in NYC. That building is 40 percent empty, because Kushner mortgage payments are so high that Kushner had to raise rents beyond many tenants’ ability to pay. As Kushner’s remaining tenants threatened to move out, Kushner got a loan from Qatar in return for making sure that U.S. foreign policy served Qatar. Kushner then used the Qatari loan to pay off his domestic creditors.

[4] As I said, the “value” of a property is determined by what bankers are willing to lend for it. Therefore if the “value” of a property goes up, then property taxes should go up with it. However the bankers have bribed politicians to not let this happen with properties owned by banks. When banks repossess a house, for example, banks don’t have to pay property taxes. Meanwhile sky-high property “values” force ordinary property owners (not banks) to pay sky-high property taxes.

[5] This is a global phenomenon. The price of housing is rising worldwide, not because people are more prosperous, or more numerous, but because people are paying more and more of their paychecks to the banks for housing. This forces people to cut back on other consumer spending, since people don’t have any money to spend on goods and services. This is turn cripples the economy. Banks are hollowing out the world’s economies. Small businesses are dying because no one has any money to buy their goods and services Everyone’s money goes to rent payments or mortgage payments.

[6] The same phenomenon has happened with student loans. The price of tuitions is based on whatever bankers will lend for them. Bankers want tuitions to keep riding, so that student debt payments keep rising.

Continued below…

Konrad said...

[7] Last week the U.S. Congress deregulated community banks so that they can play the same game as the big banks, pushing up housing prices, and therefore loan payments. Community banks can set lower down payments, and help bid up the price of real estate more and more.

[8] In much of China, mortgages are lent by government-owned banks, which can write off debt if the debt starts to hurt the Chinese economy. If a viable corporation has run up too much debt, the Chinese government can forgive the debt, rather than let the debt close down a factory or force it be sold to a predatory asset management firm as occurs in the United States. This is the advantage of having public credit, and why credit should be public. Babylonian rulers were able to cancel debts all the time in the 3rd millennium and 2nd millennium BC, because most debts were owed to the palace or the temples. Rulers had debt jubilees, in which they canceled debts owed to themselves.

This will end if China lets in the foreign banks like Chase Manhattan and Goldman Sachs. The foreigners will offer to get any Chinese person into a house, and use this offer to start bidding up property “values.” Some of this has already happened in Shanghai, where anyone who owns a house free and clear is a millionaire. Result: the bankers will destroy China.

[9] Once China lets in the foreign banks, the Chinese government will surrender all power to them, as the U.S. government has. If the Chinese government tries to save its people from the foreign bankers, then Trump and the establishment Democrats will threaten to nuke China to protect the foreign bankers.

AXEC / E.K-H said...

Ralph Musgrave

You say: “E.K-H keeps claiming that a public sector deficit benefits the 1% not the 99%. Complete nonsense: if a deficit is targeted on the 99%, then the deficit would benefit the 99%, amazing as that might seem.”

As Marx told already all Flat-earthers and Flat-thinkers: “But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical.”

The point of science is to figure out what is appearances and what is reality.

So let us assume the government creates money and distributes it to the households according to a social criterion. Let the total amount be A, the number of beneficiary households be n, and the amount per household a, then A=na.

In this case two, things happen:
(i) If all beneficiary households spend this money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output under the conditions of market clearing.
(ii) The profit of the business sector increases because of Qm1=C1−Yw in comparison to Qm0=C0−Yw=0 with C1 greater C0. The difference between C1 and C0 is the amount A, i.e. the deficit-spending/money-creation of the government sector.

The real situation of the household sector remains unchanged because the price hike counteracts the nominal demand increase. The situation of the business sector as a whole improves, i.e. monetary profit Qm rises from Qm0=0 to Qm1=A. In other words, Public Deficit = Private Profit.

So, the social measure of the government only redistributes the output O between the ninety-nine-percenters. The real situation of the household sector as a whole does NOT change at all. The whole act is called stealth taxation#1 because the price hike reduces the real quantity the wage income receivers can buy with their wage income Yw.

So, yes, E.K-H keeps claiming (i) that a public sector deficit benefits the 1% not the 99%, (ii) MMT is a political fraud, and (iii) Ralph Musgrave is a clueless blatherer who does not know how the monetary economy works.

Egmont Kakarot-Handtke

#1 MMT, money printing, stealth taxation, and redistribution
https://axecorg.blogspot.com/2017/11/mmt-money-printing-stealth-taxation-and.html

Tom Hickey said...

Nice Marx quote. Here is the whole paragraph. Emphasis added.

Vulgar economy really does nothing else but to interpret, in doctrinaire fashion, the ideas of persons entrapped in capitalist conditions of production and performing the function of agents in such production, to systematize and to defend these ideas. We need not wonder, then, that vulgar economy feels particularly at home in the estranged form of manifestation, in which economic conditions are absurd and complete contradictions, and that these conditions appear so much more self-explanatory to it, the more their internal connection is concealed. So long as the ordinary brain accepts these conceptions, vulgar economy is satisfied. But all science would be superfluous, if the appearance, the form, and the nature of things were wholly identical. Vulgar economy has not the slightest inkling of the fact that the trinity from which it takes its departure, namely Land—Rent, Capital—Interest, Labor—Wages of Labor (or Price of Labor), are on their very face three incompatible propositions. First we have the use-value Land, which has no value, and the exchange-value Rent. Here a social relation is conceived as a thing and proportioned to nature. Two incommensurable magnitudes are supposed to be proportional to each other. Then we have Capital—Interest. If capital is conceived as a certain sum of values independently represented by money, then it is manifestly nonsense to say that a certain value shall be valued higher than its value. It is precisely in the formula Capital—Interest that all intermediate links are eliminated, and capital is reduced to its most general formula, which for this reason is inexplicable by itself and absurd. It is also for this reason that the vulgar economist prefers the formula Capital—Interest, with its occult faculty of making a value unequal to itself, to the formula of Capital—Profit, which approaches more nearly to the actual capitalist relations. Then again, driven by the restless thought that four is not five and that 100 dollars cannot be 110 dollars, he flees from Capital as an exchange-value to the material substance of capital, to its use-value as a material requirement of labor, as machinery, raw materials, etc. By this means he succeeds in putting into the place of the first incomprehensible relation, which makes four equal to five, a wholly incommensurable one between a use-value, a thing, upon the one hand, and a definite relation of social production, surplus-value, upon the other, as he does also in the case of private property in land. As soon as the vulgar economist has arrived at this incommensurable magnitude, everything becomes clear to him, and he no longer feels the need of thinking any further. For he has arrived at what is "rational" in bourgeois conception. Finally we have Labor—Wages of Labor, or Price of Labor. This last expression, as we have shown in Volume I, contradicts on its very face the conception of value as well as of price. Price, generally speaking, is but a definite expression of value. And "Price of Labor" is just as irrational as a yellow leogarithm. But here the vulgar economist is all the more satisfied, because it brings him to the deep understanding of the bourgeois, that he pays for labor with money, and because the fact that this formula contradicts the conception of value relieves him from all obligation to understand value.

Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole, VII.XLVIII.III (VII.XLVIII.1.2)

Andrew Anderson said...

This is the advantage of having public credit, and why credit should be public. via Konrad

Unless credit is 100% private, it is really just robbing citizen Peter to pay citizen Paul. So neither government-privileged banks nor lending by the monetary sovereign itself is ethical.

But what would be ethical is equal fiat distributions to all citizens as a Citizen's Dividend AND as a means to progressively abolish government-provided deposit insurance. And those would increase private Equity, not increase private debt.

Andrew Anderson said...

Look, the usury cartel can certainly be beaten BUT NOT BY CROOKED MEANS!

Example: Can ANYONE defend the PUBLIC insurance of PRIVATELY CREATED LIABILITIES?

Not in my experience can they. The trouble is that the opponents of the current system are very often corrupt themselves.

"Ya can't cheat an honest man" bears remembering.

Calgacus said...

EKH:If all beneficiary households spend this money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output under the conditions of market clearing.

That isn't always true; the deeper a depression is - and that will make such a distribution more likely- the less true it is. This "citizen's dividend" "UBI" will cause more production rather than price hikes and the household sector will be better off, as will be the business sector. It is NOT mere output redistribution. Basically, such deficit spending goes to satisfy private sector savings desires. And that is all the deficit spending that MMT recommends. Of course MMT recommends that the spending be for jobs rather than mindless distribution of money, the former being the least inflationary and most productive, the latter the most inflationary spending.

If the economy truly is at full employment - something rarely seen in modern capitalist economies, then you are right. But saying that (i) is always true is denying the existence of underemployment equilibria, denying the existence of unemployment etc.

And in the real world, targeted fiscal policy, deficit spending, as in the New Deal and WWII and the postwar era - can make the 99% better off relative to the 1%. That is just a historical fact that some of us lived through. So MMT or Keynesian economics is not a proposal for welfare for the 1% at the expense of the 99%, rather the reverse.

Tom: I agree, Egmont has good taste in sources and quotes, some of which have been new to me.

Andrew Anderson said...

Of course MMT recommends that the spending be for jobs rather than mindless distribution of money, Calgacus

I no longer advocate a UBI but a Citizen's Dividend such that ALL fiat creation by the Central Bank beyond that created by generous* deficit spending by the monetary sovereign for the general welfare be in the form of equal fiat distributions to all citizens - and not via asset purchases, lending or any other form of fiat creation for ANYONE ELSE.

Do you disagree with that, Cal? That fiat creation should not be for special interests? But for the general welfare, including for the needy, and/or equally distributed to all citizens?

the former being the least inflationary and most productive, the latter the most inflationary spending. Calgacus

Not necessarily since, for example, paying people to use shovels to maximize the number of jobs instead of using bulldozers to maximize work output per person is a waste of people's time. And wasting time is hardly non-inflationary.

*e.g. Where's my 1 Gigbit Internet connection?!

Calgacus said...

the former being the least inflationary and most productive, the latter the most inflationary spending. Calgacus

Not necessarily since, for example, paying people to use shovels to maximize the number of jobs instead of using bulldozers to maximize work output per person is a waste of people's time. And wasting time is hardly non-inflationary.

No, it is necessarily so in practice.

In your example, why not just use Star Trek transporters to beam dirt around instead of shovels or bulldozers? Much more efficient, much less inflationary.

Answer: We don't have Star Trek transporters. If bulldozers are in short supply, and maybe not needed for a small job, a guy with a shovel might be the best solution. It always depends on the specifics; that's what people have common sense, watches and measuring devices and the price system for. MMT and the JG does not support maximizing the number of jobs or of wasting anybody's time. Of course MMT & the JG are for maximizing the output per person. Thinking differently is just misunderstanding the JG concept.

Do you disagree with that, Cal? That fiat creation should not be for special interests? But for the general welfare, including for the needy, and/or equally distributed to all citizens?

Yes, I do disagree with that last, the equal distribution, which is at best pointless. Citizen's dividends are not "equal protection", do not essentially promote the general welfare, but will tend to be targeted discrimination against the working class and benefits to the business class of exactly the sort that EKH is warning about. Fiat creation should basically always be for "special interests." State money is valuable and scarce. It should be given to people for a definite reason. For jobs. For people with special needs. For deferred compensation like Social Security, for universal free services like the UK's NHS, for the general welfare. Do you give away your money or your IOUs randomly to everyone you meet? Why should Uncle Sam?

AXEC / E.K-H said...

Calgacus

You cite from my answer to Ralph Musgrave: “If all beneficiary households spend this money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output under the conditions of market clearing.” and then go on to claim: “That isn’t always true; the deeper a depression is ― and that will make such a distribution more likely ― the less true it is.”

Note that there are TWO issues here: (i) real and nominal distribution and (ii) employment. My answer to Ralph Musgrave addressed explicitly the issue of distribution under the condition of given employment.

This, of course, does not mean that it escaped my attention that there is also a relationship between money-creation/deficit-spending and employment. In fact, I addressed it on multiple occasions.#1, #2

The point is that you are too stupid/lazy to look up with the omnipresent Search Function what I have written about employment/NAIRU/wage-led growth and the whole Neoclassical/Keynesian/MMT garbage that fills the textbooks and blogs.#3

The axiomatically correct employment theory says (i) yes, of course, it is possible to increase employment through money-creation/deficit spending, (ii) it is better economic policy to apply the price-mechanism for this purpose#1 because (iii) deficit-spending causes unintentionally/intentionally the distributional effects that are before everybody’s eyes#4 and produce a lot of hypocritical surprise and communicative hyperventilation.

All these relationships between deficit-spending, employment, distribution are well-understood albeit NOT by MMT academics which are either scientifically incompetent or politically corrupt or both.

Egmont Kakarot-Handtke

#1 Full employment through the price mechanism
https://axecorg.blogspot.com/2017/11/full-employment-through-price-mechanism.html

#2 Full employment, the Phillips Curve, and the end of Gaganomics
https://axecorg.blogspot.com/2018/04/full-employment-phillips-curve-and-end.html

#3 For a convenient overview see cross-references Employment
http://axecorg.blogspot.com/2015/08/employmentphillips-curve-cross.html

#4 Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.com/2017/12/keynes-lerner-mmt-trump-and-exploding.html

Andrew Anderson said...

Do you disagree with that, Cal? That fiat creation should not be for special interests? But for the general welfare, including for the needy, and/or equally distributed to all citizens? aa

reply from Calgacus:

[crickets]

Thus per the standard MMT party line, we are left to believe that Calgacus believes in:

1) Continued welfare for the banks and rich.
2) Wage-slavery for everyone else.

Call that justice, Cal?

Tom Hickey said...

1) Continued welfare for the banks and rich.
2) Wage-slavery for everyone else.


I think this is an issue the MMT economists have yet to deal with in a persuasive way. Most of the issues are addressed in various places by different people, but there is nothing that pulls it all together. It needs a popular book, like Galbraith's The Good Society, Bernie's Guide to Political Revolution, and, by way of contrast, the many works on the right that are aimed at this from that POV.

One reason the so-called US left is not winning is lack of vision and a popular presentation of the vision and plan for actualizing it that is clear, concise and precise enough to avoid the usual objections.

Warren's Seven Deadly Innocent Frauds was a start but it is not laid out as a comprehensive vision and actualization plan in terms of policy choices and policy tools.

What would the interrelated bills to pass the plan into law look like, for example?

The danger is that without a such a vision and actualization plan, MMT policy proposals are stand-alone and probably won't work over time without the support of a complete approach based on understanding of SFC macro modeling, functional finance, Minsky's approach to finance, and MMT JG, all working together.

So far the approach seems to be incremental, with the focus now on the JG.

That is a strategic decision and it may turn out to be correct. But then the next piece has to be sold and then the next.…

I think it would be a much better strategy to put the whole thing on the table and then work iteratively and incrementally.

Then there is the question of how to fund MMT policy like the JG without functional finance, which really needs SFC modeling to understand.

Ultimately, the goal has to be get buy-in by both enough voters to pass the legislation and politicians that understand the plan well enough to present it coherently and convincingly and defend it against objections.

Also, in the end, the MMT economists and advocates have to think about how to address economic rent, since the obviously criticism of the MMT policy proposal as most people understand it is that the private saving that MMT policy accommodates flows to the top and increases the political power of an oligarchy.

AXEC / E.K-H said...

The Third Way: Towards the happy zero-tax economy
Comment on Tom Hickey on ‘From Wicksell to Le Bourva and MMT’

Communism is down the drain and the ― entirely justified#1 ― widespread feeling is that Capitalism will follow next. Quite naturally, there is a lot of discussion about what the core problem is and how the situation can be fixed. New Economic Thinking is all the rage. MMTers are one of the many politically active groups and they have a strong selling point: (almost) all economic problem can be solved with money-creation/deficit spending. This soapbox economics resonates well at the street level.

No doubt about it, rethinking economic theory is indispensable because Walrasianism, Keynesianism, Marxianism, Austrianism is axiomatically false and materially/formally inconsistent. Neither right-wing nor left-wing economic policy guidance ever had sound scientific foundations.

However, MMT is not a real breakthrough, it is bad science and bad politics just like all the rest. Bad science because it is materially/formally inconsistent and bad politics because it claims to promote the cause of the ninety-nine-percenters but in fact promotes the cause of the one-percenters.#2, #3

Yet in all their scientific and political corruption MMTers have intuitively grasped a fruitful transformative idea, i.e. to use fiat money for the construction of an economic system that works better than obsolete communism and capitalism.

All that is needed to make things happen is a well-informed Legitimate Sovereign. There is no use to define the Legitimate Sovereign here in greater detail. This is not the task of economics but of Political Science.

The Legitimate Sovereign is in full control of the process of money creation and destruction.#4, #5 The closed economy is, for a start, in the state of full employment with the macroeconomic budgets of the household sector and the government sector all balanced. The Profit Law for this simplified economy translates from the general Qm=Yd+(I−Sm)+(G−T)+(X−M) to the specific Qm=−Sm+(G−T) with Sm=0 and G=T. Legend: Qm monetary profit/loss, Sm monetary saving/dissaving, G government spending, T taxes.

In the first step, the Legitimate Sovereign simply creates some extra money for continuously buying shares on Wall Street and successively taking over the control of all big corporations.

In the second step, the Legitimate Sovereign cuts all taxes and creates the money for government spending G out of nothing. So, T=0 and G remain unchanged.

Now, two things happen:

(i) The disposable income of the household sector, i.e. Yw−T, increases because of T=0. If the households fully spend this extra money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output O under the conditions of market clearing and unchanged employment.

(ii) The profit of the business sector increases because of Qm1=C1−Yw in comparison to Qm0=C0−Yw=0 with C1 greater C0. The difference between C1 and C0 is the amount G, i.e. the deficit-spending/money-creation of the government sector.

The real situation of the household sector remains unchanged because the price hike exactly counteracts the nominal demand increase. The situation of the business sector as a whole improves, i.e. monetary profit Qm rises from Qm0=0 to Qm1=G. In other words, Public Deficit = Private Profit.

The real situation of the household sector as a whole does NOT change at all. The whole act is called stealth taxation#6 because the price hike reduces the real quantity the wage income receivers can buy with their increased disposable income. What happens is that the former taxes T are replaced by a one-off price hike. In real terms, the household sector is taxed as before but does not realize anything provided the price hike is small and indistinguishable from a random fluctuation.

See part 2

AXEC / E.K-H said...

Part 2

Because the greatest misfortune in the life of most people is that they feel to be unjustly forced to pay taxes, it can be safely assumed that human happiness increases enormously with the abolition of taxes and the replacement by money-creation/deficit spending.

Being the Legitimate Sovereign means that the money that has been created out of nothing has to be destroyed eventually. Because the Legitimate Sovereign owns all corporations of the business sector, this is an easy task. All that has to be done is to distribute the full amount of monetary profit, i.e. Qm=G, to the shareholder, which happens to be the Legitimate Sovereign. It is by profit distribution = dividend payment how fiat money is again taken out of the circulation and destroyed.

Needless to emphasizes that the Legitimate Sovereign decides how the total amount of government spending G is allocated to social, military, administrative and other purposes.

Remains only one thing to do: to consolidate the existing public debt overhang. Needless to emphasize that it cannot be redeemed. So it has to be converted into perpetual bonds with an interest rate just a little over zero percent or into current deposits with zero interest.

Egmont Kakarot-Handtke

#1 Mathematical Proof of the Breakdown of Capitalism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2375578

#2 MMT: The one deadly error/fraud of Warren Mosler
https://axecorg.blogspot.com/2017/11/mmt-one-deadly-errorfraud-of-warren.html

#3 MMT: Money-making for the one-percenters
https://axecorg.blogspot.com/2017/09/mmt-money-making-for-one-percenters.html

#4 The ultimate ― analytical ― origin of money
https://axecorg.blogspot.com/2017/07/the-ultimate-analytical-origin-of-money.html

#5 How money emerges out of nothing ― the functional account
https://axecorg.blogspot.com/2017/07/how-money-emerges-out-of-nothing.html

#6 MMT, money printing, stealth taxation, and redistribution
https://axecorg.blogspot.com/2017/11/mmt-money-printing-stealth-taxation-and.html

ANC Driver said...

Tom Hickey said: "One reason the so-called US left is not winning is lack of vision and a popular presentation of the vision and plan for actualizing it that is clear, concise and precise enough to avoid the usual objections."

LOL...if you draw an upside down triangle with the base being a point and the top being the two opposing angles, and if you call this the political triangle the two opposing angles and all the space in between are all your different political ideals from left to right and all in between, and also throw in all economic theories etc, the very base point is the only thing all political ideals and economic theories share in common - it is the belief that all resources should be subject to markets.

It is the inability to see past markets which causes all the problems. Markets should be a choice not a religiously imposed ideal. If 10% of the population were to manage resources other than under markets then you would wipe out all homelessness and most poverty overnight and the rest of the private sector would also be better off for it.

But it seems to me what the left really want is to go back to barter. Problem is, it never really existed to begin with.

AXEC / E.K-H said...

Tom Hickey

You say: “One reason the so-called US left is not winning is lack of vision and a popular presentation of the vision and plan for actualizing it that is clear, concise and precise enough to avoid the usual objections. … Ultimately, the goal has to be get buy-in by both enough voters to pass the legislation and politicians that understand the plan well enough to present it coherently and convincingly and defend it against objections.”

The subject matter of economics is to figure out how the economy works. Period. Nothing else. The subject matter of economics is NOT to sell MMT to voters and lawmakers.

What the public has, first of all, to clearly recognize is that there are TWO economixes: the real thing and the look-alike. There is theoretical economics and political economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Political economics has produced NOTHING of scientific value since Adam Smith/Karl Marx. What the Classicals have to be credited for is naive honesty. They called themselves Political Economists, that is, they presented themselves as agenda pushers. Naive honesty was the historical epoch before the War Ministry renamed itself to Defense Ministry and a military offensive was re-framed as pre-emptive self-defense. It was the epoch before Orwellian doublespeak became the norm.

The fact of the matter is that economics defined itself 140+ years ago as science but it is still political agenda pushing. The clear separation of the political and the scientific sphere never happened.

Economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational concept of the subject matter ― profit ― wrong. What we actually have is the pluralism of provably false theories.

MMT is just another instantiation of political economics a.k.a. agenda pushing. Note well: it does NOT matter at all whether one pushes a right-wing or a left-wing agenda. From the standpoint of science, it is roughly the same proto-scientific garbage only dressed up for different target groups. The whole right-left discourse is a ridiculous pygmy wrestling show of useful political idiots in the Circus Maximus.

All that comes under the label of economics is scientifically unacceptable. Because of this, economics has nothing to offer in the way of a scientifically well-founded advice: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Fact is that MMT is NOT the true theory but just another political fraud.

The most pressing problem of economics is how to clean the Augean Stable of the gigantic heaps of axiomatically false models, how to get rid of all failed/fake scientists, and how to advance from a 200+ years old cargo cult science to a genuine science.

Make no mistake, Dante’s famous motto above the Gate of Hell Lasciate ogni speranza, voi ch’entrate [Abandon all hope, you who enter here], applies to political economics of ALL denominations and also to MMT.

Egmont Kakarot-Handtke

Andrew Anderson said...

and which got the foundational concept of the subject matter ― profit ― wrong. EKH

In the Bible, profit is good but profit taking (and usury) isn't good*.

Please consider that the use of common stock as private money allows profit but without profit taking** or borrowing any other money for interest (usury).

But with government privileges for private credit creation, why should anyone with capital "share" it when they may instead use that capital to acquire what is, in essence, the public's credit but for private gain?


*Though profit taking and usury is allowed from foreigners as a means to subjugate them.

**Moreover, profit taking (i.e. dividends) is contrary to the purpose of a common stock company which is to consolidate capital for economies of scale, not dissipate it.

AXEC / E.K-H said...

Andrew Anderson

You say “In the Bible, profit is good but profit taking (and usury) isn’t good.”

Your exegesis is not up to date. What the Bible really says is: profit distribution to private persons is bad, profit distribution to the Legitimate Sovereign is good.

The Bible never ever contradicts the axiomatically correct macroeconomic theory. Believers should know that.

Egmont Kakarot-Handtke

Andrew Anderson said...

I was speaking of private profit taking; certainly taxes are legitimate but not if they take ALL profits; 10% seems to be the Biblical norm for an otherwise ethical* economy.

You should read more of the Bible so you'll KNOW the Legitimate Sovereign when He appears or whom He might appoint till then.


*One, for example, that does not allow the rich to steal from the poor via government privilege.

ANC Driver said...

Egmont - you said "The subject matter of economics is to figure out how the economy works. Period. Nothing else. The subject matter of economics is NOT to sell MMT to voters and lawmakers."

As your work clearly demonstrates, markets are riddled with defects #1 and there is mathematical proof of the breakdown of capitalism #2.

With that said anyone else who studies economics objectively is obviously going to come to the same conclusion. What this then means is that objective economists are also going to have to accept that subjecting every resources to the markets can't ever work, and yet, this does not fit with the romantic notions which political economists have of a utopia where everyone specializes and trucks and barters.

This is probably the reason why economics will never be treated as a science because it will reveal the truth.

The irony in all this debate over economics is that economists themselves are the last people who should be involved in markets, whether free or regulated, because what they produce is the least marketable thing I can think of - it is they of all people who
should spend time analyzing how resource allocation can be achieved outside of markets and leave alone the markets and all those who wish to participate in them.

#1 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350

#2 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2375578

AXEC / E.K-H said...

ANC Driver

You say: “This is probably the reason why economics will never be treated as a science because it will reveal the truth.”

Economics is not a science because Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, etcetera are mutually contradictory, axiomatically false, and materially/formally inconsistent ― in two words: provably false.#1

As far as economists do not realize this, they are stupid. As far as they realize it and spread their crappy stuff nonetheless, they are corrupt. To this day, economics is a cargo cult science. The “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a deception of the general public.#2

The policy guidance of economists NEVER had sound scientific foundations.#3 The stupidity and fraud of economists are destructive to society. This is known since Napoleon: “Late in life, …, he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)#4

All this is not a question of right-wing or left-wing. Economists in general and MMTer, in particular, will never be accepted as scientists but forever be regarded as stupid and corrupt useful political idiots.#5

Egmont Kakarot-Handtke

#1 Economics: 200+ years of scientific incompetence and fraud
https://axecorg.blogspot.com/2017/06/economics-200-years-of-scientific.html

#2 The real problem with the economics Nobel
https://axecorg.blogspot.com/2016/09/the-real-problem-with-economics-nobel.html

#3 Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother
http://axecorg.blogspot.com/2017/08/economics-hereditary-mental-disease.html

#4 Economists and the destructive power of stupidity
http://axecorg.blogspot.com/2017/02/economists-and-destructive-power-of.html

#5 For details of the big picture see cross-references PoliticalEconomics
http://axecorg.blogspot.com/2015/11/political-economics-cross-references.html

Andrew Anderson said...

The Battle for Money Has Begun

Since Yves bans anyone who effectively (or otherwise?) disagrees with her, it would be nice if MNE republished this for honest debate.

Tom Hickey said...

@AA

Done.