The Effects of Modern Monetary Theory on the Structure of Production — Patrick Newman

 For the record. From an Austrian economist.

Abstract

This paper analyzes the debt monetization proposals of Modern Monetary Theory from an Austrian structure of production perspective. It shows that this policy raises societal time preferences and reduces the number of higher order stages in the economy, leading to a higher interest rate, lower economic growth, and increased prices of consumer goods. In order to demonstrate this, it goes back to the basics and investigates the nature of government spending and how it differs from investment. I argue that Murray Rothbard, a staunch critic of Keynesian economics who would have also fiercely opposed MMT had he lived to see its rise, was correct to classify government expenditures as unproductive consumption that detract from genuine marketplace economic output. I then defend Rothbard’s position by explaining the very serious concerns some economists had in the 1930s and 1940s regarding how to measure government’s contribution to aggregate production statistics. Armed with a proper understanding of government’s antithetical nature to investment, the chapter is then able to explain why MMT’s proposal to expand the money supply to finance government spending shortens the production structure.

"I argue that Murray Rothbard, a staunch critic of Keynesian economics who would have also fiercely opposed MMT had he lived to see its rise, was correct to classify government expenditures as unproductive consumption that detract from genuine marketplace economic output."

This is a huge assumption that Keynesians of all types, many if not most institutionalists and Marxists and neo-Marxists would reject. Some neoclassical economists would agree with this assumption although perhaps in a weaker form. 

This assumption is pertinent at present since it lies at the foundation of DOGE and seems to reflect Elon Musk's monetarist thinking about economics and finance. 

Libertarians would of course agree with the assumption that government expenditure is unproductive and that they should be cut in favor of lower taxes. This is assumption correlates with the assumption that there are no public goods, only private goods.

The market-based state is also foundational for neoliberalism.

SSRN

The Effects of Modern Monetary Theory on the Structure of Production
Patrick Newman, Assistant Teaching Professor of Economics, University of Tampa