Scott Fullwiler explains to Scott Sumner how MMT is a quantity theory of money (QTM) but differs from monetarism in the definition of money supply (M) and velocity (V).
Read it at The Diary of a Republican Hater
A Scott Sumner-Scott Fullwiler Grudge Match Revisited
by evilsax
This touches on one of my greatest frustrations with mainstream macroeconomics, at least as I see it reflected in the blogs written by macroeconomists: they are constantly deducing causal conclusions from theoretical models that have no explicit causal components. Even models that have time components and derivatives are not necessarily causal models. These models just place constraints on causal assertions; they do not entail causal assertions.
ReplyDeleteThe quantity theory of money comes in different forms, but it is often thought to be captured by the equation of the exchange. But even after one disambiguates and defines the ambiguous terms in that equation, you can't infer a single substantive causal proposition from it.
But the policy-maker is concerned above all with causal propositions. They need to know which phenomena are causes and which phenomena are effects. They need to know the likely outcomes of the various policy alternatives presented to them. And they need to know the causal relationships that obtain among actual, specific, historically conditioned and contingent human institutions in actual societies. A few general, non-causal rules relating extremely high-level and abstract, quasi-fictional aggregates like "the price level", that are theoretically applicable to any currency-using society, don't give you much to go on. You don't know how to operate a steel mill just because you understand the first and second laws of thermodynamics.
But macroeconomists are constantly spitting out such advice, relying mainly on their own unconfirmed, common-sense intuitions that have little to do with the abstract theories they have mastered mathematically.
The neo-monetarists are among the worst offenders, relying on sheer obscurantism to cover up their institutional illiteracy.
Tom,
ReplyDeleteJoseph Laliberte wrote a fantastic post on MMT as a quantity-theoretic theory of the price level. It builds upon Scott Fullwiler's position. See here:
http://fictionalbarking.blogspot.ca/2012/02/fiscal-policy-vs-monetary-policy-to.html
Components of the monetary base plays no role in the MMT model. Instead, net financial assets of the non governmental sector along with the desired leveraging of the non governmental sector are the key variables.
Joseph's post is detailed yet succinct. I highly recommend it.
I cannot not even figure out what point he is trying to make. It sounds like he has a monopoly on some kind of secret ethereal knowledge, which only he and true believers can understand.
ReplyDeleteThanks, circuit, promoted to a post.
ReplyDeleteDan,
ReplyDeleteWhat's interesting to me is the way that people take the econ blogosphere to be somehow representative of current mainstream thought in the area of macroeconomics. Most people who do research don't have time to read bogs, let alone write them.