One of our network coordinators, Rohan Grey, has written a 5-part response to the debate, which can be found here:
- Part I: Preface
- Part II: Monetary Operations vs. Political Economy
- Part III: Democracy, Taxes, and the Currency Monopolist
- Part IV: The (Legal) Extension of the MMT Case
- Part V: Coda
Another summary and critique can be found here, by JP Hochbaum.
46 comments:
Why are MMT folks still debating straw men?
The problem for Austrians debating MMTers is that MMTers know and understand NOTHING about Austrian concepts and/or analysis, and they like it that way. Regarding the nature of the value of money and of the only objective evidence of the subjective valuations of parties to an exchange (prices), Murphy spoke a few sentences instead of repeating verbatim his 1:25 lecture on the subject.
http://mises.org/media/7383/The-Value-of-Money
with the Power Point
http://media.mises.org/ppt/04_Econ400_Murphy.ppt
Since Rohan Grey and Warren Mosler know and understand nothing about Austrian concepts or analysis, that counts as a loss for Mr. Murphy.
I plan on responding to each point made in Rohan Grey's analysis.
As Warren pointed out, the Austrian analysis doesn't apply to the monetary system we have now. Murphy did not disagree that I heard. Fine if you want to change it to a fixed rate convertible system, but that's not operative now. Good luck with that.
Is Bob Roddis also a straw man? Can someone verify that he isn't just an algorithm-specific output from some ideologically programmed server in the gold-bug dept at U Chicago?
What do you call a virtual strawman? VSTRAW?
Might the entire history of discussions w Bob Roddis be nothing more than an amusing experiment of the Koch bros? It's definitely shown how little cpu cycles it takes to keep half the MMT community tied up, under siege by virtual strawmen.
May as well switch to discussing how much better things would be if we returned to the operations prevalent during the Egyptian 1st Dynasty?
Anyone got time for that? While "Rome" burns yet again, from teabagger fires?
good pont. Little is to be gained from discussing with delusional fantasists who just repeat the same ridiculous garbage over and over again.
the Austrian analysis doesn't apply to the monetary system we have now
Of course Austrian analysis applies to the system we have now. The system we have now precludes the emergence of freely negotiated prices, which includes freely negotiated interest rates and thus impairs economic calculation and leads to economic miscalculation and malinvestment.
Pursuant to the Rohan Grey test, failure to immediately refute a point with a detailed response means you've lost the point. You've lost this point.
Further, since no one responded to the 1:25 Murphy lecture plus power point on the value of money, I guess you've lost that one too.
Rohan Grey wrote: As MMT argues, taxation is what creates the demand for a particular "money-thing"
I responded: "That’s not true either. In the US, people were slowly tricked into using what had been silver certificates when the silver redemption language was removed. However, what keeps people using them are other taxes on all transactions using other forms of money. If you transact in foreign currency and/or precious metals, you have to keep track of your basis in the alternative money and pay capital gains taxes on any possible “gains”. A phony taxable “gain” can occur when the funny money “dollar” has depreciated against your alternative money that is used in a transaction. That’s a severe impediment to using alternatives to funny money “dollars”. Absent the government’s currency having significant independent value on its own as money for transactions, it could always be obtained very cheaply for use in paying taxes at the last possible moment if most transactions and savings were done using sound money.
Of course, if everyone was using sound money, the government would be hard pressed to use its funny money to steal purchasing power to impair “hoarding” or in getting the “flow” moving."
http://mikenormaneconomics.blogspot.com/2013/08/robert-murphy-smears-me-for-cheap-laugh.html?showComment=1376581740186#c5517235622871664767
Unless I missed it, I don't recall a response to that point by anyone.
Further, Murphy totally eviscerated the "we need deficits in order to have private savings" nonsense here:
http://mises.org/daily/5260
Doesn't understand "net financial assets." None of the Austrians do, because they government would have a role they don't want to admit it has.
The Austrian and neoclassical view of markets as atomistic and ergodic is an ideal that is never realized in that it requires a fixed amount of medium of exchange, like a fixed amount of energy in a closed physical system, and a circular flow through a fixed amount of use. With saving, the circular flow is of money is disrupted, disrupting the circular flow of goods produced and exchanged. Then there is population growth that changes the number of atoms.
It's an idealization of a static system that lives in imagination only.
All Murphy is doing is eviscerating his reputation as an economist.
Mr Murphys ignorance is amplified here:
http://bilbo.economicoutlook.net/blog/?p=15842
This explains "net financial assets" right?
http://rogueeconomistrants.blogspot.com/2011/10/what-is-net-financial-asset.html
"[T]he government's act of using private capacity can create the income that the private sector can use to buy government's borrowing that "funds" the spending (a circuitous process that seems to end up a wash, but with a corresponding higher net financial asset for the private sector). This income from government spending, which becomes 'net financial assets' can then be used by the person who receives it to purchase goods and services from another private person, transferring to that person the 'net financial asset' that he can use to buy other goods and services that he may require. "Net financial asset' then is what enables the private sector to increase aggregate demand without the corresponding liability of paying back that source of purchasing power."
That's not a statement of how the funny money system "operates". That's a bullshit made-up theory based upon no evidence whatsoever which claims that new funny money must be injected into society by the government. Or else BAD THINGS HAPPEN. And that the "economy" is a circuitous "flow" (it isn't) that the government must facilitate (which, it fact, it need not do).
Further, being required to pay taxes with funny money provides the money with minimal value. Being punished with taxes for using better forms of money is what provides most of the "value" for funny money.
Rogue is not MMT.
Net financial assets held by nongovernment in means non-government financial assets the liability of which lies on the side of government.
Financial assets held by the private sector where the asset and liability lie in the private sector net to zero. This includes all deposits created by bank loans, since the assets and liabilities net to zero.
This why nongovernment cannot net save overall without government providing the net. Parties in nongovernment can net save in assets where the liability lies in the private sector as well, but in this case net savers = net borrowers, and this nets to zero.
What if someone "hoards" their cash in jars? They don't owe it to anyone. Cash becomes more scarce, it becomes more valuable, more people demand cash, more stuff is made and it becomes more valuable yet, even under the present system. Where's the need for a funny money injection?
No, Bob, cash doesn't become scarce. Cash is manufactured like tiddley-winks and when customers demand cash at the window by drwoing down their accounts, banks provide it from vault cash they hold, which banks replenish from the db by exchanging rb. There is no limit on the amount of cash that the economy can hold. It's not a fixed amount but expands and contracts depending on demand for cash. Cash under the mattress is not actually in circulation and doesn't contribute to demand for goods, services or other assets, hence doesn't affect prices. Cash under the mattress is just another form of demand leakage to saving., i.e, residual income not consumed or invested.
"which banks replenish from the db by exchanging rb" should be from the CB (Fed in US) instead of "db". Sorry.
Bob, the claim that taxation creates a demand for a particular money thing is a logical claim.
Attempting to refute it with historical evidence from the US is a nonstarter, which is why i didn't respond earlier - you aren't actually addressing the point.
However, i'm pretty sure the right to issue taxes was written clearly into the constitution. The fact that the particular money-thing people thought they were signing up for was gold and silver, and that that changed at a later date, is irrelevant. They certainly weren't using the state paper money they had used prior to the revolution, nor were they using continental dollars.
And as for "taxes on transactions using other forms of money" - i see no reason why that is illegal under the constitution. What in the text suggests there is a limit on what the federal government believes should be acceptable in payment of taxes?
Regarding the debate, Bob, one doesn't need to respond *right away*, but one does need to provide a response at some point in a debate in order to be able to claim a point. I believe Murphy had plenty of chances, so if all the things you think he should have talked about were so critical to the Austrian understanding of the world vis-a-vis Mosler, why did Murphy ignore them?
Perhaps there is actually a winning Austrian case out there. But Murphy did not make it.
I haven't taken a position on the constitutionality of taxes on transactions using other forms of money.
I took the position that it was those taxes which strongly nudge people to use fiat money in their daily transactions. What I totally dispute is the claim that a requirement to pay taxes in a particular fiat money is what gives fiat money its value. It may result in it having some value, but not enough to be accepted and used in commerce. And having low value, it could be easily obtained. And if the entire process was understood by the masses, they would rebel.
BTW, is there a complete transcript of Murphy/Mosler debate?
In Part II of his analysis of the debate, Rohan Grey wrote:
Murphy’s non-response to Mosler’s claim that “the natural rate of interest on a floating fiat currency is zero” was, in my opinion, an implicit concession that the conventional Austrian Business Cycle narrative of government interference with otherwise “natural” interest rates is largely inapplicable to the current U.S. monetary system.
The central concept in Austrian economics is that prices are the most important source of economic information, especially unadulterated prices that are the result of free exchange. In 1920, Mises stated that socialism would induce mass poverty because with free exchange and private property abolished, there would be no prices. A response to this by a socialist saying "But we have no prices" does not refute or even address Mises' analysis.
The same principle applies to Austrian analysis of Keynesianism and fiat money under which there are prices, but they are distorted away from what they would have been absent the imposition of the new "modern monetary" policy (which, of course, is the announced purpose of the new policy). Mosler's response amounts to "But under the current system, there are no undistorted prices for loans aka interest rates".
Therefore, the "modern monetary system" results in distorted and adulterated interest rates every day, all the time. Which is the source of all the problems like the boom/bust cycle and asset bubbles.
So what if Murphy is too polite to jump up and say, "Gotcha". Mosler didn't address it and lost the point.
if banks tell their customers they have to repay their debts with dollars, that's a pretty big incentive for people to use dollars.
"the result of free exchange"
You choose what to charge your clients. You choose what price to sell your house. You choose how much you are willing to pay for a chocolate bar. Prices are usually the result of free exchange, to the degree that actually exists anyway.
A sweatshop worker in Bangladesh "chooses" to work for a pittance.
Further, Murphy totally eviscerated the "we need deficits in order to have private savings" nonsense here:
http://mises.org/daily/5260
After spend some time on pragcap + MR site recently, Cullen Roche is saying the same thing(don't need deficits for private sector saving) and he using it to criticize MMT saying that NFA is not relevant when compared to private sector money creation. Its related to the MR meme of S=I +(S-I). He gave me some strange convoluted examples of how loans and stock offerings can create wealth = Savings without federal deficit spending. The discussion was useful as it helped me to refine my understanding by thinking harder about definitions. Its possible to create definitions and loosely apply them in ways that accentuate personal agenda's as he obviously has. Sorry for barging in off topic.
cullen makes up any old crap to attack MMT.
S=I+(S-I) is just a simplified version of the sectoral financial balances equation used by MMT.
The basic sectoral financial balances equation says that private domestic saving (S) equals private investment (I), plus the government deficit (spending, G, minus taxes, T), plus net exports (exports, X, minus imports, M).
S=I+(G-T)+(X-M)
(This is a bit of a simplification because a current account surplus is not just net exports).
In other words:
(S-I)=(G-T)+(X-M)
So, S=I+(S-I)
(S-I) is the domestic private sector balance. If it is negative the private sector is in deficit, if it is positive the private sector is in surplus.
(S-I) is the net saving of the domestic private sector, also referred to as its net accumulation of financial assets.
For the domestic private sector as a whole to have a surplus, there has to be either a government deficit or current account surplus, or both.
If there is a current account deficit, the government has to run a deficit for the domestic private sector to be in surplus.
In the long-term, the only sustainable position is for private sector to be in surplus.
Not all countries can run current account surpluses at the same time. And a current account surplus based on a foreign private sector deficit is not sustainable in the long term.
"He gave me some strange convoluted examples of how loans and stock offerings can create wealth = Savings"
Do you have a link, or can you describe what he wrote?
y,
A in depth treatise on S=I+(S-I) by an MMT academic would be gr8, but they don't take it seriously enough to bother.
The example he gave me was along the lines of take out a loan and buy a house. Loan and deposit cancel out , but you still have the house which is like savings. So, in that case, he is stretching the definition of savings to include wealth. Then he took it further by saying the deposit created by the loan in the above example could be used to invest in an IPO which then leads to more wealth creation in the form of valuable stock certificates which are according to him "money-like" instruments. So, this demonstrates ( according to him) that the private sector can create its own S without the government creating NFA.
He then makes a bizarro claim that NFA = redistribution of bank money and not creation of new money.
Gov = monopoly issuer is not true according to him.
Of course the peaceful voluntary "sector" of society does not require the violent thug "sector" to help it create wealth. The dishonest way MMTers define things requires calling the peaceful voluntary "sector" "in surplus" whenever the violent thug "sector" "spends" more than it sucks up in taxes which it defines as a deficit.
If the violent thug "sector" creates and squirts some new funny money at a citizen, his gain is another citizen's lost of purchasing power which, in addition, will distort economic calculation. Calling the result of that situation a "surplus" for the peaceful voluntary "sector" and a "deficit" for the violent thug "sector" does violence to the English language.
bubble,
"A in depth treatise on S=I+(S-I) by an MMT academic would be gr8, but they don't take it seriously enough to bother."
Did you miss my comment:
S=I+(S-I) is just a simplified version of the sectoral financial balances equation used by MMT.
The basic sectoral financial balances equation says that private domestic saving (S) equals private investment (I), plus the government deficit (spending, G, minus taxes, T), plus net exports (exports, X, minus imports, M).
S=I+(G-T)+(X-M)
(This is a bit of a simplification because a current account surplus is not just net exports).
In other words:
(S-I)=(G-T)+(X-M)
So if
S=I+(G-T)+(X-M)
Then
S=I+(S-I)
Ok?
There is nothing new or original or particularly illuminating about S=I+(S-I).
It is the sectoral balances equation used by MMT arranged in a different form, that is all.
MMT economists have written a TON of stuff about sectoral balances.
"The example he gave me was along the lines of take out a loan and buy a house. Loan and deposit cancel out , but you still have the house which is like savings"
Ok it's the sectoral FINANCIAL balances.
Financial. Money.
Real assets, like houses are not financial assets.
Financial assets and liabilities are the means to acquire real assets like houses, as well as providing utility in and of themselves.
So to buy a house you usually need money (your asset and someone else's liability), which you usually get through taking out a mortgage (your liability and someone else's asset).
bubblerefuge, no economist disagrees that prudent investment leads to increased real wealth in terms of goods not consumed in a period, which is the increase in non-consumption items (including inventory planned and unplanned). Investment is expenditure on goods that are not consumed in a period. The line between consumption goods and durable goods is not a fine one, and accounting rules set the boundaries rather than intuition so that accounting is consistent where the rules applied.
But S as saving is define technically as income not consumed in the period, so if income is $X and funds spent on consumption is #Y, then S is ($X - $Y) as residual income.
Saving and savings are terms with different meanings but in an identity the meaning has to be defined operationally (technically) and that definition stuck to application of the identity.
This becomes clear in terms of the accounts into which various entires fall, and accounting reports — balance sheet, income statement, and cash flow report/flow of funds — are generated from aggregating these into categories.
Failure to keep terms and definitions straight leads to all kinds of pseudo-problems that disappear on analysis of meaning. All fields are full of such syntactical errors.
bubblerefuge,
Randall Wray talks a bit about 'real' and 'financial' here in his 'MMT primer':
http://neweconomicperspectives.org/2011/09/mmp-blog-17-accounting-for-real-versus.html
Also see this page for an extensive list of MMT papers and publications:
http://neweconomicperspectives.org/mmt-scholarship
Also some relevant posts by Bill Mitchell here:
Sectoral balances – Parts 1, 2, 3:
http://bilbo.economicoutlook.net/blog/?p=21287
http://bilbo.economicoutlook.net/blog/?p=21389
http://bilbo.economicoutlook.net/blog/?p=21467
"Then he took it further by saying the deposit created by the loan in the above example could be used to invest in an IPO which then leads to more wealth creation in the form of valuable stock certificates"
If you sell stocks or shares you're just selling ownership over something you currently own. Say you own 100% of a company, you then sell shares in ownership of 50% of the company. You now have more money, but you own less of your company. So no increase in NFA.
bubblerefuge:
this blog post by Michael Sankowski (another 'MR' person) contradicts Cullen re stocks.
Perhaps you should show this to Cullen.
http://traderscrucible.com/2011/02/22/two-minutes-hate-why-not-accept-the-basic-accounting-of-mmt/
Agreed on the Math. That wasn't my point. They are interpreting it to justify conclusions from my previous remark.
"a bizarro claim that NFA = redistribution of bank money and not creation of new money"
Cullen either doesn't understand the accounting or is wilfully misleading people.
Agreed Tom on your last threads. That is essentially what I told. Create your own definitions and you can reach any conclusion you want to reach. The question is who's definitions are relevant. The monetary realism crowd claims there definitions are more realistic hence the "Realism" moniker.
if you sell stocks or shares you're just selling ownership over something you currently own. Say you own 100% of a company, you then sell shares in ownership of 50% of the company. You now have more money, but you own less of your company. So no increase in NFA
Ofcoarse agreed. My take is they are trying to create a micro-economic straw man to justify a macro economic staw man. Micro and Macro often contradict as we know from fallacy of compositions such as paradox of thrift , minimum wage, etc.
Cullen either doesn't understand the accounting or is willfully misleading people.
He understands the accounting. No doubt. The guy is smart and well read. My take is that he is interpreting the backend operational details of the monetary system in such a way as to justify his conclusion that private money and the private sector supersedes the reserve system and the government has ceded money creation power to the banks and is therefore subordinate to them.
My take on his motivation is he is a right leaning guy who works in finance and is doing well financially. Got enamored with MMT but then once he got wind of Bill Black, the JG idea, and the anti-big-finance meme within MMT he started figuring out a way to distance himself from MMT and found a few guys who are like minded to join him.
"He understands the accounting. No doubt"
In my experience Cullen often demonstrates a complete inability to understand basic economic concepts. His method of argumentation is often completely illogical and apparently based on random free-association.
I once saw his method of reasoning described as "frankenstein logic", which I thought was very apt.
His logic led him to conclude gold is money.
His logic led him to conclude gold is money.
LOL . Might as well. He thinks houses are money + stocks shares are money.
Also, he's been made fun of this site indirectly by saying he has more traffic comparatively.
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