Tuesday, August 25, 2015

Bill Mitchell — The roots of MMT do not lie in Keynes

I am currently working on an introductory chapter to a collection I have prepared for my publisher (Edward Elgar) which describes the evolution of Modern Monetary Theory (MMT). The task might appear to be straightforward but in fact is rather vexed. There is considerable dispute as to where the roots lie. A specific debate is the importance of the work of John Maynard Keynes. Many Post Keynesians, almost by definition, believe that Keynes was a central figure in the development of what we now call Post Keynesian economics, although that ‘school of thought’ evades precise identification and is certainly anything but homogenous. There are MMT proponents, who while sympathetic which much of Post Keynesian theory, disagree on key propositions – specifically relating to debt and deficits (as an example). But then they also point to Keynes’ work as seminal in the development of MMT. My own view is that many of the important insights in Keynes were already sketched out in some detail in Marx. Further, the work of the Polish economist Michał Kalecki was much deeper in insight than the work of his contemporary, Keynes. But for me the real sticking point against Keynes was his view that fiscal deficits should be balanced over the business cycle and that would allow governments to pay back debt incurred in the deficit years. That view has crippled progressive thought ever since and is antithetical to MMT. The debate also has resonance with the current leadership struggle within the British Labour Party about fiscal deficits and the claims by the ‘socialist’ candidate, Jeremy Corbyn that he will “balance the budget” when unemployment is low so as to avoid inflation. This view derives from the adoption by progressives of Keynes’ views, whether they know that or not. It is a mistaken view and retards progressive policy development.…
Bill Mitchell – billy blog
The roots of MMT do not lie in Keynes
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Ramanan said...



Maybe Keynes made mistakes. But it's intellectually dishonest to deny the roots in Keynes. Randy Wray is a Keynes fan I thought.

Ramanan said...

I mean the GT has so many errors. Bill could have instead said that he disagrees on many things said by Keynes but ...

John said...


Bill isn't arguing that Keynes is a bad economist. No, his argument is simply that Marx got their first and Kalecki extended a lot of the important insights in a far more coherent and useful way than Keynes did, and without all the neoclassical baggage that Keynes refused to shed and which befuddles today's economics.

Bill is probably right about Kalecki and Keynes. As someone once put it, you don't read Kalecki for his prose, whereas Keynes is such a master prose stylist you can read him for hours on end. For that reason, the superior Kaleckian analysis will forever be in the Keynesian shadow. And that's before the realisation of how unnerving Kaleckian analysis is, what with all its near Marxism without the unnecessary Marxist baggage.

Dan Lynch said...

I see Bill's point on balancing the budget but Keynes popularized the notion that fiscal policy should be used to stabilize the economy. He popularized the notion that capitalism is inherently unstable. He popularized the notion that the government should be responsible for maintaining full employment when the private sector fails to do so. Those are important components of MMT.

There are so many MMT influences it's hard to choose just one. Lerner, Kalecki, Godley, Minsky, certainly. Before them there was Eccles. Before Eccles there was C.H. Douglas. Before C.H. Douglas there was Henry Carey. And so forth.

None of them got everything right, and I don't think MMT gets everything right. As Isaac Newton said, " If I have seen farther than others, it is because I have stood on the shoulders of giants." Keynes was certainly a giant.

A said...
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John said...

Dan: 'As Isaac Newton said, " If I have seen farther than others, it is because I have stood on the shoulders of giants." Keynes was certainly a giant.'

Well said. The problem, like with the Marxists, is when even utterance from the "Master" becomes religious dogma. If economics has pretensions of becoming a science, then it should jettison all this hero worship of Keynes, Smith, Marx and the rest of them. Where Keynes is right, good. Where he's wrong or superseded by events, do a Keynes: if and when the facts change, change your mind. Don't be irrational and hold your ground. For lack of a better term, be scientific. That's why I very much like Bill Mitchell's real world attitude to economics.

Tom Hickey said...

Bill is not saying anything here he has not said before.

MMT grew out of Warren Mosler's Soft Currency Economics, the central point of which is that countries that are the sole providers of their currency, float their currency and don't borrow in what they don't issue are currency monopolists (set their own rate and determine what prices they will pay in markets to move resources from private to public use. MMT was born when Warren was joined by Randy and Bill, who added the economics to the finance. Warren was not influenced by Keynes in his insight, and he criticizes Keynes for not realizing it. Bill traces the important aspects of MMT to non-Keynesian sources. I don't know where Randy stands on this, since I am not aware he addressed it. He emphasizes Minsky, under whom he wrote his dissertation.

Scott has said that MMT's roots are both Post Keynesian and Institutionalist. I would venture to say that Scoot considers himself influenced as much by Institutionalism as Post Keynesianism, if not more.

Presently, the two major economic positions are marginalism and "Keynesianism," which differ over the role of money and uncertainty. The two major financial positions are monetarism (emphasis on central banking and interest rates) and fiscalism (emphasis on government finance). Marginalists are generally associated with monetarism and Keynesians with fiscalism. There are different approaches to both, but most economists emphasize one over the other. Warren is especially anti-monetarist, recommending setting the policy rate permanently to zero.

Monetarism is characterized by a focus on price stability and growth, while Keynesian is characterized by focusing on full employment (utilization) of available resources for maximal effectiveness and optimal efficiency.

MMT falls into the Keynesian side of these two broad groups encompassing a variety of schools of thought.

This broad categorization is confused by the fact that some who call themselves Keynesians are actually monetarists., so that not all "Keynesians" are actually Keynesian.

I think that the MMT economists would likely identify with Schumpter and Minsky (Schumpter's student) in refusing to be lumped into any school of thought. They are eclectic, taking ideas they consider insightful from a variety of sources.

So I would say that broadly speaking, MMT is a kind of "Keynesianism" but it was not derived from Keynes and owes much more to other influences.

I don't see any of them being dogmatic about Keynes, or Lerner for that matter. They have criticized some of the views of Keynes, and II have net seen them appealing to Lerner's fourth principle of functional finance (MAP), which he developed later. See Map: A Market Anti-Inflation Plan (1980) by David Colander and Abba Lerner.

Dan Lynch said...

Good summary @Tom and thanks for making me aware of MAP. Added to my book wish list.

I recall Warren mentioning that he had not read Keynes, and that Warren didn't seem too impressed with Keynes. On the other hand Minsky's interpretation of Keynes is sometimes touted as the "real" Keynesianism and Minsky is supposedly one of the intellectual cornerstones of MMT.

Matt Franko said...

Ram this is probably mostly provocative rhetoric from Bill here to draw attention to the lunacy of the "balanced budget" crew ... he's all fired up and headed to UK for meetings with the Labour people.... hope he can crack open some skulls over there best of luck to him...

Dan Lynch said...

After thinking about this some more, if we are going to disassociate ourselves from any economist who was ever wrong about anything ......

Schumpter believed that depressions should be allowed to run their course without government intervention. "Gentlemen, a depression is for capitalism like a good, cold douche." So MMT should deny any association with Schumpter.

Minsky flip flopped on deficit spending, but he used deficit fearmongering to justify ending or cutting transfer programs that he didn't like anyway. And in a paper he wrote toward the end of his life, Minsky sounded a lot like Keynes. "The increase in this [debt-to-gdp] ratio .... shows that fiscal policy was irresponsible. ..... the ratios, which is what really matters. .... the 1982 ratio of debt to gdp of 33% is appropriate" ~ Hyman Minsky, 1995. According to Bill's logic, no self respecting MMTer should acknowledge Minsky.

Didn't Wynne Godley also believe that deficit spending was unsustainable? So to heck with Godley.

Ramanan nailed it -- it's "intellectually dishonest" to deny the influence of prominent economists just because they were wrong about one thing. It would have been more accurate for Bill to say "MMT agrees with Keynes on many things, but we disagree on this one point."

Tom Hickey said...

I think that Bill is talking more about the origins and influences on MMT and its development. He is saying that Keynes did not play a major role in comparison with others. MMT is not old Keynesian or paleo-Keynesian. Nor is it Post Keynesian, anymore than Minsky was. Some consider Minsky to be a Post Keynesian but he never acknowledge that classification.

I take it that Bill is setting about documenting the development of MMT in this new book, and this requires citing the influences on it.

circuit said...

Hi Tom,

Monetarists would disagree with your characterization that their focus is on interest rates. Rather, it's all about money (mainly currency and private banking liabilities). In fact, during the monetarist debates of the 50s and 60s monetarists resorted to studies showing that interest rate movements have no effect on investment, contra conventional Keynesian theory (à la IS curve).

As for Bill's commentary. This seems odd to me. IMO, MMT is largely "Minskeynesian". It'S largely based on Minskyès finance-centric interpretation of Keynes. Yes, as Dan and other suggest, Lerner, Knapp and others are all important influences. But most of the formal work (i.e., by Wray) is based on Minsky.

circuit said...

...That last sentence makes me vulnerable to criticism so I'll retract it. There lots of good work based on a variety of views in MMT. That said, I'm looking forward to Bill's book on the development of MMT. It will be a nice complement to Wray's little book on the operational and more descriptive side of MMT.

Dan Lynch said...

Well, perhaps our comments are much ado about Bill's poor choice of words. :-)

I view MMT as an evolutionary descendant of Keynes. Apparently other people agree as shown in this family tree, (though Kalecki, Eccles, and others should also be given credit.)

MMTer James K. Galbraith seems to identify with Keynes.

Bill and Warren may deny that they were influenced by Keynes, but Warren was an economics major in the 70's so he surely would have been exposed to the Samuelson version of Keynes just like I was. I think they are simply taking many Keynesian concepts for granted. If you were transported back in time to the 1920's you would observe no consensus that government was responsible for full employment, no consensus (among capitalists) that capitalism was inherently unstable, and no consensus that deficit spending could be a good thing under any circumstances.

If nothing else this thread serves as a reminder that no two people seem to agree on what MMT is. :-)

Tom Hickey said...

Thanks, circuit. I should have made the distinction hang on accentuation of either monetary or fiscal policy, — central bank (politically independent) or Treasury (through appropriations).

I'll be interested to see how Randy reacts to Bill's view of MMT development.

I don't think that all MMT economists are on the same page on everything, even though they present a united front. In fact, if they are on the same page on everything, I'd be concerned about group think.

Bill was there pretty much from the start and I assume he will run the draft by Randy and Warren. And Warren has his own views, Warren can claim to be the founder of Soft Currency Economics, of which MMT was a development.

Hopefully the book will get a discussion going that will clarify some of these issues.

Roger Erickson said...

"but Keynes popularized the notion that fiscal policy should be used to stabilize the economy"

?? He was hardly the first!

10,000 years - at least - of tribal policy says that aggregate purpose is to stabilize and grow the aggregate.

We needn't appeal to any higher authority.

Keynes isn't some god. He's just a non-economist who pointed out common sense to economists.

Dan Lynch said...

@Roger, can you name someone else who POPULARIZED it?

Marriner Eccles and Huey Long are the only two I can think of in the U.S.. Today most people have never heard of them.

Calgacus said...

Roger, Keynes would not have said he was the first. He emphasized that the amazing thing about "classical" economics is that it managed to be both counterintuitive & wrong. He said in his letter to Shaw that he wanted to prove that what seemed like good sense was good sense. That avid reader of Keynes, Wigforss said it even better in his great "Can we afford to work?" pamphlet that created Swedish Social Democracy & made a poor country into a rich one. But the subsequent brainwashing, the divorce from Keynes/ Wigforss / tribal as you say common sense - is so deep that even the MMTers usually use "counter-intuitive" when they should say "hyper-intuitive".

IMHO the "traditional" "common knowledge" view that Keynes was the primary academic exponent & popularizer and intentionally-deficit-spending-from-the-beginning Keynesian FDR was by a long shot the most important real world popularizer - is the plain & simple truth. This should not be obscured by academic controversializing, overcorrections that make minor exceptions, ambiguous statements and caveats obscure facts that speak for themselves to everyone. To some extent that is what Bill Mitchell, whose attitude towards Keynes is well-known, but imho not based on sound reasoning, did in this post. He is not taking a proper historical attitude as Dan Lynch argues above. Of course there is a lot wrong with Dan's views of Minsky - who did acknowledge himself as something of "Post-Keynesian" by the way - verbally ... and just look at who he hung out with, where he worked and published - actions speak louder than words anyways.

Today's MMT clearly was derived from Keynes directly & indirectly & Lerner & Kalecki & institutionalists like Commons - who Keynes considered the contemporary whose thinking was closest to his own. Bill's support of the "common knowledge" that he uses as the centerpiece of his downrating of Keynes - and is apparently believed by everyone else in the world but me (& maybe one other) - that Keynes favored balancing budgets over the cycle is still not given adequate support in his post by normal scholarly standards. Where is Keynes actual statement to that effect, one that is not tendentiously stretched, one that can stand against the multitude of statements in the opposite direction? Perhaps those standards are usually honored in the breach more often than the observance :-).

Peter Pan said...

Why can't they all share the podium, including Marx?

Meanwhile, in other circles, Keynesian is a dirty word.

Greg said...


Thats right about monetarism. Their new hobby horse is NGDP targeting, which they view as simply the result of the amount of money in the economy, more money more NGDP.

Ive also noticed how there is seeming to be a blending of monetarism and RBCers (Austrians). Nick Rowe seems to have acquired that Murphy guy as a new BFF. He is constantly leaving comments on Nicks site now.

I think its unfortunate but just a sign of the times that Mitchell feels he has to somewhat dissociate from Keynes. Its like the word liberal which has become a proxy for just wanting to play Robin Hood with the govt.

A good article talked about this phenomenom here;


Roger Erickson said...

My comment had little to do with Keynes himself, but rather to academic and public treatment of the man.

Common sense is common for long periods, then invariably becomes uncommon, then some wag points out that prior common sense was actually correct .... and then, instead of just returning to common sense, we form camps who divide & conquer themselves by fighting over whether said wag was a God or a devil.

Humans. Ya gotta laugh at & love 'em.

This sums my view of the "controversy" over whether Keynes invented common sense, or not.

His argument to use common sense isn't the issue. Our discussion of it ever since is inane to the point of comedy.

Roger Erickson said...

Didn't some also attempt to make a God out of the guy who cut through all the Gordian Knotheads? :)

Roger Erickson said...

"@Roger, can you name someone else who POPULARIZED it?"

Well, yes.

After years of this, I'm far more impressed w John Law, and then the no-nonsense folks who actually DID the several intra-colony-scrip systems back in the 1680s.

Ben Franklin lauded them in his 1727 newspaper article, and 50 years later noted that the Brits attempts to stamp out the "public currency" of the colonies was the root cause of the American Revolution.

Now THAT is popularizing common sense.

Then there's Wicksell, and Veblen, and a long tail of others, LONG before Keynes.

In fact, I'd describe this whole topic as one, long, slowly failing attempt by the British Banking Lobby to overtly prevent public understanding of aggregate fiat AND ways to automatically denominate aggregate fiat.

Every time I ponder the subject, I conclude that the entirety of Orthodox Economics is just a management theory for aristocrats who want to "manage" the peasants whom they claim lordship over.

Orthodox economics & wage-BS-of-labor is NOT how Göbekli Tepe, Stonehenge, the Ohio Mound Builders, the Olmecs or countless other ancient megalithic sites were built.

It's also not how WWII was won. It's only the claimed explanation for intelligent cooperation occurred, on a scale larger than we could easily describe, using current presumptions about how and why people do things.

Roger Erickson said...


It's only the claimed explanation for how intelligent cooperation occurred, on a scale larger than we could easily describe, using current presumptions about how and why people do things.

There are endless examples of "emergent" organization, that cannot be explained by the components of that organization. That's simple math.

No component can mirror all the information broadcast by the aggregate it's a participating part of. Again, simple math.

Roger Erickson said...

"Wigfors pamphlet"

Fascinating. Thanks.

sounds like common-sense tribalism to me

"That avid reader of Keynes, Wigforss said it even better in his great "Can we afford to work?" pamphlet that created Swedish Social Democracy & made a poor country into a rich one."

gotta look up Ernst Wigforss now (a contemporary of Marriner Eccles)

Today, I'd add 2 more pamphlets

"Can we afford democracy?"
"Can we afford to think?"


I'm rather afraid of what an immediate, nationwide poll would answer. Good thing evolution is not something that gets voted on, except by foot (not in mouth).

Tom Hickey said...

To summarize, Roger, free riders hijacking the system by influencing information. TPTB and their cronies and minions are parasites on the system and need to be eliminated through strengthening the immune system by inoculating it against disinformation. Difficult when the parasites have taken control of the media, academia, the educational system, and major cultural levers.

What's the recommended antibiotic, especially when democracy has been subverted.

MRW said...

"without all the neoclassical baggage that Keynes refused to shed and which befuddles today's economics."

Hunh? Neoclassial? You kidding me? You really need to read Paul Davidson's book, "THE KEYNES SOLUTION The Path to Global Economic Prosperity."

Don't miss the Appendix that explains why Keynes has NEVER been taught in American Universities. Absolutely delicious.

Roger Erickson said...

forget universities (Keynes too), just teach Ben Franklin, Abe Lincoln & Marriner Eccles in American highschools

Not to mention Warren Mosler