Friday, February 24, 2017

Randy Wray — MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?

Randy replies to criticism that some of Minsky's views appear to be at odds with MMT. Randy's answer is nuanced.

New Economic Perspectives
MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?
L. Randall Wray | Professor of Economics, Bard College


Magpie said...

Wow. Fascinating stuff.

Congratulations to Prof. Wray for explaining all this open and honestly. I'm looking forward to his upcoming paper.

So, the question that matters to us, as I see things, is this:

Okay, maybe Lerner got cold feet about functional finance. Fine. What should we do? Follow him in that, or not?

Speaking on my own behalf and highlighting that I ain't no MMT expert, I see no reason why we should, at least until the people who really knows argue their case. But, as always, that's me.


By the way, this post by alittleecon (a blogger whom I've never found before) explains what "Lerner's Law" is. I'm not sure it's accurate, but it seems okay to me (if I'm mistaken, by any means, let me know).

Lessons for Corbyn in “Lerner’s Law”

Tom Hickey said...

Abba Lerner collaborated with David Collander later in his life in developing Map: A Market Anti-Inflation Plan (1980). See David Collander, Functional Finance, New Classical Economics and Great Great Grandsons (free pdf):

[David Collander, p. 2] The rules of Functional Finance
I will first specify what functional finance is. ‘Functional finance’ is the name given by Lerner to the theory of financing government according to the following three rules: (1941)

[Abba Lerner] 1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.

2. By borrowing money when it wishes to raise the rate of interest and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.

3. If either of the first two rules conflicts with the principles of ‘sound finance’ or of balancing the budget, or of limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2. ….

[David Collander, p. 12] To integrate the necessity of dealing with the institutional problem of sellers’ inflation by changing institutions rather than accepting whatever unemployment was required to stop inflation, Lerner and I arrived at a modification of the rules of functional finance. Specifically, we added a fourth rule: ‘The government must establish policies which stabilize the price level and coordinate both the money supply rule and the aggregate total spending rule with this stable price level at the unemployment level it prefers.’13 With this fourth rule the rules of functional finance can once again be relevant to modern economic problems.

Bill Vickrey came up with a similar anti-inflation plan based on auctions.

I haven't seen any support for this coming from MMT economists. As Randy said in his post, such proposals were a result of the stagnation of the '70s.

Magpie said...

@Tom Hickey

This is probably a storm in a teacup. It caught me by surprise, though.