Sunday, August 27, 2017

Peter Cooper — The Social Economy and the Potential Inherent in Currency Sovereignty

In any society, of whatever configuration, production at a given point in time is limited by certain ‘real’ (meaning non-monetary) factors. Notably, a society’s productive activity will always be limited by access to natural resources, the current state of its technology, and the skill, strength, size and imagination of its people. These and similar factors determine the absolute productive potential of a society. At a given point in time, these factors would apply even if, hypothetically, a society happened to be organized in a completely different way to its current form of existence.

But this refers only to the upper limit – the potential – of social production and reproduction, taken at a particular point in time and viewed in ahistorical and static terms. Under a particular societal form, production can easily run into barriers located well inside its real limits. This is certainly true of capitalism, a system in which nothing gets produced for exchange without an expectation of a monetary demand for the final product. The production may well be possible, and its product desired by a section of the community, but unless that desire is backed by both willingness and capacity to pay, the production will not take place....
The Social Economy and the Potential Inherent in Currency Sovereignty
Peter Cooper


hoonose said...

Early in WW2 central policy allowed many banks to make loans to all the related businesses and industries needed to support the production of all the necessary war materiel. As time was of the essence, this was allowed to happen due to Fed guarantees.

MRW said...

It wasn't federal guarantees, it was federal need, a stated desire for production of certain goods. In other words, a vibrant fiscal policy to support the war effort.

AXEC / E.K-H said...

MMT: soap box economics just like the others
Comment on Peter Cooper on ‘The Social Economy and the Potential Inherent in Currency Sovereignty’

Ninety-nine percent of human communication is storytelling, only one percent is science. Scientific knowledge is embodied in the true theory. The true theory is the best possible mental representation of reality. Scientific knowledge satisfies two criteria: material and formal consistency. The economist needs the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

MMTers do NOT have the true theory. They do not even know what a theory looks like: “A scientific deductive system (‘scientific theory’) is a set of propositions in which each proposition is either one of a set of initial propositions … or a deduced proposition … in which some (or all) of the propositions of the system are propositions exclusively about observable concepts (properties or relations) and are directly testable against experience.” (Braithwaite)

MMTers do not have the true theory but they have a story. The story line goes like this:

(i) “At the macro level, a lack of monetary demand in the present will result in unemployment or underemployment of workers who otherwise could be contributing to the development of technology and future productive capacity.”

(ii) “In the prevailing economic system, money matters. Not only will production for exchange fail to occur when demand for future output is expected to be weak, but production will typically not even take place until monetary expenditure has occurred. In most lines of business, capitalist firms need to pay wages before the production process is complete and output sold.”

(iii) “It is not just that, by definition, spending equals income. It is that spending, logically, is the determiner of income and income the mere result.”

(iv) “We know, of course, where the money comes from. There are essentially only two origins: lending (whether public or private) and government spending. The money, from inception, must be created ex nihilo for capitalist production actually to take place.”

(v) “… a currency-issuing government’s capacity to override profit imperatives makes possible a broadening and enriching of social life, a reshaping of the workplace and resetting of economic priorities, ….”

The MMT story line contains an employment theory (i), a money theory (ii), (iv), an income-expenditure model (iii), and a profit theory (v). All these elements are false because MMT is built upon this false premise: “It is not just that, by definition, spending equals income.” MMT builds on a macroeconomic income and profit definition that is false since Keynes’s General Theory.*

As Aristotle said 2000+ years ago: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

The pivotal premise of MMT is neither certain, true, nor primary. Because the premise is false the whole theoretical superstructure is false. This property MMT shares with Walrasianism, Keynesianism, Marxianism, and Austrianism. Economics is proto-scientific rubbish since Adam Smith and MMT is part of it.

Egmont Kakarot-Handtke

* For the point-by-point refutation of MMT see cross-references

hoonose said...

Of course there was a national need. The Fed (not Federal) guaranteed thousands of bank loans as time was of the essence, and most banks did not have enough information on the specifics of these loans.

How is a bank to know the risks of a loan to companies desiring to produce things they never made before? How is the bank to know numbers or volumes of product, when those specifics have to be kept secret?