Most mainstream economists seem to think the idea behind Modern Monetary Theory is something new that some wild heterodox economic cranks have come up with.
New? Cranks? How about reading one of the great founders of neoclassical economics — Knut Wicksell. This is what Wicksell wrote in 1898 on ‘pure credit systems’ in Interest and Prices (Geldzins und Güterpreise):Lars P. Syll’s Blog
MMT — the Wicksell connection
Lars P. Syll | Professor, Malmo University
Poor Wicksell — abused as a testimonial for MMT
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Lars Syll summarizes: “In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them. That also enables governments to run a kind of monopoly business where it never can run out of money. A fortiori, spending becomes the prime mover and taxing and borrowing is degraded to following acts. If we have a depression, the solution, then, is not austerity. It is spending. Budget deficits are not the major problem since fiat money means that governments can always make more of them.”
That much is, of course, true: Wicksell envisaged a pure fiat money system run by the central bank (= Giro system). This does not mean, though, that he was in any way a promoter of MMT’s claims or policies.
Wicksell certainly did not subscribe to patently false MMT propositions as:
• the value of money depends on taxation,#2
• the central bank is the state’s department for arbitrary money creation,
• deficit spending is the cure for all economic and social problems,#3
• public debt does not matter.#4
With regard to the theory of money, Wicksell, Keynes, and MMT are superior to DSGE/RBC/New Keynesianism. However, all three approaches failed to integrate the theory of money into a consistent macroeconomic framework or what Keynes called the ‘monetary theory of production’.#5
Egmont Kakarot-Handtke
#1 Going beyond Wicksell, Keynes, and MMT
https://axecorg.blogspot.de/2017/01/going-beyond-wicksell-keynes-and-mmt.html
#2 The creation and value of money and near-monies
https://axecorg.blogspot.de/2017/12/the-creation-and-value-of-money-and.html
#3 MMT is ALWAYS a bad deal for the 99-percenters
https://axecorg.blogspot.de/2017/12/mmt-is-always-bad-deal-for-ninety-nine.html
#4 Deficits matter for distribution
https://axecorg.blogspot.de/2018/02/deficits-matter-for-distribution.html
#5 Reconstructing the Quantity Theory
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1895268