BTW, Hyman Minksy was Schumpeter's student and MMT economist Randy Wray was a student of Minsky.
Lars P. Syll’s Blog
Schumpeter — an early champion of MMT
Lars P. Syll | Professor, Malmo University
Lars P. Syll’s Blog
Schumpeter — an early champion of MMT
Lars P. Syll | Professor, Malmo University
11 comments:
They do, however, something—it is perhaps easier to see this in the case of the issue of banknotes—which, in its economic effects, comes pretty near to creating legal-tender money and which may lead to the creation of ‘real capital’ that could not have been created without this practice. Joseph A. Schumpeter [bold added]
And the boom-bust cycle since bank credit goes back to nothing as it is repaid - dragging along with it interest that does not necessarily exist in aggregate. Then you have real capital rusting for lack of aggregate demand in the bust.
Nor is bank credit the only conceivable means to finance increases in real capital; at least two other means exist without the deflation inherent in bank credit. These are:
1) Common stock issue.
2) Assuming that citizens may eventually use their own Nation's fiat*, then continual deficits by the monetary sovereign would provide new fiat for the purpose of consumption and investment, including actual lending of fiat ("loanable funds").
*Besides grubby, unsafe, totally inadequate for modern commerce PHYSICAL fiat, a.k.a. "cash".
Poor Schumpeter — abused as a testimonial for MMT
Comment on Lars Syll on ‘Schumpeter — an early champion of MMT’
Lars Syll cites Schumpeter: “The theory to which economists clung so tenaciously makes them out to be savers when they neither save nor intend to do so; it attributes to them an influence on the ‘supply of credit’ which they do not have. The theory of ‘credit creation’ not only recognizes patent facts without obscuring them by artificial constructions; it also brings out the peculiar mechanism of saving and investment that is characteristic of fullfledged capitalist society and the true role of banks in capitalist evolution. With less qualification than has to be added in most cases, this theory therefore constitutes definite advance in analysis.”
Lars Syll, though, fails to cite the sequel: “Nevertheless, it proved extraordinarily difficult for economists to recognize that bank loans and bank investments do create deposits. In fact, throughout the period under survey they refused with practical unanimity to do so. And even in 1930, when the large majority had been converted and accepted that doctrine as a matter of course, Keynes rightly felt it to be necessary to reexpound and to defend the doctrine at length(fn.5), and some of its most important aspects cannot be said to be fully understood even now.”
Fn. 5 says: “There is, however, a sequel to Lord Keynes’s treatment of the subject of credit creation in the Treatise of 1930 of which it is necessary to take notice in passing. The deposit-creating bank loan and its role in the financing of investment without any previous saving up of the sums thus lent have practically disappeared in the analytic schema of the General Theory, where it is again the saving public that holds the scene. Orthodox Keynesianism has in fact reverted to the old view according to which the central facts about the money market are analytically rendered by means of the public’s propensity to save coupled with its liquidity preference. I cannot do more than advert to this fact. Whether this spells progress or retrogression, every economist must decide for himself.”
Keynes’ GT is a clear retrogression. And, as a matter of fact, MMT followed the Keynes of the GT. It should not be too difficult to see this. The MMT balances equations reads (X−M)+(G−T)+(I−S)=0 (i).#1 When simplified to the bare bones, i.e. X, M, G, T, all 0, then we have I=S that is, saving equals investment.
This is the Keynesian Ur-blunder: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)
See part 2
AXEC / E.K-H: And, as a matter of fact, MMT followed the Keynes of the GT
Nope. MMTers of course know all this. I used to frequently cite this very note of Schumpeter myself. Part of Minsky's & MMT's explicitly stated project in the early days was to combine Keynes's General Theory with his more "creditary" Treatise on Money. I mean, c'mon - Minsky was Schumpeter's student.
Calgacus
You say: “MMTers of course know all this. I used to frequently cite this very note of Schumpeter myself. Part of Minsky’s & MMT’s explicitly stated project in the early days was to combine Keynes’s General Theory with his more ‘creditary’ Treatise on Money. I mean, c’mon ― Minsky was Schumpeter’s student.”
All this biographical gossip is irrelevant. The point is that Keynes, Minsky, and MMTers got macroeconomic profit wrong.
Keynes messed up the basics of macro with this faulty syllogism: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)
Minsky built on Keynesian macro but not on I=S: “The simple equation ‘profit equals investment’ is the fundamental relation for a macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure.” (Minsky, 2008, p. 161)#1, #2
So Minsky ended up with Q=I. The axiomatically correct Profit Law reads Q=Yd+I−S+(X−M)+(G−T) (i) for the open economy with distributed profit. This boils down to Q=Yd+I−S (ii) with government G, T and foreign trade X, M set to zero, this, in turn, boils down to the Keynes of the Treatise Q=I−S, this boils down to Minsky’s Q=I on the one hand and to the Keynes of the General Theory I=S on the other.
Schumpeter realized that there was something wrong with profit: “The concept of windfall profits is now mainly in use for aggregate profits that arise (if for this purpose we may use the terminology of Keynes’s Treatise on Money) from a surplus of investment over saving, so that individual profits that are due to chance tend to drop out of the picture. It might be argued that this arrangement misses the essence of the profit phenomenon and falls below the level attained by Marshall.”
In contrast to Schumpeter, MMTers never realized anything and in particular that there must be something wrong with profit in their balances equation.#3
You claim: “MMTers of course know all this”. Fact is that MMTers know nothing about the foundational magnitude of economics. MMT is scientifically dead, I mean, c’mon ― it is pretty obvious that debt-does-not-matter MMTers are agenda pushers of the one-percenters. After all, the axiomatically correct Profit Law (i) tells everybody Public Deficit = Private Profit.
Egmont Kakarot-Handtke
#1 Sitcom economics
https://axecorg.blogspot.de/2015/06/sitcom-economics.html
#2 Heterodoxy, too, is scientific junk
https://axecorg.blogspot.de/2015/09/heterodoxy-too-is-scientific-junk_85.html
#3 For the full-spectrum refutation see cross-references MMT
http://axecorg.blogspot.de/2017/07/mmt-cross-references.html
“Nevertheless, it proved extraordinarily difficult for economists to recognize that bank loans and bank investments do create deposits. Joseph A Schumpeter via AXEC / E.K-H
Because it sounds dangerously close to counterfeiting AND IS counterfeiting unless banks are 100% private with 100% voluntary depositors and are allowed to fail.
“MMTers are agenda pushers of the one-percenters.”
This is a conspiracy theory... or hyperbole AT BEST...
@ Matt Franko:
I don't know what that commentator above is smoking, but I just phoned in his license plate, so the cops can pull him over and check him out. (Or check her out. Whatever.)
“It is pretty obvious that debt-does-not-matter MMTers are agenda pushers of the one-percenters.”
Right. Sure. We know that this nonsense is valid, since it is accompanied by meaningless gibberish…
“The axiomatically correct Profit Law reads Q=Yd+I−S+(X−M)+(G−T) (i) for the open economy with distributed profit. This boils down to Q=Yd+I−S (ii) with government G, T and foreign trade X, M set to zero, this, in turn, boils down to the Keynes of the Treatise Q=I−S, this boils down to Minsky’s Q=I on the one hand and to the Keynes of the General Theory I=S on the other.”
Such mindless babble is like white noise. It is a sleep aid for people who suffer from tinnitus.
Not exactly the case, Konrad, and I have made that argument too.
To the degree that economic rent is not eliminated, owners take a disproportionate share and that includes government deficits.
Owners would argue that this is compensation for paying a disproportionate amount of the taxes.
One of the exhumed advantages of a "free market," that is, assuming perfect competion, is that rent is competed away.
But that is not the case under the existing institutional arrangements.
What would it take to create this "utopia," getting from here to there?
What would it take to create this "utopia," getting from here to there? Tom Hickey
How did we get here in the first place? Without government-privileged private credit creation, those with equity would have had to "share" it much more than they've had to.
But if we won't embrace reform, restitution and basic human rights, like a homestead for every citizen, then God apparently reserves the right to drastically depopulate a land:
Woe to those who add house to house and join field to field,
Until there is no more room,
So that you have to live alone in the midst of the land!
In my ears the Lord of hosts has sworn, “Surely, many houses shall become desolate,
Even great and fine ones, without occupants. Isaiah 5:8-9
I recall reading that the Black Death greatly improve conditions for the survivors.
The Bank of England published two documents on 2014 on money and its creation from commercial bank perspective. Half the British parliament sitting at the debate on money creation had to admit their own education on money creation was wrong. Quite hilarious really
Matt Franko
MMTers ARE agenda pushers of the one-percenters. This is not a hypothesis but a fact.
The somewhat skewed distribution of income and financial wealth is the empirical proof of the validity of the axiomatically correct Profit Law [Q=Yd+I−S+(X−M)+(G−T)] which clearly states that Public Deficit = Private Profit.#1
The main task of MMT is pushing deficit spending and sedating the ninety-nine-percenters with the slogan that public debt does not matter. You cannot take the ‘Marx Was Right After All and Give Every American a Job and a Pony’ rhetoric of the Progressives Tom Hickey, Bill Mitchell, Stephanie Kelton and the rest of the MMT sales team seriously.
MMT is NOT a scientifically valid theory but soapbox economics.#2
Egmont Kakarot-Handtke
#1 Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.de/2017/12/keynes-lerner-mmt-trump-and-exploding.html
#2 Down with idiocy!
https://axecorg.blogspot.de/2017/12/down-with-idiocy.html
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