Albert Edwards - Abba Lerner - Functional Finance

We are frequently told here to study Von Mises, as Abba Lerner did, who trained under him at the LSE. 

Also, as government deficit spending has a multiplier effect creating more demand, and so the private sector will expand creating more jobs, while new businesses will start up. 

So, society starts working harder and if inflation does set in and taxes need to be raised, the tax burden is shared by more people many of whom will be on higher wages as there will be more managers and successful entrepreneurs.

The need for taxes could be sold differently.

Rather than taxes taken your money away, they are protecting the value of your money in your pocket and protecting the value of your savings. They have also boosted the economy increasing the standard of livin so everyone is better off. So, the taxes are not necessarily making people poorer, on the whole. 

Abba Lerner - Functional Finance

Abba Lerner was a 20th century Russian-born British economist who studied at the LSE under Friedrich von Hayek. He is the father of functional finance. And I see his views as augmenting or even replacing Keynes' views for MMT.

Here's how Stephanie Kelton described his view in 1999:

"...what Lerner advocated... was the maintenance of true full employment (i.e. employment for all who want to work), which he believed could be attained without setting off inflation.

While his views regarding the conditions under which inflationary pressures might begin to emerge initially differed from Keynes', Lerner, in his Economics of Employment, appears to have moved closer to Keynes on this matter. In Keynes' view, inflation was not to be associated with price increases taking place before full employment (i.e. zero involuntary unemployment) had been reached. Indeed, expansionary policy was considered inflationary only if it spent itself entirely on an increase in prices, with no further stimulus to output.

Translation: Lerner was saying that getting to full employment is the key. Until you get there, you shouldn't worry about government spending causing inflation. This is the reason that you hear MMT economists like Pavlina Tcherneva touting a job guarantee. It gets you to full employment and keeps you there. The controversy with a job guarantee is that it would prove disruptive to the existing relationship between capital and labor, especially for lower-salaried workers.

But there's a more controversial part to Lerner. Here's Stephanie again:

The first law of Functional Finance is designed to eliminate a shortfall in total spending, while the second decrees the specific manner in which the deficiency is to be funded. Specifically, the second law calls for the sale of interest-bearing government debt only in the event that private spending would otherwise generate excessive aggregate demand. Under ordinary circumstances, Lerner argued, it is expected that capitalist economies will suffer from insufficient rather than excessive aggregate demand so that it would not be necessary to offer bonds in exchange for money as a means of tempering inflationary pressures. Instead, Lerner believed that bonds should be sold to the central bank or to private banks "on conditions which permit the banks to issue new credit money based on their additional holdings of government securities, [which] must be considered for our purposes as printing money"

Translation: You don't have to sell Treasury bonds at all. Just print money, credit accounts directly. That's a pretty controversial view. And I think this is the one that is most pilloried.

Here's Stephanie again:

"...'Keynesians' (Blinder and Solow, 1973, 1976; Buiter, 1977; Tobin, 1961), generally agree that the economic consequences of borrowing and printing money can differ substantially from those obtained when government spending is financed solely by contemporaneous taxation. Inspired by Christ (1967, 1968), Blinder and Solow (1973) investigated the optimal method by which to finance government (deficit) spending, concluding that the expansionary effects from borrowing would outweigh the stimulative effects of financing by creating new money. Although 'Keynesians' recognize that there will be different macroeconomic consequences, depending on the manner in which the shortfall is made up, they do not generally share Lerner's preference for printing money to finance the deficit. 

Post-Keynesians and Institutionalists, however, tend to be more amenable to Lerner's position...."

Translation: If the government is spending money to boost aggregate demand, it is doing so by deficit spending. You can deficit spend by creating lots of government debt. Or in Lerner's view, you could credit accounts directly with government IOU's.

Albert Edwards - MMT for Dummies