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.
26 comments:
MMT godfather Abba Lerner was busy as late as 1980 constructing a totalitarian Rube Goldberg type straightjacket of price controls demonstrating that some of MMT’s advocates were and are aware it has a serious problem with price inflation:
“Functional Finance, New Classical Economics and Great Great Grandsons” by David Colander July, 2002:
Initially he toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based [??] incomes policy in which PROPERTY RIGHTS IN PRICES ARE SET AND INDIVIDUALS HAVE TO BUY THE RIGHT TO CHANGE PRICES FROM OTHERS WHO CHANGE THEIR PRICE IN THE OPPOSITE DIRECTION. It was this idea that formed the basis of our market [????] anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]
http://tinyurl.com/4rfk3jk
Of course, any alleged lack of “full employment” is CAUSED by the fiat money system itself in the first place. There is NEVER a lack of demand, there is no need for government to provide artificial “demand”, and the entire process of “stimulating” demand is the cause of all of our problems in the first place.
Please please please.
Please continue to publicize the writings and ideas of Abba Lerner and please continue to associate them with MMT Please. An excellent way to spread your ideas to the public would be to point out (hourly) that Lerner's most important book is ominously called THE ECONOMICS OF CONTROL. And the book is RED.
http://tinyurl.com/y5jez6g3
The Table of Contents to THE ECONOMICS OF CONTROL indicate that the book is obsessed with installing a state regime which is constantly equalizing the amount of goods held and incomes earned. A totalitarian nightmare. It sounds like Socialism. It sounds like Back in the USSR.
Who knew?
http://tinyurl.com/y5zgwnvk
Bob Roddis:Of course, any alleged lack of “full employment” is CAUSED by the fiat money system itself in the first place.
MMTers agree with, insist on that. That's why they have a JG. Been trying to get some people here to understand that for years.
But the point is that there isn't any other kind of money than fiat money. Never was nor could be. The problem is that the Austrian theory of money is too coarse. Generally money = fiat money doesn't behave that way. When it does, MMTers since Lerner are ok with a lot of Austrian ideas and have incorporated them into their theories. So Austrian economics is a special case of MMT.
It doesn't sound that bad to me, Bob. I like the increase prosperity bit.
From Wikipedia
Functional finance is an economic theory proposed by Abba P. Lerner, based on effective demand principles and chartalism. It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.[citation needed]
The principal ideas behind functional finance can be summarized as:[1]
◾Governments have to intervene in the national and global economy; these economies are not self-regulating.
◾The principal economic objective of the state should be to ensure a prosperous economy.
◾Money is a creature of the state; it has to be managed.
◾Fiscal policy should be directed in light of its impact on the economy, and the budget should be managed accordingly, that is, 'balancing revenue and spending' is not important; prosperity is important.
◾The amount and pace of government spending should be set in light of the desired level of activity, and taxes should be levied for their economic impact, rather than to raise revenue.
◾Principles of 'sound finance' apply to individuals. They make sense for individuals, households, businesses, and non-sovereign governments (such as cities and individual US states) but do not apply to the governments of sovereign states, capable of issuing money.
Governments have to intervene in the national and global economy; these economies are not self-regulating.
A totally false and baseless assertion. This is the BIG LIE of socialism and Keynesianism. Why do you think Keynes avoided refuting Hayek in The General Theory? Because when you cannot refute the truth, you try to make sure its very existence is suppressed from public understanding and knowledge.
Money is a creature of the state; it has to be managed.
Another totally false and baseless claim. Control of money by the state is what fuels war and the looting by the .1%.
The amount and pace of government spending should be set in light of the desired level of activity,
There is no need to “set” a “desired level of activity” if only because a market economy is totally “self-regulating” until distorted by fiat money and violent intervention. This “setting” is to be based upon whose desires? Only a clueless totalitarian could even think in such terms.
Principles of 'sound finance' apply to individuals. They make sense for individuals, households, businesses, and non-sovereign governments (such as cities and individual US states) but do not apply to the governments of sovereign states, capable of issuing money.
That is sort of correct. When the government runs out of money or resources, the people running the government can and will just murder and steal to obtain more resources.
Further, socialism was tried over and over in the 20th Century with 100 million slaughtered, grinding poverty and ecocide. Please please please continue to associate Abba Lerner, socialism and totalitarian government control with MMT. Please.
But you're an authoritarian, Bob, because you believe in giving total control to a handful of rich people. The Koch brothers, and others amongst the aristocracy, pushed libertarianism because democracy was hampering their freedom to do as they please - including pollute the environment. Libertarian is the bosses party, the party of the few to control the many.
Now the Kochs are behind the government to steal Venezuela's oil. So much for small government. They want no government for us so they can do as they please, and total control for themselves.
How is no regulations going to stop the Kochs, polluting the environment, Bob?Explain to me the mechanism.
"alleged lack of “full employment” is CAUSED by the fiat money system itself"
1. "alleged" implies that unemployment does not exist. This is categorically false as unemployment (beyond official BLS statics) is evidenced by a multitude of factors from the homeless and tent cities to social programs that serve the unemployed.
2. "is CAUSED by the fiat money system" fails to describe how the lack of full employment (a condition denied by the previous part of the statement - "alleged") is actually caused and as such is only an allegation (an ironically hilarious contradiction to the first part of the statement).
3. "fiat money" is currency that a government has declared to be legal tender. The assumption here seems to be that a gold standard or specie backed currency would somehow magically prevent unemployment, presumably in the same way that it prevented slavery.
4. Such ignorant comments can only be responded to by showing them for what they are: misleading, unfounded, and to put it simply - ignorant in the extreme.
"is CAUSED by the fiat money system" fails to describe how the lack of full employment (a condition denied by the previous part of the statement - "alleged") is actually caused and as such is only an allegation (an ironically hilarious contradiction to the first part of the statement).
I always presume that an intelligent and informed person would be at least familiar with the Austrian Business Cycle Theory and Hayek's work on the theory and for which Hayek was awarded the quasi-Nobel Prize:
https://www.nobelprize.org/prizes/economic-sciences/1974/hayek/lecture/
I would also presume that an MMTer would naturally be so afraid of the truth as to make sure that he/she never got within 10 blocks of understanding even the most basic Austrian School concepts and analysis.
I also find it amusing how someone can reject a theory with which they haven't the slightest familiarity and of which they are afraid to engage.
"fiat money" is currency that a government has declared to be legal tender. The assumption here seems to be that a gold standard or specie backed currency would somehow magically prevent unemployment, presumably in the same way that it prevented slavery.
This may be the absolute dumbest comment ever made on this blog. It is simply astonishing how someone can be so proud of their total ignorance coupled with a complete inability to use logic.
But you're an authoritarian, Bob, because you believe in giving total control to a handful of rich people. The Koch brothers, and others amongst the aristocracy, pushed libertarianism because democracy was hampering their freedom to do as they please - including pollute the environment.
But libertarianism proposes an absolute standard of strict liability regarding pollution and those strict rules are proposed to be enforceable by the poorest of the poor. Please explain how strict enforcement of rules against pollution will cause pollution?
Further, don't the Koch Brothers use eminent domain to seize land for their pipelines? Libertarianism prohibits eminent domain. What power would the Koch Brothers have if pollution was strictly prohibited via strict liability and pipeline companies could not pollute or seize land from unwilling sellers?
Further, there is NO EVIDENCE EVER that laissez faire leads to monopoly. Leftist Gabriel Kolko showed in 1963 that the Robber Barons could not monopolize the free market so they sought control by controlling the government which then enforced regulations favorable to those Robber Barons. I've asked you people seven times to read the book and either accept it or refute it. You are afraid to confront the truth.
http://tinyurl.com/yyuarpum
Just print money, credit accounts directly.
That's the way it should be but isn't.
Instead, the reserve accounts of banks at the Central Bank are credited and the banks, in turn, credit their depositors. Why? Because citizens may not have accounts of their own at the Central Bank. And why not? Because the whole corrupt, two-tiered, gold standard relic banking model would begin to collapse if citizens were allowed to directly use fiat as the banks do.
Like I've been saying, the economy runs off bank deposits, NOT fiat itself.
And that's the problem MMT refuses to face.
Note that the Austrians are not for citizens being allowed accounts at the Central Bank or Treasury itself either. So much for the Austrians being pro-bank reform; they aren't.
The reason? Most likely because Austrians LOVE the boom-bust cycle so long as government (or its Central Bank) does not interfere with the bust phase so the Austrians can swoop in like buzzards to buy assets at fire-sale prices.
So since true bank reform would largely eliminate the boom-bust cycle, the Austrians do not support true bank reform.
Who makes the laws in a libertarian state? Is there a government, if so, who put them in place, and who chooses the politicians?
If the poorest of the poor can impose the strict environmental regulations, what is the mechanism by which they can implement the law?
Now I know why they named him 'Bob': just look at him ducking.
Roddis utterly fails to address the challenges put to him. His comment was expertly dissected by Xaiver and the best he can come up with is "Xaiver doesn't understand the Austrian business cycle". LOL!
@RODDIS: Xavier wasn't talking about the Austrian business cycle, he was shredding your self-contradicting comment with logic - a concept that you are clearly not familiar with.
One more time: please enlighten all of us ignorant MMT'ers by clearly explaining exactly how fiat money causes an "alleged lack of full employment". Keeping in mind of course that the "lack of full employment" is only an allegation.
allegation noun an assertion made with little or no proof
I am horrified to learn from Rod Bobbis that one of Lerner's books was coloured RED, which as Bobbis suggests, means Lerner must be a Commie. Rod Bobbis might like to know that arch capitalist Dale Carnegie's book "How to wind friends and influence people" is also red. These Commies are EVERYWHERE.
In fact there are probably thousands of books by people who are ostensibly on the political right which are coloured red. We really need a repeat of the McCarthy investigations to root out these Commies posing as right wingers....:-)
Ralph: But Abba Lerner REALLY IS A COMMIE. His writings are nothing but an endless flow of proposals to micro-manage average people every day minute by minute. I give actual examples of his ghastly ideas. Hello.
The bright red color of the book jacket just makes it all even more hilarious. And pitiful. And ominous.
I note that no is claiming that Lerner is not a totalitarian or that I've distorted his views. That is par for the course here.
Who makes the laws in a libertarian state? Is there a government, if so, who put them in place, and who chooses the politicians?
1. A libertarian "state" can do everything that a non-libertarian state can do except initiate violence. Which knocks out about 95% of its functions. The bad functiona.
2. If the poorest of the poor can impose the strict environmental regulations, what is the mechanism by which they can implement the law?
In the short run, there is no excuse for our current existing governments to not enforce the property rights of everyone in their things and bodies. Go watch the movie "Avatar". Libertarians totally side with the Na'vi. It's their magic tree. Whether them keeping for themselves is good for society or "the economy" is irrelevant. It's their tree. End of discussion.
Any of thees proposals requires a solid consensus of the population, whether its the abolition of the initiation of violence or the imposition of the Green New Deal. You will need state enforcement of generally held mores only for outliers. That is how all free societies operate.
Well, I've gone off Lerner after reading this.
Abba Lerner was the milton friedman of the left. Like Friedman, Lerner was a brilliant expositor of economics who was able to make complex concepts crystal clear. Lerner was also an unusual kind of socialist: he hated government power over people’s lives. Like Friedman, he praised private enterprise on the ground that “alternatives to government employment are a safeguard of the freedom of the individual.” Also like Friedman, Lerner loved Free Markets. He opposed Minimum Wage laws and other price controls because they interfered with the price system, which he called “one of the most valuable instruments of modern society.”
https://www.econlib.org/library/Enc/bios/Lerner.html
Kaivey: I think Lerner is a bizarre combination of:
1. You can keep your private property; and
2. The government will tell you what to do with it. Every minute of the day. For your own good, of course.
"Who makes the laws in a libertarian state? Is there a government, if so, who put them in place, and who chooses the politicians?"
"If the poorest of the poor can impose the strict environmental regulations, what is the mechanism by which they can implement the law?"
Three more questions completely ignored by Roddis, add them to the list.
Kaivey, you're wasting you time here. Roddis is cognitively impaired and incapable of intelligent debate.
Yeah, everything he said about Lerner was wrong.
Austrians, too, are either stupid or corrupt or both
Comment on Bob Roddis on ‘Albert Edwards ― Abba Lerner ― Functional Finance’
To the argument: “Governments have to intervene in the national and global economy; these economies are not self-regulating.” Bob Roddis answers: “A totally false and baseless assertion. This is the BIG LIE of socialism and Keynesianism. Why do you think Keynes avoided refuting Hayek in The General Theory?” and “There is no need to ‘set’ a ‘desired level of activity’ if only because a market economy is totally ‘self-regulating’ until distorted by fiat money and violent intervention.”
Defamation is since the Sophists the modus operandi of political imbeciles.#1 Economics as a science deals with proofs of material and formal consistency and nothing else. Austrians never understood (i) how science works, (ii) how the economy works.
Austrianism is based on the provably false assumption that the economy is self-regulating. This is NOT the case.#2, #3 And this means that with regard to the pivotal point of economics, Keynes was right and Hayek was wrong.#4
Keynes, though, messed up macroeconomics. Here is the all-decisive blunder: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63) “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)
The fake scientist Keynes NEVER understood what profit is and thus ended with I=S ― one of the worst blunders since the Flat-Earth hypothesis.#5 However, neither pro-Keynesians like Lerner nor anti-Keynesians like Hayek spotted the lethal blunder in the last 80+ years.#6
Because Marxianism is refuted on all counts, there is NO use to defame Abba Lerner as a “COMMIE”.#7 Lerner was simply a scientifically incompetent economist and a useful political idiot just like Hayek and Keynes or, for that matter, the MMTers and Austrians of today.
So, why don’t you simply be friends? MMTers and Austrians will both end up at the Flat-Earth-Cemetery in the extra-large corner reserved for stupid and corrupt economists.
Egmont Kakarot-Handtke
#1 Wikipedia
https://en.wikipedia.org/wiki/Sophist_(dialogue)
#2 Could we, please, all focus on the key question of economics?
http://axecorg.blogspot.com/2016/05/could-we-please-all-focus-on-key.html
#3 Proof of the inherent instability of the market economy
https://axecorg.blogspot.com/2017/10/proof-of-inherent-instability-of-market.html
#4 Hayek ― agenda pusher or scientist?
https://axecorg.blogspot.com/2016/06/hayek-agenda-pusher-or-scientist.html
#5 Dear idiots, time to get saving and investment straight
https://axecorg.blogspot.com/2019/03/dear-idiots-time-to-get-saving-and.html
#6 Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.com/2017/12/keynes-lerner-mmt-trump-and-exploding.html
#7 Here is the long overdue scientific death certificate for Marx and Marxists
https://axecorg.blogspot.com/2019/01/here-is-long-overdue-scientific-death.html
KAIVEY WRITES:
“But you're an authoritarian, Bob, because you believe in giving total control to a handful of rich people. The Koch brothers, and others amongst the aristocracy, pushed libertarianism because democracy was hampering their freedom to do as they please - including pollute the environment. Libertarian is the bosses’ party, the party of the few to control the many. Now the Kochs are behind the government to steal Venezuela's oil. So much for small government. They want no government for us so they can do as they please, and total control for themselves. How is no regulations going to stop the Kochs, polluting the environment, Bob? Explain to me the mechanism.”
Exactly. We will always have government. The question is whether we shall have government by elected representatives, or by rich oligarchs. Shall we have democracy? Or neoliberalism / feudalism? Ideally we want a balance between both. We do not have this balance in the West. We have feudalism: i.e. rule by oligarchs and by the Chosen.
Roddis writes, “Further, there is NO EVIDENCE EVER that laissez faire leads to monopoly.”
Monopolies. Cartels. It adds up to the same thing: rule by a handful of rich people.
Roddis is like a fish out of water; flopping and flailing helplessly. He wants to say, "Throw me back into the water," but it keeps coming out as, "None of you will face the truth!"
Roddis writes, “Further, there is NO EVIDENCE EVER that laissez faire leads to monopoly.”
Monopolies. Cartels. It adds up to the same thing: rule by a handful of rich people.
I've asked you people 8 times to read "The Triumph of Conservatism" by Gabriel Kolko which I have owned since 1973. If it's wrong, I'll re-evaluated my position.
http://tinyurl.com/y34onyz8
You people are completely ignorant of history. And you are ready to send out the SWAT teams to attack people to solve problems that do not exist. Pitiful.
quack quack quack
Roddis ducks again, unable to answer even a single question.
RODDIS™️
quack quack quack
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