Tuesday, May 28, 2019

Antony P. Mueller — The Neo-Marxist Roots of Modern Monetary Theory

The post is interesting from the POV of history of economics. Antony P. Mueller points out how MMT owes more to Kalecki than to Keynes. His criticism of MMT goes astray in assuming the conventional economic view of debt-financed fiscal deficits crowding out private sector productive investment. MMT shows how this assumption is erroneous in that the net spending after taxes injects the exact amount of bond issuance in offset. It's the spending that funds Treasury security issuance. 

In central bank auctions of  government bonds the primary dealers act as the designated market makers, and their purchases drain the reserve add that was created by deficit spending from bank reserve balances at the Fed into security accounts at the Fed, much the same as deposit accounts in banks are drained into CD's. The total amount of the reserve add is used to settle the auction, draining the mnetary base of the reserves in injected by the deficit spending. All that changes is the maturity. MZM (money of zero maturity) becomes money of non-zero maturity.

There is no crowding out of private investment. The assumption that bond sales are funded by a stock of loanable funds for which government competes with the private sector is wrong. That is not the why the existing system works.

Nevertheless, the post is still a worthwhile read from the POV of history of economics, although one should not assume that the summary of Keyes, Kalecki and their use by MMT economics is entirely correct, for example, whether Kalecki held a labor theory of value is controversial.

Mises Wire
The Neo-Marxist Roots of Modern Monetary Theory
Antony P. Mueller

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