Wednesday, June 26, 2019

Lars P. Syll — The weird absence of money and finance in economic theory

It is indeed strange since "money" as a unit of account is basic for quantitative measurement in economics and finance. Moreover, economic activity involving production, distribution and consumption of real good is dependent of finance in the creation of "money" in a monetary production economy.

"Money" and finance are hidden assumptions in economics that constitute foundations of the framework for economic activity and therefore economics. They are for the most part unexamined, and where they are examined much of the investigation is either wrong or confused. 

The conventional excuse of ignoring "money and finance is that "money" is neutral in the long run and measurement using the money scale is just a convenience that allows for expressing on one scale the range of real goods using prices denominated in a currency unit. End of story.

Economists treat economics and finance is givens, like the metric scale, for example. However, there is little in common between "money" and other quantitive measurement scales. Money is not a measurement convenience. It drives the system so that economics and finance are joined at the hip.

This failure to consider presumptions is one of the major flaws in the conventional approach to economics, in addition to presuming that economic factors are "natural" rather than largely based on institutional arrangements.

MMT corrects that inadequate and careless approach.

Lars P. Syll’s Blog
The weird absence of money and finance in economic theory
Lars P. Syll | Professor, Malmo University


Bob Roddis said...

There's nothing "weird" about Keynesians suppressing any discussion of money. Such suppression is essential to the perpetuation of the Keynesian Hoax. I suppose that "The Theory of Money and Credit" by Von Mises from 1912 was an hallucination?

While Mises’s ideas and reputation, if not his academic post, as well as his writings, enjoyed a growing influence in Austria and the rest of Europe in the 1920s, his influence in the English-speaking world was greatly limited by the fact that Money and Credit was not translated until 1934. The American economist Benjamin M. Anderson, Jr., in his The Value of Money (1917) was the first English-speaking writer to appreciate Mises’s work, and the remainder of his Anglo-American influence had to wait for the early 1930s. Money and Credit could have been far more influential had it not received a belittling and totally uncomprehending review from the brilliant young economist John Maynard Keynes, then an editor of the leading British scholarly economic periodical, the Economic Journal. Keynes wrote that the book had “considerable merit,” that it was “enlightened in the highest degree possible” (whatever that may mean), that the author was “widely read,” but that in the end Keynes was disappointed because it was not “constructive” or “original.” Now whatever may be thought about The Theory of Money and Credit, it was highly constructive and systematic, and almost blazingly original, and so Keynes’s reaction is puzzling indeed. The puzzle was cleared up, however, a decade and a half later, when, in his Treatise on Money, Keynes wrote that “IN GERMAN, I CAN ONLY CLEARLY UNDERSTAND WHAT I ALREADY KNOW—SO THAT NEW IDEAS ARE APT TO BE VEILED FROM ME BY THE DIFFICULTIES OF THE LANGUAGE.” The breathtaking arrogance, the sheer gall of reviewing a book in a language in which he could not grasp new ideas, and then denouncing the book for containing nothing new was all too characteristic of Keynes. From “The Essential Von Mises”, Page 72.

Andrew Anderson said...

MMT corrects that inadequate and careless approach. Tom Hickey

Bill Mitchell says that bank deposits can be ignored wrt price inflation since they create no net private sector financial assets.

1) This ignores that real assets minus largely sham* liabilities CANNOT really net to zero.

2) Not only may deposit creation by the banks create price inflation, it can also result in ruinous price deflation as the "loans" are repaid.

*e.g: Bank liabilities toward the non-bank private sector are largely a sham since, except for mere coins and bills, the non-bank private sector may not even USE fiat!

Kaivey said...

I read that they left money out because it made their equations too complicated.