Friday, January 29, 2021

Happy 25th birthday, Modern Money Theory! — Dirk Ehnts

On Monday, January 29, 1996, Warren B. Mosler, Director of Economic Analysis at III Finance, wrote a message on a message board in which he asks academics for references and help regarding his model. The model was spelled out in his text “Soft Currency Economics” (SCE), which Warren Mosler worked on in the early 1990s. The following collaboration of Warren Mosler with academics like Randall Wray, Bill Mitchell and many others led to the (further) development of an empirical theory of money now know as Modern Money Theory. In this article, I quote some juicy passages from SCE to highlight the early foundations of MMT....
You've come a long way, baby! 

The Gower Initiative for Modern Money Studies
Happy 25th birthday, Modern Money Theory!
Dirk Ehnts


Andrew Anderson said...

You've come a long way, baby!

Not far enough by a long shot since MMT still proposes an obsolete, inherently discriminatory government-privileged Gold Standard banking model even though fiat is (at it should be) inexpensive!

Peter Pan said...

You've come a long way, baby!

Indeed. Lung cancer rates for females are up.

Ralph Musgrave said...

Coincidentally, I put an article on my blog an hour ago picking holes in the claim by some academic economists that there is nothing new in MMT:

AXEC / E.K-H said...

Political fraud and the silence of academia
Comment on Dirk Ehnts on ‘Happy 25th birthday, Modern Money Theory!’

COV19 is the best thing that could happen to Modern Monetary Theory/ MMT. In the current emergency, almost everybody agrees that public deficit-spending is the right thing to do and that all concerns about the permanent ― and now accelerated ― growth of public debt are far down on the priority list. This is a triumph for MMT because they are for a long time now the outspoken proponents of deficit-spending/money-creation as the solution to most economic problems.

MMTers have built a huge analytical/rhetorical superstructure around the benefits of public deficit-spending and the evils of austerity/neoliberalism and the wickedness of budget-balancers. So, with some justification they can say ‘We told you so’.#1

The problem with the increasing acceptance of MMT is that it does NOT prove that MMT is scientifically valid but that it has been heavily pushed through all media channels lately.#2

It has been proved that (i) MMT is scientifically worthless#3-#5 and (ii) a political fraud for the advantage of the Oligarchy and the disadvantage of WeThePeople.#6-#15

So, it has been established that MMT has nothing to do with science but is a plain political deception of WeThePeople.

Economics claims to be science and MMT is one of the major approaches. So, the question is, does the rest of academic economics not realize that MMT is materially/formally inconsistent or do they realize it but help to cover the failure/fraud? In brief: are academic economists stupid or corrupt or both?

This question has to be answered for every single economist and this is going to take time. What can be said with certainty at this point is that the major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong.#16-#20

So, the preliminary answer to the question of why academic economists do not refute MMT and ring the alarm of political fraud is that they themselves have never understood how the economy works. It holds for all of them: economists are not scientists but brain-dead agenda pushers in the political Circus Maximus.

As a consequence, Walrasians, Keynesians, Marxians, Austrians, and MMTers have to be expelled from the sciences.

Egmont Kakarot-Handtke


Dean said...


in The Three Fatal Mistakes of Yesterday Economics:
Profit, I=S, Employment

you say on page 8:

Based on the differentiated formalism it is assumed that the investment goods
industry, which consists of one firm, produces OI = XI units of an investment good,
which is bought by the consumption good industry to be used for the production
of consumption goods in future periods. The households buy but the output of the
consumption good industry. From (9) then follows for the monetary profit of the
consumption and investment good industry, respectively:

Qmc ≡ C −Ywc
Qmi ≡ I −Ywi

My question:

Why does Qmc = C - Ywc not include the cost of the investment expenditures I?

Is this because you are referring solely to fixed investment, which are not treated as expenses on the books of a business?

What sector then, would the producer of raw materials belong to? Obviously they do not belong to the consumption sector, nor to the investment sector, but considering a purchaser of raw materials would class this purchase as an expense, what could we call this sector?

AXEC / E.K-H said...


The equations you mention relate to the investment phase. When the investment goods are later on used in the production of consumption goods then depreciation has to be taken into account.

The investment good appears first on the balance sheet (stock), depreciation appears on the profit and loss account (flow) and reduces profit and the stock of capital goods.

The full investment cycle is treated elsewhere.

Squaring the Investment Cycle

Egmont Kakarot-Handtke

Dean said...

Dear Egmont,
Thanks for clearing that up.

So, I read the paper 'Squaring the Investment Cycle', and I can see how the investment cycle plays out now. Very interesting and more to the point, quite revealing, particularly on page 17 where you explain how net investment must never stop growing.

Just another question if I may, on page 17 you show this with the following:

I - G` > Sm

and then you add distributed profits on page 18.

Would it be correct to say in your equation (which I've seen in other papers of yours)

(I-S)+(G-T)+(X-M)-(Q-Yd)=0 that I here is 'net' investment (i.e. I-G`)?


Dean said...

Would it also be correct that both from the symmetric extreme to the asymmetric extreme and everything in between, that no investment is possible for the business sector as a whole unless firms borrow? Or to put another way, someone somewhere has to go into debt in order for investment to occur?

The reason I ask is because I keep having people on the internet trying to tell me that profits come from investment, but none of these people can ever tell me where the money comes from in order to invest in the first place.