well after 28 posts, I would say get a life, stop stalking.
Modern Money Theory, explained.
- Thread starter piezoe
- Start date
Thank you for posting this. I haven't finished the AMT critique yet, but I was a bit taken aback when I noticed the authors had taken Wray's words out of context. I happen to have the referenced work in my library, so I looked up the origin of their quote. I found that the authors of the AMT article had taken words from two separate paragraphs and then used them to construct a new sentence suggesting Wray had done something he did not do. Not good!
The quote from the AMT article I am referring to is:
To their credit, MMT economists like Professor L. Randall Wray admit to using imaginary history, for example:
“This … summation of the ‘origins’ of money, much of it relying on speculation” is used in “a stylized, hypothetical example of the way in which an economy can be monetized.”2
But by using this imaginary method, important historical facts get missed. For instance, in an overview of the Continental currency of the Revolutionary War, Professor Wray jumps to the MMT theory-fitting conclusion that “Without a sufficient tax liability, the notes depreciated quickly.”3
I underlined the above words taken from two different paragraphs in Wrays 1998 work (see the AMT references) and combined to create a new sentence that misleads. I would advise any serious student of MMT to get hold of the actual Wray work and read the above words in the context of what Wray actually wrote. The misrepresentation in the AMT article of Wray's work, by suggesting Wray is relying on "imaginary history," makes we question the value of the AMT articles content. Most economists would agree, that Wray's introduction to his 1998 Book on Modern Money is a tour de force in its thoroughly documented and detailed discussion of the relation between money and taxes.
Bone, I laughed when I saw this. Thanks for posting it. I imagine that the results of asking these same to questions of only MMT economists would be exactly the same! They would strongly disagree.
These questions are, I think, coming from old-school economists' perception of MMT.
I have been studying MMT for about five years, and I still have lots to learn, but it's far more nuanced and complex than these questions suggest.
It's really nothing more than a formal recognition of realty. Abba Lerner, well-known in the 1940s, wrote stuff that folks read and said, "huh," and really did not understand, or at least it failed to sink in. Then at some point people started to take a closer look at the Treasury and Central Bank books. Laid them down on a table side by side, figuratively of course, and said, "Oh, my God!," old Abba was right!
Naturally, there are constraints, and a big one is productivity. You can't have much more "effective money" running around in an economy than can be justified by productivity or you'll have horrible inflation! ('effective money' takes velocity into account.) Also if you want to issue bonds you'll need buyers, other than your own central bank. These are but a few of the constraints. And then there is the non-discretionary bond servicing. That's another, etc.
It's complex, and its nuanced, so the misunderstanding; the misperceptions, are bound to continue. The Congress and our Central bank have been applying some principles of MMT for some time now, they just don't realize it, and would be embarrassed to admit it. (It's not popular among "old-school," Samuelson-trained economists, with a few big exceptions.) We are not doing a very good job of applying MMT anyway. I hope we will get much better at it. And there are social aspects that have yet to be explored, but we can't avoid them. They will bite us in the ass unless we pay attention.
Sorry, was having a senior moment, got Bill Mitchell and Warren Mosler mixed in my brain. It's Warren Mosler, not Bill.
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I underlined the above words taken from two different paragraphs in Wrays 1998 work (see the AMT references) and combined to create a new sentence that misleads. I would advise any serious student of MMT to get hold of the actual Wray work and read the above words in the context of what Wray actually wrote. The misrepresentation in the AMT article of Wray's work, by suggesting Wray is relying on "imaginary history," makes we question the value of the AMT articles content. Most economists would agree, that Wray's introduction to his 1998 Book on Modern Money is a tour de force in its thoroughly documented and detailed discussion of the relation between money and taxes.
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Critical evaluation!
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Critical evaluation!
M
morganist
MMT seems to think the currency is something the government has complete control of, rather than seeing it as a commodity in its own right that is demanded and traded on an exchange. This fact makes a currency a product that operates in a market with other similar products that can compete and act as substitute products.
They use money terminology more precisely than you. They distinguish between outside money and inside money. The latter is controlled by credit demand which responds weakly and non-linearly to interest rate and the general state of the economy as perceived. They recognize that the government has only very indirect and imperfect control over inside money, which is typically the primary determiner of the money supply.
Unless we're no longer going to import and export goods and services, and we are no longer going to sell our debt to outside investors - then it remains that the "outside" money is the weak link in MMT. If an economy radically dilutes it's currency and it's bonds the valuations go down and hyperinflation sets in.
I do take your point about certain aspects of MMT are already established fact in the US - namely substantial budget deficits. We're not Japan yet but we're making progress in that direction.
I do take your point about certain aspects of MMT are already established fact in the US - namely substantial budget deficits. We're not Japan yet but we're making progress in that direction.
Deficits can be too high. MMT economists will acknowledge that. One of their main contributions in my opinion is not so much in formalizing the idea that deficits can be too high or too low*, but rather in articulating why. There is general agreement that currency must not be radically diluted, as everyone seems to understand the undesirable consequences. We may not be on the same page re "outside money." Outside money is the money the Government spends into the economy; whereas inside money is the money created via fractional reserve banking and credit.
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*it has always been more or less intuitively recognized that deficits can be too high, but it wasn't until Keynes that we began to recognize that they can also be too low. The MMT economists have articulated what factors determine the optimum deficit and have explained why the optimum is usually not zero.
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*it has always been more or less intuitively recognized that deficits can be too high, but it wasn't until Keynes that we began to recognize that they can also be too low. The MMT economists have articulated what factors determine the optimum deficit and have explained why the optimum is usually not zero.
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Yeah, I was referring to "outside" as currency and debt in circulation or being held outside the native country. Dilution is the real risk factor IMO.