More and more it's clear that this is what makes it unique. While it's true that the New Keyneisanism of Krugman and Delong is not wholly libertarian it does accept a lot of the Monetarist critique of Keynesianism of Friedman in 1968, etc.
In fairness to Krugman he doesn't follow NK models robotically but sees their value in being a good way to check your work. But for me MMT-derived from Chartalism which has been around for centuries-gives us some very powerful weapons.
Again it's model presumes an active and important role for the government. Government is not the enemy of the free market, indeed the truth is that the free market couldn't exist without the government. The creative spark-the moment of "Let there be light!" is the government positing money and taxes. This is the spur to private productivity.
The government and market both have their roles-it's not a case of which is more important or one on the side of the devil one on the side of the angels-this is the libertarian view with the fiendish government and righteous market.
What I have been slowly starting to realize is the real fight is between Chartalists and Metallists. Today MMT carries the baton of Chartalism, the Monetarists carry it for Metallism. For Monetarism the market is wholly self sufficient onto itself but for the distorting effects of money. Ideally then if there were no money the market would work optimally always. But does this suggest that the gold standard was the golden age? After all, under the gold standard age inflation was little to non-existent. Price stability was the rule by definition.
The trouble with this is that the economic record of the pre-Fed Golden Age-1873-1913 saw half of those years in recession with a bank panic every few years. Hardly utopia.
The idea that there never was an age of barter is truly revolutionary. If you understand that you see the entire philosophy of Monetarism is erroneous.
Mike,
ReplyDeleteAre you confusing Chartism with Chartalism?
Definition of 'Chartalism'
A non-mainstream theory of money that emphasizes the impact of government policies and activities on the value of money. The early-20th-century German economist Georg Friedrich Knapp first developed the theory of chartalism, which defines money as a unit of account with value that is determined by what the government will accept as payment for tax obligations. In other words, chartalism states that money does not have intrinsic value, but is given value by the government.
Read more: http://www.investopedia.com/terms/c/chartalism.asp#ixzz1lV7qyBBC
Yes Nanute, of course I am LOL. I mean Chartalism of course. Egg on my face-thanks for calling me on it and making me look bad-kidding.
ReplyDeleteNo, I'm glad you did and I better correct it. Chartism is actually a kind of stock prediction strategy where you study charts for patterns
Chartalism is what I have in mind and I am aware of Knapp who I want to read more extensively soon.
I like the definition you post here, "chartalism states that money does not have intrinsic value, but is given value by the government."
This touches on exactly why I have become convinced that MMT-the modern form of Chartalism-and Monetarism-whether it be "Market Monetarism" or other is the modern form of Metallism-are two theories that stand in opposition to each other. The point is not to smooth out differences-no way to do that.
For Monetarism money is all about exchange value. MMT sees it quite differntly. For Monetarism that money essentially developed in the private market to iron out the inefficiencies in the old barter economy.
The point of MMT is that there never was a barter economy. The government itself facilitates ecoomic acitivty in the market by positing money.
Mike,
ReplyDeleteI think Chartism was also a political movement in GB back in the mid 1800's too. Didn't mean to make you look bad, just wanted to make sure we were on the same page. I seem to recall reading somewhere, that one of the drawbacks to MMT is that there is no mechanism to enforce repayment of debt. (It presumes that all debt will be repaid voluntarily.) All actors are moral. I could be wrong on this, and I'll see if I can dig up the relevant critique.
I'm not a fan of metal being the basis for currency value. The gold bugs haven't thought about who sets the value of the currency/gold. Is a US dollar worth more gold than a Yen, Renminbi or any other national currency? Let's say for argument sake, we reverted back to a gold standard here in the US. How much would it cost us in gold, to pay off all the outstanding debt held by China and Japan? GO GIANTS!
In a period of price stability, the price (or value) of gold is determined by the cost of production plus return on investment. Gold is widespread, but scarce, fungible, and non-reactive. These are all good qualities for serving as a monetary standard. Barring the discovery of a gold mine yielding several pounds of gold per ton of ore, the market price of gold is a reasonably good proxy for the average price of labor and capital needed to mine it. (The market price will increase slowly with time as sources are depleted.) For these reasons, gold-backed currency makes a much better store of value than does fiat currency.
DeleteWell I guess you must love the GOP they just had some crazy House bill that would bring back "hard money."
DeleteWhat you seem not realize Whithead is that there's is a reason we no longer use gold. It was a diaster in the 30s.
In the 70s we had to get out once and for all as France kept demanding more gold.
In the classic gold standard age-1873-1913-we saw recessions 20 out of 40 years and bank panics every 3 years.
The trouble is that you are a hard money enthusiast who no matter how bad things get wants more deflation. The dream of the gold standard is for inflation phobes. But there is no hobgoblin of inflation around the corner.
Nanute that was just a joke about making me look bad-I was being ironic. the point is not to be right but to get it right. I joked about this only because if there's one thing I don't care about it's vanity.
ReplyDelete"I seem to recall reading somewhere, that one of the drawbacks to MMT is that there is no mechanism to enforce repayment of debt. (It presumes that all debt will be repaid voluntarily.) All actors are moral"
I don't believe that necessarily follows. For one thing there is a descriptive and prescrptive dimension to MMT. To say no one need pay their debt and that everyone is moral sounds prescriptive. I don't think that's built into the MMT model. To assume that all actors are moral sounds even worse than assuming all market particpants are rational-LOL
If you can find anything that elaborates on it certainly interested in reading it but like I said what fascinates me is to put MMT against Monetarism as the two schools have such radically different understandings of money.
The idea that there was never a barter economy leads you to a very different understsanding of the monetary system than the Monetarist view that money distorst the economy but if you take out the "money illusion" in the econony it works like a barter economy.
Monetarism-Market or otherwise-comes from the standpoint that the economy naturally is a barter economy-that money distorts and makes us unable to see-MMT argues not only is our economy nothingn like a barter economy, but there was never a barter economy.
Mike,
ReplyDelete"To assume all actors are moral sounds even worse than assuming all market participants are rational..." Or, even worse, I=S. (It's an identity problem. LOL).
Here's an interesting, positive critique of the MMT Theory by
Marc Lavoie:http://www.boeckler.de/pdf/v_2011_10_27_lavoie.pdf
Thanks Nanute. Am checking it out
ReplyDeleteMike,
ReplyDeleteOT, but I have to share. Over at Economists View, there's a post up regarding Tyler Cowen's missive on Real Business Cycle Theory being the winner and Keynesian theory being the big loser in the latest rebound in the economy. Read the comments and look for Mark Sadowski's definition of the Hallucinatory Business Cycle: http://economistsview.typepad.com/economistsview/2012/02/old-versus-new-keynesian-models.html
LMAO
Yeah I've been a way a few days but am back now and there's a lot of halluciantions out there. I know the RBC people are declaring victory and Sumner is off the rails again. The other day he called Britain a country that tried fiscal stimulus and that it failed....
ReplyDelete