MMT — building on Post-Keynesian​ foundations

15 Apr, 2019 at 09:30 | Posted in Economics | 2 Comments

To be sure, MMT concedes that the ability of an endogenous money supply to constrain inflation has limits. Government spending can still run up against the scarcity of real resources. Although some progressives invoking MMT seem unaware of this, Wray readily acknowledges that “just because the government can afford to spend does not mean government ought to spend more.” post-keynesian-vs-MMT-Government “must weigh the consequences in terms of withdrawing resources from other (perhaps more desirable) uses, as well as possible impacts on prices and exchange rates.” This returns us full circle to the first MMT constraint on inflation: the size of the “buffer stock” (Wray’s term) of unemployed labor that can be put to work …

One of the most emphatic assertions of MMT, to quote Wray, is “taxes are not needed to ‘pay for’ government spending.” Taxes are needed only to make sure people accept fiat money and, if necessary, to keep inflation in check. And because both the treasury and central bank are government institutions, there is some truth to the idea that both institutions have dual roles …

Equally important, critical parts of MMT’s edifice are built on Post-Keynesian foundations. As Kelton and Wray, along with Scott Fullwiler proclaim: “We have never tried to separate our ‘MMT’ approach from the heterodox tradition we share with Post Keynesians, Institutionalists and others. We have tried to extend that tradition.” A comprehensive and extensive critique of the Post-Keynesian paradigm is beyond the scope of this article. But if you strip away Post-Keynesian precepts, much of MMT’s edifice collapses, taking down many of its policy proposals with it.

Jeffrey Rogers Hummel

2 Comments

  1. It’s obvious that Post Keynesian thinking played a role in the development of MMT, but would you call Minsky a Post-Keynesian? he didn’t identify as such himself although the PK’s were quick to claim him as their own. In additiion would you call Kalecki a PK, who identified as a marxist. In addition did Abba Lerner consider himself a PK? he certainly identified strongly with Keynes. Maybe the PK label covers a broad school of thought and MMT emerges from within it, but branches out from it.

    Comment by Wayne McMillan— 16 Apr, 2019 #

  2. For most of human history, govt was about 5% of GDP and private enterprise was the rest. This was true before capitalism emerged and after for very long times. When capitalism emerged around Venice, some sort of economic miracle occurred. Schumpeter said it was creative destruction enabled by new capital (money) formation through credit creation by private banks. Steve Keen I think understands this and Minsky observed that capitalism can work great but it suffers from an inherent instability.
    Today govt is closer to 30% of the economy. It makes sense that all new money should no longer be created by banks. MMT emphasizes none of this. Not the stunning productive success of capitalism implemented through private banking. Not the inherent instability of capitalism described by Minsky. Not the unprecedented growth in govt as a percent of GDP that probably does justify more share of new money creation by govt. MMT has a long ways to go.

    Comment by peterblogdanovich— 15 Apr, 2019 #


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