MMT, history of thought, Locke, Berkeley, chartalism, free banking, and cooperative banking

heteconomist.com has a post on MMT's openness and political neutrality. See A Clarification on Political Openness.

Heteconomist: "I prefer to see MMT as an open framework (basically an understanding of the monetary system and national accounting) within which – or out of which – various policy approaches could be developed and pursued."

Reply:

I’m no expert, but I decompose the monetary component of MMT into chartalism and endogenous money. These ideas are so old… you can go back centuries to find the origins of chartalism in Locke and Berkeley (money as a ticket, agreement, or sign). Endogenous money’s roots traces to the banking school of the 19th century. MMT doesn’t own these individual ideas… they are diffused into the general body of economics.

There are no intrinsic reasons why the ideas of Locke, Berkeley, and the banking school need be associated with a particular political slant.

The chartalist version of Locke/Berkeley’s token theory of money surely appeals to big government types on the left and right. This is because it finds in the all-powerful state the basis of the entire monetary system.

But you can have endogeneous money + Stateless Locke/Berkeley token money. The political form of this, on the left at least, would be social credit and the cooperative banking movement. On the right it would be some form of free banking.

So in sum, I wouldn’t idealize MMT as being a neutral super structure on which to drape your policy prescriptions. There is politics at the core of the chartalist rendition of Locke/Berkeley.

Comments

Shadow banks want in from the cold

Remember when shadow banks regularly outcompeted stodgy banks because they could evade onerous regulatory requirements? Not any more. In negative rate land, regulatory requirements are a blessing for banks. Shadow banks want in, not out. In the old days, central banks imposed a tax on banks by requiring them to maintain reserves that paid zero percent interest. This tax was particularly burdensome during the inflationary 1970s when short term rates rose into the teens. The result was that banks had troubles passing on higher rates to savers, helping to drive the growth of the nascent U.S. money market mutual fund industry. Unlike banks, MMMFs didn't face reserve requirements and could therefore offer higher deposit rates to their customers. To help level the playing field between regulated banks and so-called shadow banks, a number of central banks (including the Bank of Canada) removed the tax by no longer setting a reserve requirement. While the Federal Reserve didn't go as f...

The bond-stock conundrum

Here's a conundrum. Many commentators have been trying to puzzle out why stocks have been continually hitting new highs at the same time that bond yields have been hitting new lows. See here , here , here , and here . On the surface, equity markets and bond markets seem to be saying two different things about the future. Stronger equities indicate a bright future while rising bond prices (and falling yields) portend a bleak one. Since these two predictions can't both be right, either the bond market or the stock market is terribly wrong. It's the I'm with stupid theory of the bond and equity bull markets. I hope to show in this post that investor stupidity isn't the only way to explain today's concurrent bull market pattern. Improvements in financial market liquidity and declining expectations surrounding the pace of consumer price inflation can both account for why stocks and equities are moving higher together. More on these two factors later. 1. I'm with...

Does QE actually reduce inflation?

There's a counterintuitive meme floating around in the blogosphere that quantitative easing doesn't do what we commonly suppose. Somehow QE reduces inflation or causes deflation, rather than increasing inflation. Among others, here are Nick Rowe , Bob Murphy , David Glasner , Stephen Williamson , David Andolfatto , Frances Coppola , and Bill Woolsey discussing the subject. Over the holidays I've been trying to wrap my head around this idea. Here are my rough thoughts, many of which may have been cribbed from the above sources, though I've lost track from which ones. Let's be clear at the outset. Inflation is a rise in the general price level, deflation is a fall in prices. QE is when a central bank purchases assets at market prices with newly issued reserves. In equilibrium, the expected returns on all goods and assets must be equal. If they aren't equal then people will rebalance towards superior yielding assets until the prices of these assets have risen high...

Typography

Search This Blog