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On strategy and compromise

As more people become aware of Modern Monetary Theory (MMT), extreme reactions emerge to basic concepts that, in any reasonable sense, should evade such reactions. For example, when the concept of the Job Guarantee (JG) is explained the reactions include hysterical comments such as “This is Socialism”; “MMT advocates the government employing everyone – they are stealth Communists”; “MMT is Communism in disguise”; and the rest. I get several E-mails along these lines per week – all which go into the trash immediately – so why bother sending them! I also get many (polite) E-mails suggesting that we (MMTers) should adopt a compromise line and embrace the ideas of those, who while clearly holding ideas that are inconsistent with MMT, do advocate government-led stimulus in the present context. Apparently we should also use terminology that is consistent with the mainstream to minimise the chasm that has to be be crossed to jettison that orthodoxy and accept MMT. These tactical suggestions have resonated once again in the current little dispute about whether various economists, who operate in the New Keynesian paradigm are channeling Minskian ideas. The suggestion is that, while they might not have foreseen the crisis and hold to various theoretical concepts that are inconsistent with MMT development, we should, as a matter of strategy, form alliances with these economists because they are now advocating policy more or less similar to that proposed by MMTers. So our common purpose should be prioritised over our theoretical differences. I disagree. History shows us that it is very dangerous to develop a new approach by minimising the differences between it and the dominant, but erroneous paradigm just to make it easier for adherents of the latter to embrace the former.

I should add that I generally think compromise is a good thing in life – in getting along with people. But in the development of ideas it is a dangerous strategy because it ignores the capacity of one’s opponents to render the essential ideas irrelevant.

One of the suggestions has been that MMTers should sign the A Manifesto for Economic Sense. I declined the invitation politely, even though I agree with much of the text, because in the Manifesto we read that:

There must of course be a medium-term plan for reducing the government deficit.

Why should there be any emphasis on that? There should be a plan to reduce unemployment and promote sustainable growth. Whatever the deficit that results once those goals are achieved is the appropriate outcome. By adding that qualification, the Manifesto organisers and signatories are really giving credence to false premises.

These are the same premises that are being used to justify austerity even though the signatories are clearly opposed to austerity.

Here is some history that might help explain my position.

Prior to the publication of Keynes’ General Theory, a colleague Roy Harrod wrote to him – Harrod to J. M. Keynes , 1 August 1935 (The letter was reprinted in Keynes, Collected Writings, vol. XIII, pp. 533-34):

as from Christ Church

1 August 1935

Dear Maynard

You may wonder why I lay such stress on a point that merely concerns formal proof rather than the conclusions reached. I am thinking of the effectiveness of your work. Its effectiveness is diminished if you try to eradicate very deep-rooted habits of thought, unnecessarily. One of these is the supply and demand analysis. I am not merely thinking of the aged and fossilized, but of the younger generation who have been thinking perhaps only for a few years but very hard about these topics. It is doing great violence to their fundamental groundwork of thought, if you tell them that two independent demand and supply functions wont jointly determine price and quantity . Tell them that there may be more than one solution. Tell them that we don’t know the supply function. Tell them that the ceteris paribus clause is inadmissible and that [b] we can discover more important functional relationships governing price & quantity in this case which render the s. and d. analysis nugatory. But dont impugn that analysis itself.

The fact that saving is only another aspect of investment makes it worse not better. If there were two separate things, saving & investment, then it is clear that the two equations will not determine both. But with one thing, then if you allowed the cet. par. clause which you rightly do not, it would be quite logical and sensible to approach it in the classical way.

Yours

Roy.

The context of this letter was Keynes’ proposed attack on the Classical theory of the determination of wages and employment. I outlined the Classical labour market theory in this blog – Less income, less work, less income, more work! – and will assume the discussion is known.

The important Classical result is that the interaction between the labour demand and supply functions determines the real level of the economy at any point in time. Unemployment was thus a real wage problem – and could be easily cured by cutting real wages.

Interestingly, New Keynesians still hold on to the notion that involuntary unemployed occurs because of wage and price rigidities. But that is another story – definitely not unrelated.

Keynes showed that the aggregate employment level was in fact determined by the level of effective demand – which was determined by the conjunction of aggregate demand for goods and services and aggregate supply. In other words, the labour market alone did not determine the level of employment in the economy and so a simple red

The Classical approach – which was the mainstream reasoning in the 1930s used the so-called “Say’s law” to assume away aggregate demand failure. The “Law” is simplified as “supply creates its own demand” and refers to the denial by classical economists that there could ever be over-production and unemployment. If consumers decide to save more then the firms react to this and produce more investment goods to absorb the saving. They assume a total fluidity of resources between sectors and workers are simply shifted from making iPads to making investment goods.

Keynes showed that when people save – they do not spend. They give no signal to firms about when they will spend in the future and what they will buy then. So there is a market failure. Firms react to the rising inventories and cut back output – unable to deal with the uncertainty.

The break with neoclassical thinking came with the failure of markets to resolve the persistently high unemployment during the 1930s. The 1930s experience suggested that Say’s Law did not hold and that a failure of aggregate demand placed constraints on the labour market which created unemployment.

In terms of orthodox demand and supply analysis, the effective demand constraint pushed workers “off their supply curve” and firms “off their demand curves” which meant that the labour demand and supply relations in the labour market did not determine price or quantity. In other words, a total failure of the Classical paradigm.

The problem is that Keynes did make important compromises – notably in Chapter 2 when he assumed a simple Classical marginal productivity theory to explain labour demand. In adopting this assumption, which he later realised was unnecessary and empirically unjustified, Keynes opened the door for subsequent developments which perverted his message. Ultimately, we could argue that the neo-liberal dominance now is, in part, due to that strategic error made by Keynes.

As a matter of strategy, Keynes chose to differentiate his labour market analysis on the labour supply side. His analysis of labour supply was brilliant and broke the Classical view that workers would never supply more labour if real wages fell.

In the – Appendix to Chapter 19. Professor Pigou’s “Theory of Unemployment” – of the General Theory, Keynes wrote:

It is important to emphasise that the whole of Professor Pigou’s book is written on the assumption that any rise in the cost of living, however moderate, relatively to the money-wage will cause the withdrawal from the labour market of a number of workers greater than that of all the existing unemployed.

He also said that workers would resist real wage cuts driven by money wage cuts because they cared about wage relativities – which reflected social norms. So why would a worker voluntarily agree to a downgrading of their status when the problem was a lack of jobs rather than an excessive wage claim.

Keynes showed that an unemployed worker was involuntarily unemployed if they were willing to work at the current money wage if offered a job, even if the real wage was lower at the higher level of employment.

He believed the real wage would be lower because he had adopted the first classical postulate. In Chapter 2 – The Postulates of the Classical Economics – Keynes wrote:

The wage is equal to the marginal product of labour

In Section 5 of Chapter 2 he wrote:

In emphasising our point of departure from the classical system, we must not overlook an important point of agreement. For we shall maintain the first postulate as heretofore … and we must pause, for a moment, to consider what this involves.

It means that, with a given organisation, equipment and technique, real wages and the volume of output (and hence of employment) are uniquely correlated, so that, in general, an increase in employment can only occur to the accompaniment of a decline in the rate of real wages. Thus I am not disputing this vital fact which the classical economists have (rightly) asserted as indefeasible. In a given state of organisation, equipment and technique, the real wage earned by a unit of labour has a unique (inverse) correlation with the volume of employment. Thus if employment increases, then, in the short period, the reward per unit of labour in terms of wage-goods must, in general, decline and profits increase. This is simply the obverse of the familiar proposition that industry is normally working subject to decreasing returns in the short period during which equipment etc. is assumed to be constant; so that the marginal product in the wage-good industries (which governs real wages) necessarily diminishes as employment is increased. So long, indeed, as this proposition holds, any means of increasing employment must lead at the same time to a diminution of the marginal product and hence of the rate of wages measured in terms of this product.

So Keynes accepted the so-called law of diminishing returns (diminishing marginal productivity) which meant he also considered marginal costs to be increasing. As a result competition would force prices up as output (and employment) increased and real wages would decline.

Increased employment was thus associated with lower marginal productivity and lower real wages. As I will note later it was this assumption – a major compromise to make his departure from Classical thinking more palatable – that led to later developments which are now held out to be Keynesian, which in fact, bear no similarity with Keynes’ vision. The New Keynesian paradigm which is dominant now is part of these later developments.

In 1938 and 1939, two empirical papers were published by those sympathetic to Keynes challenged his adoption of the marginal productivity assumption. The papers were:

1. Dunlop, J. (1938) ‘The Movement of Real and Money Wage Rates’, Economic Journal, 48, 413-434.

2. Tarshis, L. (1939) ‘Changes in Real and Money Wages’, Economic Journal, 49, 150-54.

The American John Dunlop and the Canadian Lorie Tarshis used US data to show that real wages and employment moved together directly, rather than inversely. They established that money wages and real wages moved together rather than in opposite directions.

Keynes replied (he was the editor of the Economic Journal at the time) by saying (p.38):

… it seems we have been living all these years on a generalisation which held good, by exception in the years 1880-1886, which was the formative period in Marshall’s thought on this matter, but has never once held good in the fifty years since he crytalilised it … it had the tendency to offset the influence of the main forces which I was discussing and made it necessary for me to introduce qualifications which I need not have trobled with if I could have adopted the contrary generalisation (i.e. of a positive relation between employment and the real wage … the practical case for a planned employment policy is considerably reinforced – because not reduction in the real wage is implied.

The full reference is – Keynes, J.M. (1939) ‘Relative Movements of Real Wages and Output’, Economic Journal, 49, 34-51.

Alfred Marshall for those non-economists (and perhaps even some of the more modern economists) was the professor at Cambridge who wrote the Principles of Economics, which was the English statement of the neo-classical approach to markets and such.

This brings to mind the book – God and Man at Yale – which was written by William F. Buckley, Jnr in 1951, who later was the doyen of the American conservatives and started the rag – National Review – to further spread his irrationality. Buckley was a supporter of Joseph McCarthy in his attempted purge against Communism, a white supremacist (in the context of the US Civil Rights movement), and later, a supporter of Augusto Pinochet and his ruthless, murderous attack on civil rights in Chile.

So not exactly my kind of guy.

The 1951 book recounted Buckley’s life as an undergraduate at Yale and he claimed that academics had forced liberal ideology onto their classes. He also claimed that academics had tried to undermine the religious beliefs held by students by introducing “liberal” ideas.

He demanded that Yale teach courses that did not challenge the “beliefs of the students”. He seemed to have a curious view of what education is.

The book “named names” as the expression goes – in the true McCarthyist mould. So why would I want to read such a book?

My reason for reading his 1951 book was related to one chapter in it on Canadian economist Lorie Tarshis. But first some background.

On October 9, 1993, one of my early mentors, Australian economist Geoff Harcourt wrote an article in the British Independent – Obituary: Professor Lorie Tarshis – which recalls some of these events.

Also interesting is this obituary from Stanford University where Lorie Tarshis taught for many years – Memorial Resolution Lorie Tarshis (1911 – 1993).

Tarshis was a Canadian who studied under Keynes at Cambridge in the early 1930s (pre General Theory). As Geoff Harcourt notes, Tarshis attended a series of lectures given by Keynes “which became Keynes’s General Theory in 1936” and later completed his PhD in Cambridge.

His PhD was very interesting but that is another story again.

Geoff Harcourt recounts that in:

… 1936 Tarshis went back to North America to teach economics at Tufts University in Boston. There he met at Harvard seminars other ardent ‘youngsters’ – Paul Samuelson, James Tobin, for example – who were propagating Keynes’s message.

I will come back to his work with John Dunlop (published in 1938) later.

But in the early 1940s, Tarshis published an introductory textbook for the US market which was the first to expound Keynesian economics and one of the few that would emerge which was in Geoff Harcourt’s words:

… deeply and intelligently true to Keynes’s vision.

It was a very interesting evolution of “Keynes’ vision” because it provided a much more elaborate version of the supply-side of the aggregate economy as being “as important as aggregate demand in determining the point of effective demand”.

You can access the textbook HERE.

The Stanford Memorial Resolution (cited above) said this of the textbook:

Tarshis was highly critical of big business (“monopolies”), looked more approvingly on labor unions, put much emphasis on the economic harm caused by the maldistribution of income and wealth in this country, expressed skepticism about the usefulness of the gold standard, approved of government deficits and of an increase in the national debt under certain circumstances, and in general called for greater government involvement in the economy on the ground that a general policy of laissez faire was not sufficient to ensure the health of the economy. These views all flowed from the theory and discussion presented in the text, and all were meant by Tarshis to strengthen and preserve the capitalist system (an aim of Keynes himself), reduce poverty, and contribute to world peace.

Had his exposition remained in vogue and been built upon, then as Geoff Harcourt notes:

… his version of Keynes’s analysis would have provided the basis both for understanding the ‘stagflation’ episode and providing appropriate policies to overcome it. It would also have limited the damage … that has been done because of the different way in which Keynesian thinking came through the textbooks into the profession, especially in the United States.

This is crucial in terms of the upsurge of Monetarism and its associated thought and, later, the New Keynesians (such as Greg Mankiw, Paul Krugman, J. Bradford De Long etc), who have dominated the profession since the mid-1970s.

As I will argue soon – these aberrant macroeconomic developments – were given oxygen because of the way in which Keynesian economics developed in the US under the watchful hand of Paul Samuelson. The latter coined the phrase – the Neoclassical Synthesis – which purported to meld the theory of effective demand (Keynes’ macro) with the classical microeconomic theory (free markets, rational agents, etc).

The Synthesis was not “deeply and intelligently true to Keynes’s vision”. It was the anathema of that vision.

But it’s poorly developed supply-side opened the “Keynesians” (that is, the synthesis Keynesians) to criticism that their “demand-side” analysis failed to account for the stagflation that accompanied the OPEC oil price hikes in the 1970s and the contractionary policy reaction. Up until the 1970s, the Synthesis version of the world considered two broad states: (a) full employment with a demand-pull inflation threat; (b) unemployment with low inflation.

If inflation was becoming an issue then it was interpreted as being excessive aggregate demand growth and thus “over-full employment” and the policy response was to engage in contractionary fiscal and/or monetary policy.

Conversely, if there was unemployment, then it was assumed that inflation was not an issue (because demand was weak and not pulling up prices) and the policy response was clear – engage in expansionary fiscal and/or monetary policy.

The dichotomy was often expressed in terms of a reverse-L shaped aggregate supply curve (describing a relationship between prices on the vertical axis and output on the horizontal axis) where the economy was defined as having these two states. Up until full employment, policy could push quantity of output up (the real economy) at constant prices because firms were assumed to have excess capacity and would not experience any cost pressures. This is the horizontal section of the aggregate supply curve – where demand expansion is assumed to stimulate only a real response from the firms (that is, prices are constant in the face of the expansion).

After full employment was reached, the aggregate supply curve became vertical so that firms only responded to increased nominal aggregate demand with price increases, having exhausted their capacity to expand real output.

So when prices started to inflate after the cost hikes (OPEC) in the 1970s and these were accompanied by increasing unemployment such a dichotomised framework appeared to be short of an explanation.

The paradigm shift away from “Keynesian” thinking and policy development occurred in this period and led to what we have now – a neo-liberalism that largely ignores mass unemployment and progressives being defined by New Keynesians who bear no relation to Keynes’ original message.

It was more complicated than that because a major part of the Monetarist attack on the Synthesis Keynesians focused on the way in which Samuelson and his followers had constructed the so-called “microfoundations” of the story. That is the topic for another blog.

But the interesting point is – why did this version of Keynes dominate in the US and the earlier, much richer treatment developed by Lori Tarshis disappear?

In the Obituary to Lorie Tarshis, Geoff Harcourt provides some credible ideas:

Why this should have happened is related to the second disgraceful treatment of Tarshis during his academic life. When he was teaching at Williams in the summer of 1947 he began to get disquieting news about his book. An anti-New Dealer, Merwin K. Hart, led the attack through a pamphlet, written by Rose Wilder Lane, which was sent to the trustees of every university in the country. (William Buckley Jnr joined in later, devoting a chapter to Tarshis’s book in God and Man at Yale.) As a result many departments reneged on their initial decision to prescribe the book so that sales were only respectable, not all-embracing.

Paul Samuelson’s introductory textbook with its less satisfactory way of expositing Keynes’s theory thus became the dominant textbook when it was published the next year. (He received the tail-end of these pre-McCarthyite attacks, but not enough to damage his sales.)

There was a reflection written by Paul Samuelson himself on textbook writing in 1997 (Full Reference: Paul A. Samuelson (1997) ‘Credo of a Lucky Textbook Author’, Journal of Economic Perspectives, 11(2), 153-160) which touches on these events.

Paul Samuelson wrote the most popular “Synthesis Keynesian” textbook, which dominated the market for years (up until the demise of this way of thinking).

In the section of the paper sub-titled “Tale of Two Texts”, he wrote on the Lorie Tarshis scandal:

I did cash in on bringing simple Keynes to the elementary classroom … One guy’s luck may be augmented by another’s bad luck. The tale I shall tell has its primary interest as an important chapter in the attempts by noneconomists to censor what is taught in the university. Censors seek suppression both from the right and from the left.

The 1948 Samuelson text was not the first to add a Keynesian analysis … The late Lorie Tarshis … finished The Elements of Economics at Stanford, and Houghton-Mifflin published it a full year before 1948. Lorie was a neighbor and good personal friend … It was a good book; a very good book … For one year the Tarshis opus had a good sale. Under normal circumstances, my book would have inevitably become a competitor … What almost killed the Tarshis book in its tracks were vicious political and personal attacks on him as a “Keynesian-Marxist.” (Earlier, Herbert Hoover popularized that one-word combination.) I knew well the diversities of ideologies in 1930-1950 America, but never could I understand the variety and virulence of the attackers on Tarshis from the right.

Tarshis was not notorious as a leftist; before then and until his death in 1994 at a ripe, ripe age, Lorie Tarshis was a low-keyed teacher and researcher … The attackers, I recall, included names then considered extremely on the right: a Colonel Namm, who owned a Brooklyn department store; also someone named ZoU, from a small fascist-leaning group on the right. There was, too, a Philip Cortney, who headed the Cody cosmetic company and lectured at Harvard that Sumner Slichter (who was actually the academic most beloved by business-group audiences) … [said] … was “the most dangerous man in America. Worse than an avowed Keynesian is this closet-Keynesian poisoning America’s policy formation.” Running with that pack was Rose Wilder Lane … [who] … Somewhere along the line … became possessed of economic truth and proclaimed that it was not to be found in the dangerous Tarshis canon …

God and Man at Yale by the young Bill Buckley (1951) quoted from some of them. The joke is that Buckley’s Yale was notorious in those days for its conservative old guard economists … I cannot judge Yale’s religious orthodoxies and heresies, but its economics at that time was devoutly orthodox.

All this may now seem bizarre and comical, but it was not a joke to earnest professors at scores of colleges who came under attack by regents and alumni visiting committees who had been alerted to the heresies being imposed on innocent college youth.

I thought it was worth quoting that section in its near entirety because I know the article will be hard to come by for those without access to library subscriptions.

Wilder Lane accused Lorie Tarshis of promoting “economic socialist heresy” and Buckley claimed the macroeconomics text was inspired by Communism.

The Stanford Memorial Resolution recounted the scandalous treatment of Lorie Tarshis in this way:

… the textbook immediately shattered the academic peace, both at Stanford and elsewhere. It was quickly attacked by some of its conservative readers – and by many others who never read it – beginning as early as August, 1947 in a long, hostile review by Rose Wilder Lane, a conservative publicist and editor of the Economic Council Review of Books. Her review was distributed widely by the President of the National Economic Council, Merwin K. Hart, to trustees, administrators, and others associated with colleges and universities, as well as to congressmen and other political leaders, in an overt attempt to prevent the use of the book.

Stanford’s President, Donald Tresidder, was caught up in the controversy and suddenly found himself in lengthy correspondence with disturbed and irate alumni and others … A congressman wrote that left-wingers like Tarshis were silencing the more gentle right-wing professors. Even Herbert Hoover wrote a “Dear Don” note about the complaints he had heard about the book, but he offered no advice. The Dean of the Graduate School of Business at Stanford called Tresidder’s attention to the book’s “prosocialist propaganda.” One Stanford trustee wrote Tresidder: “If Tarshis’ theory is correct it won’t be long before Stanford’s endowment income won’t have enough purchasing power to buy a package of cigarettes.” Tarshis was accused by others of being a Marxist, having un-American views, and favoring Soviet communism over American freedom. To another letter writer, he was a “foxy minded… Russian- Communist Jew.” A Santa Ana publisher wrote to Tresidder that much of the textbook was “absolutely incompatible with the spirit of the Declaration of Independence and the Ten Commandments.” The entire episode now appears as a notable anticipation of the McCarthy period that soon followed.

Before all of this had time to erupt fully, Tarshis’s book was adopted by at least 100 colleges and universities, including almost all the Ivy League schools. However, the mounting campaign against the book, joined vigorously a few years later by William F. Buckley, Jr., in his God and Man at Yale (1951), and the appearance in 1948 of the first edition of Paul Samuelson’s textbook – soon to sweep much of the market for many years – greatly reduced the demand for Tarshis’s own book.

So what happened?

The upshot of these virulent attacks on Tarshis was that Paul Samuelson wrote a book that he admitted later was written “carefully and lawyer like” (see Colander, D.C. and Landreth, H. (1996) The coming of Keynesianism to America, Edward Elgar, p. 172).

That book became the dominant text of the time and so the Neo-classical-Keynesian Synthesis was born but the fundamental and revolutionary message contained in Keynes was lost and rendered relatively barren.

Earlier, within a year of the General Theory being released J.R. Hicks proposed the so-called IS-LM model of joint product and money market equilibrium, which became one of the centrepieces of the Neo-classical-Keynesian Synthesis. The model was not consistent with Keynes’ vision at all and eliminated, among other things, the importance of expectations and investment behaviour – a key idea in the theory of effective demand and the tendency of monetary economies operating under conditions of endemic uncertainty to generate mass (involuntary) unemployment.

Robert Skidelsky’s biography of Keynes suggests that the acolytes of Keynes at the time were not vehement enough in opposition when the IS-LM model was floated in September 1936, at the Sixth European meeting of the Econometric Society (held at Oxford University).

Skidelsky wrote (page 538) that in the context of the “desperate urgency” to cure the mass unemployment arising from the Great Depression:

… it was not surprising that the earliest “Keynesians” saw his book as a machine for policy, and interpreted it primarily as providing a rationale for public spending … [But] …. Hicks, Harrod, Meade and Hansen in America, the leading constructors of the ‘IS-LM’ Keynesianism, had a clear motive: to reconcile Keynesians and non-Keynesians, so that the ground for policy could be quickly cleared. These early theoretical models incorporated features which were not at all evident in the magnum opus, but which conformed more closely to orthodox theory. The constructors of these models also thought they were improving the original building. Joan Robinson, no slouch with insults, would later label the result ‘bastard Keynesianism’. But Keynes was the bastard’s father.

The full reference is Skidelsky, R. (1992) John Maynard Keynes – The Economist as a Saviour, 1920-1937, Macmillan. Emphasis in original.

So when the likes of Robert Lucas, Jnr wrote in 1980 that:

… one cannot find good under-forty economists who identify themselves or their work as – Keynesian?. Indeed, people often take offence if referred to as Keynesians. At research seminars, people don;t take Keynesian theorising seriously any more; the audience starts to whisper and giggle at one another.

– he was not talking about Keynes’ vision, but, rather, the bastardised version that followed the publication of the General Theory.

The full reference is Lucas, R. (1980) ‘The Death of Keynesian Economics’, Issues and Ideas, University of Chicago, Chicago, 18-19.

Both the Samuelson development and Hick’s IS-LM approach morphed and allowed the “Keynesian” approach to be discredited during the 1970s. What has followed in macroeconomic theory is deeply objectionable and largely erroneous. I include the New Keynesians in that description.

Please read my blog – Mainstream macroeconomic fads – just a waste of time – for more discussion on this point.

Conclusion

This discussion forms part of one of the book projects I am working on. This section is about compromise and strategy.

I think it matters the way a rival paradigm frames its language and concepts. I see no advantage in forming strategic alliances with schools of thought that are basically – when distilled down – part of the problem rather than the solution.

More on this theme another day.

That is enough for today!

(c) Copyright 2012 Bill Mitchell. All Rights Reserved.

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    This Post Has 38 Comments
    1. The compromise should come from the other side. They got it wrong – dead wrong – and should give ground on their obsessions.

      If they want support from the MMT and PK economists then all they need do is drop their obsession with the size and shape of government deficits at this point

      They have to give ground and accept that deficits should not be the policy target, but will sort themselves out as a result of dealing with the proper policy targets.

    2. “The model was not consistent with Keynes’ vision at all and eliminated, among other things, the importance of expectations and investment behaviour – a key idea in the theory of effective demand and the tendency of monetary economies operating under conditions of endemic uncertainty to generate mass (involuntary) unemployment.” -Bill

      Bill, could you elaborate?

    3. I wouldn’t compromise with them. They will Cherry pick from MMT when they are devoid of their own ideas and it’s politically expedient to do so.

      As soon as the opportunity arises they will discredit the MMT ideas and revert to their ideological preference.

    4. Paul Davidson (not to be confused with Paul Samuelson) depicts a similar story on Keynesianism under the McCarthy era. See: http://econ.as.nyu.edu/docs/IO/8801/DavidsonKeynesMonetary.pdf

      Apparently, Paul Samuelson became the dominant interpreter of Keynes in America. But his version was bleak — highly adapted to neoclassical ideologues of the time — to some degree in order to save the theory from being completely wiped out from academia.

      Short excerpt:

      III. THE COMING OF KEYNESIANISM TO AMERICA

      In their wonderful book The Coming of Keynesianism to America, Colander and Landreth (1996, p. 23) [hereafter C-L] credit Paul Samuelson with saving the textbook pedagogical basis of the Keynesian Revolution from destruction by the anti-communist spirit (McCarthyism) that ravaged America academia in the years immediately following the second world war.

      Lori Tarshis, a Canadian who had been a student attending Keynes’s lectures at Cambridge during the early 1930s had, in 1947, wrote an introductory textbook that incorporated Tarshis’ lecture notes interpretation of Keynes’s General Theory. Despite the initial popularity of the Tarshis textbook , its sales declined rapidly as trustees of and donors to American colleges and universities, attacked Tarshis’s book as preaching an economic heresy, The frenzy about Tarshis’s textbook reached a pinnacle when William F. Buckley, in his book God and Man at Yale (1951), attacked the Tarshis analysis as communist inspired.

      In 1986 C-L interviewed Samuelson, [C-L, 1996, pp. 145-178] about his becoming an economist and a “Keynesian”. Samuelson indicated that he recognized the “virulence of the attack on Tarshis” and so he wrote his textbook “carefully and lawyer like” [C-L, 1996, p. 172]. The term “neoclassical synthesis Keynesianism” did not appear in the first edition of Samuelson’s textbook, Economics An Introductory Analysis[1948], which was published after the early attacks on Tarshis’s text. This neoclassical synthesis terminology, however, does appears prominently in the later editions of Samuelson’s textbook. Samuelson’s assertion that his brand of Keynesian macroeconomics is synthesized with (and based on ) traditional neoclassical microeconomic assumptions made the Samuelson version of Keynesianism less open to attacks of bringing economic heresy into University courses on economics compared to Tarshis’s Keynesian analysis.

    5. I find it troubling that Krugman is only opposed to austerity in the present. He believes we must have a medium-term plan for austerity – and I guess we’ll cross our fingers that its enactment doesn’t throw us back into recession. In my opinion, that is just another form of fiscal irresponsibility.

    6. Well I’m shocked to hear that the conservatives engaged in overt character assassination that destroyed people’s reputations and lives. Thank goodness they are only a ‘gentle right wing’ and are of high moral fibre …

      Neoliberalism – the opiate of the masses.

    7. What would have been the appropriate MMT response to the Stagflation in the US in the 1970’s? Was stagflation wholly the result of the rise of OPEC (and oil prices) in the MMT view?

    8. Would appreciate it if you could you complete this sentence:

      ‘The dichotomy was often expressed in terms of a reverse-L shaped aggregate supply curve (describing a relationship between prices on the vertical axis and output on the horizontal axis) where the economy was defined as having these two states. Up until full employment, policy could push quantity of output up (the real economy) at constant prices because firms were assumed to have excess capacity and would not experience any cost pressures. This is the horizontal section of the…………….’

    9. Bill,

      “This discussion forms part of one of the book projects I am working on”

      Another book project? C’mon, please finish the textbook now now now! :) In these times we need one completed book instead of a couple of unfinished projects. If you completed the textbook in 2009 we would look a lot better now.

      Best regards.

    10. Chances are extremely high that these “bastardized Keynesians” and their offsprings such as Paul Krugman will never acknowledge their mistakes. Loss of their prominent status as a result of acknowledging mistakes costs much more than intellectual integrity in the extremely distorted economics discipline, esp. in USA.

    11. Bill says “Keynes accepted the so-called law of diminishing returns . . .As a result competition would force prices up as output (and employment) increased and real wages would decline.”

      That argument sounds like applying microeconomics at the macroeconomic level. At the microeconomic level it is true that if the supply of apples rises, and the price of ALL APPLES declines. However, the price of all apples would NOT FALL if apple sellers can separate or differentiate apples that would be sold absent a price change from marginal apples (i.e. the additional apples sold as a result of a price drop).

      Likewise, if employers are not forced by trade unions or minimum wage laws to pay a flat wage regardless of employees’ abilities or suitability, then there is no need for wages to fall as employment rises.

      That strikes me as being the theoretical justification for what might be called “JG with existing employers”. That’s programs, like the UK’s Work Program which subsidise the unemployed (i.e. relatively unsuitable employees) into work with existing employers public and private.

      I.e. given a rise in aggregate demand (assuming the economy is at capacity and assuming employers cannot pay ultra low wages to unsuitable employees) employers are tempted to bid up the price of skilled labour because of the unsuitability of dole queue labour. In contrast, employment subsidies like the Work Program induce employers to take on marginal or unsuitable dole queue labour. That makes possible a higher level of employment than in the absence of the subsidy.

    12. So called job guarrentee is certainly not socialist or even moderately conservative. It is really an archreactionary policy who take us back to the horrors of 19 th century and the british workhouse system. How could someone apparently progressive and with a good comprehention of the way the macroeconomic system works and the possibilities offered by fiscal policy support such policy ? That a 19 th century type ultra conservative who believe unemployement and poverty is an inevitable law of nature and reject any idea of social security or of governement intervention go defend that kind of forced labor scheme I could understand. Neoliberal politics take us back in times but I hope that in a sophisticated and advanced society that kind of policy would never pass.

    13. The Tarshis textbook makes for an excellent read, even today. His chapter on money and banking is full of T-accounts carefully explaining to students how every central bank operation impacts upon the balance sheets of the private sector, financial and non financial. Just contrast that with the muddled explanations of most neo-classical textbooks of today. Tarshis wins in realism and clarity of exposition, hands down.

      As for “strategy or compromise” I’d say MMTers should be tactically flexible in order to get useful results (that is, support neo-keynesians whenever they come out against austerity) while not compromising on principles.

      Or, using Paul McCulley’s recent words – declare victory, and be nice about it.

    14. Perhaps not the ideal guy to quote here, but if Bill can use Buckley, I’ll quote Goldwater to support our side: “I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue!”

    15. 1) Wonderful post.
      2) Please complete the missing parts of the paragraph William Wilson cites above.
      3) I agree with Bill Mitchell on the compromise, but it is important to give the compromisers their due — because, for all their mistaken thinking, they at least gave us the “golden age” of post-war capitalism up until 1975. Of course, I do not think that that is the best we can hope for now, and I wish Krugman and company would take another tack, not least because there will be no hope even for the bitter “compromise” they desire, if they do not take a robust stance against neo-classical economic thought now. Even if one espouses the notion of the lesser evil, the only way to move towards such a “compromise” is for notable economists to push the economic policy “spectrum” in the proper direction by NOT giving in to neo-classical absurdities.
      4) Permit me to insert a long quotation from a piece by Montreal economist Harold Chorney, in which he mentions Tarshis (see http://www.historycooperative.org/journals/llt/54/chorney.html):
      “In my own research on the texts of the immediate post-Keynes era, I have only found one major text that accurately represented Keynes’s theory. This was A.W.Stonier and Douglas Hague’s A Textbook of Economic Theory which first appeared in 1953 and was widely used in Britain. I was taught from this text in my intermediate course in micro and some macro theory taught by Prof. Fu Sen Chen at the University of Manitoba in the early 1960s. It was also a text widely used in Great Britain before the Samuelson and later Lipsey texts dominated the field. The virtue of Stonier and Hague is quite clear in their discussion of aggregate supply and aggregate demand. They accurately and faithfully introduce students to the concepts and show the role that expectations and uncertainty play in the construction of these curves. Of course, reading Keynes’s General Theory and his own writings that both precede and follow this work is the best way of understanding what he was driving at. But it must be admitted that Keynes’s work is not very accessible to introductory or even intermediate-level students. It was intended, as Keynes himself pointed out, for his fellow economists, that is those advanced enough in the field to be considered professional economists or at least graduate students.
      What a pity more students of the subject were not properly instructed so they could have avoided the error of the 45-degree phantom aggregate supply curve that Samuelson unfortunately introduced into economics and claimed to be Keynesian. Anyone trained in the Stonier, Hague interpretation of Keynes and aware of the Keynes argument in the chapter on prices in the General Theory and his arguments in the Treatise would understand that stagflation was not at odds with Keynes’s argument because of the possibility of simultaneous inflation and unemployment already being anticipated by Keynes in the 1930s. In fact, this aspect of the argument was also correctly diagnosed by the American economist Charles Schultze writing for the Joint Economic Committee of the US Congress and their investigation into inflation in 1959. Later, the influential economist, Arthur Okun, also explored these kinds of approaches in his work.
      In the modern era the most influential group of economists to put this case outside of Okun and Schultze have been the post-Keynesians who took their inspiration from Robinson, Kalecki, and Keynes himself. Modern expositers of this sort of argument included Paul Davidson, Sidney Weintraub, and in Canada economists like the late Jack Weldon, A. Asimakopolous at McGill, and John Hotson at the University of Waterloo. Arthur Donner, Doug Peters, and the late Clarence Barber to some extent also understood much if not all of this analysis. Unfortunately, when Doug Peters was in the first Cabinet of Jean Chrétien, he lost the battle to David Dodge and his followers who were wedded to the strict orthodox neo-classical and even monetarist point of view. It was Dodge’s very conservative and anti-Keynesian point of view that carried the day. Another major Keynesian voice has been Mike McCracken, a former finance offical, CIA economist, and influential econometrics consultant who some time ago told me he considered almost the entire senior bureaucracy in Finance and at the Bank of Canada committed to anti-Keynesian doctrine.
      There were other Keynesians here and there across the country. But unfortunately there was very little connection between what they taught and the economists who came to dominate the Department of Finance after the [Bob] Bryce era ended and the Bank of Canada once Gerald Booey succeeded Louis Rasminsky as Governor. In the case of Bryce a careful reading of his text that summarized the basic argument of the General Theory reveals that he had an excellent understanding of Keynes’ argument and the role of uncertainty. It is less clear whether he had absorbed Keynes’s theory of inflation. Laurie Tarshis, who had been an early convert to Keynes’s economics and taught for years at Stanford and in his final years at York, was also clearly aware of these arguments.
      Canada is a small country and its intellectual elite who have access to the powerful institutions that run the country is drawn from a small circle of insiders. Outsiders, whether ethnically or religiously marginal, are simply not included. This was in fact the experience of the brilliant economist Abba Lerner whose work on functional finance codifies a system for using planned deficits in the stabilization of the economy. Lerner was a favourite student of Keynes. Keynes accepted Lerner’s version of functional finance but was politically cautious about embracing it publicly. In a letter to his follower James Meade he wrote, “Lerner’s argument is impeccable but heaven help anyone who tries to put it across to the plain man at this stage of the evolution of our ideas.”
      Lerner had sought a position with the Canadian Department of Finance during the war but not even his friend Robert Bryce could bring it off because, as Bryce himself noted, Lerner “was of the Hebrew faith” and certain other Finance officials foolishly considered Lerner’s ideas to border on “social credit.” Had our elites been more open to ethnic, religious, and ideological diversity I am convinced our economic policies would have been less dogmatically anti-Keynesian even when the monetarist counter-revolution was underway.”

    16. “As for “strategy or compromise” I’d say MMTers should be tactically flexible in order to get useful results (that is, support neo-keynesians whenever they come out against austerity) while not compromising on principles.”
      Fair enough, but what do the mainstreamers offer in return? Bradley & co seem to have studied at Lionel Bart’s economoc wing:
      Why should we break our backs
      Stupidly paying tax?
      Better get some untaxed income
      Better to pick-a-pocket or two.

      If you think of tax as intellectual effort.

      As for Ralph Musgrave’s comment, we are not living in a commercial orchard, but a society. The “unsuitable dole queue labour” is a strategic component of current arrangements and is absolutely vital in order to maintain them up to the point of collapse.

      APPLES in CAPITALS are a short lived fruit which will return to the earth and nourish it. Humans, in a developed, technocratic society, are bit more of a challenge to deal with. They are produced endogenously, expect the society they are born into to accommodate them,last for ages and then demand support beyond their productive life.
      While these facts may be distateful to a clean desk visionary like yourself, try and remember that a productive entity will not discriminate against any currency bearer in it’s suitable productive activity.

    17. “It is really an archreactionary policy who take us back to the horrors of 19 th century and the british workhouse system. ”

      Bit of an over-reaction based on a complete straw man idea of what Job Guarantee is about.

      If you don’t like that system structure, don’t implement Job Guarantee like that. There are plenty of alternatives – including the ones actually put forward by the MMT economists!

      People like to work and feel useful. What on earth is so wrong about ensure they have that opportunity?

    18. The one thing about Neo-Keynesians and Monetarists is that they are politically astute. They wouldn’t be where they are today without that skill.

      Trying to sound reasonable is a way of defending their position. It’s like forcing the Barclays CEO out rather than withdrawing the banking licence – what needs to be seen to be done rather than what ought to be done.

    19. Since my own academic background in my previous life was in philosophy, I find this whole business of compromises, alliances and political tactics we see at work in economics to a somewhat alien world. The frequent calls for this kind of coalition-building and politicking only underlines that economists themselves view economics is a practical art and policy tool, not just a science or field of rational intellectual inquiry.

      I would suggest that one of the reasons we are in this mess to begin with is that economists have, over the years, sacrificed far too much intellectual integrity and respect for realty for the sake of political expediency and the construction of an orthodoxy that would be credible to politicians, and congenial to the prejudices and interests of the powerful.

      If an economist honestly believes that we have a serious long term public debt problem that needs a strategy, then by all means they should argue for that view and defend it. But if they are only saying things like this because the conventional wisdom of the crowd has settled on that opinion, and the politicians they advise are afraid to challenge sacred cows, then they are part of the problem.

    20. MMT is gaining traction today, but, after Marx:

      “[We] make our own history, but we do not make it just as we please.” We can’t know what specific paths we will follow as we emerge from the wilderness onto the broader plains of engaged academic and policy debate. But never waver on principle, Bill. I say this to all of the leadership – make whatever compromises you have to in order to be heard – practical, political, financial if it comes to that. But whenever you gain access, keep it all-the-way real. Never water it down or worry about cheap acceptance.

      You folks have, among other things, shown me what it still means to have an unwavering moral compass in this world. In my opinion, it’s the single biggest reason that the online world is suddenly being joined by larger and larger segments of the mundane world in beating a path to your door. You are saying all the right things in this blog.

      Keep saying them.

    21. @Tyler Healy
      Not the first time that Krugman has gone on record as being concerned about the US deficit (ultimately)although he often points to big and contnuing Japan deficit as support for his arguments.
      Perhaps he really is on the MMT side; just ‘compromising’.

    22. Bill,

      This is a great post. Your emphasis on Lorie Tarshis is very much appreciated. I agree with Jose Guilherme’s comment above that his textbook excellent. It is in my opinion a gem of economic thought. It is very detailed yet sufficiently easy to read for anyone who has an interest in economics. And its content is entirely relevant to today. Thanks for pointing us to the Harcourt article.

      @ Thomas Bergbusch: Prof Chorney is a fine Keynesian economist. The passage you copied is a good inclusion. Canada has always had fine Keynesian tradition thanks to Tarshis. Of course, the Lerner affairs was a low point.

    23. then all they need do is drop their obsession with the size and shape of government deficits at this point Neil Wilson

      That would be a lot easier if those deficits were not “financed” with sovereign borrowing. But you believe in government favours for the banks, don’t you? “Corporate welfare” as Bill calls it?

    24. my mmt education continues
      my problem was with horizontal transactions netting out
      it’s not illegitimate trans temporal mathematics
      it’s not future liabilities of the debtor canceling out
      his acquired assets but concurrent bank liabilities netting out debtors newly created assets
      but I have one more doubt
      that is the empirical evidence collected by Steve keen which shows a link between private debt inflation
      regardless of “netting out” and economic growth
      of course in mmt analysis we cannot ignore the vertical transactions
      but do the facts show horizontal transactions can stimulate income and growth
      this of course would in no way undermine the ability of the currency issuer to effectively target full employment

    25. “but do the facts show horizontal transactions can stimulate income and growth”

      You can try thinking in accounting periods. I like to start at the micro level and aggregate up.

      A customer takes a $10,000 loan payable over 5 years. In the first year he has $10,000 income which he spends on home renovations, stimulating the economy. For simplicities sake say he pays back $2000 per year which will net off aggregate income in that year. The interest he pays on the loan (say $500) is income for the Banks. Some of the customers interest will get spent in bankers salaries, some will be paid as interest to depositors who will save the interest or spend it…. So some interest will be spent some saved (say $250 spent $250 saved). To simplify things lets assume the customer was not planning to save the money he will pay in interest so the net increase in aggregate savings is $250.

      To summarize in year 1.

      Net economic stimulus = $7,750
      Spending $10,000 LESS Loan repayments $2000 LESS savings by bankers and depositors $250.

      Year 2
      Net economic stimulus = minus $2,200
      LESS Loan repayments LESS saving $200 (5%*8,000/2)

      Year 3
      Net economic stimulus = minus $2,150 Etc etc

      When you aggregate all the transaction from borrowing decisions across the nation you will find the economic stimulus is a function of lending growth and saving decisions. Negative net lending and positive net savings will subtract from growth.

      It’s important to differentiate between the types of loan. If loans are being used to trade assets such as stocks, derivative contracts and land there is likely to be little stimulus effect unless the traders attract more leverage to the market and profits get spent. Visa versa if leverage is reduced and traders lose big.

    26. As Steve Keen likes to quote (I am not sure where from); “Progress occurs one funeral at a time.”

      Those wedded to systematised sets of false ideas almost never change their minds no matter how large a body of properly verified empirical evidence is presented to them. They are “epistemologically challenged”. They don’t understand or possess any consistent philosophical theory of knowledge. They often conflate opinion prejudice, ideology, faith and dogma with knowledge, showing absolutely no understanding of the difference. They cherry pick facts, show strong confirmation bias and ignore all disconfirming evidence. They don’t understand the methods of science or empirical enquiry and have scant regard for truth where it runs counter to self-interest. Their preference is for power and self-aggrandisement over disapassionate enquiry.

      These pseudo-economists who are really ideologues (like the US monetarist and neo-classical schools) will literally have to die out and fade away before their spurious economics model is defeated and its bizarre stanglehold on public discourse is broken. More generally, many people around the world will have to die (sadly) from overshoot, resource collapse, food, water and energy shortages and climate change disasters before public discourse changes ground to reach a realistic, empirically determined position on these matters.

      There will have to occur a series of what I term “salutary disasters” before people will see the plain empirical truth. Only salutary disasters which cause real, extensive and undeniable pain to the general populace will be a sufficient persuasive force to dispel the clouds of ideology, religion, wishful thinking and plain fantasy extant currently in the Political Economy debate. To put it crudely, raw reality has to smack people in the face before they can see the unpalatable facts right before their eyes.

      It is at this point and not before that a new cogent, empirically valid and properly humane Poltitical Economy theory has a chance of gaining recognition and traction in academia, politics and gneral public discourse. Of course, years or decades of work are necessary to get the new, valid theory ready for that propitious time so it is never too soon start.

    27. Well said Ikonoclast. Unfortunately it took a great depression and a world war to change their mindset the last time around. In only 60 years we have reverted back to square 1 again.

    28. let me make myself clear
      I no longer doubt the accounting accuracy of mmt
      I do not doubt the need for defecit spending vertical transactions
      the unemployed particularly of Europe are in desperate need of vertical transactions!
      I do not doubt that private debt horizontal transactions come with concurrent asset and liabilities
      I do not doubt that private debt can not sustainably fuel asset bubbles
      I do not doubt that private debt can not sustain increased household demand without wages rising
      the question is can private debt facilitate employment, wages demand
      the empirical evidence collected by keen working within minski ‘s theories
      seems to correlate debt inflation with growth and debt deflation with recession
      the “example” you gave gives no weight to the effect of horizontal transactions on aggregate demand
      in these wonderful macroeconomic mmt blogs all sorts of data are presented
      they represent measurable data within various time frames which have actually happened
      that is all macroeconomics can measure!
      your example of perceived future implications for private debt are partial
      they remind me of all the imaginary examples of classical and neo classical economics pointless constructs to support pre conceived ideology we can only attempt to measure the past!

    29. remember the concurrent liability of a private debt is not the debtor’s obligation to pay it back but the promise of purchase it places on the bank in this sense it nets out
      the debtor’s repayment nets out because he transers part of his income to the bank which becomes $ for $
      the banks income
      that took me a while to work out the simple dual entry accountancy heart of mmt

    30. The question is can private debt facilitate employment, wages demand.

      Thats hardly making yourself clear is it. If you can’t even phrase a question properly don’t make an ass of yourself pompously trashing someone trying to help ease your ignorance.

    31. “To put it crudely, raw reality has to smack people in the face before they can see the unpalatable facts right before their eyes.”

      I fear you are correct, but I hope you are not.

    32. well I was trying to make myself clear in what I understand of and agreed with mmt
      the question you extracted was not clear
      i am sorry if I came over pompous and ignorant
      is this any clearer?
      does KEENs data that show a correlation between variations of debt and variations of growth?
      could horizontal transactions whilst adding no net wealth affect aggregate demand?
      it makes little difference for the irrelevance of govts ever having to balance the books but I thought it might be a relevant question excuse the previous polemical style used to debating with classical economists on other blogs

    33. Paul,

      Thanks for pointing out that human beings are more complicated than apples.

      Amazing as it may seem to you, I am aware of the fact that apples are a commodity with a short life span: before they go rotten. The short life span of apples is wholly irrelevant to the point I made above.

      If you like, replace the word “apple” with the phrase “stainless steel bolts”. The latter have a much longer life span, if you think that’s of any relevance.

      Re your point that human beings are “bit more of a challenge to deal with” than apples, I think we’ve all worked that one out. Nevertheless, it is common practice in economics to apply cold and quasi-physical laws to human beings (e.g. the law of supply and demand). Doing that does not mean that those applying those laws think that human beings don’t have souls or that human beings are in all respects as simple as apples or stainless steel bolts.

    34. Ikonoclast: As Steve Keen likes to quote (I am not sure where from); “Progress occurs one funeral at a time.” It’s from Max Planck, who said it in several different ways at different times. But the tragedy in economics & several other disciplines in the last century is that sometimes the Planck quote is utterly false. (Planck’s death was not progress. Nor was Einstein’s nor Keynes’s nor Kalecki’s nor Lerner’s nor Minsky’s etc. ). The Young Turks are sometimes not a brilliant intellectual vanguard, but idiotic book-burners who think ancient superstition is the best & latest thing. In economics, progress-by-funeral happened already, starting 70-80 years ago. More recently was regress-by-funeral. This isn’t the tragedy, but the farce.

      Kevin Harding: can private debt facilitate employment, wages demand? Yes, of course. But it can’t sustainably, permanently, reliably do so. Only the gubmint can act macro-economically rationally, countercyclically. And human needs, rational public purpose have nothing to do with the business cycle.

      that took me a while to work out the simple dual entry accountancy heart of mmt MMT is far better than most disciplines in this regard, but in any modern academic discipline, the usual mode of exposition is to hide the simple heart of the subject with largely irrelevant verbiage which never gets to or explains the point, because it is something trivial, obvious, “goes without saying”, “which everybody knows”, … but is only explained behind closed doors, hidden by a Code of Omerta (Gian-Carlo Rota’s description of this practice). One can easily identify the rare publications which break the code – they are the ones called boring, illisable, incomprehensible, crazy, and eventually centuries or so later, stupid, trivial, obstacles to progress. Their authors, if still alive, can enjoy the whispers & giggles of fools like Lucas. :-)

    35. I agree that MMT should not compromise. IMO, MMT compromises too much.

      The expression ‘Government deficit spending’. We can name whatever number as it seems handier. But if the handy way revives the socially blocking ideas we should not regret of slow progress.

      ‘Government deficit spending’ implies that a government owns money. If a government owns money then it can save it. This is totally nonsensical from a MMT perspective, even for a colonial government. First, a government is a collective agent. It owns nothing. It is the expression of the collective ownership of common goods. Second, one of its functions is to be a currency issuer for the collective. The flows of money it generates have no reference in itself but in the collective for which it is the agent. ‘Government deficit spending’ is the ‘collective net income’. ‘Collective’ stands here as a variable symbol one may change for the concrete case considered. ‘Government net spending’ seems an interesting alternative.

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