by From Marc Lavoie MMT is without a doubt part of the post-Keynesian tradition. Besides the link between the government and the central bank, as well as a few claimed novelties, such as the MMT view of the Phillips curve, the implicit MMT macroeconomic theory relies on post-Keynesian macroeconomics and its belief that the market cannot be left on its own and thus must be tamed; MMT relies on a credit-creation view of banking – the endogenous money view of post-Keynesians, more specifically I would say the horizontalist view – where banks are special financial institutions which are something more than financial intermediaries and where central banks essentially pursue defensive operations; there are obvious similarities between the circuit of State money as described by MMT authors and
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from Marc Lavoie
MMT is without a doubt part of the post-Keynesian tradition. Besides the link between the government and the central bank, as well as a few claimed novelties, such as the MMT view of the Phillips curve, the implicit MMT macroeconomic theory relies on post-Keynesian macroeconomics and its belief that the market cannot be left on its own and thus must be tamed; MMT relies on a credit-creation view of banking – the endogenous money view of post-Keynesians, more specifically I would say the horizontalist view – where banks are special financial institutions which are something more than financial intermediaries and where central banks essentially pursue defensive operations; there are obvious similarities between the circuit of State money as described by MMT authors and the circuit of private money as described in the Franco-Italian post-Keynesian monetary circuit approach; MMT authors, just like (almost ?) all post-Keynesians reject 100 percent reserve-related schemes that have regained popularity since 2008; both MMT and post-Keynesian economists believe that fiscal policy, not monetary policy, should be the main tool to stabilize the economy, and hence that quantitative easing is unlikely to jump-start the economy. They also favour functional finance à la Abba Lerner, or at least some version of it.
MMT authors and post-Keynesians alike reject the following statements, often heard from politicians, pundits and several mainstream authors: the government will run out of money; the government will go broke; the government should run its finances like a household; government deficits bring higher interest rates; government deficits take savings away from the private sector and lead to crowding out, and hence a reduction in private consumption and private investment. As Mitchell (22 August 2016) puts it, “While Post Keynesians rejected the so-called mainstream ‘crowding out’ theories (where fiscal deficits are alleged to push up interest rates and stifle private investment), MMT provides new ways of understanding why crowding out cannot occur in a modern (fiat) monetary system”. Thus there is a lot, both on the positive and negative sides, that MMT advocates and post-Keynesian authors agree upon.
