There is no chance this synthesis should occur. Austrian economics is based on sound deductive logic. MMT is based on sloppy definitions, sloppy thinking and a failure to understand Austrian economics.
Austrian theory was developed when the world was on a gold standard, and so it is unsurprising that while it is invaluable in understanding markets and the dangers of an unconstrained fiat monetary system, it is incomplete as a description of the monetary system that we have today.So what is the problem with the Austrian theory? According to Koerner its that now:
Government is the one and only issuer of currency.Uh, that would be fiat money. Here are the dictionary definitions of fiat:
fi·at /ˈfiɑt, -æt; ˈfaɪət, -æt/ Show SpelledThe Austrian economists discussed fiat money on many occasions:
[fee-aht, -at; fahy-uht, -at] Show IPA
1. an authoritative decree, sanction, or order: a royal fiat.
2. a formula containing the word fiat, by which a person in authority gives sanction.
3. an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it: The king ruled by fiat.
In The Theory of Money and Credit, Mises wrote (my emphasis):
If the objective exchange value of money must always be linked with a preexisting market exchange ratio between money and other economic goods (since otherwise individuals would not be in a position to estimate the value of the money), it follows that an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange value based on some other use. This provides both a refutation of those theories which derive the origin of money from a general agreement to impute fictitious value to things intrinsically valueless and a confirmation of Menger's hypothesis concerning the origin of the use of money. This link with a preexisting exchange value is necessary not only for commodity money, but equally for credit money and fiat moneyGovernment issued money is fiat money, just what the Austrians understood and critiqued. Thus, there is no lack of understanding by Austrians regarding the current economic situation. However, Koerner takes a bizarre twist to imply that Austrians fail to understand the current economy. He writes:
...all financial assets in the hands of the non-government sector were originally spent into existence by the government. The sum of all savings in the non-govt. sector equals the sum of all spending by the government. This is an accounting identity. Therefore, in the aggregate, private savings can increase only if government (net) spends more.This is simply factually wrong. First, note the switch from the dollar to "all financial assets", this switch is incorrect. Financial assets are different from a currency and most private financial assets have not been "spent into existence by the government". IBM may issue bonds in terms of the dollar, but the bonds themselves were not "spent into existence by the government". The bonds being a financial asset of the holder and issued by IBM, certainly a member of the private sector. Just because the government issues a fiat money does not mean it creates savings. Savings can be created by those holding dollars, who choose to save them, as opposed to hoarding them or using them for consumption. The Federal Reserve can also create savings by creating money and pumping it into the economy as savings but they are not the sole creator of savings.
Further, the sum of all savings in the non-government sector is not in any way equal to all spending by the government. Any government spending as a result of taxes, certainly has no direct correlation with an increase in private sector spending. And newly created fiat money may enter the capital goods sector where it is loaned out by the business sector, but to the degree a central bank buys government securities that money results in government spending, not private sector savings.
Koerner continues his confusion:
...the government today has a total "debt" of $14 trillion, which means only that it has spent into the private sector 14 trillion more than it has taken in from the private sector. Therefore, the private sector owns that 14 trillion dollars (some of it will be held outside the US, of course, as determined by trade deficits/surpluses).The private sector does not own the "total debt". $1.6 trillion of it is owned by the Federal Reserve. This is the only portion of the debt where the government created money in conjunction with Treasury debt issue.
Koerner than goes on to write that:
Critically, all the while there is any money in the economy - all the while there is any economy at all -- the government must be "in debt".This is simply not true. There is a lot more on the Federal Reserve balance sheet than Treasury debt. For example, there is gold and $43 billion in currency. None of this would disappear if all Treasury debt were to be retired. A proper valuation of the dollar in terms of gold would result in the money supply staying right where it is, even if all Treasury debt was retired.
In short, while the Federal Reserve does use Treasury securities to create money. The Fed need not use Treasury securities to do so and if the Treasury issues debt, which is bought by the private sector, no new money is created. Thus, there is no necessary connection between Treasury debt and money creation. Either can occur without the other. They are not linked at the hip. They can occur separately.
This confusion by MMTers between government debt and money leads them to some pretty strange places. Koerner explains:
A skeptical reader might ask, "If this is true, why does the government bother with taxes at all, since they don't need the money." The MMTers have a startling answer. First, by requiring the citizenry to pay taxes in its currency, the government ensures that its currency circulates and that it can buy what it needs (since people need the government's currency to avoid prison for non-payment of taxes). Second, by setting the tax levels, the government can drain money from the economy to balance the rate at which it spends money into the economy and thereby prevent excessive inflation.A better explanation for why the dollar circulates in the economy comes from Mises explanation above. The dollar was once tied to a commodity, gold, and has since then gained acceptance as a medium of exchange. Somehow, if taxes were ended in the country and government spending declined dramatically, I don't think Americans would be burning their dollars. In fact, dollars would likely soar on foreign exchange markets. It is true that taxes used to pay for government spending reduces the amount that needs to be borrowed, but if the borrowing is financed by the private sector there is no net effect on money supply and price inflation. It is Fed operations that is the sole source of money creation, and the Fed can buy Treasury securities or other assets, as witnessed by their recent purchase of mortgage backed securities, to create money. I repeat, there is no necessary connection between Treasury debt and Fed money creation as MMTers believe.
What is Koerner's conclusion to the MMTer confusion:
Austrians should not reject MMTers for what MMT seems to imply. Rather, the nature of the world that the MMTers describe is precisely what makes Austrian economic thinking more important than ever before. Austrians should engage MMT as a descriptive paradigm, even when the policy positions preferred by many of its advocates horrify them...the two paradigms in part describe different aspects of our economic reality: synthesizing them by applying the tools of one to the most important observations of the other could provide something that we desperately need, and so rarely find -- genuinely new insight.The fact of the matter is that MMTers are muddled thinkers, who don't understand Austrian theory, money or debt. It is a jumbled mess. Austrians need to attack, attack and attack, this muddled thinking.