Wednesday, December 28, 2011

An MMTer on Carney's View of Austrian -MMT Similarities

MMTer Cullen Roche has also responded to John Carney's view on the similarities between Austrian economics and MMT.

I don't agree with most of Roche's MMT views, and I am not sure that he gets exactly what the differences are between Austrian economics and MMT, but he knows there are some. He writes:
But while there are certainly elements of Austrian economics that MMTers agree with there is one large hurdle….

I agree with John that there are more overlaps than most presume. But the largest hurdle is substantial. MMT is based on the state theory of money. We acknowledge that anything can be money. Gold can be money, pieces of paper can be money, credit cards can be money, a simple promise can be money. But what MMTers are very precise about is the fact that a sovereign nation with monopoly supply of currency in a floating exchange rate system names that which is money as defined in economic terms within that particular nation.
I don't think you will find Austrians disputing that the dollar is the medium of exchange in the United States, what they will dispute is that the medium of exchange must be defined and managed by the government of a country. This is simply not so, there is no theoretical reason why a country could not operate on a gold coin standard that was not in any way managed by government. THAT is a big difference between Austrians and MMTers.

Roche also writes:
We can quibble over the size of that government (I tend to prefer less government than most other MMTers), but we cannot ignore the reality that governments exist for very practical purposes and will likely always exist in some form (if for no other purpose than to provide a legal system and a coordinated military). Austrians tend to veer towards the misconception that governments are these exogenous entities that infringe on our personal liberties when the truth is that we create governments for some public purpose. We do not create governments to impose hardship on ourselves. That’s not to say that governments can’t become corrupt or excessive, but it’s rather naive to claim that a moderately sized government cannot provide some level of services that benefit the society as a whole.
Again, I reference Rothbard, who states quite clearly that when choices are left up to the government, there is no way to measure how they "benefit society" and that they are for the most part act as a negative on society.

As far as I can determine the views on issue after issue tend to be much different between the Austrian camp and the MMT camp. The MMTers have nothing, zero, to offer Austrians.


  1. Jack Sparrow smacked down the MMTers in December 2010.

    MMT says there will always be a demand for currency because of taxes and payments and transactions. We rebut this by pointing out how easy it is to avoid holding a currency, even your own local one, by conducting all necessary business solely at the point of transaction. There is no reason a U.S. based business couldn’t hold its cash reserves in Swiss Francs or crude oil if need be, converting to dollars for payment purposes on a just-in-time basis. A U.S. employee paid in $USD can do the same thing, converting dollars to something else the moment they hit the account.

  2. Here are a few articles worth reading regarding Austrians and MMT'ers (A.K.A. Post Keynesians/Chartalists/Minskyites):

  3. "It is difficult to make predictions, especially about the future". Yogi Berra.

    Thanks for the links, A-CC.

    The Keynesians, Minskyites and MTTers either fail or refuse to understand economic calculation. Unadulterated FREE MARKET PRICES are the best guide to the future. Without free market prices, economic calculation is impaired. Impairment of economic calculation leads to malinvestments and such impairment is the result of Keynesian and interventionist policies themselves. The Keynesian cure is the cause of the illness.

    By purposeful avoidance of the concept of economic calculation, the Keynesians and Minskyites can blame crises in a free society upon the amorphous “animal spirits” or irrational speculative euphoria. The cure for these problems are SWAT teams guided by the Much Smarter Than Us and Holier Than Thou Keynesians and Minskyites.

  4. I think Roche was referring to your view (and Rothbard's) that you can somehow separate a government from its society and a society from its money. You obviously didn't pick up on this component of the argument.

  5. 1. The MMTers are crowing about their favorable treatment by “The Economist” which simultaneously distorts and misrepresents the Austrian School. Somehow, a non-Austrian just cannot comprehend the concept of economic calculation.

    2. The difference between “government” and “society”: “We’re only stealing from ourselves”.

    “We” and “ourselves” are two distinct groups of people.

  6. Could not MMT be helpful in describing how the current system works in practice? For example, MMT likes to talk about how the "money multiplier" of fractional reserve banking works differently from the traditional explanation. The common story is that banks take X dollars in, keep the reserve percent, end lend the rest out, multiplying the money supply, potentially many times over as it is deposited in other banks. The MMT story (as I understand it as an econ-layperson) is that banks make lending decisions independent of current reserves. They look at the credit-worthiness of the borrower, compare it to the federal funds rate, and make the loan if it appears to be profitable, worrying about covering the reserve requirement later. The Fed prints (or removes) money to make sure banks can cover reserve requirements at whatever rate the Fed dreams up. Is this a reasonable MMT insight, or are they crazy to challenge the concept behind the money multiplier?

  7. Money Multipler Myth