Tuesday, September 15, 2020

I Am Not a Fan of Stephanie Kelton's "The Deficit Myth" (Not Even the Footnotes)

From start to finish, it is extremely difficult to find anything positive to say about Stephanie Kelton's new book The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. I mean not even in the footnotes and she seems particularly proud of  her footnotes:

I read the footnotes in her book. I even bought a key book referenced in the footnotes to see what all the excitement was about.

This is what I wrote in Problems With Modern Monetary Theory: A Comment on Stephanie Kelton’s "The Deficit Myth" about the most significant footnote in her book:
The prevalent thinking is that barter first took place and then indirect exchange, which resulted in the emergence of money. 
But this is not how Kelton sees it. Money was created by government as a means to tax individuals and there was no evolution from barter to indirect exchange (money)in her theory.  
Curiously, other than a footnote reference by Kelton pointing to claims that there wasn't much barter before indirect exchange emerged, she remarkably does not attempt to prove the essential MMT claim that taxation creates money. 
But her footnote reference is stunning; it leads off by listing the book Debt: The First 5,000 Years by David Graeber.
Graeber is an anthropologist and makes basic economic errors in his book that no economist would ever make. He misidentifies the name of the founder of the Austrian school of economics, referring to him as Karl instead of Carl Menger.
Karl was actually the son of Carl but it was Carl who was the economist and published several books on the subject. 
But more significantly, he writes that Menger, along with William Jevons, added to the idea that money developed after barter by stating that they only (emphasis added) “improved on the details of the story, most of all by adding various mathematical equations to demonstrate that a random assortment of people with random desires could, in theory, produce not only a single commodity to use as money but a uniform price system.”
But Menger never used equations in his discussion of the emergence of money, never mind as the core to his development of the theory of how barter and indirect exchange emerged. He, in fact, rejected the mathematical approach.
There are no equations used in his discussion of barter and indirect exchange at all in his books. There are no equations at all in his book Principles of Economics, where he discusses barter and indirect exchange or in his paper “The Origins of Money.”
Graeber just gets this completely wrong. 
Graeber also offers probably the best critique as to why there may be no substance to his claim that there was no barter. 
In his chapter, “The Myth of Barter,” he points out that the available evidence of indirect exchange early on exists because “Some of it is just the nature of the evidence: coins are preserved in archaeological record; credit arrangements are usually not.”
But if credit arrangements were usually not of record, just what are the chances of early stage records of barter? How and why would that be recorded?
That is, he argues there was no barter because there are no records of such but then comes pretty close to admitting that records were probably not kept at the time of barter.
On this weak Graeber reed, Kelton plows on. But do note that by her being unable to prove that money did not emerge from barter, she is creating greater technical problems for her theory down the road.
The Kelton problems don't stop with this footnote. My complete takedown can be ordered here.



  1. Your dismissal of "Debt, the first 5,000 years" does not accurately portray its arguments. (Misplacing a K for a C is not meaningful to the argument)

    You're omitting that "records" are not the only source of information about the development of primitive societies and their economic systems.

    Explorers have been scouring the globe for hundreds of years, discovering communities all along the spectrum of development, and writing about what they've found. None of them have reported finding a community that resembled the standard economics hypothetical example of a barter economy run by people who don't know about money yet.

    Those explorers have found plenty of other arrangements, though. Many of which include social rules about obligations but no money.

    1. To Bill A: K vs C does matter. Did you read? K and C are two different people with different qualifications etc. Your second paragraph is diversionary; it misses RW’s point entirely. Your third paragraph is false — there have been barter economies recorded even in the 20th Century, some Amazonian tribes, for example, and, I would say, reportedly among some tribals and remote peoples of South Asia, where I go frequently. By the way, have you read all of the records of all the explorers in history?

  2. Well you are contradicting Graeber because he says the opposite, “Some of it is just the nature of the evidence: coins are preserved in archaeological record; credit arrangements are usually not.”

    And it was nice of you to fail to mention Graeber's absurd claim that all Menger did was put earlier arguments into mathematical form which is surely an indication he didn't come close to understanding Menger.

  3. RW, thanks for your work on this issue. Its important to record Stephanie Kelton's lack of careful thinking, especially regarding the weak sources she references. Her ideas were discredited long ago but keep resurfacing. Your recent critique is much appreciated.

  4. The fact that barter still exists today, even in the presence of money, would seem to cancel the Graeber/Kelton assertions. I'm aware of family farms that trade silage for milk from local dairies/sides of beef, etc. Do Graeber/Kelton think that these types of transactions did not exist until governments were instituted?