Saturday, June 30, 2012

Lars P. Syll — Knut Wicksell and the origins of Modern Monetary Theory

Many mainstream economists seem to think the idea behind Modern Monetary Theory is new and originates from economic cranks.
New? Cranks? How about reading one of the great founders of neoclassical economics – Knut Wicksell. This is what Wicksell wrote in 1898 on “pure credit systems” in Interest and Prices(Geldzins und Güterpreise), 1936 (1898), p. 68f....
What Modern Monetary Theory (MMT) basically does is exactly what Wicksell tried to do more than a hundred years ago. The difference is that today the “pure credit economy” is a reality and not just a theoretical curiosity – MMT describes a fiat currency system that almost every country in the world is operating under.
In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them. That also enables governments to run a kind of monopoly business where it never can run out of money. A fortiori, spending becomes the prime mover and taxing and borrowing is degraded to following acts. If we have a depression, the solution, then, is not austerity. It is spending. Budget deficits are not the major problem, since fiat money means that governments can always make more of them.
Read it at Lars P. Syll's Blog
By Lars P. Syll | Professor, Malmo University
(h/t paul in the comments)


Detroit Dan said...

Interesting. But apparently Wicksell was the guy who invented the natural rate of interest. So I'm unclear about his relationship to MMT...

Anonymous said...

"That also enables governments to run a kind of monopoly business where it never can run out of money."

Can the government run out of money? No.

Can banks run out of money? Yes.

It's a monopoly.

Tom Hickey said...

DD, Knut Wicksell's is known as an economists' economist. He influence major figures from different schools. Wikipedia gives a nice summary. It shows how dialectical the development of economics is.

Detroit Dan said...

Thanks Tom!

Anonymous said...

For a good presentation of Knut Wicksell´s influence on todays economic thinking,i recommend to read Professor Axel Leijonhufvud at University of California (UCLA)and his paper "The Wicksellian Connection". It is good summary.It is available on the internet at