What is Modern Money?

A modern money system, as that term is applied in Modern Monetary Theory, typically has three key features. Two of these features are always present. The third is optional but normally should be in place for the full benefits of modern money to be enjoyed:

1. The currency is a public monopoly. Government issues the currency and is the only entity allowed to do so.

2. The currency is nonconvertible. It is a fiat currency. The government does not promise to convert its currency into a precious metal or some other commodity at a set price.

3. The exchange rate is allowed to float. The government does not promise to maintain a fixed exchange rate with any foreign currency. Instead, the exchange rate is ‘flexible’ or ‘floating’. As already mentioned, this feature is usually operative, but not always.

Taking these three features together, we can say that modern money normally involves a ‘flexible-exchange-rate nonconvertible currency’, or ‘flex-rate currency’ for short.

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The Macro-Institutional Delimitation of Economic Complexity

A while back, Brian Arthur of the Santa Fe Institute wrote a short piece on complexity economics (h/t Tom Hickey). I find much of the work Arthur and others have done on increasing returns, path dependence and related phenomena very interesting. My doctoral supervisor’s doctoral supervisor (there has to be a less cumbersome way of expressing that) was Paul David who also had an interest in path dependence and the significance of history in economic development. My supervisor’s influence motivated me to devote chapters in my thesis to, among other things, an application of the theory of path dependence to the distribution of earned income and a consideration of the implications of cognitive limitations within the context of path-dependent economic processes. My (orthodox) postgraduate supervisor’s commitment to cross-disciplinary research also motivated me to integrate insights from liberal moral philosophy, policy history and institutionalism (new and old) into the analysis.

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Syriza – A Sign of Life on the Left

I’ve been reticent to offer thoughts on Syriza’s victory in the Greek elections. Quite simply, there are many others who, knowing much more about the institutional, legislative and cultural realities, are infinitely better qualified to comment on the technical matters involved. But not to comment at all on one of the more promising political developments in recent times might give the impression that I am uninterested or simply don’t care, which is very far from the truth. So what follows are some brief, scattered impressions, nothing of which is intended to be at all authoritative.

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Taxes, Demand and the Importance Or Otherwise of Incentive Effects

The Atlantic cites a 65-year study indicating that “tax cuts don’t lead to economic growth” (h/t Tom Hickey). On closer inspection, the study finds more specifically that tax cuts on the wealthy fail to promote economic growth while exacerbating inequality. This should not be surprising to anyone cognizant of basic macroeconomic principles, but to make that point is not to downplay the value of the study. Many have made claims contrary to the findings of the study. If we consider the effects of taxes more generally, our conclusion is likely to be less sweeping. The effects of taxation vary depending on what particular tax we have in mind and the context in which that tax operates. The matter can be considered both in terms of demand effects and so-called incentive effects.

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The Silly Season 3 – Heteconomist Christmas Message 2014

Let me start, in reference to the title of this post, by apologizing to anyone who does not celebrate Christmas. If it’s any consolation, Christmas enthusiasts are just as likely to be offended by the post as anyone else. Being someone who considers himself neither atheist nor theist, agnostic nor Gnostic, human nor inhuman, even I am quite offended. If this is difficult to believe, it will be easier to swallow by the post’s end.

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The Silly Season 1 – Heteconomist in the Gematria Code

Okay, I’m in holiday mode now, even though every hard-working blogger knows that there are no holidays for a blogger. If I think of something serious to post between now and the New Year, I will certainly do so, but sprinkled throughout will probably be a couple of posts fit for the silly season. Hopefully there will be some music, although I’m struggling to find anything sufficiently “on point”. Or maybe there will be a bit of film, or comedy. In the meantime, we will have to satisfy ourselves with a smattering of numerology. Actually, that might not be accurate. Whatever it is will soon become clear.

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Exercising Currency Sovereignty Under Self-Imposed Constraints

A currency-issuing government is not revenue constrained. It is always able to purchase whatever is available for sale in its own currency. This simple reality is partially concealed by a variety of contrived hoops through which modern day governments require themselves to jump. There are at least two different ways in which we can see past the confusion. The easiest way is to stand back and look at the big picture, both from the standpoint of logic and by considering the monetary and fiscal authorities as two parts of the same entity, the consolidated government sector. For the eagle eyed, this approach may appear to overlook potentially consequential details in the way governments actually spend. In practice, the monetary authority plays one set of roles, the fiscal authority plays another, and many governments have introduced various restrictions on the way in which the two can interact. The present post begins with a bird’s eye view of government spending, and then turns to a more detailed consideration of the way in which self-imposed constraints and convoluted operational procedures complicate but do not undermine the sovereignty of a currency-issuing government. The case of the US government is taken throughout as an example, but much of the discussion is also broadly applicable to other currency-issuing governments.

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The Accelerator, Profitability, Financial Instability and the State

I’ve been pondering whether it is possible to reconcile a number of notions within the same economic story about long-run growth and accumulation:

  1. An accelerator-type determination of private investment;
  2. A possible tendency, under laissez-faire capitalism, for profitability to fall as accumulation proceeds;
  3. Capitalism as prone to financial instability;
  4. A state able either to attenuate crisis tendencies or, cajoled by democratic pressure from below, push the system beyond capitalism;
  5. A capitalist state able to “manage”, to a degree, the rate of profit.

It is possibly a tall order. The following is intended as just a rough sketch of what I have in mind. I might go deeper into some aspects of the argument in future posts, as it raises various questions, but think it would be better to catch any glaring faults now before carrying the exercise further.

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