Scott Fullwiler discusses, in a recent paper, the distinction in Modern Monetary Theory (MMT) between the ‘general’ and ‘specific’ cases. Analysis of the general case concerns a sovereign currency issuer prior to the imposition of any self-imposed constraints. Analysis of specific cases will be grounded in the particular operational realities of whatever monetary system happens to be the focus of attention. In part, Fullwiler’s paper is a response to those who question the appropriateness of giving priority, in theory, to the general case rather than specific cases.
In my previous post, it was mentioned in passing that although Kalecki agreed with a “solid majority” of economists that, economically, full employment could be maintained through a government spending program, he argued in his famous 1943 essay, Political Aspects of Full Employment, that political factors would prevent such a policy from being viable under capitalism. He then used this argument to explain what is now known as the ‘political business cycle’. Here, I will just focus on Kalecki’s explanations for political opposition to full employment. Although I don’t necessarily agree with his conclusions on this point, I do think he identifies genuine political obstacles that help to explain resistance to full-employment policies.
I am interested in how Modern Monetary Theory (MMT) relates to other macroeconomic approaches. There are strong connections to chartalism and credit theories of money (Knapp and Mitchell-Innes); Keynes and the principle of effective demand; Lerner’s functional finance; Minsky’s analysis of financial instability; circuitist and horizontalist Post Keynesian theories of endogenous money; and Wynne Godley’s stock-flow consistent sectoral balances framework. Individual Modern Monetary Theorists also cite other influences. Bill Mitchell, for instance, emphasizes the importance of Marx and Kalecki.
In Modern Monetary Theory (MMT), a distinction is made between ‘vertical’ and ‘horizontal’ transactions. The former refer to transactions between government and non-government; the latter to transactions within non-government. I thought it might be helpful to clarify the significance of this distinction, and also what it does and does not imply about the modern monetary system and real economy.