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Erschienen in:

2024 | OriginalPaper | Buchkapitel

4. Modern Money Theory as Part of Economics

verfasst von : Dirk Ehnts

Erschienen in: Modern Money Theory

Verlag: Springer Nature Switzerland

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Abstract

While Modern Monetary Theory has been created outside of the economics discipline, some of its main ideas have quite prominent forerunners. These shared ancestors include Georg Friedrich Knapp and his “State Theory of Money” from 1905. Today’s theories that are used as intellectual foundations to inform fiscal and monetary policy derive from different origins. This chapter introduces readers to the ideas that rule our current use of fiscal and monetary policy. After describing these theories, they are used to explain the economic performance of the last couple of decades. Other subjects covered include international trade, sectoral balances, and unit labor costs.

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Vorheriges Kapitel The Paper Currency of Virginia (1760s) and Its Lessons

Nächstes Kapitel What is Economic Policy?

See Knapp (1924, 1).

Knapp notes at the bottom of the first page of his book that is not in favor of “unbacked” paper money.

See Marx (1914, 85).

See Schumpeter (2021) [1912] and Keynes (1936).

See Lerner (1943, 38–51) and Minsky (2008).

See Mazzucato (2021).

In Ehnts and Jochem (2020) we sketched out some thoughts about how to redevelop economics.

Note that in can only spend on things that are part of the budget. There has never been, there is no, and there never will be “unlimited” government spending. Those who warn against this have no clue about how the political process actually works.

For many years now, government bonds have been digital entries in a book-keeping system in most countries, including the USA.

All these operations have the Fed buying Treasury bonds from banks, paying by crediting their accounts. Open market operations are executed to influence the interest rate(s) in the interbank market, and QE is thought to influence bond yields over all maturities and asset purchase programs.

Technically, they are called Treasury securities. Five different varieties exist: Treasury Bills, Treasury Notes, Treasury Bonds, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs).

Note that reserves can be used to buy government bonds, but not to make loans to the private sector since they do not have an account at the Fed and hence cannot technically receive the money. This would change with central bank digital currency in the form of central bank accounts for everyone.

Obviously, by now everyone can order a car directly from the manufacturer over the internet.

If the banks have problems getting the reserves needed to buy the government bonds, the Fed will help them. In 2020, during the COVID-19 pandemic, the Primary Dealer Credit Facility was created to help the federal government sell more government bonds. Credit extended to primary dealers under this facility could be collateralized by a broad range of investment grade debt securities, including commercial paper and municipal bonds, and a broad range of equity securities, the Fed stated.

Donna A. DeCorleto & Theresa A. Trimble, 2004. “Federal Reserve Banks as fiscal agents and depositories of the United States in a changing financial environment”, Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 90, pp. 435–446.

See Eich (2022) and Feinig (2022) for books on money from a political science perspective.

See Binder and Spindel (2017).

See https://www.bankofengland.co.uk/news/2020/april/hmt-and-boe-announce-temporary-extension-to-ways-and-means-facility.

Technically, it buys the coins from the Treasury. The Treasury is not allowed to mint coins and use them to pay for goods and services or anything else.

The obvious solution here is to tax the rich, if one would be serious about it. The rich can also be taxed because their wealth is a danger to the functioning of democracy, as many billionaires use their money to buy political influence. John D. Rockefeller, who was the first billionaire, used to philantropy to “correct” his public image. See https://blogs.loc.gov/inside_adams/2020/01/rockefeller-billionaire/.

Lower saving rates would achieve the same goal but are hard to reach.

It is also the conclusion reached by the International Monetary Fund (IMF 2019) for Germany, for example.

Smith (1776, 13).

Residents include firms and the state.

At full employment, more aggregate demand will very likely lead to rising wages and prices.

https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS.

This depends, among other things, on whether nominal wages will be stable though working hours are reduced or not.

Titel: Modern Money Theory as Part of Economics
verfasst von: Dirk Ehnts
Verlag: Springer Nature Switzerland
Buch: Modern Money Theory
Print ISBN: 978-3-031-53536-9

Electronic ISBN: 978-3-031-53537-6

Copyright-Jahr: 2024
DOI: https://doi.org/10.1007/978-3-031-53537-6_4