from Paul Davidson
What is Bitcoin? According to Modern Money Theory, bitcoin can not be money since it is not accepted in payment of taxes by any government — nor is it issued by any government via the governed purchase of goods and/or services from the private sector. So what is bitcoin in terms of MMT? I do not know what MMT proponents would respond to this query?
For Post Keynesian liquidity theory of money, the answer is clear.
In Post Keynesian monetary theory money is anything that will settle a legal contractual obligation.
And by the civil law of contracts, the government determines what settles a legal monetary contractual obligation.
Thus not only legal tender but also checks drawn on a bank account (but not financial securities such as stocks) can legally settle any legal contractual obligation (since the government regulates banks to assure that bank deposit liabilities are a “tap” issue that is immediately transferable into legal tender). And the government is the enforcer of legal contractual obligations.
Individuals can make all sorts of production and exchange (purchase) agreements among themselves — but only it calls for a money transfer to discharge the obligation, these contracts are not legal contracts. Thus I can agree to cut my neighbors lawn and he can agree to wash my car in exchange — but this agreement is not legally enforceable.
Bitcoin will not remain a liquid asset unless there is an institution [ a market maker] who will maintain orderliness. Read more…
ETELBERTO ORTIZ C., Universidad Autónoma Metropolitana, Unidad Xochimilco, Mexico City
The world continues to watch the ongoing debate on debt and government deficits in the US, with an eye on the impending “sequester”, the conservatives' equivalent of a “guillotine” on government spending. But, there are two areas of the debate mired in confusion:
1. While the discussion centers on the continued increase in the stock of debt for all levels of the US government and frames the debate in terms of an obvious “imperative” to reduce the debt, it ignores how these cuts would be accomplished and their impact on the overall performance and structure of the economy.
Vital economic debate is alive and well in Chicago.
Post-Kenyesian economist Paul Davidson recently was invited to the University of Chicago to give a lecture on Keynes’s solutions to current economics crises – solutions that are very much at odds with the traditional approaches associated with Chicago School economics.
In his talk titled “The Keynes Solution: The Path to Global Economic Prosperity via a Serious Monetary Theory,” Davidson discusses the failures of orthodox economics and explores how Keynes would have addressed them. You can watch the lecture and download the video or audio here.
Davidson points to Keynes’s theory of liquidity to explain why laissez-faire financial markets cannot be efficient and do not solve the problem they claim to solve: optimally allocating capital. He also notes that traditional explanations of financial markets fail to explain unemployment or bubbles – phenomena that Keynes studied throughout his body of work. In particular, Davidson cites the failure of risk-management approaches that rely on a stable and knowable future, which is impossible according to Keynes’s idea of radical uncertainty.
Davidson also explains how orthodox theories guide economic policy such as Quantitative Easing (QE). Quoting Keynes on why QE doesn’t stimulate the economy, Davidson says, “If you want to get fat, buy a bigger belt,” before adding that “QE doesn’t help you get fat, but it may help drop your pants.”
In all, Davidson’s presence at Chicago shows that the school that shook up economics in the mid 20th century by thinking outside the box is still pushing the boundaries of economic thinking. Chicago remains a vital center for economic debate. INET applauds both the University of Chicago and Davidson for promoting the kind of healthy economic discussion that is necessary for the economics profession – and the economy – to get back on course. Hopefully more economics departments will follow its lead.
from Paul Davidson
A few weeks ago, I indicated that I had been invited by Jim Heckman to give a talk to the economics department at the University of Chicago. My talk was also publicized in an advance in the Chicago Maroon [University of Chicago student newspaper] via a quarter page advertisement entitled “The Keynes Solution: The Path To Global Economic Prosperity Via A Serious Economic Theory”
In the advertisement was a picture of Keynes at Bretton Woods. The advertisement also indicated that a free box lunch would be provided to all in the audience. [This in an environment that proclaims there is no such thing as a free lunch.] Read more…
from Paul Davidson
After the shellacking the Democrats and Obama took in this November election, it is clear that the old time religion of classical economics will be coming back into fashion. The result is likely to be further economic disaster.
I am not surprised by the failure of the Obama Administration to win over the American people to a progressive economic program. On pages13 to 18 of my book THE KEYNES SOLUTION: THE PATH TO GLOBAL ECONOMIC PROSPERITY – ( written in January 2009) — I compared what I expected of Obama vis-à-vis what Roosevelt did in the first few years of his administration.
I cited a letter written by Keynes and published in December1933 in the New York Times where Keynes warned Read more…
from Paul Davidson
My letter on the Stiglitz review of Robert Skidelsky’s Keynes: The Return of The Master is printed in the May 27, 2010 issue of the London Review of Books.
It reads as follows:
The Non-Existent Hand
Joseph Stiglitz criticises Robert Skidelsky, Keynes’s biographer, for not understanding Keynes’s theory, but in doing so reveals his own imperfect understanding (LRB, 22 April). The basis of his complaint is Skidelsky’s distinction between risk and uncertainty. Risk, Skidelsky explains, exists when the future can be predicted on the basis of currently existing information (e.g. probability distributions calculated from existing market data); uncertainty exists when no reliable information exists today about the future outcomes of current decisions, because the economic future can be created by decisions taken today. According to Stiglitz, this is a distinction without a difference, and ‘little insight’ into the causes of the Great Recession is gained from Skidelsky’s emphasis on uncertainty as opposed to risk.
But this is not what Keynes believed. Read more…