28 May 2011

Mises >> Scott Sumner + Warren Mosler

Federal Reserve, Inflation 22 Comments

“[I]nflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, i.e. of anti-democratic, policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. It explains why inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism. When governments do not think it necessary to accommodate their expenditure to their revenue and arrogate to themselves the right of making up the deficit by issuing notes, their ideology is merely a disguised absolutism.” (Theory of Money and Credit, pp. 223-224)

22 Responses to “Mises >> Scott Sumner + Warren Mosler”

  1. Ryan Murphy says:

    And when Hayek “translated” Theory of Money and Credit into the Marshallian tradition, he said what Mises meant was to stabilize “total effective circulation.” He clarified this to mean M*V. M*V is of course the same thing as NGDP. So Hayek and Mises believe in the same thing as Scott Sumner, with a lower target. And a lower target is just a magnitude thing, not something categorically different. So if we believe that Prices and Production is an accurate statement of ABCT, there is a tiny distance between Mises and Sumner.

    • bobmurphy says:

      Ryan, even if you are right, I could just be saying that Warren Mosler’s contributions are really negative.

      • Ryan Murphy says:

        I have no opinion on Mosler. But it would be very cryptic of you to say “Scott Sumner + Warren Mosler” and only to mean Mosler?

    • Jonathan M. F. Catalán says:

      I think Mises would probably disagree with some of the nuances in Sumner’s arguments, including the current obsession with “monetary equilibrium” some economists have, when it’s not even clear that the problem stems from an increase in the demand for money.

      I wish someone would re-translate The Theory of Money and Credit.

  2. John Becker says:

    I saw MMTers claim that hyperinflation was the result of government losing the ability to collect taxes. This seems completely backwards to me like almost all the reasoning of monetary theorists. What seems more likely is that governments that have printed a lot of money get addicted to it as such an easy source of revenue or it is simply too difficult to issue and collect taxes when the value of your currency is changing so rapidly. Unfortunately, there’s no way to prove my theory or the MMT theory empirically (at least that I can think of).

    • Bob Roddis says:

      1. The MMTers are not serious. They NEVER respond to several basic questions. I’ve inquired 15 times about Abba Lerner’s plan to forbid ALL price changes without permission which he concocted two years before he died. As I repeat myself……………

      Chartalist MMT godfather Abba Lerner (1903-1982) was busy as late as 1980 constructing a Rube Goldberg type straightjacket of price controls:

      “Initially he toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market [!!!!!!] anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]”


      2. A quarter century before “The General Theory”, Mises was explaining that Keynesianism was a hoax based upon theft and fraud. Just as the MMTers don’t respond to our critique of them, the Keynesians cannot and do not respond to our critique of them.

      • MamMoTh says:

        No MMTer even mentions Lerner’s MAP.

        Their approach to full employment and price stability is through a Job Guarantee.


        • Bob Roddis says:

          Since The Godfather Lerner obviously didn’t believe that taxes would cure inflation, it’s quite clear why MMTers never mention Lerner’s MAP.

          Forget all about those sector balances. Focus on the JOB GUARANTEE. That’s constitutional, right? I thought only the Stalinists (like the early Lerner) believed in overseers.

      • John Becker says:

        Right. I find their claims interesting because they seem to turn common sense and rationality on their head. Claims like a jobs guarantee or fixed prices forever are obvious economic suicide, but what I find interesting is the way they consistently mix up cause and effect (in my opinion) in the same way as monetarists like Scott Sumner or even Milton Friedman. I just don’t think it makes any sense to try to understand and/or run a modern economy by making little pieces of paper a primary consideration.

        • Bob Roddis says:

          Austrians start with real people, how they think and act and the self evident natural limitations upon human knowledge. We employ normal everyday morality which everyone understands. It is wrong to lie, cheat, steal murder etc….

          There are no humans nor goods and/or services in MMT. They start and end with their “sectors”. They kinda deny the law of scarcity, economic calculation and catallactics in the sense that they have no familiarity with those basic economic concepts so, when challenged, they deem them irrelevant to the discussion of “sectors”. Because they insist upon their alternate universe of Keynesian macro, normal concepts of morality are also allegedly irrelevant.

          Whereas generic Keynesians will sorta insist that the free market fails and we need “stimulus”, MMTers just start with “We have this fiat system, we’re not going back and this is how it works, blah blah blah”.

  3. MamMoTh says:

    Everybody knows that
    Mises = 0
    Sumner = – 10^32
    Mosler = 10^16

    So Mises >> Sumner + Mosler
    But Mosler >> Mises and Mosler >> Sumner

    • bobmurphy says:

      You have finally contributed to this blog, MamMoTh. Thank you.

      • MamMoTh says:

        you are welcome

    • Bob Roddis says:

      The never-ending unanswered questions from a few weeks ago:

      Answer the following questions:

      – What exactly are these “savings” made up of?

      – What makes these “savings” valuable?

      – What are these “savings” used for?

      – Who accepts whatever the savings are made up of for payment of services should the savings need to be dipped into “for a rainy day”?

      – Who owns these “net savings”?

      – Why is it important that these “savings” increase indefinitely?

      – Why is it bad that the “savings” are used, and thus reduced “in net”?

      – By what mechanism are these “savings” actually used?


      Check out how the MMTers let that thread die as they hide under the bed.

      • MamMoTh says:

        What exactly are these “savings” made up of?

        Government IOUs, aka money, cash, deposits, bonds.

        What makes these “savings” valuable?

        The fact savers want to save them.

        What are these “savings” used for?

        Whatever the savers want to use them for.

        Who accepts whatever the savings are made up of for payment of services should the savings need to be dipped into “for a rainy day”?

        The government for tax payment and the same people who accept them today in exchange for their goods and services.

        Who owns these “net savings”?

        Those whose income > spending.

        Why is it important that these “savings” increase indefinitely?

        Not necessary.

        Why is it bad that the “savings” are used, and thus reduced “in net”?

        Net savings of the domestic private sector are not reduced in net by using them. They are reduced in net if and only if the budget deficit is not large enough to offset the trade deficit.

        By what mechanism are these “savings” actually used?


  4. Bob Roddis says:

    Just when I was going to copyright “The Keynesian Hoax” and “Money Dilution“, I find out Mises and Rothbard thought of them first. Rats.

    “It must be kept in mind in this context that money is the only good the increase in the supply of which confers no societal benefit whatsoever. As Rothbard notes in ‘What Has Government Done to Our Money:

    ’Whereas new consumer or capital goods add to standards of living, new money only raises prices — i.e., dilutes its own purchasing power. The reason for this puzzle is that money is only useful for its exchange value. Other goods have various “real” utilities, so that an increase in their supply satisfies more consumer wants. Money has only utility for prospective exchange; its utility lies in its exchange value, or “purchasing power.” Our law—that an increase in money does not confer a social benefit—stems from its unique use as a medium of exchange.’”


    • MamMoTh says:

      Of course, you are all stuck with barter thinking.

      In a monetary economy people want to net save financial assets, that is, they sell their goods and services in order to obtain more of those net financial assets than they spend.

      That is what the trade deficit is about, the foreign sector is willing to sell their goods and services in order to net save financial assets, US$ bank deposits and bonds.

      Not only you ignore that, but you also ignore the fact that in order for one sector (government, domestic private or external sector) to net save, at least one of the others must run a deficit.

      • Bob Roddis says:

        The solution is to excise the “government sector” from our lives. Arrest the culprits, convict them and send them up the river.

        • MamMoTh says:

          Sure, the solution to your inability to understand how modern monetary economies operate is to go back to a prehistoric barter economy.

          • Bob Roddis says:

            Translation of “Prehistoric barter economy” from MMT-speak:

            Constitutional, moral and highly efficient society based upon voluntary arrangements, private property and contracts, where murderous and poverty -inducing government looting is kept to a minimum.

            From the MMTers we never get analysis, just name-calling.

  5. Bob Roddis says:

    Alas, none of this proves that austerity won’t work for the economies concerned. In fact, it appears it has worked in the Baltic nations. They kept their euro pegs, and one of them, Estonia, implemented such a harsh austerity regime that the country was able to join the euro late last year by fulfilling the criteria of the stability pact. Its economy is slated to grow by 5.9% this year. Its fiscal deficit in 2011 will be 0.5% of GDP. How about that? Apparently Estonia has managed to achieve what according to Krugman is ‘impossible’. Lithuania and Latvia are close behind, with Lithuania’s growth expected to hit 5.6% this year and Latvia’s expected to hit 4%. Latvia’s economy shrank by 25% when the impoverishment of the boom was unmasked. All these nations have implemented strict austerity measures and vastly reduced government indebtedness – now they are back on a solid growth path. According to Krugman, this is not possible, which may be why he has so far somehow neglected to mention it.


    Ever notice that even with the 380 comments on the original Murphy mises.org MMT post, no MMTer even tried to convince us as to why anyone should believe in the existence of their alternative universe (which, in fact, they describe as such) of Keynesian demand management macro? When facing the public regarding Keynesians in general, I would pound home that Keynesians of all stripes rely upon this non-existent alternative universe as the basis for everything they preach. Tell the public that they don’t need an econ degree to understand econonomics which is logical and simple to understand. Only Keynesian explanations are hard to understand because they make no sense at all, do not relate to the real world and are the cause of our problems while fraudulently masquerading as solutions.