Ok, I tried this once before and now it looks like another thread has taken off where my last one was left.
What I'm looking for is a formal, thorough, critique of MMT from an Austrian perspective.
Please do not post unless you understand MMT, meaning you have read something like the explanations by Cullen Roche and Warren Mosler.
A decent critique has been done at Seeking Alpha, but it fails by over criticizing in some areas and not going into much of the Austrian concepts I am interested in hearing about, like interest rates and the production structure.
If you know of an article, or are willing to provide your own insight I would very much appreciate it.
Thanks for the answer and the talk! I'm off for some days (snowboarding.. ;)
I'll come back to this discussion after I've read a paper by Vijay Boyapati on the multiplier.
Freedom of markets is positively correlated with the degree of evolution in any society...
I wrote this in 'Soft Currency Economics' 1994 after sitting in the steam room in Chicago with Don Rumsfeld who sent me to Art Laffer's firm to get it published:
Everyone who has studied money and banking has been introduced to the concept of the money multiplier. The multiplier is a factor which links a change in the monetary base (reserves + currency) to a change in the money supply. The multiplier tells us what multiple of the monetary base is transformed into the money supply (M = m x MB). Since George Washington’s portrait first graced the one dollar bill students have listened to the same explanation of the process. No matter what the legally required reserve ratio was, the standard example always assumed 10 percent so that the math was simple enough for college professors. What joy must have spread through the entire financial community when, on April 12, 1992, the Fed, for the first time, set the required reserve ratio at the magical 10 percent. Given the simplicity and widespread understanding of the money multiplier it is a shame that the myth must be laid to rest. The truth is the opposite of the textbook model. In the real world banks make loans independent of reserve positions, then during the next accounting period borrow any needed reserves. The imperatives of the accounting system, as previously discussed, require the Fed to lend the banks whatever they need. Bank managers generally neither know nor care about the aggregate level of reserves in the banking system. Bank lending decisions are affected by the price of reserves, not by reserve positions. If the spread between the rate of return on an asset and the fed funds rate is wide enough, even a bank deficient in reserves will purchase the asset and cover the cash needed by purchasing (borrowing) money in the funds market. This fact is clearly demonstrated by many large banks when they consistently purchase more money in the fed funds market than their entire level of required reserves. These banks would actually have negative reserve levels if not for fed funds purchases i.e. borrowing money to be held as reserves. If the Fed should want to increase the money supply, devotees of the money multiplier model (including numerous Nobel Prize winners) would have the Fed purchase securities. When the Fed buys securities reserves are added to the system. However, the money multiplier model fails to recognize that the added reserves in excess of required reserves drive the funds rate to zero, since reserve requirements do not change until the following accounting period. That forces the Fed to sell securities, i.e., drain the excess reserves just added, to maintain the funds rate above zero. If, on the other hand, the Fed wants to decrease money supply, taking reserves out of the system when there are no excess reserves places some banks at risk of not meeting their reserve requirements. The Fed has no choice but to add reserves back into the banking system, to keep the funds rate from going, theoretically, to infinity.
In either case, the money supply remains unchanged by the Fed’s action. The multiplier is properly thought of as simply the ratio of the money supply to the monetary base (m = M/MB). Changes in the money supply cause changes in the monetary base, not vice versa. The money multiplier is more accurately thought of as a divisor (MB = M/m).
Failure to recognize the fallacy of the money-multiplier model has led even some of the most well- respected experts astray. The following points should be obvious, but are rarely understood:
http://www.moslereconomics.com/mandatory-readings/soft-currency-economics/
Thanks for the answers Warren.
People ask me all the time that OK, if the banks create money this way and they are not reserve constrained and the money multiplier is bullshit then what is holding a bank to extend credit to itself and buying the whole economy. It is regulations as we know but how would you explain that in a very simple way.
if you make loans not permitted by regulation your bank gets closed down and liquidated and you go to jail
i think about 1000 people were jailed as a result of the s and l frauds, for example.
Robert Murphy takes on MMT:
http://mises.org/daily/5260/The-UpsideDown-World-of-MMT