Los dos enfoques del dinero
Deuda, Bancos Centrales y Finanzas Funcional
Deuda, Bancos Centrales y Finanzas Funcional
La nueva evaluación científica del papel económico del Estado después de la crisis ha renovado el interés por la teoría de Abba Lerner de finanzas funcionales (FF). Una discusión detallada de este concepto es útil para reconsiderar el debate sobre la naturaleza del dinero y el origen del ciclo económico y las crisis. También permite una reevaluación de muchas cuestiones de política, tales como la equivalencia de Barro-Ricardo, la causa de la inflación, y el papel de la política monetaria
Working Paper No. 855
The Two Approaches to Money: Debt, Central Banks, and Functional Finance
by
Giuseppe Mastromatteo
Institute of Political Economy, Catholic University of the Sacred Heart
Lorenzo Esposito*
Bank of Italy, Milan
November 2015
After at least three decades where mainstream laissez-faire economics served to mold banking regulation and public policies as a whole, the financial system collapsed, pushing the world economy to the brink of the abyss. Suddenly, economists, central banks, and the government were forced to acknowledge how dysfunctional the characteristics of the world financial system were. In a system where profitability was tantamount to efficiency, it became clear that, even without considering implicit subsidies like deposit insurance and lending of last resort, banking is not as profitable as it seems and maybe is not profitable at all (Haldane 2010). It is also clear that big banks had amassed such colossal political power that they captured everything in their path, including regulators and government (Kay 2009). So much for financial market efficiency.
All mainstream conclusions supposedly carved in stone are now suspicious. This is already true in practice, as policymakers were forced to follow different directions. The new situation also encouraged a revival of old debates such as the long-abandoned question of whether it is effective to use deficit spending policies to spur economic growth and how to fund them. The resumption of functional finance (hereafter also FF)—that started even before the crisis (Goodhart 1998; Arestis and Sawyer 2003; Colander 2003; Forstater 2003)—is now widespread (Tcherneva 2008; Wray 2009c; Aspromourgos 2014). The expression was coined by Abba Lerner in 1943 reflecting the growing awareness of the policy implications of Keynes’s General Theory. Lerner believed that the public budget should not only fulfil its traditional allocative tasks but should also address the problem of the stabilization of the cyclical trend of the economy. According to this theory, public finance should be functional to the long-term development of the system.
As Keynes pointed out (Aspromourgos 2014), FF is an idea more than a policy, a way to look at the role of the State and not a ready-made set of tools to deploy. This is very interesting because it allows the use of FF to reassess a number of theoretical debates. In particular, FF encourages economics to reconsider the nature of money with all the due consequences about public debt, inflation, the role of central banks, and so on. We will deal with all these issues as far as they are “functional” to establish the conceptual framework in which we discuss practical alternatives to the mainstream policies. All in all we will deepen historical economic controversies to show that there is a basic consistency in all the issues that the two theoretical frameworks face on the basis of their theory of money. Starting with policy implications of alternative views on the nature of money, we 1 We would like to thank Prof. Giarda, Prof. Panico, Prof. Serravalli, Dr. Gatti, and participants at the XIX Annual Conference of the European Society for the History of Economic Thought held in Rome on May14–16, 2015. 3 deal with monetary and fiscal policy, central banking institutional design, the nature of inflation, and the role of the State. We reach the conclusion that after the crisis “fiscal dominance” is not a subjective stance of the government or monetary authorities, it is a structural feature of the world economy
After at least three decades where mainstream laissez-faire economics served to mold banking regulation and public policies as a whole, the financial system collapsed, pushing the world economy to the brink of the abyss. Suddenly, economists, central banks, and the government were forced to acknowledge how dysfunctional the characteristics of the world financial system were. In a system where profitability was tantamount to efficiency, it became clear that, even without considering implicit subsidies like deposit insurance and lending of last resort, banking is not as profitable as it seems and maybe is not profitable at all (Haldane 2010). It is also clear that big banks had amassed such colossal political power that they captured everything in their path, including regulators and government (Kay 2009). So much for financial market efficiency.
All mainstream conclusions supposedly carved in stone are now suspicious. This is already true in practice, as policymakers were forced to follow different directions. The new situation also encouraged a revival of old debates such as the long-abandoned question of whether it is effective to use deficit spending policies to spur economic growth and how to fund them. The resumption of functional finance (hereafter also FF)—that started even before the crisis (Goodhart 1998; Arestis and Sawyer 2003; Colander 2003; Forstater 2003)—is now widespread (Tcherneva 2008; Wray 2009c; Aspromourgos 2014). The expression was coined by Abba Lerner in 1943 reflecting the growing awareness of the policy implications of Keynes’s General Theory. Lerner believed that the public budget should not only fulfil its traditional allocative tasks but should also address the problem of the stabilization of the cyclical trend of the economy. According to this theory, public finance should be functional to the long-term development of the system.
As Keynes pointed out (Aspromourgos 2014), FF is an idea more than a policy, a way to look at the role of the State and not a ready-made set of tools to deploy. This is very interesting because it allows the use of FF to reassess a number of theoretical debates. In particular, FF encourages economics to reconsider the nature of money with all the due consequences about public debt, inflation, the role of central banks, and so on. We will deal with all these issues as far as they are “functional” to establish the conceptual framework in which we discuss practical alternatives to the mainstream policies. All in all we will deepen historical economic controversies to show that there is a basic consistency in all the issues that the two theoretical frameworks face on the basis of their theory of money. Starting with policy implications of alternative views on the nature of money, we 1 We would like to thank Prof. Giarda, Prof. Panico, Prof. Serravalli, Dr. Gatti, and participants at the XIX Annual Conference of the European Society for the History of Economic Thought held in Rome on May14–16, 2015. 3 deal with monetary and fiscal policy, central banking institutional design, the nature of inflation, and the role of the State. We reach the conclusion that after the crisis “fiscal dominance” is not a subjective stance of the government or monetary authorities, it is a structural feature of the world economy
http://www.levyinstitute.org/pubs/wp_855.pdf
