There are a lot of cranks in economics, and it only gets worse all the time. I have been sent a copy of this editorial in The Oz yesterday which is a reminder of just how off the rails economists are: The promise and pitfalls of Modern Monetary Theory. The final para:
MMT certainly has theoretical appeal, even for rational, hard-nosed economists. It’s axiomatic there is no budget constraint in such a model. But we live in a complex, even messy world. Imagine telling a populist National, a clueless Green or a Labor class warrior there is no spending limit. How can you hope to manage the economy? … As an analytical tool the theory has merit. But with printing money in the real world, there is a day of reckoning or just a long stagnation. Our income can never be guaranteed, so we need to earn and pay our way.
They seem to come down against it, but only just, and hardly in a way that might alert you that any genuine application of MMT will wipe out cash-denominated savings, along with driving our economy into a wasteland of unproductive outlays. Living standards would be guaranteed to crash. Yet with government debt that way it is everywhere, why not just print the stuff up. No political leader lasts for ever. Leave things to the next lot to fix.
Economists once understood what the problem with such an approach actually is, as discussed in my Classical Economic Theory and the Modern Economy. As discussed at length within the book, until 1936 economists always first thought about the real economy and then, but only then, brought in money at the end. Here is the turning point in economic theory. From The General Theory itself where the approach taken by Mill is to examine the issues in relation to commodities and not money.
In J. S. Mill’s Principles of Political Economy the doctrine is expressly set forth:
What constitutes the means of payment for commodities is simply commodities. [That’s Say’s Law, by the way.] Each person’s means of paying for the productions of other people consist of those which he himself possesses. All sellers are inevitably, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should, by the same stroke, double the purchasing power. Everybody would bring a double demand as well as supply; everybody would be able to buy twice as much, because every one would have twice as much to offer in exchange. [Principles of Political Economy, Book III, Chap. xiv. § 2.]
Contemporary economists, who might hesitate to agree with Mill, do not hesitate to accept conclusions which require Mill’s doctrine as their premise. The conviction, which runs, for example, through almost all Professor Pigou’s work, that money makes no real difference except frictionally and that the theory of production and employment can be worked out (like Mill’s) as being based on ‘real’ exchanges with money introduced perfunctorily in a later chapter, is the modern version of the classical tradition.
I might add that money was hardly introduced “perfunctorily”. Mill even explicitly states the quantity theory of money. Virtually no one today any longer thinks in real terms. In fact, virtually no one, especially economists, even know how to think in real terms – they think they do but they don’t. It’s why they are incapable of understanding even the basics that were once universally taught and understood. That is why our economies are heading straight for the rocks.