Stephanie Bell

Can Taxes and Bonds Finance Government Spending

This paper investigates the commonly held belief that government spending is normally financed through a combination of taxes and bond sales. The argument is a technical one and requires a detailed analysis of reserve accounting at the central bank. After carefully considering the complexities of reserve accounting, it is argued that the proceeds from taxation and bond sales are technically incapable of financing government spending and that modern governments actually finance all of their spending through the direct creation of high-powered money. The analysis carries significant implications for fiscal as well as monetary policy.

The 'War on Poverty' after 40 Years: A Minskyan Assessment

Hyman Minsky is best known for his work in the area of financial economics, and especially for his financial instability hypothesis. In recent years, some authors have also recognized his advocacy of the “employer of last resort” as part of his “big government” intervention to help maintain stability. However, very little research has been undertaken regarding Minsky’s early involvement in the “War on Poverty.” This paper will trace the development of Minsky’s thinking on antipoverty policies to his support for welfare reform and federal job creation programs

Modern Money Theory: A Response to Critics

Over the past two decades a group of us has developed an alternative approach to monetary theory that integrates the insights of Knapp’s (1924) state money approach (also called chartalist and adopted by Keynes (1930, 1914)), the credit money view of Innes (1913, 1914), Lerner’s (1943, 1947) functional finance approach, Minsky’s (1986) views of banking, and Godley’s (1996) sectoral balance approach. In addition, most of us have used our understanding of the operation of the monetary system to propose an employer of last resort or job guarantee program to provide an anchor to the value of the currency. The approach has come to be known as modern money theory (MMT) and has been widely debated and adopted, especially on the blogosphere. Prominent economists such as Paul Krugman and Brad Delong have taken notice and deemed it to be a theory of note, even if they do not accept all of it. Further, developers of MMT have been credited with foreseeing the global financial collapse as well as the troubles with the Euro as early as the 1990s (Wray 1998, Bell 2003). Still, MMT has always had its critics. Somewhat surprisingly to us, some of the most vocal critics have been heterodox economists, particularly the Post Keynesians. We see nothing in the MMT approach that should be difficult for PKs to accept. Yet, in recent weeks both Marc Lavoie and Bret Fiebiger have provided critiques. It looks to us as if they have not understood our arguments. Instead of providing a point-by-point response to either of their papers, we think it will be more useful to briefly lay-out our main argument in a way that should be accessible to PKs. We have been given only 4000 words for this task, hence, we can only hit the main points. More specifically, this response will in turn discuss the role of endogenous money and the circuit for MMT, the MMT understanding of government debt operations, and the links between the MMT approach and heterodoxy in general.

A Chartalist Critique of John Locke's Theory of Property, Accumulation, and Money: or, is it Moral to Trade Your Nuts for Gold?

The focus of this paper is John Lockes theoretical defense of economic inequality. It is well known that Locke identified labor as the original and just foundation of property. Succinctly, Lockes was a labor theory of property. Now, while Locke saw private property as legitimate, he proposed that the state of nature within which people interact is part of a social system that is regulated by distinct rules that limit accumulation. There is nothing in Lockes initial argument that allows for unbounded accumulation and consequent inequality. The justification for unbridled accumulation comes later, and rests squarely on Lockes treatment of money as a non-exploitive institution. For Locke, money allows unlimited accumulation while still adhering to the rules he established to govern morally correct behavior. In this paper, we challenge Lockes position by contrasting his exchange-based view of money with the debt-based or Chartalist theory of money. We demonstrate that when money is properly conceived, Lockes own moral strictures regarding property are violated, and his theoretical defense of the accumulation process is undermined.

The War on Poverty Forty Years On

The outstanding economist Hyman Minsky was always skeptical of Lyndon Johnsons war on poverty. It assumed, he wrote, that economic growth itself would be adequate to eliminate poverty. But Minsky believed that there were structural problems that always left too many people without jobs or with poor and insecure ones. The answer was a national jobs program. In this article, his students, having uncovered unpublished documents by Minsky, examine the case forty years later.