Functional Finance Revisited

[Joe Leote]

The Wikipedia article on functional finance (a theory expressed by Abba Lerner) is terse, informative, and includes links to several references:

https://en.wikipedia.org/wiki/Functional_finance

One reference is this article by the Austrian school called The Myth of Functional Finance:

https://mises.org/library/myth-functional-finance-mises-vs-lerner

where some arguments against social investment, published by Ludwig Von Mises (LVM) in 1922, are contrasted with the theory of functional finance, which came later.

I posted this 64 page paper not long ago. The United States has had quasi-social investment policy at least since the Great Depression by using deficit spending, deposit insurance, and federal credit policy to accelerate the finance social investment objectives:

http://www.thomas-stanton.com/pubs/fcp/FCP-Loans_and_Loan_Guarantees.pdf

The article on functional finance says unemployment was only 2.9% in 1959 and inflation was only 1.1%. The tax code and tax shelter system were very different in 1959.

Joe

[Joe Leote]

Correction. The Wikipedia article data are for 1953 (not 1959). "During the post-war period, U.S. unemployment reached a low of 2.9% in 1953 when the inflation rate averaged at 1.1%."

Joe

[John Hermann]

It is clear from this article that von Mises did not really understand the principles
of Functional Finance, nor would he have understood MMT - which is grounded
in functional finance.  The budget deficit of a monetary sovereign government (like
the U.S. federal government) does not need to be "paid off ".  It can be perpetuated
indefinitely, and can be allowed to rise to a very large level without any economic
crisis arising.  Such a government deficit is also a private sector surplus, which
surplus is essential for the healthy operation of the economy.    - John

[lante...@gmail.com]

Interesting. Also, consider that the U.S. Federal debt is so huge it is not discussed much anymore. The current public discussion is centered around the "Deficit". Maybe the U.S. can whittle down the deficit so it is not spiraling upwards greatly. The U.S. deficit has gone down the last three years.

👍 Salutations

[John Hermann]

Just to clarify, I am not advocating a policy of having unrestrained government budget deficits. 
The creation by the state of net financial assets which are way too high (i.e. beyond what is
required to allow unused economic capacity to be utilized) will generate inflationary pressures.
However I do recommend that the deficit should be allowed to rise to whatever level is required
for maximum economic performance without generating undue levels of  inflation.  The risk of
inflation is not something we currently need to worry about.    - John

[lante...@gmail.com]

Continuing this excellent discussion - Certainly inflation is something to watch for but that is not the only factor.... Confidence ... "Full Faith and Credit" in our government money system is a factor and confidence is shaken by an inability to control. Run away, non productive spending is unnerving.

👍 Salutations

[helge nome]

First, I would like to thank John for making the article: "The Finance Franchise" published in the Cornell Law Review available to this group. I have taken some time out to study it and have passed it around to people in social credit circles here in Alberta.

This article describes very well the uncontrolled financial beast we are dealing with at this time. It also prescribes the necessary conditions that need to be met in order to take the beast down: Public Engagement.

With an apathetic and ignorant public a small number of individuals can easily hijack both the private and public financial sectors of the economy and manipulate both to their own ends, which is exactly what has happened.

Helge

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From: understan...@googlegroups.com <understan...@googlegroups.com> on behalf of lante...@gmail.com <lante...@gmail.com>
Sent: September 21, 2017 5:11:38 AM
To: understan...@googlegroups.com
Subject: Re: Functional Finance Revisited

 

[Jean Erick]

    I suspect, from seeing how much Mises brings to the table, that he would have understood it quite well.

The issue is his purported inflationistic quality to the economy, institutionalized by creation of the Fed.

He criticizes it as an exhibition of socialistic, top down planning, which he abhors in preference to the free market.

   There is a quote, attributed to Thomas Jefferson, saying the if the banks are left in private hands, the public will

be drained of their wealth via cycles of inflation and deflation, like what happened in the Great and recent depression,

ending up as serfs on the land they used to own.

As Michael Hudson describes the indenture ship via debt.  Odiious debt.  Lending to indenture as opposed to grow

the economy.

 

    His main criticism of Quantity Theory, and others, is not the theory always, but  the “mechanical” (to direct and simple)

thinking brought to it by so many, which ignores the other real complications involved and must be included

to accurately describe economic actions relative to the subjective and objective valuations acting in establishing

the objective exchange-value ratios of money to other goods.

     The title “The Theory of Money and Credit” says a lot.  There is a difference between money and credit.

 

James

 

 

 

From: John Hermann
Sent: Wednesday, September 20, 2017 10:33 PM
To: understan...@googlegroups.com
Subject: Re: Functional Finance Revisited

 

It is clear from this article that von Mises did not really understand the principles