Re: Putting Chartalism In Its Place?

[William F Hummel <wfhummel@xxxxxxxxxxx>]

Barkley:

Re the following:

>I understand
>that most chartalists on this list do not think that monetary
>expansion due to deficit spending is inflationary.  But that
>is not a necessary outcome of chartalism.  If velocity of
>money is constant, or increases with any increases in
>real output due to increases in money supply, then M
>can still drive P in a chartalist world and be inflationary.

I have a problem with the premise here.  Deficit spending has no
direct effect on the money supply, assuming you are referring to the
total of bank demand deposits,  In an interest rate priority monetary
system, typical of how central banks now operate, the only way demand
deposits can increase is through an increase in net bank lending.  Of
course the stimulus of deficit spending could in time lead to
increased entrepreneurial demand for deposit creation, but that varies
with economic conditions and is not an automatic result.

Regarding the issue of deficit spending and inflation, the decade of
the 1980s shows a clear negative correlation between the two, at least
in the US.  That makes it tough for those who claim that there is a
causal relation running from deficit spending to inflation.

Finally I see no connection between chartalism and deficit spending.
it's not clear whether you were implying as much.  Chartalism is a
theory that argues taxes play an essential role in a viable fiat money
system.  It is not related in any way to fiscal policy.

William