Re: Putting Chartalism In Its Place?

[Bill Mitchell <ecwfm@xxxxxxxxxxxxxxxxxxxxxxx>]

Barkley said:

>        As I have shot off my mouth too much already,
> let me go out by making a further point a bit further.

no Barkley, not you!

>        There is a group on this list that believes
> a)  in a strong form of chartalism,
> b)  that full employment should be brought about
> by governments, using deficit spending if necessary,
> and,
> c)  that a) and b) are necessarily linked.

It is a technical surety that government chooses the level of unemployment
by its decisions on the level of net g. spending to provide. All the mish-mash
of theories about structural unemployment, NAIRUs and the rest of the
smokescreens
cannot get over that. The problem is that the proponents of this nonsense
(NAIRUs etc)
just don't like public sector economic activity and net g spending.

Once you get over those hang-ups then clearly the government can create
full employment.
Whether it should is a political (value) issue.

The links between (a) and (b) come from the fact that you have to explain
why governments
tax and issue debt if they have no financial constraint. That is an
intellectual issue and if
you don't feel the need to explain that but still believe in (b) then fine
ignore (a). See below.

>      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.

and as I understand it never claimed. There are clearly situations when
government spending without commensurate liquidity drains will drive the
inflation process. There are other cases one can conceive where it won't.
The latter are the interesting cases to define and examine and propose
if you care about full employment (meaning 2 per cent unemployment
or below). If net government spending is buying at market prices in an
already inflating market then it is clear. If net g spending buys at fixed
prices in an inflating market then the situation is different.

Further, if one believes that "monetary expansion due to deficit spending is
inflation" perhaps one has some problems explaining Japan. huge deficits,
huge debt issuance (but not a complete liquidity drain), virtually zero
interest rates and deflation!

>       Secondarily (closer to my position), I see no reason
> why one might not support vigorous fiscal policies to bring
> about full employment, even if one does not necessarily
> accept the chartalist definition of money.  Why is it necessary
> for one to believe in chartalism to accept full employment policies?

its not as long as you don't mind driving your car each day without knowing how
it works.

best wishes
bill

------

William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle
New South Wales, Australia
E-mail: ecwfm@xxxxxxxxxxxxxxxxxxxxxxx
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