Neil Wilson recently posted A Double Entry View on the Keen Circuit Model
at 3spoken.
This elicited some excellent comments, including a couple of extensive contributions by JKH.
Keven Fathi emailed me that Steve Roth just posted at angry Bear that he regards Neil's post as The Most Important Econoblog Post This Year.
Congratulations, Neil, on moving this debate significantly forward.
2 comments:
Hey Mike, What is your opinion on Keen's work? His laser like focus on private debt and the dynamics of deleveraging seems spot on to me, perhaps something MMT doesn't focus on enough... just curious on your thoughts
I agree that MMT writers would do well to focus more than they have recently on the phenomena of private debt creation, debt crises etc. I think Keen is smart to continue to focus on these phenomena.
My personal view though is that it is very important to keep track of the difference between systems in which banks endogenously create money of some kind and systems in which banks only endogenously create liabilities for the public's money. The distinction is important for understanding the nature and latent power of the public's monetary monopoly, which is a strength of MMT.
Even in an Austrian-style "free banking" system, you can have the endogenous creation of money. Each bank in such a system creates its own money, and attempts to get people to accept it - with all the challenges of propagating and stabilizing a private monetary system and with all the consumer risks that come with a free-market system of money. In such a system transactions between different private sector banks come to resemble the transactions between banks in different national currency zones, with constantly fluctuating exchange rates etc.
But that's very different from a system in which banks are simply permitted to create deposit accounts that represent liabilities for payment of the public monetary unit - such as the dollar for example.
We can distinguish both systems from one in which banks might be chartered to create the public's money - not just liabilities for the money - but where the public controls the extent of the money creation by granting licenses of a sort. (I think Neil suggests this model.) That's sort of the system they have in Europe, where each national central bank issues its own Euros, but only in amounts permitted by ECB monetary policy.
On of the easiest things to make in the world is a promise. So there is enormous insight coming from the Fisher-Minsky tradition that shows the processes of credit creation are inherently susceptible to instability to the extent that promise-making is not well regulated. I believe this is a core insight that both the horizontalist writers and the MMTers share.
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