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Gregory Hayden <[log in to unmask]>
Reply To:
AFEEMAIL Discussion List <[log in to unmask]>
Mon, 7 Jan 2013 17:05:19 +0000
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 To help us prepare to understand your response to L. Randall Wray's comment, please distribute a copy of the paper to which he refers that you delivered at the ASSA meeting in San Diego. 

F. Gregory Hayden, Ph.D.
Professor of Economics
University of Nebraska-Lincoln
Lincoln, NE 68588-0489
Phone:  402-472-2332
Fax:  402-472-9700
Email:  [log in to unmask]

Social Fabric Matrix Approach:
Hayden, F. Gregory and Steven R. Bolduc. "Contracts and Costs in a Corporate/Government System Dynamics Network: A United States Case."  In Wolfram Elsner and John Groenewegen, eds. Industrial Policies After 2000. Kluwer: London, 2000: 235-284.

Hayden, F. Gregory. "Integrating the Social Structure of Accumulation and Social Accounting Matrix with the Social Fabric Matrix." The American Journal of Economics and Sociology 70 (November 2011): 1208-1233.

Hayden, F. Gregory. Policymaking for a Good Society: The Social Fabric Matrix Approach to Policy Analysis and Program Evaluation.  Springer: New York, 2006.

Lee, Frederic S. "Modeling the Economy as a Whole: An Integrative Approach." The American Journal of Economics and Sociology 70 (November 2011): 1282-13-14. 

Natarajan, Tara, Wolfram Elsner, and Scott Fullwiler, eds. Institutional Analysis and Praxis: The Social Fabric Matrix Approach. Springer: New York, 2009.

-----Original Message-----
From: AFEEMAIL Discussion List [mailto:[log in to unmask]] On Behalf Of Mayhew, Anne
Sent: Saturday, January 05, 2013 11:09 AM
To: [log in to unmask]
Subject: Re: MMT Response to Mayhew Critique

Randy and all. Will respond to your perplexity when I return next week from my travels in California. I look forward to clarification. 


Sent from my iPhone

On Jan 4, 2013, at 7:04 PM, "Wray, Randall" <[log in to unmask]> wrote:

> Although I was not able to attend AFEE at ASSA, I have become aware that Professor Anne Mayhew presented a paper entitled INSTITUTIONALIST MACROECONOMIC THEORY VERSUS MMT.
> I mean no disrespect to Professor Mayhew but I am concerned that some might believe that she presented a scholarly paper arguing that MMT is not consistent with Institutionalist theory. Nothing could be farther from the truth. So without disrespect, I present the following in an attempt to assure other Institutionalists that they can safely read and embrace MMT without fearing that they have somehow abandoned Institutionalism.
> Let me start with the attachment to this post. It is the presentation I gave in 2008 before AFIT, which I think most people will recognize as a venue for Institutional thought. The topic was how to teach Institutional thought to students. I gave a powerpoint-actually the powerpoint I had used in classrooms since 2004 (before that I did not really do powerpoints, but the substance was the same since approximately 1998, when I published my book, Understanding Modern Money). I'll let you-all judge whether I have presented MMT VERSUS Institutionalist macro theory. In my mind, what I've done--maybe not to Professor Mayhew's satisfaction--is to show the integration.
> As background, let me just say that in 1990 I published a book (referred to-I think positively-by Professor Mayhew titled Money and Credit in Capitalist Economies: The Endogenous Money Approach) that I think at least some will recognize as making a not entirely insignificant contribution to endogenous money theory. In that book there is a section on Knapp's state theory of money-also called Chartalism.
> Let me also say that I researched for the book in 1986 in Bologna under the direction of Jan Kregel, at which time I had read Knapp; when Kregel saw me reading Knapp, he said "Oh, that was on Keynes's reading list". I accepted Knapp at that time, but the subject of the 1990 book was "money and credit"-that is, the private banking system and its relation to the central bank. But certainly in my mind, Keynes adopted Knapp (indeed the phrase "modern money" comes from Keynes's endorsement--his recognition that the State Money approach applies to the "last 4000 years, at least"; hence, it was a tongue-in-cheek reference to Keynes's point; we may not know what happened before that, but "modern money" applies to the last 4000 years).
> In 1998 I published Understanding Modern Money (the past 4000 
> years!)-a detailed examination of the state money part. In my mind the first book is "part 1" and the second book is "part 2". While there are passages in "part 1" that I'd rephrase, there is nothing in the "part 2" that conflicts with the earlier book. I was extremely surprised when a few (lazy) Post Keynesians criticized me after 1998 for "abandoning" my first book. Silly. The only significant part of the first book that I now would rewrite is the critique of Basil Moore's horizontal reserve curve. He was right-which I made clear in the 1998 book, as well as in many other publications. (I did not, and still don't accept a horizontal "money supply curve"-I think that is a highly misleading way to look at it, and indeed is not consistent with Institutionalism. I've written much on this-including my review of his book in the JEI--and will not repeat it here.) So, I was very surprised to read Professor Mayhew's paper-which makes all the old allegations. Let me just deal with a handful of errors and false accusations.
> Can I first direct readers to slide 6 in the attached? The most perplexing claim made by Professor Mayhew is that I've abandoned endogenous money. Look at the slide again. Endogenous money has always-from the very beginning-been a part of MMT. Indeed, Warren Mosler (who played a big role in developing MMT) came to PKT (the old Post Keynesian network) precisely because of endogenous money. I've written hundreds of pages on endogenous money since the publication of the 1998 book-including encyclopedia entries. I have no idea how Professor Mayhew formed her opinion. I'd append a list of publications from my CV, but that would be overkill. There are tens, or a hundred, at least. Google Wray and endogenous money, if you do not believe me.
> She also seems confused on MMT's views on the "money of account" versus what I call the "money thing". She says:
> "This simple reality only increases the difficulty for the Modern Monetary Theorists (real money analysts by default) who, in defining money as "a creature of the state" where the "state defines money as that which it accepts at public pay offices mainly in the payment of taxes." (Wray 1998:18). Of course, it is the case that MMTheorists are often talking of the unit of account, the basic measure of all types of monies, in a state or geographic area, but if we are talking about the unit of account, it is hard to talk about a supply of money, and if we are talking about a supply of money, then we cannot be talking about a unit of account. Confusion abounds and I will return to this point soon."
> There is no such confusion. I either talk of "money of account" or of specific "money things". I have no idea what she means by "real money analysts by default". Please look at the powerpoint. Judge for yourself whether MMT is confused. The state chooses the money of account; "we" (state, financial institutions, firms, households) issue liabilities (money things) denominated in that unit. Please look at the ppt to see if we MMTers advance "real money"-whatever that is. I've always insisted this: the authorities choose the money of account; all money things are debts. Period. Including the state's own money things. Period.
> Professor Mayhew goes on:
> "It is, therefore, highly ironic that Wray and some, though by no means all of his fellow Post Keynesians, have become strong advocates of a "real money" position in which, very much in the spirit of Friedman-Schwartz and modern Walrasian monetarists, the Fed (and other central banks) are treated as having control over the supply of money. A second, or maybe it is the same, irony is that, with the essential endogeneity of money denied, one is back in the Marshallian world of separable demand and supply schedules for money."
> Real money? Denied endogenous money? Embraced Friedman-Schwartz and Walrasians and Marshallians? Where? When? How? We've claimed central banks control the money supply? Separable demand and supply? As any number of my PhD students over the past 15 years can attest, I have always taught that money supply and demand cannot be separated; and I've published in the JEI on exactly that topic. Again, many dozens of publications, hundreds of presentations. At least.
> Professor Mayhew's most outrageous claim is that I've ignored private sector "money creation".
> "The troubling additional proposition is that the government /Fed has a monopoly of money issue because all private debts, which is to say all private credit, must cancel out when debt is repaid. Only government issued money does not have to be repaid. An "accumulation of fiat money hoards (currency in the hands of the public plus bank reserves)" allows leveraging of this "real" money in the non-governmental sectors of the economy (Wray, 1998: 111)."
> In point of fact, I suspect that no Post Keynesian nor Institutionalist has written MORE THAN ME about private sector financial institutions and their practices in the past 10 years. I've published hundreds of thousands of words, perhaps closer to a million words on this. If I am wrong in my supposition, I'd love to be corrected. There might be a few Institutionalists who understand the nitty-gritty details better than I do. I've done my best. But the claim that I have not written about these since 1990 is just plain wrong. Further, as the attached powerpoint shows, I include private money creation as "leveraging" in the sense that there is ultimate clearing in "high powered money". This follows the Minsky-Foley-Bell/Kelton pyramid idea. If I remember correctly, Professor Mayhew published the Bell/Kelton article on the pyramid. So she has at least passing familiarity with the argument. And, finally, does she think that private debts and credits DO NOT CANCEL OUT? It is bal!
 ance sheets, folks. At least 4 offsetting entries. They balance.
> Professor Mayhew goes on:
> "The appeal for the Modern Monetary Theorists of abandoning the endogenous money approach in favor a form of "real money" analysis seems to be a variation on this theme. Although instability is deemed inherent in the economic system, the MMTheorists have, very much in the fashion of much of modern economic analysis, essentially abandoned discussion of fiscal policy and have turned to the Fed as the powerful agency that can solve cyclical problems."
> Frankly, I have no idea where this came from. I've written dozens of papers arguing precisely the opposite; authored alone and with Scott Fullwiler, Stephanie Bell/Kelton, and Dimitri Papadimitriou. Monetary policy is rather impotent and probably has precisely the opposite impact conventionally imagined. Again, citations would be over-kill. I do reject "pump-priming" fiscal policy-the real world is far too complex. That is precisely why I prefer Institutional theory over simplistic Keynesian policy-as did Hyman Minsky. We need targeted fiscal policy. The best source on this is my student, Pavlina Tcherneva, but I've also written on this, too. Can anyone say ELR? Does Professor Mayhew see that as central bank policy?
> Finally, Professor Mayhew makes the following outrageous claim:
> "The big problem is that Wray's argument also erases the emphasis that should be given to the non-governmental sectors of the economy in explaining cycles in employment, unemployment and other measures of macroeconomic performance, and it shifts focus from the need for creative use of fiscal policy. Neither of these erasures are permissible if the goal is to model the real world."
> Has she ever heard of Money Manager Capitalism? I've written at least a couple of hundred thousand words on the topic, including a co-authored book (with Eric Tymoigne).
> Where does this analysis come from? I'm perplexed.
> L. Randall Wray
> Professor, Economics, University of Missouri-Kansas City Senior 
> Scholar, Levy Economics Institute
> Papers: 
> org/publications/?auth=287>
> Website: 
> http//
> Blogs: Great Leap Forward
> Modern Money Primer: 
> l
> ________________________________
> <Afit how to introduce money (1).ppt>