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Beyond MMT: An Institutional Macroeconomics Approach to Money, Interest and Government

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Beyond MMT: An Institutional Macroeconomics Approach to Money, Interest and Government

Abstract

This paper develops a new conceptual frame of macroeconomics, dubbed 'institutional macroeconomics', which continues with the MMT agenda but introduces novel and partly dissenting aspects which are inspired by Silvio Gesell's theory of interest and money. The argument aims at diagnosing deeper structural forces determining the current macroeconomic condition and refutes its treatment as exceptional. Gesell advanced the case for negative interest on saving and explained positive interest as manifestation of specific properties of the institution of money. I generalize these ideas in adding institutions to standard macroeconomic frames, in the specific sense of analysing markets for institutionalized 'instruments' of saving and investment. This radically differs from the flow of funds perspective on saving and investment in introducing the notion of a 'flow of institutional objects' as the correspondence to monetary flows in national accounts. In this framework, I develop a new view of the role of the government deficit as a saving instrument. The argument unfolds in three ideal-typical scenarios, the 'real economy', the 'real market economy' and 'capitalism'.
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Beyond MMT: An Institutional Macroeconomics
Approach to Money, Interest and Government
Carsten Herrmann-Pillath
Max Weber Centre for Advanced Cultural and Social Studies, Erfurt University, Germany
carsten.herrmann-pillath@uni-erfurt.de
www.cahepil.net; www.technosphere.blog
Abstract
This paper develops a new conceptual frame of macroeconomics, dubbed institutional
macroeconomics’, which continues with the MMT agenda but introduces novel and partly
dissenting aspects which are inspired by Silvio Gesells theory of interest and money. The
argument aims at diagnosing deeper structural forces determining the current macroeconomic
condition and refutes its treatment as exceptional. Gesell advanced the case for negative interest
on saving and explained positive interest as manifestation of specific properties of the
institution of money. I generalize these ideas in adding institutions to standard macroeconomic
frames, in the specific sense of analysing markets for institutionalized ‘instruments’ of saving
and investment. This radically differs from the flow of funds perspective on saving and
investment in introducing the notion of a flow of institutional objectsas the correspondence
to monetary flows in national accounts. In this framework, I develop a new view of the role of
the government deficit as a saving instrument. The argument unfolds in three ideal-typical
scenarios, the ‘real economy’, the ‘real market economy’ and ‘capitalism’.
1. Introduction
Modern macroeconomic theory is in crisis, which is a widely shared diagnosis (Vines and Wills
2018a). The current discussion is mainly unfolding on two battlegrounds, one within the
mainstream discourse, the other reaching to heterodoxy. The first is the internal debate over
the proper choice of modelling approaches, with the Neokeynesian DSGE models at the centre
(e.g. Galí 2018), the other is mainly shaped by MMT, at the time being (Mankiw 2020). In the
first scene, questions concentrate on how to model the financial sector, how to deal with
expectations, or how theorize the role of monetary policy. In the second, the question is how
to interpret fundamental accounting frames in macroeconomics and how to approach the
relationship between the government budget and money.
In this paper I suggest moving beyond both settings in adopting a radical institutionalist
perspective on macroeconomics, which is emerging in the literature in various variants (e.g.
Dafermos, Gabor and Michell 2020; my first systematic contribution was Herrmann-Pillath
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1990, which, however, I did not further pursue). This perspective is adumbrated in MMT, but
not fully explored. The reason is that MMT only looks at the implications of certain national
accounting schemes and identities and draws conclusions about the mechanistic
interdependencies, such as in understanding the relationship between money creation and the
government budget. More generally, this is the stock-flow-consistent approach to
macroeconomics (Godley and Lavoie 2012).
However, accounting schemes reflect more fundamental institutional facts: I approach
accounting schemes as performative mechanisms that transform institutional arrangements into
binding behavioural constraints that are expressed in monetary units, a view that has been
mainly explored in business accounting (Vosselman 2014). More specifically, in the context of
national accounting, the institutionalist perspective would approach the real correspondences
to monetary flows as institutionalized flows of ‘objectsthat are created by institutional fiat, in
the same vein as the most fundamental institution of money. That means, for example, that
what is flowingon the goods market is not goods, but institutionalized claims on goods. In
the standard macroeconomics framework, this is already implicit to the analysis of the labour
market, in which contractual arrangements also play a crucial role for understanding
macroeconomic mechanisms.
This raises the question how far these institutions are determined to stay within a certain range
that matches with the current conceptions of macroeconomics, or whether there is leeway to
envision a macroeconomic frame that would reflect different institutional arrangements in
different economic systems. In other words, in which way is macroeconomics specific to the
economic system that we consider? In the context of the MMT debates, a case in point is the
treatment of the government budget in modern national accounts, which was already a
contentious issue when these were designed at the first time (Coyle 2014: 13ff). This treatment
reflects certain assumptions about the institution of government and the value judgments about
some of its expenditures (such as military expenses) which were eventually fixed by political
expediency, but not by theoretical rigour. Yet, after the demise of planned economies, systemic
differences are rarely considered in macroeconomics today, such as scrutinizing the different
roles of money in capitalism and socialism (Kornai 1971; Davis and Charemza 1989).
In the following I will build on some ideas of a maverick in 20th century economics, Silvio
Gesell (1916). In the past two decades, Gesell was sometimes approvingly cited as an
economist who contributed some relevant thoughts on negative interest rates (Fischer 2016).
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Indeed, a standard assumption in economics is that interest rates cannot be negative, for many
reasons, such as positive time preferences or uncertainty of the future. However, the possibility
of negative interest was also recognized, though not seen as relevant for a developed market
economy (Keynes 1936: 353ff.). Given the peculiar macroeconomic conditions now prevailing
for more than two decades, if we take Japan a forerunner, we may ask whether we observe the
transition to a macroeconomic regime that would tend towards a low natural rate of interest,
even negative. The natural rate has been defined by Wicksell (1898: 93ff) as the rate that would
theoretically equilibrate saving and investment in a hypothetical non-monetary economy
otherwise structurally identical with the factual economy. As such, the regime after the
financial crisis may indeed manifest a negative natural rate (Barsky, Justiniano and Melosi
2014). This argument remains within the framework of established macroeconomics as it
typically generalizes the ‘savings glut’ hypothesis, combined with observations on a secular
decline of the real rate of return on investment and on the slowdown of population growth,
including shrinking populations (Galesi et al. 2017). That means, the explanations stay within
a theory of interest that approaches interest as equilibrating flows of saving and investment,
with monetary policy as an intermediating mechanism, but not as ultimate causal factor. This
approach does not move towards the more radical question whether the post-2008 world would
also manifest institutional transformations that change fundamental macroeconomic conditions.
The treatment of the saving and investment identity, one backbone of macroeconomic
accounting, seems crucial for theorizing the recent macroeconomic developments. This is
where Gesell is pertinent. I will develop a radically new macroeconomic frame that starts out
from his analysis of the saving and investment relation, conditioned on his theory of money.
This is not Gesell exegesis, however, because I am selective, focusing on a few central claims,
and ignoring the rest. In doing so, I introduce an institutional approach to macroeconomics
which goes beyond the MMT methodology that focuses on accounting. Institutions determine
accounting schemes, which, after all, are just special institutional arrangements how to quantify
economic activities and how to assign these to certain agents, such as households or
government. The Gesell view suggests moving one step further in considering the institutional
core of macroeconomic mechanisms. Accordingly, in the following I distinguish between three
ideal-typical ‘economic systems’, highly stylized conceptual frames: The ‘real economy’
without money (which corresponds to the Wicksell scenario), the ‘real market economy’ with
sovereign money, and ‘capitalism’ with endogenous money and fully-fledged financialization.
I concentrate on the savings and investment relation across these three systems and suggest
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adopting a new view on the underlying institutional facts, which would lead towards rethinking
the respective approach to accounting and macroeconomic modelling. A centrepiece of this
alternative interpretation of institutions in macroeconomics is to reconsider the role of
government and money. This is the point where I rely on some central MMT tenets.
2. Gesell’s original scenario: The ‘real economy’
Gesell’s approach to interest is normative and critical in intent, but as we shall see, the
fundament is positive analysis. In simple terms, he wants to explain why negative interest
represents the ‘natural’ state of the economy and how nevertheless positive interest prevails in
a monetary economy. The explanation is that positive interest is a necessary outcome of certain
institutional arrangements in the monetary economy. That is where his theories about ‘free
money’ come into play, as a radical transformation of the institution of money, which would
necessarily transform the entire economic system, thus also reinstating the natural negative rate
of interest. I will not deal with these proposals here. My aim is to show that Gesell’s core
theoretical ideas can be deployed in rethinking modern macroeconomics (similar to Ilgmann
and Menner 2011).
Gesell uses a parable beloved in economics, the Robinson Crusoe economy. I refer to this as
the first ideal typical economic system, in which money does not exist, hence a ‘real economy’
exclusively. As long as Robinson is alone, he can only save for future contingencies by
hoarding goods. That is, the fundamental question is how temporal postponement of current
consumption is possible. We keep that as the principled definition of saving that applies across
all institutional variants of economic system: Saving is postponement of current consumption
to the future. This definition is neutral as it ultimately refers to a physical process: I refrain
from eating the banana today and want to keep it for tomorrow. This real definition of savings
is standard in modern economics.
At this point, I introduce an institutional concept that is central for my later development of the
complete macroeconomic frame: Saving is enabled using ‘savings instrumentsSI. A SI is an
institutional device that has a physical complement, in the sense of physically transferring
potential consumption from present to future. Even in the case of lonely Robinson, ‘hoarding’
is an activity that requires certain behavioural commitments, such as containing akrasia, which
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have quasi-institutional status. The SI defines the institutional core of the savings mechanism
in a specific economic system.
Gesell’s parable introduces Friday. Friday offers a deal to Robinson: Lending him the hoarded
goods for productive uses and return these goods from the product. However, Friday argues
that Robinson must pay for this service: This is the negative interest rate. The reason is that
hoarding goods comes at a loss, because of decay, vermins etc. That means, the rate of decay
is the lower bound of the negative interest: Robinson will always gain if the negative rate of
interest is below the rate of decay. The Gesell scenario describes a bilateral bargaining in which
the threat points define the outcome. Although Friday is without any means of production, the
island and the ocean are public productive resources that cannot be monopolized by Robinson.
Therefore, Friday can credibly threaten to leave the deal on the table, even though he would
lose its benefits. In contrast, Robinson faces the losses of decay.
There are two insights that we keep for the further argument. First, we can generalize in treating
negative interest as the price of the provision of a savings instrument SI. The SI is an
institutional object: This is the contract between Friday and Robinson, which create binding
commitments for Friday, who, after all, may just grab the hoard and leave for another island.
Second, Friday invests the hoard into productive activity which creates a positive rate of return
which countervails the rate of decay. The lower bound of the rate of return is the negative
interest: Friday must at least be able to pay back the discounted hoard, because otherwise he
might fall into debt: For example, Robinson may get a claim on his future labour services.
Hence, Friday takes a risk since he cannot anticipate the future returns (for example, a tempest
may destroy the harvest).
In this simplest framework, we have now introduced the notion of investment: Friday invests
the hoard and takes risk. In principle, Robinson could also do that, but he might be too busy
with current work, and Friday is free. Further, there may be differences in productivity, skills
and knowledge which might give an advantage to Friday: the separation between savings and
investment is one manifestation of division of labour and comparative advantage.
Beyond the Robinson scenario, we keep as a general insight that we define the difference
between saving and investment in terms of attitudes towards risk: Saving postpones
consumption aiming at minimizing risk, optimally resulting in an equivalent shift of
consumption to the future, or, in general, resulting in a fixed and certain future income flow,
whereas investment takes risk, aiming at an uncertain rate of return. That is, we observe a
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similar constellation as with labour markets: The worker enters a contract which guarantees a
fixed income flow in the future, whereas the capitalist earns the uncertain profit. We can
therefore explain the negative interest rate as paying the price for an SI with zero risk: Creating
this institutional object is a fundamental transformation of the mini-economy of Robinson and
Friday. Of course, if Friday fails to generate sufficient rates of return, Robinson will also suffer
losses: But as said, we have now a different institutional framework, because Friday would still
be indebted to Robinson. In other words, the creation of the SI transforms the social ontology
of the economy, introducing new kinds of objects with properties that differ from the
underlying physical objects (Searle 1995). This insight transfers to all other economic systems
that we might consider: The saving and investment relation is mediated by the exchange of the
institutional objects of SIs, which is therefore the level on which economic analysis must
proceed, and not on the level of physical outcomes that are governed by the institutions.
The Gesell argument establishes the case for negative interest as the ‘natural rate of interest’ in
the ideal typical real economy without money, which I treat as reference for all other systems
as in the Wicksell methodology. Moving beyond the parable, we can envisage the case of
several Fridays: If many producers compete over the hoard, there is a tendency to move
negative interest into the positive domain, with the upper bound of the rate of return. Hence,
market structure matters, on both sides, in determining the equilibrium rate. However, already
at this point insights of the modern theory of credit rationing apply. A higher offered interest
rate is an ambiguous signal, as this would reflect a higher rate of return, which can result from
either better capabilities or taking higher risks. If the latter, the risk averse saver may refrain
from choosing the highest offers. That also implies the ‘lemons logic’: Those who really can
achieve a higher rate of return may be selected out of the market as well, because savers cannot
distinguish between the various determinants of the expected rate of return. In sum, these
effects are powerful forces keeping the rate of interest low, with the pull of the natural negative
rate operating in the background and becoming dominant in case of a sellers’ market for SI: If
many savers compete over a limited supply of risk-taking producers offering SI, they will
accept lower interest rates.
Indeed, if risk-averse individuals dominate in a population, this effect will operate in a
systematic way. Interestingly, a related argument can be found in the current macroeconomic
literature where risks shocksare seen as enhancing the desire for autonomous precautionary
savings: However, in the underlying loanable funds thinking the low interest rate is interpreted
as counteracting this tendency in lowering the pay-off to savings (e.g., Vines and Wills 2018b).
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In the institutional macroeconomics view, this is much more plausible, as the demand for SI
increases, which drives up their prices. Hence, the ideal typical scenario of the ‘real economy’
catches many aspects of real-world economies. It differs from the Keynes’ theory of savings
because it does not simply suggest a behavioural norm but takes account of the interest rate as
a factor that impinges on savings. Yet, most savers will not respond to low interest rates as a
disincentive for savings, as cases of financial repression, with China a most interesting one,
clearly demonstrate.
The analysis of the real economy type results in two most basic assumptions about the
saving/investment relation that apply across all kinds of system and reveal the core of
institutional macroeconomics. This is rejecting the loanable funds approach to the saving-
investment relation: In the Gesell scenario, the loanable funds scenario would mean to interpret
the hoard as capitalthat is supplied by Robinson and demanded by Friday. But that would
falsely project the categories of the monetary economy on the real economy, that is,
misinterpreting the institutional setting. In the real economy, there is no flow of funds, only the
arrangement to enable physical postponement of consumption via the creation of SI.
Accordingly, it is wrong to approach the relationship between savers and investor-producers
as one of a market where a supply of funds (savings) meets a demand (investment) which is
equilibrated by the interest rate. Instead, we introduce the ‘market for SI’ as institutional objects
and means of postponing consumption. That means, savers are not suppliers of funds, but they
demand SI, and investor-producers offer SI. A positive price on that market is the negative
interest rate as introduced by Gesell. The flow of funds theory erroneously generalizes
conditions in a specific economic system as a universal approach to savings. The institutional
view suggests a radical ‘Gestalt’ switch, like conceptualizing the labour market as a market
where employers offer jobs demanded by workers, and not as a market where workers offer
flows of labour services demanded by employers. In the same vein, savers do not offer savings,
but demand saving instruments. A key difference across economic systems is how these
savings instruments are institutionally generated, and how the market for SI is institutionalized.
However, Gesell’s insight applies universally: SI will only be offered at a positive price, which
is negative interest.
The question is whether this view can be maintained for the case of the monetary economy,
given that money is a radically different institution. On first sight, once savers accumulate
money stocks, and producers are in need for money, the relationship might reverse, thus
constituting the case for positive interest.
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3. The ‘real market economy’
I now turn to the second ideal-typical economic system, which I dub ‘real market economy’.
The essential difference is money. This is the second point at which Gesell provides a pivotal
theoretical insight, which can be translated into modern economics. As is well-known, Gesell
argued that money is physically different from all other goods because it is not subject to forces
of decay (barring the institutional force of inflation). Hence, he refers to hoarding again: Money
is the only good that can be hoarded without being devalued over time. This means, owners of
money can wait and keep their hoard, whereas owners of other goods are under pressure to find
ways to countervail forces of decay. This creates an asymmetry in the market, which puts
owners of money in an advantage. They can demand a positive price for making money
accessible for those in need. To neutralize this asymmetry, Gesell famously suggested that
money should be transformed into ‘rusting money’, i.e., implementing an institutional scheme
in which money would ‘decay’, i.e., meaning a negative interest on cash holdings. This idea is
referred to when the current macroeconomic discussion evokes Gesell (such as when
considering a tax on money, Ilgmann and Menner 2011). I do not pursue this argument further
here. However, I generalize his theory of money, noticing that a positive rate of interest seems
to be a necessary consequence of the institution of money, which would nevertheless stay in
tension with the tendencies towards negative interest on the market for SI. This tension is the
key to understanding contemporary macroeconomic conditions.
3.1. The money market and the role of banks
We can generalize the argument on asymmetry in adding a new institution, the market for loans.
Money is defined by universal fungibility and by the nominal principle. In a market economy,
all other goods have less fungibility, and their value depends on markets. If we consider a
complex division of labour, all agents at least partly produce for the market, and would not be
able to consume these goods on their own (only accumulating inventories). That means, these
goods are ‘market specific’, in the sense of asset specificity à la Williamson (1985). For
example, the producer of a fashion good must sell her product within a certain period of time,
and later it ‘decays’. Most generally, goods produced for the market are ‘opportunity specific’,
i.e., lose value when the opportunity fades away. I treat this as the equivalent to Gesell’s theory.
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This implies the same asymmetry as discussed by Gesell: Owners of money can ‘hold up’
others in need of money. For example, this may justify the assumption that consumers have
market power in a modern competitive economy as sellers compete to sell opportunity specific
goods and services to them. In contrast, workers are at a disadvantage relative to capitalists
who pay money wages to them, and so forth. Hence, market structure matters essentially for
how the asymmetry in specificity plays out.
To a certain extent, we could approach the entire market system as a ‘market for money’, in
the sense that buyers offer money to sellers that they demand, which is often recognized when
discussing the distinction between nominal and real GDP. However, this would leave out
important aspects of money that have been emphasized since Keynes and especially in
heterodox economics: Money connects present and future. Following this line of thinking, I
introduce a narrower conception of the ‘money market’. This is the market for loans, which did
not exist in the ‘real economy’. It is the complement to the market for SI in reversing the
mechanism of temporal reallocation of consumption: Loans enable to physically prepone
consumption. This symmetry is manifest in a natural positive rate of interest on the money
market: Following Gesell, this can be sufficiently explained by the asymmetry in the degrees
of specificity of money relative to all other goods. The important consequence is that the notion
of power becomes relevant, which already transpired in the previous analysis of market
structure: According to Gesell, the institution of money inherently creates power imbalances
in economic relations.
Now, money can also serve as an SI: This relates to the fuzzy conceptual boundary between
liquidity and saving, which is commonly drawn at the point where money holdings receive
positive interest. This establishes room for arbitrage between the money market and the market
for SI: In principle, extending a loan can be an SI, or, the borrower would offer an SI to the
saver with liquidity surplus: This is parallel to Friday’s borrowing of Robinsons means of
production. Another possibility is that producers of SI may shift savings to the money market
to make additional gains from the positive interest rate prevailing here. This is only possible in
a monetary economy. Indeed, the money market creates what is referred to as zero lower
bound’ on nominal interest rates (Buiter 2005): Savers can always prefer to keep all saving in
liquid cash, which carries zero interest that carries over to the SI market via arbitrage.
In the real market economy scenario, monetary SI are typically offered by specialist
organizations, which I refer to as ‘banks’: This is the specific institutional setting in which the
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loanable funds approach could be meaningful, without allowing its generalization over the
entire economy. However, in fact we consider the exchange of two institutional objects, money
and the SI.
The simplest form of SI is just the bank safe where individuals can keep money hoards. It is
straightforward to argue that the case for negative interest continues to apply. Money hoards
are not subject to forces of physical decay, but they are exposed to other risks, triggered by the
fungibility and transportability of money, such as theft. Hence, offering safe hoarding is a risk-
reducing measure that comes at the price of negative interest. Yet, there is now the alternative
to offer money on the money market where it can catch positive interest. However, if
individuals do not specialize on lending, there are serious obstacles for risk-shunning
individuals to access this market. Hence, the dominant pattern would be to leave that to other
agents, ideal-typically the banks: Banks take savings deposits and lend the money to others.
It is important to recognize that demand on the market for loans is from two different types of
agents: One is the agents preponing consumption, the other is producer-investors. Both are
willing to pay positive interest, but the former remain risk-averse, since they cannot generate a
positive rate of return from consumption. As a reminder, I emphasize that banks are not the
only ones who act on the market for SI: As in the real economy, producer-investors continue
to offer SI. Hence, producer-investors can now choose between taking loans or offering SI for
financing investment: This establishes the difference between external finance and equity in
the ‘real market economy’, which I discuss further below.
Specific institutional arrangements are essential in determining how the system works. I specify
the ‘real market economy’ as an economy where banks keep a 100 percent reserve, just
operating as intermediators between risk averse depositors and various types of demand by
risk-taking producer-investors. In the ‘real market economy’, the Gesell negative interest is
manifest in the spread between the deposit rate and the lending rate: These are the opportunity
costs of preferring a zero risk SI. Market structure remains an important determinant of where
the two rates settle down in the longer run. Yet, the heterogeneity of risk preferences implies
that arbitrage between the SI market and the money market will never converge to one interest
rate, i.e., eliminating the spread (implying sustainable positive profits for banks).
In conceptualizing the spread, it is important to take into consideration that savers can always
become producer-investors: The safer the investment opportunity in terms of future income
flows, the closer it is to savings (I come back on this later in more detail). That means, for a
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most general conception of the market for SI we can define the spread as the difference between
the rate of return on investment and interest rate of SI. The interest rate for loans on the money
market is only an intermediating variable, as this correlates with the rate of return: The higher
this rate, the stronger the demand for loans, and hence the larger the upward leeway of the MM
interest rate. At the same time, we cannot directly quantify the spread because what counts is
the expected rate of return, which, however, might be informed by the current or past rate. That
means, although this poses limits to measurement, we can introduce a core Keynesian insight:
The state of expectations directly influences the responsiveness of saving to the interest rate.
This also affects the MM market: Here, what counts is the spread between the interest rate of
loans and the rate of return, and not just the interest rate. The stronger the confidence in the
future returns, the greater the willingness of marginal risk-averse consumers to become
investors. Overall, this implies that there is a force driving deposit rates upwards, too.
To summarize, in the real market economy the institution of money introduces complex forces
that keep the manifest interest rate away from the Gesell reference point of negative interest,
and establishes a zero lower bound for nominal interest rates. This argument has already been
presented by Fisher (1930) against the case for negative interest. However, Fisher does not
envisage a market for SI with heterogenous agents in terms if risk preferences. Considering
this market, the Gesell reference point remains valid, and is manifest in the spread, with deposit
rates mostly hovering on low levels.
3.2. The role of government: Deficits as savings instruments
To further develop the ‘real market economy’ scenario, we must introduce government. This
is necessary to further detail the institution of money. This is the point where I explicitly
connect with the MMT debate, but in the specific systemic context of the ‘real market economy’
as a theoretical frame to analyse money in relation to government debt. MMT argues that the
concept of ‘government debt’ as used in current macroeconomics is a serious misunderstanding
of the underlying institutional mechanisms (Kelton 2020). I partly follow this reasoning.
In the real market economy, government and central bank are just two departments of one
institution (Buiter 2005). That means, government can always cover expenditures by issuing
money, barring the need to keep a lid on inflation. Therefore, in principle the government would
not need to use any specific institutional instruments of sovereign debt. Then, why does the
government issue bonds at all? The Gesell view offers a simple reason: Government acts as a
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provider of a safe SI, hence acting on the market for SI. In other words, the function of
government debt is not to fund government, but to offer a zero-risk monetary SI. Here, I strictly
keep in the ideal-typical setting. Yet, this comes close to the MMT reasoning, and seems to
reflect real world conditions in cases such as Japan. Government can provide a risk-free SI
because it has the power to tax, and because it issues money. Against the background of the
Gesell negative interest, I posit that government, given the fact that money does not decay,
offers a zero interest rate on bonds, in the ideal-typical setting. In the relationship between
government and citizens, nobody gets a distributional advantage. Hence, the natural political
rate of interestis zero. In addition, the zero lower bound applies, unless the government adopts
an inflationary monetary policy inducing the decayof money.
It is important to recognize that for risk averse savers, deposits at banks continue to carry risk
because they are aware that banks lend their deposits to risk-taking investors. Accordingly,
they are still willing to pay for further reducing the level of risk. Therefore, government acts
as a distinct institution of the SI market. On first sight, government could issue arbitrarily many
bonds. But as long as basic accounting rules and budget constraints apply for government, there
are two limitations. Government must redeem the bonds at maturation. Apart from rolling over
(a standard practice in modern economies), government can just directly monetize bonds by
letting the central bank buy bonds and issue money. The limit is the ultimate inflationary impact.
Of course, if governments do not care, this is a feasible option, to the detriment of savers. In a
democracy, savers represent the majority of voters, hence this way may be blocked. The other
is to cover the deficit by taxes. Here, the same political argument applies, in principle. That
means, the expansion of the government debt is most probable in authoritarian regimes where
voter preferences do not matter. In other words, if the real market economy is a democracy,
there are endogenous constraints to government debt, despite its role as saving instrument.
However, ultimately this is also the institutional means to safeguard the zero risk quality of
government bonds, which would become fragile under inflationary conditions.
The broader institutional setting also counts for a different reason. The MMT argument only
applies for fiat money regimes. In commodity money regimes, the government faces
constraints in issuing money, such as gold coins. Hence, government debt is institutionally
different in this case, since government must use the money market for loans to cover excess
expenditures, unless it can get access to abundant sources of the currency commodity. This
does not invalidate the MMT argument, but even strengthens it. Historically, this is evident in
the crucial role of government debt in the emergence of capital markets from primordial money
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markets: The early money lenders became bankers mainly to sovereigns, especially in the
context of war finance. On the other hand, this reflects the fact that most other economic agents
would try to avoid money markets, because of high interest rates: The typical phenomenon here
is usury. This is important to recognize that in the real market economy, producer-investors
would mainly rely on internal finance and equity to fund investment, because lending rates
systematically tend to be higher than rates of return on investment, reflecting the Gesell
asymmetry between holders of money and those in need for it.
That means, there is an important historical watershed when sovereign money evolved to fiat
money, and we must recognize that there are many mixed institutional forms, since even
sovereign commodity money can have partial properties of fiat money when the sovereign is
able to maintain a difference between the value of the commodity money and the value of the
currency, and when there the money in use differs physically from the commodity as a
securitized claim of conversion into the commodity, as in many variants of the gold standard.
From that perspective, our modern conception of government debt is a legacy of the past
economic system and does not reflect the real mechanisms operating today (on similar
distorting ‘institutional memories’, see Kumhoff et al. 2020).
One important consequence is that we must rethink how national accounts treat government
debt, as also emphasized by MMT, but lacking a final dose of radicalism. MMT emphasizes
that a budget surplus should not be regarded as ‘saving’, since it just means that the government
leaves (tax) money on the table. At the same time, government is not dependent on taxes to
fund expenditures since it just can create money. However, taxes count as reductions to
consumption. From that angle, it is not the surplus that is government saving, but plainly taxes:
viewed from the consumer angle, taxes are a form of saving, as they reduce consumption in
exchange to government services that extend into the future. We could justify this unusual
interpretation in approaching taxes as ‘forced savingwhich we therefore now refer to as St. I
specify as consumer saving Sc as voluntary. This clearly establishes the institutional difference
between ‘free’ market and government with coercive power. In the context of MMT, this
interpretation is appropriate since in our simple framework, government creates money via
expenditures which, if held as money balances, would constitute saving of consumers, which
is reduced by taxes. However, the question is whether taxes serve the same purposes as other
forms of saving, since they do not result in individual claims on postponed consumption.
However, we may distinguish between consumption of private goods and consumption of
14
public goods. Then, we might approach taxes as saving for the intertemporal allocation of
consuming the public goods provided by the government.
This discussion points to a fundamental problem in conceptualizing government as an actor in
the real market economy. National income accounts aim at including government in what is
conceptually only an accounting scheme for the market economy. This is achieved via
accounting conventions which, however, also suggest a specific interpretation of the institution
of government. For example, government expenditure is treated as ‘consumption’, but of
course we can also approach all government activities as ‘production’ of public goods. The
treatment as ‘consumption’ just reflects the fact that there is an asymmetry in the relationship
between government and market economy: Government does not produce marketable goods,
hence also does not earn market income and profits, but government is demanding goods in the
market economy. In other words, the accounting convention applies a market economy
criterion of ‘productivity’ on government, which is the generation of value added, which,
however, is meaningless in the case of public goods. The latter observation apparently justifies
treating government expenditure as element on the demand side of market economy production.
But following MMT, these expenditures are funded by a mechanism that is exogenous to the
market economy, i.e., the provision of sovereign money. Therefore, we can approach
government expenditures in a radically different way: As long as the production capacity of
the economy is not transgressed, we can treat government expenditures as approximating
government production which we may denote as YG. That would change the fundamental
equation in national accounts into:
MG
Y Y CI+=+
If we employ the standard transformation here subtracting taxes on both sides, we get:
MG t t
Y Y CS IS+ −− =
Where the left-hand side is private saving, so that we finally have:
Ct
SSI+=
where investment includes both private and public goods.
What is the role of the G-St here, the balance of the government budget as conventionally
defined? This is straightforward to see once we correct a mistake in standard stock-flow
15
accounting where money created by government is treated as liability of government and asset
of households. However, if at the same time it is argued that money is supplied via government
expenditures, this is double counting: In fact, the liability is the government expenditures, and
the corresponding quantity is money held by the producers which is then further channelled to
consumers via wages and distributed returns to equity. This money is partly withdrawn via
taxes. The balance is cash holdings. Hence, we get for the government balance:
( )
G t tM
Y S CIS Y = +−
Where I-T is private saving, such that:
( )
CM Gt
S Y CYS= −+
i.e., a government deficit reduces private savings in terms of cash holdings. Now, the
government offers bonds to the households as savings instruments, so that all cash holdings are
transformed into government debt, but that part devoted to liquidity.
The budget deficit obtains a different role here as commonly assumed. This is because we reject
the loanable funds approach: Instead, households pay for bonds as SI, so that this is a liability,
i.e., an outflow, whereas for government this is an asset. This is most evident if we consider a
special form of bond, the consol, which was once a dominant form: The principal is never paid
back, so that in fact the only liability of government is the interest payments, whereas the consol
is an asset. Today, the same applies when government continuously rolls over the public debt.
That means, we radically reverse the view on the government balance: the budget deficit is the
saving, since it must be viewed from the angle of consumer, who saves via bonds. The
government enables saving, but it does not finance expenditures as a motivation of the deficit.
This directly reflects the Gesell approach to saving.
That means, the SI market now looks different from the ‘real economy’ scenario since the
government is a major provider of SI. The question is how far SI continue to be offered by
producers. At this point, it is important to distinguish between equity and internal finance via
retained profits. This transpires if we look back at Robinson Crusoe: We said that in principle,
Robinson can also invest his hoard for productive uses as a form of postponing consumption.
Basically, this is also true in the real market economy: Savers may decide to invest in equity.
That would imply that they take risk, which reveals a fuzzy boundary between saving and
investment. In the real world, there is a bewildering variety of financial instruments which can
be assigned to different positions in the company account, as either equity or external finance
16
(like various forms of mezzanine capital). From the perspective of saving, the crucial question
is how risk is allocated, and whether a future flow of income is secure. That depends in turn on
the risk associated with the future return on investment. A key variable is the arrangements
relating to the priority of claims in case of bankruptcy. Accordingly, there are forms of equity
which are SI.
In other words, equity can become an SI once the level of risk is below a certain threshold
which is historically contingent. The case in point are shares, and, as we discuss in the next
section, limitations of liability which reduce risk. Hence, shares can become SI, especially in
modern forms of index funds which further reduce exposure to risks of single producers. This
discussion results in the conclusion that converges with the interpretation in stock-flow
consistent accounting, namely that equity is treated as a liability of producers and an asset of
consumers (Godley and Lavoie 2012).
We can draft a simple balance sheet for the flows in this economy, where we treat money inflow
with positive sign and outflow with negative: In many respects, this picture corresponds to
standard conceptions. Consumers receive income as wage payments from producers, which is
then allocated across the positions of tax payments, purchase of goods, purchase of bonds (SI
market) and keeping liquidity at banks (money market). Banks receive that liquidity and lend
it to producers. The difference is with government. Government expenditures are production,
as the counter-position is money received by producers for producing the goods government
wants to create. In that sense, producers are vicarious producers of public goods. The
government expenditures are balanced by taxes and bonds. However, this accounting identity
disguises the fact that government can adjust its total balance via directly creating money.
Superficially, the most important difference to conventional national balance sheets is the
producer position. Producers receive the money flows from consumer purchases and vicarious
production of public goods. They also take loans. The entire flow of money is balanced by
outflows of wages. That means, there is a gap. This is what I identify as the change of the
productive capital stock, i.e., investment. Hence, we can also conclude that the product of the
economic system of ‘real market economy’ is the formation of capital as net worth of the
economy. This includes both private and public goods, as producers also produce the public
good under government contract.
17
consumer
banks
government
Σ
purchases
-C
0
expenditures
G
-Y
G
0
income
+W
0
liquidity
-M
+M
0
taxes
-S
t
+S
t
0
loans
-L
0
bonds
-B
+B
0
Balance (net
worth)
0
0
0
+ I (K)
Σ
0
0
0
4. Capitalism
Capitalism introduces fundamental changes in the operations of the market economy:
First, we get endogenous money. It is important to recognize that this is a question of
institutional design, but also of political decision. Private banks have a strong motivation to
create private money because of the leverage effect: If they can reduce the reserve requirements,
this is functionally equivalent to taking deposits as loans, and extending loans as an investment,
and not just intermediating deposits, as in the ‘real market economy’ (Admati and Hellweg
2014). Accordingly, the profit rate of bank equity can be leveraged substantially. Establishing
and sustaining private money is a primary goal of capitalist politics, which can take many forms
if we include the creation of ‘near money’ (see below) (Martin 2014).
Endogenous money corresponds to the standard conception of inside money created by the
deposit multiplier, but I follow the interpretation that banks can create loans which are not
directly backed by deposits, yet the loans become deposits once extended (Jakab and Kumhoff
2015). Loans create deposits, not deposits loans. Therefore, contrary to MMT, in capitalism
both government and banks can create money by fiat, if the banks do no longer issue own
banknotes, but use sovereign money as unit of account. However, there is a difference between
banks and government, since government, if acting responsibly, takes into consideration the
macroeconomic conditions and the inflationary consequences of monetary overexpansion aka
18
expenditure proliferation. Banks act with a private business logic and therefore do not consider
the causal connection between credit growth and growth of inside money, i.e., they can create
negative externalities if they expand loans according to their individual profit expectation, but
thereby systemically overexpand the money supply, a phenomenon that has been emphasized
by many economists for long, such as Hayek or Minsky.
3.1. Assetification
Endogenous money is crucial for reinstating the Gesell asymmetry of power between money
holders and producer-investors. In the real market economy, consumers as holders of money
can partially rely on the asymmetry to countervail the pull of the natural negative rate of interest,
in this sense manifesting the loanable funds logic. In capitalism, this is reversed as ultimately
the producer-investors aka capitalists control the production of money.
Yet, credit expansion by banks is not without constraints: Banks must consider the
creditworthiness of lenders from an individual business angle, that is, they must manage the
risk of default. There is a direct connection between the perceived risk of default of borrowers
and the perceived risk of default of banks. Since the latter is not directly observable to
depositors at banks, they would judge the risk based on the individual information about the
bank and on information of the general situation of the economy. Hence, there are systemic
feedbacks to the general trust into the financial viability of the banking sector. The central bank
is the institution that manages this risk. As we saw since the financial crisis, and was already
clearly outlined by Walter Bagehot (1873), this requires that the central bank is willing to
support the banking sector by any means if systemic crises affect the level of confidence.
Therefore, central banks are a pivotal institution of capitalism, and they should not be
interpreted as institutions that govern the supply of money to the economy. The latter fact is
salient in the focus of central banks on managing the interest rate and treating the growth of
money supply just as an indicator to assess their policies, or even less, concentrating on the
(expected) rate of inflation.
The ‘interest rate’ is a complex category in capitalism, as it refers to the rate of return to
financial assets. The second fundamental difference between capitalism and the ‘real market
economy’ is financialization or ‘assetification’: That means, capitalism expands all legal
instruments to transform productive capacities into assets which are defined in financial terms
(Pistor 2019). For example, a share represents a legal claim on the productive capital of a firm,
19
but it is defined in exclusively monetary terms. This represents the universal goal function of
capitalist activities, enhancing the capacity to generate pecuniary profit from investing money.
This is exactly the Marxian distinction between the two circuits C-M-C and M-C-M’. However,
Marx overlooked the central role of the law in assetification and focused on the labour market
because he adhered to the classical labour theory of value. In modern capitalism, the source of
surplus profit is to exploit assetification via limiting liability and hence creating negative
externalities on other economic agents, such as costs of excessive risk taking. For example,
investing in shares allows to generate profits without being fully liable to losses of the company.
Assetification implies that capitalism universally extends the principles of the Gesell analysis
of saving in the sense that assetification is a purely institutional construct with no direct real
equivalent: Investing in assets is buying an institutional object, and not productive capital. In
this sense, capitalism is a ‘virtual’ economic system in which peculiar institutional forms
embed most of economic activities. Yet, there is a strong and essential connection to the real
economy as assetification allocates rights to controlling and using real resources. This
connection remains virtual in the specific sense that this connection is mediated by expectations
about the future value of assets.
The main economic mechanism which works here relates to the complexity of the interest rate
in capitalism. This results from the existence of a market for assets aside from the market for
real goods. There is a market for real estate or machines owned by a company, and there is the
stock market where its shares are traded. Accordingly, the profits gained from an asset are
always composites of the claims on a rate of return connected to the underlying productive
capital, and of the changes in the market price of the asset. This is familiar from calculating the
rate of return to bonds, where the interest rate is the rate of return as stipulated by the bond, but
the yield is the composite rate of return that includes the change of the market price of the bond.
This difference is less transparent in case of other assets where the rate of return is not formally
fixed, but the principle still applies: Future profits from assets are composites of returns and
changes in the value of the asset. This introduces a fundamental wedge into capitalist market
logic: The returns are present returns, but the market price of the asset is determined by the
expectations about its future changes. Current profits and dividends are the current returns to a
share, but its price is determined by expectations about the future development of its price.
Therefore, expectations about the future value of assets, different from expectations, say, about
future developments of technology, become essential drivers of capitalist dynamics. Via the
20
prices of assets, expectations become directly relevant for determining the budgetary
constraints under which agents take decisions in the present: For example, if the prices of shares
are higher than the prices of the real assets that they represent (Tobin’s q), it is rational to issue
new shares to acquire new real assets, i.e., to expand the business. More generally, changes of
asset prices have a wide range of behavioural effects insofar as assets can directly or indirectly
serve as a collateral or just reduce risk perceptions because of the availability of a larger buffer
to adapt to losses. This is salient, for example, in real estate, where the valuations of assets
influence the accessibility of mortgage loans.
3.2. The market for investment instruments
I cannot explore these considerations in more detail but focus on the consequences for
extending the Gesell approach to capitalism. The main step is to add another market to the
system, which I call the ‘market for investment instruments’ II, and I introduce a new type of
agent, the ‘investor’ different from the previous pure type of ‘producer-investor’ (Preda 2005).
Investors can be consumers, producers or a separate entity (think of pension funds). Investors
pursue financial profits from acquiring assets, with different time horizons, including the short
term of traders. An investment instrument is an institutional object by which agents can invest
money to pursue a rate of return, which is the interest rate on the II market. This interest rate is
the yield as defined above, hence is a magnitude that is not observable directly, like the rate of
return to productive capital. The supply of II is by two different types of agents, productive and
financial, and often financial agents intermediate the supply of producers (such as investment
banks subscribing to corporate bond issues). The demand is by investors, which, as said,
include any kind of agent who pursues a profit motive on the market for II.
Now, there is a fundamental difference between the market for SI and the market for II. The
original Gesell argument referred to enabling the physical postponement of consumption. The
demand for II is decoupled from consumption once we consider, again corresponding to Marx,
the difference between consumers and investors aka ‘capitalists’. If we characterize the latter
as being sufficiently affluent as commanding sufficient consumption opportunities that persist
over time, they can invest money into II. Typically, this is partly determined by the value of
assets that they own, as argued previously, because this influences their stances towards risk.
However, their motivation differs from the investment motivation in the ‘real market economy’,
as they exclusively pursue financial yield. In the Gesell sense, this means that they aim at
21
transferring financial value through time, or financial wealth, and not physical consumption
(Pistor 2019 emphasizes this point): Yet, the Gesell reasoning applies that the core issue is
intertemporal allocation of value. I suggest distinguishing between saving and wealth in this
sense: Saving aims at the intertemporal allocation of consumption as valued activity, wealth is
about the intertemporal allocation of yield.
The most important determinant of yield is the future value of an asset. Therefore, the market
for II is driven by the heterogeneity of risk attitudes and risk assessments. For every seller of
an asset, there must be a buyer with a divergent risk assessment (Geanakoplos 2011). That
means, however, that what counts is not, as in the Gesell scenario, that one group is risk averse,
but that there is a risk differential, even though every agent pursues a positive yield. In other
words, agents on the II market are not willing to accept a negative yield when concluding deals,
even though the outcome can be negative, since a negative yield would imply a reduction of
their financial wealth. Financial wealth cannot be physically destroyed in a direct sense, and
the only reasons why financial wealth can be degraded is via changes of the asset value.
Now, a most important point is the connection between the market for SI and the market for II.
This is because government bonds can also be traded by investors, defining the reference point
of a risk free II. That is, bonds are now functional hybrids. In our stylized and highly simplified
model of capitalism, government, in the shape of the central bank, buys and sells bonds to
determine the yield of bonds implied by their market price. This yield sets the standard for the
interest rate of newly issued bonds and is the reference rate for the market for II. In other words,
since bonds directly connect the market for SI and II via arbitrage, the central bank influences
both markets via its operations, but retains its autonomy in fixing interest rates for bonds on
the SI market (a central observation also noticed by MMT) (Godley and Lavoie 2012). This is
exactly the point where the Gesell argument ties up with current macroeconomic debates over
negative interest rates. It still applies that risk averse savers are willing to pay a positive price
for SI. This is certainly most beneficial to suppliers of SI. In capitalism, these suppliers are not
only producers, but even predominantly financial investors.
We can employ the same analysis on the II market as on the SI market: The difference is that
the spread is between the yield on assets and the central bank rate. As said, the yield reflects
the expectations about the future value of II, which implies that there is also an impact of the
rate of return to investment. This relates to the perennial debates about value determination of
financial assets, especially shares: The rate of return relates to the profitability of productive
22
investment and is independent of the value of the financial assets that represent the capital
invested. This is the real anchor of the asset value, but it is also an expected value. The impact
on the II market is indirect, depending on the specific decision calculus of market agents. This
creates a complex causal structure behind the market equilibria that evolve through time.
At a particular state of expectations about yield, the demand for II depends negatively on the
central bank rate because if the central bank buys bonds to lower the interest rate, investors
will look for cheaper alternatives, as we can observe currently when extremely low interest
rates drive bullish stock markets. Vice versa, a high central bank rate depresses demand for
investment instruments, what is implied in the standard IS/LM model where the central bank
rate directly influences investment. However, if we look at the supply side, the situation is more
complicated, since agents can adopt both positions of demand and supply as investors, i.e., they
act as arbitrageurs. Specifically, the supply of II is not independent from the demand, since the
estimation of the demand determines the readiness to supply II (for a full discussion of these
special properties of financial markets, see Orléan 2013). Someone who considers issuing
shares will anticipate whether there is a demand, because this crucially determines the issuing
price. We could theoretically imagine the situation where supply exactly tracks demand. There
is no determinate equilibrium unless this is fixed exogenously.
Accordingly, the effect of a change in the spread also reveals this interdependence. This has an
important consequence. Whether the market for II establishes stable conditions, crucially
depends on the exogenous factors: First, the expectations of the real rate of return, and second,
the interest rate set by the central bank. This explains why central bank policies are so closely
followed by investors. However, even this does not render the equilibrium fixed at a specific
value that could be ascertained by the central bank, as what counts is expectations of the future
rate as well. In other words, the II market is decoupled from the real economy, despite the fact
that in principle, the two exogenous forces may fix its equilibrium point. This vindicates
Marx’s notion of the systematic susceptibility of capitalism to instability and crises, yet for
different reasons.
The question arises how we can include the market for II in the system of national accounting.
This is difficult and is only based on certain problematic conventions (Coyle 2015: 100ff). In
fact, there are good reasons to exclude the financial sector from national accounts or only
include the costs of producing the services of the financial sector, such as the fees of investment
banks. The reason is that national accounts aim at representing the GDP as the product of the
23
real market economy, and explains why macroeconomic models often blank out the financial
sector.
In this paper, I cannot further detail the analysis of capitalism. My key point is that the Gesell
argument on negative interest on SI as institutional objects still applies for capitalism, but
capitalism also universalizes Gesellian features of money via assetification. This transpires in
the various spreads that characterize the financial sector in capitalism. I can relate this argument
to the explanations of the recent manifestation of negative interest in post-crisis advanced
economies which erroneously build on a loanable funds argument. Yet, what applies is that
once real features of the economy such as aging or productivity slowdowns affect expectations
about the future returns to investment, this weakens the upward pull on the interest rate, such
that the original Gesellian scenario comes to the fore: This is manifest in the increasing
budgetary deficits which offer SI to risk averse savers, at extremely low interest rates, even
moving towards the negative range, and their monetization by central banks.
4. Conclusion
This paper argues that a new macroeconomic regime is emerging the shape of which is distorted
because of misleading accounting rules that are institutionalized as legacies of past economic
systems. This distortion is a truly Marxian ‘alienation’ or fetishism, as it factually serves the
interests of a specific group in modern economies, the investors. Investors have shaped the
capitalist economies since the 19th century, with clear distributional consequences well
analysed by Piketty (2013). One major element of this distortion is the treatment of government.
This diagnosis has been most clearly advanced by MMT, but without moving towards a deeper
analysis. I suggest ‘institutional macroeconomics’ as extending and revising MMT.
Institutional macroeconomics highlights the performative nature of accounting conventions.
For example, how we treat central bank money in national accounting determines directly how
economic agents interpret the economic situations and form expectations. These expectations
influence their decisions in the real economy. Hence, economic systems with different
accounting conventions also operate differently. A key feature is the determination of the
interest rate. I have argued that Gesell offers important insights for institutional
macroeconomics, motivating a veritable ‘Gestalt switch in understanding the saving-
24
investment relation. When considering essential aspects of the economic situation such as
budget deficits, this has immediate and far-reaching consequences for policy design.
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Article
Full-text available
Given the renewed interest in negative interest rates on base money—or equivalently ‘taxing money’—as a means for overcoming the zero bound on short-term nominal interest rates, this article reviews the history of negative nominal interest rates starting from the ‘taxing money’ proposal of Silvio Gesell up to current proposals that received popular attention in the wake of the financial crisis of 2007/2008. It is demonstrated that ‘taxing money’ proposals have a long intellectual history and that instead of being the conjecture of a monetary crank, they are a serious policy proposal. In a second step, the article points out that besides the more popular debate on a Gesell tax as a means to remove the zero bound on nominal interest rates, there is a class of neoclassical search models that advocates a negative tax on money as efficiency enhancing. This strand of the literature has so far been largely ignored by the policy debate on negative interest rates. KeywordsNegative interest rates–History of economic thought–Silvio Gesell–Zero bound–Search–theoretical models–Monetary policy
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Much has happened in the world of central banking in the past decade. In this paper, I focus on three issues associated with the zero lower bound (ZLB) on short-term nominal interest rates and the nexus between monetary policy and financial stability: 1) whether we are moving toward a permanently lower long-run equilibrium real interest rate; 2) what steps can be taken to mitigate the constraints imposed by the ZLB; and 3) whether and how financial stability considerations should be incorporated in the conduct of monetary policy. These important topics deserve the attention of both academic and government professionals.
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What is wrong with today's banking system? The past few years have shown that risks in banking can impose significant costs on the economy. Many claim, however, that a safer banking system would require sacrificing lending and economic growth. The Bankers' New Clothes examines this claim and the narratives used by bankers, politicians, and regulators to rationalize the lack of reform, exposing them as invalid. Admati and Hellwig argue we can have a safer and healthier banking system without sacrificing any of the benefits of the system, and at essentially no cost to society. They show that banks are as fragile as they are not because they must be, but because they want to be--and they get away with it. Whereas this situation benefits bankers, it distorts the economy and exposes the public to unnecessary risks. Weak regulation and ineffective enforcement allowed the buildup of risks that ushered in the financial crisis of 2007-2009. Much can be done to create a better system and prevent crises. Yet the lessons from the crisis have not been learned.
Book
La crise financière a révélé au grand jour les limites de la théorie économique : celle-ci n'a su ni prévoir les désordres à venir, ni même simplement nous mettre en garde contre de possibles instabilités. Cet aveuglement est le signe d'un profond dysfonctionnement qui exige plus qu'un simple replâtrage pour être corrigé : un renouvellement radical des méthodes et des concepts, au premier rang desquels celui de valeur économique. Pour le dire simplement, les économistes conçoivent la valeur, que ce soit celle des marchandises ou celle des titres financiers, comme ayant la nature d'une grandeur objective qui s'impose aux acteurs et à leurs interactions, à la manière d'une force naturelle. Ceci est apparent dans le domaine financier au travers des formules mathématiques que calculent les économistes pour établir la juste évaluation des actifs. La crise a montré que ces formules n'étaient pas fiables. Cela ne tient pas à une insuffisante habileté à mener des calculs complexes mais à la nature même de la question posée. Il n'existe pas une juste valeur, ni pour les marchandises, ni pour les titres, mais différents prix possibles en fonction des intérêts et des croyances. À partir de ce nouveau cadre d'analyse, c'est toute la science économique qu'il s'agit de refonder. (présentation éditeur)