For the past few months Bill Mitchell has been posting drafts of what should become his and Randy Wray’s Modern Monetary Theory textbook for economics students. From what I have seen so far this looks set to become the perfect textbook.
When I did a Masters last year one of the main problems that my macro lecturer — the excellent Post-Keynesian economist Engelbert Stockhammer — had was trying to explain the monetary system to students. Even pretty good Keynesian textbooks like Richard Froyen’s Macroeconomics were completely stuck in the past with regards to how the monetary system operates.
Mitchell and Wray’s book looks set to fix this. MMT integrates Post-Keynesian endogenous money theory into a more comprehensive system that shows students how governments borrow and spend. Indeed much of the complaints against MMT from Post-Keynesians — i.e. that the Treasury and Central Bank should not be consolidated — is precisely against the element of the theory that simplifies sufficiently to teach the monetary system in an adequately didactic manner. While those who are highly prejudiced against the consolidation will continue to dig their heels in I think that others will appreciate the didactic power of this simplification when the book comes out.
Another thing missing from books like Froyen’s is a good theory of growth. Regular readers of this blog will know that I am deeply skeptical of modelling in economics but I have always said that models are a good means to educate students provided the limitations are clearly explained.
In textbooks like Froyen’s the old Solow model is generally used. This is a truly awful, static model of growth that incorporates the worst excesses of marginalist abstraction from the real world. Indeed, in my opinion, it is one of the gravest sins that the neo-Keynesians committed — one that haunts us in so many ways today.
Mitchell, however, introduces the student to the supposedly more outdated Harrod-Domar model — the model which the Solow model was created in response to. The Harrod-Domar model is a far better starting point for the student in economics. Like the Solow model it is not so complex as to be useless for teaching (I’m afraid that the Godley-Lavoie models fall into this category for everyone except PhD candidates), but it also introduces the student to dynamics and with it contingency.
The model shows how there is no “natural” overlap between the rate of productivity growth and the rate of income growth. It also allows Mitchell to raise important distributional issues — indeed, the chapter is entitled “Distribution and Growth”, echoing the likes of Joan Robinson. But more important to me is that the student will be able to recognise that the real world is messy. There is no tendency for everything to just “work out”.
Different levels of productivity growth definitely occur in really-existing capitalist economies and these definitely do not produce a sufficient level of aggregate demand to sustain full employment of capital and labour. As can clearly be seen today distribution can also affect this process — when profits are high and wages are low the economy can enter a period of protracted secular stagnation.
Today the mainstream talk vacuously about such issues. When you read their statements — about secular stagnation, for example — with a critical eye they really have nothing to say. I hope that Mitchell and Wray’s book comes out as soon as possible. It will be a much needed antidote to much of this.