The ‘Ring Wing’, Debt, and Growth

Unlearningecon has asked on his twitter what ‘ring winger’ has the endogenous view on money.

I answered unlearningecon and stated that Ludwig Lachmann held the endogenous view. From his article ‘Uncertainty and Liquidity-Preferences’ Lachmann states:

“Of all the institutions within the framework of which the human actions described by economic science are performed, the existence of money-debts is doubtless one of the most important. Now, Money is the legal means of payment, i.e., its owner can use it for discharging debts.’ This is the only use in which it has no substitutes, for its very institutional character excludes that. On the worst of days, when all instruments of exchange fail us, when all markets and banks are closed, when the most liquid assets have become entirely illiquid, Money-and only Money -will still serve to discharge a debt.” (emphasis mine)

After posting this I realized there was another important ‘right winger’ that held the endogenous view, actually he is seen has one of the key figures of the endogenous view: Joseph Schumpeter. In his book The Theory of Economic Development, Schumpeter states:

“…[C]redit is essentially the creation of purchasing power for the purpose of transferring it to the entrepreneur, but not simply the transfer of existing purchasing power. The creation of purchasing power characterises, in principle, the method by which development is carried out in a system with private property and division of labour. By credit, entrepreneurs are given access to the social stream of goods before they have acquired the normal claim to it. It temporarily substitutes, as it were, a fiction of this claim for the claim itself.”

Steve Keen and Hyman Minsky both see Schumpeter as an important influence because of his view of endogenous money and growth. Minsky’s basic theory on financial systems, the Financial Instability Hypothesis, is arguably based on what Schumpeter states on endogenous growth.

 

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6 responses to “The ‘Ring Wing’, Debt, and Growth

  1. I actually recently ordered Lachmann’s ‘Capital and its Structure’. Are you aware of any ‘righties’ who have countered or taken on board the ‘governments versus markets/there is no such thing as a free market’ criticisms?

    • What do you mean by ‘there is no such thing as a free market’ view (I never really understood this position)?

      If what you mean by free market is that there can be no government intervention in the markets, then most people would agree that this is absurd.

      Or do you mean like what Ha-Joon Chang states, that markets are never free because they are regulated in some way to begin with?

      But if this is what you mean, then again, most people would agree with this. Free market, in a general, is used relative to something. (see the comments section of: http://socialdemocracy21stcentury.blogspot.com/2012/02/lachmann-endorsed-keynesian-stimulus-in.html)

      • I’m not sure it’s a useful concept as it’s entirely subjective. It’s usually accompanied by assertions that the government ‘interferes’ with the market in some ways – furthermore, there are plenty who say ‘we haven’t had a true free market in years’ or ‘we’ve never had a true free market’.

        It also works from the premise that governments ‘interventions’ interfere with and hamper market processes, something I plan to challenge in a forthcoming post.

        • furthermore, there are plenty who say ‘we haven’t had a true free market in years’ or ‘we’ve never had a true free market’.

          I hate when people say that we have never had a true free market because when asked specific problems this ‘free market’ solves, it is usually in the form of neoclassical explanations. For example, in a free market wages are determined by how productive the worker is, unemployment is voluntary because there is always stuff to do, etc etc. Its like all the sudden, we ‘know’ what the market will do when left alone, even if we haven’t seen an actual example of one.

          “It also works from the premise that governments ‘interventions’ interfere with and hamper market processes, something I plan to challenge in a forthcoming post.”

          I look forward to reading the post. To that I would respond that it may interfere, it really just depends on the situation. It has to take account for things like the existing institutions, the timing of proposed policies, etc. and even stuff like that is not enough to conclude something with because of uncertainty, non ergodicity, and transmutability.

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