Three authors from Newcastle, Australia, namely James Juniper, Timothy Sharpe and Martin Watts, have just published a paper asking why Post-Keynesians (PKs) do not integrate Modern Monetary Theory (MMT) into their school. They write:
In this paper we argue that the incorporation of MMT principles enhances the post-Keynesian framework, principally with respect to understanding the distinction between sovereign and non-sovereign economies and the role of the payments system. These have major consequences for the conduct of macroeconomic policy which has assumed increased importance since the advent of the crisis.
Having just taught a course using balance sheets to explain money and credit, I tend to agree with that statement. The methodological framework of MMT – discussing balance sheet (mechanics) – is sound and not trivial. It helps to provide the ‘microeconomic foundations’ to any macroeconomic approach.
A nice framework to write a textbook on international economics would be the following methodological structure:
- discuss balance sheets of entities like central bank, banks, government, private sector (MMT)
- discuss national income and product accounts, flow of funds and balance of payments (identities)
- discuss macroeconomic models based on the sectoral – private, public and external sector – approach (PK/SFC)
I personally think that there should not be a dividing line between MMT and PK. They do not disagree over the major issues when it comes to the description of the economic system. Differing policy recommendations are not a reason for a split between the two. In a world with uncertainty, policy prescriptions will never coincide. The discussions between MMT and PK are fruitful, and I have learned a lot from both sides. So much so that I would find it incredibly hard to align myself to either camp. I like the balance sheet approach of MMT, SFC models and Minsky’s discussion of debt, but also the circuitist approach, the PK work on inequality and financialization and the compensation thesis.