Posted by: Dirk | May 8, 2019

Schumpeter on Knapp in his 1954 HEA

Having recently published a working paper on the academic reception of Knapp’s “The State Theory of Money” (1905), I was confused by the lack of good will shown by Joseph Schumpeter when he discussed the book. He claimed that Knapp did not examine the value of money, when Knapp explicitly rejected the concept of “value” in favor of talking about purchasing power. He also claimed that Knapp’s theory would be one of a monetary system when it was quite clearly not.

So, I thought that maybe later in his life – his History of Economic Analysis appeared in 1954 – Schumpeter would be more reasonable in discussing Knapp’s finding that money is a creature of law. Well, he wasn’t:

Joseph on Georg 1.png

Joseph on Georg 2.png

Schumpeter was an excellent economist, his Theory of Economic Development and other writings surely stood the test of time. However, the message of Knapp – that government spends whatever it wants to spend and, as creator of money, needs not to worry about budget constraints – seems to have not gone down well with Schumpeter. It is a pity – Schumpter was the Ph. D. advisor of Minsky, who struggled with monetary theory. Only with MMT did Knapp’s Chartalism return to the center of economics, after having been hidden in plain sight for more than half a century. We can expect a return of fiscal policy to the real world before Chartalist ideas, which featured so prominently on the first pages of The Treatise on Money by John Maynard Keynes, will return to economics textbooks. But return they will.


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