Jay Davidson, reflecting on Ben Bernanke’s Fed policy based on Modern Monetary Theory (MMT) and followed by chairs Yellen and Powell, reminded me of a quote by Murray Rothbard about John Maynard Keynes: “The General Theory was not truly revolutionary at all but merely old and oft-refuted mercantilist and inflationist fallacies dressed up in shiny new garb, replete with newly constructed and largely incomprehensible jargon.”
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MMT is not modern and not new. John Law (who was called the Ancestor of the Idea of a Managed Currency by Joseph A. Schumpeter) established the Banque Générale in 1716 with the authority to issue bank notes. The Mississippi bubble burst in 1720 in a crash that spread from France to other countries, and Law was forced to flee France.
Originally from Edinburgh, Scotland, Law’s anti-mercantilist idea that the wealth of a nation was not gold in a vault, but commerce and productive activity anticipated Adam Smith. But then, in 1718, the Banque Générale became the Banque Royale, and the French Crown was involved. Law can’t be blamed for all the inflationist policies of state bureaucrats, and the Mississippi Company with its exclusive trading rights over the French territories in the New World (Louisiana and more) soon blew up.
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Today’s followers of MMT think they can create prosperity, or at least the illusion of it. Using scientific-sounding jargon such as “quantitative easing” to mean inflationist policies tells you all you need to know about these people.
As a first approximation, $5-a-pound hamburger today is the equivalent of nickel (5 cent)-a-pound hamburger in the Roaring Twenties. A Monetary History of the United States (Friedman and Schwartz, 1963) gives the empirical evidence of the Central Bank (Federal Reserve)’s failure to provide sound currency. Hayek’s Good Money (1999, University of Chicago Press) suggests that the way to discover what good money might be would be to have several competing private currencies in circulation (descendants of Bitcoin and Etherium?). Milton Friedman thought that was going too far.
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But at least we all can disrespect “Government Money.”
Image via Pixabay.