Saturday, July 2, 2016

Kwak: Orthodox Mysteries of Money.


"One of the great metaphysical ideas in economics is expressed by the word 'value'." (Joan Robinson)

James Kwak (Associate Professor at the University of Connecticut School of Law, columnist at The Atlantic, co-founder of "The Baseline Scenario" blog, and running "James Kwak") is no heterodox economist.

Recently Kwak demonstrated his orthodox credentials in "Economics 101, Good or Bad?" (May 13th), where he offers his interpretation of the critique Paul Krugman and others have made of economics teaching (i.e. "101ism").


Econ 101 -- Kwak believes -- points in the right direction, even if some of its insights are more of theoretical than practical value ("correct sign but small magnitude, you might say", he explained).

And he cites examples of "correct signs" Econ 101 teaches:
"He [Michael Strain, from the American Enterprise Institute] is right to say that Economics 101 provides many valuable lessons—the competitive market model, opportunity cost, diminishing marginal returns, comparative advantage, the labor-leisure tradeoff, etc. But no one denies the analytical power of those abstract concepts."
While Kwak's conciliatory interpretation of 101ism is at odds with my own interpretation (much more importantly, it seems at odds with Joseph Stiglitz's), I have little interest in that debate. My interest, rather, is to demonstrate that he is by no means heterodox: those valuable insights he sees in Econ 101 are a laundry list of no-nos for the heterodox.

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"Okay" -- readers may wonder -- "Kwak is orthodox; so what?"

My answer: he seems very sympathetic to heterodox narratives about the historical development of money. That's what.

Commenting favourably on Christine Desan's book "Making Money" ("Mysteries of Money", June 30), Kwak distinguishes two values of money:
"Coins did have a metal value, since they could theoretically be converted into bullion, which had its own price, albeit at some cost. But they also had a coin value, which was simply the value dictated by the sovereign, since coins could be used to pay taxes."
Further, later on Kwak extends that "coin value" property to 14th century England's carved sticks known as "tallies":
"Tallies began as records of taxes collected, then became receipts the crown gave to tax collectors for advances of coin (the idea being that, at tax time, the collector could show the tally and say, 'I already paid'), and finally evolved into tokens that the government used to pay its suppliers (who could then cash them with tax collectors, who would use them at tax time). In most of the 15th century, a majority of tax receipts came in the form of tallies rather than cash (p. 177). Again, if the government is willing to take something in payment of taxes, it becomes money."
Rightly or wrongly, Kwak seems to believe that would surprise other orthodox (even if some orthodox claim things like those are old news) and don't seem to be troubled by the "coin value" property. MMTers, however, would recognize in this "coin value" MMT's own "taxes drive money" assertion.

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There is something puzzling in that situation: how can knowledgeable people have so different ideas about what is a fundamental insight, what is old news and what is a revelation? Imagine if schools of medicine were still teaching the miasma theory of infectious diseases, instead of the germ theory.

And to find a profusion of instances of the forbidden word "value" used profitably in an orthodox writing is a bonus! :-)

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