Functional Finance: A Comparison of the Evolution of the Positions of Hyman Minsky and Abba Lerner

L. Randall Wray

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper examines the views of Hyman Minsky and Abba Lerner on the functional finance approach to fiscal policy. It argues that the main principles of functional finance were relatively widely held in the immediate postwar period. However, with the rise of the Phillips curve, the return of the Quantity Theory, the development of the notion of a government budget constraint, and accelerating inflation at the end of the 1960s, functional finance fell out of favor. The paper compares and contrasts the evolution of the views of Minsky and Lerner over the postwar period, arguing that Lerner's transition went further, as he embraced a version of Monetarism that emphasized the use of monetary policy over fiscal policy. Minsky's views of functional finance became more nuanced, in line with his Institutionalist approach to the economy. However, Minsky never rejected his early beliefs that countercyclical government budgets must play a significant role in stabilizing the economy. Thus, in spite of some claims that Minsky should not be counted as one of the "forefathers" of Modern Money Theory (MMT), this paper argues that it is Minsky, not Lerner, whose work remains essential for the further development of MMT.

Keywords: Functional Finance; Hyman Minsky; Abba Lerner; Deficit Owl; Budget Deficits; Government Budget Constraint; Phillips Curve; Sovereign Currency; Modern Money Theory (search for similar items in EconPapers)
JEL-codes: B10 B15 B22 B25 B31 B5 E12 E14 E32 E62 H62 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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