The Mixed Economy and MMT

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Continued from here.

In my research on the topic of freedom, I have subjected radical liberalism — as represented especially by the Austrian School associated with Ludwig von Mises and Friedrich Hayek — to a thorough criticism. These critical findings may be looked up in my lecture held at the Univerity of Witten/Herdecke under the title The Paradox of Freedom — Austrian Thought and the Crisis of Liberalism, and in a lecture entitled Das Paradoxon der Freiheit presented to the Hayek Club in Heidelberg.

A central point of criticism of both lectures states that liberalism of the classical vein ignores an essential feature of freedom, namely the fact that an economy can only exist as a mixed economy. There cannot be a pure market economy; something like the “free market economy” as such cannot exist.

Whether they pay special attention to freedom or not, economists and, of course, theoreticians of freedom need to take into account that an economy can conceivably operate only by interacting with politics. Political institutions and decisions are fundamental to economic activity in any kind of society, including those sustaining a high degree of freedom.

An aspect of this is the inevitability of Structures of Maximal Power and thus the state. Power, politics, and the state are sources of great danger; but at the same time, they are indispensable in a civilisation characterised by progress and freedom. I have written more on this here and here (and in German here).

Modern Monetary Theory (MMT) is of particular interest from my point of view because it provides us with a theory of the mixed economy, the need of which I had claimed in critiquing liberalism. Moreover, MMT is seen by its adherents as a practically oriented theory of the mixed economy. MMT investigates the manner in which the mixed economy operates as an instrument of the political purposes of the state and its democratic mandate (“the public purpose”). With a particular view to macroeconomic implications, MMT provides explanations of how political influence acts upon the modern mixed economy, which possibilities are open to the latter in terms of economic policies, and what consequences to expect from such interventions.

To me, pluralism in science, in the economy, and in politics is the core of freedom (in as much as I accept freedom as a value — more precisely: as a system of values relating to one another through compromises.) MMT offers an approach to understanding how a democratically constituted community may be able to attain its objectives in and by dint of a modern mixed economy.

What distinguishes MMT from the radically liberal conception of a free market economy is the view of the economy as an event that is political by nature. At least, MMT is compatible with my thesis, according to which we are inevitably acting politically when we act as economic agents, since one cannot have one without the other.

We are not in a position to leave the economy to itself. For practical reasons alone, this radically liberal option is not available to us. For in order to act as economic agents, humans must enforce political decisions. Incessantly. Hence, it pays to champion methods of decision making that are more desirable than others. Which is yet another form of political action.

In a free society too, the economy serves as a lever of political interests; however, one ameliorated by the achievement that all citizens are entitled to insist that their concerns are taken into account. In a free society, we are given the opportunity to influence the economy so as to allow for our interests, while we also face the task to come up with a reconciliation of the interests of all members of society. Not an easy quest. Do not expect perfect outcomes. But the surplus of advantages over the rigours and difficulties inherent in such a process may still be enormous.

German Twin Post.

Continued here.