Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209143 
Year of Publication: 
2018
Series/Report no.: 
Working Paper No. 900
Publisher: 
Levy Economics Institute of Bard College, Annandale-on-Hudson, NY
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.
Subjects: 
Functional Finance
Hyman Minsky
Abba Lerner
Deficit Owl
Budget Deficits
Government Budget Constraint
Phillips Curve
Sovereign Currency
Modern Money Theory
JEL: 
B10
B15
B22
B25
B31
B5
E12
E14
E32
E34
E62
H62
Document Type: 
Working Paper

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