Musgrave, Ralph S. (2010): Government borrowing is near pointless.
This is the latest version of this item.
Download (84Kb) | Preview
The currently larger than normal national debts in numerous countries makes this a good time to look at the rationale behind government debt. Four of the main reasons are considered here. The conclusion is that they range from hopeless to unimpressive. First there are political reasons which can be demolished in a few sentences. Second there is having government ‘borrow and spend’ with a view to stimulus. The main flaw in this policy is that where a government issues its own currency and borrows units of its currency, it is borrowing something which it can create itself in limitless quantities: similar to, and as pointless as a dairy farmer buying milk in a shop. In relation to stimulus, a zero borrowing system was set out long ago by Karl Marx, Milton Friedman, and others: it is called ‘Functional Finance’. This is a viable alternative to borrow and spend. Moreover, quantitative easing amounts to a move in the direction of functional finance and an admission of the weaknesses in borrow and spend. Third there is borrowing with a view to the purchase of assets, like infrastructure investments. The arguments for borrowing here are passable. Fourth there is borrowing to smooth out the erratic timing of government expenditure and income from taxation. The arguments for borrowing here are poor. On balance, the arguments for government debt are not impressive. Hopefully the arguments below will assist those trying to curb such debt.
|Item Type:||MPRA Paper|
|Original Title:||Government borrowing is near pointless.|
|Keywords:||Abba Lerner; Modern Monetary Theory; government borrowing; deficit; national debt; functional finance; stimulus; monetary base|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
H - Public Economics > H6 - National Budget, Deficit, and Debt
|Depositing User:||Ralph Musgrave|
|Date Deposited:||11. Jul 2010 17:56|
|Last Modified:||14. Feb 2013 01:01|
Buiter, W. (2008). ‘Wanted: tough love from the central bank.’ Financial Times, 22nd March.
Colander, D. (2003). ‘William Vickrey’s Contributions to Economics.’ Middlebury College Economics Discussion Paper No. 03-23. Vermont, U.S.A.
Friedman, M. (1948). ‘A monetary and fiscal framework for economic stability.’ American Economic Review, 38(3): 245-264.
Galbraith, J.K. (2009). ‘Navigating the Jobs Crisis: Old Mistakes Die Hard.’ Franklin and Eleanor Roosevelt Institute. Available at http://www.newdeal20.org/2009/11/23/navigating-the-jobs-crisis-old-mistakes-die-hard-6556/ [23rd November 2009].
Klein, M., Lantz, C., Sweeney, J., & J. Wilmot, (2009). ‘Long Shadows, Collateral Money, Asset bubbles, and Inflation.’ Credit Suisse.
Landes, D.S. (1994). ‘Abba Ptachya Lerner.’ In: Biographical Memoires, Volume 65, 208-231. Washington: National Academy of Sciences.
Lerner, A. (1943). ‘Functional Finance and the Federal Debt.’ Social Research, 10: 38-51.
Mitchell, W. & Mosler W. (2002). ‘Public Debt management and Australia’s macroeconomic priorities - Submission to the Review of the Commonwealth Government Securities Market.’ Newcastle, Australia: Centre for Full Employment and Equity.
Mitchell, W. (2010). ‘Market participants need public debt.’ http://bilbo.economicoutlook.net/blog/?p=10404#more-10404
Mosler, W. & M. Forstater (2005). ‘The natural rate of interest is zero.’ Journal of Economic Issues, 39(2): 535–542.
Mosler, W. (2010). ‘Proposals for the banking system.’ Huffington Post, 21st January.
Musgrave, R.A. (1939). ‘The Nature of Budgetary Balance and the Case for the Capital Budget’. The American Economic Review, 29 (2): 260-271.
Musgrave, R.S. (2010). ‘Government borrowing is pointless where a country issues its own currency.’ Munich Personal RePEc Archive paper No. 20057.
Available Versions of this Item
Government borrowing is pointless where a government issues its own currency. (deposited 18. Jan 2010 10:35)
Government borrowing is pointless where a government issues its own currency. (deposited 11. Jul 2010 17:52)
- Government borrowing is near pointless. (deposited 11. Jul 2010 17:56) [Currently Displayed]
- Government borrowing is pointless where a government issues its own currency. (deposited 11. Jul 2010 17:52)