The Gaming Den

I like to watch the fringes of subjects, because that's where there are weird academic and political pressures that cause subjects to break down and mutate in strange, novel ways. This is true of economics as much as anything, and we've already been talking in other threads quite a bit about different schools of economics - but there is so much more mad, bad, bullshit out on the fringes.

Case in point, a branch-off of Modern Monetary Theory is Monetary Circuit Theory - this is fairly classical wonkiness about fiat currency, but is based around the idea that banks create money rather than governments. Aside from looser banking regulations, I'm not sure what exact goal this theory could be applied to.

Contrast with Binary Economics, which basically says the government should give everybody a bit of money to invest as an interest-free loan. Really, you could argue the government alredy does this a bit with taxes and Social Security, but even Milton Friedman thought these guys were nuts.

A lot of these theories are weird hybrids between capitalism and socialism - like Georgism, which acknowledges the ownership of labor and private property but believes land and natural resources are held equally by all. This blurs basic economics with social theory, but you can actually see some things today that use aspects of this or similar principles.

Then there's really bizarro stuff like Social Credit.

Personally, I would like to see Keen and Krugman have make-up sex or something so that they can work on a theory of money together. The problem I have with Krugman's approach is that Keen is correct that banks can and do create money by leverage and that the Federal Reserve can have difficulty contracting the money supply because so much money is virtual and the Fed dare not close the Discount Window.

That being said, Krugman is correct that the Fed can and does increase and decrease the money supply via interest rates, and if they really wanted to they could set exact amounts of money and let interest rates float (which indeed, they used to do). While Krugman is wrong that the effects Keen is talking about aren't real, I suspect his mathematical model may closer model currency behavior than Keen's does.

In short: I think there's a lot of life in Monetary Circuit Theory, even though many of its specific predictions are not true.

-Username17

I think the big issue with MCT is that it tries to make too great a distinction between banks, governments, and other entities, and it doesn't hold up very well at the edges - like where in an MMO where all the money is credit, reserves are nonexistant, and there are often no loaning agencies to speak of.