Here is what I consider a decent critique of Chartalism / MMT by a forum poster. Maybe the Chartalists would probably disagree, but it’s probably best to continue the conversation in the other thread :
Esuric:
Post Keynesians are not really Keynesians at all, though they claim to be the “true followers” of Keynes (even though they reject 70% of the General Theory and all of the Keynesian-based models introduced during the New Keynesian era). They’re basically Neo Ricardians who reject Ricardian capital theory (they have no capital theory), and the only theoretical connection they have with Keynes is that they tend to stress uncertainty. But stressing uncertainty does not make you a Keynesian, or else Austrians would also be “Keynesians.”
The arguments you’ve made on this forum cannot be found in the General Theory or in any other book written by Keynes.
Just a few things:
The demand for money is a function of its liquidity, i.e., the fact that it is the commonly employed medium of exchange. I don’t demand money because the government expropriates a portion of my annual income; I demand money because I wish to engage in exchange and avoid the problems associated with barter (double coincidence of wants). The use of money predates taxation. So again, there is no relationship between the tax rate and the demand for money. Velocity does not fall when taxes rise nor does velocity rise when taxes fall.
Money is not solely created by the government. The government only creates a tiny portion of the total supply of money, namely M0 (the monetary base). Most of the money is created endogenously through the banking system, i.e., the private sector. In a free banking environment the total supply of money, in the broader sense, is constrained by the total demand for money. But in our current system, where the government is able to magically create reserves ex nihilo, the banking system is only constrained by the reserve ratio (set by decree) and other banking regulations (any additional injection of reserves by the central bank reduces the interest rate below the natural or equilibrium rate and therefore creates
There is a demand for government liabilities because they pay interest and they are seen as the safest financial asset.
Government deficits mean that total government inflows exceed total government outflows (expenditure). In order to finance such deficits the government is forced to borrow from either
Taxation does not destroy money. There is no relationship between the average tax rate or marginal tax rate and the general price level. This is because the government does not burn the income (in the form of money) that it confiscates; it uses it to satisfy the demands of special interests, to finance wars, etc. The money, therefore, never leaves circulation.
Government expenditure is limited by (a) the amount of income that it is able to expropriate through taxation (which suffers from diminishing returns, that is, the more the government taxes, the more it constricts general economic activity, and therefore reduces the total amount that it can expropriate through taxation) and by (b) the inflation that it creates (which also suffers from diminishing returns).
The laws of economics are universal. The fact that different nations have different monetary systems, and that different monetary systems (both domestic and international) have been employed at different periods does not mean that we require different economic laws. Money is the commonly employed medium of exchange which emerges naturally through free market activity. It has many different forms (sea shells, feathers, gold, silver, green paper notes, etc), and any changes in its supply affects nominal and real variables.