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Functional Finance, New Classical Economics and Great Great Grandsons

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  • David Colander

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Abstract

This ambitious book seeks both to revive and revise the idea of ‘functional finance'. Followers of this doctrine believe that government budgets should concentrate solely on their macroeconomic impact on the economy, rather than reflecting a concern for sound finance and budgetary discipline. Reinventing Functional Finance examines the origins of this idea and then considers it in a modern context. The authors explore the concept of NAIRU and argue that modern economies can operate at the level of full employment without provoking unmanageable inflation. They also contend that budget deficits do not have the deleterious effects commonly ascribed to them; the belief that they do rests on a misunderstanding of modern money. In this context, they highlight the relevance of Abba Lerner's famous dictum, ‘money is a creature of the State'. The authors also debate the merits of various proposals for ‘Employer of Last Resort' programs, which combine automatic stabilizers with the buffer stock principle.
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Suggested Citation

  • David Colander, 2002. "Functional Finance, New Classical Economics and Great Great Grandsons," Middlebury College Working Paper Series 0234, Middlebury College, Department of Economics.
  • Handle: RePEc:mdl:mdlpap:0234
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    File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0234.pdf
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    References listed on IDEAS

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    1. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521578967, April.
    2. Walters, A A, 1971. "Consistent Expectations, Distributed Lags and the Quantity Theory," Economic Journal, Royal Economic Society, vol. 81(322), pages 273-281, June.
    3. David C. Colander & Harry Landreth (ed.), 1996. "The Coming Of Keynesianism To America," Books, Edward Elgar Publishing, number 451.
    4. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Abba Lerner’s flawed ideas on interest rates.
      by Ralph Musgrave in Ralphonomics on 2011-03-29 12:31:00

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    Cited by:

    1. Musgrave, Ralph S., 2011. "Monetary and fiscal policy should be merged, which in turn changes the role of central banks," MPRA Paper 30521, University Library of Munich, Germany.

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