Another sign of the failure of mainstream economics (one among an ever-increasing number) is the proliferation of new schools of monetary theory in the economics blogosphere.
A recent article in the Economist highlights three such theories: Neo-Chartalism (or Modern Monetary Theory), Market Monetarism (sometimes referred to as Quasi Monetarism), and Austrian economics.
What’s interesting is all three theories have mostly been banished from the journals of mainstream economics (which is why they have either been created, or have been further elaborated and disseminated, within the economics blogosphere) and that all three are focused on some rather rudimentary ideas about what money is and how it works (which is a sign of how weak the theory of money is within mainstream economics).
My own sympathies, as I’ve indicated before, are with Modern Monetary Theory—and I’d like to see much more of an engagement between that particular theory of money and Marxian value theory. As I’ve often explained to students, Marx’s critique of political economy includes money almost from the very beginning (which can both expand and destabilize commodity exchange), in contrast to mainstream economics (both classical and neoclassical) in which money is introduced only after the conditions for a general equilibrium are established. So, Modern Monetary Theory would be an interesting addition to a relatively underdeveloped aspect of the Marxian critique of political economy, the theory of fiat money.
The dispute between, on one hand, Market Monetarists and Austrians, and, on the other hand, mainstream economists is of a different order, concerned mostly with the relationship between the Fed and macroeconomic cycles. From what I’ve read, Market Monetarists are not much more than Quasi Monetarists, in the sense that they make one key change in the model of traditional monetarism (of, e.g., Milton Friedman): they question the extent to which the velocity of money is fixed. OK. As for the Austrians, well, it’s all about how the Fed should be abolished, which ends up being just an extreme version of neoclassical economics (in which all markets instantaneously adjust and a gold standard keeps the money supply in line).
But, taken together, the three theories do demonstrate one of the many reasons mainstream economics has failed—before and now during the Second Great Depression—which is that its practitioners have mostly ignored a central feature of capitalist commodity exchange: money.