Should-Read: Wladimir Woytinsky: Lerner’s Economics of Employment: A Review

Should-Read: Wladimir Woytinsky (1952): Lerner’s Economics of Employment: A Review: “The first and most obvious objection-conforming with the idea of Functional Finance as a supplement to the ordinary budget-is…

…that, as long as inflationary and deflationary forces are in balance with each other, the government’s revenues must be likewise in balance with outlays. The balanced budget is the simplest way for ensuring the desired equilibrium. It implies that each dollar the government spends for its operation must be extracted from national income by means of taxation.

Lerner ridicules this procedure, but its only alternative is a financial system in which the government prints all the money it needs and-as a completely separate operation-destroys an equal amount of the purchasing power of individuals. The latter purpose could be achieved, theoretically, by confiscation, or demolition of houses, or setting fire to selected properties. Few people will agree that such measures make more sense than the orthodox procedure.

Lerner is right when he objects to worshipping a balanced budget and “sound” currency, but his arguments are very thin when-by means of repetition-he tries to persuade his readers that the best way to run public finance is to print notes-or occasionally borrow-when money is needed for public establishments, and destroy the purchasing power of individuals when his model indicates that there is too much fat in the community.

Lerner’s argument would win if it were free from such iconoclastic outbursts as the assertion that “taxes should never (Lerner’s italics) be imposed for the sake of the tax revenues,” that money “could be provided by an appropriate printing job”, etc….


Brad DeLong


Connect with us!

Explore the Equitable Growth network of experts around the country and get answers to today's most pressing questions!

Get in Touch