Cranks and heretics: the importance of an analytical framework

Abstract

The Journal’s September 2016 issue published a collection themed ‘Cranks’ and ‘Brave Heretics’: Rethinking Money and Banking after the Great Financial Crisis, largely addressing monetary reform from the heterodox tradition that includes the circuit approach, endogenous money theory, stock-flow consistent accounting and the (newer) modern money theory that integrates the chartalist, functional finance, sectoral balances and financial instability approaches. The symposium’s editors rightly reminded us that money has always provoked protracted and contentious disputes over economic theory and policy. Two of the papers (Nersisyan and Wray, 2016; Fontana and Sawyer, 2016) criticized post-global financial crisis (GFC) proposals that promote some version of narrow banking plus direct ‘money-financed’ deficit spending. Ours focused on developing a heterodox view of the nature of money that should inform policy reform. We argued that while these proposals are generally based on ‘sensible ideas rejected by the mainstream and labelled “crank” to discredit them’ (Nersisyan and Wray, 2016, p. 1311), they largely misunderstand how government spends and what banks do.