Monday, 10 August 2015

Richard Musgrave said government borrowing is unnecessary.

Richard Musgrave (no relation) was an American economist of German heritage who died in 2007. Thanks to Econoblog 101 I’ve learned that Richard Musgrave made the point that governments which issue their own currencies do not need to borrow, since they can simply print money. To quote, he said,

“The government is never forced to borrow in the market or to maintain and service outstanding debts. There is always the option of monetizing the debt, that is, of printing money and purchasing the outstanding obligations. Whether this is done outright or through the open-market operations of the central bank need not concern us now. For purposes of the discussion, both central bank and Treasury are considered integral parts of one and the same public policy. If it is decided not to monetize the debt, there should be a good reason, since the servicing of the debt involves a cost to the government. This cost must be looked upon as the price paid for persuading people not to spend on consumption or private investment but to tie up their funds in the purchase of public assets. This purchase of nonspending, or illiquidity, serves to avoid the inflationary increase in private expenditures that could result if the debt were turned into money. It is this purchase of nonspending, or illiquidity, that is the crux of debt policy.”

As I’ve pointed out before, Milton Friedman and Warren Mosler made the same point.

Another point Richard Musgrave made, and which I like is that paying down national debt costs a country nothing in that its debt is held by natives of the country concerned. Reason is that that repayment simply involves reshuffling assets and liabilities around amongst citizens of the relevant country. In contrast, paying down the debt may involve a cost where debt is held by entities OUTSIDE the relevant country.  And even there,  a cost only arises if those “outside entities” reinvest the proceeds of sale of national debt outside the relevant country. In contrast, if the proceeds are reinvested inside the same country, then there again, that just amounts to reshuffling assets and liabilities inside the relevant country.

Richard Musgrave made that point in a paper in the American Economic Review just prior to WWII. Unfortunately that point seems to be beyond the comprehension of Kenneth Rogoff and others at Harvard.

And while I’m bragging about how clever we Musgraves are, I’d like to mention my musician cousin Thea Musgrave.

Plus there is Kacey Musgraves, the singer. I bet that “s” at the end is a mistake. I’m sure she’s a genuine Musgrave. Here she is:

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