I’ve seen a couple of references to “Lerner’s Law” on Twitter in the last couple of days and thought “What’s that?”. Before anwering this question, let’s wind back a bit.
Who is Lerner?
Abraham (Abba) Lerner was a Russian-born British economist, who, writing in the 40s and 50s developed a theory he called “functional finance“. JM Keynes was aware of some of this work, and there is evidence he agreed with much of it.Unfortunately Keynes died before really exploring Lerner’s ideas. If he had, maybe what we think we know about “Keynesian economics” would look a lot different today.
Lerner’s functional finance is a key plank of what is today called Modern Monetary Theory (MMT), and it was one of MMT’s key figures Warren Mosler who I first saw mention “Lerner’s Law”:
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