Lessons for Corbyn in “Lerner’s Law”

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”:

So what is Lerner’s Law?

I’m not sure it’s actually known widely as such, but what Mosler alluded to was a passage from Lerner’s 1951 work “Economics of Employment”. Bill Mitchell quotes this passage in his latest book “Eurozone Dystopia”. I found the relevant section here. Bill writes:

“Lerner’s work also contains a very clear message for progressive thinkers who are reluctant in the current debate to think outside of the confines that the neo-liberals have created. For example, Labour politicians in the United Kingdom confront the austerity debate with claims that they would ‘fix the budget’ over a longer time period to avoid the massive damage that immediate austerity brings. Of course, even debating the ‘health’ of the fiscal position in terms of some financial ratios is ceding ground to the conservatives, ground that is illegitimate. Lerner (1951:15) called progressives who argued in this way ‘proponents of organised prosperity’ and argued:

A kind of timidity makes them shrink from saying anything that might shock the respectable upholders of traditional doctrine and tempts them to disguise the new doctrine so that it might be easily mistaken for the old. This does not help much, for they are soon found out, and it hinders them because, in endeavoring to make the new doctrine appear harmless in the eyes of the upholders of tradition, they often damage their case. Thus instead of saying that the size of the national debt is of no great concern … [and] … that the budget may have to be unbalanced and that this is insignificant when compared with the attainment of prosperity, it is proposed to disguise an unbalanced budget (and therefore the size of the national debt) by having an elaborate system of annual, cyclical, capital, and other special budgets.

Progressives should first and foremost seek to educate the public about how the economy and money actually operate and what opportunities the government has to act on our behalf to advance our wellbeing. If we think in this way, then options that have been constructed by the neo-liberals to be ‘dangerous’, ‘radical’ or ‘taboo’ will start to appear reasonable and grounded in reality.”

So simply stated, Lerner’s Law would be something like “If you try to present your ideas cloaked in the language of you opponents, it will do your cause great damage”.

This offers a lesson to Corbyn and his supporters. Corbyn has manfully tried to present policy ideas that currently sit outside what is thought ‘possible’ within the current orthodoxy. He has done so though while trying to present himself as being enthusiastic about balancing the budget, or at least the ‘current’ budget. He has also talked about how he would ‘pay for’ his policies by raising taxes on the rich. Both of these are examples of disguising ‘new doctrine’ as old as Lerner wrote, and leave him open to attacks from those holding on tight to the old.

Mosler, in his Tweet embedded above invokes Lerner’s Law to criticise the idea of “People’s Quantitative Easing” as proposed by Richard Murphy and adopted by the the Corbyn campaign. It takes an idea that is actually quite revolutionary (Overt Monetary Financing), and cloaks it in the language of something that was on the unorthodox edge of current orthodoxy (Quantitative Easing). This has opened it up to all kinds of criticism (for example the recent FT letter signed by 55 economists).

When it’s suggested that ‘progressives’ should adopt different language to try and explain alternative policies, it’s sometimes replied that this is a hopeless cause as the current orthodoxy is so ingrained in the public’s minds. Lerner has an answer to this (quote also referenced from Bill’s book):

The scholars who understand it [the “new doctrine”] hesitate to speak out boldly for fear that the people will not understand. The people, who understand it quite easily, also fear to speak out while they wait for the scholars to speak out first. The difference between out present situation and that of the story [The Emporer’s New Clothes] is that it is not an emporer but the people who are periodically made to go naked and hungry and insecure and discontented – a ready prey to less timid organisers of discontent for the destruction of civilisation.

Let’s speak out!


7 thoughts on “Lessons for Corbyn in “Lerner’s Law”

  1. Thanks for explaining this Alex.
    It is exceedingly difficult to discuss MMT etc, especially with those whose “authority” and “realism” is to them unquestioned, and if you start with “so where do you think money comes from?” they automatically default to pompousness & irritability.
    I suspect it’ll be a long road ahead.

  2. I cringe when I hear Jeremy Corbyn and his team talking about ‘balancing the budget’ and paying for things via tax receipts. However, 1) he is a contender and not yet won; 2) PQE is a suggestion not a firm commitment and 3) it is a truism for politicians that there is a need to start where the electorate is, in making any argument.

    The great thing about PQE is that it is sufficiently within the Overton window of TINA that it has punctured the mainstream complacency as economists (and Yvette Cooper) emerge to argue against it, which within their own terms, they cannot. Hence, it sows seeds of doubt as to there being no alternative. Furthermore, ‘QE for the people not the banks’ is much more easily understood than saying Tax doesn’t limit government spending.

    I have no doubt that ‘Lerner’s Law’ is fundamentally correct but I doubt that politically the timing is right for invoking it. Challenging the mind-set inculcated over the last 30y, is a process … and the first step has to be to educate the Corbyn team.


    Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, “printing money”, etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability.”
    — Abba Lerner, “Functional Finance and the Federal Deficit,” 1943

  4. The level of monetary system literacy in the UK like the US is so low that disproportionate respect is given to the Bank of England and Federal Reserve purely on a shallow based notion of “they ought to know what they’re doing because they’re dealing with money all the time.” With this level of interest and virtually minimal opposition to these central banks engaging in QE it seems highly unlikely that the public are going to worry about where the central banks find the wherewithal to fund a National Investment Bank. As to right-wing politicians protesting they compromised themselves in supporting the original QE which made a good profit for those agencies and individuals holding government bonds prior to the Financial Crash. The MMT founders do I fear protest too much to preserve the purity of their ideas. From a political pragmatism point of view we appear to have reached the stage where Keynes left it after meeting Lerner in the United States:-


  5. Here is additional information relevant to my argument:-



    See Sections 3.34/35/36 Page 54.

    MMT purists note also the comment in Section 3.35 concerning EU constraints on central bank behaviour. This is explained more clearly by Richard Murphy and Colin Hines in their paper on Green Quantitative Easing on page 5 that it is illegal under the EU Maastricht Treaty for a member central bank to lend its treasury money:-


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