Functional Finance, a school of thought in macroeconomics, finds an interesting, if perhaps unexpected, association with the ideas of Jane Addams, the pioneering social reformer and Nobel Peace Prize laureate. While Addams wasn’t an economist in the traditional sense, her deep understanding of societal needs and her advocacy for pragmatic solutions resonate strongly with the core principles of Functional Finance.
Functional Finance, most prominently articulated by economist Abba Lerner, rejects the notion of a balanced budget as an inherent good. Instead, it argues that the primary goal of government fiscal policy should be to achieve specific economic goals, such as full employment and price stability. The government should spend and tax as needed to reach these objectives, regardless of the budgetary outcome. Deficits or surpluses are merely consequences of pursuing desired economic outcomes, not goals in themselves.
The connection to Addams lies in her commitment to addressing the root causes of poverty and social injustice. Addams, through her work at Hull House in Chicago, witnessed firsthand the devastating effects of unemployment, inadequate healthcare, and lack of opportunity on marginalized communities. She didn’t simply offer charity; she advocated for systemic changes that would empower individuals and create a more equitable society.
Addams’ approach mirrors the Functional Finance perspective in its focus on outcomes. She wasn’t concerned with abstract fiscal principles; her priority was alleviating suffering and improving the lives of the people she served. Functional Finance offers a theoretical framework that justifies government intervention to achieve similar goals on a larger scale. Just as Addams believed in investing in social programs to uplift communities, Functional Finance advocates for government spending to stimulate the economy and provide a safety net for those in need.
Furthermore, both Addams and Functional Finance challenge conventional wisdom. Addams defied Victorian-era expectations of women by actively engaging in social and political issues. Similarly, Functional Finance challenges traditional notions of fiscal responsibility, arguing that rigid adherence to balanced budgets can hinder economic progress and exacerbate social inequalities. Both represent a pragmatic, problem-solving approach to societal challenges, prioritizing real-world impact over abstract ideals.
While a direct intellectual link between Addams and Lerner might not exist, the underlying philosophies share a common thread: a commitment to using resources strategically to achieve desired social outcomes. Addams, through her practical work and advocacy, embodied the spirit of Functional Finance long before it was formally articulated as an economic theory. Her legacy serves as a powerful reminder that economic policy should be driven by a deep understanding of human needs and a relentless pursuit of a more just and equitable society.
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