FUNCTIONAL FINANCE

A heterodox macroeconomic theory developed by Abba Lerner during World War II that seeks to eliminate economic insecurity (i.e., the business cycle) through government intervention in the economy. Functional finance emphasizes the end result of interventionist policies on the economy and is based on three major beliefs:

1. It is the role of government to stave off inflation and unemployment by controlling consumer spending through the raising and lowering of taxes.
2. The purpose of government borrowing and lending is to control interest rates, investment levels and inflation.
3. The government should print, hoard or destroy money as it sees fit to achieve these goals.

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