A very quick growl about two MMTs; Modern Monetary Theory and Marxist Monetary Theory.

I was just reading the Michael Roberts blog https://thenextrecession.wordpress.com/2020/06/16/the-deficit-myth/ and, oh dear, people are talking about money again. He was debunking the latest monetary/economic fad, called

“Modern Monetary Theory” or MMT. I think I am going to have to do a little piece of my own about this, for my own blog and as a comment to Robert’s.

The subject of money does not need to be hard, but it has been made incredibly complicated. There are more crackpot ideas about it than about anything else except food and health. Most of the crank ideas derive from two basic ones; that government is not supposed to issue the money and that money is supposed to have an “intrinsic value”.

These MMT people have been promoting a couple of less common crank ideas about money. One is this idea that government can just issue whatever money it needs. The other is the idea that money has value because people need it to pay taxes to the state. Roberts seems to think he has debunked these ideas sufficiently.

Like a good little Marxist economist, he tells us that money comes about through the value created by exploiting the surpluses of labor. How that happens is not exactly clear to me. But I believe he does miss the role of banks and lending in creating money in modern times, and its full consequences.

Let me break this all down into its elements. Money was created in the first place because barter became too complicated. Some sort of standard unit of exchange or account had to be created. Money was helpful to government to organize taxation to facilitate its “need to spend”; MMT is right as far as that goes.

It was really not workable to have dozens of different currencies in one country. It is just the same as not having ten different versions of the foot or quart or pound. The government had to create a standard measure for all of these and in the same way it had to create the standard unit of value, the money.

Money did not have value because it was made out of silver. It had value because of the sovereign’s stamp on it, making it money. If the metal in it was worth more than the stamp, people would have just melted the coins down.

The problem with having too much money in circulation was inflation. This was true whether the money stamp was on silver or on paper. But an equal problem was deflation, not enough money in circulation, generally caused by wealthy people hoarding money. Roberts calls this “money fetishism” after Marx, which is a way of saying that the rich aren’t being taxed enough.

The old problem of predatory institutions using money lending to get people into debt is a favourite topic of wisacres warming us up for their pitch for their favourite crank monetary scheme. It is true that when interest is charged, the money to pay back the interest does not exist. The old time solution was to hold debt jubilees periodically; less messy than lynching the money lenders.

Finally the money lenders were able to get control of government. This is the source of our present problems. It is probably how modern capitalism got started. Money has been issued by banks as debt, and inflation deliberately induced to insure that enough money was around to pay interest on debts.

This system relies on continuous economic growth, which is not really possible or desirable in the long run. That is why the debt money system is breaking down now; we have reached the limits of further growth. The only solution is for governments to take back the power to issue the money.

Once we have a money system that is working right, there is no reason for interest bearing debt at all. There is no need for private banks. Where loans need to be made to finance needed investments, government can make them through publicly owned development banks at low or no interest. Governments borrowing money has never made any sense.

In a normalized system, government issues whatever money is needed. It taxes the money back from the wealthy to prevent it being hoarded, speculated with, or other socially destructive behaviours. A constant stable money supply is maintained.

Government can decide how much money is needed by a well developed understanding of how much consumption is desirable and what resources are available to support it.

As for money matters between countries; where governments must send money to other governments, as in foreign aid or “technology transfers”, that is one way in which gold can be of some use. If a system of currency exchanges were allowed to work without being attacked by speculators, that would solve problems with “balance of trade”.

So, the MMT proponent’s warmed over “Chartalist” ideas do not fit with reality. Taxes were only one reason for the development of money. Debt has been around longer than either of these but there has never been any reason for governments, having the power to create the money, to have deficits or debt.

Now, some Marxist folks seem to think money was invented by capitalists from the surplus value they extracted from people. I do not think that is what Marx meant and anyway it is for damned sure money came before capitalism. Value does not make money, money denominates value.

We are now in an age where, as Marx predicted, the productive capacities of advanced economies are fully developed. There is no longer enough surplus value to capture out of people. This is the cause of the capitalists ‘profitability crisis’. But there is still a lot of money in circulation so the money does not come from there.

So regardless of what all sorts of people would like to believe in order to make their political theories work, we are still in the Westphalian system from 1648. The money in a given territory is what the sovereign power over the territory decrees it to be. If he/she/it/they is doing the job right, the money supply is stable and there is no inflation, deflation, deficit, debt, or interest.

I have just dropped a huge number of concepts in a very compressed essay. I hope it is all comprehensible. It would be hugely contested by economic and monetary theorizers of all descriptions. However, I am hugely uninterested in ‘proving’ any of them. Instead I invite readers to think about them.

Comments 1

  • Hello Raccoon,

    So just a couple of things on this.

    I don’t think Marxist economists think that money only appeared with Capitalism. What they seem to think is that, with the advent of Capitalism – which for them is a system of economic production, where society is dominated by two classes (other classes can persist, too): waged workers who can sell their labour freely (i.e. they aren’t slaves or serfs), and capitalists, who purchase labour off the workers to produce goods for market, with the aim of making a profit – money takes on certain functions in the economy which it didn’t have before, relating to this way of producing goods. I don’t know if they are right, but that’s what they, charitably, think. It’s certainly what Marx thought.

    I’ve not really read the MMT people, but I would say that they don’t think that all states are in a position to control their currency. States who are pegged to the currency of another state can’t, for instance. Now you can say that any state can simply state what the currency is going to be. But that isn’t to say they can control how the currency behaves – and if they can’t do that, the money (literally) may not be worth the paper it’s written on. If they are doing their job right, the only option may be to use a different currency – and even then, this may not help them, given the global situation their country is embedded within. I’m just raising all this to indicate that the MMT position can’t be as simple as you’re depicting, whether overall the theory is correct or incorrect.

    Finally, I’m kind of unsatisfied by your final remark. I don’t really see the point in writing a post, then saying that you aren’t interested in whether you are ultimately right or wrong. How is this helpful to your readership? Wouldn’t it be better to lay out the basics, raise some issues you can think of, but then state you haven’t done enough work to be sure who is correct, and direct your readers to some further reading?

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