MMT
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MMT:
https://en.wikipedia.org/wiki/Modern_Monetary_Theory
Is increasingly popular among a lot of leftists. Basically, because it says the state can just borrow and spend it’s way to prosperity and full employment. It’s also why so many of them get het up about banks “creating money”
The central idea is: “Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt” and “Countries that borrow in their own currency can finance as much real government spending as they want by creating money”.
I came across a couple of interesting critiques:
https://twitter.com/pathtopraxis/status/1290693947455610880
Which I found via this tweet distributing a draft paper:
https://twitter.com/pmpoc/status/1332314914619351040
Basically, the issues are two fold:
- The international dimension.
- The physical limits of the local economy.
And especially, as with Keynsianism, MMT seems to enable demand, but it cannot promote capital formations/accumulation.
This is quite good, bringing out a criticism of MMT that we haven’t mentioned — that it couldn’t work in most countries because of the international monetary context, probably only in the US and even there it wouldn’t be as expected.
They bring out that money arises out of commodity exchange and is not simply made by the state (a view MMTers adhere to) and that this places limits to what the state can do in the monetary field (without making things worse, that is).
However, though they get the Marxist theory of money right there is a suggestion that there might be some sort of “Marxist monetary policy”; which is absurd since Marx wasn’t concerned with policies to be implemented under capitalism and in fact wanted to see a society in which money had become redundant.
That this may be their view comes out from the authors seeming to think that “monetary sovereignty” could still be possible in other countries if accompanied by other measures ( of a state capitalist nature) , even though they set out the huge problems involving in trying to do this.
One of the authors, Costas Lapavistas, was a prominent Lexiteer in the UK.
The discussion of how to leave the Euro was interesting, it reminded me of Operation Brutus:
“Brian Walden, then a backbench MP, says the “mad plan” would have involved forbidding foreign travel, banning any cash from being sent abroad, effectively seizing pensions held abroad – “a virtual financial coup d’etat”.”
Sort of relevant to this thread:
https://www.ippr.org/blog/economists-urge-bbc-rethink-inappropriate-reporting-uk-economy
“To focus on the “credit card” analogy, we would argue that this is never an appropriate metaphor for public finances. Maxing out a credit card would imply that the government is approaching a hard limit on its ability to borrow. This is not the case. It is the consensus amongst economists that the government should at this point in time not focus on reducing the deficit, but rather on delivering the spending necessary to secure a recovery from Covid-19. Modelling suggests that public debt as a proportion of GDP could actually fall were the government to embark upon a major investment package boosting jobs and growth, a position similar to that of the IMF in its flagship publication (pp 18-19) on the issue. This is in line with standard macroeconomic literature which stresses the beneficial effects of countercyclical government spending during crises.”
GDP includes government spending, so of course govt. spending increases GDP.
The letter touches on the salient fact that in terms of government debt, the state being immortal, it has a very different relationship to it’s obligations than we do. So long as the government can mange it’s repayments, it can wear any level of debt (as when the Coalition Government rather foolishly made a song and dance about repaying the the Napoleonic war debt – or even worse, bragged about the debt used to buy the Empire’s slaves from their owners).
As with the article at the top, the only real limit to government intervention is the physical resources of the economy, and it’s place in the international system.
That bevy of economists are right about a well-established state like the UK never being likely to go bankrupt in the sense of being unable to meet its debt obligations as it can always raise the money one way or another.
However, they have their own unfounded illusions. They seem to be neo-Keynesians who think that a government can spend its way out of a crisis, even if on infrastructure projects rather than on boosting popular consumption:
“Covid-19. Modelling suggests that public debt as a proportion of GDP could actually fall were the government to embark upon a major investment package boosting jobs and growth, a position similar to that of the IMF in its flagship publication (pp 18-19) on the issue. This is in line with standard macroeconomic literature which stresses the beneficial effects of countercyclical government spending during crises.”
Modelling and standard macroeconomic literature might suggest this but past experience doesn’t. When it was last tried in the 1970s it led to stagflation. If tried again, since they seem to have inflation under control, it is likely to lead to a temporary boost that will peter out and a return to stagnation. But this won’t last since there is no such thing as a permanent slump.
The capitalist economy will eventually recover but of its own accord not thanks to government spending. When it happens the government will of course claim the credit. They always do for an expansion.
Perhaps i could have a response upon this reply defending MMT to one of my comments which i replied weakly (i think) to
Inequality Gone Viral: The Obscene Numbers – News & Views – The Commons (commondreams.org)
Yours seems a good answer. I don’t think your correspondent has a strong case via Marx’ class struggle in France: ” droit au travail, the right to work, the first clumsy formula wherein the revolutionary demands of the proletariat are summarized…The right to work is, in the bourgeois sense, an absurdity, a miserable, pious wish. But behind the right to work stands the power over capital; behind the power over capital, the appropriation of the means of production, their subjection to the associated working class, and therefore the abolition of wage labor, of capital, and of their mutual relations. ” [my emphasis].
So, MMT bringing about full employment through printing money is, I’d suggest, the right to work in the bourgeois sense (since it would necessarily be about enabling the law of no profit no employment to operate by driving employment by making it profitable). In Marx’ paragraph, above, the point is that the failure of the capitalism to deliver the right to work drives the logic of the workers seizing the MoP.
That said, I think “the right to work” is a much better proposition than UBI.
The “Job Guarantee” is not the same as UBI but it’s from the same stable, i.e., a scheme to guarantee everybody an income (even if a bigger one) even if they are not producing profits or anything. Also there is no incompatibility between MMT and UBI in that the state could decree into existence the money to pay UBI. In fact I daresay that there are some UBIers who are also MMTers.
The trouble with both reform schemes is that they don’t take into account the economic laws of capitalism as a system of production for profit by wage workers. If the state guaranteed every able -bodied worker a job that would put workers in a stronger bargaining position with employers and reduce profits. I know this is a reason why some MMTers say leftwing reformists should support it, but it’s actually a reason why it will not be introduced and, if it was, wouldn’t work.
To refute an MMTer who claimed that MMT was compatible with Marxism, I would emphasise (apart from the obvious point that Marx envisaged socialism/communism as a society which wouldn’t need money) the different theory as the nature of money — its commodity origin rather than as an act of state.
More generally, Lapavitsas and Aguila put the case against MMT well in that paper that they wrote:
“MMT is also right to assert that the state can never run out of finance since it can always create fiat money, but that again barely goes to the heart of the matter. The formalities of constructing a budget and the mechanics of operating the bank account of the state do not alter the underlying principle that there are three fundamental ways for a capitalist state to finance its expenditure, namely creating fiat money, imposing taxes, and borrowing. All three methods amount to claiming resources produced by others, and it is entirely arbitrary to privilege one, i.e., issuing fiat money, over the rest. (…)
Financing expenditure purely with central bank fiat money appears to lie entirely within the discretionary power of the state. However, creating fiat money could always disrupt the operation of the unit of account relative to the spontaneous measurement of commodity values. Inconvertible central bank money was accompanied by sustained inflation in much of the developed world in the 1970s and 1980s. Moreover, the easy availability of central bank money could also disrupt the paying and hoarding functions of credit money since it could destabilise the financial system, generate bubbles, and lead to crises with profound distributional implications.” (page 16).
Indeed, a state financed entirely through printing money would *have* to let inflation run, in as much as the value of resources it claimed would have to come out of the pockets of someone else (in that case, everyone who holds onto cash assets). It could be done, and it would be cheaper, really, than organising tax, but it wouldn’t be very fair, as it would be hit and miss on who won and who lost out (I suppose an incomes policy and a degree of corporatism could manage it). The state doesn’t ned to tax, it only has to say that only contracts of exchange denominated in the fiat currency are enforceable.
There is also the international aspect which would make doing that risky and even counterproductive. If one state is inflating its currency more than others that will raise its price level more than theirs, making imports cheaper and exports more expensive. It happened all the time in the 1950s and 1960s leading to balance of payments crises and devaluations (especially under Labour governments, forcing them to claw back some of the reforms they had brought in).
It still happens now in the era of floating currencies that came in after Nixon took the US off the gold standard in 1971. There are no longer any devaluations; the currency just sinks in relation to others.This helps exports but also makes imports cheaper. So there can still be a balance of payments crisis that would lead any such application of MMT (or Keynesianism, traditional or neo) to fail.
There’s another Marxist criticism of MMT on the blog that the CWO have an Libcom (not sure how they got to have that — must be their antiparliamentarism rather than their vanguardism). It’s quite good.
https://libcom.org/blog/mmt-bankrupt-theory-bankrupt-capitalism-13112020
A bit abstruse but with some useful data, and I think says much the same as our article coming up next month:
The Money Theory of the State It has some useful factoids:“The Fed’s staggering expansion of its balance sheet in 2020 has fed a binge of corporate borrowing that has led to a full 20 percent of the 3,000 largest American companies no longer earning enough to pay their interest expenses, mutating into “zombie companies,” de facto wards of the state.”
“The flood of US debt marks a worldwide trend. Japan’s state debt is currently at 230 percent of GDP, while China’s domestic (non-foreign) debt is over 300 percent of GDP.52 Taking the 37 countries of the the Organisation for Economic Co-operation and Development (OECD) area, by the end of 2019 sovereign debt had expanded to 72 percent of total GDP, feeding a huge buildup in non-financial corporate debt, the heart of the so-called “real economy” of production and investment, which reached a record high of 13.5 trillion dollars in the same year.53 Overall global debt-to-GDP was already over 300 percent before the onset of the coronavirus pandemic in the first quarter of 2020.54″
For those interested in the MMT debate and taxation, here is an exchange
I lack the knowledge to comment except to say, those for and against MMT are desperate for a solution that retains a form of capitalism but one that makes it sound ever so radical.
Another article on MMT
“…the world used to be different, which means it can be different again. For it to be different after this pandemic, rather than exactly the same but somehow even worse, there will need to be a radical political rethinking of the monetary order—not a modern monetary theory, but a monetary theory for the future.”
Yet still not considering the abolition of exchange economy and money as
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