Modern monetary theory – part 1: Chartalism and Marx

Modern monetary theory (MMT) has become flavour of the time among many leftist economic views in recent years.  The new left-wing Democrat Alexandria Ocasio-Cortez is apparently a supporter; and a leading MMT exponent recently discussed the theory and its policy implications with UK Labour’s left-wing economics and finance leader, John McDonnell.

MMT has some traction in the left as it appears to offer theoretical support for policies of fiscal spending funded by central bank money and running up budget deficits and public debt without fear of crises – and thus backing policies of government spending on infrastructure projects, job creation and industry in direct contrast to neoliberal mainstream policies of austerity and minimal government intervention.

So, in this post and in other posts to follow, I shall offer my view on the worth of MMT and its policy implications for the labour movement.  First, I’ll try and give broad outline to bring out the similarities and difference with Marx’s monetary theory.

MMT has its base in the ideas of what is called Chartalism.  Georg Friedrich Knapp, a German economist, coined the term Chartalism in his State Theory of Money, which was published in German in 1905 and translated into English in 1924. The name derives from the Latin charta, in the sense of a token or ticket. Chartalism argues that money originated with state attempts to direct economic activity rather than as a spontaneous solution to the problems with barter or as a means with which to tokenize debt.

Chartalism argues that generalised commodity exchange historically only came into being after the state was able to create the need to use its sovereign currency by imposing taxes on the population. For the Chartalist, the ability of money to act as a unit of account for credit/debt depends fundamentally on trust in the sovereign or the power of the sovereign to impose its will on the population.  The use of money as a unit of account for debts/credits pre-dates the emergence of an economy based around the generalised exchange of commodities.  So Chartalism argues that money first arose as a unit of account out of debt and not out of exchange. Keynes was very much a fan of Chartalism, but it is clearly opposed to Marx’s view that money is analytically inconceivable without understanding commodity exchange.

Can the Chartalist/Modern Monetary Theory (MMT) and Marxist theory of money be made compatible or complementary or is one of them wrong? My short answers would be: 1) money predates capitalism but not because of the state; 2) yes, the state can create money but it does not control its price. So confidence in its money can disappear; and 3) a strict Chartalist position is not compatible with Marxist money theory, but MMT has complementary features.

Let me now try to expand those arguments.

Modern monetary theory and the Marxist theory of money are complementary in that both are endogenous theories of money. They both reject the quantity theory of money, namely that inflation or deflation is dependent on the decisions of central banks to pump in credit money or not. On the contrary, it is the demand for money that drives the supply: i.e. banks make loans and as a result deposits and debt are created to fund the loans, not vice versa. In that sense, both MMT and Marxist theory recognise that money is not a veil over the real economy, but that the modern (capitalist) economy is a monetary one through and through.

Both Marx and the MMT guys agree that the so-called quantity theory of money as expounded in the past by Chicago economist Milton Friedman and others, which dominated the policy of governments in the early 1980s, is wrong.  Governments and central banks cannot ameliorate the booms and slumps in capitalism by trying to control the money supply.   The dismal record of the current quantitative easing (QE) programmes adopted by major central banks to try and boost the economy confirms that.   Central bank balance sheets have rocketed since the crisis in 2008, but bank credit growth has not; and neither has real GDP growth.

But the Marxist theory of money makes an important distinction from the MMT guys.  Capitalism is a monetary economy. Capitalists start with money capital to invest in production and commodity capital, which in turn, through the expending of labour power (and its exploitation), eventually delivers new value that is realised in more money capital.  Thus the demand for money capital drives the demand for credit.  Banks create money or credit as part of this process of capitalist accumulation, but not as something that makes finance capital separate from capitalist production.  MMT/Chartalists argue that the demand for money is driven by the “animal spirits‟ of individual agents (Keynesian) or by the state needing credit (Chartalist). In contrast, the Marxist theory of money reckons that the demand for money and thus its price is ultimately set by the pace of accumulation of capital and capitalist consumption.

The theory and history of money

That raises the underlying issue between Modern Monetary Theory, its Chartalist origins and the Marxist theory of money. Marx’s theory of money is specific to capitalism as a mode of production while MMT and Chartalism is ahistorical. For Marx under capitalism money is the representation of value and thus of surplus value. In M-C-P-C’-M’, M can exchange with C because M represents C and M’ represents C’. Money could not make exchange possible if exchangeability were not already inherent in commodity production, if it were not a representation of socially necessary abstract labour and thus of value. In that sense, money does not arise in exchange but instead is the monetary representation of exchange value (MELT), or socially necessary labour time (SNLT).

Marx’s theory analyses the functions of money in a capitalist-commodity economy. It is a historically specific theory, not a general theory of money throughout history, nor a theory of money in pre-capitalist economies. So if it is true that money arose first in history as a unit of account for taxes and debt payments (as the Chartalists and Keynes argue), that would not contradict Marx’s theory of money in capitalism.

Anyway, I have considerable doubts that, historically, state debt was the reason for the appearance of money (I’ll return to that in a future post). David Graeber, the anarchist anthropologist, appears to argue this in his book, 5000 years of debt. But it does not wash well with me. Marx argues that money emerges naturally as commodity production is generalised. The state merely validates the money form – it doesn’t invent it.  Indeed, I think Graeber’s quote from Locke on p.340 in his book summarises the argument well. “Locke insisted that one can no more make a small piece of silver more by relabeling it a ‘shilling’ than one can make a short man taller by declaring there are now fifteen inches in a foot.”

In the classic statement of chartalism, Knapp argued that states have historically nominated the unit of account, and by demanding that taxes be paid in a particular form, ensured that this form would circulate as means of payment. Every taxpayer would have to get their hands on enough of the arbitrarily defined money and so would be embroiled in monetary exchange.  Joseph Schumpeter refuted this approach when he said: “Had Knapp merely asserted that the state may declare an object or warrant or token (bearing a sign) to be lawful money and that a proclamation to this effect that a certain pay-token or ticket will be accepted in discharge of taxes must go a long way toward imparting some value to that pay-token or ticket, he would have asserted a truth but a platitudinous one. Had he asserted that such action of the state will determine the value of that pay-token or ticket, he would have asserted an interesting but false proposition.” [History of Economic Analysis, 1954].  In other words, Chartalism is either obvious and right OR interesting and wrong.

Money as a commodity or out of thin air

Marx argued that money in capitalism has three main functions: as a measure of value, as a means of exchange, and “money as money” which includes debt payments. The function of measure of value follows from Marx’s labour theory of value and this is the main difference with the Chartalists/MMT, who (so far as I can tell) have no theory of value at all and thus no theory of surplus-value.

In effect, for MMT exponents, value is ignored for the primacy of money in social and economic relations.  Take this explanation by one supporter of MMT of its relation to Marx’s value theory: “Money is not a mere “expression” or “representation” of aggregate private value creation. Instead, MMT supposes that money’s fiscal backbone and macro-economic cascade together actualize a shared material horizon of production and distribution…Like Marxism, MMT grounds value in the construction and maintenance of a collective material reality. It accordingly rejects neoclassical utility theory, which roots value in the play of individual preferences. Only, in contrast to Marxism, MMT argues that the production of value is conditioned by money’s abstract fiscal capacity and the hierarchy of mediation it supports. MMT hardly dismisses the pull of physical gravitation on human reality. Rather, it implicitly de-prioritizes gravity’s causality in political and economic processes, showing how the ideal conditions the real via money’s distributed pyramidal structure.”

If you can work through this scholastic jargon, I think you can take this to mean that MMT differs from Marx’s theory of money by saying that money is not tied to any law of value that drags it into place like ‘gravity’ but has the freedom to expand and indeed change value itself.  Money is the primary causal force on value, not vice versa!

In my view, this is nonsense.  It echoes the ideas of French socialist Pierre Proudhon in the 1840s who argued that what was wrong with capitalism was the monetary system itself, not the exploitation of labour and the capitalist mode of production. Here is what Marx had to say about Proudhon’s view in his Chapter on Money in the Grundrisse: “can the existing relations of production and the relations of distribution which correspond to them be revolutionised by a change in the instrument of circulation?” For Marx, “the doctrine that proposes tricks of circulation as a way of , on the one hand, avoiding the violent character of these social changes and on the other, of making these changes appear not to be a presupposition but gradual result of these transformations in circulation” would be a fundamental error and misunderstanding of the reality of capitalism.

In other words, separating money from value and indeed making money the primary force for change in capitalism fails to recognise the reality of social relations under capitalism and production for profit. Without a theory of value, the MMTers enter a fictitious economic world, where the state can issue debt and have it converted into credits on the state account by a central bank at will and with no limit or repercussions in the real world of productive capital, although it is never as simple as it seems.

For Marx, money makes money through the exploitation of labour in the capitalist production process.  The new value created is embodied in commodities for sale; the value realised is represented by an amount of money. Marx started his theory of money as a commodity like gold or silver, whose value could be exchanged with other commodities. So the price or value of gold anchored the monetary value of all commodities. But, if the value or price of gold changed because of a change in the labour time taken for gold production, then so did the value of money as priced in other commodities. A sharp fall in gold’s production time and thus a fall in its value would lead to a sharp rise in the prices of other commodities (Spain’s gold from Latin America in the 16th century) – and vice versa.

The next stage in the nature of money was the use of paper or fiat currencies fixed to the price of gold, the gold exchange standard and then finally to the stage of fiat currencies or ‘credit money’. But, contrary to the view of MMT or the Chartalists, this does not change the role or nature of money in a capitalist economy. Its value is still tied to the SNLT in capitalist accumulation. In other words, commodity money has/contains value while non-commodity money represents/reflects value, and because of this both can measure the value of any other commodities and express it in price-form.

Modern states are clearly crucial to the reproduction of money and the system in which it circulates. But their power over money is quite limited – and as Schumpeter said (and Marx would have said), the limits are clearest in determining the value of money. The mint can print any numbers on its bills and coins, but cannot decide what those numbers refer to. That is determined by countless price-setting decisions by mainly private firms, reacting strategically to the structure of costs and demand they face, in competition with other firms.

This makes the value of state-backed money unstable. Actually, this is acknowledged by the Chartalist theory. According to it, the main mechanism by which the state provides value to fiat money is by imposing tax liabilities on its citizenry and proclaiming that it will accept only a certain thing (whatever that may be) as money to settle those tax liabilities. But Randall Wray, one of most active writers in this tradition, admits that if the tax system breaks down “the value of money would quickly fall toward zero.”  Indeed, when the creditworthiness of the state is seriously questioned, the value of national currencies collapse and demand shifts to real commodities such as gold as a genuine hoard for storing value. The gold price skyrocketed with the start of the current financial crisis in 2007 and another rise of larger scale was propelled in early 2010 when the debt crisis of the southern Euro countries aggravated the situation.

The policy conclusions

I often hear various MMTers saying that “money can be created out of nothing‟. ‘Bank money does not exist as a result of economic activity. Instead, bank money creates economic activity.’ Or this: ‘The money for a bank loan does not exist until we, the customers, apply for credit.’ (Ann Pettifor).  The short reply to this slogan is that “yes, the state can create money, but it cannot set its price”, or value. The price of money will eventually be decided by the movement of capital as fixed by socially necessary labour time.  If a central bank ‘prints’ money or deposits credits with the state accounts, that gives the state the money it needs to launch programmes for jobs, infrastructure etc without taxation or issuing bonds. This is the policy conclusion of the MMT. It is the ‘way out’ of the capitalist crisis caused by a slump in private sector production.

The MMT and Chartalists propose that private sector investment is replaced or added to by government investment ‘paid for’ by the ‘creation of money out of thin air’. But this money will lose its value if it does not bear any relation to value created by the productive sectors of the capitalist economy, which determine the SNLT and still dominate the economy. Instead, the result will be rising prices and/or falling profitability that will eventually choke off production in the private sector. Unless the MMT proponents are then prepared to move to a Marxist policy conclusion: namely the appropriation of the finance sector and the ‘commanding heights’ of the productive sector through public ownership and a plan of production, thus curbing or ending the law of value in the economy, the policy of government spending through unlimited money creation will fail.  As far as I can tell, MMT exponents studiously avoid and ignore such a policy conclusion – perhaps because like Proudhon they misunderstand the reality of capitalism, preferring ‘tricks of circulation’; or perhaps because they actually oppose the abolition of the capitalist mode of production.

Of course, none of this has been tested in real life, as MMT policy has never been implemented (nor for that matter, has Marxist policy in a modern economy).  So we don’t know if inflation would explode from creating money indefinitely to fund investment programmes. MMT people say ‘monetising the deficit’ would be ended once full employment is reached. But that begs the question of whether the private sector in an economy can be subjected to the fine manipulation of central bank and state policy. History has shown that it is not and there is no way governments can control the capitalist production process and prices of production ‟in such a finely managed” way.

Even leading MMT man Bill Mitchell is aware of this risk. As he put it in his blog, “Think about an economy that is returning from a recession and growing strongly. Budget deficits could still be expanding in this situation, which would make them obviously pro-cyclical, but we would still conclude the fiscal strategy was sound because the growth in net public spending was driving growth and the economy towards full employment. Even when non-government spending growth is positive, budget deficits are appropriate if they are supporting the move towards full employment. However, once the economy reached full employment, it would be inappropriate for the government to push nominal aggregate demand more by expanding discretionary spending, as it would risk inflation.” (my emphasis).

It seems that MMT eventually just boils down to offering a theory to justify unrestricted government spending to sustain and/or restore full employment. That’s its task, no other. This is why it attracts support in the left of the labour movement.  But this apparent virtue of MMT hides its much greater vice as an obstacle for real change.  MMT says nothing about why there are convulsions in capitalist accumulation, except that the state can reduce or avoid cycles of boom and slump by a judicious use of government spending within a capitalist-dominated accumulation process. So it has no policy for radical change in the social structure.

The Marxist explanation is the most comprehensive as it integrates money and credit into the capitalist mode of production but also shows that money is not the decisive flaw in the capitalist mode of production and that sorting out finance is not enough.  Thus it can explain why the Keynesian solutions do not work either to sustain economic prosperity.

In future posts. I’ll look more closely at the history of money and monetary theory; and at the international implications of MMT, particularly in the so-called emerging economies.


58 Responses to “Modern monetary theory – part 1: Chartalism and Marx”

  1. Arthur Says:

    It would be a good idea to start from Marx’s “Contribution to the critique of political economy”.

    Then follow links for George Thompson and Alfred Sohn-Rethel from:

    “The power of abstraction embodied in the Platonic theory of Ideas and in Aristotelian logic was an intellectual product of the social relations created by the abstract process of commodity exchange. In saying that the rules of logic are socially determined, we do not impugn their objective truth, but, on the contrary, affirm it; for truth is a social product.”

    The first philsopher was also the first scientist, mathematician and trader in commodity futures or options: (624-526 BCE)

    Contemporary with the emergence of state issued coins in Lydia well after the widespread use of bullion.

  2. Says:

    Dear Michael R, Excellent article about money theorie! Are there not also “marxists” who are monetarists today? Is not the german Michael Heinrich an exemple of this? I hav one little question about what you wrote about productive work some weeks ago. As far as I remember you forgot to say that productive work can be done in for exemple a privat school, a company of lawyers, driven for profit, are productive in Marx’ sense, but without adding anything to the sum of values created. Or have I misunderstood you? Greetings from Oslo Jon langdal

    • michael roberts Says:

      Sorry for my late reply as I have been travelling. Your ‘one little question’ is actually a big one that has involved much debate among Marxists; namely the nature of productive and unproductive labour. Your quick summary in one sentence seems accurate. Capitalist production means the exploitation of labour to produce value and surplus value like a private school etc but as you say not all sectors of the capitalist economy are productive in the sense of creating new value and surplus value for reproduction of capital. Unproductive sectors get surplus value through a redistribution of surplus value from productive sectors. All sectors enter the measurement of the general profitability of capital in an economy.

  3. shorpuria Says:

    To reinforce your brief comments on David Graeber: Anwar Shaikh (Capitalism 2016 ch 5) points to Alison Quiggin’s work on the history of money to argue that it originated in exchange (not through state action).

  4. VK Says:

    Empirical evidence (history and archaeology) overwhelmingly supports the hypothesis that money comes from exchange, not debt. I don’t know how the Chartalists came with this bogus hypothesis.

    • Material historicist Says:

      No, historical empirical evidence does not support this hypothesis. It supports the idea that it does, indeed, come out of debt. Michael Hudson had a whole research team and they published a few books about the history and emergence of money.

    • Clint Ballinger Says:

      I just posted the following on a related issue on FB “A little confusion on how bartering might have been involved by some – the Graeber and Hudson type credit stories are correct, absolutely (I need to include more in the beginning of my work) but there would have been SOME type of super super early barter – just to establish the unit of account of some commodity and its value. People get the time scales completely confused (log scale more appropriate) – the “barter” bit would have been a tiny proportion and literally 10s of thousands of years ago, almost immediately usurped by credit and social relations (30000 year old tally sticks, 10 thousand year-old accounting tokens, which I have held as an archaeologist) . So it is not that there was no barter period at all – that is virtually impossible. It is that the barter period was far far longer ago than most people grasp, because we all learn to think “short term” history-wise, when in fact these processes span time frames far longer than we are taught to imagine. Basically, ALL of the “money origin” stories are true- every single one of them. Anyone who claims one or the other is false has a blinkered view of history and an agenda. And NONE of them “prove” one view of “economies” or another. We have the modern system that we have. But money is incredibly complex, and virtually every origin story and combination of commodity, credit, bills of exchange, banking, tribute, chartal etc that you can think of DID happen somewhere, some time. Time to be honest that every type of “money” has historically existed at some time and place, and quit trying to align money origins with modern views of our modern economy (I am looking at you Austrians, and you, some MMT people). That’s my two cents 😉 I have obviously been thinking about this issue a lot lately, i.e., 1000 CASTAWAYS: Fundamentals of Economics ” Time scales and complexity people! 🙂

  5. Peter Dwyer Says:

    Thanks for this Michael. I had never heard of this until now. It ‘seems’ like a form of Keynesianism or is that too simplistic?

  6. Ted Zuur Says:

    Thanks, but the various bouts of hyperinflation from today’s Venezuela back to the Weimar Republic and beyond certainly cannot be explained by MMT and certainly are in perfect agreement with Marxist money theory.

    • Anthony Krensel Says:

      “It seems that MMT eventually just boils down to offering a theory to justify unrestricted government spending to sustain and/or restore full employment. That’s its task, no other.”

      Michael, while this is a core concept of MMT and the important starting point in the search for the correct economic framework, it is not the end of the matter. It’s just the most loudly shouted aspect because the mainstream discourse does not accept this point. Here you fall into the same trap as many mainstream economists who are seeking to simplify or “boil down” MMT so that they can easily criticise it.

      That is not to say that the rest of your points about money theory are not interesting, they are. But they don’t justify this simplification. I hope your discussion gets more nuanced in the following sections…

  7. Lucian George Says:

    Great read! It would be nice though to have a MMT theorist respond to this so that we can see their counter-arguments and your counter-counter-arguments.

  8. jackrasmus Says:

    It’s good that someone is finally taking on the errors of MMT, which is just a kind of monetary equilibrium theory with all the limits of equilibrium theory (ideology). MMT overemphasizes the determinative role of money in capitalist cycles, however. Classical economics (SMithi et. al.) had no way of estimating money demand and money velocity so it overemphasized money supply. That has always been a limitation of bourgeois monetary theory, of which MMT is a variant, despite its declaration to the contrary.

    Roberts and MMT are wrong, however. First, excess money (by the way, how is money being defined? Seems neither spends much time defining the term) DOES CREATE INFLATION! But in 21st century capitalism, the excess liquidity (not just money, which includes digital forms of money that should be included in analysis) has been diverting toward financial asset markets and away from real asset investment. Slowing real investment has resulted in slowing prices for both producer and consumer goods (durables, nondurables, services,e tc.). So the apparent phenomenon is accelerating money and liquidity producing slowing (and at times deflating) real prices for goods and services. That blows up bourgois economic theory that says excess money creates inflation. They mean goods and services inflation, not financial asset inflation. What we see is financial asset price bubbles being created from the excess money-liquidity injections (mostly due to central banks subsidizing capital with low rates). SO TO CONCLUDE: excess money does create inflation–it just does so in financial asset markets, not real goods markets. Thus we get financial asset bubbles, and slow and deflating real goods prices. So, Friedman and his ideologist buddies are right, and wrong at the same time. Money creates inflation, but because of the financialization of the global economy under Neoliberalism, the inflation shows up in financial assets (which are more profitable than goods production). The diversion of money from real investment results in the slowing of goods inflation (and concomitant slowing of productivity in goods markets as well in turn). Slowing productivity results in capitalists pushing down wages when possible as well.

    TO say that inflation depends ultimately on ‘socially necessary labor’, as Roberts does, is wrong. SNL is about exploitation, not inflation. Moreover, SNL is dependent on inflation itself. It’s in part a consequence of inflation. So to say SNL determines inflation, when inflation determines in part SNL, is a logical contradiction. SNL and inflation are therefore mutually indeterminant (i.e. can’t isolate how much the one determines the other because they both determine each other).

    MMT is, I believe, another variant of ideology in bourgeois monetary theory. However, to try to fit SNL into the critique of it is wrong as well.

    Jack Rasmus

    • michael roberts Says:

      Jack -interesting points. I agree with your first two paras on the whole. I’ll come back on your other points when I manage to do further posts on MMT soon.

    • vk Says:

      “Roberts and MMT are wrong, however. First, excess money (by the way, how is money being defined? Seems neither spends much time defining the term) DOES CREATE INFLATION!”

      Well, “excess” money, by definition, is inflation. So, best case scenario, you have a tautology.

      Besides, if it is “excess”, it is so according to one’s point of view: inflation can grow less than expected if production grows even more. Bad news for the financial elites (and the upper middle class who has some money on the bank), but good news for the working class. There’s no “natural” rate of inflation; only inflation and deflation (and zero).

      “But in 21st century capitalism, the excess liquidity (not just money, which includes digital forms of money that should be included in analysis) has been diverting toward financial asset markets and away from real asset investment.”

      Like I said, there’s no “natural rate of inflation”. Capitalism has many devices for absorbing money (or not). There are a lot of variables in play.

      “Slowing real investment has resulted in slowing prices for both producer and consumer goods (durables, nondurables, services,etc.).”

      This is true only in the First World countries, but, if you take the capitalist society as a whole (i.e. including the First and the Third Worlds), then reality is more complicated: Macri’s Argentina, for example, closed 2018 with a 47% inflation. In Brazil, after a devastating supression in consumption that made austerity in Europe look like the New Deal, it closed 2018 with a “low” inflation of circa 3.5% — that rate would be very high for, e.g., British standards.

      • pigswiggle Says:

        Also, money, “excess” or not, does not cause inflation. It is the excess spending of money that may cause inflation, and it doesn’t matter who is doing the spending (government or private sector). But the mere existence of money, saved in a bank account, and excessive or not, does not create any inflationary pressure at all (although saved money does represent an inflation potential).

        And of course “excess” here means sufficient spending over a sufficient enough period of time to create a relative scarcity in goods/services for sale. Generally, when spending picks up, businesses will respond to that demand by increasing output first. Only when productive capacity is already maximized will we see prices rise from additional spending.

        But it’s worth noting that hyperinflation, in particular, usually results from output collapses (external debts in foreign currencies (Weimar), political strife/external economic warfare (Venezuela), reforms gone awry (Zimbabwe)), not from increases in aggregate spending. Even the inflation of the 1970s in the West was not due to any increase in aggregate spending, but to a supply shortage (oil). None of the best known examples of inflation are due to aggregate spending increases.

    • Braiden Says:

      Dr. Rasmus,

      Could you discuss your opinions in relation to MMT/Marxist money theory on an episode of your podcast? I think the relation of MMT/Marx is one of the most important issues today but I often get bogged down in the jargon. I am a student studying political economy and your podcast has elucidated many topics to me before. An episode on this topic would be greatly appreciated.

      • jackrasmus Says:

        That’s a good suggestion and I have intended to do so at some point. MMT is mostly ideology. What I mean is that it uses ideological terms and concepts to attempt a critique at mainstream economics which is itself become quite ideological. (I use ideology here in the sense of false understanding of reality, as well as the manipulation of concepts that obfuscate real economic conditions and relations. As an example, it’s like John Hicks employing neoclassical economic conceptual framework in order to critique and distort the views of Keynes. From Hicks came the neoclassical synthesis in economics (by way of Samuelson, Friedman and others) which is a hybrid of pre-Keynes and Keynes. By the way, many on this blog, including Roberts, fail to understand the difference between Keynes and contemporary Keynesian. What we have is Hybrid Keynes since 1940. That doesn’t mean Keynes himself was correct in every observation. But he was a strong critique of bourgeois monetary theory. MMT is a late form of bourgeois monetary economics ideology in many of its analyses. Money is poorly understood in economics, and that includes Marxist economics. To understand where MMT fits in the evolution of economic thought it is necessary to understand how economic ideology works, and how that works in relation to the concept of money. Conceptual frameworks are important. That is, what concepts are employed to explain economic reality. Classical economics had a conceptual framework. Marx operated largely within that framework, although he tried to break from it (but failed I believe). Neoclassical economics created a framework. Keynes attacked that framework, tried to break from it, but failed as well. Neoclassical economics eventually prevailed, integrating what it found useful in Keynes and rejecting the rest. That’s how we get ‘Keynesianism’ today. MMT tries to break from the Keynesian conceptual framework but fails as well. It is a variant of neoclassical economics in my opinion–attempting to critique and replace mainstream economics while remaining within the framework of mainstream (aka bourgeois) economic analysis. MMT has elements of critique but also elements of ideology. That’s why it appears to be critical and ‘revolutionary’ but is actually not. I remain skeptical of trying to explain capitalism from a foundation of money conceptually. Money is not a universal value. Nor is it the primary determinant of capitalist cycles or its longer term evolution.

        Maybe Roberts will post this. He thus far has not shared with others my previous commentary on MMT.

      • michael roberts Says:

        Jack – what do you mean? Your previous comment was approved on the day and I even replied briefly. So I think all readers can see your comments. Your suggestion that I censor your comments is somewhat disconcerting, considering that I have always taken your work seriously.

      • jackrasmus Says:

        I used the wrong word. Did not mean you did not post. Meant that the distribution via email of the comments (of which there have been now more than two dozen) did not include my comments. You are correct, you have never censored anything. I didn’t mean to imply that. My correction. Jack

  9. André Says:

    “In other words, Chartalism is either obvious and right OR interesting and wrong.”
    Interesting. But what kind of data or evidence made Joseph Schumpeter claim that sort of thing?

    “Locke insisted that one can no more make a small piece of silver more by relabeling it a ‘shilling’ than one can make a short man taller by declaring there are now fifteen inches in a foot.”
    Well, if you are a government authority with monopoly over violence, and with the declared intention of arresting or killing the ones who do not pay some quantity of “shillings” – whatever a “shilling” may be – than you can make a small piece of silver be more valuable. I mean, “give me 100 shillings a year or I will kill you” is able to give value to 100 shillings, isn’t it? I just need to name things that I want for those 100 shillings. Could be a candy bar or car, you would give it to me (or get killed). I would be able to set the value of 100 shillings.

  10. Noa Says:

    The last two essays of the soviet book “Problems of Theoretical Economy” (1925, 502. pp, edited by Dvolajski Sh., Chlenov S.) criticised this theory (I give a translated table of contents):

    p. 11: V. Poznyakov. The problem of value and profit in the teachings of Adam Smith
    p. 81: L. Evenov. The problem of value in the Austrian school
    p. 145: B. Borilin. The political economy of liberal socialism of Franz Oppenheimer
    p. 201: S. Rosenberg. The distribution theory in Tugan-Baranovsky and Struve
    p. 257: A. Ugarov. The state theory of money in the development of Knapp and attempts at its economic justification (Bendixen, K. Elster)
    p. 331: A. Leontiev. The State Theory of Money

    However, the volume with Marxist articles on the theory of money in preparation (ed. Daniel Gaido and myself – please google Furious Gold on libcom for additional materials already put online) doesn’t contain these essays (only one article touches on Knapp). Just to say that there did exist soviet Marxist criticism of the state theory of money.

  11. Jo Morton Says:

    Marx rejects the theory that inflation is dependent on the decisions of central banks to pump in credit money.
    If the government puts money into the hands of house buyers – “help to buy” – the price of houses will go up

  12. Clint Ballinger Says:

    Michael, you write “I often hear various MMTers saying…”

    But then you quote two people who are not “MMTers” (!!)
    some ‘Mike King’ and Ann Pettifor. This certainly casts doubt on the rest of your economic knowledge concerning MMT and related issues.

    You confirm this doubt by failing to accurately describe how currencies work and failing to understand how Wray, Mosler, Mitchell, Fullwiler etc. describe how the existing system functions and why it is not being used in an optimal way (and yes, MMT has been tried, as we are all under “MMT” at this very moment, as it is simply an accurate description of how modern economies – any modern economy – works. No more, no less.

    It seems you are headed for an argument regarding who has rights to any surplus (workers v “owners,” CCC, Pasinetti etc). You would probably find many “MMTers” would agree with some or all of it. However, you owe it to your readers to describe MMT more accurately if you are going to write about it for them.

    1000 CASTAWAYS: Fundamentals of Economics

    • michael roberts Says:

      Yes I shall try and deal with the issues your raise when I return from a trip.

    • Calgacus Says:

      Indeed, Clint. One has to actually read a theory and spend time on it to criticize it well. Glad to see debate on it here. But people should work on it a bit more and not assume that MMT ( or Marx, who MMTers count as one of their forerunners and inspirations) is wrong, or that they understand a theory – when they don’t. I don’t think that any critic here could pass a test on what the theory actually says and means. I mean just parroting “the prof” & “the book” – but accurately.

      An example of an amusingly off-the-mark critique of MMT above:

      by the way, how is money being defined? Seems neither [Roberts or MMT] spends much time defining the term

      MMT academics spend half their time writing papers and books and holding conferences on and blogging about the definition of money. Thousands of pages – I’m not kidding. Most MMT fans are sick of it, I think. But any serious student of MMT is struck by the time and care they spend on defining money and getting people to grasp it.

      Since I am a mathematician, and know that the whole trick to any mathematical type of theory is really, really, really, really, (did I say really?) making and understanding the definitions – C’est une chose si difficile, si delicat – pardon my French – to quote an all-time Great Mathematician who wrote thousands of pages, mainly of definitions, on the topic of making definitions.

      Let me remind you that it is ALL in the definitions. Really. So I am pretty much the only one that wants the MMT academics to spend even more time on meditating on them. (To link it up to the work of that Great Mathematician). Did you know that it is all in the definitions, by the way?

      So that criticism, from a well meaning person whose work I generally admire, much of whose comment is actually agreeing with MMT work – is like going to the Pacific Ocean and asking – where is the water?

      • VK Says:

        It doesn’t matter how much sophisticated MMT is or says it is: empirical evidence points to the objective fact money comes from exchange, not the necessity of the State (which is a capitalist superstructure) to collect taxes.

        A “State” can charge and collect taxes regardless of the existence of money (e.g. Japanese feudalism, where tax was charged by rice, but there was also money); or if the money is on the metal or fiat (e.g. gold standard or not).

      • André Says:

        VK, I would claim the opposite.

        Empirical evidence points to the objective fact money comes from the necessity of the State to collect taxes, not from private exchange. The fact that a State can also tax in goods does not change my claim.

        Where does my claim come from? You should read the works of serious anthologists, historians and economists. Unfortunately, many (but not all) economists today are pseudo-scients that live in an ivory tower and believe that just by writing something in a book it instantly is a fact. They usually are not driven by data of facts, but by ideology.

        I recommend to you the “What is Money?” article by Alfred Mitchell Innes. Also, if you are interested in the origin of the supposed first coin, you should read “The Origin of Electrum Coinage” by Robert W. Wallace.

  13. Clint Ballinger Says:

    PS You write “If a central bank ‘prints’ money or deposits credits with the state accounts, that gives the state the money it needs to launch programmes for jobs, infrastructure etc without taxation or issuing bonds. This is the policy conclusion of the [sic] MMT.”

    This could not be more wrong – “Taxes Drive Currency” is one of THE most fundamental statements underpinning “MMT”.

    You are confusing the fact that “bonds” are indeed useless and vestigial for currency-issuers with the fact that taxes are fundamental to how modern currency issuers run their currency/economy and MMTs description of this process.

    Taxes are central to MMT (!)

    • michael roberts Says:

      Clint – thanks very much for your insightful comments. I am travelling right now but when I get back I shall try and deal with your points and those others on these issues. And I shall return to MMT more closely in some future posts.

    • vk Says:

      Tax is only important to MMT as the origin of money. As the machine “gains life on its own”, it simply disappears from the picture. That’s the big hole on the MMT.

  14. Wally Mooney Says:

    Hi Michael,
    I’m a Marxist political activist based in Ireland and I’ve been studying MMT for the past few years. I believe MMT does provide the correct description of the monetary system as it exists now. And that a correct understanding of the capitalist monetary system exposes the inherent illogic of the capitalist mode of production and starkly poses the question of a post capitalist planned economy as the alternative. In this way I firmly believe that MMT largely complements Marxist theory.

    On the surface, MMT appears to offer a solution to the crisis of capitalism based on counter cyclical state intervention. On a deeper level however I believe MMT’s understanding of the monetary system lays the basis for the elimination of capitalism and the transformation to a planned economy as does our own Marxist theory of course but from a different perspective.

    The bulk of MMT is just the correct operational description of the monetary system which is radically different to to the illusions we hear in the mainstream economic narrative. Social democrats and liberals will draw reformist conclusion from the reality that MMT describes in their efforts to preserve the capitalist model. This doesn’t invalidate MMT’s analysis of money which I believe is objectively correct. We as Marxists can in sharp contrast draw our own revolutionary conclusions to assist us in moving to the next higher stage of societal development beyond capitalism. MMT’s description of the nature of money helps to reveal that capitalism has laid the basis for its own destruction making possible and absolutely necessary the urgent transition to a planned economy. In that planned economy money will be simply a unit of measure of economic activity which the working class uses to democratically plan production and manage resources to provide for human need.

    From Marx we know that capital owns the means of production (e.g. factories, power plants), distribution (e.g. ports, trucks) and exchange (e.g. banks, stock markets) and the working class owning little or none of these is required to sell its labour to capital.
    This enables capital to lay claim to the surplus produced by the labour of the working class as the workers always receive less in wages than the value of goods & services that they have produced. The difference is the capitalists’ profit. That profit is realized in monetary form and the money represents a claim on the surplus produced by the entire global labour class. So the capitalists accumulate monetary claims on the surplus resources and their money allows them to take ownership of those resources as and when they require them in order to generate yet more profit in a continuous cycle.

    MMT explains that under our present fiat currency system this money which the capitalists seek to accumulate originates in the nation state. The currency is brought into existence by the simple act of governments (central banks) pressing computer keys (or licensing the commercial banks to do so when thy issue loans). So it’s a colossal absurdity to allow this relentless pursuit of computer digits to destroy the habitable planet on which we all depend.

    A shortage of money is never a problem at a macro level. The UK government for example issues its own currency. This means that when it spends, the government records numbers into assorted bank accounts stored electronically on computers and those numbers represent sterling money. The UK government cannot run out of numbers. The actual limitation is the availability of real resources such as skilled labour, energy, land, raw material and the environment. Sovereign governments spend their own currency into existence at will and then tax it back out of circulation. Government spending creates the money and taxation destroys it in a continuous flow. At a macro level the money is simply an accounting tool for measuring and allocating real resources. If a real resource exists (e.g labour) and is for sale in a particular currency then the currency issuer can always afford to buy that resource.

    In contrast to the instant availability of money, the real wealth of goods and services that we all depend on is created by the labour and skill of the working class applied to the raw material of the planet. Everything from the food in our bellies to the clothes on our backs right up to the most sophisticated technology is made by the workers. Money is a claim on those material resources produced by the working class and this is where money derives its power. The capitalist system peddles the illusion that there is a shortage of money (balance the books, reduce the deficit, live within your means etc.) in order to oppress and control the labour class who are the real creators of wealth.

    Money can be seen as the scoreboard of capitalism. The big capitalist class have just accumulated a large money score in their bank accounts. But ultimately in a sovereign floating currency issuing state like Britain, the government is the scorekeeper. It can change the scoreboard at any time to give itself or anyone else access to the real resources that society has produced collectively. This knowledge is toxic to the capitalist class whose power and privilege rests on having a lot of accumulated keystrokes while the majority have little.
    In contrast to the parasitic capitalist class, the productive working class has produced more than enough real resources to provide everyone on the planet with proper nutrition, a decent home, healthcare, education, recreation and a job. It’s a political and ideological choice to deny people these basics.

    So following the logic, society as a whole has no requirement for and can no longer sustain a system of productive activity with the sole purpose of accumulating money. The money that the capitalists seek to accumulate is instantly available at a government/central bank level and is merely a unit of measure to allocate the real resources that society has produced collectively. So society already has the all of the necessary components for a rationally planned economy while the capitalists still insist on pursuing these money numbers to the point of destruction of our species and much of life on the planet. Instead of this suicidal socioeconomic madness we urgently need a radically different model which democratically plans its use of resources and production in order to meet human and environmental & ecological requirements. This is the sustainable future for humanity and it’s called socialism. Or we can continue down the current path towards escalating barbarism and destruction of the global environment.

    Our dialectic materialist method looks at things in their connections as well as how they change. Marx of course analyzed the connection between Capital, Labour and money in his Labour theory of value.
    What MMT has done is to analyze the connection between money and the state. Money has no intrinsic value. It’s just computer entries and pieces of paper. Money exists and is accepted because the state names a unit of account (currency) and then imposes, by force if necessary, a tax liability payable only in that currency.

    Capitalism is at its core simply the pursuit of this money through exploitation of labour, the environment and everything else it can. So the money itself which is the cornerstone of capitalism is a product and an instrument of the state. Therefore capitalism depends utterly on the authority of the state for its existence both to establish the monetary system and to enforce the capitalists’ property rights which are denominated in the state’s unit of account.

    There can be no capitalist system without the state first establishing the monetary system. The surplus value is misappropriated by the capitalists primarily in the form of money. And the money is a claim on the real wealth produced by the working class through its labour and also on the labour itself. The money allows the capitalist to lay claim to labour, goods and services as and when he needs them. But he doesn’t need to permanently own and so bear the cost of maintaining the labour force as was the case in slave society. Nor does he need to hold all of his wealth in real assets like land, houses etc. as the aristocracy of old did. The modern capitalist buys what he wants and needs at his own convenience with his accumulated money.

    Before capitalism developed the productive forces the state money was limited by the availability of real goods and services. The king cannot buy what does not exist. But now the productive forces are at such a peak that there is an abundance of real wealth. And the money is a claim on all of this real wealth.

    The point of analyzing and understanding human society is to change is as Marx explained. I think MMT gives us an insight into a great Achilles heel of capitalism and so the potential to undermine its entire foundation. The capitalists have just managed to collect a lot of keystrokes on the scoreboard of capitalism. And that scoreboard can be changed at will by those in charge of the scoreboard. The money is created at will by those entities that issue the currency. So a central bank under the democratic control of the working class will never face a shortage of its own money. The actual limitation is the availability of real resources. And the money can simply be an accounting tool, a unit of measure to allocate and manage those resources under a democratically planned economy to provide for the wellbeing of all of humanity.

    It looks like you’ve opened up a bit of wasp’s nest with your initial post on MMT above 🙂 and I understand that you’re under time pressure with travel so appreciate your feedback whenever you get a chance to respond.


    • mandm Says:

      Excellent. Except the “limitation” regarding the “availability of real resources” to which you refer above in the second to last sentence seems to be one imposed by the still existing private ownership of those “real [global] resources” (nature and the means of production). Even dialectical materialism must give way here to the dialectics of historical materialism. Robert is clear about that and that a capitalist the state prints bourgeois money. Socialist money is something else.

      • mandm Says:

        correction: I meant “second to last paragraph”

      • Wally Mooney Says:

        Certainly the means of production, distribution and exchange will need to be taken from the hands of the bourgeois and placed under the democratic ownership and control of the global working class. MMT’s analysis of the capitalist economy and monetary system doesn’t change this absolute necessity for a socialist planned economy.

        But understanding the nature of money provides some clues as to how this transformation to a socialist system might be achieved with the minimum of violence. In a socialist revolution the working class will be appropriating the capitalist’s factories, banks etc. but in the event that a working class party comes to hold state power it would be entirely possible (even trivial) to partially compensate the capitalists in monetary terms for these resources if the working class chooses to do so in order to avoid bloodshed:

        “In essence, Trotsky is repeating the same method that Marx and Engels applied when they said that, under certain conditions, the proletariat might consider offering to “buy out” the capitalists, on condition that they handed over the factories peacefully, without resistance”

        The proletariat might present the bourgeois with a stark choice. You can choose to fight us but you may die in the struggle and if you lose we will take everything. Or relinquish your claims on the real resources of production, distribution and exchange and you will be allowed enough money to live out your life in relative comfort and peace. Once the working class controls the material resources and the source of the monetary claims (the central bank) on those resources then the workers hold all of the components for the planned economy in their hands. The bourgeois can then wither away into irrelevance like we see now in the vestigial remains of the aristocracy.

        Of course the capitalist class may make the peaceful transfer of class power impossible. If however the ruling class initiates violence in an attempt to maintain the murderous status quo then the working class is fully justified in defending itself as it replaces the current barbaric model with a more civilized one. If innocent people are harmed in the necessary transformation of society it will be entirely the fault of that degenerate capitalist class as it clings to power.

        I would also argue that MMT’s proposed universal Job Guarantee (JG) would assist in the transformation to a democratic socialist system.
        At one level a JG is a means to resolve the periodic unemployment and underemployment crises in capitalist economies and to stop the race to the bottom in wages and conditions. A JG program hires all available involuntarily unemployed workers to perform socially useful labour at a defined living wage plus benefits which creates an effective wage floor for labour. Capital owners must pay more than JG rates and/or offer better benefits etc. to convince people to work for them. This makes it very difficult for capital to enforce increasing exploitation of labour.

        There are a huge number of socially useful jobs that could be done but are not undertaken under the present economic model because no profit can be extracted from the activity. From environmental projects to sport, music, culture, art, wellbeing etc. initiatives in the community. The possibilities are boundless when the profit motive is removed from the equation. The JG would be funded centrally by the government/currency issuer (which faces no purely financial constraint) but would be managed democratically at a local level. Each locality and the JG workers themselves can decide how best to use the available labour to benefit their communities.

        On another deeper level the JG is a mechanism to shift the balance of power from capital to labour. During the gold standard, nations tied their currency to gold when they promised a fixed rate conversion ($32/ounce) from the currency to gold. Promising conversion of the currency to any commodity (silver, steel, coal etc) at a fixed rate ensures full utilization of that commodity. There is no spare capacity for the commodity which is always in full demand. Therefore gold became the primary commodity dominant above all others and consequently power flowed to the owners of gold.

        When a currency issuer offers a JG it is effectively pegging its currency to labour where labour can be converted to the currency at a fixed rate e.g. $20 per hour of labor. Labour then becomes the dominant commodity above all others. For Marxists this is entirely logical as we understand that only labour is capable of producing new surplus value above any existing value. Therefore it makes sense that unit of measure of economic value (money) would be linked to the source of that economic value (labour).

        So under a JG any worker can sell their labour power to society under the JG in order to obtain the currency and so accumulate claims on all other commodities. Therefore labour is fully utilized and there is never any spare capacity. Involuntary unemployment is eliminated. Capital owners of course do not have labour to sell. They want to buy labour which has now become a scare and expensive commodity under the JG. So under a JG labour becomes the dominant commodity and power transfers to the working class as they are the owners of labour power.

        Therefore I believe that buried within the Job Guarantee itself may be a seed of capitalism’s destruction. The JG proposes that the central state as the currency issuer finances local communities, clubs, co-ops etc. to employ all available labour to democratically manage themselves to perform socially necessary work but not for profit. What is this but the birth of the planned economy? How long under a system of full employment before the working class comes to understand that it doesn’t have to sell its labour to capital and be exploited to allow profit to accumulate to the bosses? So in this way the JG poses the question of a post capitalist democratically planned economy.

    • vk Says:

      But the State is not an alien entity that came from outer space. It is a superstructure, an amalgam of class struggle.

      That’s why the State can never be the “scorekeeper”. It is never neutral. It is never random in nature. That’s the fatal mistake of MMT.

      • Wally Mooney Says:

        MMT is not claiming to offer a holistic analysis of human society as Marxism does. But their description of the capitalist monetary system is correct and we as Marxists should comprehend this material reality and draw our own conclusions with the objective of dismantling the capitalist system. The greater our understanding of the functions of capitalism, the better placed we are to defeat it.
        It’s a rigged scoreboard of course but the state is the monetary scorekeeper regardless of its neutrality. Marxists understand that the state itself emerged as a means to protect the privilege and property rights of the ruling class and to pass them on to the next generation. And under the current capitalist system, the state serves the interests of the dominant capitalist class whose gains are invariably made at the expense of the majority working class. This is why for example the capitalist states have effectively privatized much of the money creation function to the commercial bank and allow them to charge financial rent (interest) on the money which they keystroke into existence from nothing and thus profit gouge the labour class. This is most evident in the myriad speculative housing babbles fueled by commercial bank credit.

        And expanding the metaphor. If we see money as the count/scoreboard of capitalism then it becomes easier to understand the trend towards finance capital over the past 5 decades. Traditional productive capital accumulates money through the exploitation of labour but creates necessary goods & services as a side effect of its quest for profit. Finance capital in contrast seeks to accumulate money without undertaking any useful activity. It just speculates on and manipulates the money scoreboard to accumulate profit for itself. Banks, stock market and currency speculation, hedge funds, derivatives etc. produce nothing of real value and are entirely parasitic on the productive working class. They just reallocate a greater portion of the money units to themselves by assorted and increasingly complex financial trickery and fraud.

        It doesn’t have to be like this. A working class which achieves state power has assumed control of the origin of the money which the capitalists seek to accumulate. This is one key conclusion Marxists should draw from MMT as ownership of the money supply is a powerful lever to help undermine the bourgeois. It’s not the only lever we need of course as outlined above.

        And on the flip side a, worker’s state whose money supply is in the hands of their class enemies faces almost certain defeat. This has important implications in the struggle for socialism in the Eurozone nations for example where it was a trivial matter for the E.U/ECB to crush the leftist Syriza government in Greece having control of their currency via the Euro. My own country Ireland will face the same economic sabotage if it attempts to throw off the shackles of E.U imposed neoliberalism. So a key part of any socialist program must be withdrawal from the Euro. MMT have given us a powerful insight into the inner workings of capitalism and we should utilize this knowledge in the fight for socialism.

      • VK Says:

        “Traditional productive capital accumulates money through the exploitation of labour but creates necessary goods & services as a side effect of its quest for profit.”

        That’s simply not historically true: during the Gold Standard era, supply of goods (production) limited itself to the availability of gold: when gold production dried up, production stopped “on purpose” so as to accompany monetary expansion.

        That’s what, for example, probably triggered the French Revolution on the working class side (prices of bread were through the roof for the simple reason there wasn’t enough bread).

        Malthus’ theory is all about the problems of the Gold Standard (albeit he sees it the wrong way: as a problem of humanity daring to reproduce as opposed to reproduce only insofar as the production of gold — which he cinically substitutes to a bogus technology limitation on agiculture).

        The Gold Standard gave the illusion of reflecting the supply for the simple reason the game was rigged right on the production stage of capitalist reproduction: it was a deflationary, instead of modern inflationary, system. You can’t print more gold, so you simply cut production of goods.

        The only way out of the deflationary trap of the Gold Standard was to produce more gold. And, indeed, that’s what happened at least three times during the Contemporary Era: with the discovery of gold in Australia, South Africa and California.

      • Wally Mooney Says:

        The other way out of the gold standard is to simply drop it and the false self imposed economic constraint it imposes.
        You wrote that “during the Gold Standard era, supply of goods (production) limited itself to the availability of gold: when gold production dried up, production stopped “on purpose” so as to accompany monetary expansion.”
        That was simply not the case for the most recent gold standard. The Bretton Woods agreement towards the end of WWII made the dollar convertible to gold at the rate of $32/ ounce and all the other major currencies were pegged to the dollar at fixed rates. But this Bretton Woods gold standard was effectively an illusion and it disintegrated as soon it was seriously tested in the early 70s. The money supply must grow in order to support a growing economy. And the global economies developed massively in the post WWII boom. The building of U.S highways and power stations or the NHS and social housing in Britain was not and could not logically be limited by the quantities of gold that could be mined from the ground. The actual constraint on economic growth then as it is now is the availability of real resources such as labour, energy, raw materials etc.
        Therefore the money supply quickly expanded far beyond the limits of gold reserves to allow convertibility at the designated rate of $32/ ounce. So when the German and French governments asked for their large dollar reserves to be converted to gold, the U.S. was unable to provide it and the gold standard was simply dropped at that point. Economic activity has continued to the present day and has not been limited by the available global reserves of an arbitrary soft metal.

    • Roberto Says:

      I would like to extend a little Walley Money comment with my own perceptions.

      MMT say that money value come from the need to pay taxes. Taxes have to be pay to avoid the punishment of the state who have the ‘monopoly of violence’. It seems to me that one corollary of this is that the economic order is based in relationships of power and not in some imaginary free agents exchanging in free markets. Marxist should be interested in this “tearing of the veil”.

      An essential claim of MMT is that the quantity of possible money is only limited by inflation, and that inflation is only limited by the available real resources: labour and land, raw materials… It seems to me that point directly to the Marxist idea of where value comes from.

      MMT has not, I think, an good explanation of what moves the business cycle (and this is the only fault that I have found in the theory). But if we add the main idea of this blog, we can try to predict what would happen if MMT recipes were followed. In the low part of the cycle, the government will invest in the economy, that would mean the economy not falling into recession, so people will not suffer the consequences of less investment. Without people suffering those consequences, it would not be possible to increase the exploitation of the workforce and increase profits. So, private investment never would recover (1). The only way forward from there would be make things more difficult to the population (so more exploitation and profits are possible) or pursuit a new way of organizing the economy not based in private profit. I think this should interest also Marxists.

      (1) – Maybe this is what is going on in Japan?

      • Wally Mooney Says:

        Thanks for your insightful perspective Robert. Fully agree with your first 2 paragraphs and you have touched on another key point there in the last paragraph. MMT advocates often claim that their analysis is apolitical but this fails to comprehend that economics is always political. Many of the MMT school don’t appear to understand (or at least don’t admit) that the very existence of MMT as a body of knowledge directly opposes ruling capitalist class interests.

        MMT explains correctly that the state as the currency issuer can always intervene counter cyclically to modulate the boom bust capitalist economic cycle. That’s what MMT’s universal Job Guarantee is designed to do. Act as an automatic counter stabilizer to moderate the periodic and inevitable recessions of capitalism.

        But if the capitalist state takes this overt and active role in managing the economy then it is effectively implementing the first rudimentary planned economy which operates at least partially in the interests of the majority labour class. This would then quickly pose the question of a fully and rationally planned economy functioning on the basis of need rather than for profit accumulation. More people would begin to ask why do we need these capitalist entities exploiting labour and destroying the planet solely to accumulate money when the state is the origin of that money?

        I think it’s beyond doubt that many of the capitalist class strategists know that MMT’s analysis and description of their economic model is correct. But to acknowledge this would be to admit the bourgeois emperor is naked and lay the basis for their own demise as a ruling class.

        And for the same reason of course they must deny the essential validity of Marxism.

      • Wally Mooney Says:

        Sorry. That should have been Roberto..

  15. Egmont Kakarot-Handtke Says:

    Part 3

    #1 Profit for Marxists

    #2 Capitalism, poverty, exploitation, and cross-over exploitation

    #3 If we only had classes

    #4 Wikimedia, Idealized transaction pattern

    #5 Stephanie Kelton on how to become fabulously wealthy

  16. Borzooieh tabib Says:

    MMT claims
    1:money originated by some kind of authority (state) asking for tax or fees and etc to be paid by that kind of money
    Bitcoin is not backed by any authority but functions as money
    During Second World War currency of Britain was valuable in Germany but there was no applicable power of Britain inside Germany and in Venezuela nobody asks taxes in American dollars and dollars are still money in that country
    MMT. Claims that Money is a worthless paper
    But even worthless paper needs to be printed and , states spends some money to print every one of those papers. what is the origin and foundation of value of this money that is being spent to print money?the state is not paying tax to state!
    MMT claims that state can print money and give it to privet sector to produce commodities and because the more money is available the more commodities are being produced so there will no excessive money chasing commodities so inflation can be avoided
    What if privet sector did not use printed money to produce commodities, and used it to buy back the corporations own shares in market ? In that case the excess money chasing nothing except shares of factious capital , and producing no jobs , unless the government itself invests the money , in that case welcome to Soviet Union, job grantee is established and you can print money to pay for workers then the society blows up
    MMT. Wants US to print money, UK to print money, but the question is :will Chinese sell the cellphones to get dollars or pounds?

    • Roberto Says:

      Dear Borzooieh tabib:

      You have to be really an optimist for saying that “Bitcoin [..] function as money”. In a generous day we could say that Bitcoin is an asset, in a less generous day we could say that is a pyramidal scheme (even though from the technological point of view is really interesting). Bitcoin, and all the decentralize currencies, are actually a good experimental confirmation of the MMT theories about money.

      You say “During Second World War currency of Britain was valuable in Germany [..]”, a dollar is valuable for me even if I don’t plan to go to the USA. The reason is that there are USA citizens that need dollars to pay their taxes and are ready to accept it in exchange of something.

      MMT doesn’t claim that the state can produce money without limit and don’t produce inflation, quite the opposite, it claims that it can produce money and the only limit is inflation. This is not a theoretical question, but a description of how the system work.

      • Borzooieh Says:

        ,,Bitcoin is a scheme,,
        What scheme means? To present something without value as a valuable thing . Based on MMT every currency is a scheme
        ,,Bitcoin is an asset,,
        Every currency is kind of means of hoarding value , you can use bitcoin to trade , you can use bitcoin to measure relative value of goods and services , so it has all the functions of any other currency
        It might gain or loss its value boy it might happen to all other currencies
        ,Dollar is valuable in Cuba because some people consider it valuable,,
        It is my point . The so called value of currency doesn’t come from some government threatening us to jail but from consensus of large number of people to use it as means of measuring value . , hoarder img of value and means of trading goods and services
        So as one of comrades pointed out , money is a claim on goods and services , but it is a socially determined claim, which means a large number of people must consider this ,as a valid claim.
        Off curse in class based hostile society , this social clime must be backed by universal force, government ,to be sustainable.
        Of course MMT recognizes inflation as a limit for printing money
        But if you leave the newly printed money in hands of capitalists they will buy back the shares of their own corporation(see tax cuts in us) and will not produce new goods and services to overcome the inflation, unless it is Soviet Union that government acts as a productive force of goods and services
        My point: to change the order of things in society we need to change the social relationship that money represents and convincing that government official or this central bank or AOC running in the hallways of congress ,that MMT is the right interpretation

  17. Alex Says:

    I don’t see why MMT and Marx’ labour theory of value can’t be combined. From my perspective (I’m quite libertarian in the European sense of the word) the problem with MMT is a naive trust in the state (almost a recreation of what Marx called “Asiatic despotism”). But I have the same problem with lots of Marxists. Even worse, lots of Marxists think MMT is not enough state.

    “In M-C-P-C’-M’, M can exchange with C because M represents C and M’ represents C’”
    This is a bit misleading.
    Imagine M is a commodity money like gold. What does it mean to say that gold represents real capital? Gold and real capital will exchange based on the social necessary labour time needed to produce them, but they represent nothing, they incorporate labour.

    It is paper (or electronic) money (fiat money) which only represents labour value, because the labour which goes into producing paper or electronic money is miniscule.
    MMT now claims how much labour value a fiat money unit represents can be controlled by the state through sheer force. If you don’t pay your tax, there will be punishment. If your tax burden is x money units and the state declares that x money units = y labour hours, it decides how much labour time each money unit represents. In commodity money the connection to labour value is causal, that’s why you don’t need trust to accept commodity money. Fiat money on the other hand presupposes a functioning state with the power to tax a workforce (a weak state or a state reigning over disabled people won’t work). If a state can tax and its tax base can produce surplus value, its fiat money “represents” value.

    This allows the state to create demand, be it consumption or investment demand. MMT can be used by political parties of all directions for leftwing full employment policies, green new deals, subsidies for corporations or right wing military Keynsianism.

    From a Marxist perspective, the ability to raise or lower how much labour time a money unit represents can be used to solve the problem that the capitalist mode of production puts profit above productivity.
    If the capitalists mode of production (because of a falling rate of profit M=M’ or even M>M’)) runs into a crisis, the state can change how much labour time a money unit represents. By doing that the state devalues money capital. A crisis happens when M almost equals M’, profit expectations are so low that capitalist don’t invest. If the money issuers can devalue M, then M’ is again bigger than M. Now it makes sense again to invest. What’s happening is the same that would be happening if a crisis destroyed real capital values recreating conditions of profitability. But instead of having a real crisis destroying real capital, just money capital gets destroyed.

    “But this money will lose its value if it does not bear any relation to value created by the productive sectors of the capitalist economy, which determine the SNLT and still dominate the economy. Instead, the result will be rising prices and/or falling profitability that will eventually choke off production in the private sector. Unless the MMT proponents are then prepared to move to a Marxist policy conclusion: namely the appropriation of the finance sector and the ‘commanding heights’ of the productive sector through public ownership and a plan of production, thus curbing or ending the law of value in the economy, the policy of government spending through unlimited money creation will fail.”
    I really don’t understand how Marxists can claim that capitalist can go into an investment strike. If they could do that, the profit rate would never fall in the first place. From a profit perspective, a low organic composition of capital is the ideal. If capitalist could coordinate an investment strike, they would never allow any technical progress, because this lowers profits in aggregate.

    But they can’t, because as long as labour is free (no slavery), there is real competition between capitalists. A capitalist who can raise productivity, captures bigger market shares, has higher profit (or lower negative profit), can pay higher wages etc. So a capital strike make no sense if Marxists want to be consistent. If capital strikes were possible, there would never be a reason for a strike, since profits wouldn’t fall in the first place.

    I would be really interested in a good answers why Marxists think that profits can fall but then -magically- at the zero bound this fall stops. Why not negative profits? Just like negative interest rates. The only good answer- I can come up with – is that money capital can be hoarded. The Marxist thinks: why should capitalists invest or lend money if the profit rate or interest rate is negative, so long they can hoard their money capital instead? But this presupposes commodity money or in the case of fiat money, a money issuers who plays along. If the money issuers decides to lower the value of money, hoarding becomes impossible.

    Okay, now here is the real problem I see with this solution. Apart from the obvious political challenge to get control over the central bank and the treasury, like a lot of commentators here I expect money will just bid up asset markets. Asset-Price Keynesianism. Via the wealth effect you then get falling unemployment through higher consumption, but the jobs created in this way will be low productivity jobs and the wealth effect will raise inequality even higher than before the crisis.

    That’s why any monetary solution hast to be combined with a tax on these assets. To force investment into productive capital, we need a tax on assets in limited supply (like land or corporations with lots of market power). These assets provide rents. Since rents can’t fall, if demand stays constant and supply is limited, you can raise the price of those values into the sky. The lower the interest rate, the higher the net present value of those assets. Since only assets in limited supply are in the long run suitable for this kind of assest inflation, a tax on the rents they generate will put an end to fictitious capital. Their asset prices will implode. This forces capital markets to invest in productive capital.

  18. citizencokane Says:

    Marx carefully distinguished between three types of money, each with their own different principles of operation (what Marx called “laws,” but “laws” in the sense of something in social or natural science…perhaps historical and changeable over periods of time, but not simply changeable by decree as with legal “laws”):

    1. Commodity-money. Example: gold. For Marx, this type of money is not “neutral.” It is not a veil over the real economy. Instead, it is the key to realizing surplus-value. All other things being equal, an increase in the rate of expansion of the world stockpile of commodity money leaves prices unchanged, but increases liquidity, which lowers interest rates, increases investment, increases demand, and lowers unemployment. Increased commodity-money thereby both increases the means of realizing surplus-value and the incentive to *produce* surplus-value. Whereas, if the world stockpile of commodity-money does not expand at the same rate as the expansion of the rest of the world economy (as measured in labor-time expended on each sphere of production), then capitalist society will increasingly be unable to realize surplus-value, even though it may be producing more surplus-value than ever. Sam Williams at Critique of Crisis Theory has put forward convincing arguments for why this periodic disproportion between the production of surplus-value and the production of the means of realizing surplus-value (commodity-money specifically) causes long-term Kondratiev Waves.

    2. Credit-money—i.e. promises of payment of “real money” (gold). Example: dollars legally announced as redeemable for gold at fixed rates, either on-demand (in which case those dollars are zero-term credit instruments) or after a certain term. Like commodity-money, credit-money is non-neutral in the sense that an expansion of credit-money can at first create the appearance that there is more commodity-money (of which it promises payment) in the world economy than there really is, which will create more apparent ease in realizing the surplus-value that is produced, more demand for investment and commodities, lower unemployment, etc. However, the greater the amount of credit-money, all other things being equal (especially holding the amount of commodity-money on the world market constant), the *higher* interest rates will be, the more the money-market (i.e. the market for commodity-money) will tilt in favor of the money-capitalists at the expense of the industrial capitalists, which will discourage investment and discourage the *production* of surplus-value, which will undermine the extent to which credit-money appears to expand the means of *realizing* surplus-value. Therefore, credit-money creation is ultimately constrained by commodity-money creation, which makes periodic crises of overproduction inevitable once worldwide aggregate commodity-money mining starts to lag…

    3. Inconvertible state fiat money. Unlike the other two forms of money, this money *is* a neutral veil over the rest of the economy and does obey something like the “Quantity Theory of Money” in that, if the state forcibly puts into circulation double the amount of this inconvertible state fiat money with everything else remaining equal, the sticker prices of commodities in that currency will double. This is why every attempt by state monetary authorities during recessions to try to compensate for the contraction of credit-money by replacing it with more fiat money fails at increasing real aggregate demand (real purchasing power) and instead only results in inflation even when the economy is nowhere near “full employment,” as in the 1970s. (As an MMT person to explain how their theory can explain the 1970s. They can’t! Except by pleading special, ad-hoc excuses like rising oil prices (but what caused oil prices to rise?… if not the depreciation of the dollar versus gold and the desire of oil kingdoms to protect themselves against that devaluation of their dollar income…and get back at the U.S. for supporting Israel, of course).

  19. Francesco Chini Says:

    (From Wikipedia) “Modern Money Theory is a macroeconomic theory that describes the currency as a public monopoly and unemployment as the evidence that a currency monopolist is restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.”
    IMPORTANT — read here:

  20. jschulman Says:

    I think it’s possible to separate MMT *theory* from its policy recommendations, so to speak. Modern money is clearly “fiat,” state money, no longer tied to a specific commodity (gold). Hence it’s possible for Marxists like Barry Finger to make feasible demands like this:

    “What socialists should emphasize is that the ability of the capitalist state to decommodify vast swathes of the social surplus relies in the first instance on its monopoly in creating purchasing power ex nihilo, not on its ability to tax and borrow. The ultimate need to tax has nothing to do with financing such programs at the federal level. Taxing is required to carve out space for the appropriation of additional capacity to meet social needs and to cool inflationary pressures as they arise. Progressive taxation is about suppression of elite demand, preventing competition from above for goods and services and the concomitant diversion of resources to accommodate elite demands that this would otherwise entail. It is not about how the state finances its purchases. Demand management with a growing public sector comes invariably at the expense of the ruling class. It can and should be made a cost of doing business.”


    Note: Barry makes it clear that “The system can set itself aright only by purging the excess claims on profit and by expanding that portion of the collective working day appropriated by capital.”

    • citizencokane Says:

      I disagree. Modern fiat money is still tied indirectly to gold, not by any legal mechanism, but by Marx’s Law of Value.

      • jschulman Says:

        I’m just not convinced by that, and I’ve read Sam Williams. Everyone from Fred Moseley to Michael Heinrich agrees that Marx’s theory doesn’t require that money be a commodity:

        “Instead, what is required in Marx’s theory is that there be some objective measure of quantities of abstract labour that is socially accepted by all commodity owners as a universal equivalent. In today’s capitalism, in which money is no longer a commodity (i.e., no longer convertible into gold at a fixed exchange rate), modern credit money meets this necessary requirement, and it performs the same function of measure
        of value as gold under the gold standard – it provides a socially accepted, objective expression of quantities of abstract labour.” (Moseley, MONEY AND TOTALITY, pp. 215-16.

  21. Choppa Morph Says:

    If only Marx had lived to write his intended Book of Capital on the State. The state gives real clout to political power – the ruling class organizes itself as a state to defend its property and interests and in doing so to fight and crush its enemies. Now in transitional times between modes of production – slavery to feudalism, feudalism to capitalism, capitalism to socialism for instance – the residual clout of the old state organization is shown to be enormous. The new mode of production takes over piecemeal and gradually, leaving pockets of resistance like ice and snow on north-facing terrain.
    If we use the Reformation as a representative of the bourgeois revolution during the transition from feudalism to capitalism, then the residual clout of feudalism is seen with blinding clarity in the resurgence and brutal repression of the Counter-Reformation, peaking in the 30 Years’ War in the mid-1600s but lingering like a nightmare on the brains and bodies of the living until 1789 and the French Revolution.
    In the same way our modern Imperialism is the resurgence and brutality of the counter-revolutionary bourgeoisie after the anti-capitalist revolutions of the 1900s. An empirical monopoly on wealth, power and knowledge used to crush political enemies, especially the organized workers’ movement and non-capitalist states emerging from the anti-capitalist revolutions. The horrifying reality of the Counter-Reformation was the horrifying reality of feudalism at bay, just as the horrifying reality of our Imperialist world is the horrifying reality of the bourgeoisie at bay, fighting like a cornered plague rat to save the world it still empirically rules.
    However, it is pretty clear that ruling isn’t the same as controlling…
    Bourgeois voluntarism (fiat money, command economics a la Trump) is alive and well, and claims with bone-headed insistence that it can and will control the economy in the same way as the Catholic Church claimed that the sun rotated around the earth.
    Nonetheless, money, taxes, interest, inflation etc all rotate around labour and production. What the State does is try to force us all to accept the views of the ruling class on scientific issues (like geo-centrism or fiat money) where the scientifically ascertained reality contradicts these views. And it uses its (near) monopoly on knowledge to pervert the methods and results of science, as ruthlessly as it uses physical force to suppress political movements opposing it.
    MMT is one of these perversions aimed at “radicals” and “progressives” who are uncomfortably close to breaking through to scientifically ascertained reality. It keeps them on the bourgeois bandwagon and in the capitalist camp. And it’s like a straitjacket for anyone who thinks they can use it to carry out a successful anti-capitalist revolution.

  22. mandm Says:

    Right. Fiat money is bourgeois currency, based not on the state’s taxing powers, but on capital’s present social relation vis a vis the global working classes–capital’s monopoly of the means of production and destruction. MMT is just born-again social (imperialist) democracy parading about the imperial centers, sometimes in “socialist”/ “marxist” drag. A left liberal way of making America great again.

    • pigswiggle Says:

      I’m not sure that making explicit that money is public appeals to liberals (of any variety). MMT mostly* just describes how modern fiat monetary systems work. It’s knowledge that everybody should have, regardless of politics. Some, because of their politics, wish to keep that system obscured and mystifying. What one does with the knowledge (including nothing) is a political question.

      * MMT economists do propose certain policies to utilize that system, but this is not (necessarily) the value in what they are doing. The value is in educating people about what the system is, how it works, and why certain arguments from certain quarters (“affordability” and “bankruptcy” arguments) are necessarily false.

  23. Wal Buchenberg Says:

    For those who are interested:
    “Development of money in Ancient Greece”. (In German)

  24. anon Says:

    “banks make loans and as a result deposits and debt are created to fund the loans, not vice versa.”
    This seems to be a direct contradiction of the theory in Capital Vol 2 as I understand it. Marx says that, in the circulation and turnover process, there are stages where money capital necessarily pools up in order to allow extended-scale production and longer periods of production, as well as gradual consumption and some other things (such as disaster prep). He says that these pools are the basis for loans, since banks can figure out how to make the money work in another capitalist’s hands until the actual owner needs to put it to use.

  25. Mike Ballard Says:

    Thank-you Comrade Roberts for your critical observations about Modern Monetary Theory (MMT).

    I find the basic flaw in MMT to be in ignoring the question of where wealth comes from and how money is used to represent this wealth and facilitate its trade in the marketplace of commodities. Wealth has two sources: human labour skills employed over time to produce goods and services and natural resources, both of which are commodified for sale with a view to profit. The money circulating in the system of production/consumption must not be thought of as being independent of this dynamic. It must be kept in line with both the potential of future wealth production and the need to circulate commodified wealth in the market. Money is the commodity which is used for these purposes. I cannot see how a State can issue more currency than is needed for these purposes without devaluing it. This is why the central banks of the world control both debt i.e. the sale of government bonds and the printing of currency. Investors who buy government bonds do not do so in order to get a haircut. They wish to be paid in real inflation adjusted currency with interest. If those bonds are not tied to the currency in that manner, they lose their value and their price drops. Investors with money of their own do not want to purchase worthless bonds which are declining in value with the devaluation of the currency they are denominated in.

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