MMT 3 – a backstop to capitalism

After two long and possibly turgid posts analysing Modern Monetary Theory, in this third post, I’m going to look at the practicalities – in other words, what are the policy proposals that MMTers put forward for the government to do in order to get more jobs at better wages and without provoking inflation?

Since the Great Recession, leftist economists have tried to refute the theories of neoliberal mainstream economics that call for balanced government budgets and a reduction in the high levels of public debt.  The policies of austerity that flow from the neoliberal view have meant the slashing of welfare benefits, reductions in public services, real wage stagnation and a rise in unemployment.  Naturally, the labour movement wants to reverse these policies that make working people pay for the failure of the banks and capitalism.

The usual alternative comes from traditional Keynesianism, namely that more government spending (by running deficits on annual budgets) can boost effective demand in the capitalist economy and create jobs and increase wages.  And here is where MMT comes in.  As leading MMTer Randall Wray puts it, what MMT adds to Keynesian fiscal stimulus policy is a theoretical argument that “a sovereign government cannot run out of its own currency.”  Because the state has a monopoly over fixing the unit of account (dollars or euros or pesos), it can create as much money as it needs, distribute that money to ‘non-state’ entities, and so boost demand and deliver jobs and incomes.  As Stephanie Kelton, a leading MMT exponent and adviser to Bernie Sanders, says “The issuer of currency can never run out of money because it can always print or mint more dollars, pesos, rubles, yen, etc.”

So running state budget deficits (and hiking up public sector debt) is not a problem.  And because there is nearly always ‘slack’ in capitalist economies, ie unemployment and underused resources, there is always room to boost demand, not just temporarily until the capitalist sector takes over again (as in Keynesian policies), but permanently. This sounds very attractive to the left in the labour movement.  Here is a theoretical justification for unlimited government spending and budget deficits to achieve full employment without touching the sticky sides of the capitalist sector of the economy.  All that is necessary is for politicians and governments to recognise the simple fact that the state cannot run out of money.

The key policy that MMTers put forward from that theoretical premise is what they call a government job guarantee.  Everybody will be guaranteed a job if they want or need it; the government will employ them on projects; or pay for them to get a job.  Most people work for capitalist companies or the government, but unemployment remains and can engulf a sizeable section of the workforce.  So the government should act as an “employer of last resort”.  It won’t replace capitalist companies, but instead sweep up those of working age that capital has failed to employ.  As Randall Wray puts it: “I’d just operate a bufferstock program for labor”.  You could call it a government backstop for capitalism (to use the current word dominating Brexit negotiations between the UK and the EU).

Bill Mitchell is a leading MMT economist from Australia and has campaigned tirelessly for the government job guarantee.  He describes it as an open-ended public employment program that offers a job at a living (minimum) wage to anyone who wants to work but cannot find employment”….  The Job Guarantee jobs would ‘hire off the bottom’, in the sense that minimum wages are not in competition with the market-sector wage structure.  By not competing with the private market, the Job Guarantee would avoid the inflationary tendencies of old-fashioned Keynesianism, which attempted to maintain full capacity utilisation by ‘hiring off the top’.”

Guaranteeing a job for all sounds great.  But apparently, it will not be a job paying a ‘living wage’ (a wage that people can live on).  No, it will only be a ‘minimum wage’ to make sure that it is not “in competition with the market-sector wage structure.”  In other words, the likes of Amazon or WalMart, or small retail and leisure businesses, will still be able to go paying their workers very low wages (at or near the minimum) without interference by any Job Guarantee, because such jobs will be paying less.

Thus the Job Guarantee acts a backstop for the private sector; it does not replace it.  Here is Bill Mitchell again: “The Government operates a buffer stock of jobs to absorb workers who are unable to find employment in the private sector. The pool expands (declines) when private sector activity declines (expands). The JG fulfils this absorption function to minimise the costs associated with the flux of the economy. So the government continuously absorbs into employment workers displaced from the private sector. The “buffer stock” employees would be paid the minimum wage, which defines a wage floor for the economy.”

In a way, this reminds me of the Universal Basic Income idea.  UBI is also like a backstop to capitalism, providing a basic income to people even if they don’t work.  The JG offers a minimum wage if you want to work.  But both do not threaten or replace capitalist sector wage structure or the decisions of capital over who to employ and under what conditions.  As Mitchell says: “To avoid disturbing the private sector wage structure and to ensure the JG is consistent with stable inflation, the JG wage rate is best set at the minimum wage level”.

And what sort of jobs will there be?  By definition they won’t be skilled jobs as the government will be “hiring off the bottom”.  But they will be in useful non-profit projects like building roads, bridges, etc: many socially useful activities including urban renewal projects and other environmental and construction schemes (reforestation, sand dune stabilisation, river valley erosion control, and the like), personal assistance to pensioners, and other community schemes. For example, creative artists could contribute to public education as peripatetic performers”.

When I read that list, I am reminded of the Roosevelt New Deal of the 1930s. Under Roosevelt’s Works Progress Administration (WPA) many unemployed were put to work on a wide range of government financed public works projects, building bridges, airports, dams, post offices, hospitals and hundreds of thousands of miles of road. This was all on very basic incomes.  Did it solve the problem of sky-high unemployment in the Great Depression?  Well, in 1933 the unemployment rate reached 25%; in 1938 it was 19%; so not a great success.  MMTers will say that this was because it was not done properly as Roosevelt kept trying to balance the government budget, not run deficits permanently.

The JG program is to provide jobs only at the minimum wage. That also reminds me of the notorious Hartz labour ‘reforms’ in Germany in the early 2000s that created programs for the unemployed at the barest minimum wage.  The unemployment rate fell but real wages stagnated.  While unemployment is at its lowest since German reunification in 1990, some 9.7% of Germans in work still live below the poverty line – defined as income of around €940 per month or less. Indeed, that working poor figure has grown from 7.5% in 2006 and even surpasses the EU average of 9.5%, according to Eurostat data.

German real wages and per capita GDP

If you want to know how minimum wage employment feels in the German context, read this.

The other issue with MMT-inspired non-stop government spending is inflation.  The state may control and issue the currency and governments may never run out of it, but the capitalist sector controls technology, labour conditions and the level of skills and intensity of the workforce.  In other words, the productivity of labour (real value) is not in the control of the state with all its dollar printing. So an economy is limited by productivity and the size of the labour force when fully employed.  If the government then goes on pumping money in when output cannot be raised  further, inflation of commodity prices will follow and/or inflation in speculative financial assets.

MMTers are aware of this problem.  Bill Mitchell says: “when the level of private sector activity is such that wage-price pressures form as the precursor to an inflationary episode, the government can manipulate fiscal and monetary policy settings (preferably fiscal policy) to reduce the level of private sector demand.”  In other words, the government will cut spending or raise taxes and/or interest rates in traditional mainstream style.  As Randall Wray puts it: The solution is to avoid spending more once full employment is reached; and to carefully target spending even before full employment to avoid bottlenecks.” 

So we are back with traditional Keynesian macro management, something that abysmally failed in the 1970s when capitalist economies experienced stagflation, ie rising inflation and unemployment at the same time.  The reason for that was that inflation and employment are not under the control of the state in a capitalist economy, but depend on the profitability of capital and the investment decisions of capitalists.  MMT only offers a backstop to capitalist investment and employment, not an alternative.

If there is inflation domestically that curbs exports for a country, the MMTers propose to float the currency.  So no capital controls and interference in currency markets. Randall Wray: I’d let the dollar float.”  That might be ok for the US, where the currency, the dollar, is the international reserve currency and has to be held by foreign states and companies to do business.  But that is not the situation for smaller capitalist economies, particularly so-called emerging economies.  If inflation takes hold because the government is printing pesos, lira or bolivaros without stopping to try and maintain full employment while capitalist production is collapsing, the result will be hyper-inflation.  And if those currencies are floating without any controls, then the value of the currencies will plummet – as in Turkey, Argentina, Venezuela etc.

What this shows is that MMT is very much an US/Australia-oriented theory and with policy prescriptions that have no viable application to most economies globally – just like Keynesian theory and policy.  The state may control the issuance of its currency but it cannot control its value relative to other currencies or to gold, the world money.  If trust in a currency’s value is lost by the holders or potential buyers of that currency, then its value will collapse, heightening inflation.

Labour leaders oppose austerity – the policy of the mainstream.  But they do not want a policy that means the overthrow of capitalist economic relations – that is too frightening, risky and not ‘realistic’, so they favour policies that they think can reverse austerity without threatening capitalism – like Keynesian deficit financing.  MMT offers a novel theoretical justification for permanent deficit financing – the state controls money as the unit of account and so there is no limit on government spending and rising public debt is nothing to worry about.  The only constraint is when resources run out and then inflation may ensue.  Then it’s time to tax.

In this way, MMT acts as a backstop to capitalism – the state is the employer of last resort but not the main employer.  It aims to compensate (patch up) the failures of capitalist production, not replace it.

44 thoughts on “MMT 3 – a backstop to capitalism

  1. “As leading MMTer Randall Wray puts it, what MMT adds to Keynesian fiscal stimulus policy is a theoretical argument that “a sovereign government cannot run out of its own currency.”

    Actually Keynes said that simply printing money and spending it was a way out of recessions. E.g. see 5th para of his letter to Roosevelt in 1933. Thus Keynes was clearly aware that a country “cannot run out of its own currency”.

    “By definition they won’t be skilled jobs as the government will be “hiring off the bottom”. But they will be in useful non-profit projects like building roads, bridges, etc.” I think you’ll find that the sort of labour you need for building roads and bridges is almost entirely skilled: engineers, welders, bricklayers, experienced concrete workers, etc.

    As for the fact that the WPA successfully did loads of construction work, that’s explained (as I’ve pointed out about a thousand times) by the fact that unemployment was catastrophically high in the 30s, thus there was a ready availability of skilled construction workers. But JG is not suitable for dealing with VERY HIGH unemployment: it’s real niche is taking unemployment below the alleged minimum (NAIRU or whatever you want to call it).

    Unfortunately the latter point seems to be a mile above the head of most JG advocates.

      1. Not sure where the ‘not living wage’ comes from. From that link:

        “The minimum wage should not be determined by the capacity to pay of the private sector. It should be an expression of the aspiration of the society of the lowest acceptable standard of living. Any private operators who cannot “afford” to pay the minimum should exit the economy.”

      2. “To avoid disturbing private sector wage structure and to ensure the JG is consistent with stable inflation, the JG wage rate is best set at the minimum wage level. The JG wage may be set higher to facilitate an industry policy function (??). The minimum wage should not be determined by the capacity to pay of the private sector. It should be an expression of the aspiration of the society of the lowest acceptable standard of living. Any private operators who cannot “afford” to pay the minimum should exit the economy.”

        So Bill says he wants an “aspirational” minimum wage but also one that “avoids disturbing the private wage structure”. That will be difficult to reconcile. On the hand, the minumum wage must be a ‘living wage’ but on the other, “minimum wages are not in competition with the market-sector wage structure.” I dont see how that is possible. Moreover, Bill says if the likes of Amazon or Joe’s cafe don’t pay his ‘aspirational’ minimum wage because it does ‘disturb their wage structure’, then they “should exit the market”. So the state is not going to nationalise Amazon etc and establish a living wage and introduce better conditions and wage structure that does not pay Jeff Bezos billions. No, that’s going to continue. The state is just going to try and pressurise the likes of Amazon into paying more by “hiring off the bottom” elsewhere. So either the minimum wage will be too low to live on, or it will so high that it hits profits for Amazon without changing its wage structure, and may make Joe’s cafe go bust.

        All socialists stand for higher wages and full employment, but Marxists reckon that is impossible on a sustained basis under capitalism. MMT reckons it is possible using tricks of circulation (Marx on Proudhon) and JG. Just like trade unions fighting for higher wages, a state-imposed minimum (living) wage poses the question of the profit-making sector failing and thus the need for the socialisation of investment to achieve workers ‘aspirations’. MMTers do not want to go down that road, or if they do, they never say so. Their solution is supposedly an ALTERNATIVE to socialisation of the likes of Amazon, the big banks and the major companies ie it is a backstop to capitalism when it fails to deliver full employment at a living wage.

      3. “All socialists stand for higher wages and full employment, but Marxists reckon that is impossible on a sustained basis under capitalism.”

        Not all and no we don’t, or at least not for higher wages or full employment as “things in themselves,” separated from the struggle to abolish capitalism. If we support the “higher, fuller” separate from the issue of power, then we might as well join the 2nd International, or confine our activity to trade unions…

        Of course we can argue that higher wages, greater employment can’t be sustained under capitalism. But that’s not an issue, for anyone, even Keynesians (maybe for the Austrians, but maybe not even them). In the long run, we’re all dead, right? They are selling that the unsustainability can be mitigated, buffered, by proper policies, here and now, in the short term, no matter what mathematical formulas and other religious symbolism is used to obscure the relations of production. MMT, Keynesian-ism, etc. are no different than monetarism, the Austrian school whatever. They claim currency to the extent that they can be effective weapons against class struggle. Political economy is, was, and remains the ideology of the bourgeois mode of production

        I would think those who have a grasp of Marx’s critique wouldn’t be arguing about mitigation, but rather the necessity of crisis, mitigated or not, to the accumulation of capital, and the greater power of the bourgeoisie over the working class — as in the New Deal with its support of the “giant step” of the CIO disciplined the working class for the blood sacrifice of WW2.

        Now if there are no longer any prospects for socialist revolution; if Marx’s conflict between forces and relations of production no longer comes to social life in a struggle for and against the emancipation of labor from the wage system… well go right ahead and plunk the magic twanger of behalf of higher wages and fuller employment, but that ain’t socialism and isn’t even an intermediate or transitional moment to the struggle for socialism. It is, as the struggle by Wisconsin govt. employees in 2010; as the struggle of the French SNCF employees this summer show, part of the isolation of the working class and a major element of retreat.

      4. Anti-cap, of course you are right, but you also miss a social/historical condition that is almost never mentioned here, because Michael (correctly, I think) limits this blog to a critique of the political economists on their own (illusory) turf (like Marx).

        It’s up to those commenting to take up the critique capitalism from a more historical materialist stance which recognizes the global nature of the social relation between capital and labor. If we don’t, in struggling to improve the condition of the working classes at the imperial centers, we will find ourselves falling into social imperialist thinking, and fail–as we have–even in that illusory effort.

        I agree with Samir Amin: it is the burden of the super-exploited and oppressed 80 percent of humanity to continue the struggle to free themselves from the strangle-hold of capitalism, and ours to support them–by fighting against militarization, privatization, pauperization at home, and to come to see the two struggles as one.

  2. Michael:

    You quote Bill Mitchell saying a JG would pay a living (minimum) wage.

    Then you say “But apparently, it will not be a job paying a ‘living wage’ (a wage that people can live on). No, it will only be a ‘minimum wage’ to make sure that it is not “in competition with the market-sector wage structure.”

    I don’t understand. Bill Mitchell says it will be a living wage. You say not a living wage. What?

    A living wage is more than what Walmart and Amazon pay: a living wage by definition does not leave its employees on food stamps. It is by definition above the poverty line. It can be set up to avoid the problems faced by your German example. This is a very important point. It does fundamentally adjust the labour market because private firms cannot offer worse conditions than the JG: no worker will accept them.

    It still allows for capitalism to take place above the JG wage. Which in my view is fine because in some areas, e.g. the deployment of new highly valuable consumer technology such as mobile phones or google, I think private firms would deliver better outcomes than govt. If you disagree, thats fine, because the higher level wage structure can be replaced by a democratically-dictated state wage structure reflecting appropriate considerations: but it is crucial that the JG remains in place to move workers down whenever inflation becomes a problem.

    I look forward to your thoughts on that.

    Then you quote Bill again “By not competing with the private market, the Job Guarantee would avoid the inflationary tendencies of old-fashioned Keynesianism, which attempted to maintain full capacity utilisation by ‘hiring off the top’.”

    But then a few paras later you seem to forget this quote and claim with MMT “we are back with traditional Keynesian macro management, something that abysmally failed in the 1970s”. You do not address the key difference identified by Bill.

    The 70s were characterised by well paid workers with excellent pensions continuing to demand a greater share of resources while capital did the same, all during an oil crisis which reduced the real resources/value in the economy. This combines to cause stagflation. A living wage JG would not have caused these problems because it does not compete with the top of the market which causes the most inflation. Do you disagree?

    I would also like to understand is how you think a post-capitalist economy would work, without itself suffering from inflation or stagflation (or the equivalent problems in value terms if you somehow remove money)?

    1. Read Bill’s piece that I quote. He is clear that his JG will only have a minimum wage not a living wage because the JG wage must not interfere with the wage structure of the capitalist sector. So JG is sweeping up from the bottom. I said that JG reckons using the minimum wage would avoid inflation. It’s not necessarily my view. Inflation depends on the level of productivity and growth in the economy as a whole.

      I dont agree with your interpretation of the 1970s crisis. Bill Mitchell thinks that the period of the 1960s with budget deficits and growth was the norm for capitalism and it was austerity and neoliberal policies that led to the current period, which apparently is exceptional. Actually the 1948-64, the golden age, was the exception and NOW is the norm. The change was the result of the change in the profitability of capital after the 1960s. Austerity and neoliberal policies were the response of capital to the crisis of profitability and growth – not vice versa as Keynesians/MMT would have it. Read my book, The Long Depression. Read my posts on this blog.

      The question of the transition from capitalism to socialism and the role of money is too big a topic for a reply here.

      1. What was the crisis of growth in the 1960’s? How could that be a crisis of growth, but this era–when growth levels across the West are practically non-existent–not be? And is there any real dispute that the stagflation of the 70s was caused on the supply side by the oil embargo? That it was a failure of Keynesian economics is what I understand to be the propaganda of the neoliberals that was used to usher in monetarism. (Not intended to suggest Keynes had everything right, but he was certainly far more right than the monetarists.)

        I also fundamentally disagree that the stagflation of the 70s shows that “inflation and employment are not under the control of the state in a capitalist economy, but depend on the profitability of capital and the investment decisions of capitalists.” It is not really possible to draw any conclusions about what is under the control of the state in a capitalist economy, because, by definition, the state is not interested in exercising (certain) control. You could just as well point to the long history of unemployment to say that employment must not be under the control of the state in a capitalist economy. But what MMT tells us is that, in fact, it is completely under the control of the state. It simply chooses not to have full employment, and that is because of the influence of the capitalists on the State. But it’s not an inherent limitation of the State itself.

        To be sure, inflation is never entirely under the control of the state, because the state cannot control everything related to output (which is one side of the inflation equation). This would work the same in a communist economy, because things like natural disasters or catastrophes that cause output collapses are outside the control of the state (and everybody else for that matter). But even here the State is not entirely impotent, because it can still make adjustments on the demand side. It remains, though that output deficiencies necessarily limit the real resources available in the economy.

      2. This is absolutely correct. Post WW2 to about 1970 was the exception. 1973, with the inaugurating the great assaults on the living and wage levels of the proletariat embodied in the OPEC price spike and Pinochet’s overthrow of Allende was the “return” to “normalcy.”

      3. I have already read Bill’s piece and the quotes you took from it. The quotes you took disagree with what you said (because you disregard the word living), but then I see you also acknowledge Bill’s subsequent quote:

        “The minimum wage should not be determined by the capacity to pay of the private sector. It should be an expression of the aspiration of the society of the lowest acceptable standard of living. Any private operators who cannot “afford” to pay the minimum should exit the economy.

        Australia has a well-defined minimum wage setting structure.”

        Yes, it sweeps up from the bottom. But the point is that it will not support the *current* wage-structure: it forces the private-sector wage structure to go above the minimum wage . You have misunderstood: you seem to think that he is advocating no shift whatsoever from where we are now in terms of minimum employment standards. That is wrong, he is advocating a dramatic shift from where we are now, based on the principles outlined above. It is a minimum wage that a person can really live off. Your claim in the comment above that the wage will not be a genuine living wage is simply wrong. If you still disagree, and aren’t prepared to read more of his work, do one last thing for me: *email Bill and ask him whether his living wage would allow Amazon and Walmart to continue as is*. Obviously keep it succinct, he doesn’t have as much time as I do…

        You also incorrectly state in that same comment that the state is not going to nationalise Amazon in an MMT world. *Again* you are wrong. In this case, no MMT academic specifically advocates for such a move, but MMT is happy for the government to nationalise industries and to pay wages that compete with the private-sector wage structure where it furthers the government’s aims (which Bill would always argue should be arrived at democratically, and of course his politics are socialist). But those wages are not part of the Job Guarantee: that should be obvious because if you guarantee wages above a living wage then you are almost certainly going to cause inflation. You are criticising the whole body of work because one aspect, the JG, does not do what you want to do. But had you read some of Bill’s other blogs or one of his books, you would realise that he certainly would support nationalisation where it is sensible to do so.

        You base all this on your interpretation of one blog post from Bill. I implore you to dig deeper and revise your serious misrepresentation of MMT on this point. You should not be misrepresenting the work of someone who is pretty much on the same side as you.

        P.S. I agree with you that post-WW2 to 1970 was exceptional.
        Bill never said it was normal. Bill and I argue that this period occurred because for the first time there was a confluence of political desire and academic thinking that supported the governmental policies of that era. Indeed, I have learned from Bill’s book Reclaiming the State (highly recommended) that the UK came incredibly close to a properly socialist-leaning managed economy with a reduction of the then very damaging capitalist elements.

        Your response is a bit disappointing, because you avoid saying why you think that golden era happened. Can you give me at least a link to the relevant explanation you provide?

      4. Hi Anthony

        One comment on this blog says $15 an hour is no living wage in the US. I’m not sure what the living wage would be in Australia or what you and Bil would start with under JG. The thing is that if the rate is high enough, it will interfere with the ‘wage structure’ of the multinationals and definitely small businesses. Thus “sweeping from the bottom”, as workers get sacked or leave companies for JG, is going to mushroom. But higher wages, whether caused by JG disturbing the wage structure or because trade unions win them, does not lead to inflation – I dont accept the old cost-push theory of the mainstream. It generally leads to lower profits. That will add to any downward pressure on profitability and the capitalist sector will slow or stop investment and lay off workers.

        You say that MMT supporters are socialists and so are happy for the government to nationalise firms that cannot provide enough production, wages and jobs but “no MMT academic specifically advocates for such a move”. Why dont they if it is a key part of any programme to achieve an economy that can deliver full employment, better incomes and public services through a plan for production for need? The answer must be that apparently MMT can do the same by a “trick of circulation” of money and nationalisation is not relevant or so important. With MMT the production of value, the productivity of labour and technology, the ownership of the means of production is not first in the line of causation. Apparently all that will flow from the state running permanent deficits. But only as long wages dont rise too much to cause inflation. Then we must stop. On this analysis, MMT is really a form of Keynesian demand stimulus policy through printing money to boost employment and wages with a total acceptance of the 1970s Phillips curve, it seems.

        The Marxist view is that MMT and higher wages will not work to achieve full employment under capitalism because it will impair profitability and under a capitalist economy, that is what matters for investment, output, employment and wage incomes – not the other way round.

        The Golden Age did not happen because there was “a confluence of political desire and academic thinking that supported the governmental policies of that era.” This is an idealist view. Keynesian macro was the capitalist explanation of the Golden Age, but the reality was materialist -namely high levels of profitability of capital in the major economies. Macro policy had nothing to do with it – indeed, many capitalists complained it actually interfered with crisis-free growth. The emperor’s cloth was exposed when Keynesian macro management failed to sustain crisis-free economies in the 1970s. This was not because of a ‘loss of political desire’ or a break with Keynesian policies ‘among academics’. It was because the profitability of capital fell sharply and the ruling elite turned to other (neo-liberal) policies in order to restore profitability (with some limited success).

        Sorry, I disappointed you in explaining that before – my link to a fuller explanation can be found in my book, The Long Depression and in my more recent book, The World in Crisis.

      5. P.S. there is no Walmart in Australia. Things are getting worse there but they remain mostly better than US/UK, and are not nearly to the point of workers using food stamps…

      6. Hi Michael,

        Apologies for the delay I’ve had a very busy month at work and have a young child.

        Although I’ve been quite aggressive in my comments, I do appreciate you taking the time to respond. I have been thinking of starting a blog and it might make sense to write something about the attack by Marxists on MMT (e.g. Doug Henwood’s piece in Jacobin was appalling).

        Your point about a JG mushrooming: it will have a dramatic short term effect, and I cannot comment on the short-term inflation impact. But there is no reason why the economy cannot be reorganised around a JG, with a mixed public/private higher-wage sector operating above the JG. In that scenario the JG becomes an automatic stabiliser and an inflation control. If you are interested in the inflationary effects you can look to the MMT literature, I cannot link it but the academics will be happy to supply it.

        You claim that no MMT academic has advocated for nationalisation. This is wrong – links below, but also obviously Stephanie Kelton supports Bernie Sander’s policies, so I just don’t understand where you get this from. And even if MMT academics were right-wingers who did not personally advocate for this, it doesn’t matter because MMT is about understanding economics and money, and the understanding MMT gives us allows the left to say that purported financial constraints are irrelevant and nationalisation is a perfectly viable option right now, no violent upheaval/revolution needed. – “Nationalising the banks” – Bill Mitchell 2010 – “The case for re-nationalisation” – Bill Mitchell 2016 – “The public want nationalisation because nationalisation makes sense” – Murphy 2017

      7. I dont see why we should ‘reorganise the economy’ around JG. I am not against JG as such -or at least jobs for all. But the economy needs to be ‘reorganised’ around public ownership of the major sectors of an economy under a democratically controlled plan. Jobs will flow from that. JG remains a backstop to a “mixed public/private higher wage sector’. Why make JG an alternative to democratic planning? Bill Mitchell’s article on nationalisation is very good and goes further than any other MMTer in calling for the nationalisation of the banks,but stops short of the major productive sectors. Murphy stops at Corbyn’s position of reversing previous privatisations. As far as I am aware, Kelton does not advocate nationalisation or Sanders. Most MMTers are good leftists looking to improve the lot of labour. I just doubt that their theory for this is valid and their policy adequate or radical enough.

  3. A disorderly Brexit becomes the largest international emergency exercise in peacetime. It is a threat scenario like a Europe-wide general strike or a major economic crisis – except that you know the date of entry in advance. Usually a political crisis grows out of an economic crisis. With a disorderly Brexit serious economic consequences will develop out of a political crisis.
    The prestige and legitimacy of governments and capitalists depends to a large extent on how well or poorly they manage the supply of food, clothing, energy and medicines to us wage earners. If the EU states and Great Britain master the coming Brexit crisis, then Brexit will have no major consequences. If there are serious supply shortages for significant parts of the population after Brexit, then a new pre-war era begins with unstable political conditions. Neither Corbyn nor the left in Europe are prepared for this.

  4. I am not an economist, but I enjoy reading your blog as it helps me get a hold of the world. I read the three articles covering MMT, and I was wondering if UBA coupled with socializing the means of production can provide an functional alternative to capitalist economies? However, if this can be the solution, I am thinking that an increase in public spending and providing some living wages can empower the working classes to move further towards socializing the means of production? This question lingers in my mind as in Romania (and I am assuming that in other Eastern European countries) the neoliberal policies have been so harshly imposed that is caused huge inequalities that left most of the people without any hope that anything can change, while there isn’t any labor movements or left-wing parties that can even suggest anti-capital solutions…

    1. All reforms that improve the conditions for the working class and weaken capital should be supported. If the means of production are socialised so that capital and the law of value not longer dominate, then meeting needs through full employment on living wages and basic services free at the point of production become feasible. The issue then is the reaction of capital, economically, politically, and militarily, globally. Your last point is the never-ending question that I never deal with on this blog.

      1. Can anyone name a reform instituted under capitalism that has weakened the rule of capital, the social power of the bourgeoisie? That’s the whole issue in a nutshell. There is no immanent connection between reform and revolution.

        Eight hour day? Not hardly. Collective bargaining? Surely you jest. Single payer healthcare? Like in Canada or France? Yeah, those bourgeoisie are quaking over healthcare.

        Somebody wants to bring up the reforms in Chile under the UP government? OK, and what was the ultimate result?

        Lula, Brazil?

        Where do we get this mythology that says “reforms” weaken the power of the bourgeoisie?

        Wake up, comrades, we’re not “supporting” reforms that weaken the bourgeoisie; ain’t no such animal.

  5. “So we are back with traditional Keynesian macro management, something that abysmally failed in the 1970s when capitalist economies experienced stagflation, ie rising inflation and unemployment at the same time. The reason for that was that inflation and employment are not under the control of the state in a capitalist economy, but depend on the profitability of capital and the investment decisions of capitalists. MMT only offers a backstop to capitalist investment and employment, not an alternative.”

    You have to distinguish between supply side inflation and demand side inflation. Monetary policy is useless against supply side shocks. Everybody agrees here. (In the 70s a cartel of oil producing countries sanctioned the US and other countries for political reasons. Oil prices rose from 3$ to 12$. This was a supply shock.)

    Imagine a virus which kills most of the fish in the sea. That’s also a supply shock. Fish prices will rise. Even worse, unemployment will rise too. Whole towns living from fishing will lose their main income source. Monetary policy can do nothing to lower this kind of unemployment. People have to move, find other jobs or they will live on the dole forever. They same is true in a communist society. A command economy could only force people to move and do some other job, if people don’t want to move they will live from transfers. Neither MMT nor communism can change that. You are demanding that MMT should solve a problem that communist society can’t solve either.

    But the real difference is here: you seem to think that capitalist if they can’t make a profit, can orchestrate a supply side shock: a capitalist strike.
    The problem with this argument: if capitalist could organize a strike, the profit rate would never fall in the first place. Marx’ model of capitalism needs competition. Without competition no rising organic composition of capital, no fall in the rate of profit.
    So if you want to stay consistent, you have to agree that capitalist cannot strike. If an individual capitalist can make a profit, even if it lowers the profit rate in aggregate, he will do so.

    Now, what money printing does is is this: it lowers the real profit rate below zero. So if you have unemployment caused by lack of investment demand caused by low profits, you can raise nominal profits (not real ones!) by devaluing money capital hold by capitalists.
    (Devaluing money capital is done by raising inflation, but it could also be done by negative interest rates on base money. In that case you wouldn’t need inflation.) If the money issuer devalues money capital enough, everybody who is employable will get a job.
    But yes, you can’t make fishermen fish again. Only Jesus can 🙂

    To be clear, you couldn’t do that to rental income, because the assets which deliver rents are in limited supply. A landlord or an oil cartel will just raise prices and his real rental income will stay the same. That’s why you need a tax on assets in limited supply. Without this tax, assets in limited supply are the only inflation protected assets and everybody will try to invest in them thereby creating asset price inflation.

    But already asset price inflation shows that money capital can be devalued. If capitalist would considers their money capital as safe as gold, there would be no asset price inflation in the first place.

  6. Even if the MMT “jobs guarantee” works out, that is, even if the capitalist State (which doesn’t own any means of production by definition) somehow manages to generate the goods and services to pay for those unemployed people the minimum wage (whatever that means), the question remains: why would that be good for capitalism?

    Unemployed people are extremely important to the welfare of capitalism: they are, essentially, workers that are receiving $0.00, thus putting a downward pressure on the value of labor.

    If the MMT State begins to employ those unemployed people (again, doing the huge assumption it somehows manages to not rise inflation), then labor value will go up: the private sector would be forced to rise wages, thus eroding profits. There’s a reason supermarkets don’t distribute unsold food for free to the people: that would rise value of labor, because people wouldn’t need to work to eat anymore. That would be bad, not good, for capitalism.

    In another scenario, even if the MMT State manages to use those unemployed people at the slave rate ($0.00) — so, not to cause “inflation” and not causing unemployment — the suggestion is to use them with works in construction and maintenance. Even in that unicorn scenario, you would be rising the organic composition of capital, thus further eroding profits.

  7. Hi Michael,

    Thanks for all these interesting analyses on money. It is a very timely subject since the managerial capitalists class believes that managing money is all that they need to do to save capitalism.
    I would like to share with you (and all your readers) this new paper from NBER on the effects of low interest rates on productivity growth in the ‘productive sector’, which I read as the non-financial. It is an interesting economist analysis of the sluggish economic recovery in a monetary environment of historically low interest rates.

    This paper should provide nothing new for Marxist political economists but it is worth reading precisely because mainstream economics vindicates Marx’s theories (falling rate of profit, the law of competition, law of value, monopolization, organic composition of capital and its effects on profits, etc.), although in their own (mathematical) language.

    I thought that this paper might be in your interest (in case you are not already familiar with it).

    Thanks for all your thoughtful work!

    1. The neoliberals have built up debt loads in the private sector through decades of austerity. A monetary economy grows from the spending of money. In the absence of a current account surplus sending financial assets into a domestic economy, the domestic private sector can only obtain financial assets from the government. When the government restricts access to these financial assets (via austerity), then the domestic private sector must rely more on private credit markets to finance its spending.

      But the domestic private sector, which is a currency user, can only handle so much debt. So as these debt loads reach their max, and as austerity continues, there is nothing that can finance additional spending. The economy’s growth becomes sluggish, and neoliberals resort to unusual monetary policy (QE, sustained low interest rates) to try to keep the system growing. In short, this is the end of the neoliberal era, at least unless the public contents itself with this new norm (slow growth, low wages), which I think is unlikely.

      (Congress under Trump recently injected lots of financial assets into the private sector, which has helped growth recently. But only so much, because those financial assets were directed towards the rich and corporate entities.)

  8. Really weird that you talk about what the wage of a JG will be without citing the most recent MMT report on the JG at the Levy Institute that argues for and simulates a living wage + benefits JG. Suffice it to say that your reading of MMT is too narrow and unnuanced to critique MMT at this point. And read Scott Ferguson’s book for the most rigorous MMT take on MMT and Marxism.

    1. Scott. Yes I missed that. I only looked bill mitchells site. I’ll read it and Ferguson and then resume the discussion. But let me add. I’m very much in favour of getting full employment, a living wage and benefits. The question at debate is whether this can be achieved under capitalism where big banks and top companies rule the roost over investment, employment and incomes. Can the state overcome that with just deficit financing and MMTers?

      1. Actually I just noticed that I quoted Scott Ferguson on the affinity between Marxist economics and MMT in my first post mmt1. As I read i scott reckoned mmt was superior. It was not convincing.

  9. Hi Michael, Could MMT be a way of helping us, as a society, push the system incrementally away from a capital driven production system?

  10. I would 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.

  11. 1. In my view, Modern Monetary Theory completely separates money from value and believes that the state can arbitrarily set the value of money. MMT cannot and will not explain from where money gets its value.
    For Marx, money is a form of value and cannot separated from value:
    Karl Marx: “But what is money? Money is not a thing but a certain form of value, … “K. Marx, Capital III, MEW 25, 870.
    Karl Marx: “The exchange process produces a doubling of the goods in goods and money, … In this contrast, the goods as utility values of the money as an exchange value. On the other hand, both sides of the opposition are commodities, that is, units of utility value and value. “K. Marx, Kapital I, MEW 23, 119.

    2. In my view, the Modern Monetary Theory completely separates modern paper money from the gold-covered money.
    For Marx, there are no other laws for paper money than for metal money.
    Karl Marx: “A specific law of paper circulation can only spring from its representation relation to the gold. And this law is simply that the output of paper money should be limited to the quantity in which the symbolically represented gold (or silver) would really have to circulate. “K. Marx, Kapital I, MEW 23, 141.

    (Sorry for my poor translation from German)

    1. 1. MMT views money as tokens, inherently worthless. People do not save money because the money itself has value. They save it because, despite its lack of value, it is in demand and commands real resources. The reason it is demanded, at root, is because one needs it to avoid being placed in a cage by the government. (I suppose that does have “value.”) MMT certainly explains this understanding of money. (There are debates in MMT about whether and how much taxation is necessary to drive a currency once it is established, but I don’t think anybody disputes this root of it.) The reason this is coming broadly to light now are: (1) modern fiat monetary systems are in existence, which makes money’s character more explicit; and (2) currency has become mostly digital, which provides a clean break from seeing money connected to some physical representation, like gold or bills. This is why we are seeing MMT coming to the fore today.

      2. To whatever extent Marx understood money as gold or a representation of it, he was wrong.

      1. Marx was restrained by his historical time when he used gold as the universal money.

        But his aim is to demonstrate money comes from exchange. And, in this, he’s correct: at the beginning, there’s just barter between two separate tribes (not inside a tribe); then as exchange intensifies and becomes current, a single commodity must be elected as the universal commodity and stripped of its original “use value”; then, as exchange intensifies even more (so as to surpass the velocity of money circulation), papers are issued to represent vaulted money. As exchange intensifies even even more, credit is born, and so is “fiat money”. But the origin is exchange, thus a real commodity (which, by serendipity, became gold by the time capitalism reached its advanced stage of development).

    2. Yes, value can only exist in a capitalist system (which is a monetary system). Value is a capitalist subjectivity.

      But money, albeit it represents value, is not the substance of value. The substance of value is socially necessary labor time. Labor time, solidified in a commodity, is the “träger des Tauschwerts” (support for the exchange value — which is empty by itself, as Marx makes it clear right at the beginning of Book I).

    3. In the meantime, I searched for the quotes from Marx in the official English translation. They are as follows:
      “The process (of exchange) then differentiates them into commodities and money, and thus produces an external opposition corresponding to the internal opposition inherent in them, as being at once use-values and values. Commodities as use-values now stand opposed to money as exchange-value. On the other hand, both opposing sides are commodities, unities of use-value and value.” K. Marx, Capital I, 72.
      Here, as in the first volume of Capital, Marx assumes metal money, not for reasons of principle – as if the exchange of goods and money were necessarily tied to gold. Marx assumes metal money, just for the sake of simplification:
      “Throughout this work, I assume, for the sake of simplicity, gold as the money-commodity.” K. Marx, Capital I., 67.

      “In the simple form of the circulation of commodities hitherto considered, we found a given value always presented to us in a double shape, as a commodity at one pole, as money at the opposite pole.“ K. Marx, Capital I, 88.
      “Again, money functions as a means of circulation only because in it the values of commodities have independent reality.” K. Marx, Capital I. 78
      “Value, therefore, being the active factor in such a process, and assuming at one time the form of money, at another that of commodities, but through all these changes preserving itself…” K. Marx, Capital I, 107.
      “Paper money is a token representing gold or money. The relation between it and the values of commodities is this, that the latter are ideally expressed in the same quantities of gold that are symbolically represented by the paper. Only in so far as paper money represents gold, which like all other commodities has value, is it a symbol of value.” K. Marx, Capital I. 84

  12. The only way I see MMT helping the working classes’ cause is by accelerating — accidentally, since they are pro-capitalists — the demise of capitalism (see my first comment in this post). Think of this as capitalism’s Perestroika.

  13. Michael, on your 3 pieces into MMT I miss an analysis of how deficit spending of US and EU did in terms of inflation around commodities futures prices and developing countries. That, mainly regarding the consequences of deficit spending and the falling rates of profit in the center of capitalism after 2008. I mean, on the financial cycle that Marx describes growth and crises (Book III, “Das Kapital”, Section V), there are differences on the results of deficit spending regarding the different stages of “financial cycle” (I know that Marx does not call like that). How to analyse the current impacts of deficit spending to prove MMT does not and will not work to rescue capitalism in its current form? Even if (I think) the issue here is not how to rescue capitalist accumulation..

  14. Hi Michael,

    You said this in reply to Scott Fullwiler:

    “I’m very much in favour of getting full employment, a living wage and benefits. The question at debate is whether this can be achieved under capitalism where big banks and top companies rule the roost over investment, employment and incomes. Can the state overcome that with just deficit financing and MMTers?”

    The wage for Job Guarantee jobs would be determined socially, based on a minimum decent standard of living, not the current bottom of the capitalist wage structure. Maybe capitalists will “up their game” and create better jobs. But maybe they can’t do this, because of the fundamental problems of profitability in a capitalist economy, as you describe.

    In the second case, this would mean, de facto, that a growing proportion of the economy would find itself permanently in the public sector. That would be a clear indication of the inability of capitalism to meet basic needs, and would make the case for socialism much stronger.

    In effect, the Job Guarantee calls capitalism’s bluff: “you say you can provide prosperity for all, so show us!”

    None of this, by the way, precludes political decisions to take large sectors of the economy permanently out of the private sector: health, education, utilities, etc. Using your terminology, then, the Job Guarantee is a backstop to whatever portion of the economy we leave in the private sector, not to the economy as a whole.

    It is true that MMT is not intrinsically left wing or socialist (though the majority of its adherents are on the left). It is, however, a fundamental challenge to the monopoly of the capitalist class in credit creation and employment opportunities. In particular, the Job Guarantee would remove the threat of destitution that capitalism holds over workers.

    MMT is above all a “lens” through which to view a capitalist macroeconomy, which, when used, diminishes the power of capitalists to blind us with neo-liberal nonsense such as government finances being like those of a household. Therefore, socialists, such as myself, see it as a very useful addition to our toolbox. It does not mean that we have suddenly developed confidence in the ability of capitalism to solve the problems of humanity.

    Of course, some MMTers do think it can solve the crises of capitalism, without any move towards socialised ownership of production. I think they’re wrong, but the proof of the pudding will be in the eating. If all MMT ends up doing is exposing the power relations which have been obscured by neoliberal hegemony, it will have performed a useful task on the road to socialism.

    Finally, I think that the graph of state spending vs unemployment was misleading. The MMT thesis on unemployment is based on the government deficit (also taking into account the trade deficit and private sector savings rates). A graph of the public deficit vs unemployment would be much more interesting.

    1. A job guarantee or what we oldies used to call ‘jobs for all’ can be considered a ‘transitional demand’ ie one which exposes the inability of capitalism to deliver people’s needs. But MMTers see the job guarantee being achieved by permanent government deficits funded by printing money. Socialised investment or production is either something separate or unnecessary. So I’m not sure MMT helps to expose power relations in capitalism.

      I still think that comparing the size of government spending and employment has relevance for MMT efficacy because MMT wants government deficits to be permanent (at least to sustain ‘full employment’) which would probably mean higher government spending to GDP over the longer term. In previous studies I have compared budget deficits and govt spending to GDP growth and found that the correlation is low compared to profitability of capital to GDP growth. See my paper

      But I am doing further empirical work on the relation between net govt borrowing (deficits) and employment for a future and much more thorough paper on MMT. A cursory measure of budget deficits against unemployment rate for OECD countries in 2017 showed that the lower the budget deficit (higher the surplus), the lower the unemployment rate! But I have not published this because the inverse correlation is not very strong and I think we need to consider time series and regression analysis.

      1. I’m pleased you mentioned transitional demands: it was the phrase in my mind as I was writing. The Job Guarantee could be seen as a demand for “the right to work” – indeed, many MMTers frame it in precisely that way. In effect, it says to capitalism, we’re not going to allow you to create a pool of unused resources (particularly unemployment) to suit your own purposes, we’re going to put those resources to work on social purposes.

        This could well precipitate a crisis, as the state tries to take away the power over unemployment from the capitalist class. The role of the state as the ultimate guarantor of capitalist relations would be called into question.

        I realise that the main MMT academics don’t look at it this way, they do see it as a way to stabilise capitalism. But just because they don’t have a Marxist understanding of the dynamics of class struggle and the role of the state (and that profit, for capitalism, is not simply as case of creating demand), it doesn’t mean that the proposal could not, objectively, lay bare capitalist power relations and create openings for class struggle. Which is, of course, the whole point of making transitional demands.

        On the deficits vs unemployment data, I’m glad you’re reluctant to take the static figures at face value, as obviously, the “automatic stabilisers” together with falling tax revenues will tend to increase the deficit precisely at times of capitalist crisis and redundancies.

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