The deficit myth

Stephanie Kelton is  professor of economics and public policy at Stony Brook University, a former Chief Economist on the U.S. Senate Budget Committee (Democratic staff) and was an economic policy adviser to Senator Bernie Sanders, the leftist American presidential hopeful.  Kelton is a prominent exponent and populariser of what is called Modern Monetary Theory (MMT).

In a new book The Deficit Myth, Kelton explains what is the most important conclusion to draw from MMT – namely, it is a myth that if the government runs large budget deficits (ie spending more than it gets in tax revenues) and borrows the difference, eventually public sector debt will become unsustainable (ie debt repayments and interest will become too much for the government to deal with), leading to sharp increases in taxation or cuts in public spending and possibly a run on the national currency by foreign creditors.

Kelton says that this argument of the ‘Austerians’ is a myth. In her book, she brings forward the main arguments of MMT: first, that “governments in nations that maintain control of their own currencies — like Japan, Britain and the United States, and unlike Greece, Spain and Italy — can increase spending without needing to raise taxes or borrow currency from other countries or investors.” The state (national government) controls the unit of currency accepted and used by the public, so it can create any amount of that currency to spend. So the state need not issue bonds to borrow from the private sector, it can just digitally ‘print’ the money.  Indeed, that is what is happening right now during the COVID-19 pandemic, the argument goes.  The US administration and others are spending trillions on paying workers to stay at home and businesses to go into hibernation. Yes, it is financing some of this by issuing bonds, but it is the Federal Reserve or the Bank of England that is the main purchaser of these bonds, so in effect ‘printing’ money to spend.

The argument of MMT and Kelton is that this is a new way of looking at public finances and monetary policy. You see, what nobody has realised until the MMT guys were listened to is that, historically, “It’s the state’s ability to make and enforce its tax laws that sustains a demand for them, which in turn makes those dollars valuable.” This is the theory of chartalism, developed by a German economist of the 1920s, George Knapp and others, that money has emerged in modern economies as the result of the state needing to spend and so needing to invent a unit of currency that it can tax people in.  So the demand for money by people has been created by the state in order to pay taxes.  Money is created by the state and then taken back (destroyed) by taxation.  So, you see, the state controls money and therefore can control the modern economy.  It can spend without the constraint of rising debt.

Kelton makes the point that all MMT supporters make: that “M.M.T. simply describes how our monetary system actually works. Its explanatory power doesn’t depend on ideology or political party.”  When I read or hear that from MMT supporters, I am concerned.  Of course, truth and reality can be distinguished from ideology, but ideology uses the truth that it wants to reveal – there is never a neutral objectivity.  Is MMT really the basis for left-wing or socialist economic policy that so many of its adherents claim? – well, not according Kelton. Apparently, MMT is just as useful to right-wing Republicans as it is to Marxists.  Indeed, the idea that governments can run deficits as they please appeals to both left and right in the capitalist spectrum.  As Dick Cheney, the extreme right-wing Vice President under George W Bush, put it when military spending rocketed to fund the invasion of Iraq: “deficits don’t matter.”

But is MMT right that money emerges in modern economies because of the state’s need to spend? This claim of chartalism is certainly open to question. Historians of money and the great economists of classical political economy would deny it.  In particular, Marx would not agree.  For Marx, money emerges in society as a universal medium of exchange in trade within and between local communities. (Grundrisse:The circulation of commodities is the original precondition of the circulation of money” p165 – not the state). In capitalism, money takes on the role of capital as money buys labour power and means of production for exploitation and the production of value and surplus value “money itself can exist as a developed moment of production only where and when wage labour exists” p 223).  Money represents value created in an economy (“It is the comprehensive representation of commodities”, p210).

For Marx, money does not emerge from outside the process of exchange in markets or in accumulation of capital.  It is not exogenous, coming from the state, as MMT claims; instead it is deeply endogenous to the capitalist mode of production, the objective of which is to make money. As Marx says in Grundrisse: “Money does not arise by convention, any more than the state does. It arises out of exchange and arises naturally out of exchange: it is a product of the same.” p165. For Marx, neither the state nor money is exogenous or neutral to the capitalist mode of production.  Thus Marxist Monetary Theory, as opposed to Modern Monetary Theory, is ideological.  It is on the side of labour, based on the law of value and the exploitation of labour power. MMT has no concept of value or the law of value in capitalist economies, namely that production is for profit not social need; production is for exchange value, not use value; based on the exploitation in production, not on the creation of money for taxation. Profit does not touch the sides of MMT.

But maybe Modern Monetary Theory is right and Marxist Monetary Theory is wrong.  In her book, Kelton tells readers of her conversion to the first MMT. It happened when she met the ‘father of MMT’, former hedge fund manager Warren Mosler.  Kelton visited him at his beach house in the tax haven US Virgin Islands.  Mosler explained that he got his children to do their chores by insisting that they must be taxed and if they could not pay, then all their privileges would be withdrawn. His tax took the form of his business cards (this was the unit of currency created by Mosler, representing ‘the state’). In order to get these business cards, the children had to carry out tasks. Thus the ‘Mosler state’ created money (business cards) which the people needed in order to pay taxes.  Kelton was overwhelmed by this proof of “how the monetary system works” and became a convert – and, as the old saying goes, converts can be even more fervent than the original prophets.  Kelton is now the loudest supporter of MMT, at least in America.

What Kelton failed to recognise in the Mosler example is that there were chores to be done. Things had to be produced and human labour had to be exerted. So the children must work or the household goes downhill.  But the Mosler household was not producing for exchange, but for consumption within the household. The Mosler household was not trading with other households and exchanging goods or services. If they were, then the Mosler business cards would have to represent some exchange-value, not just some labour time involved within the Mosler house. The cards would have to be acceptable as a representation of labour time in other households. His ‘state’ (Mosler) could not decide that. In Grundrisse, Marx explains why having labour chits is not money and cannot operate as money in a capitalist economy, where production (work) is for exchange not for consumption.

Take a topical example.  Currently many airlines cancelling flights in the COVID lockdown are trying to avoid refunding customers with money (dollars) and instead are offering vouchers.  Anybody can see that these vouchers are not money, not a universal representation of the exchange value of all flights and other commodities, but merely tickets with that particular airline and so worth only the dollar price of trips with that airline alone. Inside that one airline house, these vouchers are ‘money’, but nowhere else.

The idea that it is the state’s power to tax that is an explanation of the emergence of money and exploitation seems far-fetched, anyway. Kelton claims that “the British Empire and others before it were able to effectively rule: conquer, erase the legitimacy of a given people’s original currency, impose British currency on the colonized, then watch how the entire local economy begins to revolve around British currency, interests and power.”  Do we really think that British imperialism worked because it controlled the currency of other nations?  Would it not be more accurate to say that because British imperialism imposed through force and conquest its control over many nations, it was able to exploit its people and then control their currency? Does the US rule the world because it has the international reserve currency, the dollar; or did the dollar become the international reserve currency because US imperialism dominated the world in trade, technology, finance and military power?

Kelton cites Mosler’s comment that “Since the U.S. government is the sole issuer of the currency, he said, it was silly to think of Uncle Sam as needing to get dollars from the rest of us.  Well, yes, that’s ok for Uncle Sam, but for many countries exploited by imperialism, they do not control their own currencies and are heavily dependent on the decisions of foreign multi-nationals and financial institutions. Can those governments print money without constraint to spend and tax?  Ask Argentina and other emerging economies in the current COVD-crisis. Their ‘fiscal space’ is very much constrained by international capital.  MMT is no use to them.

But the real issue for me with Kelton’s book and with MMT is whether knowing that governments can spend money and run deficits without the constraint of the burden of rising debt is really saying anything new or radical.  Keynesian economic theory has always argued that government deficits and rising public sector debt need not become ‘unsustainable’, as long as the extra spending produced faster economic growth.  If real GDP growth is higher than the interest cost on the debt (g>r), then (public) debt can be sustainable.  All MMT seems to be adding is that governments don’t even need to increase debt in the form of government bonds; the central bank/state can ‘print’ money to fund spending.

But there are constraints on unlimited government spending that MMT admits to.  Kelton points out: “the only economic constraints currency-issuing states face are inflation and the availability of labor and other material resources in the real economy.” Two big constraints, it seems to me. How would inflation arise? According to MMT, it is when unused capacity in an economy is used up, so that there is full employment of the workforce and given technology.  After that, if there is no extra capacity, more government spending financed by printing money will be inflationary. If governments keep printing money to spend, inflation of prices will take place because supply has reached its maximum.

But Kelton says that this constraint allows us to concentrate on the real issue: “M.M.T. asks us to focus on the limits that matter. At any point in time, every economy faces a sort of speed limit, regulated by the availability of its real productive resources — the state of technology and the quantity and quality of its land, workers, factories, machines and other materials. If any government tries to spend too much into an economy that’s already running at full speed, inflation will accelerate.”

Exactly!  And here the real issue is exposed. How does a capitalist economy expand capacity, investment and production? There are limits on its ability to do that.  But MMT actually does not focus on these ‘limits that matter’, only on the one that does not matter (so much) – deficits and debt.  More important to understand is why is there unused capacity; and why growth drops and there are slumps.  Indeed, why are there regular and recurring slumps in capitalist economies? These questions are not dealt with or answered by MMT. According to Kelton, “M.M.T. simply describes how our monetary system actually works”. Even if that were right, which I have doubted above, that does not take us very far.

In contrast, Marxist monetary theory does deal with the ‘constraint’ that matters, because it based on the law of value; namely that value is created by the exertion of human labour.  Under capitalism, human labour power is bought by capital (which owns the means of production) to exploit and produce value and surplus value (profit).  Under capitalism, value is not created by the state issuing money; instead, money represents value created by the exploitation of labour power. Printing more money so that governments can spend more money will not produce more value unless labour power is exploited more by capital as a result.

Kelton says that “In 2020, Congress has been showing us — in practice if not in its rhetoric — exactly how M.M.T. works: It committed trillions of dollars this spring that in the conventional economic sense it did not “have.”  If that is right, it is not good news for MMT. For will all these trillions deliver more output and more resources to meet social need? Much of this largesse from the ‘digital printing’ of money into bank reserves will not end up as more output, employment and investment.  Most of the trillions are either being hoarded by the big companies, while raising more debt at zero rates; or being invested in the stock and bond markets for capital gains.  It will not go into increasing capacity in productive sectors, because the profitability of capital is very low – as I have shown in other posts.  MMT has nothing to say about this, instead resting on its faith in increasing the quantity of a state currency unit.  Marxist theory does: hoarding money tells you that money has become a fetish, the objective in itself, rather than to be used as capital to extract more surplus value from the exploitation of labour in production.

It may be an ‘Austerian’ myth that governments cannot run deficits and need to ‘balance the books’. But it is an illusion to reckon that the crisis-prone nature of capitalist production can be ‘managed’ by means of ‘money artistry’, that is, by the manipulation of money, credit and government deficits. That’s because the structural causes of the crises and under-capacity lie not in the financial or monetary sector or the fiscal sector, but in the system of globalized capitalist production.

MMT and Kelton do not touch on the important issues of the failure of capitalism to deliver social needs and the underlying exploitation of the many by the few. On those questions, MMT has nothing to say and different MMTers have different views. I’m sure most, if not all MMTers (like traditional Keynesians), want governments to intervene to meet social needs. Some (like Bill Mitchell) support socialist measures to replace the law of value and the capitalist mode of production; some (like Kelton) don’t. Ah, says Kelton and MMTers, that is not the point of MMT.  We just want to show that it is a myth that the state cannot run up deficits without consequences. Again, that does not seem very new, radical and not even correct in all circumstances.

46 thoughts on “The deficit myth

  1. In the case of colonial British Southern Africa I wouldn’t totally agree with the way that either Kelton or Michael explains the role of imperial currency, although I would say the latter’s explanation is closer to the way it happened.

    It is rue that British imperialism imposed through force and conquest its control over the territory, but this alone did not enable it to exploit (sufficient numbers of) its people and, through that, then control their currency. The reason is that imperialism and the emergent capitalist mode of production encountered a sufficiently strong pre-capitalist, primarily subsistence mode of production (which didn’t have a general purpose currency). In order to have sufficient quantities of labour to exploit for capitalist production the state had to do two main things. Firstly, expropriate as much of the primary means of production – land – as possible and in various other ways prevent the development of an indigenous peasantry. And secondly, it had to impose taxes that could only be paid *in currency* through entering the migrant labour system. In other words, taxation and currency were critical factors.

  2. Have you ever read Perry Mehrling and dealt with his ‘money view’? In my humble opinion he is very close to Marx of Part V Capital Vol 3 (am working on a paper with that subject) and is excellent in contributing to understanding modern money and financial markets plus writes beautifully and clearly about capitalism’s latter-day mechanisms – in a historical context etc.?

  3. Thank you for the post, Michael. I was a bit confused by your meaning for this sentence, and had trouble with what I took it to imply, though:

    “Of course, truth and reality can be distinguished from ideology, but ideology uses the truth that it wants to reveal – there is never a neutral objectivity”

    Is the sense here that there is objective truth and reality, but we always approach it through an ideology, so we never state it neutrally (though that doesn’t stop us getting to the truth, just that we can’t state it is the objective truth, in full honesty, once we accept we are looking through an ideology)?

    I’m also guessing you must mean that truth and reality can be distinguished from ideology conceptually – not that we can distinguish our ideology from what is true of reality aside from any ideology? As otherwise, if we are able to say “This stems from my ideology” and “This doesn’t – and it is true (therefore, we know it to be objectively true)”, then we can distinguish ideology (and the truths we discover through it) and neutral objectivity (which leads to truths but not through ideology).

    Also, and finally, if you have an ideology which leads you to the truth, you can’t then go and say that you have hit upon the truth, independently of your ideology (you seem to assume above?). As that would imply you can distinguish what follows from your ideology from what follows from other, objectively neutral reasoning reasoning. You have to say “According to my ideology, this is true.” But if you accept that generally, then how can we assert that ideologies ever lead to any truths? We can conceive of what it would be like if they did, of course – it would be something like “When you are thinking about the world through an ideology, nevertheless you can sometimes be led to things which are objectively true of the world.” But if we can never get outside our ideologies, then we can’t confirm whether this conception of what it would be like when an ideology leads to some truths actually ever obtains, so then we never know whether ideologies use the truths they want to reveal or not.

    Thanks very much. Not sure whether this needs a reply, but I’ve thought through and written it now, so there you go.


    Ross H

    1. Good comment. The only way around it is a reformulation of objectivity as intersubjectivity. People who reject objectivity as a possibility in social sciences place too much of a burden of proof on it. If you think that you can get closer to truth, the criteria must be about taking into account a maximum number of objections, explaining seeming contradictions, using relevant empirical information and putting it into a theoretical explanation, etc.

    1. It gets worse. These dollar swaps with foreign countries. It turns out that one of the biggest beneficiaries are the foreign sunsidiaries of US banks. Thus the FED is funding US banks through the back door. Talk of MMT, Magical Money Tree.

      As for the retail sales figure today, just as fraudulent as the employment figure last week. I will post shortly why this is so. As Marx said large scale fraudulent behaviour escalates before every financial crash.

  4. Michael you must have an MMT source to buy all these books. I would suggest the correct formulation is that money not only represents value but circulates its. Thus taxation and govt expenditure represents the circulation of value originating in production and when it seeks to do more, it necessarily devalues itself. History has proven that time and again. This is not a semantic debate. The US by year end will have issued 50% of all new government debt globally. Can the dollar and interest rates wear that? Clearly being the world’s reserve currency is important, note the recent central bank swaps that averted a “dollar crisis”, but it is not bullet proof. Over the last ten days the strain has been showing with the dollar under pressure, less foreign demand for US debt and the FED having to make soothing noises as the 10 year rate trended towards the critical 1% level. So in the next few months we will know and know if the dollar can survive the virus and an economy whose finances undermined it. I suspect the Mad Monetary Theorists will end up with egg on their faces.

  5. MMT challenges the myth that governments are
    constrained in what they can spend by what
    they can tax or borrow . It will do for me in
    that respect and I must say that I am surprised
    we haven’t figured this out before

  6. I welcome the foregrounding of use and exchange value but I do worry that we might be in for the massive hidden inflation that we had from the last increase in money supply. As you say there is only inflation if new value does not match increase in money supply. But the converse is if there is a consistent decrease in the value of commodities then the monetary inflation half of the equation can stay
    deceptively low and not reflect actual inflation as we have had for years

    there are literally thousands of examples of decreasing (use) values : rail fairs increase br 4% service decreases by 50 % ?(late less trains uncomfortable journeys etc. car insurance goes up by x % but no claims protection ain’t no claims any more you just get less for your money. Quangos make getting political modifications cost more effort as does privatisation, each cow produces at least 10 times the milk they did before the war. Ingredients change, its basically the most sophisticated sand in sugar and water in milk we have ever seen. The list is almost endless with somes items jumping over 1000% in one year. (My unfavourite mint essence that no longer tastes of mint, 1,000 times diluted!) Smaller living spaces since Thatcher changed the housing standards law… All the cuts to services are also massive inflation in term of tax dollars. The list is pretty endless and inflation is an undeclared.

    Its all because government is too bust to do proper assay. My work lies elsewhere so anything you can do to further the ideas that we should introduce a valuation index – call it in and de valation (ie changes in use value) to go alongside measures of price change and anyone you can talk to to convince them that the job of assay should be taken over by a global consortium of universities they have the labs, and brains and would keep it fair for international trade as well

    Its heart breaking to hear a trades union boast they have a better than inflation pay rise. Maybe the trades unions could do a value watch? .

    I would also add unless in and de valation figures are produced there is very little chance of measuring the effects of fiscal policy in real terms and on real people in different sectors of the economy.

    Without valation figures even Keynes is hit and miss.

    I do realise that inflation is an interaction between price, new production and value of commodities. I may have missed something this is not my specialism.

    Is it Du Champ that has that oil painting ‘this is not a pipe’?

    With thanks

  7. Great post! However, I think that Marx and Kelton are talking about different kinds of money. Karl was talking about commodity money (specifically gold) that was “naturally” scarce, i.e., required labor to produce, while Stephanie is talking about “fiat” (nonconvertible) money. I see the latter as reflecting _state power_.

    In chapter 3 of volume of CAPITAL, Marx has the beginning of an analysis of fiat money: “in this process which continually makes money pass from hand to hand, the mere symbolical existence of money suffices. … it serves only as a symbol of itself, and is therefore capable of being replaced by a token. One thing is, however, requisite; this token must have an objective social validity of its own, and this the paper symbol acquires by its forced currency. This _compulsory action of the State_ can take effect only within that inner sphere of circulation which is coterminous with the territories of the community, but it is also only within that sphere that money completely responds to its function of being the circulating medium, or becomes coin.” [, my emphasis]

    Fiat money exists (and works as a means of payment and a store of value) because of the compulsory action of the state (forcing its currency). As Marx points out, this applies only within the state’s territories. But in the case of the US, its imperialism, and its hegemony over most of the world, it’s almost as if the country’s “territory” includes most of the world. It’s thus the international reserve currency, as you point out.

    Kelton either ignores the role of power or assumes that the state is all-powerful until the economy hits full-employment constraints (in which case, inflation hits). I should also mention that excessive “production” of fiat money can hurt the dollar exchange rate and undermine its status as the reserve currency.

  8. I’ve already commented something similar, but archaeological and historical evidence decisively points that money was born out of commodities (goods), not the inverse.

    During periods of crises and decay, the Roman State (Imperial Office) paid their legionaries and bureaucrats in goods when gold and bronze weren’t available. They did so until they found enough gold and bronze for new coinage without problems.

    Also, there’s the famous case of the Greek god Hermes. He was originally the god of the frontiers (between two or more poleis/tribes). When Greece developed over the centuries, Hermes also became the god of commerce. This is an indication exchange begun inter-tribes, not intra-tribes – as Marx himself pointed out for the Indian case.

    When money was not fiat (i.e. the whole human history before 1971), we can observe a variety of different goods used as money, without any problem for exchange. This is another evidence money is just a lubricant, not the cause, of trade.

    Marx was a very good “historian”. You cannot see any significant error or absurd being quoted/used by him in his major or minor works. He really studied History seriously, even though he wasn’t a historian.

    Many economists like to single Marx out for his passage at book I about gold being indispensable for capitalist world trade (even converted Marxist economists do that). But we must be aware that the pure fiat currency system only exists since 1971 – the jury is still out about its sustainability in the long term by historical standards.

  9. Las “teorÍas” del MMT, me parece que tienden a ser superestructurales, idealistas, similares a las “teorías” anarquistas:

    “¿Qué es la sociedad, cualquiera que sea su forma? El producto de la acción recíproca de los hombres. ¿Pueden los hombres elegir libremente esta o aquella forma social? Nada de eso. A un determinado nivel de desarrollo de las facultades productivas de los hombres, corresponde una determinada forma de comercio y de consumo. A determinadas fases de desarrollo de la producción, del comercio, del consumo, corresponden determinadas formas de constitución social, una determinada organización de la familia, de los estamentos o de las clases; en una palabra, una determinada sociedad civil. A una determinada sociedad civil, corresponde un determinado orden político (état politique), que no es más que la expresión oficial de la sociedad civil. Esto es lo que el señor Proudhon jamás llegará a comprender, pues él cree que ha hecho una gran cosa apelando del Estado a la sociedad civil, es decir, del resumen oficial de la sociedad a la sociedad oficial.” C. Marx, Carta a Pável Vasílievich Annenkov, (28 de diciembre de 1846).

    Gracias, nuevamente, por el aporte y/o contribución al esclarecimientos de puntos que, para el vulgo o el lego, no son nada de fáciles de comprender.

    1. Las “teorías” del MMT, me parecen que son superestructurales, idealistas, similares a las “teorías” anarquistas:

      eso escribí, espero no se tergiverse intercalando palabras que no he usado.

      Muy atentamente

  10. Pardon, but sometimes things seem to demand comment.

    Michael Hudson on ancient history seems to lurk in the ancestry of much MMT. See “…and forgive us our debts” for the latest iteration. Briefly, judging from his work, it is forgetful to assume money emerges from markets instead of states, while forgetting markets are creations of states. This is painfully true in the early national period, when gold made a state strong by fostering exchange. But even before capitalism began to emerge as a world system, Croesus and his Lydians invented coinage, not coinage inventing Croesus and the Lydians. Hudson is probably the most left in his antiquarian way than any MMT which would neatly explain why the debt is unacknowledged. The influence of chartalism on anyone else does seem unlikely to me, even if they prefer to cite Knapp rather than Hudson.

    You seem to be joining the Marxist gold bugs like Same Williams here. But gold has not always been the money commodity.

    1. “But gold has not always been the money commodity”. True, but you miss the point. Sam Williams is not a “gold bug”. He merely explains, along with Marx, that while the substance of value is abstract human labour expressed in units of time, it cannot be measured this way in any economy based on commodity exchange. (That is why Michael correctly states in his post “labour chits cannot function as money in a capitalist economy.”) Value must take the form of exchange value, and this has to be the use value of another commodity that has also been produced by labour (Marx’s 10 yards of linen = one coat.) When one particular commodity has come to perform this service for all other commodities, it has become the universal equivalent, ie. money. Gold assumed this role because for a number of reasons it proved to be more convenient than, say, coats.

      1. Our host has set his face against evil, therefore I am reluctant to break protocol even more. It is not clear how Michael Roberts thinks the power to tax is not a direct expression of state power, nor that historically the creation of hard currency wasn’t deemed essential to the creation of a national market, implicitly favoring the reverse propositions.

        The hint that the financial chicanery of money is the engine of capitalism, rather than the exchange of labor power equivalents fall on deaf ears, for my part. Historically, the reliance on hard currency to draw commodities out of late feudal economy into the nascent capitalist mode seems irrefutable to me. It’s why the early bullionists and mercantilists were not insane.

        It is perhaps the unreconstructed reactionary in me that thinks Adam Smith did demonstrate the true wealth in nations was not just in the soundness of its currency, however important this was in fostering trade or even manufactures But it was instead in the division of labor, where command over the forces of production was increased by accumulation of physical plant (though Smith wouldn’t have called it that,) and the extraction of labor power (ditto) from as many people as suited the times. Michael Perelman’s The Invention of Capitalism is useful in clarifying some of these issues I think.

        The thing is, then, that MMT adheres to a Smithian vision of true wealth as being in production, not money. It is not clear at all the old bourgeois fixation on a permanent store of value is anything but the ideological compulsion to imagine an earthly heaven where the treasures never whither. The “deficit myth” is that it’s hard money, kept hard by government intervention, that is the true guiding star…which I suppose it is, but, again, for the bourgeoisie. The unique role of gold as a store of value is the issue here. But it’s not clear that the search for an incorruptible store of value doesn’t lead to real estate investment, or stock market speculations meant to seize control of massive numbers of enterprises or monopolizing oil reserves or…gold, which means relying on government policy in South Africa and Russian Federation? Seriously?

        As to gold today, it is not clear that a commodity with such a limited use value, whose production is determined by a handful of states and monopoly firms, could even be said to have an exchange value set by a market. (I have no idea why Sam Williams doesn’t think the Price Revolution of the Sixteenth Century wasn’t the birth of capitalism Though maybe he does?.) The attribution of world market controlling effects to shadow markets in gold mining stocks and futures borders on the magical.

        There are two correct objections to MMT, which are that MMT doesn’t have a theory of profit, and it’s really only useful for imperialist countries. But there are no widely accepted schools which have a convincing theory of profit, so far as I know. A theory of profit seems to be the academic equivalent of imagining your mother having sex…at an orgy. Nor has it ever been clear that orthodox economists have the slightest interest in devising a just international order, at least not since the breaking of the USSR and, as they think, the reform of China. I do not understand how two failings common to economics as a whole constitute a valid critique of MMT.

        But enough of being offensive. Goodbye.


  11. Dude, MMT already is! It’s a description of how Fiat currency operates in all Fiat using nations all over the world. And as been operational monetary policy\federal finance at least since Aug.1971,when Nixon took us off of the gold standard. It’s not something to be implemented, and it’s not a “theory” it’s just called that. #LearnMMT
    *Hashtags are for reference and research.
    Capitalism isn’t the problem, Neoliberalism is. Learn the difference. The knowledge of #MMT is the antidote to social and economic injustice.

      1. True, neoliberalism is the form capitalism has taken in its latest attempt to combat the tendency of its rate of profit to fall.

        Fundamentally, these countervailing measures are attempts to increase profitability by various schemes to reduce the value of labor. But neoliberalism’s brutal, financially directed measures seem to have worked so well (even at the imperial centers) as to have pushed the price of labor, globally, below its actual value–the value socially necessary for the reproduction of the capitalist system itself.

        Left mmter’s are very cool and flip, but Carmen might have flipped him/herself onto a truth: Austerity IS murder, but, hopefully, it’s suicide too. Both by capitalism.

  12. The equivalent of 9 Boeing 737 of gold bullion have entered the US since the middle of March until last week. At the same time the Amazon forest has burned more intensely by the action of prospective gold miners and ranchers in Brazil. Sam Williams has a point. Fiat currencies have limits. The dollar has depreciated in terms of gold from $800 to $1700 per ounce since 2008. Investors don’t read about theories of money, but they know where to park their profits when capital is not growing much or the possibility of its destruction is imminent (like idle hotels and planes).

    1. It should read the equivalent of 9 Boeing 737 planes loaded with gold bullion has entered the US …

  13. The “experts” at the same time underestimated and overestimated the effects of the central bank’s financial flood.
    The central bank billions are underestimated wherever inflationary consequences are concerned. In fact, the excess money causes price increases wherever this money goes: on the stock markets, the real estate markets and on company balance sheets, in the gold price. Nobody calls it that, but that’s inflation.
    On the other hand, the central bank billions are often overestimated: up to 30 percent of (mostly small) companies in Japan and Europe are “clinically dead” and are artificially ventilated by the central bank money. “Emergency ventilation” does not really reach commodity markets. In fact, insolvent companies (or banks) have further access to loans, as well as a lower interest burden for their – under normal circumstances – intolerable debt burden.
    This means that these companies can continue to exploit wage labor, albeit under the worst conditions for workers. A deflationary burden, however, weighs on the commodity prices that these companies sell and the wages that these companies pay. They cannot increase their commodity prices or their wages.
    This explains why the central bank billions do not cause inflation on the consumer goods market (the official definition of inflation). On the commodity market, the deflationary forces (overcapacity = overproduction of capital) are significantly stronger than the inflationary forces (scarcity of goods).
    All of this is endured only through the solidarity of the capitalist class with its “needy sisters and brothers”.

    Wal Buchenberg, Hannover

  14. As the state is a tool/weapon for class subjugation, reforms that are good only for the subjugated will have a rather short history? As Kalecki wrote about full employment.
    The crisis of today wich is as much about absorbing general overproduction as about Covid-19, and the crisis of tomorrow (climate) shows that Marx was right in that the important thing is not to explain but to change?
    Any Modern Money Theory that doesn’t analyze the modern archeological findings, from the dawn of sedentary farming and money some 5000 years BC. is rather unambitious I think. In that beginning money seems to have been barley and silver. The complicated development from simple substinence storing economy with book-keeping by tokens to international (inter – city) trade based on silver and later coined silver will have a lot to teach us. Especially if combined with effects of statebuilding hoarding and the outer force, robbers, which looked upon any hoard as theirs for the taking. I can recommend James C. Scott Aginst the Grain. And of course Michael Hudsons writings on the subject.

  15. One has to be careful and precise discussing gold, when it has been replaced by tokens just as when gold replaced silver depriving it of the title “money material”. When gold is replaced by fiat money, reducing it from its noble state, a number of things happen. It can be priced and its price responds to market conditions formed by the industrial cycle. So in modern times, the price of gold (measured by most major currencies) tends to drop alongside other prices during the down phase of the industrial (business cycle) and to rise in the up phase of the industrial cycle popping to a peak just before the crash. This can be traced repeatedly from the recession in 1981 through to today.

    Had gold remained the money material – the universal equivalent – therefore priceless, this could not have happened. Quantitatively in the down phase, gold hoards would have tended to increase resulting in a reduced physical quantity of gold coin circulating commodities because there total realised value was depressed. Thus in comparative physical terms, it would appear that a smaller quantity of gold was circulating a greater quantity of commodities. Accordingly, if we were to become physicalists rather than valuelists, and stretch the term, its “physical price” would have risen not fallen because less was circulating more. In other word the opposite of what happens today where its price falls alongside general prices, when market conditions deteriorate.

    Having said this, I believe the dollar’s hegemony is in the balance and we need to be alert to a dollar crisis.

      1. Technological, financial and military prowess. The US is about 20% of the world economy measured by value added (loads of distortions it is roughly 80% of the $21 trillion figure) but 40% of global finances and fictitious capital reside there. Until China develops would class companies in all the key markets – tech, big pharma, aircraft, motor vehicle, consumer products etc – it cannot challenge this hegemony. That said, the US is financially stretched. Unless it gets its deficit under control, the US state’s ability to support the dollar will be diminished. Hope this answers your question.

      2. Pretty much. I enjoy the clarity and sanity of your comments here.

        What’s missing is the nature of the imperialist system that the US inherited, reformulated, and established itself as its protector. De Gaul once asserted that the US’s main export to Europe was inflation.The price of capitalist security? Maybe it’s depression now?–and imposed on China too. Or war?

        I understand that the focus here must be on economics, and that speculating on the political/social aspect of the present crisis can get out of hand. But dire conditions keep on challenging our restraint.

  16. i might be repeating something that has already been said in comments, but:

    Marx (and I agree with him) showed in the 1st book of the Capital that “money emerges in society as a universal medium of exchange in trade within and between local communities”.
    the form in which it thus emerges, however, is one that carries value: some kind of precious metal, stone, etc: it’s still also another commodity, also with use value, on top of being the common denominator of all commodities as a representative of value.

    when it comes to paper money (whose intrinsic value is orders of magnitude less than it’s nominative one), a counterargument to your argument that the Mosler economy cannot exchange with other households using business cards could be that “it’s just because Mosler does not have state-like authority over other households”.
    I’d agree with you that it’s a bad argument, but correctly answering that seems a bit more delicate.

    if i remember well, Polanyi in his Great Transformation makes a convincing argument that one of the factors that forced people out of natural economy and into wage labor was the state imposing that taxes be payed in money and not in goods.
    i think that saying, without going as far as MMT, that for paper money to circulate in the scale that is needed for capitalism, state power backed by military and police is needed so that money’s acceptance be enforced, is a true statement. after all, dollar and euro bills are “legal tender”, and law without police is not law in the present society.

    about the law “value is created by the exertion of human labor”:

    as a mathematician, i find the denial of the labor law of value in establishment economics completely anti-scientific.
    in physics, a system without any output from outside conserves its energy.
    if, as Engels said, economy is the study of how people produce and distribute goods, and economy wants to be a real science, then it would need a conservation law: value is conserved unless someone produces goods.

    it’s just a heuristic, but i find it useful. hope i didn’t abuse the space.

  17. Thank you Michael for having the patience to explain again why Modern Monetary Theory is wrong — in spite of being Modern. They missed the boat on the name, really. Surely Postmodern Money Theory would be more apt.

  18. It seems to me that – as previous commenters have brought up – there are two concepts that are being discussed. Perhaps they are not incompatible? the ‘money’ that MMT describes being the medium of exchange which defines the way in which money-as-exchange-value is exchanged.
    On the other hand this definition would further limit the supposed ‘universal’ nature of MMT. Universal only in those cases that the state has complete control over this medium leaves a lot of room for external factors.

  19. “It may be an ‘Austerian’ myth that governments cannot run deficits and need to ‘balance the books’.”

    By this, Michael, do you mean that for example governments during COVID are perfectly able to borrow as much as they like (up to a point) to finance wage/business support? Is, then, your disagreement with MMT the way it sees the circulation process, rather than the implications of ‘relatively abundant deficit spending’?

    1. No there is a limit to borrowing but it’s set by the level of value creation and that depends on the capitalist sector and it’s ability or willingness to exploit labour power with the extra money. The state may be able print as much as it likes but how much value that leads to is not in its control.

      1. I read this as saying government deficits will lead to the devaluation of money and inflation and this is economic ruin and hyperinflation. Except that the centrality of government debt appears to be a premise that only gold can be money, That hyperinflation is something that doesn’t occur in the wake of a grave military defeat (or nowadays economic warfare.) That the Fed, despite being a privately controlled arm of the government, isn’t doing MMT in practice, yet it doesn’t matter because only government deficits matter for the value of money (because the only real money is gold being the explanation left out.)

        If you just mean to say funny money won’t cure a depression, it’s not clear to me. And it’s not clear that the point of this funny money isn’t to use free money to buy up assets. There will be a multitude of ways they will try to make profit, especially the reduction of production. Inventories at supermarkets are being slashed, for instance.

  20. A criticism of the TMM from a social democratic economy perspective. Basically it is exposed that the TMM forgets that inflation can be generated not only for ‘real’ causes (demand greater than the production supply), causes that are easily controllable according to the TMM with an increase in taxes, price and wage control, etc. …, but it can also generate inflation for monetary reasons, that is, by loss of confidence in the currency and that this inflation is much more difficult to control.

  21. MMT says the creation of money (currency) is exogenous to the market. The creation of money is the same story as the rise of the state. In this sense the creation of money is endogenous to the state. You are getting confused on when MMT is talking about the state, and when it is talking about the market. The Mosler example equates to the state – your critique of the Mosler example equates it to the market.

    “Under capitalism, value is not created by the state issuing money; instead, money represents value created by the exploitation of labour power.” You are also pretty confused over the use of the word “value” within MMT. The desire for the currency is driven by the tax liabilities which is underpinned by the coercive capacity of the state. This desire is what MMT means by “value” of the currency. Currency is a measuring device, that is “a unit of account”. What is it measuring? The size of an obligation or IOU. As a universal measure, it can compare the obligation of someone selling you a loaf of bread, to someone selling you a pair of shoes, to your tax obligaiton. This size is the price. Whether the price accurately reflects the cost of labor, (environmental degradation etc) and who gets the profit, is a separate political issue, well-tackled by Marx.

    “MMT has no concept of value or the law of value in capitalist economies, namely that production is for profit not social need”
    – Actually MMT sees production as coerced out of the private sector (which can be pre-capitalist) and into the public sphere or the state. Whether you deem this equates to the public good depend on your politics. MMT does not contradict the idea that production within the market, can occur for profit and via exploitation of labor. MMT simply says that money had to exist prior to the market. Money enabled the creation of the market, and whatever dynamics go on within that.

    “But it is an illusion to reckon that the crisis-prone nature of capitalist production can be ‘managed’ by means of ‘money artistry’, that is, by the manipulation of money, credit and government deficits.”
    MMT reveals that crises have more to do with private debt levels than public debt levels. MMT tells you when you have a fiscal problem, and when you have a regulatory problem.

    And actually MMT never says governments can print money without constraint. And MMT has a lot to say about emerging economies – and the special constraints they face. MMT can very usefully show them why to not take on debt denominated in another currency, for example.

    You are mostly off the mark, but thanks for giving it a go.

    1. MMT at one point says banks create money and at another the state does.
      MMT may mean what you say about the ‘value of the currency’. Marxist theory does not agree – that’s the point.
      Money has no value, it represents value; value comes from labour power, not from the ability to tax.
      The MMT/Chartalist view that money comes before the market and from the state is just historically incorrect: money emerges from exchange not from the state needing to tax.
      If MMT just tells us when we have fiscal or ‘regulatory’ problem, it is not very radical – MMT ignores the real problem: capitalism and its regular and inherent crises.
      I did say that MMT does have a constraint on printing money: namely inflation. But of course it is unable to explain why there is inflation or how a government can macro-manage the right amount of tax to control inflation – no Keynesian policy has been able to do that ever.
      So you are mostly off the mark – but thanks for giving it a go.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: