MMT and Marxist monetary theory – a reply to Bill Mitchell by a man with no name

Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. Professor Mitchell is one of the world’s leading exponents of what is called Modern Monetary Theory (MMT).  MMT has gained traction in the labour movement in recent years on the grounds that it provides powerful new arguments to refute the claims of mainstream economics that governments need to balance their books ie keep spending in line with tax revenues and not allow government debt to spiral.  In order to balance the books, so the mainstream argument goes, government spending must be cut, taxes raised and debt levels reduced, even if that means more poverty and worse public services.  There is no alternative – as Margaret Thatcher once said.

However, MMT is supposed to offer the answers to the Austerians, both theoretically and in alternative policies.  Professor Mitchell, among other MMT supporters, has tirelessly campaigned for the adoption of MMT measures in the labour movement as the key answer to ending unemployment and austerity as policies that must be accepted by the labour movement.

Now I have spent much ink on my blog and in papers discussing and debating the merits of MMT as the answer to capitalist policies of austerity and unemployment.  In my humble opinion, MMT falls short of achieving its claims and objectives because it ignores the social structure of a capitalist economy and argues that the recognition and manipulation of the monetary system can solve the problems without ending capitalism.

At a recent fringe meeting at the UK Labour party conference, I was invited to debate the merits of MMT with Professor Mitchell contributing by zoom from Australia.  Shortly after the debate, Professor Mitchell posted on his blog, the following:

“I gave a talk at the Resist Event in Brighton UK last Sunday evening. On the panel was a person who dismissed Modern Monetary Theory (MMT) as irrelevant to the real challenges that arose under capitalism and he invoked Marx a lot. It was not a very illuminating interchange because not only did he misrepresent what MMT was but, in my view, he also seemed to think that we could extrapolate Marx’s scant ideas of money directly into the situation faced by nations today.”

Well guess what? This ‘a person’ was me, but I shall remain nameless as far as Professor Mitchell was concerned.  And it was not strictly true that Professor Mitchell “gave a talk” to which we all listened.  It was a discussion or debate with three speakers: Mitchell, myself (suitably named at the event) and Carlos Gonzalez of ‘fiat socialism’ fame.

In his posts, Professor Mitchell seeks to dismiss my arguments that MMT does not take us very far in explaining the nature of a capitalist economy or providing decisive economic policies that will help labour. Professor Mitchell thinks that I have not only “misunderstood MMT but also have a scant understanding of Marx’s monetary theory”.  He says Marx would never have agreed that government spending could not end unemployment or that capitalists would not increase production and employment if government spending orders came in. 

In the debate I said that Marx attacked the idea that, just by manipulating money, governments could solve unemployment and poverty.  This was the view of Pierre Proudhon, the leading socialist of the mid-19th century. Marx responded: “Can the existing relations of production and the relations of distribution which correspond to them be revolutionized by a change in the instrument of circulation, in the organization of circulation? Further question: Can such a transformation of circulation be undertaken without touching the existing relations of production and the social relations which rest on them?”

In his post, Professor Mitchell refers to Professor Duncan Foley (at least he gets named!) who asserts that for Marx, “the movement of commodities is largely determined outside the monetary sphere, and that movements of money in most cases are determined by those commodity movements…..The theoretical question then arises as to which is the determining factor. Does the movement of money determine the movement of commodities or the movement of commodities determine the movement of money?” Mitchell rejects Foley’s approach to money and reckons that Marx is out of date with this critique of Proudhon because back then money was gold or backed by gold, which meant its value was anchored to the production cost of gold mining.  Now, in the modern world of ‘fiat currencies’, the state can create money that is not tied to the value or price of gold and therefore the state can increase the amount of money at will. 

I do not agree that this makes Marx out of date. Contrary to the view of MMT, fiat money does not change the role or nature of money in a capitalist economy. Its value is still tied to the labour time taken in capitalist accumulation. Commodity money (gold) contains value while non-commodity money represents/reflects value, and because of this, both can measure the value of any other commodities and express it in price-form. Modern states are clearly crucial to the reproduction of money and the system in which it circulates. But their power over money is quite limited – and as Marx would have said, the limits are clearest in determining the ‘value’ of money. The state mint can print any numbers on its bills and coins, or the central bank add any number of digits to the government’s bank account, but that cannot decide what those numbers refer to. That is determined in countless price-setting decisions by mainly private firms, reacting strategically to the structure of costs and demand they face, in competition with other firms.

The MMT supporters, in effect, reckon that any reduction in private sector investment can be replaced or added to by government investment ‘paid for’ by the ‘creation of money out of thin air’. But this money will lose its value (ie purchasing power) if it does not bear any relation to value created by the productive sectors of the capitalist economy, which determine the amount to value generated and still dominate the economy. Instead, the result will be rising prices and/or falling profitability that will eventually choke off production in the private sector. Unless the MMT proponents are then prepared to move to a Marxist policy conclusion: namely the appropriation of the finance sector and the ‘commanding heights’ of the productive sector through public ownership and a plan of production, thus curbing or ending the law of value in the economy, the policy of government spending through unlimited money creation will fail.

As far as I can tell, MMT exponents studiously avoid and ignore such a policy conclusion – perhaps because like Proudhon they misunderstand the reality of capitalism, preferring ‘tricks of circulation’; or perhaps because they actually oppose the abolition of the capitalist mode of production (indeed, that is the view of most MMT exponents, although not Professor Mitchell).  You see, MMT is not relevant to a social transformation of society, Professor Mitchell argued in the debate – that is a separate question.  Right-wing, pro-capitalists can and do accept MMT.

Professor Mitchell goes on to highlight something in a post by this unnamed “critic on the panel”.  Yes, it’s me again – at least I am now on the panel.  In one of my blog posts on MMT HERE, I had a plotted figure that shows that there is no inverse correlation between increased government spending and unemployment.  On the contrary, among OECD countries, the higher the level of government spending, the higher unemployment!  

Professor Mitchell now applied his superior understanding of statistics to this result.  “In Statistics 101 or Econometrics 101, one of the first things students learn is to be careful in attributing causality. Correlation is not causality.”  Indeed, how could I be so stupid! But I’m not.  Of course, this correlation does not prove causation.  Indeed, that is what I conclude in the post: namely that there must be other reasons than the amount of state spending to explain unemployment rates.  As Mitchell says: “We would expect government spending to be higher in nations that had higher unemployment because of increases in welfare outlays and other non-discretionary responses to declining non-government spending (that was driving up unemployment).” Exactly, because what drives unemployment rates in a capitalist economy is the rate of investment and employment made by the capitalist sector.  When there is a slump in investment and people are laid off to join what Marx called “the reserve of army of labour”, government spending rises as benefit spending increases.  Having said that, the graph suggests that there is no evidence that unemployment falls when government spending rises, because there are much more compelling causes that affect employment.

In his second post dealing the views of the unnamed ‘critic’ of MMT, Professor Mitchell claims that he can show “how nonsensical it is to claim that capitalist firms will not expand production if they have idle capacity and can increase profits by responding to increased sales orders.” And that “the government sector is not bound by the so-called dynamics of private capital accumulation and under certain conditions can typically command productive resources from the non-government sector through increased spending without introducing inflationary pressures.”

In this post, Professor Mitchell takes us through a short course on the history of crisis theory, from Say and Ricardo’s views that general overproduction was impossible, to the underconsumption theories of Sismondi, Luxemburg and others.  And then he says: “Marx considered the accumulation process would lead to an excessive build-up of capital which would suppress the rate of profit and it was this dynamic that generated the crisis.”  Well yes, that was Marx’s theory of crises, more or less in a nutshell. 

But having said this, Mitchell quickly takes a step back: “But, we need to be careful in unpicking the logic here. Yes, the owners of capital control production and employment and their expectations of future returns dictate the rate at which the capital stock accumulates over time. But equally, when considering the causes of crises, we cannot avoid focusing on the realisation issue because it was through market exchange that capitalists were able to realise the surplus value they had expropriated in the production process by exploiting their workers into the monetary form of profit.”  Mitchell then claims Marx for his own theory of crises “As we move through history, the scholars that followed Marx clearly understood that effective demand was a causal factor in determining unemployment and recession.”  So there we have it.  Forget Marx’s profitability theory as the driver of accumulation and thus investment demand.  Let’s revert to the same position as orthodox Keynesians: that crises are due to a lack of ‘effective demand’.

Now I have spent much print and digital inputs from my computer showing that the Keynesian-Mitchell lack of effective demand theory is an inadequate explanation of regular and recurring crises in capitalist production. You can read my arguments here.

But in this post let me mention just one point.  Why does capitalist production seem to have enough effective demand for years or even a decade, and then suddenly investment and production collapses, unemployment rockets and there is a ‘lack of effective demand’?  The Keynesian/MMT has no answer to this question. The answer lies in the contradictions within the capitalist mode of production, specifically in the tendency for the profitability of capital to fall over time and eventually lead to a fall in total profits and value creation.  Then investment demand collapses, leading to a lack of aggregate demand so that capitalist production cannot be ‘realised’. This is the causal sequence in crises.

Mitchell invokes the post-Keynesian arguments of Michel Kalecki to justify his view that it is aggregate demand that drives sales, production and profits.  Professor Mitchell quotes Kalecki: “to offset any tendency for the rate of profit on the expanded capital stock to fall and thus offset the possibility of a crises (so very Marxian – really MR?), Kalecki wrote (page 87): “… if effective demand adequate to secure full employment is created by stimulating private investment the devices which we use for it must cumulatively increase to offset the influence of the falling rate of profit.”

Talking again of correlation, identities and causation, there is the Kalecki identity (investment = profits); and there is the correlation (investment moves with profits); but which is the causal direction?  Kalecki argues that investment drives profits, but this is back to front.  In my view, Marx correctly argued that, in a capitalist economy, profits drive investment, not vice versa as Kalecki argues. Kalecki’s view is that of the capitalist, namely that to quote him, the capitalist ‘earns what he spends’ while the worker ‘spends what he earns’.  But Marxist economic theory denies this.  The capitalist can only spend (invest or consume) what is extracted from the work force in surplus value or profit.  Profits call the tune, not investment or consumption. 

That is why boosting government spending, either by traditional borrowing methods (buying bonds held by the finance sector) or by ‘printing money’ (sorry, I meant making digital keystrokes into government accounts) will not guarantee expansion of employment or faster growth – if the profitability of capital is low and/or falling. 

As Cullen Roche, an orthodox Keynesian, put it: “MMT gets the causality backwards here by starting with the state and working out….. The proper causality is that private resources necessarily precede taxes. Without a highly productive revenue generating private sector there is nothing special about the assets created by a government and it is literally impossible for these assets to remain valuable. We create equity when we produce real goods and services or increase the market value of our assets relative to their liabilities via productive output. It is completely illogical and beyond silly to argue that one can just “print” equity from thin air. Government debt is, logically, a liability of the society that creates it. In the aggregate government debt is a liability that must be financed by the productive output of that society.”

Indeed, with government investment averaging just 2-3% of GDP in most major economies and capitalist investment averaging 15-20%, it is going to take a huge jump in government spending (particularly) investment to replace capitalist investment – indeed to the point of ending the dominance of capitalist investment entirely.

That’s the theory, but is there any empirical proof that profits lead investment and a fall in profits, and it is not the ‘lack of effective demand’ that leads to slumps?  Oh yes, there is.  Let me just cite one study by Jose Tapia.  Investment, profits and crises, Chapter Three of World in Crisis.  See p115.  Is there any empirical evidence showing that increased government spending has little or no effect on boosting ‘aggregate demand’?  Oh yes there is.  Again, Jose Tapia has done the stats – and these are not correlations but applied causal analysis (“Direct acyclic graphs (DAGs) are used for identification purposes, i.e., as tool to elucidate causal issues”).

Tapia finds that: “overall these results seem quite inconsistent with the hypothesis that an increase in government spending will pump-prime the economy by raising private investment and overall, the results of the models seem consistent with a null unconditioned association between lag government expenditure and present consumption incompatible with a causal effect.  So that “the Keynesian view that government expenditure may pump-prime the economy by stimulating private investment is also inconsistent with the finding that the net effect of lagged government expending on private investment is rather null or even significantly negative in recent decades.”

Professor Mitchell is convinced that “capitalist firms will respond to increased sales demand by producing goods and services.  If they think the demand is stable, they will invest and build productive capacity if they are currently at full capacity.”  But just in case, “if they decide for any reason not to respond, then the government can always employ and produce itself.” So we have a sort of two stage policy. As Professor Mitchell said in the debate in answering the unnamed ‘person’ and ‘critic’ of MMT: first we must break with the policies of austerity coming from the mainstream by adopting MMT policies; and then and afterwards, because it is a separate issue, we must look at changing the social structure as good socialists (as indeed Professor Mitchell is). 

I take this to mean that in applying MMT to government policies, we can ignore (for now) the continuance of fossil fuel production, big pharma control on health, the reckless greed of capitalist banking, the dominance of the tech and media monopolies.  These niceties of capitalism are irrelevant to the aims of MMT as MMT has nothing to say on these economic formations.  But precisely because MMT ignores that very social structure, its pursuit of achieving full employment through the ‘tricks of circulation’ of money will fail. 

42 thoughts on “MMT and Marxist monetary theory – a reply to Bill Mitchell by a man with no name

  1. Hear hear – Equality means Transform the Social Structure which will change the political-economy…as chou en lia said when asked about the significance of the french revolution “its too early to tell” (lol!)…what we need first then is ‘Decisions not discussions’ (stalin monster no less) on ‘Liberty EQUALITY and solidarity’…

  2. Dear Nameless, remember when friends copy you it is a form of flattery, and when opponents criticise you it too is a form of flattery, so do not be perturbed.

    I cannot believe the discussion did not center on the greatest all-time experiment of MMT and its consequences, the trillions in COVID Relief Funds. One cannot explain what is happening in the world economy today without including it. You will recall that I wrote that any successful implementation of MMT would be rewarded by inflation, not at the conclusion but at the onset, and how that view has been vindicated. Higher prices, higher wages, higher profit margins, higher rates of investment, all indisputably true. For example this weeks 2nd release of US GDP data showed business investment rising by 9.2% this quarter.

    So if it is true that MMT is inherently inflationary, which it is, then it cannot be cost free. And if it drives up interest rates, which is likely, then even if governments monetize this extra spending, they will be pressurized by higher interest rates on their existing debt and future debt. It also challenges the mountains of debt accumulated on the back of abnormally low interest rates.

    Does this mean we have to go back to the drawing board? Clearly not. All of this was predictable and predicted. But it is aberrant, unrepeatable, and in the longer term negative. If it revives the rate of profit it does so at the expense of debt, which means that any gains are likely to be lost by having to pay more interest in the longer term. It seems that the markets are beginning to sense something is off and they are right. The next release of corporate profits is going to make interesting reading as will Q3 delinquencies.

    1. MMT is not inherently inflationary. Some inflation or deflation of prices is inevitable for any market economy, depending on supply and demand. The power to “inflate” the currency by putting money into the economy is also the power to deflate by taking money out via taxation. In the global economy, monetary inflation and low intert\est rates largely affect high-income investors, and influence the ownership of financial instruments (stock, bonds) and (via price effects on credit) commodities such as housing and durable goods.

      U.S. COVID funding is not a relevant example of MMT. It was mainly designed to incentivize employers to keep labor and to support the unemployed. It was not targeted at job creation, per se. That’s Biden’s 3.5 trillion economic package.

      The drawbacks of MMT (not admitted by its proponents) lie elsewhere. The global exchange value of any currency lies outside the purview of national governments. In only a few resource-rich economies with globally dominant currencies (such as the U.S. and China), could MMT policies thrive. Zimbabwe and Greece, for example, cannot make use of MMT because they are resource-poor and depend on foreign trade for too many necessary commodities. If they inflated their currencies, exchange rates would go way up and their terms of trade would suffer.

      Barring trans-national transfers of money or goods, national resource endowment is national destiny.

      1. Where I agree with you is that MMT is only possible for the richest few countries. However, I do stand with my original comment. In my writings on money I demonstrate that 92% of M2 consists of unspent revenue emanating from previous periods of production or if you will monetized value, while 8% consists of net issuance of credit money or state money in the form of deficit spending (also QE). Unspent value is fixed until it is spent either productively or unproductively, or added to by new periods of production. The variable parts are credit money and deficit spending. Now I am sure we agree with Marx that money is sucked into the vortex of production and circulation and does not gate crash it, i.e. we do not subscribe to monetary string theory. The importance of the COVID funds as they relate to MMT is that over half entered into the pockets of the working class. Workers had to spend it unlike capitalists who can pocket it, use it for share buy backs or generally jack it into speculation. You just have to look at the FED graph on retail sales to see this is true, before the Funds a collapse in sales, after the Funds a surge

        What is the importance of this observation. It is this. Quarter 3 represents a reversion back to normal. By September most of the COVID funds will have been spent at least in the realm of Personal Consumption Expenditures. This being so August should have been peak month for inflation and retail sales should be ebbing as well. Corporations will be caught in a margin squeeze as on the one side demand starts decelerating, while on the input side the price momentum in the supply chains is still ongoing. We shall see. Where the mismatch between MMT and COVID funds occurs lies in the disruption of production and transport caused by the Pandemic. MMTeers could argue that the disruption to supply chains is analogous to capacity being fully utilized, thus inflation in this instance would be analogous to the end of the process of MMT rather than the onset.

      2. Jobanard writes: “The drawbacks of MMT (not admitted by its proponents) lie elsewhere. The global exchange value of any currency lies outside the purview of national governments.”

        People who claim MMT means ‘magic money tree’ simply fail to understand MMT. Goods and services can only be created by ‘the sweat of men’s brows’ regardless of how money is created (ex nihilo in the nation’s (central) bank, or ex nihilo in the private sector’s private banks).

        But the global exchange issue noted above issue seems a fair criticism of MMT, unlike the claims MMT will cause inflation (which it will not, if the productive capacity of the economy is maintained, to absorb the extra public spending).

        [Note: the covid government-rescue-packages in rich countries are not a good example of MMT; money should have been created to pay ongoing debts and essential living expenses only (since much income-creating capacity was forced to close) in the government-imposed pandemic lockdown of the non-essential economy].

        But even Bill Mitchell admits of the need for a global institution to oversee commodities transfer between nations where necessary (my words, Bill has admitted the need for overseas aid in the case of poorer nations).

        For my part, I see the combination of “socialism” in the form of nationalization of the essential sectors of the economy inc. energy and banking, AND MMT as the way forward. No doubt some MMT’ers would object, just as some socialists (“Marxists”) would object (eg, our illustrious host).

      3. (fixed):

        Barring trans-national transfers of money or goods, national resource endowment is national destiny. National economic policies mainly determine how rapidly national resources can be exploited and how equitably those resources are distributed among the nation’s population. That is both the promise and the limitation of MMT.

    1. The best answer especially for those people who are in their rooms paid for their salaries from Public Universities. That is, paid with guaranteed wages for life and forcibly imposed on the rest of the population. That is, for those who are in a situation in which “all citizens of a country pay a few their income” (social democracy) instead of “all citizens pay everyone” (socialism). . Bill Mitchel, and many like him, have already reached socialism personally (the advancement in the 20th century of the great western states is only a product of the socialist revolution. It was a spatial propagation of the impulse of the socialist mode of production of 1917) but not they are not at all willing for the rest of their fellow citizens to come to him.

  3. The fatal mistake prof. Mitchell made is the same as prof. Harvey, that is, the fallacy of problem of Realization. It really is a logical fallacy.

    When you take capitalism as a whole, realization is immaterial, because it accounts for all production and circulation of commodities. Value is not created upon realization, it is living labor power used to materialize commodities.

    Realization is merely the conversion of commodities to money. But the realization of one individual capitalist is the capital of another individual capitalist. Realization is only essential from the point of view of an individual capitalist, collective (e.g. a nation-state) or not (i.e. a literal individual capitalist).

    The failure of realization incurs into the destruction of value, not the non-birth of value. Value still exists, it is only destroyed. It is an accident imposed on the individual capitalist, by other individual capitalists or, in exceptional cases, by natural accidents (e.g. pandemic, a volcanic eruption or a mass extinction event of any kind).

    Realization, therefore, doesn’t create value. To say otherwise is merely to fall into the fallacious trap as the one of the infamous “Transformation Problem” by Böhm-Bawerk. It really is a version of the Transformation Problem in the theory of circulation (the original one attacked Marx’s theory of production).

    Taking capitalism as a whole (i.e. the whole world, all the nation-states combined; even taking just the USA would distort this analysis), realization is irrelevant. First of all, because it is definitional: in a capitalist world, capitalism must necessarily be dominant, therefore all social consumption must necessarily be a capitalistic consumption (i.e. a consumption of commodities). Second of all, because it de facto doesn’t create any value, that is the tendency of the profit rate to fall would continue to dictate the metabolism of capitalism. The exceptions to this rule are, of course, if some catastrophic world war happens which destroys most of the society’s infrastructure (at the present scale of development, it would have to be nuclear) and knowledge and mass extinction-like natural events (which transcends the social sphere, therefore it doesn’t pertain to Marxist analysis).

    P.S.: I know this is not the thread to say this, but I think prof. Harvey’s approach to Marx is very bad. It doesn’t help in any way on the scientific progress of applied Marxist Theory. On the contrary, it is a regression. He got lucky once with his “Limits to Capital”, but then it seems fame blinded him and he thought he was some kind of genius who could take some quotations from Capital completely out of context and give some nonsense new theory over it. That’s his problem: he thinks he’s a genius who is re-founding Marx, when actually he’s not (he’s the polar opposite of it).

    1. If we say that value is being created by a successful exchange , we are saying that workers whose capitalists were not successful in selling their products , did not produced value , and surplus value , so these workers were not exploited and even worse than that : we are saying that these workers exploited their capitalists because they got paid without creating value !!!!

  4. I think you make a mistake to dismiss judicious “money printing” via the currency-issuing capacity of the sovereign state. Interest rates can be fixed near zero.

    Eg in China, we witnessed half-finished residential towers being demolished last week; the PBofC should simply have bought Evergrande (with money created ex nihilo), and completed those towers. Moreover, given the huge productive capacity of China, a government-owned Evergrande should be devoted to building houses wherever they are needed. Note that housing – employed as a major source of economic growth – is only a small part of the overall private sector economy. But China is relying too much on exports to achieve national gains in living standards.

    Thus theories about profits driving investment, or the reverse, can be tempered by real possibilities on the ground ie through employing judicious complementarities in the private and public sectors.

    In the US, Biden’s package is on the brink because of misplaced (government) debt concerns, by people who think government finances are like household finances. Manchin won’t go above $1.5 trillion for the social bill (in addition to the infrastructure bill, because he thinks “the debt will be a burden on our children”. That’s nonsense. {It turns out he also “earns” half a million bucks annually from shares in a coal company ….the GND spending is a conflict of interest for him)

    What’s more, if Biden nationalized the entire energy sector, he could build the necessary solar/wind + pumped hydro storage within a decade, since there is no lack of resources to achieve this (only some opportunity costs…which are irrelevant if the survival of the planet is at stake). The market economy – and its need to price carbon – with its own style of resource allocation in search of private sector profits, will cook the planet (since coal will remain cheaper than renewables plus storage for some time yet, time which we don’t have).

    The Glasgow talk-fest will of course fail – end up being a finger pointing exercise – because of disagreement over “who should pay”. Why would the private sector invest in a green transition which will ultimately destroy profits – given sun and wind are free – unless prices are guaranteed in the market?

    In conclusion, judicious central bank ” money printing” need not cause inflation, as long as the nation’s *resource and productivity constraint* is respected, in the nation’s combined private and public sectors.

    Just to cut through the ‘profit driving investment’ debate.

    1. I mean… both your examples are predicated on the government commandeering key sectors of the economy. In fact, I’m not sure how aware you are that in your wording, it feels seizing control of them is more important than money creation.

      If MMT goes for state planning of the economy by seizing of strategic parts of the productive sector (and eventually all of it?), and money creation is just an actuarial instrument to accomplish that, then it’s just another another word for socialism, right?

      It’s when MMT talks of the state remaining a midget investor relative to the private sector that I can’t buy its prescriptions. I just can’t see how the state can foster investment through the placement of orders if it remains hobbled as an economic agent. The private sector won’t change its economic calculation as a whole just because the state stepped in as a client if the rest of the economy is anaemic and profitability remains low.

      But if MMT goes full way to doing something similar to or beyond what China’s public sector does, then I can get behind it… without having to budge from where I am as a supporter of socialism.

      1. @DGE

        I agree.

        Rather than criticizing China’s economic model because it doesn’t conform to 19th-century definitions of capitalism and socialism, why not treat it as a new species of hybrid economic system: state ownership of strategic sectors of the economy, varying degrees of state regulation of private non-strategic sectors, and also engagement in a global economy. This has been initially financed by relatively cheaper labor costs and is set to be gradually reduced. As recent developments in China indicate, formerly non-strategic sectors such as commerce may be newly regulated if they present monopolistic features (Alibaba) or if they impinge on state sectors (banking in the case of ANT). (And vice-versa, by permitting some foreign investment in regulated strategic sectors.)

        Finally, there is some question about the reasons for the recent demolition of unfinished apartment buildings in China. The ones in Kunming, for example, had been unfinished for many years, snd there was apparently some issue of shoddy construction. I believe that any “bailout” of Evergrande will privilege homeowners over investors, and quite likely have state construction companies finish uncompleted apartments.

        China is currently the country whose economic policies correspond most closely to Keynesian and Modern Monetary Theories.

      2. “…why not treat it as a new species of hybrid economic system: state ownership of strategic sectors of the economy, varying degrees of state regulation of private non-strategic sectors…”

        It’s called fascism.

      3. @jobernard

        Well, I’m a layperson, but… from what I’ve read here and elsewhere, I don’t think China merits the designation of a new kind of hybrid system. It does seem to me that Dr Roberts is right, it’s a blend of capitalist and socialist elements that’s inherently unstable.

        I think past experiences abound of intense state intervention in the economy delivering positive results in terms of common prosperity. And I agree that China’s current blend works much better than laissez-faire capitalism.

        In the end, I just reserve judgement on the sustainability of the Chinese model. Ironically, in his Facebook page Dr Roberts highlighted contradictions in Xi Jinping’s recent speech on this topic. He declared the USSR’s ultimate failure was due to the rise of a bureaucrat class that pursued its own interests and ended up alienating the people. Well… the rise of an intelligentsia/private investor/bourgeois class that proceeds to attempt to undermine the socialist component of a mixed economy is the main danger I see in state capitalism and variations, though of course I’m just expressing my agreement with such a view.

        I think China either intensifies socialism and gets rid of the capitalist part, or the bourgeois class will erode it in the end.

    2. Maybe China is knocking down those hideosly pretentious bourgeois towers because it reminds the actual communists in the Communist party that the world their ccountry is still dominated by global capitalism.

      1. re-written: Maybe the reason that those hideously pretentious and alienating bourgeois towers are being knocked down is that they remind the actual communists in the Communist Party that the world and their country are still doniminated by global capitalism. It can be viewed as a positive aesthetic and ecological act of productive destrucion.

  5. My wife’s final intellectual sortie some years ago was a skirmish into Professor Mitchell’s fantasy world. She soon explained to me how MMT must actually stand for Magic Money Tree. Thank you for yet another cogent, erudite, yet entertaining exposé of this silly, sloppy proposition.

    1. “She soon explained to me how MMT must actually stand for Magic Money Tree”.

      Anyone who thinks that, doesn’t understand MMT.

      Consider this: the UN could create and authorize *a global currency-issuer* to fund (“ex nihilo”) the transition to a global green economy, without waiting for the market economy to achieve the transition (the latter process which will cook the planet because private sector markets need profits – and higher prices on consumers – to proceed). Consumers want anyone except themselves to pay for the transition. Keep your eye on Glasgow – this will become excruciatingly clear.

      So the transition need “cost” us nothing, except for ‘opportunity costs’ which are of secondary importance, if the planet is indeed being cooked at a rate faster than market economics can deal with the problem. A bit of MMT “magic”?

      Of course, I am a socialist…

  6. China does not overtly practice MMT, but it has run up bonds, bank loans, and off-the-books instruments of debt since 2008. Evergrande is only one firm in the huge, tottering property development sector. The property boom followed the appearance of overcapacity in steel, cement, glass, aluminum, paperboard, etc. The boom became a classic speculative bubble with people buying their second and third condos intending only to flip them. All of this testifies that China is a capitalist economy in which the falling rate of profit inevitably knocks on the door. The outcome might or might not be a crash, but the rising prosperity of a good chunk of the working class is over. China is about to prove in painful terms that profit rules within the strictures of value, and that government action cannot put back together the miracle heralded for the last twenty years.

  7. In terms of political agenda MMT is all over the place. Kelton supported Trump’s tax cuts, arguing they were net equalising in US income distribution. In her book, MMT reads like a Republican strategy. Sad to hear that Prof Mitchel mis-cites your work, a fundamental sin for any serious academic. Thank you for the posts and books, I find them illuminating and a persuasive application of Marxist theory to modern issues. We seem to have a clearer view of Marxist theory than at any time in the last half century, but depressingly less support amongst the change agents, where it matters. My current reading is on financialisation and fictitious capital, and I’ve found your contributions really helpful. Perhaps a review of Lapavitsas or Durand? Take care.

  8. Since I get a lot of benefit from reading what you write, here is a condensed review of Durand.

    Review: Durand C, 2017, Fictitious capital – How Finance is Appropriating Our Future, Verso, London.

    Durand offers a left-leaning perspective on fictitious capital which he says allows greed to flourish and thereby introduces Minsky moments crashing financial asset prices. Because many of the derivative products traded in futures markets are re-traded and accepted as security on further loans the purpose of which is to buy more futures, Durand concludes that fictitious capital is a radical form of commodity fetishism, acting as quasi-money generating massive profits in the financial sector. Unlike Sandor (2012) he doesn’t claim that the derivatives serve socially useful purposes and citing Marx he argues that financial product profits eventually make such a call on profits created in manufacturing, that crisis ensues.

    From a Marxist perspective, Durand’s analysis is lacking. (a) His view of crisis is unrelated to the tendency for the rate of profit to fall (TRPF); quite the opposite, he accepts Lapavitsas’s profit without production, toys with Hardt and Negri’s cognitive capitalism and overall seems comfortable with wrongly characterising the current phase of capitalism as financialisation. (b) There is no agency for the working-class and allied forces in Durand. His world is populated by structures and markets, no anger, no wretchedness, no fightback, no hope. (c) Although he extensively cites Marx, Durand fails to read Capital from the capitalist’s viewpoint and thereby places little emphasis on the productive vs the non-productive investment and expenditure. He is confused over services, their embeddedness in the productive sector and the ability of intellectual labour to create surplus value. (d) While descriptively charting the internationalisation of finance, he rebuffs Lenin’s analysis of imperialism as the export of capital. He then fails to draw on the analysis of global value chains and super-exploitation found in Smith (2016), instead following the MR line of static monopoly capitalism. In particular, he doesn’t analyse the role of pension funds and insurance companies in GVCs and their indirect benefit to sections of workers in advanced countries benefiting from super-exploitation abroad, and increasingly in their own countries. (e) Durand’s sees that fictitious capital plays the ambiguous role of allowing capitalism to expand, while piling up calls on yet-to-be-created value: future value promises that all cannot be met. Unfortunately, he sees these as psychological (Minsky moments) and liquidity (Kalecki) problems and not objective necessity resulting from the TRPF. To summarise, Durand the crisis is in (vol-II) exchange and circulation relations not (vol-I) SV production and (vol-III) value taking a money-form.

    1. It is important to remember the stream of value off which fictitious capital feeds is fixed by production. Therefore all leverage does (derivatives) is to dilute that stream, or what is the same thing it costs more money to claim $1 dollar of that stream. So leverage causes capital gains without disturbing the actual stream of revenue. That point seems to escape those who push the financialisation story. The glasses may be bigger but the liquid each contains remains unaltered but from the perspective of the glass it fills less and less of it.

  9. Very very edifying post – very thought provoking. For instance for – “tendency for the profitability of capital to fall over time ​​and eventually lead to a fall in total profits and value creation” – can you link us to a paper or column that explains how we get out of that funk, from time to time in our boom bust world 🙂

    I find MMT eccentric, but it is not that much different from Friedman and his Chicago University mentors.

    I think most of the monetary policy reformers including Friedman, would say that the full employment monetary policy can only be extended as far as idle resources are available, and they would admit extending money creation beyond the constraints of resources is inflationary.

    To the conclusion that “Profits call the tune, not investment or consumption.” The Incans ran an empire without money, and presumably without profit as we know it. We have a mixed economy. We have public utilities, we have emergency production demands, we have unlimited goals which idle resources can be put to.

    Well done Professor Roberts!!!
    Joe Polito

    1. “Very very edifying post – very thought provoking. For instance for – “tendency for the profitability of capital to fall over time ​​and eventually lead to a fall in total profits and value creation” – can you link us to a paper or column that explains how we get out of that funk, from time to time in our boom bust world”

      Look at the diagram on the following post.

      In broad terms besides the short description on that diagram when it comes to the rate of profit all Capitalism managed to achieve so far is individual time periods of counter tendencies, i.e neoliberal austerity, that are able to temporarily halt or even reverse the fall.

  10. I don’t trust intellectuals; they can make anything sound true.

    It is in struggle that we learn what is true.

    However it is always good to discover which side you are on.

    But here is a clear rejection of Modern Monetary Theory by Michael Roberts (a man with no name).

    – A person of no consequence
    5 October 2021

  11. I would like Mr Roberts to explain (at least in theory) – if indeed we are cooking the planet faster than the free market can solve the problem – why money printing (ex nihilo) by a global bank, to buy the entire fossil industry, then transfer usable resources, while funding the building of the required green infrastructure….why this special instance of money would NOT be the correct solution to the problem.

    The ultimate global planned economy (using “planning not pricing”) in the energy sector.

    All achieved for “free” (apart from opportunity costs)…..

    What is the Marxist solution to the above scenario, ie, assuming not enough time for carbon pricing in the free market, to achieve a ‘price-bearable’ private sector transition to a global green economy?.

      1. DGE. Given a climate emergency which the profit-driven market economy cannot address quickly enough, I ask again, what is your solution without money printing?

  12. “Mitchell rejects Foley’s approach to money and reckons that Marx is out of date with this critique of Proudhon because back then money was gold or backed by gold, which meant its value was anchored to the production cost of gold mining. Now, in the modern world of ‘fiat currencies’, the state can create money that is not tied to the value or price of gold and therefore the state can increase the amount of money at will.”

    As Marx points out, money is a commodity. Commodities are bought and sold for a price. Prices fluctuate with supply and demand. The money commodity just represents the commodified wealth which labour produces and that which lies in the natural resources within a political State. The prices of real estate, finance and insurance commodities can be made to rise through political decisions restricting supply in the face of growing public demand. These decisions are made by elected legislators in bourgeois democracies. In Australia, the price of real estate has been manipulated way above its value in socially necessary labour time. The fictitious capital reflected in the rising GDP of Australia is liable to answer to the law of value at some point.

    There isn’t enough gold in the world to reflect the amount of wealth being produced now ergo, fiat money. The price of the AUD in terms of gold is now:

    Gold Price in Australian Dollars
    Gold Spot Price Gold Price Today Change
    Gold price per ounce 2,415.46 -12.58
    Gold price per gram 77.66 -0.40
    Gold price per kilo 77,658.69 -404.53
    Gold price in pennyweight 120.77 -0.63

  13. Hi Michael The hyperlink from Carlos Gonzales goes to the same page as the Bill Mitchell blog link. Was that intentional? Dave

    On Sat, 2 Oct 2021 at 10:08, Michael Roberts Blog wrote:

    > michael roberts posted: ” Bill Mitchell is a Professor in Economics and > Director of the Centre of Full Employment and Equity (CofFEE), at the > University of Newcastle, NSW, Australia. Professor Mitchell is one of the > world’s leading exponents of what is called Modern Mone” >

  14. Either money is the expressed, “extruded” representation of exchange value, or it isn’t. If it is then the “value” of money, its abilitiy to act as the ultimate manifestation of value, will represent successes and failures, improvements and impairments in the production of value, and gold only plays a role as a form, not the substance of value.

    What’s that mean? Well one thing it means is that MMT is not so much a magical money tree as it is a Moment in Magical Thinking because MMT lacks, above all else, an agent of change. It lacks any notion of, and the rigor, of class. So could the bourgeoisie do X,Y, Z? Of course. Would it make a difference? Maybe. Remember helicopter money? But the bourgeoisie won’t, because of the needs of private property, of maintaining private wealth, and of accumulating the means of production themselves as commodities, as values.

    1. Anti-Capital: can you explain why a world bank cannot print money, to buy the global fossil industry and fund the transition to a green economy, given that “opportunity costs” don’t apply if we are currently cooking the planet?.

      Climate change (and maybe the present pandemic if it persists) …..there’s your “agent of change”.

  15. “Anti-Capital: can you explain why a world bank cannot print money, to buy the global fossil industry and fund the transition to a green economy, given that “opportunity costs” don’t apply if we are currently cooking the planet?.”

    Let me count the reasons:

    1. there is no “world bank” as you imagine it.
    2. because the global fossil fuel industry is owned by the global fossil fuel bourgeoisie.
    3. because the global fossil fuel bourgeoisie have in the past and will in the future overthrow governments, unleash civil wars when threatened with divestment or expropriation.
    4. Because the global fossil fuel bourgeoisie make money.
    5. Because the industry has to be expropriated to be changed.
    6. See 3 above.
    7. Because you’re argument assumes that the global fossil fuel bourgeoisie share a “rationality” with other people that climate change is real, and a threat.
    8. Because it takes a CLASS to oppose and overthrow a RULING CLASS, not a threat..

    1. But in this climate emergency, the ruling class ITSELF is *threatened* by climate change aka as “extinction”. It’s a question of how soon the ruling class recognizes this fact.

      And when they accept the science (because of the increasing destruction of their own resources by climate catastrophes) they will quick smart create the necessary global bank required to create debt-free money (since debt-money is useless to deal with an extinction scenario) to fund the transition to a green economy. Would the ruling class rather experience their own extinction, more than enabling free energy for all (fueled by sun/wind)?

      Should all be clearer in a decade…in any case MMT will have its place in the (hopefully) post pandemic world with increasing automation. Unless humans prefer extinction via war, in the age of MAD.

  16. Anti-Capital: you certainly failed to explain why public sector money printing is not the way to go, in a climate emergency.

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