MMT, Marglin and Marx

Let me start this post by quoting Noah Smith, liberal economist and Bloomberg journalist from his blog on Modern Monetary Theory (MMT): “The New York Times (NYT) just came out with a big glowing writeup of MMT, entitled “Time for a Victory Lap*”. This article aroused the anger of just about every macroeconomist on Twitter, and with good reason — it demonstrates very little understanding of the issues at play or the state of the policy debate, and it rhetorically elevates a fringe ideology to a position of importance and centrality that it neither occupies nor deserves. The NYT article on MMT, written by Jeanna Smialek, is mostly a puff piece about Stephanie Kelton, MMT’s most well-known proponent. In glowing tones, it describes Kelton’s clothes, her office, her house, her neighborhood, her blog, her manner of speaking, her personal story, and so on, calling her “the star architect of a movement that is on something of a victory lap”. Very little is written about the background of the macroeconomic policy debate, and what does appear is highly questionable.”

The NYT article also provoked ‘orthodox’ Keynesian gurus like Larry Summers and Paul Krugman into more scathing comments on MMT. Summers tweeted: “I am sorry to see the @nytimes taking MMT seriously as an intellectual movement. It is the equivalent of publicizing fad diets, quack cancer cures or creationist theories,”  A fierce debate followed in the social media and encouraged new critical articles on the validity of MMT. 

However, in this particular post, I am not going to repeat all the arguments from a Marxist perspective against the main propositions of MMT.  You can read these in a number (six, I think) of posts on this blog; in this longer piece here; and in various video debates on my You Tube channel.

But given the latest discussion, I can add two things which are a reminder of MMT’s faultlines: first as explanation of money flows in a capitalist economy; and second, whether government spending financed by the state issuance and the ‘creation’ of money can deliver economic growth, full employment and rising incomes without touching the sides of capital’s exploitation of labour.

First, MMT argues that a state with ‘sovereign control’ over its currency (eg US government and the dollar) can issue as much as money it likes.  This is obviously true as the state controls the issuance of the national currency.  But what is not true is that the spending of this money (dollars, euros etc) automatically creates more value in things and services in an economy.  As Keynesian Michael Pettis has argued before and repeats in a new article: “What MMT really shows is that there are no direct spending constraints on a government that is monetarily sovereign. It can always create money or debt to fund its spending needs without first needing to obtain the funding. This doesn’t mean, however, that there are no indirect constraints. In fact, there are always economic constraints. This is because an economy cannot consume and invest more than it produces and imports.”  

I would put it another way.  Money is not value; it is the representation of value.  More money does not mean more value.  If there is no more value created, then more money (dollars) just represents the same value: the money has depreciated in its ‘purchasing power’ or in its value per unit of currency.  And there is no guarantee that increased government spending, whether financed by issuing more currency (MMT) or more government bonds (orthodox Keynesian) will lead to more value.  That depends on the decisions of capitalist companies to invest in more labour and/or technology.  And that in turn depends on whether more profit can be made.  This is what Keynesian theory and MMT (really just an offshoot of Keynesian theory) do not recognise. By the way, you can read a recent riposte to this critique of MMT,, by Eduardo Garzón who shows exactly where the difference is between Marxist monetary theory and MMT.  Of course, I consider the former a better explanation of a capitalist monetary economy and Garzon the latter.

But the other faultline in MMT is what happens when increased government spending financed by the ‘printing’ of money does not lead to increased value but instead to the inflation of prices.  It is ironic that just as the NYT claims that MMT has ‘won the day’ in refuting the view of mainstream macro that balanced budgets and controls on public debt are required ie austerity, along comes a huge hike in inflation rates. Mike King in his blog says: “The rise in inflation was exacerbated by supply chain inefficiencies and disruptions, but it was almost certainly propelled to some extent by Covid relief spending and the Fed’s extremely loose monetary policy. That was a reminder that aggregate demand has a limit — that you can only boost the economy with fiscal and monetary policy so much before costs start to appear. (Those costs, as any orthodox macro theory will tell you, are due not to any issue with government financing, but to the economy’s real constraints — the limits of real resources available.).”

MMT proponents have always recognised that if an economy reaches ‘full employment’ and cannot grow any more, then inflation could ensue.  Their answer is that the government should then increase taxation to ‘destroy’ the surfeit of money spending.  But as I have argued before, in effect, MMT policy then becomes just like orthodox Keynesian macro management ie trying to tune the economy along the narrow path of growth without inflation with a judicious use of taxes and spending.  Unfortunately, the anarchic capitalist accumulation process cannot be ‘adjusted’ in this way – as the failure of Keynesian macro management in the last major bout of high inflation and low real GDP growth in the late 1970s showed.

Indeed, in a new paper on the efficacy of MMT’s key policy proposal to achieve full employment, a Job Guarantee (JG), which I have also commented on in previous posts and papers, Jackson Mejia and Brian C. Albrecht argue that “the JG does nothing to stabilize inflation under a discretionary policy regime.” What they mean by this is that governments with adjustments to government spending and taxation cannot keep the Job Guarantee at the right level to achieve full employment and control inflation – there is a trade-off.  They quote leading MMT exponents, Mitchell, Wray, and Watts (2019, Ch. 19) who write, “By design, a JG programme is a complement to. . . fiscal policies that aim to finetune total spending, and welfare or other social safety nets.”  And again, MMTers Fullwiler, Grey, and Tankus (2019) suggest that “varying tax rates and other inflation offsets should be included in the budgeting process from the outset.”  But as the authors of this paper conclude: “consistent with other findings of central bank inflation management under discretion, we find that inflation management under discretionary fiscal policy is subject to the same problem.”  In other words, Keynesian fiscal management, whether orthodox or MMT-JG, cannot adjust effectively between the Scylla and Charybdis of full employment and inflation.

But that’s enough on MMT for now.  In this post, I want to concentrate on what Larry Summers tweeted further on.  Summers complains that one of the reasons that mainstream economics and central bankers got it wrong about the current bout of inflation in the major economies is that they and the financial media do not pay enough attention to the views of heterodox economics.  Summers appears to want to show he is a ‘pluralist’ in his approach to economics, unlike some.  He attacks the NYT and economic journalism in general for “its neglect of Marxist and post-Keynesian scholarship most of which is very critical of my views and policy choices”.  Summers then argues that “the NYT should give more attention to Marxist scholars like Steve Marglin, whose book Raising Keynes deserves extensive debate.”

What?  Who he? some of you might exclaim.  Well part of the reason that Summers cites Stephen Marglin is that Marglin is a longstanding member of Harvard University’s economic department, the university in which Summers is an emeritus professor and was formerly President (when he got into trouble for claiming that women were poor at science). It may be that Marglin is the only ‘Marxist’ economist that he has read. 

Marglin started out as a neoclassical economist and was regarded, even while still an undergraduate, as the star of Harvard’s economics department. But since the late 1960s, Marglin moved away from mainstream economics.  He became a Leftist but describes himself as a Marxist “only in the sense of not being anti-Marx.” – so not a very strong attachment.  Marglin apparently recognised that capitalists got rich, not because they were smarter than the average worker or because their factories etc were more efficient than workers self-producing, but because of their monopolisation of the means of production, which meant they got ‘rents’ out of production (note, no use of Marx’s category of surplus value).  Capitalism also controlled the manufacture of knowledge.

‘Marxist’ Marglin’s new book, Raising Keynes: a 21st century General Theory, argues that Keynes’ radical ideas have been distorted and submerged by mainstream neoclassical economics.  Modern Keynesianism has become a theory that claims capitalist production is fine except for some imperfections in markets.  All government has to do is to intervene or manage the economy to compensate for these imperfections, or what is sometimes called the ‘warts’ on the smooth body of the ‘free market’ economy.  In the case of macro management, the imperfection is ‘sticky’ prices or wages, which stop a capitalist economy from reaching full employment ‘equilibrium’.  In a slump prices and wages should adjust downwards in order to reach a full employment equilibrium.  But if there is monopoly pricing and trade unions, then the prices of commodities and labour become ‘sticky’ and the economy trundles along at less than full employment.  

In his new book, Marglin, like Joan Robinson and others before him, reckons this view of Keynesianism is a travesty of Keynes.  It is what Joan Robinson once calls ‘bastardised Keynes’.  Marglin claims he is rescuing “the central insight of John Maynard Keynes’s great work, The General Theory of Employment, Interest and Money, that capitalism left to its own devices has no mechanism for guaranteeing full employment, and that consequently the government must provide a visible hand to work in tandem with the invisible hand of the market.” Raising Keynes shows how and why the orthodox reading of Keynes is wrong and substantiates Keynes’s insight that, even if you strip capitalism of its warts, you still have a system which has no mechanism for reliably producing enough jobs. So “we need the government, not on an occasional, intermittent basis, but all the time, in the long run as well as in emergencies.”

But I find nothing new in this ‘radical’ interpretation of Keynes.  Marglin may think he is resurrecting Keynes from the dead, but several ‘Marxists’ and post-Keynesians have done this before him.  For example, in an interview, winners of Leontiev prize (, Foley and Taylor claimed that: “Keynes saw capitalism’s general state as allowing almost arbitrary unemployment: hence his “General Theory.” Full employment was a lucky exception… calling full employment the general state and allowing one unlucky exception turns Keynes upside down.”

Moreover, does this revelation about a ‘heterodox’ Keynes make Marglin a Marxist?  Well, it’s true that over 160 years ago, Marx reached the same conclusion as radical Keynes and Marxist Marglin that capitalism can never sustain full employment.  But Marx’s theory was based on his law of general accumulation and the emergence of a permanent ‘reserve army of labour’.  This ‘surplus to requirements’ workforce emerged because, in competition, capitalists strive to increase profits by invest more into technology relative to the labour force.  In doing so, capitalists tend to shed labour for machines, and then draw on the surplus pool of labour according to the cycle of production.

But this theory of permanent ‘underemployment’ is not the same as that of Marglin’s ‘radical’ Keynes.  For Marx, the failure of capitalism to deliver full employment is based on the contradiction between the capitalist drive for profit and social needs.  Nothing is produced under capitalism unless it can make a profit.  In contrast, Keynesian theory generally ignores profits as a driver.  This is a fundamental difference and it shows in economic policy. 

For what is Marxist Marglin’s policy solution to achieve full employment?. Well “the government must provide a visible hand to work in tandem with the invisible hand of the market.”  So it is not the replacement of capitalist mode of production and the ending of the contradiction between private profit and social need.  Instead, government must help capitalist production to work better.  Indeed, Marglin’s practical example of this is the Roosevelt New Deal in the 1930s.  According to Marglin, the New Deal “arrested the fall in prices and wages and set the stage for the gradual recovery of output and employment”.  Really?  By 1939 unemployment rates were still very high and the US economy was still struggling.  Only in the ‘war economy’ from 1940 onwards was full employment achieved, when government took over the bulk of investment and employment decisions from private capital for the war effort.  The war economy did not ‘work in tandem’ with the ‘invisible hand of the market’ but replaced capitalist production entirely, if only for a few years. 

Anyway, it is just not true that Keynes was some sort of radical or socialist who rejected capitalism. As he wrote: “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.” Moreover, the profit motive must remain: “The loss of profit may be due to all sorts of causes, but short of going over to communism there is no possibility of curing unemployment except by restoring to employers a proper margin of profit.” As Keynes argued that “Economic prosperity is…dependent on a political and social atmosphere which is congenial to the average businessman.”  He had little respect for Karl Marx, calling him “a poor thinker,” and Das Kapital “an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world.”

Two years ago, another ‘Marxist’ James Crotty published a book, called Keynes against Capitalism, in which he claimed that, far from being a conservative, Keynes was in fact a socialist, if not a revolutionary one like Marx. “Keynes did not set out to save capitalism from itself as many think, but instead reckoned it needed to be replaced by a liberal form of socialism.”  Although what Keynes describes as liberal socialism was really the so-called mixed economy of capitalist combines and government control (which Marglin seems to advocate too), all run by “an elite of business managers, bankers, civil servants, economists and scientists, all trained at Oxford and Cambridge.” 

Above all, let me remind readers that this radical Keynes appears to be only concerned with getting full employment within a capitalist economy.  Keynes had little or nothing to say about global poverty and inequality; he was an imperialist in policy; and he claimed that capitalism would eventually solve the problem of lack of work through technology.  The problem of the 21st century would then be one of ‘too much leisure’ because everybody would be on a 15-hour week!

It is this sort of ‘Marxist’ economics to which Summers wants us to pay attention.  But as Austrian School economist Joseph Schumpeter once commented “[T]here are the attempts to Keynesify Marx or to Marxify Keynes….. It is in fact possible to enrich the meanings of both these authors by points culled from the other, (but) they are at opposite poles in matters that are of decisive importance analytically.”  Rather than try to resurrect Keynes as Marglin aims to, it would be better to let him rest in peace.

44 thoughts on “MMT, Marglin and Marx

  1. Hi Michael, thanks for this post. As always I thoroughly enjoyed this, but I thought I would offer a reply as someone who is sympathetic to MMT’s arguments.

    MMT applies to a particular historical period, the post-Bretton Woods era after the United States de-linked from gold. Since then, costs of ‘producing’ verifiable money have essentially been reduced to zero (we often say that governments are ‘printing money’ but they are actually not. They’re typing in numbers on a computer to create reserves in bank accounts. The fact that ‘reputable’ outlets such as the Financial Times get away with such blatantly misleading phrasing is telling of the sad state of journalism, as is the NYT article you cited.). These cost reductions have freed governments to create as much money as they like (for example, QE).

    Conventional wisdom tends to frame money as one good among many, that eventually becomes the ‘medium of exchange’; in this sense, it is the ‘first among equals’ of goods and services. This is the commodity theory of money and neoclassical economics (and some other economic schools of thought, such as many Marxists) tend to presuppose the accuracy of this theory and take it is a foundation upon which to build theories about economic functioning. MMT comes from a less well-known, credit theory of money (developed most notably by Alfred Mitchell Innes in the early 1900s, if I remember correctly). This theory essentially claims that money is not a medium of exchange, but a means of payment. This is not a semantic difference. By taking a commodity or service one becomes ‘indebted’ to the other party and must ‘clear’ the debt by paying. Money is what results once this means of payment becomes more readily moved between parties (A incurs a debt to B and pays with the credit received from C) and more specialized forms of employment emerge. Key differences in this theory are (1) economic professions emerge after the adoption of debt, and (2) money cannot exist without a hierarchical political authority that violently enforces its use (this is not necessarily as dark as it sounds, we all use money nowadays for its convenience).

    MMT has numerous faults and I would not necessarily call myself an MMTer. For example, the reality of economic functioning (as you pointed out in your post) places severe constraints on governments abilities to create more currency at will. This is not necessarily advisable, but also not what realistic MMT academics are arguing for. The power of one’s currency is directly linked to the political power of the political authority that issues it. The US can print as many dollars as it wants to with little real effects on the inflation rate (I accept that expansionary fiscal policy and loose monetary policy have played some role in the current inflation, however the supply-side effects are clearly dominant here. To compare, massive QE during the 2008 financial crisis barely got the inflation rate to 2%), but the Republic of Congo cannot. As a post-Keynesian (not an MMTer) friend of mine once said, ‘all countries can print their own currencies, but only one can print the dollar.’

    What MMT has been useful for is an ontological recategorization of money as credit and not as a commodity. By reframing popular press articles and our ‘common sense’ discussions, it can be seen as useful. The hysteria around it is a byproduct of our schizophrenic and nonsensical media environment which seeks to sensationalize everything. You are right to say that we need to look more critically at our market fetish as well, but I think many MMTers would agree with you on this point! I at least do.

    Anyway, sorry for the long-winded post, hope it provokes some thoughts.

    1. Marxism takes everything you told about money into account. Money is, at the same time, a commodity, credit, means of payment (and more).

      MMT is, even with your caveats, a fundamentally flawed theory.

      The fact that present-day money is fictitious capital does not invalidate Marx’s theory. Money is still a commodity.
      The only difference money in fictitious capital form makes is that it expands the limits of the monetary system and of capital rotation.

      Money must be a commodity precisely because of that dark cloud of those “economic constraints”. The Dollar Standard is not unlimited, it just transfers the contradictions to the rest of the world.

      1. I was not saying that money is fictitious capital, I was saying that it is directly tied to the perceived “creditworthiness” of the issuer of the currency. If a country ties its currency to gold, but the country collapses, then the currency is worthless; so the acceptance of money is still a question of whether or not the user “trusts” the issuer. Runs on banks and currencies occur for this reason. Even when the gold standard was in use, the amount of currency in circulation exceeded the amount of gold that backed it. All money, whether convertible or not, relies on “trust” (I use that term in quote marks because I cannot think of a better word for it. I do not “trust” the U.S. government, in the conventional sense of the word.)

        Again, I want to reiterate, I am not an “MMTer”, but not because I do not agree with the credit theory it is based on.

    2. “…all countries can print their own currencies, but only one country can print the dollar.”

      After creating a lot of confusion about money, epitomized finally as “a means or payment” (in an economy that seems to produce only credit?)–you seemingly collapse into a truth you can only imply regarding what really supports (m)agic (m)oney (t)heory: what Samir Amin called imperial rent: the monopoly of the means of murder and theft to extortion and guarantee the flow of goods to the “north” from the “south”: archetypically, the flow of blood from the open veins workers in the “Belgium” Congo to the blind, devouring mouth of King Leopold. Western economists call this crime, trade. So thanks for the implication.

      1. I need to add to the above that apparently imperial rent is insufficient (probably because of rising, bloody costs of sustaining it) to counteract capitalism’s falling rate of profit.

      2. I was not defending western imperialism; at no point did I ever say anything of the sort. I also did not claim that the economy produces only credit. The global free trade regime is extortionist and unjust, as you say. None of this invalidates the credit theory of money. You are making many inferences about what I believe and what MMT claims, ones which are not true.

      3. “none of this invalidates the credit theory of money”

        I believe(as you seem to, or inadvertently implied) that the trustfworthiness of the US dollar is based on the US-centered imperial system and its (former?) monopoly of the means of destriuction—or as you put it, “[credit] money cannot exist without a hierarchal political authority that violently enforces its use…

        You might not think “this is not as dark as its sounds…” but I do.

  2. So funny that Communitarianism is called “Marxists” these days by the American academic elite. I knew it was impossible for a real Marxist to be teaching at Harvard.

  3. I completely disagree with Schumpeter. I think Keynes is 100% pseudo-scientific, and his works are completely useless, while Marx is the definitive scientific theory for capitalism, no addition or tweaks needed.

    Keynes never developed a theory, let alone a general theory. The title of his magnum opus is of a completely propagandistic nature. There is no Keynesian Theory, only a Keynesian doctrine.

    As with every doctrine, it has its time and place. Keynes is now obsolete.

    Nostalgia in History usually is a sign of decline of a given civilization or empire. Western economists insisting on reliving the period of 1930-1975 is not a good sign for the capitalist civilization.

    The concept of a school or group of notables (in Keynes’ proposal, “an elite of business managers, bankers, civil servants, economists and scientists, all trained at Oxford and Cambridge.”) constantly fixing the problems of society is not new. In fact, it is very old: in the West, it comes from Plato’s Nocturnal Council. Here the irony is even more glaring, because Plato leaves the question of how this Council could exist in the real world completely unanswered. The dilemma of the Nocturnal Council was only solved by… Marx!

    So, not only is Keynes completely wrong about Marx, but the polar opposite of what he said is wrong: Marx is the great one, while he is the obsolete and pseudo-scientific one.

  4. Michael, the key fact about MMT, against which all other considerations wilt, is this; is MMT inflationary from the OUTSET or at its CONCLUSION only once full capacity is realised. I would argue the former because MMT necessarily depreciates money. A simple example will suffice. Assume GDP to be 100 and M2 to be 80. Here the velocity of circulation is 1.25. Assume further that the FED and the Treasury inject the equivalent of 10% of GDP into the economy focused on the bottom 80% whose propensity to consume is high. In this case nominal GDP will rise to 110 and M2 to 90 yielding a fall in circulation from 1.25 to 1.22 everything else being equal. In reality, if we assume M2 to be unconsumed GDP, past and present, and given that the additional 10% of M2 will be consumed within the course of a year, the velocity of circulation cannot have changed. So how to solve for this? Well it would mean that nominal GDP would actually rise to 112.5 restoring the velocity to 1.25. This +2.5% would be registered as additional inflation injected into the system by the additional rise in demand due to a constant velocity of circulation. So a 10% injection of money when spent will give rise to a 12.5% rate of inflation all things being equal.

    Turning to Keynes and his differences with Marx. Marx understood capitalism as a knowledgeable gardener understands a fruit tree. Any gardener knows that in order to yield the maximum fruit (profit) excess branches need to be pruned. Otherwise they consume unnecessary sap depriving the more productive branches of the nutrients and energy they need to produce fruit. Marx understood this pruning process to be integral to capitalism to prevent overgrowth (overproduction) thereby enhancing the tree’s future fruit producing potential. Keynes opposed this pruning process because he saw it potentiating social unrest and because he saw it as being unnecessary. If Keynes had had his way, we would see an orchard of overlarge trees with smallish leaves whose branches would be resting on state formed crutches. Not exactly a healthy and productive orchard, but at least one where all the branches are fully employed. Capitalism is capitalism, you can change its warts but not its DNA. Boom and bust will always be the way capitalism staggers through history.

    1. UCBP,

      “Keynes opposed this pruning process because he saw it potentiating social unrest and because he saw it as being unnecessary.”

      Do you have specific references from Keynes to this effect?

      How would Marx the horticulturist manage a socialist orchard?

      1. Henry. Marx observed that the Garden of Eden lay ahead of us not behind us. A communist society, freed from the burden of private property would cultivate sufficient orchards so as to satisfy society’s needs, and freed from the compulsion of competition and cost price it will do so in harmony with nature without the use of herbicides, pesticides and fungicides. We forget that all great economists are political because we have become accustomed to the ne0-liberal dross with their mantra “there is no such thing as society”. Here is a quote taken form the International Socialist Review which I hope will suffice: In a letter to Franklin Roosevelt in 1933, after the adoption of the first New Deal policies, Keynes called Roosevelt “the trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out.”

    2. ” MMT is inflationary from the OUTSET” .

      Wrong. And your “simple example” proving this wasn’t simple.

      Whereas we CAN consider this simple plain-english example:

      Assume un/under-employment, and also unused (potential) productive capacity, in food production and housing construction.

      In this case, government spending (“for free”) to bring the unused resources into production will not be inflationary, but will increase the output of the economy.

      Proving MMT is inflationary at its CONCLUSION, as MMTers assert.

      1. Neil, the greatest experiment in MMT has just concluded. I refer of course to the $11 billion in global Covid funds injected during 2020 and 2021, equal to 10% p.a. of global GDP when adjusted for industrial production. While it is true that the supply chain dislocations can be interpreted as full capacity being reached, it is also true that the data has revealed that revenue growth has been due to price growth and not volume growth, though within this crude volume analysis, corporations have substituted more expensive high end products for low end products. Thus underlying capacity is still being under-utilized. The takeaway from this has been an explosion in prices as corporations have gamed the system. Most of the residual funds have ended up in the pockets of the larger corporations who have increased their dividends and share-buy backs rather than investment. In the US orders for capital goods never reached the levels last seen in 2018 before the 2019 slow down. Why is this important? Because of what is to come. The reset is happening, which when amplified by higher interest rates, will be brutal. MMT may have rescued capitalism during the pandemic but at the cost of impairing it afterwards. Supporters of MMT cannot escape this conclusion.

    3. UCBP,

      “Marx observed that the Garden of Eden lay ahead of us not behind us.” etc.

      OK I understand a little better at what you’re driving at in regards to Keynes and I don’t want to push your metaphor too far but I wasn’t asking about Communism but the intermediate stage of Socialism.

      Firstly, can you give me a real world example of this “pruning” in a capitalist orchard?

  5. Michael writes:

    “In contrast, Keynesian theory generally ignores profits as a driver. ”

    Try as I might I seem to be not able to bend my mind to this proposition.

    Keynes said that the level of output is given in part by the level of expenditure on investment (the other parts are consumption and government expenditure).

    The level of investment expenditure is given by businessmen’s expectations of making a profit.

    The current level of profitability is not entirely relevant. A business might currently be profitable but if the businessman expects profits to disappear he will not investment and even shut down his business.

    While Keynes gave much space to explaining the Marginal Efficiency of Capital (i.e. the dependence of the level of investment on the rate of interest and profitability) he, in the end, argued that the MEC schedule was relatively interest rate inelastic and that expectations of future profitability, which cause shifts in the MEC schedule, were of prime importance.

  6. On the concept of full employment, it is very easy to visualize why there’s no such thing in capitalism, nor “full capacity”, which is another presupposition MMTers do.

    Take the USSR. During the Cold War, one of the main critiques the capitalists made on it was the fact that there was no freedom of movement for people. A person in the USSR had a job given by the State, and was tied to the region he/she was born forever, so to speak. The argument went that this state of things was the absence of freedom, or, in neoliberal vocabulary, serfdom (or even slavery), because every individual, in order to be free, should be able to decide what to learn, study, become specialized into and choose where to work.

    The thing is, what we had in the USSR – this “serfdom” – was actually full capacity. We know, because the data is available, that the USSR operated almost all of its post-war history in full industrial capacity. Yes, people could not choose exactly where to work – but they had a guaranteed work (therefore, also a guaranteed correspondent education), given by the State. Some even argue that this perpetual state of full (industrial) capacity was one of the main responsible factors for the technological stagnation of the USSR, excluding the military sector, after the 1960s, but that’s another story.

    In order to preserve capitalist anarchy and maintain a state of full capacity, you would have to have, at the same time and indefinitely, a permanent state where, at the same time on worker chose to have another job, another worker in that job chose to have the job presently held by the first worker, and so on. It would basically require a capitalist society that’s has a perfect hive mind – which would presuppose a natural State, even stronger than the most totalitarian State possible, which would annihilate the very concept of capitalism. It is, therefore, proof by contradiction.

    The only way to have freedom of choice, i.e. freedom of movement of labor, is to have a minimum critical mass of unemployed people. The worker can only give up his/her job freely because his/her employer knows there’s another one waiting to take the empty spot immediately. This process is only possible because there’s a permanent reserve of unused trained workers, for (almost) every area and every sector.

    In its most prosperous times, capitalism can legitimize such mass of industrial reserve of labor by calling those unemployed people vagrants, rebels, nihilists, romantics, depressed artists, hippies etc. etc., that is, as some kind of individual choice; that doesn’t change the ontological nature of the thing.

    In not so prosperous times, the true comes out. That’s why the bourgeois economists eventually had to come up with the concept of “structural unemployment” in the 1970s. They say that this structural unemployment in the USA is 2%, but, when it comes to a country like Brazil, they say it is 15%. In other words, it is a political concept disguised as a scientific one.

    1. vk
      just to confirm, MMT achieves continuous effective real full employment via continuous utilization of all resources (inc .labour), by means of the govt. funded above-poverty level JG (with all the add-ons). The JG is a variable pool of workers doing work deemed useful at the local council level, but which can cease at any time without causing hardship to anyone, as higher paid employment in the regular public service, or private sector, comes up. It is the minimum acceptable wage in the economy (allowing normal participation in the nation’s social life by the JG worker, unlike people on the dole).

      1. But that wouldn’t change the necessity of an industrial reserve army. What MMT proposes is simply to give this army a minimum wage to guarantee a more comfortable life. That is the same solution given by the original neoliberals, who proposed a universal basic income.

        There are two problems with this:

        1) such funding would necessarily have to be paid in fiat currency. Fiat currency’s purchase power is volatile, therefore the State would have to constantly update it as the economy as a whole changed;

        2) said universal basic income already exists de facto, in the form of food banks, public shelters etc. etc. The real minimum wage in capitalism is survival.

        So, the world MMT proposes already exists. It just happens that the landscape is not what they think it should be.

    2. vk,

      “It would basically require a capitalist society that’s has a perfect hive mind…”

      It’s called the “market”.

  7. “Money must be a commodity….” Be careful when saying money must be a commodity. It only functions like a commodity in that it can represent exchange value and exchange for all other commodities. It is not a commodity in that that exchange is not connected to its socially necessary labor time of reproduction. Money has a power, an “imputed” value, based on the reproduction of capital not in relation to the value embedded within it..

    According to the Fed, the price of production of the $5 bill is 10.8 cents; the $100 bill is 14.0 cents.

    The lowly penny costs about 2 cents to produce.

    1. What does the cost of physically making money have to do with anything? Also, considering the dollar is the world reserve currency and used in 85% of world transactions, what does any you said have to do with the reality of a global market? Marx didn’t foresee this condition, and neither did Lenin for that matter.

      Fact is that the primary contradiction here is that American Hegemony is standing in-between and concept of labor and commodities in a global sense. You seem to have “imputed” a “power” to money without considering this at all.

      1. Just pointing out that money is not, and does not function like, a commodity. Don’t know how that impacts your “primary contradiction,” but then I can’t make sense out “the primary contradiction here is that American Hegemony is standing in-between and concept of labor and commodities in a global sense.”

    2. It must be a commodity because there’s a direct correlation between the prominence of a nation-state’s (real) economy and the strength of their fiat currencies.

      The USA, even now deeply deindustrialized, still is a formidable economy, by nation-states’ standards. Keep in mind that the USA doesn’t compete with some abstract, idealized capitalist economy, but with the 190 or so really existing nation-states. And, let’s be real: the average nation-state is either very small or very poor or a combination of both. Its economy doesn’t need to be perfect for its fiat currency to be the dominant one because the competition is not strong.

      If the real economy didn’t matter, then any fiat currency from any nation-state (i.e. any central bank) could be elected, by some world governance council or something like that, as the universal fiat currency. In fact, we wouldn’t even need a nation-state to have this hypothetical fiat currency, but instead have something like Keynes’ Bancor.

      What the fiat currency does is to extend this limit, thus acting as a period of latency/counter-tendency of the usual cycles of money as a commodity. That’s because the fiat currency is, at heart, a financial asset, i.e. fictitious capital. Another counteracting factor is the very nature of the universal fiat currency, which has to be, as the name implies, universal (neoclassical economists call this “incumbency”). Another counteracting factor is violence, which is the lender of last resort of History: the USA, as the military superpower and owner of the Seas, can impose its fiat currency and financial system by force through control of the sea lanes. That’s why the USD still is disproportionately represented in world financial and commercial transactions, even though its GDP is not, relatively, what it was before.

      The gold standard is no more, but money definitely still is a commodity. What one could argue is if present-day fiat currencies are based over one single commodity (the Petrodollar Hypothesis) or simply value of a whole nation-state (labor time “as a gelatin”).

  8. Hi Michael This link does not work

    (* **)*


    On Thu, 10 Feb 2022 at 13:27, Michael Roberts Blog wrote:

    > michael roberts posted: ” Let me start this post by quoting Noah Smith, > liberal economist and Bloomberg journalist from his blog on Modern Monetary > Theory (MMT): “The New York Times (NYT) just came out with a big glowing > writeup of MMT, entitled “Time for a Victory Lap*”. This ar” >

  9. Michael writes:

    “Although what Keynes describes as liberal socialism was really the so-called mixed economy of capitalist combines and government control”

    I’m not so sure that this encapsulates accurately the development of Keynes economic and social theory.

    Keynes’ economic and social theory is to be neatly found in the concluding chapter of the GT.

    It’s corollary is a simple refutation of what Keynes called State Socialism.

    Unlike Marx, who spent decades and thousands of pages of turgid obscure prose developing his economic and social theory, Keynes was able to succinctly outline his theory in a few paragraphs.

    Essentially, Keynes believed that the accumulation of capital would advance to the stage where the scarcity value of capital would evaporate and the rate of return on capital would approach zero.

    As we all know, he wrote of the “euthanasia of the rentier”. He saw the rentier stage of capitalism as transitional.

    Capitalists would be reduced to mere purveyors of entrepreneurship and innovation and essentially be rewarded their marginal productivity.

    He also believed that a “comprehensive socialization of capital” would be necessary to sustain adequate investment to secure full employment.

    He applauded the development of taxation as a means to reduce income and wealth disparities.

    However, he also believed that “there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today”. In the this he understood basic human nature – unlike Marx, I would argue. (From my very basic reading Marx counted human nature as largely irrelevant to the development of social theory – the relations of production are prime. Happy to be persuaded otherwise.)

    He suggested that the productivity of capital would advance to the point that the working week would fall to 15 hours. And he saw the demise of the rentier within one or two generations.

    We haven’t quite arrived at that point.

    It may be that the rate of accumulation has been curtailed by the introduction of comprehensive taxation, ironically, maintaining the scarcity value of capital for longer than anticipated.

    Keynes may have also underestimated the political power that accompanies wealth accumulation, sustaining the capitalist class.

    Keynes saw himself as a Liberal and a member of the the middle to upper class. I remember his being asked if he identified with the working man (given that his work was focused on maintenance of full employment). He responded to the effect that he was imbued with the values and ethos of the class he was born into.

    Contradictions seemingly in abundance.

    1. If capitalists would be rewarded by their marginal productivity, then how could capital’s “scarcity value” and return on itself fall to zero?

      Marginal utility as the source of value excludes the possibility of the elimination of scarcity. It presupposes perpetual scarcity. Therefore, return on capital can never be zero. In fact, it can not even be theoretically said it would tend to approach zero.

      What you’re saying (and, allegedly, Keynes) is merely that capitalism will raise the tide, lifting all boats to a level nobody will even care (i.e. even the poorest will live so well they will not even bother where the richest are). It’s the optimistic/good cop version of the neoliberal fable.

      Marx not only takes human nature into account in his theory (Keynes did not develop a theory, no matter how many times and how many people say he did), but he’s the only one to do it. Marx unified Humanities with Biology. He did so very elegantly: if labor is the source of all value and the majority of the wealth (humans, we can observe, can never live solely by gifts of nature), and labor is merely the interaction of human action with nature, to make humanly useful things, then the economy will always presuppose the human production of humanly useful things and the formation of humanly social relations. Therefore, when it comes to Capital, the concept of use value already presupposes human nature in all of its possibilities (that is, up to the limits of every possible human being’s imagination, from the very first human to the very last human to exist in capitalism).

      That’s why Marx was easily able to exclude living animals like horses, oxen, sheep etc. from the problem of living labor, socially necessary labor time. They are not workers, but fixed capital, because they don’t need what they produce in order to fulfill their existence.

    2. “Unlike Marx, who spent decades and thousands of pages of turgid obscure prose developing his economic and social theory, Keynes was able to succinctly outline his theory in a few paragraphs.”

      Keynes could do so because his theory was so superficial. The complexity of Marx’s works, turgid and obscure to philistines, reflects the complexity (necessarily given the scientific rigor and integrity of his undertaking) of the subject of his theorizing, capitalist society and the natural as well as historical bases of its social relations. m

    3. VK,

      I am talking about capitalists as individuals, as entrepreneurs. In essence they have the nature of workers except their work is entrepreneurship and presumably risk taking. They might own capital but the return on capital itself approaches zero.

      I can’t see that your explanation of what Marx’s contribution to the understanding of human nature amounts to anything that resembles what I am referring to. I am referring to the human nature of individuals as individuals. As always, Marx’s perspective is about the human being as a component in a social/production relationship. Entirely misses the point and seems to reaffirm my point about Marx having nothing to say about human nature per se. Human beings were just seen as producers of value. The essence of their nature as individuals seems to be of no consequence.

  10. ucanbpolitical (reply function disabled)?

    Central Banks should have simply changed the digits in the bank accounts of laid-off non-essential workers, to enable them to pay for the essentials (food, housing, utilities). Then we would not have the massive covid savings pool ready to be spent in supply-constrained economies, which is the problem causing the present inflation, and for which CBs are mistakenly considering lifting interest rates, as if higher interest rates will create more truck drivers or reduce Omicron infections.

    It’s possible that price controls and even rationing might have been required if covid had been truly scary enough to force an extended severe lock-down of the non-essential economy (for a couple of years). It’s some ways it’s unfortunate covid wasn’t scary enough to force an extended lock-down. .

    In which case MMT would have been the ONLY possibility to avoid catastrophic chaos and loss of life on a global scale, without any accrual of public AND private debt, and without any excess spending power when the pandemic finally ended.

    But now we are back to square one, with the mainstream shouting about the “massive government debt which must be repaid” ….

  11. vk

    The real minimum wage in capitalism might be survival, but MMT changes that aspect of capitalism, by introducing *public oversight* (via the nation’s treasury) of the invisible hand free market.

    Did Marx even conceive of that possibility?

    1. It would still fall on Plato’s problem of the Nocturnal Council: where would this “public oversight” be? Who would make it? How would they be chosen? What parameters would they adopt?

      But even if we assume this Public Oversight was formed, it would have to face another dilemma, which is Plato’s Hydra problem. If, for every problem in a given State you create another extension of the State, then the problems of the State are magnified and not diminished (let alone eliminated – we’re way past that point at this level of discussion). So, say you slay this head of the Hydra – the survival for a minimum wage set by this other State institution, the “Public Oversight” – then what you have is that more heads will grow from the place the old one was removed: what if this Public Oversight is riddled with corruption? What if it is liable to bribing from the capitalists? What if it allocates more wealth to this or that group, this or that region, on basis of favoritism and prejudice?

      At least Plato had the intellectual honesty to see he could not solve the problem of his Nocturnal Council. He was, at the end of the day, a great thinker, a great philosopher. Those bourgeois economists (here, the MMTers/Neo/Post-Keynesians) are intellectually dishonest, snake oil salesmen; they think they’re taking out Marx with a stroke of a pen, when, in fact, they can’t even square off against the Ancient Greek.

    2. How is this “public oversight” to be introduced? Marxists (correctly) understand the bourgeois state to be a class dictatorship of the capitalists even if veiled by sham democratic trappings. Any prospect of “public oversight (via the nation’s treasury)” that amounted to anything beyond social-democratic faux class collaborationism would be violently crushed by the central committee of the imperial capitalist class (the united states government) unless backed up by force on the part of the working class.

      “Did Marx even conceive of that possibility?”

      Yes, Marx refuted utopian schemes of this nature in the Communist Manifesto and in his polemics against Proudhon.

      1. Hegel,

        When the public understand the difference between public money and taxpayer money (as per MMT) , public oversight will be maintained via the electorate.

        The problem is in educating the public, against the wishes of private financiers who want to maintain the privilege of money creation for themselves ie they refuse to allow the currency-issuing government to issue and spend its own (free) money.

  12. “Central Banks should have simply changed the digits in the bank accounts of laid-off non-essential workers, to enable them to pay for the essentials (food, housing, utilities).”

    In reality, Central Banks do not exist to obey whatever Neil Halliday thinks they “should do” but to serve the purpose for which they were created: to facilitate the global rule of the american imperialists; to make the rich and powerful ever more rich and powerful.

  13. Wealth has two sources: labour power and nature. Money just represents wealth so that you can trade your labour power or natural resources for an abstract universal equivalent of them (backed by a belief in the full faith and credit number of the coin of the realm) and then use money commodity to buy the commodities that you need to use. The more this abstraction is produce per piece of labour or nature, the more of it you need to trade it for some useful good or service. Roberts is right. Money itself is not wealth, it is an image of wealth, kind of like a god we create and have faith in so that we can go about our business of buying and selling the products of labour, labour power itself and pieces of the Earth. The wage system ensures the ruling class gets to own the lion’s share of the wealth. Socialism (or communism, if you prefer that term) on the other hand, ends the commodification of wealth. The classless associated producers distribute wealth on the basis of need. Buying and selling no longer exists.

  14. It was noticeable how one of the main motivations of the N.Y.T. writer (on someone involved in my family´s physical torture and kidnapping by the U.S. embassy: meaning S.Kelton: UMKC 2007 Economics and Finance) was the need to satiate her lips and tongue by pressing them against the nothing to offer (they have no idea as to how to make it happen against finance capital once [if] in Congress. And then make sure not to be taken away as it were) cathected linguistic secretions that objectified the libidinal world that enabled S.K. to keep on excreting the surplus she had run towards her for. I mean she makes it clear and is very open about it. I just do not see where the need would arise. What would lead her to have been wrenched from that which only SK could provide.

  15. Money is credit and a bank note or even a positive balance on a bank account is simply a promise of the issuer to pay whatever he contractually promises to deliver when his IOU is presented to him. And it can also be used to redeem any liability the presenter might have. Money does not represent and does not have to represent any currently existing real value at that time. All the economic fundamentals presented here are entirely neoclassical theory. “Printing money” does neither crowd out private investment nor does it necessarily cause inflation. Money savings are not required for investment ad you can always create more credit given the borrower is believed to be credit worthy. There is no fixed limit to the amount of promises that can be made and money represents promises and therefore there is no limit to how much money there can be. Investment is ultimately always forward looking into the future and it is financed with promised that are to be redeemed in the future. This is so much more in line with the actual empirical evidence that is is beyond me how anyone can reject it so easily as the author.

    Also inflation can not simply occur by “printing too much money”. As Michal Kalecki said: “”I have found out what economics is; it is the science of confusing stocks with flows”. The monetary aggregate is a stock. It can not tell you anything about flows unless you use extremely unrealistic assumptions such as its distribution being equal among economic entities. For example, if workers can on increase their income (which is what we basically see in the last decades) they can not consume more and the money can not circulate. Inflation is always a distributional issue, a fight for purchasing power, and not in any fixed way linked to the money supply. Apart from external shocks there is really only one way to have a constant rate of inflation and that is if wages (essentially the price for work) and prices constantly increase, which is nothing but a distributional fight. And that is why we had no inflation in the years before the corona crisis despite the central banks doing everything they can to ease investment. If wages are low, demand is low and there is not incentive to invest in productive capital.

    Has the author read A. Mitchell-Innes essays “What is money” and “The Credit Theory of Money” and how does he dismiss it?

    1. (Not to Innes)

      Currency-issuing governments don’t NEED to borrow; they must ensure desired government spending can be supported by the nation’s productivity.

      It would help if more emphasis was placed on public investment, and less on private consumption.

      1. @Neil Halliday

        “they must ensure desired government spending can be supported by the nation’s productivity”

        Of course, they have to. If they want to spend on infrastructure but there is a shortage of qualified labour or raw materials to achieve it there is no point in throwing more money at it. But the point is the government can (and has in the past) mobilized resources and created jobs that would have otherwise not been there.

        It not only doesn’t need to borrow, in fact it CAN NOT borrow its own currency, because it is the issuer. Issuing bonds is an interest rate maintenance operation, not a financing operation. It is paying risk free interest to the holders of bonds to reduce the amount of central bank reserves to offset the following spending so the central bank can hit its interest target. There are other ways to achieve that, e.g. by the central bank paying interest on reserves. Going into debt in your own IOUs can not possibly be “financed” by somebody else in any meaningful way. Fun fact: The Australian government issued government bonds for years despite running a fiscal surplus. Why? Because the financial market demanded for it. They love save assets to use them for securitization. It was not at all required for “funding” the government. Understanding the structure and functioning of a FIAT monetary system is crucial.

        But you are absolutely right. We should focus much more on public investment, because that at least is by chance something that may serve the public purpose. But you can also not ignore that it means an income for the private sector as an accounting statement and that this income can be used to consume private sector products. But it can also be saved or invested. It heavily depends on the distribution of that income over time and expectations about the future income.

  16. youcanbepolitical wrote:

    “the greatest experiment in MMT has just concluded. I refer of course to the $11 billion in global Covid funds injected during 2020 and 2021, equal to 10% p.a. of global GDP”

    MMT obviously requires government investment which in not inflationary; throwing money around to people who did not need it (during the pandemic lockdowns ) was the first mistake. Only essental bills of locked down workers should have been paid., via debt free governement money.

    So no, the pandemic was not “a great experiment” in MMT.

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