MMT: New Theory, Old Illusion
- This topic has 18 replies, 7 voices, and was last updated 5 years, 1 month ago by
.
-
Posts
-
Following is a discussion on the page titled: MMT: New Theory, Old Illusion.
Below is the discussion so far. Feel free to add your own comments!Never heard of MMT before but it sounds like the opposite of the goldbugs. Major Douglas, was he an early MMTer?
Not literally though, as Social Credit and MMT use different arguments to reach a similar conclusion — that the state should issue more money. As the article pointed out:
Quote:But there’s nothing ‘modern’ about it. It’s an old illusion of those who see unemployed workers and idle resources alongside unmet needs and think that the obvious solution is simply for the government to create and spend more money. Various schools of currency crankism have been proposing this since the first capitalist economic downturn in 1825. To be fair, MMT rejects the view that banks can create money out of nothing; they correctly say that only a government can.Major Douglas's Social Credit is based on a simple factual mistake (that there's a chronic shortage of purchasing power built-in to capitalism as we know it), two such mistakes in fact as it also imagines that banks can create credit at the stroke of a pen. MMT makes neither of these mistakes. It's just that the policy it advocates (the state issuing more money) wouldn't work in the way they imagine.
I would like to push back on two points based on my understanding of MMT1."In fact of course it assumes that the real economy – where wealth and value are actually produced – is already operating, so what the government would be doing is buying some of the goods and services produced there. It also assumes that the government has already been financed from taxation or borrowing."MMT recognizes that neither taxes nor borrowing are the financing methods of government. This is a technical impossibility, at least in the US, where the Treasury includes money that is in the hands of the private sector amongst its liabilites on its balance sheet. A nice paper on that point can be found here http://www.levyinstitute.org/pubs/wp244.pdf. Money is a debt of the government and not an asset that they have to claim back from the private sector, like hoarding gold. In fact, taxes, rather than financing the government, are primarily used as a means of enforcing a currency unit of account among the population, since everyone must use the government money to settle their liabilities, aka taxes, with the government. The government is self-financing, which is mainly a function of it having the power in a society. Your previous paragraph explains more of how you arrived at the sentence above. "The way it is supposed to work is that the government introduces money into the economy through the wages and salaries of its employees, state pensions and other benefits, and what it pays its contractors; these then spend it, stimulating the growth in the rest of the economy, out of which the government eventually recoups most of the money via taxes"No money needs to be recouped, in the sense in which you seek to recoup an asset which has value to you. The money has no value to the government. Much of this seems clearer to me after reading more MMT literature on the history of money and the technical details of how the government uses money in its balance sheet. 2."The only way out is for profitability to be restored. The government can help this to some extent by cutting taxes on profits but this means that, with less income from taxation, it has to cut rather than increase its spending. Other factors such as the clearance of stocks, bankruptcies, capital depreciation, lowered interest rates, and reduced real wages will be more important. These are what will restore profitability and eventually re-stimulate the economy and move it on to the next-stage of its regular boom/slump cycle."You mention in the above paragraphs that one of MMT's points is that government spending is not constrained by financial assets, only real production capacity. Why then would fewer tax revenues lead to less government spending? This strikes me as austerity logic and is squarely against what MMT advocates. As long as the government is the issuer of its currency, which is not the case of countries under the Euro, private sector profits are not a contraint on government spending. The government is in no way financed by taxes or borrowing. Again, I refer you to the paper I cited above.
caz25 wrote:MMT recognizes that neither taxes nor borrowing are the financing methods of government. (…) In fact, taxes, rather than financing the government, are primarily used as a means of enforcing a currency unit of account among the population, since everyone must use the government money to settle their liabilities, aka taxes, with the government. The government is self-financing, which is mainly a function of it having the power in a society. … one of MMT's points is that government spending is not constrained by financial assets, only real production capacity. Why then would fewer tax revenues lead to less government spending? This strikes me as austerity logic and is squarely against what MMT advocates. As long as the government is the issuer of its currency, which is not the case of countries under the Euro, private sector profits are not a contraint on government spending. The government is in no way financed by taxes or borrowing.Whether or not the government needs to resort to taxation and/or borrowing to finance its activities, at the moment this is what governments do. So your last statement is a bit daring.MMT claims that all governments need to do to finance their spending is to simply print the money. Governments can print money at will and could do this to finance their spending, but what would be the consequence? The economy needs money for various things, of which paying taxes is only one. It is also needed for buying and selling transactions and settling debts. In fact if the general price level is to remain stable the amount of money in circulation must be just enough for all these to be carried out. If it's more than this, then the result will be a rise in the general price level, i.e inflation and the depreciation of the currency.So, if the government didn't resort to taxation or borrowing and simply printed the money to finance its spending, this would be extra money over and above what was needed and so there'd be inflation, roaring inflation in fact. What the government would be doing is creating more claims on wealth without any new wealth being created. It's because they don't create any wealth that governments have to get, through taxation and borrowing, the wealth they use from what is or has been produced in the productive sector of economy. MMT inflation would just be another way of doing this, by devaluing the wealth people hold just as much as if they'd been taxed.You should ask yourself why, if it's as simple as you imagine, governments haven't adopted what MMT proposes. It's a proposal to try to reform capitalism so it works for everyone's benefit. But this can't be done. The only thing to do with capitalism is to end it, not try to mend it — and with it render money and monetary theories redundant by directly mobilising resources as resources on the basis of the common ownership and democratic control of the means of wealth production, with production directly to satisfy people's need and not for sale on a market with a view to profit.
Another monetary cranking theory. It is not so modern when it was initially created in 1905, . Bourgeoise economical theory to prolong the existence of the capitalsit society, and the capitalist exploitation. The best solution is to wipe out capitalism from the face of the earth
Another article on MMT
Quote:"Taxes do not fund government spending"MMT’s first premise—that the federal government, and only the federal government, creates money…the federal government can create as many dollars as it wants, as numbers in electronic account ledgers, without “collecting” any dollars in advance. Whatever economic reason there is to limit the amount of dollars the government creates (we’ll discuss that below), it is not because the government hasn’t previously “collected” enough of them in taxes (or fees, loans, etc.)…As a matter of economic logic, taxes do not precede and provide the money for, government spending; government spending precedes and provides the money that is later collected in taxes. It’s not “tax and spend”; it’s “spend and (then) tax.” That’s the sequence. Every dollar paid in taxes is a dollar that was created by government authority. There is no place else it could have come from…Limiting inequality, not revenue collection, is precisely what taxation is for, the core progressive purpose of taxes—including a graduated income tax and the crucial estate tax—in a capitalist society. (And we are here talking about a capitalist society.)Quote:left socialists rooted in the Marxist analysis of capitalism (myself included) are generally content with their Capital, Volume One understanding of how wealth and surplus-value is produced via the exploitation of labor-power, and they’re eager to figure out how to achieve the democratic control of the means of production. They’re not so interested in thinking about money, which they consider a secondary element of the “real” economy, something that will have a much-diminished role in a socialist society, and, anyway, is too damn complicated. Their version of true and evasive enough. As Peter Cooper, puts it: “it seems fairly common on the left to view the topic as superficial compared with study of ‘real’ stuff. I think downplaying the significance of money is a mistake.” I tend to agree with British Marxist economist, Michael Roberts, that MMT is a more radical Keynesianism, whose thinking about money is consistent with Marxism,Behind the Money Curtain: A Left Take on Taxes, Spending and Modern Monetary Theory
Another related article for you to readhttps://www.alternet.org/local-peace-economy/what-new-economy-and-can-it-help-save-planetWell-Being Economy Alliance (WE All)
As the article on the Socialist Standard said: Old illusions and they are blowing like flowers at the present moment around the world. It is similar to Mao Tse Tung expression: "Let a hundred flowers bloom, let a hundred schools of thought contend"
I've long considered Mao to be a bit of a chump since I read the story of how he came up with the idea to stop the dicky birds eating the farmer's seed. Mao ordered all the able-bodied in China to go out of doors and clap their hands to frighten the birds. His idea was that the birds would all die of exhaustion as they fluttered in terror from clapping chinaman to clapping chinaman. The fathead. How could he be sure the birds would die of exhaustion before their tormentors? He would have looked a prize charlie if he was left with a billion dead chinamen and some tired, resentful sparrows to rule over.So, Mao made his mistakes, because everybody does. But fair dos to the bloke, at least he allowed working people to smoke, even in the most trying circumstances, such as when, for one reason or another, they found themselves up before a firing squad.
Bob Andrews wrote:I've long considered Mao to be a bit of a chump since I read the story of how he came up with the idea to stop the dicky birds eating the farmer's seed. Mao ordered all the able-bodied in China to go out of doors and clap their hands to frighten the birds. His idea was that the birds would all die of exhaustion as they fluttered in terror from clapping chinaman to clapping chinaman. The fathead. How could he be sure the birds would die of exhaustion before their tormentors? He would have looked a prize charlie if he was left with a billion dead chinamen and some tired, resentful sparrows to rule over.So, Mao made his mistakes, because everybody does. But fair dos to the bloke, at least he allowed working people to smoke, even in the most trying circumstances, such as when, for one reason or another, they found themselves up before a firing squad.I know that, Maoism was very popular during my younger years, and we all read the 5 volumes of Mao, but that is not the reason why I am citing Mao. I am talking about the idea that old illusions are being presented as new theory. There is not any new economic theory ( or bourgeoise economy theory ) under the sky, even more, Marx indicated to Engels that political economy was a trash
I wasn't having a knock at you, son. You gave me the opportunity to post an absolutely hilarious vignette on Maoism, which had Forum readers rocking in the aisles.But just watch it, that's all.
Weekly Worker’s angle. They will no doubt receive a complementary review copy of our new pamphlet.
https://www.weeklyworker.co.uk/worker/1237/chartalism-and-marxism/
Roberts well brings out the point that, while the governments can create (whether indirectly via the central bank or directly via the printing press) as much money as they want, they cannot control the purchasing power of that money. If they issue more than the capitalist economy needs for its activities, then it will depreciate:
The MMT and Chartalists propose that private-sector investment 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 if it does not bear any relation to value created by the productive sectors of the capitalist economy, which determine the SNLT and still dominate the economy. Instead, the result will be rising prices and/or falling profitability that will eventually choke off production in the private sector.
But then he goes and spoils it by talking about a Marxist monetary/financial policy:
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.
Oh dear. Another MMT — Marxist Monetary Policy!
Roberts is in favour of “public service banking”. Asked what it meant, he gave the example of China.
A proper banking service should take our deposits, look after our savings and offer loans to households and small businesses for big ticket items at reasonable interest rates (….) As for investment, take the role of China’s state banking system. Whatever we might say about the autocratic, one party dictatorship in China, its state-owned banks provide credit to support a national investment programme that has transformed China’s infrastructure.
He is also co-author of a pamphlet, It’s Time to Take Over the Banks published by the Fire Brigades Union, advocating the nationalisation of the banks. But that’s no more useful to the working class than MMT.
It gets worse. Just noticed that the same issue of the Weekly Worker also carries an article on “Working Class Trade Policy”:
https://www.weeklyworker.co.uk/worker/1232/working-class-trade-policy/
What next.
This week’s Weekly Worker has published s letter on this. For the record, here it is. Somebody will probably reply, so watch this space:
“Money theories
Michael Roberts brings out well the point that, while governments can create (whether indirectly via the central bank or directly via the printing press) as much money as they want, they cannot control the purchasing power of that money (‘Chartalism and Marxism’, February 8). If they issue more than the capitalist economy needs for its activities, then it will depreciate and, as he says, “the result will be rising prices and/or falling profitability that will eventually choke off production in the private sector”.
Good stuff. But then he goes and spoils it by talking about a “Marxist policy” for banks and money, which would seem to be a state investment bank which will be able to do what the ‘modern monetary theory’ people want – supply the money needed to expand production and ensure full employment. Maybe it can (for a while and in a developing capitalist country), but there’s nothing ‘Marxist’ about the finances of a state-capitalist economy.
How could there be? Marx was analysing capitalism, not advising what policies should be pursued under capitalism. In any event, his conception of socialism/communism (the same thing) involves the disappearance of commodity production and so of value, money and banks: ie, a ‘Marxist monetary policy’ is a contradiction in terms. From this perspective, Mike Macnair’s article in the same issue on a “working class trade policy” is also dodgy.
Adam Buick, Socialist Party of Great Britain”
- You must be logged in to reply to this topic.