This is a presentation by Professor Bill Mitchell at the University of Victoria, Wellington, New Zealand on July 28, 2017. It addresses framing of the macroeconomic policy debate and touches on the most fundamental insights of Modern Monetary Theory. Most here will be avid readers of the professor’s blog, but this talk is too good not to post. While in New Zealand, Professor Mitchell also did an interview for the public broadcaster. A link can be found in the billy blog post of July 31, 2017.
From inception of a monetary economy with a government-issued currency, it is clear that government spending must come before tax payments or purchases of government debt. The order of requirements is basically: (i) government defines its monetary unit of account; (ii) government imposes taxes and other obligations that can only finally be settled in that currency; (iii) government spends (or lends) its currency into existence; (iv) non-government can now obtain the currency and, among other things, pay its taxes and purchase government debt. It is clear that government spending must logically come before tax payments or purchases of government debt because non-government must be able to get hold of the currency before it can do these things
This is an excellent introductory video, scripted and narrated by Geoff Coventry. It is mentioned in the YouTube comments that Stephanie Kelton and others advised on the work. No doubt the video has already appeared on other blogs. The link was provided by acorn in the comments.
Money can be thought of as an IOU (“I owe you”). The issuer of an IOU can buy goods or services from anybody who is willing to accept the IOU as payment.
It was mentioned (in part 2) that a currency-issuing government issues its currency in the act of spending. An implication of this is that a currency-issuing government does not need income in order to spend. We have also noted (in parts 5 and 9) that a household or business can spend independently of current income. They can do this either by drawing down past savings or through borrowing.
Noticing the month is July brought to mind the Swiss-German band BOY that has a song named after the same month. This seemed as good an excuse as any for a music break.
A prominent flow measure for the economy as a whole is Gross Domestic Product (GDP). This is a measure of the total output produced within the domestic economy over a year.
Marx’s ‘law of the tendential fall in the rate of profit’ holds that there is a tendency, during a phase of capitalist accumulation, for the ‘organic composition of capital’ (constant capital c divided by variable capital v) to rise. Other factors remaining equal, this puts downward pressure on the rate of profit r:
where s is surplus value and s/v is the ‘rate of surplus value’. If the organic composition of capital (c/v) rises, then r will fall unless the rate of surplus value (s/v) is increased sufficiently to offset the effect.