There has been discussion in the economic blogosphere recently, from a left perspective, about the merits or otherwise of employing an understanding of Modern Monetary Theory (MMT) in debates over policy and efforts to transform the economic system. One interesting post By Dan of Pruning Shears (h/t Tom Hickey) suggests that MMT might be a “dicey bet for liberals”. In reading this and similar arguments presented elsewhere, I find myself agreeing on some (though certainly not all) points, but differing in the conclusion to be drawn from them.
Demands on time in the MMT community include (i) providing “simple as possible” explanations of “basic MMT” for public consumption and (ii) exploring theoretical and policy ideas informed by an understanding of those basics together with insights from related approaches to economics. Although the latter task is perhaps more enticing for those who have by now (mostly) absorbed the basics, and is certainly an area worthy of pursuit, the former task remains politically pressing and so equally deserving of time. It doesn’t matter what progressive policies, institutional reforms or plans can be devised if the public believes they are “unaffordable because the nation is bankrupt” or “impossible because capitalists won’t stand for them”. This indoctrination has occurred over decades and clearly many in the community are not freeing themselves of it easily.
In any society, there will be real output (real income) that is not produced solely by humans. Some real income is due to the contribution of nature – land, natural resources, beneficial weather patterns, animals and so on. Some real income is produced by machines, robots and other means of production that were created by prior applications of labor in combination with nature. In any given accounting period, this real income is ‘unearned’ in the sense that it is not due to human effort exerted within the period. Much of it currently flows to industrial capitalists and rentiers on the basis of property ownership rather than productive contribution. Over time, the real productive contribution of means of production can be expected to rise, due to technical progress. In this post, a framework is tentatively suggested for thinking about the distribution of unearned income, both at a point in time and as it grows over time.
Technology has reached the point where nobody should be compelled to spend most of their waking hours working in dangerous, menial or otherwise unpleasant jobs (‘bad jobs’, for short). It is increasingly possible to mechanize most menial and repetitive tasks. But of the bad jobs that continue for a time, there remains the question of how best to share the burden they impose. Even with better jobs, there is the potential to reduce standard working hours and create more free time for those who want it. Here, too, there is the question of how to manage such an overall reduction in working hours. Since some people will desire to maintain or increase their current working hours, ideally there should be latitude for them to do so, just as there should be latitude for others, so inclined, to shorten their labor-time commitment. In this post, three alternative approaches to the problem are briefly considered. They can be labeled ‘universal job sharing’, ‘optional job sharing’ and ‘job or income guarantee’.
The focus of recent posts has been on the possibility that fiat money, especially sovereign currency, offers a path to a better society. In considering what kind of path this might be, the thought occurs that it might actually be possible, by the completion of the fiat-money phase of societal development, to leap over Marx’s lower form of communism, as described in his Critique of the Gotha Program, straight into a rudimentary form of “from each according to ability, to each according to need”.
Modern Monetary Theory (MMT) sometimes receives criticism from the left. The following short online critique (link no longer available) is a case in point. It is in reaction to the idea that MMT, though in itself largely apolitical, suggests a way forward for the left:
How is attempting to manage capitalism through monetary policy a road to socialism? When you talk about MMT exerting democratic control over the economy what exactly is the nature of this control? Isn’t it just the ability to stimulate growth through state spending? How is more capitalist growth a road to socialism? If anything MMT seems to be a theory of state capitalism…
In what follows, I will respond to the comment sentence by sentence, although far fewer words will be required in response to the later points raised. The reason for this is that, although each question follows more or less logically from the preceding one, each is based on a set of misunderstandings which becomes apparent by the time the first couple of questions have been addressed.
While reading today, a couple of observations jumped off the page that relate to the social significance of sovereign currency (or ‘modern money’). One was contained in a passage of the The Great Transformation by Karl Polanyi. The other was expressed by David Graeber in an article in the Guardian. Thanks to Tom Hickey and Matt Franko for drawing my attention to Graeber’s article.
A recurring theme of the blog concerns the enhanced social possibilities opened up by ‘sovereign currency’ – also called ‘modern money’ – by which is meant fiat money issued by sovereign government. The social possibilities opened up by sovereign currency follow from an understanding of Modern Monetary Theory (MMT), which makes clear that a currency-issuing government, especially one that permits the exchange rate to float, faces no revenue constraint. The constraints on such a government fall into two broad categories: real resource constraints and political constraints.
Kalecki’s skepticism regarding the maintenance of full employment under capitalism is one example of how political factors are sometimes argued to narrow social possibilities. In this connection, though, it is worth highlighting that Kalecki’s skepticism did not relate to the maintenance of full employment per se, but more specifically to full employment under capitalism. Even if Kalecki’s assessment could be proved correct, this would not preclude the pursuit of ongoing full employment. It would mean, rather, that the achievement of this goal would require a transcending of capitalism.
Improvements in productivity make it possible to produce more with a given employment of labor. However, under capitalism, whether this greater potential is fulfilled is contingent on there being sufficient effective demand to sustain the higher potential output. Any deficiency in demand will result in unemployment and forgone production. In the long term, with production methods becoming increasingly mechanized, we could imagine an economy requiring little, if any, labor to produce marketable output (i.e. commodities). Demand for this output could be maintained in two main ways. One method would be for currency-issuing governments to use their fiscal capacities to maintain full employment in non-market-based production. Another method would be to introduce basic income. It would also be possible to adopt some combination of the two policy approaches (this idea is discussed here and here). The implications of a purely or highly mechanized economy can be considered in terms of Marx’s analysis of capitalism. Here, the temporal single-system interpretation (TSSI) is applied.
When a society succumbs to the delusion that a currency-issuing government can somehow run out of what it alone creates at will – i.e. the currency – the provision of health care, education, infrastructure, and other key goods and services can fall far short not only of what is desirable but of what is possible with the current labor force, state of knowledge, and existing plant, equipment and raw materials. When a society doubly succumbs to delusion, believing activities initiated by anything other than the market to be unproductive, the trashing of education systems, media standards, other core social institutions and civilization itself is all but complete.