MMT is NOT a Theory of State Capitalism (!)

I am struggling lately (in a good way) to keep up with all the great discussion in the various threads, but really appreciate the diverse commentary. Timezone differences can be a nuisance. Just as I was about to go to bed, brendan put up a critical though interesting comment in response to one of my recent posts concerning the democratic potential that I think is offered by fiat money. I decided to sleep before attempting a reply, only to wake up to find that additional interesting discussion had occurred while I was away from the computer. So, as I said, I am behind the eight ball. The comment by brendan included the opinion that MMT seems like a “theory of state capitalism”. I thought this topic deserved a post of its own.

For those who are unfamiliar with Marxist speak, “state capitalism” is blue language of a kind not usually seen here at heteconomist. (I kid.) I thought the fact that the notion had been raised in relation to MMT was as good an excuse as any to consider a little further why I think fiat money offers a path to a post-capitalist society. I apologize in advance to any regular readers who may not be remotely socialist, communist or even moderately left of center. I know we have all types in the MMT community. Just consider this post as pertaining to one kind of social possibility (yes, my personal favorite possibility) among many. It is an illustration of how I believe fiat money opens up possibilities.

I should mention before getting started that the brendan who left the comment is Brendan Cooney of the blog Kapitalism 101, which I highly recommend. It has a lot of excellent and accessible material on Marx, as well as links to the writings of leading Marxists. Having said that, Brendan and I seem to disagree completely when it comes to MMT, hence this post.

Brendan’s comment is as follows:

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…

This is by no means the first comment by a Marx influenced thinker that has been made along these lines in response to one of my posts, although it is perhaps the most dismissive of the possibilitiy that MMT could offer anything of relevance to the Marxist left.

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, in my opinion each is based on a set of misunderstandings which becomes apparent by the time the first couple of questions have been addressed.

How is attempting to manage capitalism through monetary policy a road to socialism?

I don’t know how familiar Brendan is with MMT (or “neo-chartalism” in the academic literature), but it has almost nothing to do with controlling the economy – capitalist or otherwise – through monetary policy. Perhaps he is referring to the zero-interest rate policy proposed by some MMTers. That is a policy option, according to MMT, but it is not the means for controlling the economy. Rather, it would be a distributive decision.

The core of MMT is an attempt to understand monetary operations, particularly in a flexible exchange-rate fiat currency system, and through a stock-flow consistent accounting framework (following the Post Keynesian Wynne Godley) identify implications of these operational aspects for the broader economy. Beyond this core, the leading MMT economists propose various policy prescriptions consistent with that understanding. Commonly, they suggest a job guarantee, functional finance, and strict financial and banking regulation, and some propose a zero interest rate policy. It is often noted that the public-private mix is open to social determination.

It is possible, though, to take the core understanding provided by MMT and explore different sets of policy proposals and, I am suggesting, the potential for different social systems that might make use of fiat money, at least initially. There are also some non-MMTers (for example, prominent Post Keynesian Marc Lavoie in academia, and JKH and Ramanan in the blogosphere) who have disagreements over MMT’s particular framing of the monetary operations. For current purposes, the basic point is that an understanding of the operations suggests what is already possible under the existing monetary system in many nations, such as the US, Japan, China, Canada, etc., though not the EMU as long as its common currency arrangement remains in place in its present form and in its present relationship to member national governments.

In terms of the MMT understanding of the differences between alternative monetary regimes, the following aspects of a flexible exchange-rate fiat currency system (or “modern monetary system” for short) seem particularly significant to me, whether thinking about policy or alternative economic systems:

1) The currency issuer in a modern monetary system can set the rate of interest on the government’s liabilities as a matter of policy. There is no ‘natural rate’ and markets cannot influence the currency issuer’s choice. This is very different from other monetary arrangements – for instance, the EMU – in which, although there is still no such thing as a natural rate, the markets very definitely can increase rates on sovereign debt, as we are seeing due to the ECB’s reluctance to play backstop. (For a good explanation of this point, see Bill Mitchell’s Who is in charge?)

2) The government in a modern monetary system is not financially constrained. The only constraints, other than those self-imposed for class-interested or political reasons, are real resources. There would actually be no need for the government to issue debt at all if it removed self-imposed constraints (such as the requirement to match debt issuance with deficit spending). Again, MMT suggests that this is very different from the situation under a common currency arrangement, a fixed exchange rate system, a commodity-backed monetary system or a gold standard. Under these other monetary arrangements, the government is financially constrained in varying degrees. (Bill Mitchell, again, has provided excellent explanations of this point in a series of posts, here, here and here.)

I should note, at this point, that there is some disagreement over how these differences should be presented – particularly because all monetary systems are human creations, and hence self-imposed constraints. Some of these differences are being discussed on this blog in recent threads. What matters for present purposes is that as long as a monetary arrangement is adhered to, including its intended self-imposed constraints, there are differences in policy freedom across the different monetary arrangements.

In light of 1) and 2), MMTers would say the choice, in principle, is ours whether we want an economy dominated by private sector activity or public sector activity. The latter will require higher taxes to make space for the larger public sector use of resources, the former will involve lower taxes and spending. In other words, MMTers would say that, although they have their own policy prescriptions, society in a modern monetary system could opt for any policy mix (and I would add organization of economic activity) consistent with what is possible under the current monetary arrangement. For example, if the maintenance of full employment and price stability under capitalism is the goal, this could be achieved through a job guarantee alongside either a large private sector or a large public sector. Right libertarians might prefer the former, liberals the latter.

But, in my view, the possibilities extend beyond such variations of capitalism. In considering the ramifications of a government with no financial constraint and totally in control of the terms on which it spends (e.g. low interest rates on debt or no debt issuance at all), it becomes clear that non-capitalistic modes of production and exchange become possible, if that is what we want and we organize effectively to bring it about. Reasons for this openness include:

A) There is no compulsion that productive activity be enabled only (or even at all) in accordance with the logic of capital and the profit motive. The decision over whether something is produced can, in principle, be democratic rather than based on narrower capitalistic criteria. (I have briefly considered aspects of this point in What is ‘productive’?.)

B) There is no compulsion that production be carried out on the basis of wage labor. It would be possible for income and labor time to be separated completely, if that was the social will. Access to goods and services (no longer produced as commodities) could be free whenever feasible and otherwise rationed either on monetary or non-monetary criteria (e.g. need, proficiency, considerations of equality, etc.) as deemed appropriate. Either a minimum labor time requirement or a basic income guarantee (whether in money form or as access to some minimum basket of goods and services) could be introduced, depending on the social will. (I have explored some aspects of this in Full Employment and the Environment and Implications of a Purely Mechanized Economy. I consider the discussion following the latter post to be especially interesting.)

In relation to B), ultimately there might be no need for money at all, but my suggestion is that fiat money opens up a path to economic activity organized along non-capitalistic and eventually non-monetary lines. There would be some mix of monetary and non-monetary activity in the meantime. If such a path is rejected (e.g. as “reformist”), then we are left with the dilemma of how to jump directly from what we have now to a non-monetary communist society.

Again, the reason, in my view, that fiat money opens up this path is that it can free economic activity from the dictates of capital, if we bring this about. This is not the case under the other monetary arrangements mentioned. Under those alternative arrangements, capitalists will not only oppose the attempted transformation to socialism, as they of course will also in a flexible exchange-rate fiat currency system, but they can and will be effective in blocking such a path because capitalist investment strikes, bond vigilantism, etc., are effective under those alternative monetary arrangements. They need not be effective under a flexible exchange-rate fiat currency system. Capitalists can propagandize through media, lock out workers, go on an investment strike, pay off politicians, etc., but they cannot affect the terms on which money is issued and financially cripple any non-capitalistic uses to which it is put.

This is very different to the situation under other monetary arrangements. In a modern monetary system, if capitalists go on an investment strike, the rest of us can say, “Go ahead. We’ll do other stuff, enabled by government spending.” Under the other arrangements mentioned, this is not a credible threat to capitalists. If we try to do other stuff, capitalists will sabotage those efforts through their power to influence the terms on which the government spends. The government will find itself financially constrained, and this “other stuff” will be “unaffordable”.

An implication that I think is critical in explaining why social possibilities are more open under a flexible exchange-rate fiat currency system is that even to the extent society retains a function for capital, this function can be placed strictly on society’s terms, not capitalists’. But here I am considering the possibilities of socialism, so there need not be any role in such a society for capital.

When you talk about MMT exerting democratic control over the economy what exactly is the nature of this control?

MMT, at its core, is an understanding of monetary operations under various monetary arrangements and a stock-flow consistent framework. It does not exert control – democratic or otherwise – on anything. It is a framework for understanding policy options and, I think, the potential for moving from one economic system to another.

As for the nature of any potential economic democracy, that is an open question. MMT does not dictate a position on this matter. For instance, the degree to which economic decision making is centralized or decentralized is open for debate. It may be that a lot of democratic decision making is local, and the currency issuer merely enables the democratically determined course of action through the appropriate level of currency issuance.

Isn’t it just the ability to stimulate growth through state spending?

It is hopefully clear by now that, no, it need not be purely, or even at all, about stimulating capitalist growth through state spending. The possibilities are much broader than that. If we want, and can swing it, by mounting a broad-based opposition to capitalists, it can be about the ability to enable whatever activities – including any number of creative or recreational activities not currently regarded as ‘economic’ – we like, confined only by the limits imposed by real resources and the need to undertake a minimum of activities to meet physical subsistence. Beyond that, the social possibilities and the scope provided for individuals to choose freely what they want to do with their time, are entirely open.

How is more capitalist growth a road to socialism?

It may not be. I never suggested it was. MMT makes no such claim.

If anything MMT seems to be a theory of state capitalism…

Not at all. Or, at least, not unless that’s the use to which fiat money is put.


18 thoughts on “MMT is NOT a Theory of State Capitalism (!)

  1. There are a lot of attempts at the moment to put MMT in a box with a label on it.

    MMT is clearly disconcerting since you can certainly fix capitalism enough to allow it to mostly work – at least until productivity gets so high that ‘non-jobs’ and ‘non-goods’ dominate so much that it becomes self-evidently ludicrous.

    Given the possibilities it opens up, is it worth describing how it can be used to advance the current corporatist agenda beyond what even neo-liberal economists can dream up. After all it makes no sense to increase your share of the pie, when you can increase both your share of the pie and the size of the pie.

  2. I agree, Neil, although Magpie recently criticized me (in some respects correctly, I think) for, among other things, suggesting that MMT indicates capitalism can be “made to work”, so I now say it suggests it could be “made to work on its own terms”, not from the perspective of those who want a different system.

    I was thinking I might leave the task of describing how the current corporatist agenda might be advanced beyond the wildest neo-liberal economist’s dream to somebody else. 🙂

  3. “It is hopefully clear by now that, no, it need not be purely, or even at all, about stimulating capitalist growth through state spending.”

    I really don’t see this. Realistically if state spending is ramped up profits will increase ala Kalecki.

    I think the Marxist dude is right — in context of his own nomenclature, that is. State capitalism in Marxist jargon is capitalism that is buttressed by counter-cyclical government spending to iron out recessions and depression. MMT takes an explicitly functional finance approach and in that it is indeed a doctrine of state capitalism.

    In order to understand this better one must understand just why the Marxists loath state capitalism. The reason is that their underlying gripes with the system are not so much economic as they are metaphysical. Their gripes used to be economic in that they saw the ‘immiseration of the working class’ due to Ricardo’s ‘iron law of wages’ absolutely inevitable. But the law was no law and living standards rose.

    Nowadays Marxists generally (unless they are Althusserian — but we won;t get into that now) see the key problem in capitalism as a metaphysical one of ‘alienation’. They claim that we need to stop producing under capitalist relations of production because the alienate workers. Personally I think this is complete nonsense. But it clearly shows why MMT — from their perspective — is ‘bad’… it props up capitalist relations of production by ironing out the business cycle.

    Nor can you say that MMT might move the world away from a capitalist economy. Marxists would deride this as being naive. They would claim that the only way to move away from capitalist relations of production is by the proletariat rising up to seize power? Why is this the only way? Mainly because Marx said so. But partially because it is the only way for class relations to change in a way that ensures that the relations of production become socialistic (to each according to his ability) and eventually communistic (to each according to his need).

  4. I should amend that before a Marxist berates me.

    Marx did not actually adhere to Ricardo’s ‘iron law’. He merely saw a ‘tendency’ to subsistence wages. But he did believe that capitalism would immiserate the masses.

    It’s interesting to look at the Wiki page in this regard. Especially the section on Lenin and his concerns that the proletariat might find a better life in capitalism and turn away from revolution:

    The situation Lenin was describing was, of course, what is above referred to as ‘state capitalism’.

  5. Philip, thanks for your thoughts. I always enjoy reading your articles and contributions. I agree with many of the things you write, but usually disagree with you when it comes to Marx. On the topic of this post, I disagree for a number of reasons.

    First, in this post I am talking about the understanding of the monetary system, not the MMT policy prescriptions. The MMT policy prescriptions are consistent with the understanding of the monetary system, but not the only policies, or in my opinion, social systems that could be developed on the basis of that understanding.

    Second, though less relevant to my response to Brendan, MMT policies would not necessarily increase profit. Even if MMT policies were assumed, this would still leave open the possibility of a high tax/high spend social choice in which it would be possible to provide many goods and services free of charge. The result would be a small private sector and small private income, including profit income.

    Third, and most relevant to my response to Brendan, is that personally I am in agreement with Marxists who want to end wage labor and capitalist social relations. In this post, I am actually considering the possibility of making that break under a fiat currency regime. I am suggesting that this break is possible under fiat money in a way that it is not under some other monetary regimes. In this sense, I am suggesting that the resumption of fiat money with the breakdown of Bretton Woods actually has provided an opening for such a break. Although I refer to a “path”, this need not be a path to state capitalism, but rather straight to a break with wage labor under fiat money with the ultimate aim of doing away with money altogether.

    Last, I am in agreement with the temporal single-system interpretation of Marx’s theory of value. I do not see it as “metaphysical” in the sense you do.

    Needless to say, I might be incorrect in my arguments and also wrong in my view of the merits of Marx’s theory, and you may be correct. However, I want to make clear that in writing this post I was not under any illusions about what Brendan meant by “state capitalism”, and I maintain that his suggestion that the MMT understanding of the monetary system is more consistent with state capitalism than a genuine break from capitalism does not follow.

  6. Peterc, like Marx, you are reaching new, unknown frontiers.
    Your equipment is better though – Marx wasn’t able to witness fiat money under flexible exchange rate regime. Keep going!

  7. Thanks for the encouragement, Ryan. We all have equipment today that is better in most respects, not least because we have Marx to read and he didn’t.

    In the posts concerning a “path” to a better society, what I am grappling with is no different to many others. The problem is not just to conceive of what that “better society” is, but, harder again, how to get from here to there. People disagree, for example, over reform or revolution, but even revolutionaries still struggle to answer how we get from here to there. For example, below is a link to an interesting talk earlier this year by Allan Armstrong followed by a discussion between Marxists. The entire session goes nearly two hours. It becomes quite clear in the discussion that they, too, often come back to the question of how to get from here to there. And, like me, they have no coherent answer at this stage.

    Is An Emancipatory Communism Possible?

    Personally, if an “emancipatory communism” is the aim, I do think that there does have to be a radical break from wage labor. However, there has to be a way to make this break. The only way I can see that this is possible, other than just imagining a sudden and complete break (which seems utopian) is to make use of what we have already developed within our current society – sometimes only as a potential – and turn it to our new purpose. The resumption of fiat money after an attempt to eliminate it is one development that I believe is highly relevant. I think it can enable a sustainable non-violent (I refuse to support violence) separation of the economy (perhaps only part of the economy, initially) from the logic of capital and wage labor.

    But there are lots of other positive developments under capitalism (often as the flip side to a negative development) that also, in my opinion, make us more ready for such a change than we may realize.

    I might try to flesh this out a little into a short post. I’ll see. As I have indicated, my thoughts on all this are very underdeveloped. I thought a dialogue with a Marxist who is skeptical of my thinking (e.g. Brendan or Magpie) could help move things forward by exposing the flaws and weak points (from the perspective of those who are interested in some sense in an “emancipatory communism”). It may have been “utopian” of me to hope for such a dialogue. 🙂

  8. The main problem with capitalism is that the logic of cost cutting and automation is at odds with the requirements for income.

    Odd as it may sound if we continue to allocate resources based largely on payment for effort then we need an increasing amount of ‘non-jobs’ (and/or vacuous ‘non-goods’ and ‘non-services’) to allow the system to continue to function as it stands. Capitalism needs breast-feeding advisors and stupidly expensive handbags.

    But it will require large scale deployment of service sector robotics to lay that bare.

  9. Senexx: You made me laugh. The last couple of posts have been a bit “out there”. Don’t worry, I’m not intending for the blog to be preoccupied only with left-wing possibilities. That is partly my purpose, and will be the topic of some posts, because after all that is my political preference. But the larger task is to help disseminate – along with many others such as yourself – whatever understanding is made possible by MMT and related approaches so that people are empowered to make up their own minds on economic and political questions.

    Thanks for the interesting link.

  10. “Apologies that this doesn’t add to the discussion but after reading the last couple of posts I feel so right wing.”

    Investigating possibilities doesn’t make you anything other than better educated.

    My philosophy is if it works, nick it – whatever ‘ist’ or ‘ism’ it is associated with.

  11. I think that’s a good philosophy, Neil. It takes open-mindedness to consider how things could be made better, whether that is from a left or right perspective.

    From a left perspective, there are many progressive elements to capitalism when compared with previous systems. There are also many positives that come out of the negatives of capitalism. And there are also many lessons that need to be learned from the mistakes made by the left in the past. I would think that Brendan’s charge of “state capitalism” is largely motivated by the importance of avoiding past mistakes and a suspicion that my suggestions, following from the MMT understanding of monetary operations, are merely repeating the same errors of previous “state capitalist” societies which grew out of past attempts to establish a socialist or communist society.

  12. I have been reflecting on this post and thread.

    Maybe part of the misunderstanding here is that in the earlier post to which Brendan responded, my argument was deliberately not expressed in terms of MMT. It was about the social possibilities under a flexible exchange-rate fiat currency system. However, in the comments, JKH insightfully asked if I was trying to distance myself from MMT, and so the discussion brought MMT back into the mix. It was only after this that Brendan made his comment, and perhaps this was prompted by the discussion in the comments, not the post.

    Then I compounded things by paraphrasing Brendan’s comment in the title of this post, including the term “MMT”, which then made it less clear that I am interested in the social possibilities of the monetary system, not necessarily the social possibilities implied by MMT.

    In light of earlier threads this month, about what MMT actually is, it had become apparent to me that MMT may indeed be defined to include the MMTers policy prescriptions. Wray’s recent keynote address at the annual CofFEE conference seems to confirm this. That is why I had framed my more recent posts in terms of money, not MMT, because I am more interested in the implications of the former, not the latter per se. It is just that the MMT understanding sheds light on the former.

    So, in case Brendan intends to respond, let me say that I can see how MMT might be viewed as a theory of state capitalism if it is defined to come as a package with the policy prescriptions, although I don’t agree for the reasons (especially the second reason) I gave to Philip. However, that does not interest me, and was not the intended concern of my post. What interests me are the social possibilities of fiat money, not MMT. It’s a pity I included MMT in the title.

    Even so, I seriously doubt that Brendan’s criticism hinged on this distinction. I’d imagine he is dismissive of the notion that the distinction between fiat money and other monetary arrangements could make any difference, just as the TSSI economists are dismissive of Post Keynesian arguments based on effective demand. I am guessing he thinks money is only a superficial factor – not the production process in which surplus value is produced – and therefore couldn’t have any significant bearing on Marxist theory as it pertains to revolution. This, in any case, is the position I disagree with and tried to address in my post.

  13. Peter,

    Thanks for this detailed discussion in response to my last comment. I have only the sketchiest understanding of MMT and thus don’t really feel adequate to discussing this issue at a substantive level at the moment. Your post has intrigued me to try to learn more. I am still stuck on very basic issues of MMT, like why a government can have no financial constraints or total control over interest rates. Can you point me to some resource that explains the relation of the money supply to the total value in the economy from an MMT perspective?

  14. Brendan, thanks for your response. That’s fine that you are not ready to discuss MMT in detail. I only became aware of the approach myself a couple of years ago.

    My introduction to MMT was through Bill Mitchell’s blog. I initially worked my way through various posts in his “Debriefing 101” category. Since then, Randall Wray has also started a weekly “primer”. Warren Mosler’s “mandatory readings” are similarly helpful.

    billy blog: Debriefing 101 category

    Wray’s Modern Money Primer

    Mosler’s Mandatory Readings

    For finer points on monetary operations, the work of Scott Fullwiler and Stephanie Kelton (Bell) are very helpful. Much of their academic output can be found for free online. One of Scott’s posts provides an accessible introduction.

    Most MMTers are from a Post Keynesian theoretical background, so they don’t write in terms of Marx’s value categories. However, on the face of it, to me Marx’s theory of value does seem compatible, under the TSSI interpretation. I am still trying to think this through. You may have noticed Philip currently has disagreements with me on this point.

    One aspect of MMT that does seem reminiscent of Marx in a sense is the MMT notion of the job-guarantee wage. In MMT, the value of a dollar, for instance, if there was a job guarantee program, would be regarded as the amount of job-guarantee labor time it takes to obtain it. This seems similar to the amount of simple labor time required to obtain a dollar.

    Anyway, see what you think. If you see anything in it, or find flaws, particularly from the perspective of somehow bringing into reality an “emancipatory communism”, I think I would benefit greatly from reading your thoughts. I am finding that obstacles I run into through discussion with others who are critical is forcing me to think harder about the problem and proving helpful in making conceptual progress.

  15. Peter C,

    A very interesting post, congratulations.

    In a more lighthearted subject: it took me some time to get to it and read the thread, but it was worth every minute. In fact, I am going to save post and thread…



    I am the other commie interested in MMT. Welcome to the gang.

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