Modern Monetary Theory is Relevant to More than Just Capitalism

Viewed from a certain vantage point, Modern Monetary Theory (MMT) is a very general framework that offers insight into how we might go about making genuine social progress. It does not simply facilitate an understanding of capitalism, but points to a way of transcending the present system. It enables insight into the opportunities available to any society that forms for itself a government and operates a monetary economy.

The generality of MMT. At the core of MMT is the ‘government / non-government’ dichotomy. In a state money system, this distinction is perhaps more general than any other economic distinction. It applies with or without private ownership of the means of production. It applies with or without a role for private-sector production. It applies with or without markets. Capitalism, as a form of monetary economy, is just a special case, albeit currently the prevalent one.

The dichotomy does, however, seem to be unfortunately named. It would perhaps be better to call it the ‘government / public’ or ‘government / citizenry’ dichotomy, or something along those lines, rather than defining part of ourselves in the negative as ‘non-government’. All of us, whether working in the public, private, community or household sectors, receive our incomes and make our personal payments as members of households and therefore are part of the non-government. At the same time, government is a vehicle that we have constructed for ourselves to carry out various functions in a collective manner. No individual receives income or makes personal payments as part of government. Rather, the government’s spending, taxing and other activities are conducted on our behalf, for public purpose, and are meant to be democratically accountable, and held to account by us. We are all part of government, just as we are all part of non-government. If we fail to hold our government to account, and government becomes unaccountable, we have let ourselves down, both in our roles as government and non-government.

MMT makes clear that if a community chooses to retain for itself full currency sovereignty, vested in government, then the basis on which economic activity occurs can, in principle, be opened up completely to a democratic determination. This points a way forward, beyond capitalism, to socialism or communism in the event that such a transformation ever becomes the political will. In the meantime, it makes clear the viability of various shades of social democracy and managed capitalism. And, of course, the possibilities are not all progressive in nature, as the recent turn towards fascism in some countries demonstrates.

Upon understanding MMT, the falsity of the neoliberal mantra, “there is no alternative”, is easily recognized. In reality, there are very many social possibilities open to us in a state money system.

The logical priority of the government / non-government dichotomy. In a state money system, the distinction between government and non-government is logically prior to the particular organization of economic activity.

Consider activity organized on the basis of private, market, monetary exchange. Such activity is predicated on ownership. For somebody legitimately to sell something, s/he must have ownership of it. This implies that a system of property rights is already in place and enforced. This, in turn, implies that government – no matter how rudimentary in form – is already established.

For government already to exist and be carrying out its functions – even if only minimalist – it must already have a staff. In a non-monetary economy – to which MMT does not apply – taxes and government personnel could be paid in kind. But in a monetary economy, staff will need to be paid a monetary wage or salary, and various resources will either need to be purchased through monetary expenditures or placed in public ownership or stewardship.

By defining a unit of account and imposing taxes payable only in that unit of account, government is able to ensure a demand for its currency and entice some people to work in the public sector in exchange for the currency. Various rules and regulations can then be devised and enforced, and private markets made operable.

The same logical priority of the government / non-government dichotomy applies in a state money system without market exchange or private ownership of the means of production. Carrying out the functions of government will require commanding some natural resources and employing at least a subset of workers. The government’s currency will be used in much the same way here as in a system permitting private market exchange.

The fiscal capacity of a currency-issuing government. The reality that a currency issuer can never run out of its own currency is both elementary and significant. The significance is not only – or even mainly – that such a government can spend more than it imposes in taxes indefinitely. It is that the government can spend on whatever activities happen to be in the interests of the community as a whole rather than on activities that serve the possibly narrow, self-serving, regressive or parochial interests of a particular tiny cohort (e.g. capitalists, lords, slave owners).

There is absolutely no necessity that production occur on a for-profit basis unless, and to the extent that, we want it to be carried out in this way. This opens up the entire sphere of industry and work to a democratic determination, if that is the political will. The nature of work, the conditions under which it is performed, the products it creates, the way it is organized, decision-making processes, and so on, can be shaped in whatever ways a community wishes.

The reason for this open potentiality comes back to a currency-issuing government’s authority to impose and enforce taxes payable only in its own unit of account.

A private capitalist firm – even the most powerful multinational corporation – lacks this capacity. It cannot compel citizens to make monetary payments to it, let alone require payments in a currency that it issues. As a consequence, it is compelled to prioritize profit (the income of a democratically unaccountable minority) over all else except in instances where we, through our governmental policies, obviate this compulsion. Whatever cost-cutting method is legally (or even just tacitly) permitted must and will be adopted. Whatever earth-destroying or soul-destroying activity is allowed and promises a high rate of return must and will be undertaken by a capitalist firm intending to survive.

In the absence of government-imposed labor laws, for example, young children will be worked for minuscule wages twelve or more hours a day; adults for sixteen hours or more. This is the history of industrializing England. Similar atrocities are still the reality today in some parts of the world. Any firm that refuses to stoop to such a level of callousness and contempt for human life will be driven out of business. For this reason, eventually the government – even an unaccountable capitalist government hostile to the aspirations of the vast majority – is likely to make laws that restrict working hours and specify limits on the working life. Some of the capitalists cry foul, but the community says, “live with it”, and rightly so.

Nevertheless, many other activities continue to this day to wreak havoc on the environment and human life. These activities, too, can be stopped, the moment we say so, by collectively demanding appropriate employment of a currency-issuing government’s fiscal capacity. It is us, after all, who bestow government with this currency-issuing capacity. In place of the current race toward ecological or nuclear doom, there is the potential to shape a society in which we are free to develop our lives – including our working lives – in more fulfilling and culturally enriching ways.

The MMT understanding of currency sovereignty offers a key to unlocking the door to a future that might actually be worth working towards. It makes clear that those of us lucky enough to live in currency-sovereign nations already have the basic monetary infrastructure in place to facilitate efforts in this direction. Making meaningful social progress is not contingent on first eradicating money altogether – although we could do that if we wished.

The path to significant reform of capitalism or progress beyond it is already open to us. What is currently missing is the political will. In currency-sovereign nations, the task is to mount grassroots pressure sufficient to compel governments to utilize their fiscal capacity in ways conducive to a progressive reshaping of our economies.

 
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11 thoughts on “Modern Monetary Theory is Relevant to More than Just Capitalism

  1. [“….the government can spend on whatever activities happen to be in the interests of the community as a whole rather than on activities that serve the possibly narrow, self-serving, regressive or parochial interests of a particular tiny cohort …”]

    If only the general public could be persuaded to go back to that childhood state, where the question is WHY, and so persistently:

    Why must there be inequality?
    Why cannot there be a good health and education system, work, leisure time, for all?
    Why is not happiness and fulfilment the human quest?
    Why cannot we have peace on this earth, good will, and the will-to-good amongst the nations?
    Why should I ignore my innate and deepest human nature, which is compassion?
    Why should I focus on the opportunities outside of me, and ignore the opportunity I have within me, to learn, live, thrive, grow and unfold as a human being?

    I could go on and on ….

    There is no rational logic to explain away these questions. Just an illusion.

  2. Any firm that refuses to stoop to such a level of callousness and contempt for human life will be driven out of business. For this reason, eventually the government – even an unaccountable capitalist government hostile to the aspirations of the vast majority – is likely to make laws that restrict working hours and specify limits on the working life. Some of the capitalists cry foul, but the community says, “live with it”, and rightly so.

    I am probably more pessimistic. I’m not claiming that that outcome is impossible: for one, history shows it happened once, therefore it cannot be impossible.

    My claim is that such outcome was due to specific historical circumstances and we shouldn’t take their current existence for granted. For our own sake, we better make sure, through popular mobilisation, that things turn out that way.

    To put a historical counterexample (and there were such historical counterexamples): the Third Reich had no problem driving their slave labour force to death, during wartime when its contribution to their own war effort was invaluable.

    They had plenty slaves to replace the casualties.

    A lot of people may end up redundant with the new automation revolution: soon enough there could be plenty cheap replacements for cheap wasted workers.

    If that kind of things could happen once, we better be prepared, because they could happen again.

    The problem would be what to do with all of those rendered obsolete: there’s already talk of making the sale of organs for transplant legal and of the unemployed selling themselves into slavery, as an alternative to the dole and/or to pay for debts.

    That’s to say nothing of environmental crisis and loss of biodiversity.

    Like I said above: we better make sure things go the right way, or we may end up having some nasty surprises.

  3. Perhaps you should approach Trump. I’ve heard that he’s read Warren Mosler. Show him a package where all charity is replaced by a Pavlina style job guarantee program; one with a living wage. Rip the bottom out of Bernie’s impossible 15 dollar an hour gig, while also addressing the robot problem. Trump doesn’t seem to be frightened by the unconventional.

    Bernie had Stephanie on staff, yet he never stopped preaching about taxing the millionaires – and free college. ProTip – People don’t like to see shit turned free that they themselves had to pay for. It ain’t fair.

    Progressivism is a religion – leave it behind.

  4. To approach Trump makes about as much sense as leaving the fox to look after the hens: a self-declared billionaire with tax issues intent on lowering the taxes for himself and his mates.

    What makes him different from Clintonette?

    Ah, but eventually it will “trickle down”. I mean, didn’t it work so well the first time around under Ronald Reagan? We must try it again. It’ s a matter of faith!

    And you say that progressivism is a religion? It would be funny if things were not so tragic. Give me a break.

  5. “To approach Trump makes about as much sense as leaving the fox to look after the hens”

    I think a lot of this discussion makes no sense. People have no understanding of the motivations of any participants.

    The Republican party was the party of the business donor class, and exists only in as much it keep getting funded by the business donor class, because political parties are expensive, very expensive, and even Trump cannot fund it.

    Most importantly politicians and other hacks who are useful to the business donor class by getting elected and in power advance policies favourable to the business donor class become rich, are taken care of very generously by the business donor class.

    So now the “tribalists” have (kinda) got control of the Republican party they have two big problems: how to fund the party’s election campaigns, and how to reward their hacks who get elected and implement tribalist policies. Given that the business donor class would not, and the “tribalist” voters don’t want to pay a cent for anything, that’s a bit of a challenge.

    The time-tested alternative to donor or voter party donations is funding through extensive briber, or more precisely extortion, where the Republican party turns into a Trump Dynasty version of the Chicago-style “machine”, entirely self-funded via backhanders. The rise of a political class that funds itself is a *nightmare* for the business donor class, and they would fight it hard, using for example using the fact that theoretically bribery is still illegal in the USA.

    The “tribalists” may succeed in turning the USA political system into one where national political power can be won by political machines that fund themselves via backhanders, but I think that it is more probable that the business donor class would be able to prevent that.

  6. The rise of a political class that funds itself is a *nightmare* for the business donor class, and they would fight it hard, using for example using the fact that theoretically bribery is still illegal in the USA.

    I must be missing something, because I can’t see why the business donor class would find it a nightmare or why it would fight against a party machine funded through bribery.

    The money must still come from the deeper pockets: their own.

    The difference between borderline bribery and outright bribery seems rather tenuous. The bottom line — as I see it and I may be mistaken — is that whether borderline or open, bribery may prove profitable to them.

  7. I think in your musings you neglect the viewpoint that the purchase of goods and services offered in competition with each other in the marketplace can be regarded as a a form of voting for particular types of needs. The existence of money clearly facilitates this. That it doesn’t ensure equitable distribution of money is, of course, where the democratic process comes in to play but this in turn does not imply equitable distribution of money can not also take place at the enterprise as well as the government level.

  8. “The difference between borderline bribery and outright bribery seems rather tenuous.”

    Agreed.

    “I must be missing something, because I can’t see why the business donor class would find it a nightmare or why it would fight against a party machine funded through bribery.”

    It reduces their power. Politicians at the moment have to pander to business to get in power.

  9. This is not new or hard to understand:

    http://cdnc.ucr.edu/cgi-bin/cdnc?a=d&d=MT19380827.2.10

    “OFFICIAL SAYS FDR ‘BRIBING’ Distribution of Federal Funds Made to Build Up Own Power”

    “The money must still come from the deeper pockets: their own.”

    You know god damn well where the money comes from. Why are conservatives so eager to “restrict” government spending with artificial restrictions? Why has Paul Ryan banned earmarks?

  10. That’s not to say it will be “progressive.” The GOP will control business, more than the other way round.

    In fact, as one guy would say:

    “Tutto nello Stato, niente al di fuori dello Stato, nulla contro lo Stato”

    🙂

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