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 currency.

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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Significance of MMT for Progressives and the Left

The meaning of currency sovereignty:

What is Modern Money?