Marxists often point out that whereas Keynesian economists of all persuasions tend to advocate reformist policies to stabilize and manage capitalism, Marxists call for an end to the capitalist system itself. Reflecting on this specifically in relation to modern monetary theory (MMT), it occurs to me that taking a position on reform versus revolution is actually a separate question from that of accepting the MMT understanding of currency sovereignty, its possibilities and implications. For this reason, I think there is an analytical compatibility between MMT and Marxism (or for that matter between MMT and Post Keynesianism or Sraffianism) that is separate from the political position a person adopts.
One implication of MMT, in my view, is that currency sovereignty, in principle, enables the logic of capital to be confined within whatever limits society deems appropriate. The reason is simply that a sovereign currency issuer, who faces no financial constraint, only resource and political constraints, need not spend on the basis of private profit considerations, nor be dictated to by private markets. This makes a mixed economy, in which some activity is for private profit and some is not, potentially sustainable. Equally, it makes the complete elimination of production for private profit potentially sustainable.
Consider what is involved whenever it becomes necessary for the government to deficit spend to stabilize effective demand under capitalism. On the basis of private profit and the logic of capital, the real productive activity that is initiated by the deficit spending would not actually have occurred. However, once it does occur, it adds, by accounting identity, to realized aggregate profit for the period (see this post). The apparent intention of many Keynesians is in this way to restore profitability so that capitalists will once again be prepared to undertake private investment activity.
Although, from a Marxist perspective, the apparent intention and actual effect of the policy is undesirable – the preservation of the capitalist system – it remains the case that the policy action itself runs counter to the logic of capital and the dictates of private profit. As long as there is a desire (at least among the elites) to maintain a role for the profit motive, it will be necessary for profitability to be propped up in this way. The Keynesian, like the Marxist, recognizes that capitalism is inherently flawed and that left to its own devices it cannot stand. It is only by overriding its internal logic, whenever necessary, through the implementation of deficit spending not dictated by the profit motive that the system can be preserved for the benefit of capitalists, and most Keynesians apparently choose to support policies to prop up the system in this way.
MMT indicates that in those situations where it is deemed desirable to override the logic of capital, sovereign currency-issuing governments have more policy freedom than other governments. Yet, although fiscal policy can be used in the way advocated by many Keynesians – i.e. merely as a means of preserving what is, from a Marxist perspective, an undesirable system – it is equally clear that fiscal policy need not be used in this way. It could instead be used to initiate economic activity along lines altogether different, for instance through the public provision of free goods and services, or for that matter the complete elimination of wage labor. The fact such alternative social systems are not advocated or openly countenanced by modern monetary theorists means that such policy or systemic proposals are not ‘MMT’ – since, as we have learned in recent months, MMT comes with a particular suite of reformist policy prescriptions – but, nonetheless, an understanding of MMT makes clear the potential sustainability of such social alternatives.
It seems to me, then, that Marxism is compatible with the understanding of currency sovereignty that is provided by MMT. The differences in perspective are in what to do with that understanding when it comes to policy and/or choice of social system. On the latter question, I am very much in the camp of those who wish to overturn capitalism. However, the insights of MMT seem invaluable, because they make clear possibilities not only within capitalism but beyond it if and when we wish to take that step.
I have begun to consider the way in which currency sovereignty may open up paths to a post-capitalist society in the following short series of posts:
(NB. This first post was already linked to above in relation to the meaning of the ‘logic of capital’.)
(NB. The title of this fourth post is perhaps misguided, since MMT may actually be best understood as a theory of state capitalism, but this is immaterial to the argument presented in the body of the post.)