In reaction to MMT statements that government spending must occur before taxes can be paid, it is sometimes noted that a household could pay taxes by borrowing from a bank that subsequently obtains reserves from the central bank. Whether this is true from inception of a modern money system will depend on the terms set down by the central bank in advancing reserves to banks. But supposing the terms are permissive, would it change anything of macroeconomic significance? Let’s take a brief look.
This post concerns ten recent Marxist claims about MMT and one about Kalecki (a forerunner, in certain respects, of MMT). Some Marxists claim that:
- MMT fixates on the monetary, ignoring the real.
- MMT ignores social structure in favor of tweaks of the monetary system.
- MMT is incompatible with Marx on money.
- MMT falsely claims that fiat money changes the role and nature of money.
- MMT ignores the value of money.
- MMT-informed policy would destroy the value of money.
- MMT-informed policy would be inflationary.
- MMT-informed government spending would crowd out private investment.
- MMT supports a preservation of capitalism and opposes socialism.
- Government spending fails to stimulate private investment and employment.
- Kalecki is confused on causation between profits and capitalist investment.
This is a stylized list of claims that have appeared in various posts and articles written by Marxists. Claims (6) to (8) have also been made by non-Marxists. The chief motive for Marxist criticism seems to be a perception that MMT, in itself, somehow favors capitalism over socialism (claim 9), and so threatens to misdirect political energies on the left. There may also be a perception that MMT is incompatible with Marx and so poses a theoretical challenge to Marxism. These are misperceptions, in my view, for reasons to be explained.
In recent exchanges on Marx and MMT, one question has concerned the capacity of government spending to encourage private investment and promote employment. Some Marxists appear to regard MMT as incompatible with Marx on this question. My own view is that Marx and MMT are compatible, both in general and on this particular question, and that the contributions of both, when viewed together, hold an important long-term social implication. What follows is a set of remarks outlining my position. Remark 1 is intended to provide context and to identify what I regard as the main social implication following from a joint reading of Marx and MMT. Remark 2 notes the critical significance of Marx’s ‘law’ of the tendential fall in the profit rate when interpreting the long-term implications of MMT from a Marxist perspective. Remarks 3 to 10 concern private investment under capitalist conditions, its likely responsiveness to government spending, but also its crisis prone nature. Remark 11 questions the appropriateness of society pinning its future aspirations on private investment behavior. It is suggested that a transition to socialism is both preferable and, on the basis of MMT, already technically feasible for societies with their own currencies.
For Marx, a currency’s representation of the labor performed in commodity production is indirect, mediated through a ‘money commodity’. The reason for this is that labor performed in commodity production is not directly social but only made so, indirectly, according to the ‘law’ of value under which the concrete properties of diverse labors are abstracted from and the amount of labor socially necessary to produce each commodity is determined. Since the currency, at least from the standpoint of the currency issuer, does not require labor for its production, the currency itself is not a commodity and so does not in itself have (marxian) value. Instead, the currency expresses value indirectly by representing a commodity that does have value – the money commodity – which serves as universal equivalent. The indirect determination of social labor time within commodity production contrasts with the direct determination of social labor time when production is not for market. In the latter case, a currency (or labor certificates) can directly represent social labor time, because the labor is directly social.
MMT does not presuppose a particular theory of value. In principle, it is possible to situate a subjective or objective view of value within it. The present focus is on Marx’s theory of value and, more specifically, his ‘law’ of value. Marx’s law of value, in which commodity production only occurs on the basis of profitability, and profitability derives from surplus labor, is compatible with MMT so long as it is understood that Marx’s law pertains only to the sphere of commodity production, a sphere that is embedded in a broader socio-institutional context. In a modern monetary system, the context in which commodity production takes place is shaped by currency-issuing government.
It is suggested in an earlier post that the presence of complex labor affects value creation in Marx’s theory, including at the aggregate level. The argument starts from Marx’s distinction between concrete and abstract labor. In making this distinction, Marx explicitly identifies productivity as a property of concrete labor and labor complexity as a property of abstract labor. Variations in productivity, since they relate to concrete labor, directly affect the aggregate production of use-values (‘real’ output) but not the aggregate creation of value (socially necessary labor time or nominal value). In contrast, variations in labor complexity, since they relate to abstract labor (the substance of value for Marx), directly affect the aggregate creation of value rather than the aggregate production of use values.
In principle, a currency’s command over any category of real input or output can be considered in terms of a suitably defined price index. The present focus is on the aggregate level and, in particular, a currency’s command over real final output. Earlier posts explore the topic in greater depth (links below). This is a crib notes version.
First acquaintance with MMT can bring clarity on key aspects of the monetary system that may previously have seemed unclear, yet likely also calls other questions to mind. For instance, if taxes do not finance a currency issuer, why are they necessary? And if banks create deposits ex nihilo (“out of nothing”), how is it that (other than the central bank) they are financially constrained and subject to risk? Or, considering that issuance of the currency is essentially costless to the issuer, how can the currency nonetheless have value to its users? MMT has clear answers to each of these questions.
This is not just a matter of markets requiring a system of enforced property rights, which presupposes government, at least in rudimentary form. In monetary economies, functioning markets also require a viable currency, one that is generally accepted in exchange. Government ensures a currency’s acceptance when it imposes and effectively enforces taxes that are payable only in that particular currency. This is true not only of exogenous taxes but of taxes on consumption, income and wealth so long as these are assessed in the government’s chosen unit of account.
Capitalist economies are demand led in the sense that both output and growth tend to reflect the behavior of autonomous demand, especially in the long run. Prices, in contrast, tend to be supply determined, reflecting cost. Supply shocks can temporarily dominate demand effects on output (for instance, as the result of war, a pandemic, or an oil shock), just as variations in demand, especially if supply is constricted, can temporarily dominate cost effects on prices. But the normal situation for a capitalist economy is demand-determined output and supply-determined prices.