MMT Applies to Both Growth and Degrowth

Modern Monetary Theory (MMT) can be applied to growing economies. Equally, as Jason Hickel rightly observes, MMT is also an appropriate macroeconomic framework for proponents of degrowth. The theory makes clear that a currency-issuing government always has the capacity to maintain full employment through implementation of a job guarantee, irrespective of the overall level of aggregate demand or rate of economic growth. As currency issuer, the government faces no financial barrier, nor has any need of profit. Whereas employment in an economy left to the whims of for-profit firms slumps whenever demand slumps – not least because private firms as currency users are financially constrained and subject to the profit criterion – currency-issuing governments have the capacity to maintain full employment at all times.

In a transition to a green economy, in which the compositions of investment and consumption need to change substantially, full employment can be maintained through the job guarantee despite any necessary weakening of overall demand. And since a currency-issuing government is not subject to profit considerations, it can initiate production along non-commodity lines to the extent that the economy remains within real-resource (especially ecological) limits.

Over the past four decades the political left, probably to a greater extent than the political right, appears to have succumbed to a misconception that a currency-issuing government is financially constrained and somehow helpless in the face of market forces beyond its control. Governmental decisions not to maintain public services and infrastructure have often been interpreted on the left as unavoidable. On the part of Marxists, this misconception appears to have stemmed primarily from a misapplication of Marx’s ‘law’ of value (that commodity production is only feasible if profitable) to activity outside the sphere of commodity production. This contributes to a perception that currency-issuing governments are constrained by the same financial pressures that constrain for-profit firms; in other words, that it is not only capitalist firms that are subject to the profit imperative but currency issuers as well.

But, as MMT emphasizes, the positions of currency issuer and currency user are very different. For-profit firms are currency users with financial constraints. If Marx’s theory is accepted, his ‘law’ of value can be expected fully to apply to the activities of for-profit firms. A financially constrained for-profit firm can only persist with production if it is profitable. Such a firm is operating within the sphere of commodity production – precisely the sphere in which Marx’s ‘law’ of value applies – and so is subject to the profit imperative. In contrast, governments of most countries are currency issuers with no financial constraints in their own chosen units of account. A currency-issuing government, so far as its own currency is concerned, operates outside the sphere of commodity production. It is not just that such a government has no need of profit. It is that profit denominated in the currency of issue has no significance for the currency issuer. A currency-issuing government can never have more nor less financial capacity to spend in its own currency. Government itself is the source of the currency.

This means, above all, that a currency-issuing government is ideally positioned to base its decisions on the rational and sustainable use of real resources rather than meaningless (for the currency issuer) financial criteria. This is very unlike the position of a for-profit firm, which must ground its decisions explicitly on financial criteria with only an incidental regard for the real-resource implications. Real-resource implications are only incidental in commodity production because for-profit firms can only afford to take them into account to the extent that they are reflected in financial criteria. To the extent that profit-based incentives do not reflect the true social and environmental benefits and costs of an activity, a for-profit firm that wishes to survive is powerless to act according to those true benefits and costs. Rather, it must pursue the most profitable course regardless of the likely social and ecological consequences. In Marxist terms, for-profit firms are subject to the ‘law’ of value. They must obey the profit imperative even to their (and our) ultimate doom.

The good news is that government, as currency issuer, has the capacity both to undertake and support not-for-profit activity (to keep some activities outside the sphere of commodity production and, if desired, progressively de-commodify others) as well as to re-shape the incentives faced by commodity producers. That is, government can alter the mix of not-for-profit and for-profit activity as well as modify the context in which each takes place. A currency-issuing government both shapes and delimits markets.