Significance of MMT for Progressives and the Left

Demands on time in the MMT community include (i) providing “simple as possible” explanations of “basic MMT” for public consumption and (ii) exploring theoretical and policy ideas informed by an understanding of those basics together with insights from related approaches to economics. Although the latter task is perhaps more enticing for those who have by now (mostly) absorbed the basics, and is certainly an area worthy of pursuit, the former task remains politically pressing and so equally deserving of time. It doesn’t matter what progressive policies, institutional reforms or plans can be devised if the public believes they are “unaffordable because the nation is bankrupt” or “impossible because capitalists won’t stand for them”. This indoctrination has occurred over decades and clearly many in the community are not freeing themselves of it easily.

Although confusion over “money” is immense, it seems fairly common on the left to view the topic as superficial compared with study of “real” stuff. I think downplaying the significance of money is a mistake. Downplaying its connection to the real is also a mistake. And imagining the analysis of money is any less threatening to the powers that be than analysis of the real is a bigger mistake. Probably the only topic as taboo as money in neoclassical economics would be the identification of profit with surplus labor. The reason for money’s taboo status seems clear. Understanding existing monetary institutions and operations points to a way of undermining the profit system and exploitation of labor.

This is not necessarily to attribute such a focus or motivation to the Modern Monetary Theorists themselves (although see Bill Mitchell’s MMT is not conservative thought for a left-leaning perspective from a leading proponent). It is rather to suggest that the Modern Monetary Theorists’ careful and, as far as possible, objective institutional description and analysis of monetary and fiscal operations in a modern monetary system arguably brings to light a radical democratic potential inherent in sovereign currency, waiting to be seized upon. This democratic potential may have been what drove European elites to take currency issuance out of the hands of democratically elected national governments and empower, instead, the unaccountable European Central Bank.

In the present economic system, real resources are mobilized only on the say-so of the issuers or possessors of money, and only on their terms. No production – even for profit, based on the exploitation of labor – takes place until finance is secured. It makes a great difference whether money is made available on our terms, by a democratically accountable currency-issuing government, or on the basis of private interests motivated narrowly by profit, enabled by an unaccountable government. The issuers and possessors of money determine what production will and won’t take place, the nature of the production process, the nature of work itself, access to productive resources, distribution of income and leisure, and more. The channel through which money is created (public or private) and the terms on which it is issued (democratic or undemocratic, interest free or rentier friendly) strongly influence whether institutional reforms and regulatory measures contrary to the interests of capitalists, including measures capable of re-shaping the sphere of production, are viable or not viable.

Except to the extent that production is freed from the profit imperative – is allowed to proceed without reference to it and without a need to answer to it – attempts to base enterprise on a different social basis and re-shape the sphere of production, including the nature of work, seem likely sooner rather than later to revert to the same methods of operation and priorities as capitalist corporations. But freedom from the profit imperative, when desired, is always near at hand in a modern monetary system. A prerogative of a currency-issuing government is to ignore the profit criterion and to proceed on a different basis. The absence of a revenue constraint means that real-resource availability (in relation both to the inflation barrier and environmental sustainability) is the only hard constraint. There is no need to generate a profit. There is no need to provide a flow of interest income to rentiers. If the production is something that the majority would consider socially beneficial, and is within resource limits, the main obstacle to its going ahead is the electorate’s own failure to understand the options available to it.

An understanding of modern money makes clear that a democratically accountable government with the backing of the greater part of the electorate would already, under present institutional arrangements, be in a position to begin an extensive transformation of social and economic institutions. But it would require going against the interests of the rich and powerful. To do that successfully, government needs the overwhelming backing of the electorate. And, for that to happen, the electorate needs to be liberated from its confusion over “money” and comprehend the viability of following such a course.

That, perhaps, is why close scrutiny of monetary operations is taboo among neoclassical academic economists just as acknowledging the origin of profit is taboo.