Modern Monetary Theory: shiny, new and good? Part II

I’ve been digging deeper into MMT at Bill Mitchell’s blog, and finding the effort both stimulating and rewarding. My studies thus far have yet to answer all questions I have, and neither have my concerns been completely allayed, but I become friendlier with the idea the better I get to know it (with caveats of course). This post represents Stage 2 of my Modern Monetary Theory Journey.

One point I raised in my first post on MMT was about private-sector credit transactions netting to zero. The claim struck me as fallacious, as interest accrues to lenders, representing, from their point of view, a net positive. If this were not so, they would not lend money in the first place. Further study has updated my position. “Netting to zero” actually means “no new net wealth is created,” which is true. Only the loan is created, which is expunged either upon the last repayment or upon default. The interest must be fished out of the existing pool of money and handed over to the lender. Credit extension is therefore not a net wealth creating process, it is a shuffling-money-to-the-banks process. In a pure debt-money system, in which no money at all is created by government spending, we have a ponzi-like situation that can only fail. In such a system existing wealth in the economy is slowly transformed into debt obligations as private banks extend the credit economic activity requires. At some point over-indebtedness crashes the system, and all that apparent wealth disappears. (This short analysis equates wealth with money — an equation I don’t usually make.) Money spent into existence by the sovereign on the other hand, assuming it finds goods and services to buy, is, in contradistinction to credit, wealth creation.

So strictly speaking, and when seeing wealth as money — which is a legitimate assumption in this exercise of understanding how money works in a fiat economy — extending credit creates no new wealth, or “nets to zero.” My bad. However, that it nets to zero may be largely unimportant, because the public can be too heavily indebted regardless, but I’ll get to that in a moment. For know I want to go over how MMT views a monetary system.

Below is a graphic I’m borrowing from Bill Mitchell (please refer to his site for details):



A short time pondering this chart gives the viewer the impression of a system of flow, with injections, transactions, and removals taking place both vertically and horizontally. Rather wonderfully, tax is seen as taking out the trash. If there’s too much money in the system, tax it out and trash it. There’s no need for government to save if it can simply spend what the economy needs, in particular circumstances, into existence. (This is of course quite a trick to get right, but the idea is sweet.) We don’t need to think of money like we used to think of gold, as having magical intrinsic value, or as representing deserved reward for hard work and so on. It’s merely the lubricant the system needs in the correct quantities (which change over time) to hum along. Let’s not get all romantic and religious about it. This newer perception empowers us to get rid of the rather presbyterian idea of saving up for a rainy day (at the level of the sovereign — thrift and saving are still handy values for the private sector), and treat deficits and surpluses as necessary positions of balance that arise dynamically as the economy moves through time.

Two quotes from Bill Mitchell capture the essence of this nicely:

“Accordingly, the concept of fiscal sustainability should never make any financing link between debt issuance and net government spending. There is no inevitability for debt to rise as deficits rise. Voluntary decisions by the government to make such a link have no basis in the fundamentals of the fiat monetary system.”

“The real cost of any program is the extra real resources that the program requires for implementation. So the real cost of a Job Guarantee is the extra consunmption [sic] that the formerly unemployed workers can entertain and the extra capital etc that is required to provide equipment for the workers to use in their productive pursuits.”

However, as one of the stated aims of MMT is full employment, we must be careful not to set up a system characterized by moral hazard. If we deploy MMT within a GDP-growth obsessed paradigm, with conspicuous consumption the economy’s locomoting force, a citizenry confident there will always be work might be easier than ever to goad into buying more than it can afford. That innocuous looking rectangle in the middle of the graphic is therefore a weak spot as far as I can tell, unless we wean ourselves off our addiction to consumption and shopping. Until we have a more mature attitude to material acquisition at the cultural level, I fear MMT would be like letting children into the candy store, a candy store with finite resources.

In terms of the money, how would this play out? A population up to their eyeballs in debt after a multi-year shopping binge suddenly stops consuming at the rate they have been. Demand falls, business suffers, unemployment rises, and people have to pay off their debts. In steps the government and employs the cast-offs, but the money thereby injected into the economy is used to pay off debts. Government therefore has to employ/spend until those debts are down again, and the party can start over. This would be a smoothed out boom-bust cycle with less suffering, but may stoke consumption even further beyond current unsustainable levels. Keeping our eyes on the ecosystem and how wasteful our production/consumption processes are is of course essential.

I can envisage too that private industry, aware that displaced workers will find work in the government sector, might more aggressively pursue automation, not having to fear a consequent collapse in purchasing power. A weird world in which say 80% are perpetually employed (doing what?) by a State spending money into existence, effectively to fund a private sector which hardly need employ anyone, all to keep the system ticking over. Without intending the worst aspects of communism, MMT might deliver them. It would all depend on other elements of how we change the way we do business, e.g. how we educate our young, other money-types we introduce (see Bernard Lietaer), lowering the working week while changing the nature of waged-labour, and whether MMT can be effective alongside a drive to consume more sensibly and sustainably.

The money controlled by MMT, namely the fiat currency of the sovereign, would still be a scarcity-based tool, so having more would be better than having less. Consequently, it would pool to the rich over time, and the rich, via lobbyists and other techniques, would of course attempt to bring their influence to bear on government to favour their chances of staying rich. But, in a situation where the government is skilled at spending money into existence, the rich have no real leverage. Money creation is owned by the sovereign, which no longer has to borrow from the rich and powerful. Therefore, redistributive taxes aimed at inhibiting the process of social stratification that so bedevils countries like the US and UK, would be far easier to deploy. This is a Good Thing. This element of MMT alone (freeing the sovereign from the money lenders) may be enough to reshape our attitudes to monetary wealth culturally, and this change may be sufficient to make government a better shepherd of the economy, and more resistant to money-based corruption.

However, could we lurch from a Market run world to a State run world? I fear this is a possibility, though of course I cannot prove it one way or the other. The current paradigm asserts that Markets, via the Invisible Hand and arbitrary, almost blind money-processes, do what’s best for us in the end. This paradigm is under severe attack on many fronts. Books are available aplenty which pick apart this idea and expose it for the empty, though manipulated platitude it is. Those who call for less regulation/intervention need to address the underlying assumptions of how markets work (perfect knowledge and rational market participants) in order to appreciate what it means to rely entirely on the blind wisdom of The Market. However, government is also incapable of perfection, though it is foolish to demand perfection of any system.

In the final analysis we need to guard against over-dependence on any one component of society, and develop instead a far less centralized, networked and redundantly laid out set of interdependent, competing (though complementary) components. I recommend Bernard Lietaer’s talk for more on this. Right now my initial basket of components looks like this:

1: One global currency which must be used for international trade and has a demurrage of maybe 5%.

2: National fiat currencies deployed by sovereigns along MMT lines, for taxation and general economic activity; money as economic lubricant.

3: Many local currencies, or alternative currencies to compete with the sovereign’s currency, but supported by the sovereign.

4: Technological unemployment must be embraced as part of the 100% employment push (unintuitive as that sounds at first hearing), while things like education, societal health, beating crime, and living within the limits of the ecosystem must be prioritized.

MMT is but one component of many, but a very important first step out of our current self-imposed dilemma. A path away from material acquisition as society’s primary locomotion must, I feel, be pursued in conjunction with MMT’s deployment, alongside that of the competing/complementary monies touched upon above.

All in all I would characterize MMT as a very welcome breath of fresh air to economics, one which has the potential to pull us out of our self-imposed, debt-based dilemma and off in a far different, far healthier direction. Spread the word!

Some perspective on things...

In the midst of generalized disaster predictions about the Greek crisis, with the vultures and gamesters circling around the table, I think it worthwhile to open the window and let a little fresh air in.

This morning I was listening to France Musiques, our national classical music radio, a feathered nest for literary/philosophical people like me (and Toby ?), which allows its producers/employees to take home meat and pototoes to their tables in an elegant, and graceful manner, and heard an excerpt from Monteverdi's "Incoronazione di Poppea", "The Coronation of Poppea".

The final duo between Nero and Poppea. Here are the words :

"Pur ti miro, pur ti godo,

Pur ti stringo, pur t'annodo ;

Più non peno, più non moro,

O mia vita, o mio tesoro.

Io son tua, tuo son io,

Speme mia, dillo, di.

Tu sei pur l'idolo mio,

Si, mio ben, si, mio cor, mia vita, si.

I gaze upon you, I desire you,

I embrace you, I enchain you ;

no more grieving, no more dying,

o my life, o my beloved.

I am yours, yours am I,

my hope, tell it, tell.

You are truly my idol,

yes, my love, yes, my heart, my life, yes."

I discovered this opera ten years ago, at the Opera of Lyon, and received it like a kick in the stomach.

If you come from a Puritan (northern ?) background like mine, the totally amoral nature of Monteverdi's opera will unsettle you MUCH more than any tawdry pornographic flick ever could.

It opens with a deus ex machina discussion between the goddesses of fortune, and virtue, squabbling about who is the biggest and best... (yeah, well, nothing has changed on this count, right ? Still squabbles like that around, right ?) Enter the goddess of love who proclaims "Who do you think you are...dividing among yourselves the whole world, its sovereignty and its rule, excluding Love, the god who is so much greater than either of you ? I teach the virtues, I control Fortune, this boy has vanquished since antiquity time and all other gods (including money, dixit ME..) : Eternity and I are twins. Rever me, worship me, and name me your sovereign. There is no human heart, nor divine that may presume to contend with Love."

For two hours, we witness the indestructible force of sexual desire, and how it rides roughshod over EVERYTHING and EVERYBODY that stands in its way, provoking the "suicide" of Seneca, the shipwreck of Octavia, Nero's legitimate wife, and the final triumph of the new couple, Nero and Poppea, beautiful animals in the grips of their... passionate lust (more Nero's than Poppea's, come to think of it. While Nero has lost his head, Poppea has NOT lost hers.).

And the final duo is worthy of... the Song of Songs. A delicate back and forth, an entwining of man and woman, an erotic game of catch and seek all in the music itself.

It is GOOD for us to remember what makes us tick in the grips of all this dry and dusty stuff.

It is good for us to remember that we are animals in the throes of our passions, whether said passions be... lust for the "flesh" or lust for money...

The version I heard this morning was by Christina Pluhar's ensemble, Arpeggiata, which has been cooperating for 10 years now. I will tell you more about this unique musical experiment later.

Don't worry... I CAN talk about economics, on a basic level, at least...

But... I feel it's important to be able to sip a little classical culture with our drier stuff too, right ?

Thank you Toby

Hey, friends, I'll keep this short and sweet tonight, cause in an hour I'm gonna be translating Shakespeare's Macbeth into French with my husband and two or three friends, but I am thrilled to announce that Toby has very kindly invited me to post on his blog, as a contributing author.

That's all for now, folks, but you will be hearing from me sometime soon, I hope, with a little preview of the kind of stuff I like to do.

Once again... thanks, Toby. I really appreciate your invitation.

(NO SMILEYS ON THE BLOGS... RATS RATS RATS...)

Sketches of money systems

I've been trying to gather into crude shape my learning thus far on what money is and how systems which use it might work. I found myself drawing diagrams to clarify my position, and feel I have learned a little from the process. Here they are for comment and analysis. I'm only looking at fiat, not commodity-backed money, because I believe there's no real functional difference between them when pondering what money actually does in an economy. [With enormous thanks to my brother for pointing out my embarrassingly bad maths -- this blog has been edited since it first appeared!]

Scenario 1



The simple world of this sequence, made up only of companies for illustrative purposes, is loaned 10bn by 1Bank to crank the system into life and get the game moving. Awkwardly, because of interest, World has to pay back to 1Bank 10.5bn. This is of course impossible, because only 1Bank is allowed to create money, and furthermore only creates money as an interest bearing loan at 5%. Even if 1Bank employs extra people to do hitherto unnecessary tasks, like polish its current employees' shoes, thereby returning money back into the economy, there is simply not enough money in the total money pool to cover the interest. The only way to sustain this simplistic system beyond round 1 is to loan the world more money to cover the outstanding interest. However, in this crude scenario and to illustrate a point about the necessity of lubrication, the amount of money in circulation slowly diminishes with each passing month and 1Bank extends no further credit. Companies that do best are able to make their repayments with their larger share of the available pool of money (profit), while companies that fare worse go quickly bust. Unemployment soars -- there is never enough money to pay workers -- as 1Bank inexorably retrieves from the economy the money it loaned World. When the debt is expunged it is game over, or system reset.

Scenario 2



In this improved and fairly realistic scenario we have 1Bank loaning a total of 10bn to 5 commercial banks (CB1...CB5). Government, as a borrower, is hidden in World. The commercial banks have the right by law to loan out money (create new money) at the ratio of 10:1. This means that the injected 10bn can become 90bn in the economy. Again, since in Scenario 2, as in Scenario 1, all money is created as interest bearing debt, there can never be enough money in the economy to pay back to the lending institutions the loan plus the interest. In this total money pool we have 100bn in principal (to be expunged upon repayment), but owed to the banks is 107.7bn. The system is therefore 7.7bn short of necessary lubrication. For the banks to be able keep the system from collapse (only they can), accruing as they do 'real,' durable money from the economy (interest payments), they must pump back into the system their earnings (the interest). For any kind of balance to occur, the combined action of defaults, plus bank spending in the economy (via its employees and otherwise), plus new loans and rolled over debt, must keep the amount of money in the system equal to the task of lubricating the economy to some sufficient degree. Theoretically it must be more or less possible to keep this system going indefinitely, depending on what we mean by “to some sufficient degree.” In the philosophy of the people who favour this system, poverty is a necessary evil, as are defaults of course, both of which act as a spur to keep us working, to keep us motivated. Put simply, success is good, failure is bad. Here Smith's Invisible Hand can be faintly detected keeping the system tuned automatically. Look, no governmental interference needed!

Scenario 3



Scenario 3 is a little like MMT (Modern Monetary Theory) as I have understood it. In this model Government has emerged from World as an institution that can also create money, but, in contradistinction to the banks, may do so as spending, which means no interest is charged. Government may choose to tax money out of the economy, or it may not, its decisions in this regard being guided by inflationary/deflationary pressures. (I include no arrow for taxation because the picture would have suffered in clarity.) In this theory we have a situation where defaults and financial ruin are not necessary parts of the system staying in some sort of balance. Government acts as a dynamic stabilizer, injecting and retracting money as the situation demands. Is this, potentially, monetary Nirvana? Seeing as there is no such thing as Nirvana, I very much doubt it.

So much for the theory. To please Bill Black (and myself) my final chart adds a little real world colour in the form of corruption.

Scenario 4



Included in corruption are human imperfection, mistake making, fraud, crime and so on. Also, not represented is that systemically there is constant pressure towards corruption, simply because being rich is better than being poor. So at each place where corruption can occur, there is pressure to ensure it will occur. Such occurrences destabilize the system to some degree.

One of the features of money that so fascinates me is its logical bond with scarcity, and its ability to act as power-lever. Those who control it control the system's functioning. Money can, in my view, never be only a medium of exchange, the simple and pure lubricant of those systems which depend upon it. All diagrams, models, and theories which do not take this into consideration are therefore flawed as far as I can tell. At those points of the system where corruption can occur it will, and this compromises the system's long term integrity, before we even think about problems of inflation, trade, currency exchange etc.

In the circle representing World is a massive amount of detail no picture can convey, while the flow of money round and round represents, of course, only a tiny fraction of what really takes place in human civilization. However, as broad-stroke sketches, such images have some use in representing the simple maths of money creation, and the nature of the systems we might create that depend on money for their functioning. How important are the threats of poverty and default as systemic motivators? How beneficial/dangerous is full employment? How effective can government be at establishing the correct tax policy in a system prone to corruption? If we were to leave government out of it, how effectively could 'The Market' take care of corruption, or of roads, laws, education, the health of humans everywhere?

Finally, also not represented is change. Change is the only constant. The models I have sketched, which broadly represent the choices of monetary systems available to us -- at the functional level -- do not take technological unemployment into consideration, nor production-consumption at levels that threaten the health of the ecosystem which supports those money systems in the first place, nor technological advances which offer us abundance, nor the coming beginning of global population decline. In the final analysis, money is a tool which solves particular problems, but, as all solutions do, also brings new problems with it, such as corruption and entrenched societal divisions. And because scarcity is assumed as an eternal problem solved only with money, we have war as an inevitability too.

Is there really no other way?

No Man is an Island

What is an individual? What does it really mean to be independent?

In the West we have strong beliefs about liberty based on the hard work of philosophers like John Locke and Thomas Paine, important work that heralded a new era of ‘free’ enterprise and dynamism theretofore never seen, certainly at the mass level. Things like fairness and equal opportunity found solid intellectual footing as a direct consequence of these efforts and the revolutionary wars they initiated. But of course things move on, knowledge expands, things change, and it is our task to keep up culturally with new information which threatens long established tradition and status quo. The wiser we are when addressing these issues, the better chance we have of midwifing the new as painlessly as possible into the old. To stay with the midwife metaphor; it’s always best not to throw the baby out with the bath water.

Crudely speaking we think of ourselves as individual agents acting in the world of things, where our actions and reactions are parts of causal connection chains stretching back into the past and off into the unknown future, like a vast, universal game of snooker. We both initiate and react to events. We are furthermore ‘free’ agents capable of choice, responsible, therefore, for the consequences of our actions once legally recognised as adults, shaping our lives as we see fit, deserving of success or failure depending on the mix of effort, luck and talent we bring to the party. For the ego – to my mind the true architect of this depiction of the human animal – this is as things should be. To stay safe and alive, the ego wants to feel potent in a world it needs to control. It wants to be able to dominate the environment to some degree to ensure its continuing survival, and if things go well, its comfort too. Almost the entire body of economics has this view of humans at its core.

However, one of the unforeseen consequences of this process of environmental control has been an increasingly complex social setup, a process we might characterise as compromise, or the slow, even stealthy, giving up of individual sovereignty to the growing group. The ego, that arch deceiver, has unwittingly deceived itself. Another force has been in operation all along, invisible to the ego, yet partnering it. Some call it “ethical evolution,” others “the expanding circle of reciprocity.” Both descriptions suggest we are being ‘pooled’ into a global society by our efforts to keep self secure. Is this The Invisible Hand at work? Perhaps, but I think not.

Language is for me the example par excellence of the social urges inherent to humanity. Our need to share tasks and deal with adversity together, combined with our intelligence and incredibly complex facial musculature, have created a communication tool so effective I can write this stuff and others can read it. Language has progressed from unknown early forms aiding hunting and other planned activities, to something quite beyond my powers to adequately describe. It gives us our ability to understand reality at a level so far beyond what (as far as we know) other animals can achieve, as to make us almost aliens on Earth. The social aspect of our nature made this possible. The ego played its part of course, with its need for boundaries and divisions and causal connections, but ultimately the truth will out, and language will be its midwife. Our flawed perceptions of reality must yield in time to increasingly accurate understandings of reality as it is.

One of the manifestations, or perhaps a partner to the process which wrested the ego from the tyranny of the bad prince/sovereign and gave birth to liberty (a somewhat adolescent notion), is the hunt for The Building Block, the atom (in the Greek sense) which can be no further divided. Once this little piece of reality has been discovered all explanations can flow from it. A term like “selfish gene” is an example of this. The quest for intrinsic value that so bedevils economics is another. Freud’s Id, Jung’s Self, and so on, are all examples of the egoic need to seek out the component which, once understood, can finally explain those things out of which it is built. To my mind this is a futile quest. In the same way that nothing can have any use or meaning in total isolation, so too can I say there is no such thing as an individual, there is no such thing as a selfish gene, no such thing as intrinsic value. Everything exists and comes into focus in relationships with other things.

To quote Stephen Pinker:

“[W]hen a person's public stance and private motives are both selfless but those motives came about because they once served the interests of his ancestors' genes, we have not uncovered hypocrisy; we have invoked a scientific explanation couched at a different level of analysis. Color depends on properties of colorless molecules; solid objects are made of atoms that are mostly empty space. That does not mean that peacocks are colorless or that Gibraltar is a mirage. Similarly, selfless people designed by selfish genes are not selfish.”

And John Holt (Instead of Education, p114):

“To ask what is fundamental human nature is to ask what a human being would be like without a culture. Such a question is meaningless, and cannot be answered. There is and can be no such thing as a human being without a culture.”

Systems Theory and the newer Information Systems Theory are humanity’s early efforts at understanding reality as dynamically interlinking relationships of a virtual infinity of variables. The implications of this mode of analysis (or synthesis) are profound and upsetting to many. There is no individual. The utility of discovering the ultimate building block is highly limited, not liberating. Humans are malleable; impressionable; embedded in social conventions of language, both of the body and mind; imprisoned by emotional restraints; utterly dependent on the ecosystem; in short tossed about by events beyond our control like so much driftwood. The ego does not like this view, but I think it reflects reality far more accurately than the egoic perception I outlined above. Economics has much to learn from it, indeed is torn asunder by it.

I believe there are such things as creativity and choice, but such a belief is not easily proven. There are simply too many variables to process, to take into consideration, at both the tiny and massive scales, to establish the existence of creativity and choice in Universe. One thing is certain (and inspired this blog entry), we are getting so good at simulating reality, seeing more clearly the processes which define it, and yet are having such a hard time with controlling and understanding money, something has to give. In terms of what we really are and what experience is, the following brings things like Star Trek’s Holodeck a little bit closer, and chips yet another piece from our certain sense of ourselves as autonomous individuals (seen at Naked Capitalism):

“Dzmitry Tsetserukou, an assistant professor at Toyohashi University of Technology in Japan, was the big winner at firstAugmented Human International Conference (AH’10), held recently at the French Alps ski resort of Megeve. His paper on haptic “exointerfaces” forvirtual [sic] reality — co-authored by Katsunari Sato and Susumu Tachi — created quite a stir. It describes a prototype of a remote haptic system called iFeel_IM! (“I Feel Therefore I Am”) that can simulate “several types of heart beat, a realistic hug, the tickling sensation of a butterfly stomach, a tingling feeling along the spine, and warmth.” With sensors, small motors, vibrators, and speakers woven into a series of straps similar to a parachute harness, it reacts to "emotional messages" embedded in written IM text (hence the name iFeel_IM!).” Hplusmagazine

Bring it on.

Modern Monetary Theory: shiny, new and good?

Modern Monetary Theory, or neo-Chartalism, proposes debt-free money creation by fiat. Money is created by the state at no interest, then spent (not lent) into the economy for the funding of projects, with the aim of achieving full employment and maximizing money-demand. Taxation controls inflation.

“Modern chartalism theory states that under a fiat money system, money is created by government deficit spending. Because money is not tied to or backed by a commodity, money can only be created when the government spends money. Government may, or may not, ask for that money back in taxes. The demand to hold and acquire [this] money is driven by taxes levied by the state, taxes that can only be paid in the state issued fiat currency.” Wiki

 
This blog entry is my initial thoughts on and criticisms of MMT, as well as a consideration of its possible usefulness in transitioning to a resource-based economy. (Thank you Martin for posing the question!)

Positives

On the positive side Modern Monetary Theory (hereafter ‘MMT’) treats money as a necessary chimera to be controlled by us for the enabling of economic activity, and not as some Act of God or Nature equipped with magical intrinsic value and oh so handy for controlling wayward, lazy us. There has of course been MMT precedent, at least in nascent form, during the days of Jefferson and Colonial Scrip, and a little later during the revolution when The Continental (the name given the currency) did the impossible and funded US armies against the sovereign. The brave, new, revolutionary recognition was that governments could both lend and spend fiat currency into the economy. The success enjoyed by Pennsylvania with their variant of the colonial scrip system was particularly eye-catching:

“The model that earned the admiration of all was the loan office established in Pennsylvania in 1723. The Pennsylvania plan showed that it was quite possible for the government to issue new money in place of taxes without inflating prices. From 1723 until the French and Indian war in the 1750s, the provincial government collected no taxes at all. [ ... snip ... ] The currency depreciated by 21 percent against English sterling, but Rabushka shows that this was due to external trade relations rather than to changes in the quantity of currency in circulation.” Ellen Brown, Web of Debt, p39

More on currency depreciation later...

MMT focuses on full employment, which, especially in the light of recent research published in “The Spirit Level” by Wilkinson and Pickett, is certainly a noble intention, one in tune with homo sapiens sapiens’ base needs for respect and dignity, though this is a positive fraught with difficulty in my view. But perhaps MMT’s biggest positive is it differs from the current program only a little, which means switching over to MMT would not be very difficult technically. Only the argument need be won, albeit in a world highly suspicious of anything remotely resembling ‘just printing money.’ Perhaps we need only be cooly scientific when appraising the US Fed and other central banks monetizing sovereign debt through quantitive easing to demythologize money a little.

Negatives
 
On the negative side are all of the problems money always brings with it. MMT money is, as are all other monies as far as I can tell, logically bound to scarcity, competition, profit maximization, perpetual GDP growth and ever increasing consumption, and most crime. Indeed, MMT is perhaps more attached to increasing consumption than are the more austere gold-backed or commodity/intrinsic-value money theories. And then there’s corruption, which is necessarily engendered by the systemic pressure of success being ‘Having More Money Than The Other Guy.’ No laws in history have ever prevented corruption, so the already very tricky task of printing the correct amounts of debt-free money in relation to money created by private banks, is yet further complicated (how often do government funded projects go over budget, and how water-tight is taxation?). Also, MMT sees debt-money as being self-destroying (see quote directly below) – either the debtor defaults, or the principal is expunged upon final repayment. But as we all know, the interest accrues to the creditor, and that is indeed ‘real’ money. (This is so obvious I wonder if I’m missing something.) As before, money-lenders accrue a larger and larger share of the available pool of money via the sucking up action of interest, once called usury. An MMT government would have to tax lending institutions down to size to prevent this distortion from becoming permanent, while at the same time printing money for the economy and taxing the correct amounts back out to prevent serious inflation/deflation problems from arising. Considering the ever-present power of lobbyists and the imperfection of politicians/humans generally, it is hard to imagine this being durably successful.
 

“All transactions between agents in the non-government sector net to zero. For every asset [debt-money] created in the non-government sector there is a corresponding liability created $-for-$. No net wealth can be created. It is only through transactions between the government and the non-government sector create [sic] (destroy) net financial assets in the non-government sector.” Bill Mitchell, emphasis added.

 
To my mind this is flawed reasoning arising (tangentially, though with clear connecting lines) from the terrible difficulties economists have — from Smith through Ricardo and Marx, into the neoclassical school, and now even post-Keynesians — defining value. By my lights, wealth (a form of value) cannot be created by any type of money creation on its own. New ‘wealth’ is assisted/facilitated by many different types of funding, in conjunction with technology. Technological developments are of course the source of all increases of living standards through the ages, bar none. If we travelled back in time and dumped 10 trillion dollars on primitive hunter gatherers, then left them alone with that cash but no know-how, their standard of living would not improve by one bit. Increases in ‘wealth’ (improving living standards) happen on the heels of technological advances (from farming to silicon chips). How new technology comes into being, that is, how it is funded and distributed, is a separate question. Money does not equal wealth. It is confused for wealth because it is such a good technology for enabling economic activity. MMT seems not to see this important distinction, though it is almost there, breathing on the window that looks out on this perspective.
 
The problem with pure debt-money systems is the ponzi debt-wall eventually encountered. There can never be enough money in the system to pay back the interest, except by extending yet more credit to cover existing obligations. If government issues debt free money that problem is somewhat assuaged, but the jobs, technology and other factors have to be in place in order for this created money to have something positive to do. That is key. Otherwise new money does nothing except inflate prices.
 
On to full employment. I am a big believer in the Keynesian observation of technological unemployment (MMT being, somewhat ironically in this case, a post-Keynesian baby), so worry that unless coupled with a major effort (very difficult to pull off I’m sure) to reduce the work week, the MMT push for full employment will end up looking something like communism, with increasing numbers employed by the State to do any old thing, so long as they are receiving a wage (which is also happening right now). Even with reductions in the work week, the nature of work is changing so rapidly, the highly skilled might have to pull 120, while the less skilled only work 20 hour weeks. I haven’t seen this issue addressed in MMT debates and writings, and am myself at something of a loss as to how to square this circle. Education will certainly be key, but that takes a lot of time and is also very difficult to get right. It takes almost a generation to equip the young for the future, but things are changing so fast, what we teach today is often useless information a decade later.
 

“The only sensible reason for accepting the authority of a national government and ceding currency control to such an entity is that it can work for all of us to advance public purpose. In this context, one of the most important elements of public purpose that the state has to maximise is employment. [… snip …] So then the national government has a choice – maintain full employment by ensuring there is no spending gap which means that the necessary deficit is defined by this political goal.” Bill Mitchell, emphasis added.

 
Fairness is always a priority consideration, no matter the model pedaled. Even the fiercest ‘free’ market liberal would argue that fairness is best served by his model, indeed justifies it, that minimal state intervention is the only guarantee of a fair and efficient distribution of goods and services. The road to hell is paved with good intentions, best to let the market work its magic via competition and equilibrium, and not touch, with well intentioned fingers, the running system. The more we interfere, the further away from efficient equilibrium the market, that beautiful state of nature, lurches. If unemployment rises, it is for good, internal reasons, and the market will adjust back to maximum employment in its own good time. MMT has the type of good intentions that so nettle ‘free’ marketeers, and though I am not a ‘free’ market liberal, good intentions of the full-employment kind worry me. We need in my view, going forward, a new way of earning our sense of self-worth, one that is not related to material success, nor to our wage, nor to our contribution to the economy. As I have pointed out before, economics values air at zero, ditto for important social qualities like trust, compassion, friendship, and a sense of belonging. Economics is, in my opinion, worse than useless at assessing value; its efforts in this area have had a net negative effect on society. We should therefore stop looking to economics’ pained struggle to define value via price and money, and search elsewhere. (The Venus Project would be a good place to start.) Full employment, though well-intentioned, is a dodo. We need a new model.
 
This full employment/technological unemployment blindspot shows how very mainstream MMT actually is, despite the knee-jerk abhorrence of ‘just printing money’ that still exists in spades in the public imagination. The standard dismissal of the problem of technological development rendering human labour less and less necessary, is that more work is created by the economy as efficiencies increase. This is the ‘lump of labour’ fallacy so often cited in discussions of technological unemployment, but as I have argued before, the real fallacy lies in assuming that the shrinking pool of available human-only work can power the entire economy indefinitely. It is our cultural sense that labour is a yucky effort to be rewarded/motivated by wages, that without labour we become lazy good-for-nothings, that there is no such thing as a free lunch, which taken together prevent us from recognizing labour as merely one manifestation of work itself, and that work can be fun, indeed should be. There will always be work. Exchanging labour for a wage, on the other hand, is a quite recent invention, and hardly a genetic necessity. We’ve been around for a couple of hundred thousand years. For only a fraction of that time have we exchanged our labour for money to survive. Accomplishment, as we all know deep down, is its own reward, as is success. Both phenomena were known to us before we invented money. Strictly speaking we do not therefore need a wage to make this so, or to prove that we have accomplished something, or succeeded at something, or even to get unwanted things done (so many of which can be automated). Society has many ways of bestowing praise and reward aside from remuneration.

In “Debunking Economics”, Steve Keen (who describes himself as almost being a post-Keynesian) points out that the post-Keynesian school has no theory of value. Since MMT is a post-Keynesian creation, and since it intrinsically requires maximum employment, I would say that the labour theory of value is as close to its heart as any other. For the sovereign to print debt-free money into the economy, and thereafter to avoid inflation, there must be corresponding economic activity, aka buying and selling, plenty of goods and services, and people earning money they can spend. If inflation is currency devaluation, and if inflation is in MMT combatted with full employment, then currency value comes from labour. We are back with Karl Marx (and Karl Denninger too, strangely enough — the people one finds in bed together!); ultimately money derives its value from labour, from people doing work which provides them with purchasing power. Of course in this case this is also akin to utility value, since money has to flow to all market participants to keep goods and services moving. Nevertheless labour is an unavoidable component in this system of money flow.

I have saved perhaps the most complicated issue for last. It lies in the area of currency exchange and international trade, hinted at above. Currency depreciation leads of course to price inflation of imported goods. For countries with few natural resources MMT might prove something of a time bomb. If oil were to be priced in a non-dollar currency (not a wild impossibility in the foreseeable future), MMT would be problematic even for the US should the dollar devalue relative to whichever currency, or basket of currencies, oil is to be priced in. And when we transition away from oil, those countries surviving from exporting it will also be in dire straights. I’m not sure if MMT can help here, at least not on the world stage. Saudi Arabia would have to import large amounts of resources, but would have next to nothing to export. I imagine this sort of problem affects many other nations besides. As Colonial Scrip experienced some 300 years ago, funding national projects by printing money to buy the imports necessary for their completion has a negative effect on your currency’s international standing.

The complexities arising from money as commodity and currency fluctuations generally are very difficult for all sovereigns to deal with, no matter how dominant they are on the global stage. For MMT to be worth its salt in practice, wouldn't near-global implementation of it be necessary? Some nations have to be losers in the balance of trade wars, have to be net importers. If they print off their own currency to settle their external trade bill, I cannot see how this would not devalue that currency. It is this aspect of MMT I find most vague and naively hopeful in the theory. Internally, within the domain of the sovereign, MMT seems elegant enough (forgetting problems of corruption and competence for one moment). Worldwide it would be a whole other kettle of fish. Dreams of elegant control and finesse almost always shatter when they meet the hard rocks of an uncaring reality. Nations are not separate systems equipped naturally with everything they need. The fact of widely and randomly scattered resources across the planet we inhabit demands of us international solutions to problems of scarcity and wealth distribution. It is at this international level I expect MMT to experience its greatest difficulties.
 
An open question: how are pensions managed in MMT?
 
Preliminary conclusion

MMT recognizes that, crudely speaking, all money is, in the end, somewhat like the money that comes delivered with the board game Monopoly. It’s there to make the game possible. In the beginning the amounts among the participants are equal, but over time the majority become poor, while one becomes rich. Luck, some skill, and the rules of the game, make this happen. In life this happens too, but in the real world, more money can be created, somehow, to cope with more players coming to the board, economic growth, and other variables. Taxation circulates money too, keeping the economy going via government spending and welfare. There is no state in the board game fulfilling this function, keeping the game going, which is how there can be a sole victor. The ultimate question is whether MMT can tune the state’s activities to get the best out of money’s role in society, or if money, as I believe, is in fact a flawed technology in light of other technologies rendering human labour and scarcity slowly redundant.

Will money creation along MMT lines be part of a transition to a resource-based economy. I think so, but in an as yet unseen form — a money fully automated on the supply side, with no interest anywhere, that cannot be treated as a commodity, and that is global.

The current system is an implicit variant of MMT anyway (fiat is a major part of it, and the Fed and Bank of England are bidding, via quantitive easing, at their own auctions). We are also, in my view, already transitioning implicitly, away from scarcity and towards abundance. For me the big question is whether monetary collapse must occur before wide, open recognition of the validity of a post-scarcity, non-monetary society can begin. With peak-oil making the news again, and the usual attendant  reaction of doom and gloom, our cultural inability to contemplate seriously radical alternatives like a RBE, in the face of radical challenges, is the main issue. While we continue to believe there’s only one game in town, we flirt with unnecessary disaster. Hopefully, the good sense inherent in MMT will win the day, and lead to a softening of attitudes to money generally, as part of the softening of cultural loyalty to old platitudes and received wisdoms about value and human nature. To want a system in which we are money’s masters, not its servants, would be quite a victory. The far harder part though would be sustaining an MMT system globally.