As I noted yesterday, last evening I accepted an invitation to speak on a panel…
The role of literary fiction in perpetuating neo-liberal economic myths – Part 1
A few weeks ago I wrote a blog – Reflections on a visit to New Zealand – which began by summarising some research I am working on which will be presented (with Dr Louisa Connors) at the upcoming MMT conference in Kansas City. This specific paper will be examining the role that fictional literature plays in framing false economic concepts and, thus, promoting neo-liberal biases among the readership, even when the plot of the narrative is ostensibly about something other than economics. We show that fiction is a powerful tool for spreading ideological propaganda, often in a very subliminal or subtle way. The lesson we draw from this work is that to further advance Modern Monetary Theory (MMT) ideas, authors, who introduce economic concepts into their writing, should construct their narratives consistent with the MMT principles. This will help to counter the misconceptions that arise in literary fiction when authors engage with flawed neo-liberal arguments about the monetary system. This blog is in two parts and today is Part 1. Part 2 will come another day (soon).
One book we are working with at present to demonstrate our argument is the recent work by influential American author Lionel Shriver entitled The Mandibles: A Family, 2029-2047 (published May 2016), which traces a family through 18 years of economic chaos after the US government is forced to default on its national debt because it has run out of money and the US dollar has been rendered ‘worthless’ in international currency markets.
Shriver has made it plain in many interviews that the motivation for the book was to present “a cautionary tale about today” (Source).
She told the BBC Radio 4 show Front Row (see previous link) that:
I have to admit that it was kicked off by the crisis of 2008 … This is not an unrealistic book it is not a science fiction book.
In other words, Shriver places her work firmly in the realm of critical realism, which means that she is suggesting her narrative has something to do with reality as it is rather than as she would like it to be.
But the reality is that the book presents a series of linked economic myths woven through the narrative about the dynamics of the Mandible Family – without any scrutiny or validation – just stated.
These include:
1. The ‘government will run out of money’ myth.
2. The ‘government deficits will leave a burden for the kids and the grandkids’ myth.
3. The ‘nation will go broke’ myth.
4. The ‘profligate state then turns on its people’ myth and as in ‘socialism, becomes oppressive’ myth.
5. The ‘healthcare and pensions are unaffordable’ myth.
And all of that is “realistic” and non-fiction, by the author’s own words.
It might be that Shriver believes all this economics rubbish and is just weaving it into her book as a narrative construct. But even so, her literary influence means that the people who read the book will be nodding in agreement and having all their ignorance and prejudices reinforced, not by any economic analysis and empirical validation, but by the bare-faced assertions and repetition of these economic myths.
This is a different problem for progressives to that presented, for example, by the famous tome by Ayn Rand, Atlas Shrugged.
Ayn Rand characterised her work as being a work of romantic realism, in that described, in her view, a world “as it could be and should be” (Rand, 1995: 243).
[Reference: Rand, A. (1995) Letters of Ayn Rand, edited by Berliner, M.S, New York: Dutton.]
Thus, Rayn’s Atlas Shrugged was a cry to the ideologues to crush the welfare state and eliminate the regulative structures that had given the working class a reasonable stake in the spoils of capitalist production.
It was clearly seen as a theoretical template to politically activate the right-wing elements that were increasingly, through the 1970s and beyond, coordinating attacks on the Welfare State and government defence of the poor.
Rand sought to impose a perverted sense of justice (later called ‘trickle down’) onto the policy debate to shift power away from workers towards capital.
But Shriver’s work is in a different category to that. The narrative is not ostensibly about economics. But the dynamics of the family, the central focus of the book, is intrinsically linked to their economic fortunes, which Shriver casts as being undermined by governments.
She verbals the characters by having them recite, in normal conversation between themselves, various neo-liberal economic myths, without scrutiny. They are just presented as background facts as if they have some bearing on what is likely to confront American families in the next 20 years.
This is a much more insidious problem for progressives to confront. Rand can be dismissed as a strange and rather crude ideologue.
Shriver is much more subtle and attempts to push economic myths under the radar – but all the time, suggesting they are factual realities. They are not!
Our paper (to be presented in Kansas) will have five main parts (outside an introduction that will state the problem and scope of our study) and a conclusion that will draw the argument together):
1. A discussion of the ways in which literature can reinforce flawed ideology.
2. A brief introduction to the book’s plot.
3. Why the Mandibles is pure fiction – application of Modern Monetary Theory (MMT) principles to the main monetary precepts presented by Shriver. That is, the book is a fantasy without application to the real world now or in the future.
4. What might befall the Mandibles in a world where MMT is broadly understood – we rewrite the book – in a few short pages using a consistent MMT understanding. We will come up with a much different future for the family.
5. Implications for progressive writers (non-economists) – we discuss how fictional authors with a progressive bent can help deepen the penetration of MMT understandings within the general population.
Why the Mandibles is pure fiction?
Despite Shriver claiming her story about the Mandible Family is “not a science fiction book”, by which she means it falls within the genre of critical realism, the economic concepts woven into her narrative are pure fiction and have no applicability to the real monetary system and the likely evolution of the US nor the World economy.
In this section, we test the narrative against our understanding of Modern Monetary Theory (MMT) and find that the main monetary precepts woven by Shriver into the narrative are a hybrid of gold bug hysteria and mainstream, neo-liberal myths.
It is interesting that Shriver melds together a range of criticisms from disparate sources, not appreciating that they do not comprise a coherent paradigmic position. More about which later.
The obvious conclusion that the book is a fantasy without application to the real world now or in the future.
We argue that it is representative of a number of fictional works that bias readers towards implicitly taking on neo-liberal economic fallacies as if they were verities.
Shriver takes us to 2029 where a new financial crisis is unfolding in the US. A 13-year old boy, Willing Mandible ask his mother as he watches the TV news:
Mom! … What’s a reserve currency?
That is the first hint of what is to come.
The TV news reported that “The dollar now having dropped below 40 percent of the world’s …” as the mother answered:
I’ve no idea what a reserve currency is … I don’t follow all that economics drear. When I graduated from college, it was all people talked about: derivatives, interest rates, something called LIBOR. I got sick of it, and I wasn’t interested to begin with.
The boy responded “Isn’t it important?”
Shriver writes that between the GFC and 2029, when the novel begins, the US endured massive economic change and challenges.
All the elements are there – the robots taking jobs, a hacking crisis that temporarily disabled “vital internet infrastructure” and all the utilities and related homedevices that depended on it; the rise of China as the largest economy; the collapse of mastheads such as the New York Times as hackers rendered digital platforms commercially unviable; and the increasingly unreliable New York water supply.
But as the TV news was foreshadowing a major financial meltdown and worse, the Mandible family was more occupied with the everyday micro matters such as who would sweep up the “bits of cabbage from the kitchen floor”. Referencing, obviously, our capacity to bury our heads in the sand from a combination of indifference and ignorance.
We are soon introduced to other members of the family. Lowell Stackhouse, an economics academic at a US university, returns from work and relates the day’s US Treasury bond auction results to his wife Avery (nee Mandible).
He tells her the volume of bids for the bonds (bid-to-cover ratio) was equal to the volumes available and yields doubled.
Lowell, is in denial, which is Shriver’s statement on the way the economics profession handled the period leading the Global Financial Crisis.
He recounts several other potentially disastrous events to his wife, which he claims are unrelated. France is observed as being “unable to completely roll over a tranche of maturing debt-but Germany and the ECB swept in right away”, although with the Eurozone dissolved (as we learn earlier), one wonders what the European Central Bank is doing in the story.
We learn that the UK government, a currency-issuing government, “can’t bail them out this time”, them being the private British bank, Barclays, which is going “to the wall”. Again, this is Shriver denying the obvious capacity that particular government has to create unlimited pounds. If the British government did fail to bail out a failing bank it would be because they didn’t see any political gain in doing so. It could never claim that intrinsic financial constraints were binding on the decision.
But Shriver wants her readers to believe that currency-issuing governments are not able to protect their financial systems and guarantee bank deposits, when in reality, they can always ensure financial stability.
Lowell tells Avery of another “unrelated” development where the “skittish hedge funds in Zurich and Brussels reduced their dollar positions to basically zero and moved into gold”.
While he notes that “foreign demand for US debt is low”, he believes that the US national debt is entirely sustainable because “At 180 percent of GDP – which Japan proved was entirely doable – the debt has been sustained”. Again, Shriver wants us to see Lowell in denial as these negative events multiply.
Clearly, she wants her readers to concur that the public debt-to-GDP ratio somehow matters, even if she doesn’t explain how it matters. She is also, implicitly suggesting that Japan will eventually crash and provide testament to the sort of nonsense that Rogoff and Reinhardt pumped out regarding dangerous thresholds for public debt ratios.
Clearly, she wants her readers to concur that the public debt-to-GDP ratio somehow matters, even if she doesn’t explain how it matters. She is also, implicitly suggesting that Japan will eventually crash and provide testament to the sort of nonsense that Rogoff and Reinhardt pumped out regarding dangerous thresholds for public debt ratios.
Lowell’s belief is epitomised in this passage:
Money is emotional … Because all value is subjective, money is worth what people feel it’s worth. They accept it in exchange for goods and services because they have faith in it. Economics is closer to religion than science. Without millions of individual citizens believing in a currency, money is colored paper. Likewise, creditors have to believe that if they extend a loan to the US government they’ll get their money back or they don’t make the loan in the first place. So confidence isn’t a side issue. It’s the only issue.
And Shriver dismisses this (through Avery) as being pontification and the type of “crap” that economics professors deal up within the academy.
This is a curious tension in the book. She clearly has disdain for the economics profession, given her representation of it through Lowell’s character, whose “quarter-inch stubble no longer looked hip but seedy, and his longish graying hair cut in once-trendy uneven lengths now made him appear disheveled.”
But at the same time, she is happy to channel the main myths perpetuated by the core of the economics profession without question. If the academics are so full of “crap” why are their theories worthy of becoming the basis for what The New York Times review called a “dystopian finance fiction” (Franklin, 2016).
[Reference: Franklin, R. (2016) ‘Lionel Shriver Imagines Imminent Economic Collapse, With Cabbage at $20 a Head’, New York Times, July 11.]
But back to Lowell. While consumer and investor confidence is important in an economy, it is a secondary aspect of the publics’ willingness to use a fiat currency that is not intrinsically valuable (compared say, to gold or silver coins).
Shriver is obviously oblivious to the fact that the state has the capacity to denote the objects that will be required to relinquish the tax obligations of the non-government sector. That capacity is what underpins the demand for the currency rather than confidence. The non-government sector has to supply goods and services to the government sector in order to acquire the state’s currency.
In Modern Monetary Theory (MMT), this tax obligation gives relevance to an otherwise worthless currency. It requires governments to spend the currency into existence. And, logically, the capacity of the non-government sector to pay taxes must comes after the government spending, not before.
As he is travelling to work next morning, Lowell looks at his mobile information device that everyone now carries (a “fleX”) and the headlines were “DOLLAR CRASHES IN EUROPE”, presaging the generalised collapse of the US currency, which Shriver sees as inevitable.
Next we encounter the grandfather of the family Douglas who is fabulously wealthy as a consequence of early industrial innovations from his father.
He is in conversation with his son Carter Mandible (father of Avery). Carter has been trying to work out “this ‘bancor’ business”, which as we learn later, refers to the new reserve currency introduced by Russia and taken up by China.
Not only are foreigners selling off the US dollar and the ECB, Bank of Japan, Bank of England and the US Federal Reserve cannot stop it, but Vladimir Putin has introduced a new reserve currency, the Bancor, a name stolen from the supranational currency proposed by John Maynard Keynes and E.F. Schumacher in the early 1940s to support an International Clearing Union they considered essential to restore stability once peace was restored.
But the conversation then shifts to an acknowledgement that:
The SEC hasn’t deigned to re-open the Exchange since the Level 3 circuit breaker kicked in on Thursday. It doesn’t take much imagination to picture what will happen to the market when they do. I’m sure the SEC has pictured it. So whatever the values at which stocks left off are academic.
Which means that Carter’s wealth had been more or less wiped out. Further, the ATM machines had reduced the amounts they were dispensing because of a fear of “bank runs”.
Paul Krugman is the Federal Reserve Bank governor in 2029 and claims the banking restrictions are temporary.
This prompts Douglas to rail against about the problem of using capital controls. He tells Carter:
The hard part is lifting capital controls, which becomes unthinkable the moment they’re instituted. Who wants to keep funds in a country that confuses a bank account with a bear trap? The moment you remove the constraints, the nation is broke. So you can be sure that at least the freeze on making monetary transfers out of the US will stay in place for some time to come. Look at Cyprus. The capital controls levied in 2013 weren’t entirely rescinded until two years later.
Perhaps Shriver could have used the example of Iceland, which has its own currency, rather than Cyprus, which surrendered its currency when it adopted the euro. But then the story wouldn’t have gone the way she wanted it to.
For Iceland has categorically demonstrated that even with the opposition of some of the largest hedge funds in the world, a small, currency-issuing government can successfully impose capital controls and defend its currency.
Please read my blog – Iceland proves the nation state is alive and well – for more discussion on this point.
She might also have updated her knowledge of the latest research on capital controls, where even the IMF, previously implacably opposed to them, has been forced to acknowledge that they can stabilise the financial sector and provide better growth opportunities for nations under speculative attack from foreign exchange markets.
Please read my blogs – Why capital controls should be part of a progressive policy and Are capital controls the answer?– for more discussion on this point.
But all that would be inconvenient to Shriver’s intent. By introducing Douglas into the narrative she sets up a repetitive theme in the book. Shriver motivates her causal chain by asserting that the American fiscal system has been underpinned for years by foreign purchases of US government treasury debt.
The US dominance of the IMF is also over, and the New IMF (NIMF) which supervises the bancor, is no longer a policy extension of the US. The NIMF aims to “restrict the money supply” in global markets and reduce the reliance on the worthless US dollar.
But as they rue the current developments on international foreign exchange markets, Douglas informs Carter that the US dollar “is worthless now because it was worthless before“.
Shriver then, through Douglas, rehearses the standard Austrian School argument that:
In the hundred years following the establishment of the Federal Reserve in 1913, the dollar lost 95 percent of its value – when one of the purposes of the Fed was to safeguard the integrity of the currency. Great job, boys! … And the majority of that currency decay is historically recent. Why, the dollar lost half its value in the mere four years between 1977 and 1981.
American politician Ron Paul and the Tea Party supporters all mount this argument to attack the Federal Reserve Bank and the use of fiscal deficits.
The problem with the argument is that it is intrinsically misleading.
The claim is often by made in terms of the relative shifts in gold prices in US dollars. They say that in 1913, it took $US20.67 to purchase an ounce of gold (that is, each US dollar purchased 0.0484 of an ounce). By the time The Mandibles came out (2016), the gold price had risen to $US1250.74 per troy ounce (or each US dollar purchased 0.0008 of an ounce).
Simple arithmetic then tells us that there has been a 98.3 per cent decline in each US dollar’s capacity to purchase gold.
Of course, this calculation, though the result is relentlessly shouted by gold bugs and other government haters really has no relevance in calculating the real value (purchasing power) of the US currency.
Even during the ‘gold standard’ periods (which includes the Post Second World War Bretton Woods system of fixed exchange rates), using the gold price as the standard reference for the value of the US dollar, was problematic because gold itself was not in fixed supply and was also used as a speculative vehicle. The Bretton Woods system was a spectacular failure and was abandoned in 1971.
Economists also respond by saying that the real value of the dollar is best expressed in terms of how much a standard basket of goods and services costs. They use a Consumer Price Index (CPI), which converts such a basket into index number points.
If we take the All Items CPI, which the US Bureau of Labor Statistics publishes back to January 1913, we see that its average value in 1913 was 9.9 index points (base-year value of 100 in 1982-84). The average value in 2016 was 240. A simple calculation means that the CPI has increased by 2328.4 per cent over the entire span of the data.
So converting that into a dollar purchasing power expression gives us a 95.8 per cent decline in ‘purchasing power’ per dollar between 2013 and 2016.
Which would appear to validate the claim that the US dollar has declined in value by that amount.
But in repeating this Tea Party logic, Douglas Mandible was grossly misleading his son, Carter and by, inference, Shriver was grossly misleading her readers by leaving them with the impression that the US dollar was worthless now as a result of central bank policies and deficit spending by the Treasury.
The reason this Tea Party logic is grossly misleading, is that it would only make sense if the wages received by workers, for example, had not changed at all over 103 years (1913 to 2016).
But, of course, that far from true.
Official data shows that the average hourly earnings of production and nonsupervisory employees in the US Manufacturing industry in 1913 were $0.22 (US Census Bureau, 1975). By 2016, the average hourly earnings had risen to $US20.44, a rise of 9,190.5 per cent since 1913 (Bureau of Labor Statistics, Series CES3000000008).
[Reference: US Census Bureau (1975) Historical Statistics of the United States, Colonial Times to 1970, series D802 – LINK]
$0.22 per hour in 2016 dollars would have been worth $US5.34 per hour. So the real hourly earnings have risen by 282 per cent between 1913 and 2016, an incredible increase in the purchasing power of the dollar in the hands of workers.
A comparison of any occupational group would reveal a similar result.
Further, annual per capita national income was $US407 in 1913 (US Census Bureau, 1975) or $US9,883 in 2016 dollars.
By 2016 it had risen to $US57,590, an increase of 14,049 per cent in nominal terms and (which in real terms translates to a 482 per cent increase).
In other words, the average American household now has a much greater command over real goods and services in 2016 than they had in 1913.
Consider the average Manufacturing worker of 1913 who was earning 22 per cents per hour, being time-shifted into 2016. They would only be able to buy goods and services worth $US5.34 for each hours of work, whereas the actual average Manufacturing worker in 2016 was able to purchase $US20.43 worth of goods and services. A massive improvement in the command over material goods and services.
And this comparison does not take into account the huge improvements in quality of the goods and services available, particularly in areas of health, technology and housing.
Nor does it take into account the compound interest that could have been earned on the 22 cents had it been saved. A separate comparison would reveal that the compounded real $ value would now be much higher than it was in 1913.
There is a valid argument to be made that the average blurs the underlying distribution given the rise in income inequality over the last 30 years in the US. But that is not the claim underpinning the diatribe from Douglas Mandible to his son.
Overall, the inference that a recipient of the US dollar had a better material life in 1913 when compared to 2016 is plainly false.
Here we see that Shriver has brought together a sort of grab bag of criticisms from disparate sources about central banks and government deficits, without acknowledging (and perhaps, not appreciating) that they do not comprise a coherent paradigmic position.
So while the loss of dollar value is typically an Austrian School argument (politicised by the gold bugs and Tea Party activists) it is rejected by any mainstream, neo-classical economist (which I generally refer to as the dominant neo-liberal group in the profession).
Most trained economists would acknowledge the arguments we have presented above.
But, not to be fussed by consistency, Shriver immediately launches into doomsday scenarios that the mainstream would use to attack government.
To be continued …
Conclusion
In Part 2, we consider the demise of the US economy in Shriver’s narrative, the way the US President is characterised and more.
Reclaiming the State Lecture Tour – September-October, 2017
For up to date details of my upcoming book promotion and lecture tour in Late September and early October through Europe go to – The Reclaim the State Project Home Page.
There are updated details today concerning the Madrid events.
Later in the week, I will be able to offer discounted access to the book. Stay tuned.
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.
What this shows is how good the propaganda has been, and what a colossal job it is will be to replace this medieval mindset – particularly in the USA where individualism is part of the country’s DNA.
Bill,
You state that it is taxation that gives a currency value. (Unlike gold or silver)
Then what is it that gave gold and silver value?
Was it he fact that those metals were redeemed by the government in exchange for currency which had a tax obligation?
Regardless of whether you use a metal, a fiat currency or trade in peanuts it is the states authority to impose taxation that gives a currency value. Yes?
Obviously tying a currency to a metal (or peaunuts) forces you to maintain stocks of that metal (or peanuts) and its issuance is outside the control of the government.
Taxation is a sufficient but not necessary condition to give a currency value.
There is value in things for all sorts of reasons. Glass beads at Pandora, pieces of jewellery, cryptocurrencies and the like all have value because they have value.
The point of a state fiat currency is that you are forced to obtain it whether you like it or not, or face jail. And because of that power, the state can move real resources to the public purpose at all times.
Dear Bill,
I believe there is a typo at the end of this para:
“So converting that into a dollar purchasing power expression gives us a 95.8 per cent decline in ‘purchasing power’ per dollar between 2013 and 2016.” (!!!)
I’m presuming that should be “1913 and 2016”?
It looks like Ms Shriver has been getting all her economic ideas from Zero Hedge!
Bill,
I am sure you know of the 2014 ‘debate’ on money creation in the British Parliament which saw that 70% of those there had to admit they did not know how money was created. What took how money was created and turned it from debate to ‘fact’ was the Bank of England publications of the same year.
Why are we all still debating this stuff re: MMT as opposed to the myths regarding false economic concepts? Is there no proof and if so why is it not being presented in a format where there can be no more ‘debate’ Surely the RBA would be one authoritative source who can fulfill the role of providing evidential fact.
Have you written to them? Maybe I should write to them but I am not quite sure what I would ask yet or how I would word it. All I know is that I do get better responses from those in government when I pretend I’m a student doing research!
If anyone wants to put some questions together, I’ll be more than happy to write to the RBA and the Treasury (it’s not the first time I’ve written to them)
Yes, Bill, Shriver’s book is terrible. I remember an interview she gave soon after its publication about the economic “reality” underlying the narrative. I remember thinking, OMG. The interviewer thought the book was exceptional. i would add, yes, exceptional all right, exceptionally awful.
Oh My! Hollywood movie coming soon?
“It might be that Shriver believes all this economics rubbish and is just weaving it into her book as a narrative construct.”
I firmly believe that this is the case. Shriver is either bad informed or ignorant, but she is NOT misguiding people on purpose.
Actually, I do believe that it’s also the case for most people, including economists. They are blind, ignorant, but they are not participants in some kind of evil conspiracy, as some heterodox economists say.
The solutions to the ignorance problem is different from the solutions to the evil conspiracy problem. We need to be aware of that difference.
David Graeber has a lot to say about the value of gold and other money in _Debt: The First 5000 Years_. The chapter “The Axial Age”, referring to the times from 800BC to 600AD deals with precious-metal money and impersonal markets. To give a sound bite:
“… the existence of markets was highly convenient for governments, and not just because it made it so much easier for them to provision large standing armies. By insisting that only their own coins were acceptable as fees, fines, or taxes, governments were able to overwhelm the innumerable social currencies that already existed in their hinterlands, and to establish something like uniform national markets.”
The response to this conundrum is provided by the opportunity to dramatize a counterpoint theme based on MMT doctrine in which a Hollywood style hero avoids catastrophic personal and financial destruction; that is exemplified on a national scale.
If you could manage that there might no longer be a need for so much denigration on these pages – by contrast, MMT would be lauded.
Such a project however, while not amounting to capitalism (exploitation of resources), might make a good example of risk-taking in the pursuit of profit.
“Money is emotional … Because all value is subjective, money is worth what people feel it’s worth. They accept it in exchange for goods and services because they have faith in it. Economics is closer to religion than science. Without millions of individual citizens believing in a currency, money is colored paper. ”
This passage truly baffles me. It baffled me when I was 9 years old asking my parents “Why does money have value?” (paraphrasing). This passage above was more or less the answer I got. Even when I was younger, it never made sense to me that it could have value “just because” or due to “confidence in the government”. Nonetheless, if you type “Why does money have value?” into Google, this general explanation is more or less what you will find. Its crazy that this is considered “mainstream”, and the tax-driven theory, which is much more plausible, is seen as “conspiracy” type thinking.
“The point of a state fiat currency is that you are forced to obtain it whether you like it or not, or face jail. And because of that power, the state can move real resources to the public purpose at all times.”
The bigger question is surely do they, or would they, actually act for public purpose or not ? A different question but one that needs to be tackled at a fundamental level even if we get the idiots to accept how money really works. That is part of the ‘class struggle’ I suppose.
Misconceptions certainly are not only perpetuated in books. (Though book fictions are certainly more ‘authoritative’ than other forms of fiction). Let me give some more examples to see if you guys would agree.
I was watching Game of Thrones and the people running the seven kingdoms of Westeros kept saying “we have no money,” or “we have to borrow from the Iron Bank.” The Iron Bank is a foreign bank.
During the conflict when five oligarchs declared themselves as kings, the lords needed gold to pay off whatever mercenaries/services that they couldn’t convince/coerce into submission. However, whoever won the throne would/should have introduced a taxed fiat currency instead of using a foreign currency that inevitably strangle the kingdom financially.
In the first seasons of the show (before the war of five kings), they said that the realm was in great debt to iron bank and it has spent a huge amount on an extravagant tournament beyond other things.
Why does Westeros spend a foreign currency? It’s like USA/Australia borrowing the Yuan from China to spend the Chinese Yuan in the US/Australia. Why!?
Also, if the government has spent money into the economy, it means the private sector must have the money as savings. Depending on who has the savings, it could be great for the people if the realm’s production capabilities haven’t collapsed due to war. This concept is absent in all the fictions that I have seen.
The line between gold and money is hazy in GoT.
The other thing is: how does the Iron Bank have all this gold/money and somehow no government to speak of? What is keeping people from just marching into the bank and take its gold? Who is going to perform debt jubilee when private debt inevitably exceeds the ability to pay?
Let’s be fair, Westeros may be explained by a gold standard. Leaders in Westeros could be complete idiots that have no problem living under an artificial gold standard financial constraint that impoverish its own citizens. We do not do that in real life. Oh wait…
I play some video games, and they treat money as if it were a real resource and thus must be taxed first in order to be spent.
Simply not true.
At least we used to collect wood, stone, gold, and food in older games. Now game developers just simplify it to just money/gold, which also perpetuate a myth that gold = money.
At least it used to be the case that archers cost food and wood while stone-slingers cost food and stones to recruit, i.e. real resource constraints.
Finally, what’s with all the fuss about gold. Yeah, it could be exchanged for other stuff when society breaks down but what can people really do with gold (especially in Westeros)?
“… the existence of markets was highly convenient for governments, and not just because it made it so much easier for them to provision large standing armies. By insisting that only their own coins were acceptable as fees, fines, or taxes, governments were able to overwhelm the innumerable social currencies that already existed in their hinterlands, and to establish something like uniform national markets.”
Those villages in the hinterlands must have been such a burden on the government. Better to pull them under their wing and regulate them and all their social activities, convert them into economic activities, and then tax them so much that it becomes more profitable to work for government.
“The point of a state fiat currency is that you are forced to obtain it whether you like it or not, or face jail. And because of that power, the state can move real resources to the public purpose at all times.”
I wrote to the ATO and asked them the following:
My religious faith forbids me to use, hold, or earn money. As such I can only grow my own food at a monastery. As it has been suggested to me that everyone must pay taxes, then please tell me how I can send you a percentage of my tomatoes and cucumbers.
ATO response:
Unless you earn income and that income is more than the tax-free threshold in a financial year, you are not required to pay income tax. Please see….for current threshold…
You might not want cash money in your hypothetical, Dingo, but if everyone only earned below the tax-free threshold it would suddenly disappear. The other taxpayers are making your lifestyle possible.
Tom, I don’t know what made you think about it, but I found it hilarious haha
Hilarious but true… indeed the Game of Thrones’ Iron Bank doesn’t seem to make any sense and is cleary based on some gold bug thinking. And most TV series, movies and videogames too. Money is treated as gold or some commodity.
“The other taxpayers are making your lifestyle possible.”
for the sake of my hypothetical religious friend, are you able to explain how this is?
from my hypothetical religious friends perspective he sees it the other way around..he says, that the only way tax-payers can earn the money to begin with is because everything is treated as property meaning it is now not possible to venture into the forest, bush, outback etc and grow your own food as all land is now owned. the only way the monastery was able to secure the land was to buy it from a tax-payer which meant the monastery had to borrow and find donations…hypothetically of course
looking forward to your reply
Rather depressing. MMT is up against a religion of false ideals and beliefs that has infected the population from top to bottom – benefiting only the top 1% of the population.
We have to be clear about our ABC. It’s in the entertainment business. Shriver’s in the fiction business. She’s an engaging filler witness the airtime that the ABC gives her.
Here are two of many examples of the ABC being unhelpful because it doesn’t stop when it doesn’t know anything. Most of the time it doesn’t matter but economics is definitely not in that category.
http://www.abc.net.au/radionational/programs/bigideas/2016-09-19/7845208
http://www.abc.net.au/radionational/programs/themoney/rethinking-economic-expertise/8592400
Andre:”The solutions to the ignorance problem is different from the solutions to the evil conspiracy problem. We need to be aware of that difference.”
Although there is a difference, the ignorant are very useful to the conspirators. I can imagine the Koch brothers arranging for a million copies of the book by Shriver to be distributed to schools and libraries, all seen as a benevolent donation of course. Given some of their other exploits, this is not far-fetched at all. Thus rolling back the ignorance will meet stiff resistance, well-funded by those who profit from the ignorance.
Perhaps proponents of MMT need to reach out directly to the George RR Martins, the JK Rowlings, or whichever mass-audience world-building author/creator next appear on the horizon.
Maybe it’s still not to late for this Westeros land of which you speak to turn around its fortunes along MMT principles?
The publicity would be immensely useful.
“Perhaps proponents of MMT need to reach out directly to the George RR Martins, the JK Rowlings, or whichever mass-audience world-building author/creator next appear on the horizon.”
MrShigemitsu, even if it was easy to contact them, they would not understand (money and banking is hard to grasp, and old concepts are stubbornly difficult to change) and probably wouldn’t care, because the theme is not important to them…
Oh I don’t know, maybe Mr Martin would be happy to have discovered a useful plot device to release his beleaguered kingdom(?) from its dire fate at the hands of the Iron Bank! : )
Andre,
Yeah, come to think of it…
Fallout series (post-apocalyptic games) used paper clips and bottlecaps.
But there is no government, why would anyone accept worthless bottlecaps/paper clips!
In fallout 2, we got the New California Republic so we could argue that game is okay.
Never get to pay taxes in games though.
Dingo:
Income in this case would mean sales: if your religious friend were selling his tomatoes, then he would accrue a tax liability (depending, of course, on the tax-free floor). It doesn’t matter what he sells them for, even if he just does a tomatoes-for-potatoes barter that’s still income. But you start seeing why he might want to use money, because accounting is carried out in money terms, and he’ll have to make some sort of reasonable declaration to the tax authorities (that is, in turn, subject to audit). It maybe helps if you consider your religious friend the sole proprietor of an agricultural business, then the rest of the pieces will fall into place. If he’s just being self-sufficient, aka subsistence farming, then yeah the story is different.
So could we do away with all this law and money stuff? Probably not, because most people won’t want to go back to subsistence farming. The possibility of a few people living off the grid doesn’t refute society itself, and this stuff didn’t just come out of the ether.
MrShigemitsu:
The problem is that, from a literary perspective, money-in-itself doesn’t matter. No author is going to keep accurate accounts for all of their characters; they’ll have money or have excessive debt or fall from grace based on narrative need, not on account balances. Hence, if some put-upon aristocrat takes a reasonable approach to state money, it’ll come across like a deus ex machina.
Which is probably how people feel now about the suggestion that we COULD abolish the public debt tomorrow, that it’s a fantasy of the naive. I’ll get around to reading Bill’s part two at some point, but I’m unsure how you’d build a (narrative) story out of these ideas. Though I’ve always felt that Star Trek (pre-DS9) had the best perspective on this stuff, that one could just as well NOT organize a society around money, and people would still participate because we’re basically prosocial.
Now I wish I watched some Star Trek to see how they depict society with no money.
I never watched any of it, even the latest movies. I don’t have a TV and have never gone to the theater for years.
Tom, and most strategy games also treat money as commodity or gold. There are usually a lot of nations using the same money, be it gold (Age of Empires and such), sand (Endless Legend), energy (Stellaris), general purpose money (Anno 2070 and Crusader Kings II) or any other thing, and they can exchange that unified money between each other – and they don’t even share any kind of problems that a
Obs.: I guess that in Star Trek they simply don’t have money. They treat it as some ancient thing long gone. People just have eveeything they want.
…for some reason the sentence was cut in the middle. It was supposed to be:
“- and they don’t even share any kind of problems that a pegged money system or monetary union (like the EMU) have.”
Tom, André:
There are still limited resources, the most limited of which is time. But it was never about a free resource society—the replicators were only introduced in The Next Generation, and even then, replicators don’t build ships or buildings, much less fuel—but it’s about a society where people participate in these projects because they want to, and they have high ideals about what can be accomplished. I mainly bring it up because it’s the closest I’ve seen to an antithesis to the usual dogmas.
If you want MMT in video game form, oddly enough, you’re best off with an MMORPG like World of Warcraft. Fittingly, you can mine and smelt gold ore, yet that doesn’t somehow turn into gold coins of its own accord. Even that bastion of space (neo)liberalism, EVE Online, still issues money to players without reference to how much money has already been issued, much less an elaborate mythology about interest-bearing money to “avoid diluting the money supply,” and the issue is based solely on how much time players want to devote to it. So really, EVE Online shows the employment guarantee in action, which is again bizarre, considering its reputation for (neo)liberalism.
One project I kind of want to pursue would be, making an MMORPG in which players can take on monetary authority roles (so there would be no canonical in-game money like WoW gold), giving people the option to peg to commodities or other currencies, or the option to float. That way players could learn some interactive lessons about these things.
sean,
“If you want MMT in video game form, oddly enough, you’re best off with an MMORPG like World of Warcraft.”
No, you aren’t! Actually, WoW, EVE on-line and most MMORPG games treat money in the same way.
You always can earn money by performing quests with NPCs or by selling things to NPCs. So the NPCs will “issue money out of thin air” and give it to you, no matter what it is called (gold, coins, ISK). NPCs act like a Treasury or Central Bank in that sense. In all MMORPGs the NPCs are something like the Job Guarantee Program, where everyone can earn money if they are wanting to work for the authority (do quests for NPCs). Because there is no JG program in real life, those games are not close related to real life.
“One project I kind of want to pursue would be, making an MMORPG in which players can take on monetary authority roles”
Fantastic. That would be awesome. Don’t know if players would understand though.
André:
MMT is mostly a description of real-world fiscal and monetary operations, in which money is issued ex nihilo by governments who anchor its value through taxation, along with observations about sectoral balances that serve to (in practice) force most governments to run deficits most of the time. This description is how money (points) are treated in WoW, not least because you’re NOT playing the government. But yes, as you point out, and as I mentioned, MMORPGs also have job guarantees—which, you can imagine the dysfunction that would reign if mobs never dropped gold and quests were never repeatable. The main important thing is that WoW gold is stable solely because it’s issued without regard for prior issues; in other words, spending is income, and spending precedes taxing.
This is in contrast to something like Civilization, where money (points) are accumulated from private sector production, i.e., money “comes from” taxes in 4X games, and represents some sort of storage of private productivity that can be deployed at will. This is the same kind of religious feeling that underpins the mainstream view of fiscal policy, that we need to “create fiscal space” by running surpluses.
The horrible dysfunction that would ensue in a “neoliberal” MMORPG is part of why it’s worth building one, or rather, building one in which players have the option to deploy neoliberal ideology. I don’t have a complete plan, and it’s not really on my front burner anyway, but part of it would be something more along the line of guild leadership taking on monetary authority (and serving as analogues of government). To greater and lesser extents, EQ and WoW raiding guilds have shown that there are players who like that kind of thing.
“The point of a state fiat currency is that you are forced to obtain it whether you like it or not, or face jail. And because of that power, the state can move real resources to the public purpose at all times.”
“If he’s just being self-sufficient, aka subsistence farming, then yeah the story is different.
So could we do away with all this law and money stuff? Probably not, because most people won’t want to go back to subsistence farming. The possibility of a few people living off the grid doesn’t refute society itself, and this stuff didn’t just come out of the ether.”
Hi Sean,
Thanks for the reply. My whole point of making the above comment is that from a legal historian perspective, although the law supports a lot of what MMT describes, it does not support the notion that the role of state fiat currency is to force you to obtain it. However the meaning and intent of my comment got misconstrued by someone who replied to it.
My point regarding the hypothetical religious person was that it is not taxes which drive demand for state issued currency because taxes are only levied on certain specific activities which from a legal perspective are privileges (i.e. the freedom to hold private property and to enter in contracts etc). In other words, the right to earn money, and to hold another to account legally, to treat land as a commodity etc, are and always have been a privilege, but a privilege which requires the existence and maintenance of a government. A state need not issue a currency in order for people to exercise this privilege but a government will still need to exist in order for people to exercise this privilege otherwise how else will you enforce your contracts and protect your property?
And yes, you are right that law and money will always need to exist, because many people we will always have fear and insecurity. Having said this it is easier, but more costly from a resource demand point of view, to enter into legally binding exchanges, contracts, agreements etc than it is to operate purely (or even partially) on a self sustenance model because it requires mutual trust with others who are operating on the same model (if my crop fails my neighbour will come to my aid etc etc). To be able to operate on trust takes a lot of hard work and effort to build, because it assumes that it will not rely on government, and more importantly it takes time – time is something many people do not have. Conversely, to enter into a contract (such as a job) takes much less from my own perspective, all I have to do is sell myself and perform the job (it is not as on-going as trust), but it also requires a third party intermediary, i.e. the government, or at least the threat of government, to ensure the contract is fulfilled. From a purely resource demand driven event, legally binding contracts and the treating of resources as commodities etc use more resources than mutual trusts, and those extra resources come only from the existence of a government.
Further, these privileges I mentioned could be exercised even if the only money in existence was gold, seashells, tally sticks, or private bank notes, because the medium of exchange derives its value from the existence of a government and laws which regulate legal agreement. Take away that government and your medium of exchange loses its value. For example, if you deposited gold into a private bank, the bank issued you with a gold receipt, and you used that gold receipt as a medium of exchange, then all the value comes not from the bank note, nor the bank, nor the gold, but from the fact that a government is the very source of your ability to enforce whatever contract you may make with that gold receipt, and it will enforce the contract you have with the bank. The courts have said time and time again, it is not their job to determine what is valuable and therefore will enforce a contract involving a peppercorn if that is what was agreed. From a law historian perspective, the statement that taxes drive demand for state currency then is impossible. What drives demand for money today is peer pressure and the education system which tells you that unless you sell your time you are worthless to this society.
This also might seem like I am attacking MMT, but I am not. In fact, I already knew that all private wealth must equal government liability well before I even discovered MMT. From a purely legal perspective and especially with an appreciation of the laws long history, it is impossible to come to any other conclusion. MMT simply demonstrated that I was right in this regard. But as far as the purposes of taxes are concerned I can’t agree; it appears we are all getting the purposes of taxes backwards, which does not surprise me because it appears that many many people out there actually believe that private property is possible without a government. I know most MMTers know this not to be true, but it is definitely a belief among many out there who constantly complain of the government and its apparent infringement of peoples rights etc.
But anyway, I expect I’ll be berated for saying all this, and who knows, maybe I am wrong. I’d like to be shown I am wrong because it’s extremely lonely here! 🙂
Dingo, some people that are not taxed in US Dollar, like some chinese citizens, want to hold some US Dollars. Why is that? Why would anyone want to hold US Dollar if there is no law that obliges him/her to hold dollars?
The answer is easy: because that chinese person knows that some american will want the US Dollar. And the american, in turn, wants to hold US dollars because there are laws in place that obliges him to pay taxes in US Dollar only.
So even if a religious person is not directly taxed, he/she may still have reasons to get hold of some US Dollars (because everyone around him wants).
And you are discussing one important question: “Why would someone want dollars?” But there is another really important one: “Given that people want to hold dollars, what makes it worth the value it has today?”
The answer for that question is not “its all in people’s minds and expectations”, or “its a social convention”. The answer is “fiscal policy”. The government sets the value directly or indirectly through fiscal policy. Spending and taxing policies…
Andre,
Star Trek world sounds nice. Btw, I believe we had to collect food, wood, and stones etc in Age of Empires.
Dingo,
Let me give you what I think. I think you may be overthinking it. Might be helpful to consider it in more practical terms? Don’t worry about anyone berating you because nobody here is into that.
I’m looking at your previous comments. You said your religious friend cannot hold any money, so how did he purchase the monastery? He built it himself? He had to have held some money to buy that monastery if you are saying that he bought it. Didn’t he violate his own rule with that?
If somehow he has the monastery then it really depends on if the authority is going to tax him and how heavily. If the authority is a jerk then it can levy a heavy tax in state money and your friend has to face consequence if he is not able to service that. I think many governments understand not to do that to monks. You can say that ultimately it’s really up to the government. Furthermore, one may think that’s unfair but nobody is independent of the society/government unless he/she is living outside of civilization his/her entire existence.
“The other taxpayers are making your lifestyle possible.”
Unless the monk makes everything including toothbrush and toothpaste and his robes then other taxpayers must have made those for him. Unless he is naked then other taxpayers have made his clothed lifestyle possible.
It is in his interest to get some money or have people donate toothpaste to him to keep his mouth clean. Again, if he gets some toothpaste, then he is enjoying the service by a society made possible by taxpayers and a government.
You wrote:
“from my hypothetical religious friends perspective he sees it the other way around..he says, that the only way tax-payers can earn the money to begin with is because everything is treated as property meaning it is now not possible to venture into the forest, bush, outback etc and grow your own food as all land is now owned. the only way the monastery was able to secure the land was to buy it from a tax-payer which meant the monastery had to borrow and find donations…hypothetically of course.”
I don’t see how earning money requires everything being treated as property. Also, I can totally venture into a forest, bush, and outback. Won’t be a good idea though. The US government can totally pay me for cleaning up Styrofoam trash in the Pacific Ocean, and the Pacific Ocean isn’t owned by anyone. You can probably argue by saying I’m cleaning up a region of the ocean owned by a country; to which I say, you need to relax on property laws. =) Besides, does the Pacific Ocean being owned or not have anything to do with the fact that I cleaned up the trash and got paid?
You wrote:
“If he’s just being self-sufficient, aka subsistence farming, then yeah the story is different.
“So could we do away with all this law and money stuff? Probably not, because most people won’t want to go back to subsistence farming.”
Nobody has suggested that.
“My whole point of making the above comment is that from a legal historian perspective, although the law supports a lot of what MMT describes, it does not support the notion that the role of state fiat currency is to force you to obtain it.
State fiat currency is issued. Government–through taxation–makes its citizens accept it at the most fundamental level.
“My point regarding the hypothetical religious person was that it is not taxes which drive demand for state issued currency because taxes are only levied on certain specific activities which from a legal perspective are … a government will still need to exist in order for people to exercise this privilege otherwise how else will you enforce your contracts and protect your property?”
But if the government taxes a monk, he needs to get the currency by performing a job that pays the currency, otherwise he is in trouble. I agree with what you said about privilege and state being necessary to enforce those things.
“And yes, you are right that law and money will always need to exist, because many people we will always have fear and insecurity. Having said this it is easier, but more costly from a resource demand point of view… From a purely resource demand driven event, legally binding contracts and the treating of resources as commodities etc use more resources than mutual trusts, and those extra resources come only from the existence of a government.”
Luckily, we already have trust and government thanks to our predecessors and technological capabilities. I agree with what you wrote there.
“Further, these privileges I mentioned could be exercised even if the only money in existence was gold, seashells, tally sticks, or private bank notes, because the medium of exchange derives its value from the existence of a government and laws which regulate legal agreement. Take away that government and your medium of exchange loses its value. For example, if you deposited gold into a private bank, the bank issued you with a gold receipt, and you used that gold receipt as a medium of exchange, then all the value comes not from the bank note, nor the bank, nor the gold, but from the fact that a government is the very source of your ability to enforce whatever contract you may make with that gold receipt, and it will enforce the contract you have with the bank. The courts have said time and time again, it is not their job to determine what is valuable and therefore will enforce a contract involving a peppercorn if that is what was agreed. From a law historian perspective, the statement that taxes drive demand for state currency then is impossible. What drives demand for money today is peer pressure and the education system which tells you that unless you sell your time you are worthless to this society”
You can take away laws that enforce agreements between parties. It will suck because it’s easier to screw each other but people will still want to get the currency to pay taxes because it’s double suck if you don’t pay taxes.
Apropos not a lot except my dislike of monks.
Monks, even hard working monks were the first capitalists in many ways. They sold their produce and generated income by promising salvation and eternal life. They were particularly good at inventing miracles such as moving statues, crying statues and relics to make even more money. In many ways they were a banking sector all to themselves.
Hi Tom,
Most appreciate the response. I will be the first to admit that I am always learning.
I must state however that the point to my hypothetical monk was to demonstrate that I can not find that the state taxes to drive demand for its currency. If I had to accept this notion I would have to burn all my books, papers, and research from the last almost a decade. The monk was simply made up for the purposes of getting a response from the ATO to highlight this.
As for the rest of the quotes etc that came of this, some were just in response to others who had mistook the purpose of what I had written. Also some of what you say I said were actually quotes of what others said to me.
But anyway, seeing as we are touching on certain subjects, regarding whether the monk makes his own toothpaste etc – I completely understand that from an economic perspective you are right. Those who make the toothpaste are the ones who provide the value to those who use the toothpaste and rightly so in one form or another should pay for it. However governments see value in much more than what can be measured economically. For instance, the government sees value in the monk, or a christian, or any other religious person by virtue of him being a monk or religious person. Whether anyone agrees or disagrees with this is irrelevant. It’s a fact. So, whilst an economist will say that the tax-payers are making the monks lifestyle possible, the government, and particular the courts, will tell you that by him being a monk he is bringing value to society which is beyond anything economics can measure.
But please don’t shoot the messenger here. I am not making this stuff up. Google ‘IRS lessening the burdens of government’ and read all the stuff the IRS says regarding this subject and you will see what I am saying if it has interest for you. I just think it is important that people understand the tax system, what is taxed (and why), what is exempt from taxes (and why), from a legal perspective. If anything, having background in law has not only helped me to understand economics better but it also helped me to see ‘why’ MMT is far superior as an objective truth regarding our monetary system (just not quite sure on the taxes drive demand for currency thingy ..sorry..:))
Dingo, but “tax drives money” is what makes the MMT theory. That is the most fundamental concept of MMT. If you don’t agree with that, you don’t agree with MMT.
But I must confess I have trouble in understanding what you are saying. I couldn’t understand why MMT theory would be undermined by the relation that the State and its courts have with people and their religion.
“If I had to accept this notion I would have to burn all my books, papers, and research from the last almost a decade.”
Why? What is the empirical conclusions of your research?
I believe we all can agree that the taxes institited by central authorities have been present in human society since ancient times. Probably in Mesopotamia and ancient Egypt the temples and priests themselves would charge and enforce tax collection. There is no contradiction between taxes and religion.
Hello Dingo,
“I must state however that the point to my hypothetical monk was to demonstrate that I can not find that the state taxes to drive demand for its currency. ”
If the state now requires the monk to pay taxes. He will need to perform a job that pays in the tax credit currency to pay tax. There is your demand for the currency.
“If I had to accept this notion I would have to burn all my books, papers, and research from the last almost a decade. The monk was simply made up for the purposes of getting a response from the ATO to highlight this.”
You probably don’t need to do that. If you are sure what MMT describe is closer to reality compared to what you have, you can substitute in MMT’s description no? The ATO taxes people and how/who/what to tax is politically determined. Reasons for taxes are politically determined. MMT is saying that if you tax a currency, there will be a demand for the currency. The monk may want some currency because the currency can get him some stuff easily since everyone uses/accepts it.
“some of what you say I said were actually quotes of what others said to me.”
I did that on purpose because I felt like longer discussion may help.
“However, governments see value in much more than what can be measured economically. For instance, the government sees value in the monk, or a Christian, or any other religious person by virtue of him being a monk or religious person. Whether anyone agrees or disagrees with this is irrelevant. It’s a fact. So, whilst an economist will say that the tax-payers are making the monks lifestyle possible, the government, and particular the courts, will tell you that by him being a monk he is bringing value to society which is beyond anything economics can measure.”
That’s nice.
“Google ‘IRS lessening the burdens of government’ and read all the stuff the IRS says regarding this subject and you will see what I am saying if it has interest for you. I just think it is important that people understand the tax system, what is taxed (and why), what is exempt from taxes (and why), from a legal perspective. If anything, having background in law has not only helped me to understand economics better but it also helped me to see ‘why’ MMT is far superior as an objective truth regarding our monetary system (just not quite sure on the taxes drive demand for currency thingy.”
Even though MMT is called a theory, I have read that the people who develop it would prefer it to be called reality. They observe how the system works. It’s not hypothetical but practical. If the government taxes, you need to pay tax. You need to find a job that pays to pay tax.
Finally,
Are you being too zealous about laws? For me, laws are great but they don’t protect the poor as much as they protect the rich and powerful. Many can argue that some of them actively target the poor and vulnerable. Certainly, we have had laws that were draconian and unjustifiable in scientific research or practical terms (see: US drug war). There are good things that people do that are against the law and against even the government, which is dominated by oligarchs (eg. Black Panther party in the US).
I don’t have time to read all the “IRS lessening the burdens of government” stuff. I just read one. I think it is irrelevant what their argument is. If a job needs done, then someone (private or public) must do it, which means someone is burdened. We should be talking about real resources here (labor power). Whether the government wants to tax and for what reason is politically determined (meaning people (or oligarchs in reality?) can choose to do whatever they want arbitrarily, which we hope to be reasonable).
If the IRS or people think we should exempt tax for some business for “lessening the government burden”. That’s their opinion. It doesn’t have anything to do with MMT/reality that taxes drive money.
It’s also quite Orwellian to say that government wants to lessen burden. “Lessen the burden” sounds like “cut food stamp” to me in this neoliberal Orwellian world. You are also presuming that government knows what it’s doing all the time. US government could have suspended FICA withholdings during the 2008 or after (since we are in a recession, we need the stimulus) but they didn’t, they just watched even though the federal government never need the money to pay senior citizens. “IRS lessening the burdens of government” is also amusing because the US is doing reckless, stupid, and unnecessary wars to build an empire it can’t hold (which is also a moral crime). It funnels young people to become soldiers whether than other more useful professions. It fights terrorists while its Saudi ally and drone strikes promote more extremism/resentment that breed terrorists, so that we should fight them later. Lessen the burden, right? People don’t know what they are talking about.
The US government is completely bought off so people need to wise up. In this age, “Lessen the burden” is also an excuse cut taxes for private enterprise so they can accumulate more profits doing what the government used to do. The way to get rich is to have monopoly, and private business WILL monopolize.
Hi Tom,
I found a different, and I think far better description from another of Bill’s pages which defines it as this:
“Taxes are a device to free up real resources so our agent, the government can instigate a socio-economy program for our collective benefit.”
This to me is a far better description. It fits far more in line with what I was taught.
“Are you being too zealous about laws? For me, laws are great but they don’t protect the poor as much as they protect the rich and powerful.”
“It’s also quite Orwellian to say that government wants to lessen burden. “Lessen the burden” sounds like “cut food stamp” to me in this neoliberal Orwellian world….(and the rest of the post)”
Well, now that you’ve gone and said all this, I have to respond because you are completely misrepresenting me.
That is why I am here and why I have spent the last 8 years learning law. I have relatives and friends who have been homeless, I have relatives and friends who have committed suicide, I have relatives and friends who have spent time in jail, I have children who are disabled, I have seen domestic violence, I know countless people with irreversible back damage caused from employment who are now unemployable, I know drug-addicts and alcoholics, people who are bipolar, and most people I know struggle with money, and on and on. None of this stuff is unique to people, however I know that no amount of money or socio-economic programs will fix these things or prevent them until people begin to realize and accept that not everyone is designed or equipped to be a disciplined ’employee’ in a competitive world.
I have spent years talking to people who are unemployed, who suffer from poverty, who can’t hold jobs, who are violent, who live on the streets, who have wild emotional swings, who have been in jail etc, and with the exception of some who have just had a rough time of it and do get back into the ’employee’ circle, the rest will never ever be able to fit into the employee circle. It is like their metabolism or biological make-up, or whatever you want to call it, does not allow them. They lack the necessary discipline to be an ’employee’, but often have exceptional disciplines in other areas, areas which unfortunately have little to zero monetary value (at least not in the private sector).
I have been studying law for the sole purpose of trying to ‘disprove’ the notion that tax-payers fund government spending and/or make everyone’s life possible, so that I can represent many of these struggling folk and get them access to basic needs without them having to compete for them or more importantly, without them having to ‘apply’ for them under a welfare program which the tax-payer believes they fund. Welfare has a stench and a stigma attached to it that gives every tax-payer, who assumes all humans are built to compete, the excuse to say they are lazy or whatever else they want to say about them. Most people I know who are on welfare don’t want to be on it simply because of the stigma that comes with it.
Speaking of law, if you take away a persons basic needs, aren’t you actually forcing them to break the law? This has been the experience of every homeless person I have spoken to – they can’t ‘not’ break the law as soon as they are deprived of basic necessities. To be forced into breaking the law because your biological make-up prevents you from being a disciplined employee just makes no sense.
I see no economic, political, legal, moral, or cultural reason why, if those who are not good at being disciplined employees, should not have access to basic needs without the stigma of welfare, provided they do not treat those needs as their own private property (the right to own private property, such as owning your own home, land, stocks, businesses etc should only ever be allowed to someone who actively and wantingly engages in paid work – if you aren’t willing to engage in paid work you should never be allowed to own private property – this is my own view but it’s the only one that makes sense in a competitive world)
My program would work like this (and interestingly, it would not be adverse to the JG program, and in fact would co-exist alongside it):
The person declares to the government they intend ‘not’ to treat any need as private property (this becomes a legally binding document).
The central bank provides the funds direct to the government so the government can purchase the needs of this individual (we will call this ‘direct money’).
The private sector receives this direct money in exchange for supplies etc, and pays their income taxes as normal.
When this direct money makes its way back to the treasury in taxes it is sent back to the central bank to be destroyed.
Provided the individual never treats the house or any other durable good they need (furniture etc), or any consumables, as their own private property, they will never breach their legal agreement. When this person dies the house and all the durable goods returns back to the government who could sell it back to the private sector. If the individual decides at some point they now want to be an employee because they feel they have the discipline to stick to it, then from that point on they will have to pay rent etc and will no longer be provided for by the program.
So, in answer to your question, ‘laws are great but they don’t protect the poor’, my whole purpose is to turn this around but I need more evidence so I can prove to whomever it is I need to prove it to, that if my program was instituted for those who are lack the discipline to be employees, that it will cause no loss to the tax-payers.
I’m sorry for getting emotional myself here and spilling my guts out, but it just appeared from your statement that you think I represent some Orwellian ideal which could not be further from the truth. But this is also understandable as ‘text’ is a very poor method of communication, and easily misinterpreted.
Dingo, I read everything you said. I still can’t understand why you think it is incompatible with MMT and the “taxes drive money concept”. Actually, everything you said makes sense both in the MMT view and in the mainstream, neoliberal view. It doesn’t seem to be related to monetary theroy, but with welfare choices.
Dingo,
I wasn’t referring to you being Orwellian.
I just found it amusing that some people in IRS think that they are unburdening the government when we waste so much real resources on useless wars and when excuses along those lines have been used to cut taxes for the wealthy.
We live in Orwellian age. Whenever I hear people (IRS people in this case) say cutting government or “reform”, I get a reaction because it tends to be someone getting rich and someone is getting screwed. Its just how it is in the US. Maybe its not the case in Australia yet, but Dr. Mitchell has written blogs that suggest that it may be coming.
We still don’t have universal health care in US, we have more severe case of neoliberalism and corporate domination than you… And a much much worse case of brain-washing in our right wing.
I think you have welfare in mind for those people. Something close to that. Anyway, I want to stop discussing this. I think you are overthinking it. Don’t worry about program costing anything to tax-payers. Even if MMT isn’t correct (which it freaking is) that taxes don’t fund anything, USA has spent trillions on Iraq War and you don’t see them slowing down on paying any useless project or cutting taxes they want.
You guys aren’t even close to what we have done. You will be alright.
At the end of the day, it’s real resources constraints. If you country can’t take care of some people in need then you have work to do in upgrading your resources (eg food, housing, and healthcare etc). Money is easiest thing to create; real resources need time to produce.
Andre is right, nothing you have said contradicts MMT.
Lets leave it at that.
Tom, Andre & others,
Thanks for the conversation and I do appreciate your patience with it all. I learnt a lot from it and am also grateful now that I know that I am running in the same direction with some things. This is the first time that I presented an idea regarding how the money should be created, channeled and then dealt with for a particular program I have in mind and not had it thrown back in my face as ridiculous.
I guess from an MMTers perspective, it must also be nice to know that someone else came to the same understanding of certain things regarding govt funding and deficits any yet come to them from a perspective other than economics! I know for a fact that some in the legal profession know full well how it is working but believe it is in their best interest to keep it to themselves.
Tom, it is helpful to see MMT as the theory and reality as a model of the theory. A computer simulation of the theory is another model. How faithful the simulation is to reality determines how realistic it is. One could stipulate reality as a special model of the theory. Looked at this way, MMT is a linguistic entity while a model of the theory is a non-linguistic conceptual structure or physical object in which the theory is true. If what we refer to as reality is a model of the theory, we consider the theory to be descriptively accurate.
From this perspective, we have to say that neoclassical macroeconomic theory does not have the real world as a model of it. Since it is not self-contradictory, it has at least one model, but it has to be in a universe other than the one we live in. One could construct a computer simulation which was a model of neoclassical macro theory, but a comparison with reality will show, as Bill has many times, that the theory has no model in the real world. Since this is the only model we are interested in, we say that the theory is, thereby, false. Who cares if neoliberal theory has a model in some fantasy world?
The situation is more complicated that I have described here but I have simplified the situation. Scientists often use the term ‘model’ when what they mean is ‘theory’. They then utilize the term ‘model’ to refer to models of the theory. Some confusion can result. It is an equivocation that can be easily eliminated.
Dingo:
My whole point of making the above comment is that from a legal historian perspective, although the law supports a lot of what MMT describes, it does not support the notion that the role of state fiat currency is to force you to obtain it.
Yes, it does. There is major, explicit support in the US legal tradition for this (see Mitchell-Innes articles). The MMT slogan is “taxes drive money”, more precisely “taxes drive the demand for money”. This is not only flagrantly true, it is nearly tautological. Like any major scientific theory, the whole effort in MMT is getting people to see what was always in front of their noses, that they always already knew. It’s a “new” interpretation that doesn’t contradict anything that was already really known, but only old, confused interpretations.
What are taxes? A demand for money. In almost all societies, by far the most important single demand for money. So the MMT slogan is “The demand for money drives the demand for money.” Good luck convincing people this is false, or that any body of legal thought contradicts it.
taxes are only levied on certain specific activities which from a legal perspective are privileges
No. It could be done that way, yes. It’s an old MMT point that taxes levied on just one person could “drive money”. Equally, taxes can be universally applied – head taxes. (You pay the state to keep your head.) So unless one twists the meaning of “privilege” (private law) to cover “breathing” – not so. The point is that such points are besides the point of what gives money its value.
The theory you propose on what gives money its value seems to be veering toward “Legal Tender Chartalism” (propounded by Schumpeter). Again, it don’t work. It boils down to saying that the state declaring something to be “legal tender” is what gives money its value. In other words, the state designates something as “money” (more precisely, a money-thing in MMT parlance) & puts up signs everywhere that say “Demand Money!” – but never actually demands money. Again, Mitchell-Innes classic articles are great on how and why this doesn’t work – quoting e.g. US Chief Justice Salmon Chase.
As for your monk, aside from points others made, he is speaking in contradictions: He cannot “use, hold, or earn money”. But then he offers to send “a percentage of my tomatoes and cucumbers.” So he is offering “taxation-in-kind”. But an important point is that “taxation in kind” = government spending. He is selling, the government is buying. This is the opposite of what is usually called taxation- the individual buying, the government selling. So he is offering to earn/ hold money. (As you note, what is bought and sold here can often be a privilege.) Another related problem is that you mention “medium of exchange”. To quote Mitchell-Innes, “there is no medium of exchange”. So money is NOT “a medium of exchange.”
Finally, many of the points you make on government and property are well taken. But they aren’t inconsistent with MMT and its forebears, but rather fit hand in glove. John R. Commons work, in particular his 1930s book Institutional Economics tries to integrate such legal perspectives and a creditary / MMT view. American Legal Realists of the same era, (early- mid 20th century) like Robert Lee Hale, (see Barbara Fried- The Progressive Assault on Laissez Faire_ Robert Hale & the First Law & Economics Movement- Harvard (1998) are worth mentioning too.
@ xenji: You state that it is taxation that gives a currency value. (Unlike gold or silver)
Then what is it that gave gold and silver value?
Was it he fact that those metals were redeemed by the government in exchange for currency which had a tax obligation?
Regardless of whether you use a metal, a fiat currency or trade in peanuts it is the states authority to impose taxation that gives a currency value. Yes?
Obviously tying a currency to a metal (or peanuts) forces you to maintain stocks of that metal (or peanuts) and its issuance is outside the control of the government.
Right on all counts. Gold & Silver are valuable because you can get “fiat” money for them, not the other way around. A metal standard boils down to some government backing some metal with its money, not vice versa. (An international metal standard is that plus countries fixing their exchange rates.) Alfred Mitchell-Innes’ great articles and his commentators cover such points, as does Abba Lerner here and there. The overarching principle to remember is that the mainstream always gets things backwards. 🙂
Thanks Someguy, I shall look into those sources. I have already found:
WHAT IS MONEY?
By A. MITCHELL INNES
From The Banking Law Journal, May 1913.
and am reading it now…If you can give me any links that would be appreciated.
so a question: Chief Justice John Marshall said in 1819, “The power to tax involves the power to destroy.” I have yet to find any supreme court case since which negates this statement but I am still looking. Would this statement fall in line with how MTT explains taxes?
The monk case was a ‘set-up’ to get the ATO to respond, and respond they did. The ATO told the monk (who doesn’t really exist) that he is not obligated to pay any tax because he has not earned any money.
Cheers
Dingo, in the past, those who did not pay taxes, fines or fees to the king would be punish according to the laws of that time, which included confiscation of goods, physical violence, prision, death, compulsory military services, and other kinds of punishment depending on the place and time.
To avoid these kinds of punishments, you would have to earn currency and pay your taxes. And to earn currency, you would have to supply the government with goods and services (or someone who did and earned currency).
The king could enforce the taxes through brute force – or the “power to destroy”. If the king lost it access to brute force, it would lose the power to enforce taxation.
Today, things are similar, but the law is not so aggressive. If you don’t pay your vehicle taxes, the government may apprehend your vehicle, you like it or not. If you don’t pay your income taxes, you eventually will have your personal property seized, except if it would make you below some kind of poverty line, according to the law code and the judge’s interpretation. Of course, everything will be somewhat different depending on the country. Today you usually do not go to prision or die for not being able to pay taxes, but you suffer some form of legal sanction. And that’s what you can call “power to destroy” in modern times. Some will call it “the State’s monopoly over violence”.
Hi Andre,
You make some good points. In my study of the historical progress of taxation, the most pressing issue it seems for any authority is always defense, defense always comes first because there is always a risk from outside nations who have or are running out of their own resources to come and try and grab yours. I find it fascinating when I compare the biological body to a political economy. As most probably know when we are stressed all our blood is diverted from our vital organs and directed to the muscles in the classic fight or flight response. Seems like all economies worldwide place so much emphasis on defense (the muscles) at the expense of health, education, etc (vital organs), and for this reason I can definitely see why a government needs to ‘enforce’ the diversion of resources from the private.
Andre @ 14:01 explains it very well. Like it or not, good government or bad, the government is going to be the strongest force in any society almost by definition. Or it will no longer be the government. And yes it is founded upon the potential to inflict force to ‘enforce’ the laws which it (hopefully we) decide to enact for its (hopefully our) well-being. An enlightened government that is empowered by the people it is supposed to serve, will allow lawyers to challenge it in court about the application of the laws it enacts, whether tax law or criminal law or whatever other categories there are. A bad government will just shoot the lawyers or throw them in jail along with the other complainers. And there is never anything especially ‘nice’ or ‘civil’ or ‘ethical’ about the government or the law that it enforces beyond what we are able to make of our governments in the first place. Not even in MMT, which mostly describes how governments that issue their own currencies and demand and enforce taxation in it could work to further the public interest. But it also describes how governments that could be awful could work at the same time.
“In my study of the historical progress of taxation, the most pressing issue it seems for any authority is always defense, defense always comes first because there is always a risk from outside nations who have or are running out of their own resources to come and try and grab yours”
It makes sense. Some researchers claim that, in the history of mankind, taxes were mainly imposed to bring real resources (food, clothing, equipment) to support the military forces (soldiers). Other aspects of taxation wouldn’t be such a great concern.
I’d like to add that a book like that one is at least explicit about being about economics.
I read a lot of Robert Heinlein’s books, who was a hard-core gold bug (and hard-core libertarian), and only after having understood MMT, I understood the messages, which I had accepted unthinkingly.
Another example is Neal Stephenson – I enjoy his forays into speculative fiction and cyperpunk but I just stopped reading Cryptonomicon because his insistence that paper money isn’t worth anything, that states will soon go bankrupt and that cornering gold is the way to go just rubbed me wrong.
But the thing is: those books are at face-value about science-fiction (more or less) and slip in a lot of wrong economic ideas under the radar, and they target a crowd (male, young, interested in technology) that has a good chance to occupy decision-maker positions in the future.
I have been thinking more about unemployment, the poverty line, human rights, austerity and so forth, and why the myths of mainstream economics is constantly perpetuated.
Would it be safe to assume, that businesses, especially big business, want those who are unemployed to experience such austerity that the prospect of any job no matter what the job is will be far more attractive than welfare?
“Would it be safe to assume, that businesses, especially big business, want those who are unemployed to experience such austerity that the prospect of any job no matter what the job is will be far more attractive than welfare?”
I don’t believe it is safe to assume that.
I (and other MMTers) believe that employment is indeed far more attractive than other kinds of welfare programs, and I’m not some big business representative.
Maybe even if we were always at full employment leves, some kind of welfare programs would still be necessary. But they would be less necessary than today.
What some MMTers claim is some sort of conspiracy theory, where big business prefer to keep some degree of unemployment, to make wages cheaper. I don’t believe in that.
Ok.
I’m trying to work out why it is so important for so many myths to be constantly perpetuated. I finished reading Innes ‘What is Money’, which is 100 years prior to the Bank of Englands publication of ‘Introduction to money’ (2014) and they are essentially identical documents.
Courts have been saying it for centuries that money and all financial wealth is and always has been a ‘chose in action’.
Even Collingwood (who was not an economist) in his publication ‘Economics as a philosophical science’ (1926) could see it as plain as the nose on his face…and yet, like an uncontrollable urge our education system ignores all this and perpetuates a lie. Why? Why is it so important for some that these lies be constantly forced upon everyone? Who is benefiting and why?
Maybe someone can point me to a link or something that explains this
cheers
A lot of MMTers will point out some conspiracy theory, where a specific group is deliberately lying and benefiting from those lies.
As I said before, I don’t believe in that.
I believe that those “lies” are the result of self perpetrating ignorance, because it is actually very hard to understand that the government is not like a household. It’s not deliberate, it’s just plain and simple ignorance, with some mechanisms for self perpetuation (like academic ego and groups reinforcing their ignorant traditions).
Bill Mitchell himself researchs something he calls “groupthink”, which I believe is very interesting and useful for answering your questions. Just search some posts is this blog…
Dingo, maybe the ‘myths’ of mainstream economics apply pretty well when you are talking about an individual or household. They just don’t translate well to the macro economic situation.
And while I am not big on conspiracy theories either, I will push back just a little as to what Andre said. Big business is not interested in full employment- it poses problems for them in disciplining their work force. And the really wealthy are not interested in it either- what good is all that money if you can’t snap your fingers and have some poor employee do your bidding. Sure full employment is good for business and ends up creating more absolute wealth, but most are concerned with relative wealth. There is a great short essay from Kalecki that explains this well. I will try to find and post a link to it. Don’t hold your breath waiting for this though- I am terrible at this stuff.
Yep- I have failed to find a link to the essay but Bill Mitchell does discuss it at length here-
https://billmitchell.org/blog/?p=11127
Thx Jerry,
Yes, the concept of macro-economics (or the state) not being the same as an individual, household or business became apparent to me even before I discovered MMT. I only recently ventured into the study of economics and politics to try and understand why all the BS gets spun. I must confess, it has been a challenge. Not even in my studies of religion did I find as much ‘debate’ between conflicting views as I have with economics and politics.
I might throw out a question as it has been bugging me for while.
It seems that no matter where on the economic or political spectrum one sits, that there is one thing all share and that is the principle of scarcity. What I would like to know is when economists are describing or relying on the principle of scarcity are they limiting it to needs, or are they including wants, and either way, how are they distinguishing between a need and a want?
To André and Jerry Brown:
Political Aspects of Full Employment by Michal Kalecki describes what Jerry Brown points out. It is not in the interest of economic elites to have full employment as it leads to high wages, better working conditions and more power to workers at the expense of profits and the power of capitalists. The url is: https://mronline.org/2010/05/22/political-aspects-of-full-employment/.
You might also want to look at Professor Mitchell’s blogs on the NAIRU. The whole point, explicity, of the NAIRU is to keep wages low (to control inflation).
Yeah Dingo- economics assumes there are unlimited wants, not necessarily needs. And limited resources to satisfy those wants. There are limits to resources so that part is true at least and that is where you get the scarcity part of it. Economists are people too, and some have a conscience and an understanding of humanity- but the study of economics does not significantly distinguish between absolute human needs and what I think you are calling ‘wants’. When you get into areas where you try to discuss ethical consequences, economists call that ‘normative considerations’ or at least they did when I went to school. Its a weird field of study that I wouldn’t recommend going into. MMT is pretty good though and worth learning about.
“It is not in the interest of economic elites to have full employment as it leads to high wages, better working conditions and more power to workers at the expense of profits and the power of capitalists.”
Keith, I’m familiar with those arguments.
Capitalists will defend their interests, and will want to lower wages and rise the profits. Workers will defend their interests, and will want to rise wages. Everyone will defend their interests, and I believe that it’s natural.
But I don’t believe that “capitalists” want to rise unemployment on purpose. They really believe that low inflation will make the economy better. Of course, as they are probably never get unemployed themselves, they will not give the necessary importance to unemployment and worker’s rights. That doesn’t mean that they are intentionally trying to sabotage the world.
As I said before: The solutions to the ignorance problem is different from the solutions to the evil conspiracy problem. We need to be aware of that difference.
Thx for the link Keith.
I am still learning but I always felt that what big business do not want is competition in the wealth space, not necessarily whether there is full employment or full participation or not. So, lower wages and even welfare prevent people buying up wealth in the form of stocks, real estate, bonds etc which if not restricted would fuel bubbles and bursts. But your link has given me some more food for thought. Cheers
Just on the concept of full employment, I crunched some numbers the other day and found that in Australia each person on average has around 25% of unproductive debt to income as a ratio. If each of these reduced some of their unproductive debt and freed up 3 hours of employment a week, this would create in excess of 21 million available working hours which if divided by the unemployment rate would equal nearly 30 hours of work per week per person who is currently unemployed. In other words, we would have full participation without one new job being created.