This is Part 2 of an irregular series I am writing on some of the complexities of Modern Monetary Theory (MMT) that are often overlooked by those who rely on reading airport-style books or Op Eds on the topic. In – Exploring the essence of MMT – Part 1 (March 29, 2022) – I dealt…
Today, I am reflecting on the evolution of the body of work known as Modern Monetary Theory (MMT) and responding to many E-mails I get seeking clarification about things and some that keep getting things wrong. Some of the things I write today might introduce some dissonance, which just means that those feeling that have not really got to the bottom of the matter before and thought they knew what isn’t. This blog post also forms part of my – MMT Provenance – series where I trace the development of MMT in historical terms – who said what, who were there, who weren’t etc. And it is good sometimes to reflect on your work to see where it has gone and to wonder why. So, a bit of a different post today as we wait for tonight’s fiscal statement from the Australian Treasurer.
Some background reading
1. The erroneous ‘lets have a little, some or no MMT’ narrative (February 20, 2019).
2. Understanding what the T in MMT involves (September 20, 2018).
3. MMT is what is, not what might be (April 20, 2017).
4. Friday Lay Day – ruminations on MMT and the JG (December 11, 2015).
The Lens thing
Around a decade ago, I was one of the inaugural academic leaders of a federal government funded project – Australia Urban Research Infrastructure Network (AURIN) – which was a large multi-million dollar project that brought together data-oriented researchers from across Australia and elsewhere to produce a unique data-sharing research resource.
The initial team that came together for this project had previously been part of an Australian Research Council network on spatial analysis for the previous five years until the ARC stopped funding research networks.
Effectively we reinvented the project within a new funding regime.
I was on various AURIN management committees and also chaired one of the 10 ‘lenses’ that were created to structure the research work.
The ‘lens’ I managed was ‘Lens 2: Economic Activity and Urban Labour Markets’.
I actually didn’t like the Lens terminology much but it allowed us to differentiate the focus research from the technical infrastructure work and so I learned to live with it.
This was also a time when more and more people were starting to become aware of MMT especially after the Global Financial Crisis and the role that social media played (my blog, then some other blogs, then Twitter, etc).
And as the awareness grew, so did the misconceptions.
It wasn’t so much the ‘printing money’ stuff or the ‘eye watering deficits’ stuff that I am alluding to but rather the more fundamental misunderstanding of what MMT was rather than what it might be saying.
There were also constant assertions that it was really just another Left-wing crazy type idea.
Why not just go to the Soviet Union folks? This was the constant question those on the Left were met with by all and sundry during the 1970s. That apparently if you didn’t like living in Melbourne, Australia under a harsh, emerging neoliberal government then get the hell out of here and go to Moscow and see whether you like that more!
Except the U.S.S.R. had been abandoned by the 1990s so I am not sure where we would go.
I knew that if MMT was politicised in this way, we would have an even harder task making headway.
It was already hard enough dealing with the mainstream academic establishment in economics, much less the rest of the world who seemed to see Leftists as people to be vilified as a default position.
Thus, I wanted to protect our work from those sorts of petty dismissals.
It did raise interesting questions that I wondered about (and still do) though.
Like the split between conceptual processes and value advancement.
This went back to my university days where in philosophy the debates were all about objectivity and subjectivity, ontology and teleology.
As we were developing the body of work we now call MMT, these issues were always at the forefront of my thoughts.
What exactly were we creating?
What existence did it have?
And then there were those who kept referring to MMT as a regime (my word).
“If we ever have a government that uses MMT it will be the end of the world, inflation will go through the roof as will interest rates …”
“If we ever have a government that uses MMT, all our prayers will be answered and we can have good hospitals, schools and …”
Those sorts of ‘opinions’ are still common today and are so far removed from any serious perception that they teach us not to privilege all opinions equally.
Some opinions have no value.
To counter that and to dissuade people from just concluding that MMT was some left-wing strategy I introduced the ‘lens’ terminology to the MMT narrative.
I see that term caught on, which is a good thing, because as a simple heuristic, that metaphorical imagery works quite well to convey the meaning intended.
MMT is not a new regime that we will shift to.
A government does not suddenly ‘apply’ or ‘switch to’ or ‘introduce’ MMT. We can’t abandon MMT like the Soviet system was abandoned.
Rather, I wanted people to see MMT as a lens which allows us to see the true (intrinsic) workings of the fiat monetary system.
It helps us better understand the choices available to a currency-issuing government.
It allows us to understand that most choices that are couched in terms of ‘budgets’ and ‘financial constraints’ are, in fact, just political choices.
There are no financial constraints on a currency-issuing government, only real resource and political constraints.
MMT at this stage is about understanding.
In that sense, MMT is neither right-wing nor left-wing – liberal or non-liberal – or whatever other description of value-systems that you care to deploy.
An MMT understanding lifts the veil imposed by neo-liberal ideology and forces the real questions and choices out in the open.
To design policy interventions we need more than an understanding of the system.
We need a mission, which, in turn, reflects the way we feel about the world and humanity and all of that.
We need to impose values on the problem.
So that allowed me to suggest that a person with Right tendencies (values) and a person with Left tendencies, could share the MMT understanding but apply it in totally different ways in policy space.
The point though was that those choices would be more transparent and not obfuscated by a fictional veil of the sort mainstream macroeconomic theory places on the public perception and debate.
If unemployment was high, then we would all know that the government preferred it to be high. They couldn’t hide behind not having enough financial capacity to act, etc.
The description thing
At some point, some MMTers decided to neutralise the debate and claim some sort of credence by asserting that MMT was different to the mainstream economics because it described reality.
MMT, in their eyes, had become a description of the way the monetary system operates.
Some went so far as to say MMT was wrongly named because it was not a theory but a descriptive framework.
That sort of regression, is why I wrote this blog post – Understanding what the T in MMT involves (September 20, 2018).
The ‘lens thing’ had become the ‘description thing’ – a new prescription for failing eyes allows us to describe the colours on the wall better.
Except the ‘description thing’ was another misconception and limited the MMT research program to something rather banal and ultimately meaningless.
When I use the term ‘lens’ I am being ontological and seeking to explore the ‘nature of being’.
The ‘lens’ serves to lay out all the relevant concepts in a meaningful way.
It is the framework for achieving understanding.
Description is not understanding, although one might need the capacity to describe to understand.
Thinking MMT is just a descriptive narrative sells our work short.
It has also, rightly, brought criticism to MMT.
It is correct to say that there is a difference between the intrinsic and the appearance levels on phenomenon and describing the appearance may not get to the bottom of what we are seeking to understand.
Marx, for example, knew this well and used the case of the ‘wage form’ to explicate that understanding.
At a descriptive level, it looks like a workers go to the work site for 8 hours a day and are paid accordingly – so much per hour, That is what the wage form would lead us to conclude.
But at the intrinsic level, the worker is producing real value that equals the daily wage in say 4 hours (depending on productivity rates) and for the rest of the 8 hours is producing surplus value – unpaid work which flows to the owner of capital who scoops it up and tries to realise it as profit.
So profit is not created in exchange but in production as surplus value and results from the exploitative character of capitalism.
Just relying on description of something typically provides no understanding.
We need to go deeper.
And it is also true, as some of our critics have noted, that the MMT body of work doesn’t actually describe the appearance level of the monetary system anyway.
Many years ago I wrote this blog post to explain that point – On voluntary constraints that undermine public purpose (December 25, 2009).
So, for example, governments do have accounting structures and processes that mean numbers have to go into tax accounts before a government department can draw a cheque.
A worker gets ‘paid for 8 hours a day’.
We all know though, at the intrinsic level of being, that those accounting structures, though administratively binding, do not allow us to see the essence of the fiat monetary system.
The lens thus is a penetrative device we have created to drill into the intrinsic nature of things, which allows for a better understanding.
And, as I have written before, simple heuristic devices only take us so far.
Which in this case, means that the ‘lens’ is not free of value or cultural influence, once we really get down to it.
We ‘see’ what we want to ‘see’ and what we have been conditioned to ‘see’.
When I studied anthropology at university (and often I wish I had have gone right through on that stream rather than becoming an economist), we learned about how culture provides a ‘lens’ through which we perceive and interpret the world around us.
What would a member of a community of – Uncontacted peoples – say if they saw an iPhone?
Our lenses are coloured and a crucial aspect of the way in which we receive information through them involves conjecture, whether we want to think in those terms or not.
Conjecture is about theoretical activity.
Isaac Newton observed an apple falling from a tree (even if it didn’t hit him on the head!) and from the experience Newtonian gravity emerged.
As an aside, some years ago, the Royal Society in the UK released archival material where you can see a digital version of the original manuscript published of an early biography – Memoirs of Sir Isaac Newton’s Life – written by William Stukely and published in 1752.
It is a beautiful and valuable resource.
The Apple story went like this (page 15) – William Stukely is recounting the conversation with Isaac Newton:
After dinner, the weather being warm, we went into the garden and drank thea, under the shade of some apple trees; only he, myself. Amidst other discourse, he told me, he was just in the same situation, as when formerly, the notion of gravitation came into his mind. Why should that apple always descend perpendicularly to the ground, thought he to himself; occasion’d by the fall of an apple, as he sat in a contemplative mood. Why should it not go sideways, or upwards? but constantly to the earths center? Surely, the reason is, that the earth draws it. There must be a drawing power in the matter of the earth must be in the earths center, not in any side of the earth. Therefore, so this apple fall perpendicularly or towards the center. if matter this draws matter; it must be in proportion of its quantity. Therefore the apple draws the earth, as well as the earth draws the apple.
Here is the excerpt.
Back to focus!
The point is that we can describe the falling apple – measure speed of descent etc and come up with all sorts of metrics.
But we would never understand why the apple fell in that way.
Newton had a conjecture – a theory – and the apple falling helped him to see the worth of that conjecture.
MMT must be theoretical or else we have little of interest to say.
In the blog post cited above, I used the example of the sectoral balances, which at a descriptive, metric level are just accounting statements that follow from the way we have constructed the national accounts and have to be true because they add up.
Note that while the national accounts are just accounting structures and statements that also doesn’t mean they are value free (free of ideology).
As a postgraduate student we toyed with ways to measure ‘surplus value’. You won’t find any numbers in the national accounts that tell you anything, for example, about the Marxian categories within production.
Back to the story – so we know from the sectoral balances that if the government sector records a surplus (deficit) the non-government sector has to record a deficit (surplus).
That is an interesting statement but begs the question why?
Description only tells us it is true as a matter of accounting.
But what ties the sector’s together and what behavioural principles are at work to generate numbers that the accountants add up and subtract to come up with the national accounts and the derivative sectoral balances?
Well as I explained in the blog post – Understanding what the T in MMT involves (September 20, 2018) – to understand behaviour, we need conjecture (theory).
For example, why does saving rise with income and help bring a disturbed macroeconomic equilibrium back into a steady state?
We conjecture that household consumption is driven by income and wealth and we conceptualise the variations between these factors with concepts such as the Marginal Propensity to Consume (MPC).
What sort of change in income – every one, changes that are perceived to be permanent, changes your neighbour enjoys (relative income changes), etc?
Theory is needed.
MMT is full of it.
And you can find a lot of it in our textbook – Macroeconomics – published in 2019.
As an aside, we are in discussions with the publisher now to release a new edition of this book as well as a shorter, first-year book of principles.
More soon on that project.
That is where I will leave it today.
In the next instalment, I will continue to dig deeper into what MMT is.
I want to discuss in the next post on this topic – how developing the buffer stock employment framework in 1978 (which we now call the Job Guarantee) brought me to understand that if the government spends on a price rule, it can condition the overall price level.
But even then, real world complications about market power and supply constraints etc can interfere with the adjustment process governing that rule.
Which is another complication and those who try to simplify MMT too much for heuristic purposes sometimes find themselves floundering when it comes to understanding what is happening around us.
That is enough for today!
(c) Copyright 2022 William Mitchell. All Rights Reserved.