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…
Exploring the essence of MMT – Part 1
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 …”
or
“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.
What?
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.
So what?
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.
Conclusion
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.
Dear Bill,
This is tangential to the main point of the post, but Newton, at least at the rhetorical level, was “anti-theory“. If he were alive today, he would be a big proponent of Big Data!
I highly recommend Robert Pirsig’s ‘Lila’ for analysis on values and the influence of culture.
(I’ve read it at least 5 times)
The whole idea of MMT is based on the supposedly optimistic rigid assumption that the sovereign currencies of the most advanced countries under the sun can always and easily buy each and every good or service supplied by anyone almost anywhere in the world.
Well, given the receding tide of globalization, the recent global pandemic, and the latest Ukrainian tragedy, the above assumption can no longer hold any more.
—
Today, we all witness the fact that there are many things even the free money of a country can never buy without significantly pushing up their prices at the same time.
A de-industrialized and hence highly financialized domestic economy — a good candidate for the application of MMT — is now shown to be much weaker as a whole than an industrialized and non-financialized economy with relatively self-sufficient supply of real merchandises, food, fertilizers, commodities, and low-price energies.
Neoliberal ideology is right-wing ideology.
And, there is no other “macroeconomic” ideology on the right side of the spectrum.
You can’t call neoliberal ideology economic science, but it was sold as such and even got many nobel prizes (the vast majority of them forgoten, as useless propaganda).
If we question neoliberal lies, we’re automaticaly labeled profligate left-wingers or worst, soviet-like lunatics.
So, what can we do to stay off the political divide?
I agree that the lens is the best way to talk about MMT academically. Most of us in the party policy workgroups I’m involved with understand MMT, along with the usual neo/liberal/classical, Marxist, Keynesian etc. Each is a different lens with which to look at a particular problem, and each is useful in some way – if only to understand how someone else might be seeing it. Our substantive arguments will be about the policy choices, not about MMT.
My problem is how to sell it. The current paradigm forces us to say we will “pay for” something by “taxing the rich”. We all understand the horrendous implications of making policy dependent on the rich, but we also understand that the first question any candidate gets asked is “how are you going to pay for that?”. Attempting to explain MMT at that point immediately loses the public, or earns a thorough shit-canning from the media, and dancing around it with language games doesn’t help either.
The issue is that the neo/whatever mainstream “economics” construct is just so utterly brilliant. It is self-replicating and self-justifying; it has infested our culture and belief system right down to our conception of self; it gives just enough of a majority the chance to “buy-in” with a bit of land or some shares, so our interests are aligned with the ruling class; and it has it’s own internal logic that is so perfectly circular it can’t be argued outside an academic framework. If I get the chance for a detailed one on one conversation I always try and sometimes get somewhere, but handing out leaflets in front of a pre-poll booth? Forget it!
It seems as though some sort of mass conscious breakthrough is required, so people are able to see the life and value being sucked out of them by this system. I thought COVID might be it, but no – that extraordinary (fucking evil) mainstream narrative just keeps reinforcing itself, and I am back to tweeting and blogging and talking with academics and policy nerds. It’s like shouting at the wind.
Do we really need to wait for capitalism to eat itself as Marx predicted? Will that be too late? Will the kids save us? Mine has just started Economics – will he ask me for my Bill Mitchell books, or will he be converted to a rational self-interested economic unit?
If he figures this out sooner than I did maybe there will be hope, and in the meantime I will be standing in front of train stations and polling places handing out leaflets telling everyone how we gunna pay for it.
Bill,
It seems to me that the problem that the proponents of MMT have, in particular you with your constant reference to socialism/Marxism, is that those wanting to understand MMT, find it difficult to discern the difference between the pure theoretical and descriptive elements of MMT and value systems.
It seems to me that you want to have your cake and eat it too, and you bemoan that MMT is misunderstood. You constantly introduce values into your narratives. Nothing wrong with this intrinsically, it just confuses your purpose, which in the first instance I presume is the promotion of MMT as an economic theory.
The fact-theory/value distinction is always at play and critical to understand and at times it is difficult to separate the two.
So you have to make a choice, either promote MMT as an economic theory or promote it as an approach to policy within a particular value framework. It’s difficult to do both without causing confusion or unless it is crystal clear what your purpose is.
People read your blog and conflate MMT with a particular value system. This is the source of the confusion. Nothing wrong with showing where you stand, it’s natural in a blog like this, but it has an impact.
“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.”
It is appropriate you note this. I don’t think you have been this explicit about the JGS before. While you have described the wool buffer stock scheme before you have never mentioned, as far as I can recall (I started reading your blog in 2016), that it eventually had to be disbanded.
I’m interested in policy making and the practicalities of allocating real resources using the public purse. In the majority of letters and articles I write for publication or submissions I make to UK Labour National Policy Forum I have to explain the importance of the MMT lens. I keep on shouting out that we are being fooled and that in the 5th richest country we have the real resources here for everyone to have sufficient goods and services for a decent life – and more. It’s just a question of how those resources are allocated.
Thanks for the lesson on ‘the lens’, Bill. It’s important. The first stuff I wrote I used the term ‘description’.
I saw your tweet about the dreadful R Reeves avoiding the question of whether she supported public sector workers striking for better pay (given that she is not their employer!). She makes my blood boil.
Thanks Bradley Schott. I know exactly where you’re coming from and share your pain.
A few thoughts:
Start to talk with the ignorant by beginning with money as that’s something EVERYONE has an interest in. They think they know and understand it but we know that isn’t true. People know how to use money and what it means to have or not have but that’s about it. You don’t have to know how a car works to learn how to drive it. Never start by going all out MMT as the eye-glazing response will probably immediately appear. There are some fantastic YouTube videos going back aways from the usual suspects that I’ve found to be excellent for inquisitive minds wanting to understand more about money, banking, macroeconomics and MMT.
Instead of talking economy, talk society. Talk resources/activation/mobilisation of resources as the economy not money. Be the intermediary/translator for your audience between them and the jargon of academia and don’t hit them with too many ideas at any one time. Knowing the realities of fiat currency, its origins and what possibilities are thereby enabled is key to understanding all the rest.
Ask “What’s government for?” as an opener. For the betterment of all, the few, the deserving (whatever that means) or itself? This stuff needs to spread like a virus but can only initially infect those who are already inquisitive and know or can feel something is already very wrong with the way the system (doesn’t) works today.
I have taken on to try and influence the thinking and understanding of the range of “Voices for” type candidates in our upcoming federal election and have had some, if minimal, interested feedback. I’m not out to browbeat them but provide them with links to presentations (especially audio/visual) that I consider particularly thought provoking. Would be stupid for me to try to reinvent the wheel by presenting the case in my own words but I do explain a few things in simple terms. For the “How are ya gunna pay for it?” question I say that your short form response might be such as “In exactly the same way that the government is going to pay for those atomic submarines.” but then point them toward the right stuff to expand on that.
I also try not to miss too many opportunities to email “bash” self-proclaimed “progressive” politicians, economists and journalists when they spruik “taxpayers’ money” instead of public or people’s money or when the “taxes to pay for” nonsense is thrown around. I fully realise that they are too high up the orthodox economics food chain to be the vehicles for change but sometimes can’t help myself.
The new enthusiastic for change intelligent, independent, mostly female candidates have a range of like-minded helpers from their communities. Those behind the scenes helpers will filter information that gets to their campaign so what is sent may well be seen by a range of eyeballs. I see this as an opportunity to spread our virus that comes along far too seldom and the opportunity should not to be wasted. It is not that we want something from them, as would a regular constituent, other than to engage their critical faculties to enquire and question their long held understandings. Offering a means to a solution instead of just more re-stating the problems is good for the psyche. I don’t have to be convinced by any more information that we have a self-imposed existential threat leading to “We’ll all be rooned”, said Hanrahan.
The more participants in spreading the knowledge the better but careful thought and expression is required when imparting the message – know your audience. What I am trying to impart is knowledge and understanding of a mechanism that enables a solution to global warming that is not possible if status quo thinking is maintained. MMT already operates under neoliberalism for the benefit of the 1%. Showing how it doesn’t have to be that way and how it could be otherwise is the goal.
There are a couple of parties that are MMT literate. The most significant being the TNL who have Steve Keen as their economics expert and #1 candidate for the Senate in NSW. I am not and never have been a member of a political party and won’t be changing that now or ever. It’s ideas that inspire me, not the dealing with people, especially so many that I’d rather not be around.
I don’t see that problem Henry.
Most things about any economics ideas are about some kind of value statement. Whether ‘efficiency’ is more valuable than say, tradition or ethics. Is maximum output to be valued more than environment? What are the costs of less than full employment? What are the costs of actual full employment? These kind of things are always in play no matter who you read.
I think Bill does a great job generally. But then I generally agree with him…
@Warren
Lots of thoughts on anthropology in that book.
“The current paradigm forces us to say we will “pay for” something by “taxing the rich”.”
To which the answer is simple. That’s good, and when we’ve taxed the rich for mere money how we still have to work out how to pay for it. The rich don’t have a warehouse full of doctors, nurses and teachers. Where are we to get those from and who currently is employing them. That then is the people who need taxing to stop them doing so.
To break the paradigm we have to stop talking about money. Government is an army general directing the manpower under its authority to achieve a strategic goal, not a corporate bean counter worrying about the bottom line.
Neil ‘Government is an army general directing the manpower under its authority to achieve a strategic
goal, not a corporate bean counter worrying about the bottom line’
If only.
Agree with Bradley Schott. “The deficit will burden our children and grandchildren” is a very powerful argument because it’s easy to understand and it appeals to personal experience and common sense. We need arguments with similar power.
Vic Lai – You are falling into the kind of traps that Bill describes in his post. MMT does not say governments “can always and easily buy each and every good or service supplied by anyone almost anywhere in the world. ” It says governments can buy anything that is “available” for sale in their currencies of issue, a crucial distinction. To achieve maximal availability of real resources for their citizenry, governments must manage their ability to make purchases in such a way as to mitigate as far as possible the very kinds of constraints you mention – to maximize real resource availability through an optimal understanding of governmental, private, and inter-national purchasing capabilities, which MMT provides.
Agree about the need for increased self-sufficiency, or at least increased resiliency, but the balance of your second point is nonsensical. Only a barter based economy is not “financialized.” MMT seeks to understand all monetary structures. It’s not something you “apply” to “candidates.” It just *is*, at least as far as the data allows economists to “theorize.”
I agree with the sentiments of Henry Reich in his comments on Wednesday, March 30, 2022 at 5:55. I too am confused by the politics of MMT (the socialist value system that Bill and others embrace) and the strict theoretical aspects of MMT (MMT is presented has neither left nor right).
Also, with respect to Warren Mosler’s comments regarding Robert Pirsig’s Lila: Thanks for reminding me of the book. I have a signed copy by Pirsig from 1993. You have encouraged me to re-read it after such a long time.
I assume that Warren is the Warren Mosler of http://moslereconomics.com/.
II am extremely interested in MMT as an alternative economic theory to orthodoxy but I am continually struggling to get a non-political (neither left nor right) reading of it.
Dear Sergio Giason (at 2022/04/01 at 9:42 am)
You wrote:
My blog is a mixture of pure theory, applied economics and commentary.
To ‘learn’ MMT independent of the commentary you can find all you want in our textbook which targets two years of undergraduate teaching.
https://www.bloomsbury.com/au/9781137610669/
best wishes
bill
Perhaps you can publish your new work on pages with a contrary view published on the opposite pages by a second writer.
Dear Jim Hemphill (at 2022/04/10 at 9:07 am)
What purpose would there be turning my site into a debating arena where views I consider to be wrong in fact and spirit are given equal voice?
Anyone can set up their own blog these days and there are countless voices out there opposing my views. I am not about to add another vehicle to undermine my work.
best wishes
bill
It appears to me that the economists advising Nixon to remove the Dollar from the Gold Standard & under threat of War ensure Oil shall only be traded in Dollars new exactly of MMT & of the Power of FIAT
Unfortunately greed & hubris prevented them of ever envisaging a time when that hegemony would come to an end.
Fred & Vic Lai’s remarks above weigh lay the full extent of that Hubris & Stupidity!