Monday, June 10, 2019

Bill Mitchell — Seize the Means of Production of Currency – Part 1

Last week, Thomas Fazi and I had a response to a recent British attack on Modern Monetary Theory (MMT) published in The Tribune magazine (June 5, 2019) – For MMT. The article were were responding to – Against MMT – written by a former British Labour Party advisor, was not really about MMT at all, as you will see. Instead, it appeared to be an attempt to defend the Labour Party’s Fiscal Credibility Rule, that has been criticised for being a neoliberal concoction. Whenever, progressives use neoliberal frames, language or concepts, it turns out badly for them. In effect, there were two quite separate topics that needed to be discussed: (a) the misrepresentation of MMT; and (b) the issues pertaining to British Labour Party policy proposals. And, the Tribune only allowed 3,000 words, which made it difficult to cover the two topics in any depth. In this three-part series, you can read a longer version of our reply to the ‘Against MMT’ article, and, criticisms from the elements on the Left, generally, who think it is a smart tactic to talk like neoliberals and express fear of global capital markets. I split the parts up into more or less (but not quite) three equal chunks and will publish the remaining parts over the rest of this week....
Give up the framing, cede the argument.

Bill Mitchell – billy blog
Seize the Means of Production of Currency – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

11 comments:

Kaivey said...

So, the government money would reduce the anount of money the private sector borrow from the banks. That's got to be good for everyone, no wonder the establishment hates MMT.

'If this condition is not met, growth will necessarily have to be sustained by an expansion in private domestic debt, which is an unsustainable basis for growth.

Since Britain is not likely to generate large external surpluses in the foreseeable future, it follows that the only way private debt – and the power of financial institutions over society – can be brought under control without driving the economy into recession is for the government to run persistent and substantial fiscal deficits. '

AXEC / E.K-H said...

MMT: A new myth for WeThePeople
Comment on Bill Mitchell on ‘Seize the Means of Production of Currency’

Bill Mitchell accuses the former British Labour Party advisor James Meadway and indirectly the current Labour leadership of incompetence/foul play: “In doing so, Meadway demonstrates that he has not grasped (or refuses to grasp) the subtleties of MMT. In a political sense, his arguments repeat those that Chancellor Dennis Healey used when he lied to the British people in the mid-1970s about the Government running out of money. These falsehoods eased the path for Margaret Thatcher, created the space within Labour for the highly damaging Blairite years, and constrain the current British Labour leadership’s conception of what is possible in terms of economic policy formation.”

Bill Mitchell contrasts stupid/corrupt Labour policy with the superior scientific approach of MMT: “At the outset, it is important to note that MMT should not been seen as a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. Rather, it is a lens which allows us to see the true (intrinsic) workings of the fiat monetary system.”

MMT pursues the noble goals of (i) myth-busting, and (ii), improving democracy: “An MMT understanding means that statements such as the ‘government cannot provide better services because it will run out of money’ are immediately known to be false. Such an understanding will change the questions we ask of our politicians and the range of acceptable answers that they will be able to give. In this sense, an MMT understanding enhances the quality of our democracies. MMT is agnostic about policy, bar its preference for an employment buffer rather than an unemployment buffer to discipline inflation.”

This, in a nutshell, is the MMT myth. Fact is that MMT theory is scientifically refuted on all counts#1 and MMT policy is actually NOT for the benefit of WeThePeople but for the benefit of the Oligarchy.#2

The core claims of MMT are provably false:

1. “It [the government] creates a demand for its otherwise worthless currency by requiring all tax liabilities to be extinguished in that currency.” FALSE! TRUE: The currency is created by the Central Bank as a means of payment. The creation and value of money does NOT depend on the taxing power of the State.#3, #4

2. “The government spends its currency into existence through the purchase of goods and services from the non-government sector (so-called government spending) which provides the non-sector with the funds necessary to pay its tax obligations.” FALSE! TRUE: Spending on current output with newly created money is analogous to the spending of the counterfeiter.#5 The Central Bank’ creation of fiat money for the payment of the wage bill is the correct way of bringing money into the economy.

3. “The consequence of this logical ordering of events (spending to fund taxation) is that currency-issuing governments do not have to ‘fund’ their spending and can never run out of currency.” FALSE because of 1. and 2. TRUE: Unlimited spending is possible because of the government’s unlimited overdrafts at the Central Bank. Overdrafts are public debt that may be consolidated through bond issuance or not. Interest on the public debt redistributes income from WeThePeople to the Oligarchy as long as the debt is rolled over.

4. “In general, MMT uses the sectoral balances (or flow of funds) approach, which tells us that the government sector’s deficit (surplus) is always equal to the non-government sector’s surplus (deficit).” Indeed, but the MMT sectoral balances equation, i.e. (I−S)+(G−T)+(X−M)=0, is provably false. Because of this, the whole analytical superstructure of MMT is scientifically worthless.

See part 2

AXEC / E.K-H said...

Part 2

As a result, Bill Mitchell’s policy conclusion is false: “… it follows that the only way private debt ― and the power of financial institutions over society ― can be brought under control without driving the economy into recession is for the government to run persistent and substantial fiscal deficits.”

Persistent and substantial fiscal deficits are persistent and substantial free lunches for the Oligarchy.#6 MMT policy guidance is, contrary to the social/environmental optic, ultimately to the detriment of WeThePeople and Democracy. MMTers are not competent scientists but useful idiots for the Oligarchy.

Egmont Kakarot-Handtke

#1 For the full-spectrum refutation of MMT see cross-references MMT
https://axecorg.blogspot.com/2017/07/mmt-cross-references.html

#2 MMT: A Trojan Horse for Labour courtesy of the Oligarchy
https://axecorg.blogspot.com/2019/06/mmt-trojan-horse-for-labour-courtesy-of.html

#3 The creation and value of money and near-monies
https://axecorg.blogspot.com/2017/12/the-creation-and-value-of-money-and.html

#4 MMT: fundamentally false
https://axecorg.blogspot.com/2019/03/mmt-fundamentally-false.html

#5 How counterfeiters save America with an extra profit and make WeThePeople pay for it
https://axecorg.blogspot.com/2019/02/how-counterfeiters-save-america-with.html

#6 For MMT = For the Oligarchy
https://axecorg.blogspot.com/2019/06/for-mmt-for-oligarchy.html

Ralph Musgrave said...

As Kaivey rightly says, Bill prefers to expand the economy using state created money rather than commercial bank created money, i.e. debt owed to banks.

I find that hard to reconcile with Bill's strong opposition to Positive Money which wants to abolish commercial bank created money altogether and rely just on state created money....:-)

Andrew Anderson said...

Banks cannot create currency. bill

Correct but they can create purchasing power to bid up the price of real resources and thus consume precious politically acceptable price inflation space that might otherwise be used for the common welfare.

Of course even 100% private banks with 100% voluntary depositors could create SOME purchasing power with relative safety but not nearly so much as our current heavily privileged usury cartel with captive depositors.

Andrew Anderson said...

So, the government money would reduce the anount of money the private sector borrow from the banks. kv

Not necessarily. Instead, the banks and savy borrowers might front-run government purchases and/or create a new inflationary boom triggered by the new fiscal spending.

The proper way to reduce the ability of banks to create purchasing power is to DE-PRIVILEGE them.

Tom Hickey said...

@ Ralph

It seems to me that the MMT position is that the "creation" of "bank money" as a private process is simply a "myth of the market." It is construct of economic liberalism that is shown to be false by institutional analysis. The banking system, to the degree it is private, is a public-private partnership that makes banks quite unlike other privately owned firms.

While it is true that "loans create deposits," governments delegate the power not only to denominate their books in the currency but also provide banks with special access to the central bank for settlement.

Thus, the idea that the banks and government both "create money" ("state money" v. "bank money") is wrong to the degree that the two systems are viewed as completely separate. Rather the private financial sector is clearly subordinate in law to the state in this regard.

This is key because it shows that the government is not "intruding" on the private sector in this regard. Experience shows that the government has often not been intruding enough, but rather delegating more power to the private financial system than it can handle responsibly. Even Alan Greenspan admitted this.

In modern "capitalism," the simple but elusive trick is finding the sweet spot between currency issuance by the government and changes in private debt owing to bank credit extension.

Andrew Anderson said...

In modern "capitalism," the simple but elusive trick is finding the sweet spot between currency issuance by the government and changes in private debt owing to bank credit extension. Tom Hickey

Not just elusive but non-existent if ethical considerations are, as they have been for centuries, ignored if not viewed with outright contempt.

Andrew Anderson said...

Rather the private financial sector is clearly subordinate in law to the state in this regard. Tom Hickey

Due to the fact that we have only a SINGLE payment system (besides mere physical fiat, aka ""cash"), one that must work through private banks or not at all, the banking cartel as a whole and too-big-to-fail individual banks effectively hold the economy hostage as evidenced by the GFC.

Andrew Anderson said...

Experience shows that the government has often not been intruding enough, ... Tom Hickey

What part of government-provided deposit insurance is an intrusion on the private sector?

What part of a government-provided lender/asset buyer of last resort an intrusion on the private sector?

What part of exclusive access to inherently risk-free accounts at the Central Bank is an intrusion on the private sector?

What part of interest on reserves (IOR ) is an intrusion on the private sector?

What part of positive yields on other inherently risk-free debt of the monetary sovereign is an intrusion on the private sector?

Andrew Anderson said...

Actually, the above ARE intrusions because they privilege a detestable usury cartel over the rest of the population.