Update from Bill:
Last night I sent the final manuscript of my Euro book to the publisher and felt somewhat downcast – that always happens after an intensive piece of work is finished. But this morning, I woke up free of that and focusing on the next task in the list. The list is always bubbling away and one juggles multiple projects at the same time, with more or less intensity. Curiosity demands that. But at some point more effort goes into one to complete it and the others wait in the queue for their turn.
My next major deadline is an Modern Monetary Theory (MMT) compilation commissioned by my publisher Edward Elgar. The compilation will be my version of the roots of MMT and the development of its major ideas and influences. I have to write an overview piece explaining why I selected the literature and how it fits into the intellectual MMT tradition. It will obviously be an eclectic exercise and there is no certainty that my other original developers of what is now more broadly known as MMT will agree with my compilation or emphasis. I plan to start with Theories of Surplus Value – for reasons I explained in this blog – We need to read Karl Marx. I also do not plan to eulogise John Maynard Keynes, even though many of my colleagues think he is the most important link in the chain. It is here that I have to walk the fine line between technical detail and a broader reflection on how values intersect with what we might call the facts.Bill Mitchell – billy blog
MMT is not conservative thoughtBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia
Karl Marx was a culmination of classical economics as classical (economic) liberalism in economics based on social liberalism, along with English utilitarian (greatest good for the greatest number) thinkers like Jeremy Bentham and John Stuart Mill. Classical economics and economic liberalism became a dominant influence on the right, with Marxian economics and social liberalism became a dominant influence on the left.
All are developments of the liberalism of the Enlightenment as a reaction, for example, to Hobbes's advocacy of the necessity for a social contract in which individuals give up "natural" freedom and authorize authoritarian government (Leviathan) to provide the law and order necessary to escape the "natural" law of the jungle. For Hobbes, there is no alternative. Liberals of all stripes, economics and social, disagreed — Marx more than the English since he was a Continental living in exile in England with a price on his head by an authoritarian government.
In a way, Marx can be compared to the DFHs and social activists of the Sixties conducting a countercultural revolution, for example. In this he was quite unlike the English classical economists. He was also similar to the American rebels who had the temerity to take on the mighty British crown and its empire. He was not writing in England by choice but fleeing from the long arm of the law of a repressive government he was opposing. But Marx was much more like the DHFs in being from a respectable background without need to stand up for rights, unlike the American rebels who had a strong economic interest in standing up to the King of England.
Marx was a political radical, a social activist, a person of conscience, and a philosopher by training. He was working out the assumption that philosophy deals with fundamental questions about the whole and the sciences are subset of that inquiry, using a somewhat different method in that the sciences harness the rigor of mathematics and empirical testing of falsifiable hypotheses. The prominent classical economists were English, whereas Marx was a Continental.
Like most Germans working in the aftermath of G. W. F. Hegel, who was an intellectual giant that dominated German thinking at the time, Marx was writing not only in the shadow of Hegel, but also in reaction to him. For example. Marx's thought was shaped by Hegel's influence not only methodologically in his adaptation of Hegel's dialectic, but also in terms of overarching issues with which Hegel had dealt in his comprehensive approach to thought in the tradition of the ancient Greeks. Marx had a PhD in philosophy and his dissertation was on Greek philosophy. It is not possible to understand Marx without understand the Continental influences on his thinking and his 19th century German style of writing.
As a philosopher, Marx understood that ontological, epistemological and ethical issues are paramount in that they are foundational. He also understood that sociology is a subset of ethics, and that economics is a subset of sociology since societies are inherently normative as well as culturally and institutionally determined, i.e., normatively value-laden. Property law is inherently different under capitalism than under feudalism in that law is based on values and establishes institutional norms that are enforceable. Economic infrastructure is determinative and economic infrastructure is institutional, where the chief institutions are defined legally.
Adam Smith was chiefly a moral philosopher and Jeremy Bentham and John Stuart Mill are considered philosophers, too, even though they made contributions to economics. The fundamental principle of utilitarianism, the greatest good for the greatest number is a moral principle rather than a naturalistic one, being grounded in apprehension (Adam Smith's "moral sentiment") of the universality of human nature rather than animal instinct.
Doing economics without consideration of values is to ignore foundational issues and indeed causal factors. As Keynes noted, economics is a "moral science and not a natural science. That is to say, it employs introspection and judgments of value." (Letter to Roy Harrod, July 4, 1938)
Moreover, as a sociologist, Marx realized that power is determinative culturally and institutionally, and that power is determined by the social, political and economic infrastructure of a society, e.g., based on allocation of wealth through property law. He also understood the liberal principle of the Enlightenment regarding equality based on the universality of human nature (KM called it "species nature"), which is the basis for the rule of law rather than that of men, equality before the law, and the absence of "natural" privilege as a person.
Of course, Marx did not think that people were equal as individuals, but rather as human persons. Individual uniqueness implies natural inequality in certain respects — dispositional, temperamental, attitudinal, aptitudinal, etc. He would have recognized that half a population are below average, which many contemporary thinkers seem to overlook in assuming methodological individualism that presumes ontological individualism.
What Marx opposed was institutional (and enforced) inequality, e.g., manifesting in terms of class structure that not only constituted the basis of privilege based on class power, but also inherited privilege and dynastic privilege. Marx traced this to legally enforceable property rights as superior to human rights and civil liberties necessary for human freedom for self-determination, self-expression, and self actualization in a free society. Marx is often caricatured as a statist, when he was anti-statist in an era of authoritarian statism that no longer exists they way it did then, at least for the most part. What Marx realized — as did Aristotle, for example — is that individuals can only be truly free in a free society, since human beings are social animals. The question then is how to actualize this. This is fundamental issue on which Marx focused.
Marx correctly saw that the haute bourgeoisie would seek privileges similar to the hereditary aristocracy they were in the process of replacing (this replacement would not be consolidated until after WWI). He also realized that, given the opportunity, the petite bourgeoisie would imitate them, isolating the laboring class. Of course, the haute bourgeoisie realized this, too, and would create just such an alliance with the "middle class". Which is pretty much what came to pass. (Now that alliance is fraying and some of the haute bourgeoisie are getting nervous about potential political consequences, especially with the rise of populism on both right and left.)
At this time, Continental thinkers, especially German ones in the aftermath of Kant and Hegel, were expected to be comprehensive thinkers to make a mark. And without a comprehensive approach, the result is often disjoined — the parable of blind men or people in the dark attempting to describe an elephant by touch comes to mind. Conventional economics as it is practiced in the English speaking world, at least, falls in this category. Indeed, the universities is infected with isolation of disciplines, and economics seems to be particularly infested with this to the point that dementia has set in, if not rigor mortis.
This is not to eulogize Marx as an epitome, or for being something he could not have been as a man of his period. Of course, there were some things that Marx missed or got wrong — after all he was one of the early founders, or at least forerunner, of what would become the disciplines of sociology and economics. But not only did he get a lot right, but he has been pretty much alone in saying it, other than Marxists and Marxians who are similarly marginalized or demonized.
That needs to change if economics as it is taught is to advance from its sclerotic state. Even heterodox economists are forced to teach the party line both owing to the existing institutional structure and also so that their students will be able to "advance" in a sclerotic profession — which is an contradiction in itself. What a waste of time that could be better spent on things that actually matter.
Marx was an enormously prescient thinker whose thinking was both broad and deep. Moreover, he possessed a conscience and a spine to follow it — into exile. He recognized that the issue that ties everything together was the ancient Greek ideal of positively free individuals living a good life in a good society — as did utilitarian John Stuart Mill and pragmatist John Dewey, for example, from different angles.
Marx was a social libertarian who was opposed to the repressive authoritarian governments on the Continent at the time. He was favorably impressed with the realization of the liberal dream in the founding documents of the US, something not yet realized in Europe at the time, even though he was appalled by African slavery. See Marx's letter to Abraham Lincoln and Lincoln on labor and capital.
Neoclassical economics can be viewed as a reaction to Marx as Marx had been a reaction to classical economics, although he agreed with the emphasis of classical economists on economic rent. Neoclassical economists dismissed economic rent, it seems in reaction to Marx, and in particular to Henry George. See Michael Hudson, The Social Economics of Thorstein Veblen. Veblen and other institutionalists deserve mention as the flip side of Marx, so to speak. That is, there was already an alternative to Marx's socialism without turning to marginalism as if it were the only alternative, or the best one available.
Economics without economic rent and the application of power than underlies it is barren. The analysis of Marx is still germane to this, in that "surplus" value allocated to capitalist profit is by definition economic rent in that it is not socially necessary for production, nor is it economically necessary not being a cost of production. Capitalist profit is surplus in excess of costs of producing and distributing goods. It is form of tribute to those powerful enough to extract justified by what might be called "the John Galt effect" as an incentive and just deserts merited by contributions to organization and innovation — irrespective of endowments and institutional structures that enable it.
Because this is pretty much otherwise submerged in conventional approaches to economics, I would agree with Bill that study of Marx and incorporation of key insights that are still highly relevant in that they have been under-utilized is a sine qua non for a realistic approach to economics based on taking into account all relevant causal factors, especially determinative ones like power, especially institutionalized class power.
In presenting a summary of MMT, I would also call attention to the work of MMT economists on previous economists and schools of economics that are generally considered to fall outside the pale of MMT, such as Randy Wray's work on Hyman Minsky and Kenneth Boulding, and Mathew Forstater's work on Abba Lerner, Adolf Lowe, and Bill Vickrey.
This may be ancillary, but it seems to me to be significant enough to mention in a summary of MMT rather than folding MMT into Post Keynesianism, where it now seems to sit in the minds of many people. MMT is much larger than that. As Scott Fullwiler has observed, institutionalism is as much an influence on MMT as Keynes and Post Keynesianism.
MMT economists are original thinkers that stand on many shoulders and are positioned uniquely, beyond any previous school of economics. I don't think that this is as recognized as it needs to be. Of course, major insights came from the stock-flow consistent macro approach developed by Wynne Godley and Abba Lerner's functional finance. But to present MMT mostly on that basis would not be completely adequate.
Finally, the founding insight of what became MMT should be credited to Warren Mosler's realization that a currency sovereign exercises a monopoly over the currency it issues. Everything really follows from that since the operational type of monetary system defines available policy space. Within this policy space, stock-flow consistent accounting determines operational boundary conditions showing what is possible and what is not.
The failure of economists to appreciate this gets many of them a failing grade in their discipline when they confuse the existing monetary system characterized by floating rates with a fixed rate system like the previous one, or confuse currency issuers with currency users, or violate stock-flow consistency in their models, or think that a currency sovereign in a floating rate system that doesn't borrow in a foreign currency or run a currency board is constrained with respect to operations involving its currency when the actual constraint is availability of real resources, hence inflation.
