Friday, February 24, 2012

Chris Cook on the Post-Modern Fiscal Theory

The following is a guest post from Chris Cook, a senior research fellow at theInstitute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient.
Following the recent upsurge in interest in Modern Monetary Theory (MMT) I was rash enough to make the comment that the central insight of MMT – that modern ‘fiat’ money is a credit instrument ultimately based upon the government’s power to tax – is muddied by disputes as to what the proper basis for taxation actually is, or indeed, whether there should be any taxation at all.FT Alphaville invited me to contribute a post on the ‘Modern Fiscal Theory’ I suggested. But I decided to go further and document my view that in a world of direct connections a Treasury is no more necessary as a credit intermediary than is a Bank.
Post-Modern Fiscal Theory looks to the networked, de-centralised and dis-intermediated economy emerging rapidly from the post October 2008 wreckage.
Read it at The Financial Times | FT Alphaville
by Chris Cook
(h/t Kevin Fathi via mail)

Important. Chris Cook is a big thinker.


Matt Franko said...

" that modern ‘fiat’ money is a credit instrument ultimately based upon the government’s power to tax"

"IS A CREDIT INSTRUMENT": He is almost there.

It is an instrument of authority. Leave the "credit" or "debt" part out.

Should read: "IS based upon the govt's power (read: 'authority') to tax"


Tom Hickey said...

@ Matt

State currency is a tax credit — Warren Mosler

I think that this is what Chris Cook means. He is familiar with MMT and reads Warren's blog.

He has long said that money is better described as credit-based rather than debt-based. Subtle but significant difference semantically. While all money is someone's IOU, it is a credit for the holder and this holder can redeem this credit for some aset or good, or to satisfy a financial obligation.

David said...

Well, he also talks about "land" in the broad Georgist sense. This is a good sign. For all the recent MMR (the "New Coke" of hetero-economics) talk about productivity it is not something that will raise the quality of life for the average person as such unless the problem of rent is taken hold of at the same time. Henry George's basic question remains valid: why is there so much poverty in the midst of progress and prosperity?

Tom Hickey said...

Henry George's basic question remains valid: why is there so much poverty in the midst of progress and prosperity?

The answer is economic rent — land rent, monopoly rent, and financial rent. This was answered long ago by the Classical economists, as Michael Hudson never tires of reminding present-day economists and policy makers.

Truth Squad said...

Henry George and anarchists in the XIX where one of the first guys to realize this and pounder this issue.

The status quo struck back with liberalism (european meaning). We are a long a similar battle, only that is not even at its climax, it's only starting.

The establishment will have much more problems to manufacture a new ideology to strike back nowadays when the neoliberal camp crumbles apart. Probably a fallback towards keynesianism (or postkeynesianism) is inevitable if they feel any real danger. Won't solve the eternal problem of rentism, but will help to stabilize the situation (they have to give back something).

P.S: The fall back on 'austrian economics' is minor (and only amongst an specific social strata) IMO and it will rejected by most people, as we have a grow in interventionism demand. I don't think the establishment will use it to strike back, even though some are doing it in America (where there could be more space), like the Koch.

Truth Squad said...

Other possibility (always present) is they manage to brake the back of the economy and have the preconditions for violence, an expansion of fascism is a possibility (fascism = state + coporations; including the banks).

Then jingoism and manufacturing external enemies. This trend has always been present, but you can see there has been a play already since decades ago.

See Russian corrupt fascist regime, they manufacture evil external (USA) enemies while their population gets poorer; same happening in places like Iran and other oligarchic theocracies, who can always blame the infidels for their failures and poverty. And off course the same has happened in USA to an extend with a generation of warmongers and expanding deficits to finance wars (MMT for wars yes, MMT for welfare state no, in typical conservative bullshit mindset), now hinting at Iran as the next battlefield.

Entrenching in this sort of ideologies and political manipulation is a very ancient tactic for the establishment and always works. Let's see if the population does but into it this time.

Matt Franko said...

Tom, Isnt that just the accounting?

ie "I'm at the door blocking your way out with a 9mm" - Warren Mosler

WM's business cards can at that point be thought of as a "credit instrument", for accounting purposes; but the monopoly on violence he has created in the room is what creates the business card demand/utility.

FD: Personally coming at this as an Authoritarian of the Center, I have no basic problems with this scenario where the govt has been granted a monopoly on violence, so I tend to discount the "credit instrument" aspects of the state currency. That seems at best secondary to me personally, it's just the ex post accounting not the important part.


Tom Hickey said...

Matt, it makes a difference in thinking about state currency whether one views it as a credit (tax credit) or a debt the government owes (deficit hawks and deficit doves). All the government "owes" is an accounting entry recording use of the tax credit, thereby canceling the obligation that the government created in the first place. No handwringing over the public "debt" required.

Tom Hickey said...

Truth Squad, not to detract from George's contributions, but the first to oppose rentierism were the Classical economists, who were dealing with the winding down of feudalism, which is based on land rent. Karl Marx was the last of the Classical economists and he directed his efforts to extending the analysis deeply into capital (Das Kapital) as the successor to land ownership has determinative in the transformation from a chiefly agricultural economy to an industrial economy. In summary, Marx held that just as the agricultural worker made the fields productive rather than the land owner, so too, industrial workers made machines productive rather than the equity holders that owned the means of production (capitalists). At that time, shares were not widespread and ownership was concentrated in the capitalist class that enjoyed the fruits of factory workers' labor.

As philosopher, historian and sociologist, Marx admitted that a period must run its course before it is transformed into a new phase of history. Feudalism has already done that and the time was ripe to replace it. BTW, that process is still continuing in places like the UK, where the effects of a landed aristocracy and manor system has not completely disappeared.

Marx recognized that capital as the predominant factor in comparison with labor and land was still in an early stage in its development, But he foresaw how it would play out and attempted to circumvent this by forcing a move to socialism through a preemptive strike (revolution) before the time was ripe. However, in Marx's time, feudalism was also alive and still relatively well in much of Europe, with monarchs still very much in charge politically.

That attempt failed in 1848, but it was eventually successful in Russia. But notice that the revolution in Russia was chiefly against feudalism rather than capitalism, which accounts for its success more than a revolt against factory owners exploiting industrial workers. Same with the Chinese revolution, which was against the moribund imperial system with a country in decay, defeated by a foreign power. Neither the Russian nor the Chinese revolutions were chiefly against capitalism. Rather they dispatched a highly repressive late-stage feudalism that was only at the beginning stages of transformation into capitalism. Pretty much the same in Cuba, too, with Fidel's revolution, and the Sandinista revolution in Nicaragua.

Tom Hickey said...

Now it seems that the world is moving toward late stage capitalism and the time may be ripening for another phase transition to something yet to be determined.

However, the outline is clear. Whatever comes next must be sustainable, which means the end of the infinite growth based on infinite resources paradigm that underlies neoliberalism along with its siblings, neo-imperialism and neocolonialism. We are now beginning to see the onset of historic clash of paradigms, with neoliberalism destined for the the fate of feudalism as people demand change and are willing to stand up for it. Capitalism will continue to have influence for a long time, as feudalism has, but only marginally and that will be in decline, too. A hundred years from now, this will all seem quaint. Five hundred years from now it will seem quite primitive.

Of course, the timing is uncertain. But I see a significant accompanying the passage of the boomers and the ascension of Millennials (Generation Y) to power and influence, which will be occurring in the 2016 election in the US and flowering in the election of 2020. 2020-2030 will see the implementation of a new social, political, and economic paradigm consonant with the digital age, technological innovation, and sustainability constraints.

A new world order will prevail globally with the now emerging nations taking a significant role, which means the power and influence of the West receding toward the background. However, the Western civilization will likely provide the background for change globally for a century more.