Sunday, July 29, 2018

Sam Williams — Modern Money (Pt 2)

Part 1 is here if you missed it when linked to here at MNE when it came out.

The post begins with an analysis of geopolitics that is quite good. Its' a long piece and this is the most section that is most relevant to current events.

Williams sets up a hypothetical scenario to examine the relevance of MMT to the issue has he has constructed it, which I think is a "good move." The future is uncertain, of course, so it makes sense to address a hypothetical case that seems to be necessitated by the flow of the historical dialectic from the perspective of class dynamism. From the Marxists perspective  the "class struggle" is chiefly between capitalists (owners of capital and those that command capital) and ordinary workers, both production workers and lower level managers, and with socialized labor and globalization, this is an international phenomenon. However, the driver the dialectic on a day-by-day basis is the struggle among factions of the elite that comprise elites with opposing interests, some of which are mutually exclusive, ruling out compromise.

The William introduces into the scenario he has erected an analysis of Chartalism and critique of MMT.

Williams then compares the MMT theory of money with the Marxist. For MMT proponents, it is worth reading to get a Marxist view and a summary of the Marxist theory of money.

Finally, Williams engages in the beginnings of a critique of MMT as a lead into future parts of this series. To his credit, Williams has undertaken more than a superficial study of MMT, which he regards as the only credible alternative to a Marxist view.
Modern Monetary Theory in a nutshell holds that anything the central government accepts for payment of taxes is money. MMT has the merit of being the most coherent and consistent alternative to Marx’s theory of money. Indeed, in terms of a coherent and logical theory of money, there are really only two, Modern Monetary Theory, on one side, and the theory of money developed by Marx as part of his theory of (labor) value, on the other. All other theories of money, whether advanced by mainstream bourgeois economists or Marxists who believe we are living in an era of “non-commodity money,” are simply eclectic mixes of the two fundamental theories of money....
A Critique of Crisis Theory From a Marxist Perspective
Modern Money (Pt 2)
Sam Williams


André said...

"theory of money developed by Marx as part of his theory of (labor) value"

Well, one thing is the theory of value (what determines the economic value of things), and another is the theory of money (what money is and its role in society and economics).

Marx theory of money seems to be the traditional view that money is a commodity like gold...

Andrew Anderson said...

All this talk of fiat creation ignores that only the banks, credit unions, etc. may even USE FIAT except for unsafe, inconvenient PHYSICAL FIAT, aka "cash."

Instead, fiat creation, purportedly for the general welfare, instead largely serves to provide the government privileged banks, credit unions, and other members of the usury cartel the aggregate interest needed to further drive the population into debt.

Andrew Anderson said...

Marx theory of money seems to be the traditional view that money is a commodity like gold... André

Marx was a materialist, which led him to blunder.

Tom Hickey said...

This comment assumes actually having read the Williams post to the end.

1. In my view, Williams’ post would have been better framed more analytically and less polemically. “You can catch more flies with honey than vinegar.” And often the polemic is not as crisp as when he is writing analytically. It's not always clear what the argument is.

2. His historical analysis is debatable, but so is MMT’s. Any theory of money that is conditioned by historical analysis is going to be, since empirical claims are being made and establishing them on factual evidence is questionable, especially the further back in time the analysis extends.

3. Here he goes completely off-track wrt MMT analysis. However, he is not alone in disagreeing with the MMT operational analysis in this regard.

However, the actual history of the federal funds rate over the last 40 years shows that in reality the Federal Reserve and its Open Market Committee can only tweak the rate. The fed funds rate target has ranged from a low of .25 percent – established in December 2008 to a high of 20 percent in January 1981. Such wild swings in the federal funds rate would not occur if the Open Market Committee could simply set any interest rate it chooses. And if the Open Market Committee cannot simply set the federal funds rate at will, MMT supporters’ claim that the commercial banking system can establish the size of its reserves collapses.

In reality, some tweaking aside, the federal funds rate simply reflects the general level of interest rates and the conditions of the money market that prevail at the moment. The approximate level of the federal funds rate – whether, for example, it is .25 or 20 percent – are therefore determined by the same economic laws that determine interest rates in general, which we have examined throughout this blog.

4. The following is an empirical claim. But since it contains the qualifier, cet. par., it cannot be checked.

Therefore, as a general rule – everything else remaining equal – a rising trend in gold production will cause interest rates to fall while declining gold production will lead to higher interest rates – or a crisis that will again lower the rate of interest as happened in 2008. Assuming the currency is stable – that is, its gold value is not expected to change in the near future, the changing relationship between the quantity of commodities – measured in terms of their prices – and the quantity of gold bullion determine the direction and rate of change of interest rates.

This brings us to the other major factor that determines the rate of interest. That is the stability of the currency in terms of the quantity of money material it represents in circulation. If the currency is expected to fall against gold, the rate of interest, all other things remaining equal, will rise. If the currency is expected to rise (strengthen) against gold – again all other things remaining equal – the rate of interest will fall.

5. Williams is unaware of the MMT proposal for:

1) termination monetary policy
2) directing the central bank to set the interest rate permanently at zero and not to require reserve balances
3) directing the Treasury not to issue debt longer than 3 months with minimal interest, if any, rendering them currency equivalents.

That said, many interesting points are raise for debate among Marxists and between Marxists and MMT proponents. Dismissing Marx as just another gold bug is insufficient, in my view. His analysis is attempts to be historical and phenomenological rather than based on just-so stories ("Robinson Crusoe economics").


Tom Hickey said...


My view is that all views are partial and complement each other to the degree that they are true. It's possible to cut the same pie many ways.

The major difference between Marx and MMT on money is that Marx is a foundationalist and MMT is constructivist.

Marx held that the value of money has a real basis that can be shown by historical analysis to be a natural phenomenon and therefore "scientific" in the sense of representational.

Conversely, MMT holds that money is a social construct with no natural real basis, although a real basis can be mandated, e.g., a fixed rate convertible system, or anchoring the value of a unit of currency to a unit of unskilled labor representing abstract labor time (labor power = 1) as creature of law (state power).

Marx held that the exchange value of money is based on a real value; hence money is a commodity, being produced for exchange.

Conversely, MMT holds that the value of money is based on the state's monopoly power over the currency, and demand for the currency is based on the state's power to enforce collection of obligations imposed by the state, chiefly taxation.

While these positions seem contradictory, it may be possible to view them as paradox and to find a resolution of the paradox in an expansive view that finds them complementary aspects of a whole.

This is shaping up to be an ensuing moment in the historical dialectic.

Andrew Anderson said...

A commodity money, if used as a commodity ceases to be money and if used as money ceases to be a commodity, i.e. it's an oxymoron.

Andrew Anderson said...

3) directing the Treasury not to issue debt longer than 3 months with minimal interest, if any, rendering them currency equivalents. Tom Hickey

Actually, the debt of a monetary sovereign, being inherently risk-free, should yield no more than 0% MINUS administrative costs, i.e. NEGATIVELY.

Or is welfare proportional to account balance OK with you, Tom? Apparently so.

Andrew Anderson said...

And the shortest maturity wait sovereign debt, demand account balances at the Central Bank, having zero wait, aka "reserves" in the case of banks, should cost the most, i.e. most negative interest.

So where is the MMT proposal for negative interest on demand account balances at the Central Bank? Except for individual citizens since they, unlike the banks and other large users of fiat, have an inherent right to use their Nation's fiat?

Andrew Anderson said...

Warren Mosler is an elitist and his proposals are, unsurprisingly, pro-bank.

Tom Hickey said...

A commodity money, if used as a commodity ceases to be money and if used as money ceases to be a commodity, i.e. it's an oxymoron.

Its' only an oxymoron if one stipulates a definition of money from a particular angle. Arguing from such a definition is assuming the conclusion in the premises, which is a logical fallacy.

I don't that that Marx's analysis of money as a commodity can be brushed away on this score.

The issue is whether money has a real basis anchoring money to the natural world or is entirely a social construction.

These could both be aspectival, for example, rather than mutually exclusive.

For example, Marx's foundational assumption for analysis is money as a medium of exchange and MMT's foundational assumption is that money is a unit of account.

These are two functions of money, the others being store of value and record of credit/debt.

These four are all functional aspects of money, and they can be used to generate different points of view about money that may be seen as complementary.

Andrew Anderson said...

Its' only an oxymoron if one stipulates a definition of money from a particular angle. Tom Hickey

From the angle of common sense, egs:
1) The same gold can not simultaneously be in a central bank vault and used, for example, to plate electrical contacts outside it.
2) The same gold cannot simultaneously be in a legal tender coin and a wedding band.

Tom Hickey said...

The issue is the source of value.

Marx, having been trained as a philosopher, realized that value is the foundational issue in economics. He was a naturalistic realist and based on his theory of the mode of production (economic infrastructure) determining the relations of production (social superstructure), it was crucial for him to show how value was "real" (objective) rather than value being determined by money price in markets (subjective).

The opposing theory of money, which MMT largely adopts, is that money is a social construct and agrees that it's value is market-based. With state money, the value of money is determined by the issuer monopolist in terms of what the monopolist is willing to exchange its currency for to move goods from markets to state use. There is therefore no intrinsic value of money.

Other theories of money hold that value is determined by makes price based on the operation of the "law" of supply and demand. This is the view of conventional economics. The claim is that this is a natural law, hence "scientific."

The basic question from this POV is what constitutes value. Marx's answer, based on his assumptions, underlies his economic argument about the labor theory of value (LTV), which identifies profit as surplus value as expropriated abstract labor embedded in money as the medium of exchange and unit of account. The fact that money also serves a store of wealth (real value) makes it desirable and worth saving (and hoarding).

Based on Marx's account of value relative to price, there is no "transformation problem" is a pseudo-problem that arises from failure to read Marx correctly by seeing what he is actually saying instead of what is projected on him. See Michale Roberts ysummar of Fred Mosley's Money and Totality.

Andrew Anderson said...

The issue is the source of value. Tom Hickey

ANY scarce substance, however worthless otherwise, would be valuable if used for money.

So much for the source of value.

Matt Franko said...

AA, you’re biased anti-bank....

Calgacus said...

AA:A commodity money, if used as a commodity ceases to be money and if used as money ceases to be a commodity, i.e. it's an oxymoron.

For once, I agree with you. It depends on the definition of commodity. As you mean it as something used or consumed - for electroplate, jewelry etc., you're quite right. Tom posted some papers with comparisons of Marx's and creditary theories of money infinitely superior to this author's. Marx criticized the creditary theorist of his day, Henry McLeod, but he was just wrong; ultimately commodity theories make no sense, they beg the real questions and AA's observation is a good start on showing that. The MMTers have drawn from Marx, and try to read him as a nominalist, ignoring the now clear errors irrelevant to his thought.

A tremendous amount of science is (sometimes supposedly) built on faulty foundations- e. g. "caloric"- which was at the basis of Fourier's mathematical and physical work & much other good stuff from other people. But really, just plain wrong. Or just foundations that are later only seen or claimed to be faulty by or become unfashionable to later generations. (phlogiston & aether - which certainly are real things; those words are just taboo)

Marx is no exception. Of course he screwed up here and there, based himself on then-current botched theories. But a mark of great work is that you can fix it up. The comical thing is that scads of intelligent people went the other way - trying to "fix up" Marx by making him coherent or consilient with the ever more botched theories in the neoclassical, marginalist, commodity theory vein. Preserving Marx's infrequent mistakes like goldbugism, discarding his real ideas, most of his work. Keep the bathwater, throw out the baby.

Matt Franko said...
This comment has been removed by the author.
Matt Franko said...

“later only seen or claimed to be faulty”

Right then if you are science trained you just discard it...

Art trained you don’t do this you try to fit the theory..... you see Tom trying to hang on to the Marx theory can’t let it go...

Tom Hickey said...

Marx is using the phenomenological method introduced by Hegel and subsequently refined after Marx by Husserl and Heidegger.

The phenomenological method is the converse of the theoretical method.

The phenomenological method is based on empirical investigation exclusively.

The theoretical method is based on making assumptions (hopefully data-based rather than based on intuition) and applying a deductive method to generate theorems that can be converted to hypotheses testable by experimental protocols.

Natural science is based on the theoretical method.

Social science has been traditionally based on the phenomenological method since its inception. Marx is one the precursors although he might also be considered a co-founder. Recently, social science has moved toward the case method and increased formalization and quantification. Critics object that this ignores much of the nuance that is needed for a correct understanding of the related phenomena in terms of causation.

Tom Hickey said...

Matt, you are proving my point.

Tom Hickey said...

It has been pointed out that Marx's view of language and Wittgenstein's views on language in the later works such Philosophical Investigations were similar in many respects. The PI is the source of the quote about "bewitchment"

(The Tractatus, an early work, and the PI (called his later philosophy) were the only works that LW approved for publication during his lifetime. His other works and notes were published posthumously by his literary executors.)

In addition, while teaching at Cambridge, LW was friendly with Piero Sraffa, who is generally considered a Marxist, whom LW credits with giving him a fundamental insight that shaped the PI. He was also acquainted with other Marxists.

For example, see Dimitris Gakis, Wittgenstein, Marx, and Marxism: Some Historical Connections and David Adam, When Language Goes on Holiday: Philosophy and Anti-philosophy in Marx and Wittgenstein

Philosophy is usually associated with speculation, the meaning of the Greek term theoria in ancient times. Theoria is cognate with Greek theos, meaning god. An archaic term for speculating is "to divine." The idea is that the "theoretical" method is contemplative rather than chiefly observational.

The first major break with this view of the nature of philosophy was launched by Hegel in his Phenomenology of Mind or Spirit (German Geist can be translated into English as either mind or spirit.) Marx picked up on this method, which was subsequently developed by Husserl on one hand. Wittgenstein's approach to philosophical analysis in his later period was based on "look and see" how language operates to communicate.

Matt Franko said...

Tom if they are wrong then they are discarded...

Tom Hickey said...

Here is Harry Redner:

"Marx was the first major thinker to have explicitly undertaken the destruction of metaphysics on the basis of a new conception of language... . The destruction of metaphysics and the creation of a new concept of language went hand in hand in Marx's philosophy and that of the other Faustians [Nietzsche, Freud, Heidegger, Wittgenstein]. Language was discovered as its metaphysical cover was dissolved. Marx begins by noting that metaphysics is language concealed:

"The philosophers would only have to dissolve their language into the ordinary language, from which it is abstracted, to recognize it as the distorted language of the actual world, and to realize that neither thoughts nor language in themselves form a realm of their own, that they are only manifestations of actual life."

In this passage there are already all the terms and turns that will play such a prominent part in subsequent Faustian destructions of metaphysics."1

Rupert Read, Wittgenstein and Marx on 'Philosophical Language'

The rest of the article is only of interest to specialists that are familiar with the debate since it assumes familiarity with the major players and their positions.

Tom Hickey said...

Tom if they are wrong then they are discarded...

But they are not discarded. They are all very influential shapers of current ideas. Those who don't know history have no idea of this.

Andrew Anderson said...

I see a lot of excuse making for Marx. But let me note here that as far as economics goes (and almost everything else too) I need not make excuses for the Bible, including the Old Testament. Examples:

1) Usury is ANY positive interest rate and is a means of subjugating foreigners and should not be charged of one's fellow countryman (Deuteronomy 23:19-20).

2) Profit is good; profit taking is bad, except from foreigners. If this had been taken seriously, then much of progress could have been financed with common stock, which allows profit without profit taking - avoiding the problem of unjust wealth distribution that now embarrasses us.

3) Every family (with some exceptions otherwise provided for) had some land they could not permanently lose (at most 50 years with a fixed by law early redemption price that was fair) to live and grow food on - thus precluding the problem of land rents.

4) The poor had rights such as the right to glean agricultural fields.

5) Foreigners were to be well treated and why not since the citizens, being land owners, normally had no need to work for wages and thus were not threatened by foreign labor.

André said...

"However, the actual history of the federal funds rate over the last 40 years shows that in reality the Federal Reserve and its Open Market Committee can only tweak the rate."

For me that sentence is enough evidence to prove that he doesn't know what he is talking about.

Am I being too simplistic?

Tom Hickey said...

For me that sentence is enough evidence to prove that he doesn't know what he is talking about.

Am I being too simplistic?

This is the commonly held view, and I don't think it has been shown to be untenable.

Of course, the Fed "sets" the rate, but not arbitrarily.

What is the major influence on the Fed?

The commonly held view is "expectations."

This implies that the rate is a reaction function.

Whose expectations? How are they determined?

Tis question is still unsettled, and until it is, the MMT view that cb has complete control over the rate is questionable.

Of course, if the rate is set to zero permanently, ending monetary policy as the (supposed) control lever, then the question dissolves.

Andrew Anderson said...

Of course, if the rate is set to zero permanently, ending monetary policy as the (supposed) control lever, ... Tom Hickey

The MMT solution to an unjust, unstable system is to ignore the injustice and focus on making it more stable! Do you really want to sign up for that, Tom? Making injustice more stable?

Besides, that approach has been tried before (.e.g. a central bank that only banks can use, e.g. government-provided deposit/private liability insurance) and just puts off the reckoning while making it more costly, including in human lives.

Tom Hickey said...

I should add to the above comment that when causality is involved in a economic issue, social and political factors are included in the mix. This makes causation both complicated (multi-faceted) and complex (influenced by feedback).

Therefore, there is seldom a simple solution that can be expressed as a deterministic function with only a few parameters. Parameter identification then biomes a big deal and there are lots of issues that become controversial, since it is difficult to tests experimentally, and often even the data are controversial or fuzzy.

Slam dunk it is not.

There are two ways to approach this.

The first is categorical. Pick a view and reject others.

The second is dialectical. Be open to alternatives since all POVs are partial views of a complex whole and no view can be definitive in the dynamic environment of complex adaptive systems, where the future is uncertain and emergence prevails.

Categorical thinking is rigid, while dialectical thinking is flexible.

Each has its uses depending on context. So to adopt one exclusively as an m.o. would not be advisable unless one is confined to a particular environment suitable for it.

André said...


"Of course, the Fed 'sets' the rate, but not arbitrarily. (...) The commonly held view is 'expectations.' (...) This implies that the rate is a reaction function"

Well, it is a reaction function because the Fed decision makers opt to follow a reaction function, but they could opt to do things in different ways. MMT claims that, at the end of the day, the control of the rate is in Fed's hands.

It should not be controversial. Those are facts of the operational realities of modern economies.

Of course, neoliberals don't understand the modern economic system. But that guy Sam Williams doesn't seem to understand also. One more evidence that it is all about ignorance, and not about some neoliberal conspiracy.

For example, look at what he says:
"In reality, some tweaking aside, the federal funds rate simply reflects the general level of interest rates and the conditions of the money market that prevail at the moment."

He claims that the fed rates reflects the general level of interest rates! He doesn't seem to understand that the Fed rate is an arbitrary value set by the Fed...

You know, the fact is that you drive the car, and it would be wrong to claim that the car drives you. The fact that you decide to restrain yourself at driving only on paved roads and following their marks and signals doesn't mean that you are out of control, that the car drives you...

Tom Hickey said...

Well, one has to make a case to convince the skeptics by meeting their objections.

That's what open inquiry and debate is for, and why it is important to frame the debate so that one side is not favored.

I am persuaded by the MMT argument but this is not my field of expertise and I am not competent to judge.

Let the experts in the field debate it openly instead of just pitting one view against the others.

peterc said...

Thanks for the interesting link. It is nice food for thought.

As Tom (above) and the blogger Magpie (previously) have pointed out, from an MMT perspective the use value of a unit of the currency could be regarded as the amount of simple labor-power it commands. Since Marx did maintain that labor-power is a commodity under capitalism, it seems that this should meet any Marxist requirement that "money" as opposed to "currency", as interpreted by the author, must be a commodity. The "currency" (the token) would represent an amount of "money" (simple labor-power).

In other words, if a government that imposes and enforces taxes in its own currency sets a minimum wage, or introduces a job guarantee at a particular wage, this could be said to define the use value of a unit of the currency as a certain amount of simple labor-power.

I am somewhat puzzled by the resistance of some Marxists to a single-system interpretation of Marx's theory of value (i.e. one in which values and prices are considered to be mutually determinative). Personally, I am persuaded by the temporal single-system interpretation (TSSI). It has been demonstrated logically that Marx's well known aggregate equalities and 'law of the tendential fall in the profit rate' only hold if the theory is interpreted both temporally and in single-system terms. Otherwise these very critical macro results do not all hold.

If the author accepted this interpretation of Marx's value theory, I don't think he would draw the same political implications from MMT that he does in the linked post.

For example, he writes:

"... the government, according to MMT, as long as it retains the sovereign power of issuing currency, can never run out money. This is the great discovery of MMT, which has the potential to completely revolutionize government finance and open up virtually endless possibilities for social reform under capitalism."

It may well be that (non-Marxist) MMTers themselves believe the political interpretation characterized in this passage, but from a (Marxist) TSSI perspective it is not so clear cut.

(continued below)

peterc said...

(continued from above)

The TSSI would suggest that if government policies designed to smooth out capitalism had the effect of preventing capital devaluation in crises sufficient (in Marx's view) to revive profitability, then the prospects of such policies would be a relative and ongoing shrinking of the private sector and expansion of the public sector, with a currency-issuing government overriding the 'law of value' and situating more and more production in the public sector. Although some Marxists (including some TSSIers) would regard such a development as a move toward 'state capitalism' rather than socialism, in view of MMT I am not sure that I agree with that characterization. Unlike a private corporation, a currency-issuing government (if MMT is correct) is not subject to the law of value. That law becomes inoperative to the extent that a currency-issuing government takes over production. The form of socialism that began to emerge might turn out to be a long way from what some socialists aspire to, but IMO that would just make it a less desirable version of socialism than some other versions.

If Marx's profit-rate law and MMT's analysis are BOTH correct (since we are considering the political implications of MMT in light of Marx), the only way capitalism could continue indefinitely would be for government to permit the kind of capital devaluation required in crises and then kick start the private sector back out of depression through government spending (since potential profitability is insufficient for private investment to revive if demand is lacking). Throughout the mayhem in the private sector workers would to an extent be sheltered in a job-guarantee sector. In principle such a capitalism is conceivable, but it is not so clear whether it would have legs politically for very long. How many people really want to live in a society with such wild gyrations in activity levels?

So, in my view, the political implications of Marx's profit-rate law in combination with MMT is either a shift over time toward socialism in the sense of a shrinking private sector and expanding public sector (in relative terms) or a highly volatile economy with many workers periodically taking refuge in a job guarantee.

Tom Hickey said...

Thanks, Peter. I will chew on that a bit.

On reading it quickly, my initial impressions were that if the assumptions above hold, then Hayek was on the right track about the slide toward socialism to the degree that classical economic liberalism (laissez-faire) is abandoned and government's influence increases, which would permit market imperfections to grow and rent extraction to increase, as is the case under neoliberalism.

Libertarians of the right, e.g., commenter Bob Roddis, would likely say that the current view of capitalism is so far from classical liberalism that it is not actually capitalism anymore but a hybrid between true capitalism and state control. Just the fact that the cb is tasked with monetary policy would argue for this.

And could argue that classical liberalism has never been tried, since governments have always been involved in the economy and finance to one degree or another.

Peter Drucker would say, and does say, that given the present state of economic institutions it is simply not feasible to go backward to a simpler economy owing to the economies of scale, management expertise at scale, and other features of large and now transnational corporations that are consolidating management and therefore control in fewer hands.

If this is the case, the tendency is toward greater socialization.

Mariana Mazzucato is arguing for the entrepreneurial state, and she has also collaborate with Randy Wray. So I assume the MMT economists are on board.

If this scenario is correct, it would project a gradual transition toward a socialist economic as public control of the economy along with private aspects. The degree of statism would be determined by voters if liberal democracy would prevail. Otherwise, one oligarchy would be substituted for another, and it is likely that the same people in control would adapt to the new conditions, so while the titles might change, the people at the top might be pretty much the same.

At any rate, I think we closing in on some of the fundamental issues.

Andrew Anderson said...

Libertarians of the right, e.g., commenter Bob Roddis, Tom Hickey

One cannot be a libertarian and oppose inexpensive fiat as the ONLY ethical money form for government use. Otherwise, one is for using the taxation authority and power of the State to benefit private interests such as gold owners and fiat hoarders - which makes Bob Roddis a fascist more than a libertarian.