Monday, October 1, 2018

Randy Wray — Modern Money Theory: How I Came to MMT and What I Include in MMT

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT....
Need I say that this is a must-read in full.

Multiplier Effect
Modern Money Theory: How I Came to MMT and What I Include in MMT
L. Randall Wray | Professor of Economics, Bard College

29 comments:

Konrad said...

“As an undergraduate I studied psychology and social sciences—but no economics, which probably gave me an advantage when I finally did come to economics.” ~ Randy Wray

“He’s an ART MAJOR! I knew it! ART MAJOR! ART MAJOR! Everyone in this blog is a stupid ART MAJOR!” ~ Idiot Franko

“As we all know, the mainstream wants a small government, with a central bank that follows a rule…”

No. The neoliberal mainstream is not concerned with the size of government, but with ownership of government. Neoliberals want government owned by rich oligarchs. This is what neoliberals call “small government.” The actual size of government is irrelevant to this.

Wray then launches into his “taxes drive money” chant, which I have never agreed with. Wray sure does love taxes.

“As a student I had read a lot of anthropology—as most Institutionalists do.” ~ Wray

“See??? ART MAJOR!” ~ Idiot Franko

“Most historians adopt monetarism because the only economics they know is Friedman–who claims that money causes inflation. Almost all of them also adopt a commodity money view—gold was good money and fiat paper money causes inflation. If you ignore those biases, you can learn a lot about the nature of money from historians.”

Friedman was a moron. What causes inflation is not money, but a surfeit of money combined with shortages in goods and / or labor. For example, there is now severe inflation in housing prices because there is a housing shortage combined with excess bank credit.

By the way, gold has never been money. Gold has always been a commodity that is valued monetarily. For example, an ounce of gold today can be traded for USD $1,300 but it cannot be spent like $1,300. You cannot use gold to buy groceries, but the store might accept your gold in trade. That gold cannot be added to the store’s bank account until the store sells the gold for money.

Gold is a physical commodity, whereas money is non-physical, like points on a scoreboard.

“What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority—the state—that chooses the money of account.” ~ Wray

Except for when a national government does not have its own currency – e.g. the nineteen nations of the euro-zone. Wray consistently neglects to mention this.

“Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today, states alone monopolize this power.” ~ Wray

False. County and municipal governments also have the power to tax.

“Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up.” ~ Wray

Yes, meaning state laws, which may or may not include taxation laws.

“The JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability.” ! Wray

NONSENSE. The JG is an unworkable and unnecessary idea. I will list all the reasons why if I am challenged. I wish Wray would mature past this.

By the way, I never write to Wray, or comment on his blog posts, since Wray has mental problems. If he disagrees with you, he becomes very angry and vindictive. He launches into profanity-laden rants against you.

Ralph Musgrave said...

Konrad accuses Milton Friedman of being ignorant of the fact that money supply increses only cause inflation if there is deficient aggregate SUPPLY. Strikes me that point is so obvious that it goes without saying, which probably expains why Friedman didn't mention "shortages" every time he said an excess money supply causes inflation. But while I haven't read everything Friedman ever wrote, I'm 99.999% sure he will have mentioned somewhere that inflation stems from excess aggregate demand REALATIVE TO aggregate supply.

Konrad then claims "gold has never been money". Er....gold coins (known as "Sovereigns" were widely used in the UK for about 200 years prior to around 1900. Plus in that 200 year period, anyone could take a £10 note to a bank which had issued the note and demand gold instead. If the bank couldn't produce the gold, the bank was in trouble. Ergo gold was the basic form of money in that period: i.e. it was the "monetary base".

André said...

"Wray then launches into his “taxes drive money” chant, which I have never agreed with. Wray sure does love taxes."

"Taxes drive money" is an essential part of chartalism or MMT. You cannot have MMT without it. If you can show evidence that taxes do not drive money, then you will have destroyed MMT. I doubt you can, but I will be the first one to change my mind if you show real, solid evidence.

"By the way, gold has never been money. Gold has always been a commodity that is valued monetarily"

I suggest you read a lot of history and anthropology books. Gold itself, in bullion form, may have been commodity just the way you told. Gold coins, on the other hand, were almost always closer the fiat money - they were redeemable by the state authorities to settle taxes, and they criculated above bullion value. If you melt a coin to make bullion, you would lose value.

"By the way, I never write to Wray, or comment on his blog posts, since Wray has mental problems. If he disagrees with you, he becomes very angry and vindictive. He launches into profanity-laden rants against you."

Probably that is because you write in a very disrespectful style. I'm not saying it to offend you. I'm saying in the hopes you can rethink the way write and make discussions less agressive and more meaningful. You may do anything you want with that "feedback", including ignoring it completely, but I said that because I believe it may help you.

Matt Franko said...

“"Taxes drive money" is an essential part of chartalism or MMT. You cannot have MMT without it”

Dialectical synthesis between MMT and Chartalism.... liberal art methodology in action....

Matt Franko said...

Konrad seems like you are finally starting to get it...

Matt Franko said...

“If you ignore those biases, you can learn a lot about the nature of money from historians.”

They are not biases they are beliefs central to an alternative theory within the dialectic methodology...

Matt Franko said...

The dialectic methodology is not “bias vs anti-bias” it is “thesis vs anti-thesis”...,

Matt Franko said...

Any “bias” is perhaps towards a particular methodology rather than a particular theory within a methodology...

André said...

"Dialectical synthesis between MMT and Chartalism.... liberal art methodology in action...."

Can't understand what you are talking about.

"Dialectical" for me is when people create thesis about how the world works based solely on talking, not on real evidence. I don't think that is the case.

Konrad said...

.
André:

"Taxes drive money" is an essential part of chartalism or MMT. You cannot have MMT without it. If you can show evidence that taxes do not drive money, then you will have destroyed MMT. I doubt you can, but I will be the first one to change my mind if you show real, solid evidence.”

If you can show real, solid evidence or examples that everyone would stop using dollars if taxes fell to zero, then I will be the first one to change my mind. How do you account for nations that have no income tax or sales tax?

“I suggest you read a lot of history and anthropology books.”

And I suggest you learn to think logically.

“Gold itself, in bullion form, may have been commodity just the way you told. Gold coins, on the other hand, were almost always closer the fiat money - they were redeemable by the state authorities to settle taxes, and they circulated above bullion value. If you melt a coin to make bullion, you would lose value.”

Gold coins (e.g. South African krugerrands) are not money. As I noted above, gold is a physical commodity, whereas money is not physical, and never has been. Coins and notes are physical, but they are technically not money. They are tokens that represent money. Your imaginary “gold coins” may have been gold colored, but they were not solid gold. Perhaps you could change my mind if you provided a link to some image of a negotiable solid gold coin that could be spent like money.

You falsely imagine that gold is money (or has been money) because you falsely believe the lie that money is physical and limited. Perhaps you also believe the lie that only gold is "real money."

Regarding Wray, I have read his blog posts, but I have never written to him, because I have seen how badly he treats others who disagree with him.

“Probably that is because you write in a very disrespectful style.”

I was just about to say that about you, because I believe it may help you.

Oh well. Thanks for reading and commenting.

Konrad said...

I say that Franko is an idiot.

Franko responds...

"Konrad seems like you are finally starting to get it..."

Guilty plea accepted.

Konrad said...

.
@ Andre:

Based on your comments, I will read about gold coins in history. If I find something that changes my mind, I will admit that I was in error about gold coins.

André said...

"How do you account for nations that have no income tax or sales tax?"

The theory is "taxes drive money" and not "only income and sales taxes drive money", which is a big difference.

"If you can show real, solid evidence or examples that everyone would stop using dollars if taxes fell to zero"

I think it is very hard to show that kind of evidence directly (unfortunately). That is a problem in social sciences. It would be nice if we could go to some country and tell the ruling group to eliminate taxes, for science purposes, but they probably wouldn't accept.

However, if you research how the current monetary system works (and how ancient systems worked) you will be able to get good evidence. Not so good as the experiment I proposed, but good evidence nonetheless. I mean, if you are an engineer that knows how a car works, you will able to tell that a car won't work without its engine. You don't need to actually remove to engine to know that...

"Gold coins (e.g. South African krugerrands) are not money"

I don't have idea what a krugerrand is, so I cannot discuss that specific topic with you.

"Your imaginary “gold coins” may have been gold colored, but they were not solid gold. Perhaps you could change my mind if you provided a link to some image of a negotiable solid gold coin that could be spent like money."

Coins were made of gold, silver, copper and other valuable metals and/or alloys. You can actually find the coins themselves in museums, and photos of them in the intenet, and in many academic work. Actually there are plenty of studies showing the chemical composition of the coins.

The thing is that those coins were traded at face value, not bullion value. The face value was the one guaranteed by the redeemability of the issuer (the state) for the settlement of taxes, fees etc - and the ruleres actually sometimes changed the value of the coins by decree (so, indeed, the coin was a token and its face value was a much more abstract concept). Of course, the metal itself was a guarantee that the ruler wouldn't play around with its value. If the ruler would reduce the value of the coin, the holder still had the option of melting it and selling the metal at bullion value.

"You falsely imagine that gold is money (or has been money) because you falsely believe the lie that money is physical and limited. Perhaps you also believe the lie that only gold is 'real money.' "

No, I believe that the opposite theory (chartalism) is much more supported by empirical evidence. Summarizing, that theory claims that currency value derives from the capacity of such currency to settle taxes a according to the rules defined by state authorities, not from its metllic value. Of course, it doesn't apply to all and every coin or form of money. There are cases in which coins were traded by bullion value, and not all money is state currency, but I won't get into too many details because it would be too long and MMTers have already dealt with it many times (including in blog posts).

"Based on your comments, I will read about gold coins in history. If I find something that changes my mind, I will admit that I was in error about gold coins."

I suggest that you start from the beginning: the first coins ever made, the electrum Lydian coins. (I guess there is some dispute on that though). Read the article "The origin of electrum coinage" by Robert W Wallace.

"I was just about to say that about you, because I believe it may help you."

I was not agressive or disrespectful towards you. If you can show me when I was, I will quickly apologise.

"And I suggest you learn to think logically"

You are acting agressively and disrespectfully. I will not discuss anymore because I don't think disrespectful discussions are fruitful to me or you.

André said...

Matt,

"They are not biases they are beliefs central to an alternative theory within the dialectic methodology..."

Many historians (and other academics) simply assume that either their intuition (that money is commodity and states are like households) or mainstream economists are right without questioning if it makes sense or questioning the real evidence supporting such claims.

They probably aren't even aware that they are making big claims about how the world works. They write their history books claiming that the Roman Empire ran out of money, or that Greece could "finance war" after it discovered a big silver mine, without even noticing that it's not how things work, and that there is no evidence supporting that. If that is not bias, then I don't know what bias is...

Simsalablunder said...

""How do you account for nations that have no income tax or sales tax?"

The theory is "taxes drive money" and not "only income and sales taxes drive money", which is a big difference."

Yep. Show me a country with its own currency, a country which doesn't demand tax in its own currency in any form and where there are, at the same time, demand for that currency.

Matt Franko said...

“the real evidence supporting such claims.”

It’s not a real matter... so there will be no real (empirical) evidence to support the claim...

It’s a legal matter ... settled by establishing laws or legal constructs...

Matt Franko said...

“without even noticing that it's not how things work, and that there is no evidence supporting that.”

That is by definition how the dialectic method functions... true dialectics are not bound by empirical evidence...

one of them once famously said “if the data does not support the theory then so much worse for the data”

Look at evolution eg...

The theory is the priority not empirical results... empirics are not even part of it...

Matt Franko said...

You can’t refute a dialectical theory with empirics...

Matt Franko said...

That’s why when you guys keep pointing out the empirical false real results they just keep saying the same thing.... and you guys continue to get nowhere with them...

Matt Franko said...

You have to get them to abandon their methodology...

André said...

"It’s not a real matter... so there will be no real (empirical) evidence to support the claim...

It’s a legal matter ... settled by establishing laws or legal constructs..."

Of course there are empirical evidence! There are historical evidence (written documents) and archeological evidence (the coins themselves, for example).

I mean, it is not perfect, but it is evidence nonetheless. Perfect evidence would be going back to the past with a time machine... And you also have all that philosophical discussion that you don't even know if the world around you is real, so we can't tell if anything is real or happened. So we will never be able to be entirely sure about anything in this world, in philosophical terms.

But as long as something can be real, I would claim that there is good evidence supporting the "taxes drive money" theory. And it is fair to say that many historians are biased with commodity money and household states theories...

Matt Franko said...

All you can get from the archeology or ancient manuscripts are a record of what we (mankind) once did ....

We obviously used to build pyramids... why? ... How?... many opposing dialectical theories on this too...

André said...

"We obviously used to build pyramids... why? ... How?... many opposing dialectical theories on this too..."

Well, we at least know that pyramids were built.

We now that some precious metal coins were fiat. We may not know why or how it happened, but we know it did. That is what empirical evidence tell us.

However, we cannot claim that all coins in all places and times were fiat (or commodity), because we do not have enough evidence for every society in every epoch. That's life. Some people will speculate, some won't, but no one will be sure about anything in those cases.

And well, in real life, we have to make hard choices without ever having enough evidence to be sure about that choice. Should I support the capitalist or the communist candidate in next election? Is there enough evidence to support that capitalism is better than communism or vice-versa? Some people will claim that there is, but the fact is that there isn't enough quality evidence but you have to make a choice nonetheless... That's life. You may call it dialetical theories, I call lack of options in a real world where we have limited information...

And I agree to you that we always should support hypothesis based on facts, evidence and data, and that hypothesis supported by talking (dialetical hypothesis) are not real science. But maybe it is the best thing you can have when you don't have data. And maybe talking things and discussing with people may give you some big insights that maybe could be translated to a theory supported by empirical evidence. Some important theoretical works, including breakthrough in physics, were not built by a single person...

Brian Romanchuk said...

There’s a possible corner case for the “taxes drive money” argument; the government could own a lot of natural resources, or has a monopoly on needed items. It can operate like a business, and its profits back the currency.

The various oil producers got close to this. Not particularly relevant for most of the developed countries.

André said...

Brian Romanchuk, what do you mean by currency backed by profits?

AXEC / E.K-H said...

MMT: agenda pushing and money-making for the Oligarchy
Comment on Tom Hickey on ‘Randall Wray — Modern Money Theory: How I Came to MMT and What I Include in MMT’

Randall Wray reports: “Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.”

This, of course, is true. MMT’s critique and refutation of mainstream macro and monetary theory are justified in all dimensions. Mainstream economics is dead, however, this does not imply that MMT macro is coherent. Just the opposite, MMT macro is provably false.

The theory of money has to be embedded in a consistent macroeconomic framework or in what Keynes called the ‘monetary theory of production’. MMT gives a historical account of how money came into existence as a creation of the state. This historical account is not false but methodologically it is NO substitute for the theory of money, just as the history of the burning of Rome, London, and San Francisco is no substitute for the theory of thermodynamics.#1

Randall Wray claims: “What we do is Macroeconomics. There is no coherent alternative to MMT.” He summarizes under the 9th bullet point: “The government’s debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balance sheets because what you are saying is nonsense.”

Unfortunately, MMT’s macro accounting is provably false.#2, #3, #4 And this makes nonsense of all the rest of what they are saying.#5 In particular, it is just a silly slogan that ‘taxes drive money’, fact is that deficits/surpluses = dissaving/saving = change of public/private debt drives money.#6, #7

In his 10-bullet-point summary of what MMT is all about, Randall Wray forgets completely to mention that because of the macroeconomic Profit Law Public Deficit = Private Profit, which follows from the axiomatically correct sectoral balances equation (X−M)+(G−T)+(I−Sm)−(Qm−Yd)=0#8, MMT policy boils down to agenda-pushing and money-making for the Oligarchy.

Egmont Kakarot-Handtke

#1 A historical misunderstanding
https://axecorg.blogspot.com/2015/12/a-historical-misunderstanding.html

#2 Rectification of MMT macro accounting
https://axecorg.blogspot.com/2017/09/rectification-of-mmt-macro-accounting.html

#3 Wikipedia and the promotion of economists’ idiotism (II)
https://axecorg.blogspot.com/2018/07/wikipedia-and-promotion-of-economists.html

#4 For the point-by-point refutation of MMT see cross-references
http://axecorg.blogspot.de/2017/07/mmt-cross-references.html

#5 MMT is dead
https://axecorg.blogspot.com/2017/08/mmt-is-dead.html

#6 The ultimate ― analytical ― origin of money
https://axecorg.blogspot.de/2017/07/the-ultimate-analytical-origin-of-money.html

#7 Money and time
https://axecorg.blogspot.de/2017/07/money-and-time.html

#8 MMT and the single most stupid physicist
https://axecorg.blogspot.com/2018/09/mmt-and-single-most-stupid-physicist.html

Matt Franko said...

“And I agree to you that we always should support hypothesis based on facts, evidence and data, and that hypothesis supported by talking (dialetical hypothesis) are not real science. ”

Well half or more of the people coming out of the academe are trained not to think that way.... they are trained in the dialectic methodology....
Evolutionism, monetarism, libertarianism, all sorts of non empirical Theories they are brainwashed into....

André said...

"Evolutionism, monetarism, libertarianism, all sorts of non empirical Theories they are brainwashed into...."

Evolutionism? I would argue that there is plentiful evidence supporting that, although the evolutionary theory in its integrity probably is unfalsifiable (which doesn't mean it is wrong, by the way).

Libertarianism is a political theory and, like communism, state capitalism and many other theories, it is very hard to get good data, there is too much noise. People are trying to get evidence all the time, and many do believe that there is enough evidence to believe in one theory and not the others. It is a very complex issue, and I wouldn't simply call it "dialetical". There are people really trying to get and discuss data (I don't have ideia how)

Dean said...

"MMT: agenda pushing and money-making for the Oligarchy
Comment on Tom Hickey on ‘Randall Wray — Modern Money Theory: How I Came to MMT and What I Include in MMT’"

Egmont,

If any economic school was truly interested in reducing things like unemployment and poverty, then it would divert its attention and education toward human rights advocates and the like who can then take that education and actually do something positive with it, such as educating the courts. Further, a true economist/scientist (like Einstein) would work a normal day job to earn an income and spend their 'free' time educating the right people on economics. No economist out there that I can see does this.

MMT is just like every other economic school - it's primary purpose is to create followers and sell books to them; or worse, they create this image that they are trying to educate politicians, knowing full well that politicians are the worse people to try to educate on anything for they care less about human rights than even economists do.