Sunday, February 3, 2019

Michael Roberts Blog MMT 2 – the tricks of circulation


Michael Roberts needs to read more of the MMT primary literature if he wants to critique MMT in any detail.
Nevertheless, MMT starts with the conviction that it is the state (not capitalist commodity relations) that establishes the value of money.
Not quite.

MMT starts with the observation of Warren Mosler that under the current monetary system, a contemporary sovereign currency is a public monopoly, with the currency issuing government acting as the people's representative — popular sovereignty and all that. A monopolist is the price setter. The purpose of currency issuance is to provision the government in order to serve public purpose, public purpose being a political issue in a popular democracy.

While all currency sovereigns are the same operationally with respect to the currency, authoritarian governments are not restricted by public opinion and domestic political considerations. This includes oligarchies masquerading as popular democracies. Not all "democracies" are popular democracies, in spite of appearances (elections).

Therefore, power is an issue. Almost all contemporary states fall in this category to some extents at least. This needs to be addressed through policy changes that effect institutional change, e.g., to preempt rent extraction by special interests.

States that have given up currency sovereignty by either using a currency they do not themselves issue, or undertake obligations in a foreign currency are different operationally in that they are not monopoly providers of their currency. This includes the American states, which ceded currency sovereignty to the federal government, and the nations of the EZ, which ceded it to the ECB. Comparing currency sovereigns to currency issuers is like adding apple and oranges. Note that commercial banks do not issue currency. They extend credit denominated in the currency and are delegated a special relationship with the central bank as currency issuer that acts on behalf of the state as the government's fiscal agent.

In a modern monetary production economy (as described by Keynes, for example), this is how it begins — with "money." MMT agrees with Marx's observation that capitalism is based on using money to make more money — M-C-M', instead of starting the Robinson Crusoe just-so story about barter. This means that money is not neutral and that the loan funds theory is wrong. However, MMT defines "money" carefully. Failure to grasp these key distinctions will result in missing MMT.

Failure to begin at the beginning is to misunderstand MMT and sets up a straw man argument that is DOA. As Aquinas said, paraphrasing Aristotle, "A small mistake in the beginning is a big one in the end." Most economic theory stumbles out of the gate by getting this wrong.

However, it is even more complicated. Good critique is far from simple in just about any field. For example, Michael Roberts is a Marxist economist. There are many interpretations favorable to Marx among Marxist and Marxian economist. There is no agreed upon "standard" interpretation of Marx that all Marxists and Marxians accept. Roberts's view is one among many. In addition, Marx has been criticized widely by just about everyone other school of economics and member of a school sometime disagree over how Marx should be criticized. Pinning Marx down to a particular interpretation has proved impossible. 

The same might be said of Keynes, as any other thinker, theory or school. There are probably a dozen interpretations of what quantum mechanics "means." So criticizing across interpretations is difficult unless one truly understand the view that one is opposing. This is difficult if one doesn't see the world in that way. Then cognitive bias takes over.

This is not argue for relativism in interpretation. Some critiques are better than others, even though none has carried the day. so, it is not like all critiques standing on the same level. Some are very tightly argued, although disputed by other experts. Some are essentially emotional rants. There is broad middle range. All but the tightly argued ones can put aside as a waste of time to deal with. Tight argument implies command of the field and good documentation.

What distinguishes good critiques from less satisfactory is the level of knowledge of the work a critic exhibits in a critique through citations and evidence. Obviously, this requires deep acquaintance with the material — all of it.

Critique of Smith, Ricardo, Marx and followers, Keynes and followers, as well as key figures in the neoclassical and Austrian schools, etc., has grown to exponentially, to the degree that no economist can claim to be an expert in economics as a whole, any more than a philosopher can claim command of all the literature, or a historian. There is a reason for specialization.

The criticism of MMT is just beginning however, and the body of literature generated by those considered by other MMT economists to be members of the school is not so large as to be unmanageable, although it is much more than weekend reading. Shooting from the hip doesn't cut it, obviously, but neither does lack of attention to detail in the professional word.

So I think two things need to happen. 

First, critics need to educate themselves better and forget about quoting blogs, at least chiefly. I mention some sources below.

Twitter? Forget about it. The level of "debate" there is silly and is resulting in bad blood. The only approach that makes sense is citing professional sources. This brings up the second point.

Secondly, MMT economists should be ready to counter points that have been addressed in the literature by citing the literature. This would save everyone a lot of time and raise the level of the debate. I have yet to see an "objection" that was not previously addressed, usually in depth.

Thirdly, it needs to be recognized that different approaches are based on different assumptions, both substantial and procedural, resulting in different frameworks. These frameworks tend to be ideologically based. This implies that there are also hidden assumptions involved as unstated presumptions. This needs to be clarified so that the debate is on the same page, or the parties agree to disagree over the foundations. Some debates are inconclusive since the parties see reality through different lenses. Moreover, changing glasses would destroy one's intellectual investment.

Bill Mitchell and Randy Wray's introductory text on MMT has been available for some time. Their MMT macro textbook is due for imminent release available for pre-order. Randy's MMT primer has been available for a long time and is no in its second edition. His 1996 MMT book introducing MMT is also germane. 

Warren Mosler is acknowledged as the founder of MMT with his Soft Currency Economics. He wrote a popular book on understanding MMT, too, The Seven Deadly Innocent Frauds of Economic Policy. Warren Mosler has also put forward several policy proposals based on MMT principles and his experience in banking, finance, etc. They serves as a practical demonstration.

Eric Tymoigne has written a book on money and banking, The Financial System and the Economy, based on MMT insights and principles.

MMT working papers can be found online at Levy Institute

A critic should at least be familiar with these sources. It's not an overwhelming task. In most fields, failure to do so is regarded as unprofessional and carries reputational risk.

Michael Roberts Blog
MMT 2 – the tricks of circulation
Michael Roberts


dave said...

So here is where I have, at minimum, a semantic disagreement with MMT. If you admit, as MMT does, that the central bank acts defensively in its provision of reserves, then I don't see how you can say that the government is a monopolist in currency issuance. Furthermore, I don't think the public sees it that way and they will have a hard time getting mainstream acceptance with this verbiage.

It makes far more sense to say that the government is a currency issuer along with chartered banks.

But I agree with you that MMT doesn't say what Roberts thinks it does. MMT sees all spending as potentially inflationary, which makes the forex markets for those that float their currency as the relief valve and determinant of value.

Tom Hickey said...

@ Dave

Central banks issue the currency as the fiscal agent of government. Government delegates central bank this power.

Banks do not issue currency, currency being defined as that which the government accepts in payment of obligations it imposes.

Only the central bank issues currency. Banks must obtain the currency for tax payment.

When a bank customer writes a check to the Treasury, the bank debits the customer's deposit account and clears the check with currency from its account at the the central bank. It's a wash for the bank. The customer's deposit account is marked down and the bank reserve account at the central bank is also marked down. A liability to the government is thereby cancelled.

Banks are able to do this since their charter provided by the government gives them access to the central bank, with the ability to borrow in the overnight market and from the central bank if needed. Banks are currency users, just like the rest of non-government, but they have a special relationship with the central bank that others don't have.

Other lenders have to obtain currency in the private sector

Banks can increase the M1 money supply by extending credit — loans create deposits. This nets to zero. Only government can increase nongovernment net financial assets in aggregate through spending and transfers and decrease nongovernment net financial assets in aggregate through taxation, fees, fines and tariffs.

These are subtle points but overlooking them misses the crux of MMT analysis, which most critics do since they have not read the MMT literature and miss the nuance.

dave said...

Hi Tom, I understand the operations and agree they are as you describe, which is why I said I had a semantic disagreement. The key to my point is that the central bank must act defensively, i.e. it must provide reserves at a price if a chartered bank requests them or they risk losing control of the payments system. While no one else can issue currency, the government is also not in control of the money supply.

I think it's a bit of a semantic contradiction to say money is endogenous and also that the government is the monopoly issuer. I also think this is a hurdle to the general public who believe banks issue currency which, while not operationally correct, it also not wrong.

peterc said...

dave, to be a monopolist means to be the sole supplier. A monopolist can either set price and let quantity float or else set quantity and let price float. Either way, the monopolist is still the sole supplier.

The central bank opts to set the price of reserves and let the quantity of reserves float because to do otherwise would result in unnecessary interest-rate instability.

You are right that the central bank cannot set both -- it must choose one or the other, set price or set quantity. But this is true of other monopolists also.

Noah Way said...

A monopolist can either set price and let quantity float or else set quantity and let price float.

Monopolists set both price and quantity.

AXEC / E.K-H said...

MMT and Marxism ― blather as immunizing stratagem
Comment on Tom Hickey on ‘Michael Roberts Blog MMT 2 ― the tricks of circulation’

Tom Hickey cites Aquinas paraphrasing Aristotle: “‘A small mistake in the beginning is a big one in the end.’ Most economic theory stumbles out of the gate by getting this wrong.”

Or as Marx put it: “Beginnings are always difficult in all sciences.” or as Schumpeter said: “There is no more fertile source of error than apparently trivial premises.” or as Georgescu-Roegen put it: “In fact, the history of every science, including that of economics, teaches us that the elementary is the hotbed of the errors that count most.” or as Aristotle knew already: “When the premises are certain, true, and primary and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

Scientific knowledge is missing in economics. This is the actual state: The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal concept of the subject matter ― profit ― wrong.

Because the premises are false, economics is after 200+ years still not more than confused proto-scientific blather.#1

As Tom Hickey correctly observes: “There are many interpretations favorable to Marx among Marxist and Marxian economist. There is no agreed upon ‘standard’ interpretation of Marx that all Marxists and Marxians accept. Roberts’s view is one among many. In addition, Marx has been criticized widely by just about everyone other school of economics and member of a school sometime disagree over how Marx should be criticized. Pinning Marx down to a particular interpretation has proved impossible.” and “The same might be said of Keynes, as any other thinker, theory or school.”

In other words, economists sit over both ears in an intellectual swamp where “nothing is clear and everything is possible”. (Keynes) Whether this is by innate stupidity or educational design is an open question. Swampiness, wish-wash, inconclusiveness are what Popper called instances of an immunizing stratagem because: “Another thing I must point out is that you cannot prove a vague theory wrong.” (Feynman) This benefit got not lost on fake scientists.#3

Now, the fact of the matter is that economists have occasionally spelled out their premises clearly and in these cases, they have promptly been proven wrong. In these cases, though, economists simply trample over scientific standards: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)

As a result, economists discuss the various approaches until they are blue in the face without ever taking notice that their stuff lacks sound scientific foundations. This is the case for Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT which are all axiomatically false, i.e. based on provably false premises.

See part 2

AXEC / E.K-H said...

Part 2

MMT, for example, is based on this false sectoral balances equation (I−S)+(G−T)+(X−M)=0. And here the methodological curse kicks in: “A small mistake in the beginning is a big one in the end.”

There is no need, to study MMT in greater detail and to bother oneself with different interpretations. It is absolutely sufficient to prove that one premise/axiom is false.#4, #5 This collapses the whole verbal superstructure of interpretations and confused blather.

There is no use to waffle inconclusively about the 1001th interpretations of Marx or Keynes. The multiplicity of interpretations is proof enough that one is NOT dealing with a valid scientific theory but with political BS.#6

Marx and Keynes are refuted and Tom Hickey’s clarification of the relationship between the two is an exercise in futility. The right thing to do is to bury this proto-scientific garbage at the Flat-Earth-Cemetery and to move on.#7

Egmont Kakarot-Handtke

#1 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

#2 John Hicks, fake scientist

#3 And the answer is NCND ― economics after 200+ years of Glomarization

#4 Where economics went wrong (II)

#5 The miracle cure of economists’ micro-macro schizo

#6 Why is economics a total scientific failure?

#7 From false micro to true macro: the new economic paradigm

Noah Way said...

Don't feed the troll.

Its just link spamming, trying to get its google rank up.

Senexx said...

I think the blogs are appropriate if the author is an MMTist and by MMTist I mean scholar/member of the Modern Money Network