A propos our recent discussion of whether MMT is a theory, a dogma, or a description.
I’ve always been baffled why ‘modern monetary theory’ is called a theory. I don’t mean this in a disparaging way. As far as theories of money go, I think modern monetary theory (MMT for short) is the correct one. But having a correct theory of money is a bit like having a correct theory of traffic lights.
Understanding this act of money creation is trivial — much like understanding the creation of a traffic light. Just like we define the rules of traffic, we define the rules of double-entry bookkeeping. We then use these rules to regulate our behavior, creating money as we please.
What’s interesting, though, is that few people misunderstand traffic lights. We all know that traffic lights can be put anywhere we want them, and that they’re based on an arbitrary social convention. Yet when it comes to money, the same is not true. Many people fundamentally misunderstand money. To them, it’s not an arbitrary social convention that can be created/destroyed at will. Instead, they perceive money as a scarce commodity — something that, like water in a desert, must be guarded and conserved.
What we really need, then, is not so much a theory of money, but a theory of why people misunderstand money.
Economics from the Top Down -- Why Isn’t Modern Monetary Theory Common Knowledge?
Blair Fix -- Political economist. Blogger. Muckraker. Foe of neoclassical economics.
It’s true that money creation can lead to inflation. But MMT proponents point out that this has an easy solution. Government can destroy money just as easily as it can create it. Government spending creates money. Government taxation destroys it.
ReplyDeleteIt's a dirty little secret of MMT that taxation to curb consumption MUST fall on the non-rich since the rich don't consume enough in aggregate to matter.
So instead of "tax and spend" MMT gives us "Spend and tax the non-rich in the event of unacceptable price inflation."
But why not instead increase the DEMAND for fiat by allowing everyone to use it and not just banks?* And by eliminating all other privileges for the banks?
This would have the effect of INCREASING the amount of fiat that could be created for the general welfare while decreasing the amount of bank deposit creation for private interests.
*ignoring grubby coins and paper bills.
Theories are explanatory, unlike descriptions.
ReplyDeleteThe outcome of a learning process either clears up misconceptions, or introduces new ones.
It’s obviously a Theory or thesis... as opposed to a hypothesis... MMT is observably not a hypothesis...
ReplyDeletePeople misunderstand “money” because it is a figure of speech and hence not specific enough to warrant a common understanding...
Because there's thousands of years of history of money as metal. And alongside that, for centuries, money as credit with credit being limited as well, usually because it's underpinned by metal or some other real asset.
ReplyDeleteI see precious metals as an obsolete anti-counterfeiting measure.
ReplyDeleteAnd given that Central Banks should NEVER buy private assets, including PMs, but only SELL them, then if we shall ever have an ethical money system, the value of PMs would no longer be at least partially based on their potential as Central Bank assets.
Besides, if we wish to increase the demand for fiat, we would do well to allow everyone to use it in account form and to eliminate all other privileges in favor of private bank deposits.
“What’s interesting, though, is that few people misunderstand traffic lights. We all know that traffic lights can be put anywhere we want them, and that they’re based on an arbitrary social convention. Yet when it comes to money, the same is not true. “
ReplyDeleteThis is like MMT people saying “it’s like points on a scoreboard!”
Analogy doesn’t work ...
The degree of abstraction required to understand our numismatic system super exceeds that of a traffic light system...
You can’t use figurative language (here analogy) to teach additional abstraction skills ....