I was involved in making a Taxcast on tax and modern monetary theory yesterday, with John Christensen and Namoi Fowler of the Tax Justice Network. It will be out soon(ish).
These were my notes made in advance. A larger version is here.
The Taxcast has a different format - but that's how collaborative working evolves.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Thank you for sharing. It is very useful.
how do i get that on a t-shirt
You can print it
Great work Richard!
Looking forward to hearing the podcast at the end of Feb (I presume)
I think it’s going to be a special, so out out of usual flow
Thanks for this.
I think there’s a subtle difference between what you say here about some MMTers thinking government has a duty to deliver full employment and what Mosler, Kelton and Mitchell (and I guess other MMTers) say.
I believe they see it the other way around. I.e. it is the government which creates unemployment by imposing tax AND only the government can undo that unemployment.
I think that’s where the MMT assertion that government must ensure full employment comes from.
Mosler makes the assertion in this short clip (3min):
https://youtu.be/NBgfAV78yII
Now obviously one can make the argument that without a state wielding a monopoly on the legal use of force humanity would be without a broadly acceptable system for issuing and canceling IOUs and therefore our ability to organise ourselves would be severely limited. I think that’s a reasonable argument and it’s certainly one I make myself in discussions with libertarians.
However, the fact that the actions of modern states and the systems they create are an overall benefit to humanity in general does not alter the reality of the logic of those systems.
Because the sovereign state’s system only works if it reserves the right to be monopoly issuer of the currency it must necessarily deny it’s citizens the right to organise themselves via any other system of IOUs that they might create among themselves. Even in situations where the state allows local trading systems like LETs the ubiquitous nature of the state’s money and legal systems severely reduce the utility of local trade systems. Therefore the people have no choice but to use the state money system and therefore suffer the unemployment it causes.
Nor is this observation alterd by the fact certain vested interests lobby the state to maintain a minimum level of unemployment for purposes of inflation control and for its utility in motivating their employees (and hence driving down the return to wages and raising the return to profits). It is misguided (or selfish) vested interests that provide the motivation for the state to avoid undoing the unemployment it creates – BUT it is nevertheless the system created and maintained by the state that actually allows these mistaken/nefarious motivations to be acted upon.
I realise that you, Richard, would recoil from much of the above. It implies tax is inherently bad and it sounds like a thinly disguised libertarian argument for small state, laissez-faire style politics.
I don’t believe that’s the case though. All Mosler is saying is that the government must provision itself and it does so via taxation. The size of the public sector and its mandate is entirely at the people’s discretion. The underlying logic of the money system that enables that provisioning of the state is not discretionary. It works the way it works or not at all.
Now please bear in mind I’m not certain of all this. I’m trying to understand myself. This isn’t an attack on your position. I’m trying to understand your position and get your assistance in understanding MMTers’ positions.
I have to say Mosler’s argument is designed to repulse me and makes me think he is really aligned with the right. I know he thinks not. But in that case I put it in the ‘crass exttrpolartions of a good idea’ box into which too much that leading MMT thinkers say should be consigned
Mosler’s comment could, as you say, be turned on it’s head
Then he should haven done so
As it is he does MMT no favours at all
Rather like a certain Australian….
Thank you Adam for sharing your emergent understanding with us – most useful.
There is an element of this that is insufficiently recognised, that I am grateful for Mr Sawyer for exploring, if I understand him.
“Money as we know it today cannot exist without taxes (but also enforceable debt repayments and fines) and taxes cannot exist without the physical power to make good on the demand for their payment (likewise debts and fines).” (Adam Sawyer)
“it is an obligation of any government to tax enough to withdraw from circulation sufficient of the currency it has created to control inflation. This is done by taxing, and gives tax its primary purpose, which is not then revenue raising but inflation control within a fiscal policy framework.
It so happens that viewing tax in this way also liberates tax to be a tool for the effective tackling of inequality, market failure and the delivery of those incentives really required to create long term sustainable well-being, all within a framework managed to deliver full employment and stable, low inflation.” (Richard Murphy, in a recent thread)
It seems to me both propositions are true. It is a function of currency creation and taxation, that taxation provides an important element of the authority Government has, and requires (for reasons you have written about extensively, Richard), in ensuring the universal acceptability of the currency; taxes must be paid – because currency and taxation in a fiat currency are two sides of a single coin (indeed when the link is broken, serious new problems arise). Government uses sanctions to demonstrate its authority, if required, in order to collect its taxes (which in turn reinforces the authority of the currency).
I trust that comment will not lead to me being banned (I confess I have never been banned anywhere); but if my opinion as expressed here (honestly held and not subject to change save by future rational persuasion), is sufficient to merit it in your opinion Richard, so be it.
Given your very robust handling of Mr Sawyer (I confess Richard – and it dismays me to say it, and I do appreciate the pressures you may feel you are under – but I didn’t much care for it); I should perhaps say ‘goodbye’ now.
OK, let’s say it now, I may have once-reacted to Adam
OK, I apologise to him. Maybe it was just the wrong moment. And writing a blog does sometimes require the patience of a saint and I am not one of those, especially when it comes to patience
But I do not think taxes are theft, and nor are they imposed by force as such, unless all law is
And I happen to think that the rule of law is liberating and not coercive, in the main
Of course that requires checks and balances
And it does require proper democracy -which is a reason why I am so concerned about that issue and have been for decades
But I happen to think societies can define deviance and non-compliance and that they choose to do so for the common good
So the proposition to the contrary is one that irritates me considerably – and I am well aware some in MMT propose it and I have no time for it from them as I have no time for it from those who propose it form the libertarian right – indeed, I do not see the difference
But is it government exercising its authority in a representative democracy when it is expected that taxes be paid? Or is that a commonly held wish?
I happen to think the latter
Just as wishing that people drive on the designated side of the road is a common wish
And I do not see it as coercive or a use of force to demand that people do drive on that side of the road
And I think the same about the expectation that tax be paid. I suggest it is also what we would wish for. And overall not just of others. But actually, of ourselves too
And I accept that may be controversial
But uncomfortable facts often are
And it is an informed opinion: I have very rarely come across tax evaders who feel confreotable with their actions. Avoiders, maybe. But evaders, very rarely.
May I say how much I respect your ready and generous apology to Mr Sawyer; that is how it should be done, if I may say so (without wishing to pretend to be an arbiter of such matters; just my human response to both sides).
In fact, if we take the thread as a whole, with all the bumps along the way, and including AMcG’s elegantly clear exposition, it has gone rather well!
A very thought provoking set of ideas.
Like many non-expert people trying to make sense of MMT I have long been aware that there seemed to be a fit between what I took to be the basic features of MMT and taxation. And I thought I understood that taxation was the reason we have money in the first place. But until looking at this diagram it had not dawned on me that taxation is actually a fundamental part of MMT. Taxes are not just a justification for the existence of money but they are an integral part of the system – MMT cannot function without taxes.
In reading about MMT I also constantly found I was forced to deal with ideas which formed dualities. Which often managed to confuse and enlighten me in equal measure. Of course Taxes and government spending form just such a duality. I carried on that thought process and came up with this.
MMT consists of three basic dualities.
Tax and money are related as different sides of the same coin. Either they both exist or neither does. One cannot exist without the other.
The sectoral balance identities show that aggregate spending into the economy also equates to aggregate income in the economy. For each pound spent by someone a pond is received by someone else.
And so deficits/surpluses must balance. Government surplus is private sector deficit and vice versa.
In all three cases there is a ‘positive’ side balanced by a ‘negative’ side.
Where neo-liberalism goes wrong (lies) is because it suggests both sides can be positive at the same time. But in reality nothing can ever ‘trickle’ from one side to the other.
To understand MMT you have to always think in terms of these dualities – so trying to think of ‘saving money’ by austerity for example fails to grasp that the reduction in govt spending must be exactly matched by a fall in the tax which comes back. So no aggregate saving is possible.
Now what I have just written may well be perfectly obvious to people who have read more than I have. And the flaws/limitations may be equally obvious. But I don’t care; feel free to correct me. But reading your piece has certainly been a ‘light-bulb’ moment for me at least.
Thank you.
What you just wrote was very, very good
It may become a blog….
AMcG,
Money as we know it today cannot exist without taxes (but also enforceable debt repayments and fines) and taxes cannot exist without the physical power to make good on the demand for their payment (likewise debts and fines).
But money is just a promise to pay, an IOU. In that sense it can (and does) exist without taxes. In fact David Graeber and other anthropologists have argued that there is very strong evidence that exchange between individuals who were known to each other (typically members of the same nomadic band or village but also traders plying ancient trade routes) was mediated by personal credit for many thousands of years before taxes or symbolic money (coinage) evolved.
Contrary to popular belief barter was only ever used for trade between groups unknown to each other or where there was no trust.
So, as I understand it the other duality you could add to your list is the duality of tax as both good and evil.
On the one hand tax is coercive and violent in nature, a clever tool invented by ancient warrior kings to aid them in their exploitation of newly conquered peoples.
On the other hand tax is an integral part of our modern democracies and our national money systems without which human organisation on the scales we’re accustomed to today would simply be impossible.
Richard hates the mere mention of the thought that tax is backed by force because it can be used by libertarians to come up with stupid but appealing arguments to dupe the unwary into supporting policies that help only the rich. However it’s demonstrably the case that tax is backed by the threat of force. All you need do is refuse point blank to pay any more taxes, fines or debts and see what happens to you.
The bigger duality pertaining to promises is they have to be backed either by trust or by force before anyone can take them seriously. So my family and friends can happily create IOUs between ourselves knowing we can trust each other to make good on our promises. On the other hand I can only rely on an unknown person’s promises if a legally enforceable contract is drawn up or settlement is made immediately in money – itself backed by the legal use of force by the state.
Oh come in
If you want to post here stop the violent and coercive tax crap
Nothing gets anyone on the banned list quicker than this utter drivel
People vote for taxes
They happen in democracy
Only the far right and some crass MMT extremists use your argument
Now offer a full apology or you’re off here for good
I am utterly intolerant of those who oppose the means to maintain democratic society, as you are doing
Your choice
Richard,
I’m absolutely not trying to oppose the means to maintain democratic society. Quite the opposite.
I think you think I’m saying something other than what I think I’m saying. As such any apology on my part would be entirely meaningless. The best I can do is attempt to clarify my point. My understanding is as follows…
Tax is today an indispensable pillar of our democratic system. Without it everything would quickly fall apart. People reasonably vote for taxation and rightly willingly pay their taxes.
But historically tax and money were likely invented to facilitate the control and exploitation of conquered peoples.
Even today tax, like the law in general, is ultimately backed by force. While ever democracy reigns that’s fine because ultimately we’re all agreeing the rules and signing up to be bound by them. But if democracy retreats or dies then tax and the force that backs it can rapidly revert to their historical usage.
Our democracy is in crisis and has been for many years. A deliberately misinformed and divided electorate are the root cause of the crisis, in my opinion. I believe that the electorate uderstanding properly how our system works is an essential prerequisite for a functioning democracy.
As uncomfortable as you may find it the “crass” statements Mosler makes about tax and our money system are true as far as I can tell. However, your statements about tax are ALSO true.
Personally I believe grasping both these perspectives is essential to a full understanding and that’s why I’m thinking about them and talking about them.
Maybe I’m being too philosophical about this for a campaigning blog like yours. If so I am happy to apologize for specifically that.
Maybe I’m just not constructing my points clearly enough in the first place. If so that’s partly because I’m not a professional writer and partly because I’m thinking these things through as I’m reading and responding to things on the internet. Nevertheless, I’m happy to apologize for launching into writing things too quickly rather than thinking them through more thoroughly first.
But, again, I can’t meaningfully apologize for things I’m not saying or positions and beliefs I don’t hold.
I’m just about appeased
But only just about
And not wholly convinced
When Neil Wilson posted this type of far-right nonsense I banned him for good and never regretted it
I reiterate, I will not tolerate anti-democratic argument here
And this is that
Thanks Richard,
Something else I’m happy to apologize for is my posting esoteric philosophical thoughts on older posts at a time when, if I’d thought about it, you’d obviously be busy dealing with hostile posts vis a vis the Portes thing.
It’s easy to get carried away with interesting stuff on the internet and forget there’s a busy person on the other end of it trying to cope with a multitude of different things at the same time. I’ll endeavour to be more cognisant of this in future.
Keep up the good work but make sure you enjoy your weekend too!
Ok
Let’s leave it aside
And you’re right
Sometimes running a blog makes you ratty
Off to the cinema …now….