There are, I admit, moments when I find those promoting MMT deeply annoying.
An occasion when this was the case occurred yesterday. The Gower Initiative for Modern Monetary Studies, whose work I largely avoid partly because it reflects Bill Mitchell's intolerant approach to MMT, and partly because they seem to enjoy maligning me for not embracing hardline MMT as they see it, and partly because of their small-state views with regard to tax, yesterday promoted an old comment from Warren Mosler on the purpose of tax within MMT. I reproduce that comment at the bottom of this post to provide opportunity for anyone who wants to read it, but also not to disrupt my flow.
To be candid, whatever Warren meant by his comment in 1993 is not entirely clear. But presuming I interpret it correctly, what he says does, I think, embrace six ideas.
First, he suggests tax primarily exists to create demand for a currency.
Second, he clearly implies that tax is of secondary consequence in the fiscal cycle because the capacity of a government to create its own money is unlimited.
Third, he then argues that tax should not impede trade or the pursuit of profit from a Ricardian perspective, but that they do at present, whilst also creating substantial transaction costs.
Fourth, he then concludes that taxes on sales or labour should not be charged and that taxes on land should be used instead. It is also worth noting that although not said in this piece, he also argues companies should not be taxed on their incomes.
Fifth, he argues that we should be indifferent to wealth and disparities in it, unless it leads to excess consumption, which might be discouraged with a luxury tax.
And sixth, if we wish for progressive tax, land taxes can anyway achieve that goal.
I take considerable objection to all these ideas. To be blunt, I think they are wrong, and have long said so. For a long time I would not embrace MMT because of them. It was Stephanie Kelton who persuaded me I could embrace MMT despite them. But I note they persist. And when they were reposted by Mike Hall (another person who appears to take much pleasure in offering abuse about me) I made that clear. My comment said:
[This is] utterly indifferent to social justice.....if I wanted such policies there are ample choices available on the right. This stuff is all that is required to discredit MMT forever. It's the statement most akin to that made by Peter Mandelson about being intensely relaxed about wealth that I have read for a long time. I see no correlation at all between this and what the people of Scotland might ever want.
Saying this, I immediately placed my comment in several contexts. The first was that whatever the pure theoretical context of Warren's comment I was looking at it from the perspective of political economy, where concepts of social justice and power relationships based on, amongst other things, wealth and the distortion they create in the allocation of resources really matter.
Second, I was looking at this from a pragmatic political perspective, where such commentary is the basis in which much of the ridicule of MMT can rightly be based because, to take just one example, it is very clear that governments cannot create all the money they want without consequence.
And third, given that this was posted in a group with a Scottish perspective, my reading of what the people of Scotland wants would suggest that this comment would be deeply alienating to most. That would partly be because of its embrace of pure markets. And partly because people know pure markets do not exist. But even more, because people are really offended by the outcomes markets generate and will be repulsed if they think MMT's aim is to deliver unfettered market outcomes as this commentary implies.
Fourth, that's also because people in Scotland do not, as far as I can tell, want to embrace Peter Mandelson's attitude to wealth. And also because they would rightly know that pre-distribution cannot solve the current inequality in Scotland, however much it might help to do so in the future.
Finally (for now) nor, I am quite sure, do people in Scotland believe that land taxation would create the demand for the currency that other taxes might. After all, if trade is untaxed, why should the currency be used in its ordinary course? In that case although they might not formulate the idea precisely, Scottish people might instinctively realise that the claims made do not in any sense logically flow through what Warren wrote. Even at the theoretical level his claim appears very unlikely to be realistic (my kindest interpretation).
And with all that in mind I objected to the posting of such comment in a group that I think has the job of delivering sound MMT comment relevant to the state of Scotland as it actually is with its current faults, inequalities, practical realities and social desires all taken into account. In that context I felt this comment utterly unhelpful. Candidly, I would call it highly effective trolling intended to discredit what MMT thinking can, I am quite sure, offer Scotland.
I was abused for implying this by some. Others suggested disquiet that argument was entered into. Jim Osborne, however, offered a powerfully insightful comment in my defence. He said this:
Jesus...is this not an exposition of the heartless economics of unadulterated MMT. MMT expresses truths about sovereign money but money is not reducible to MMT. Money encapsulates social values - it is a function of human relationships, not some stripped down cold as steel "technology". MMT has no theory of social value - the purpose of money. It is an incomplete theory...true as far as it goes, just as Newtonian physics is true as far as it goes. Richard Murphy is right when he talks about "social justice" as that is about social value. If MMTers fail to understand that money is political - an expression of relations of power -they fail to understand that money has purpose and without choosing "purpose" then MMT accedes to the power relations of the status quo. MMT gives us options but it does not tell us what options to choose. It is not enough. Richard Murphy knows this and he is right.
Jim hits the nail on the head in a great many ways, frankly better than I might have done. Most especially he is right when he says ‘MMT has no theory of social value - the purpose of money. It is an incomplete theory...true as far as it goes, just as Newtonian physics is true as far as it goes.' That is extraordinarily succinct.
To that though I would add some further comments, all of which are additional to and in no way disagree with what Jim has to say.
As many will know I think there are six reasons to tax. They are:
1) To ratify the value of the currency: this means that by demanding payment of tax in the currency it has to be used for transactions in a jurisdiction;
2) To reclaim the money the government has spent into the economy in fulfilment of its democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation - people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.
The first two of these relate directly to MMT. And to those who say inflation is not the primary purpose of tax I will say they are wrong, and Stephanie Kelton goes out of her way to say so in The Deficit Myth.
The next three all relate to social justice dimensions of tax. Each Is there to address the market failure that Warren Mosler does not seem to wish that tax address.
And the last is fundamental. Tax is not an annoyance to be laid aside as a cost to be mitigated if at all possible, as Mosler suggests. It is the consideration payable within the social contract that binds us as nation states with common interests. It is what empowered, enables and enlivens the politics of a nation precisely because the role that tax has to play in that society is in, a great many ways, the embodiment of the debate on what values that state wishes to project. If MMT's goal is to suggest otherwise I would have nothing to do with it. But I do not think that is what MMT says. And if Warren Mosler thinks I am wrong, so be it. Just because he thought MMT up does not make it his property, and it is not a religion, and nor does he require veneration even if wrong, as I am quite sure he is within the context in which I make this comment.
Let me offer another wholly pragmatic reason for my comment. The almost pure Georgian view of tax as a land based charge that Mosler promotes is something for which I have no time for a very good reason.
First it assumes all rents are land based. They are not. Rents also come in many other forms that are wholly unrelated to land. If Warren wants them left untaxed, I don't.
Second, this base has nothing to do with capacity to pay. It will therefore promote inequality.
Third, by removing the linkage between earnings and tax the overall capacity to tax is dramatically reduced, and if inflation is to be prevented so too in that case is the capacity to create money constrained. A small state, wholly unable to support the needs of the people of Scotland, would be the outcome, and I object to that being promoted in the name of MMT and reserve the right to say so.
Last, Warren Mosler had what seems to be a remarkable limited understanding of tax systems. Since their administration does, in effect, only free-ride on the need to record transactions for other purposes their marginal cost is small. And it cannot be claimed MMT can ignore those costs of recording transactions, because not only are they real,when MMT suggests all money is debt the keeping of rigorous debt records becomes critical to the proper functioning of the economy, and so too then is transaction accounting. The marginal cost of tax estimation once that is the case is small. Warren misunderstands this, quite fundamentally, missing in the process the essential role of enforced transaction recording to ensure smooth operation of a monetary economy that is an essential pre-requisite of MMT in the process, which happens to be reinforced by tax.
So do I regret raising this issue, as some implied might be appropriate? Not in the slightest. Just as I completely reject the suggestion that I am picking and choosing which parts of MMT I want to use. I am only interested in the use of MMT as a tool for the management of an economy that delivers social justice. If others want to use it to promote small state, pro-market fundamentalist solutions they can, but I will object whenever I see it.
MMT is not value free, and it is ludicrous to pretend it is. When applied it will always have value attached. The only value I am interested in having attached to it is that of social justice. Any other use is abhorrent to me. And so I will object to arguments of the sort I noted here precisely because, and to reiterate, they have no place in my opinion in anything to do with MMT in Scotland.
This was the quote from Warren Mosler:
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Well said, Richard. MMT is not the answer. As a tool it is only part of the answer. And the question is? How do we address social and environmental injustice? Not all those attracted to MMT, it seems, are asking the same questions, because they have different values.
Maybe it could be framed the other way round: we need a theory of social justice that incorporates MMT (and Tax) as the way of delivering it.
Yes
What I really like about Stephanie Kelton’s “The Deficit Myth” is that it explains MMT within a context of social values because she explains how it can be used to achieve social goals – “purpose”. The whole of her narrative is framed in terms of how an understanding of fiat money can create the things we want, such as better health care, education, job security and so on. I am sure that is why she endorses your views Richard.
Anyone interested in understanding money and how it can be designed to deliver social justice and environmental sustainability can deepen their understanding by reading two “must read” books – one is “The Deficit Myth” , the other is Felix Martin’s “Money – The Unauthorised Biography”.
Thanks Jim
I’m not an economist and I don’t fully understand all the issues involved here. However it does strike me as odd that economists find it difficult, if not impossible, to reach consensus after an initial period of debate and discussion. There are certainly some disagreements within Physics, for example, but nothing like we see in the Economics profession.
Even within what is a fringe grouping like MMT there are still big differences which are obviously fuelled by political disagreements. So it strikes me that the only way forward would be to eliminate, as far as possible, all political considerations from economic theory and modelling. So, if the right wing want a society with minimal social justice they can use the same models to get there as the left might use to pursue a different objective. The people can choose which they prefer via the ballot box. The function of Economists should be to ensure that the modelling is correct and represents the real world as closely as possible.
I seem to remember Steve Keen making similar comments about modelling some time ago. He made the point that when meteorologists famously failed to forecast a hurricane in the 80s, they wanted to understand why this had happened and worked hard to improve their models. Whereas when economists failed to forecast the 2008 GFC they laid low for a while but then carried on very much as usual.
There is no economics without politics
Your suggestion is simply not deliverable
@ Richard,
You’ve said later on in this thread:
“The vast majority if people have no clue how the economy works now. Which is how MMT describes”
I don’t know enough about MMT to disagree (My son is keen on the concept but I am still struggling with the implications of it tbh) , but assuming MMT is correct then it must be correct for all political persuasions. So, both right wing politicians who want a smaller government and left wing politicians who want more social justice and possibly a bigger government should be able to make use of it.
In that it describes how many works it is true for all persuasions
In that it enables things that the right do not want, like full employment, they deny that
But some on the left are doing a pretty good job aping them
I think people forget that ideas are not divorced from the author’s personal context. Warren Mosler is a rich man who made his money in finance. His views will be coloured by his own life experiences. He did some great work, and the core of his ideas gave rise to important work by many others, but this does not make every word gospel.
I also observe in those who are trying to support MMT, a tendency to be fanatical. This could be related to outgroup dynamics. MMT has long been relegated to the fringes and attacked quite ferociously by mainstream commentators and economists as well as ordinary people defending the dominant world view. In this context the ‘bunker’ behaviour of some supporters of MMT is to be expected.
Finally, as a late comer to the field of economics (precipitated by 2008) I find that the topic of money attracts people with strangely ‘religious’ views of money, for example those who think gold should be the basis for a ‘sound’ currency.
On the positive side, I think the MMT views about government spending in relation to macroeconomics is starting to seep into the mainstream.
You are right abut money fanatics
Combine them with Georgians on land value tax and the result is a nightmare of fanaticism, I am afraid
I am not about to defend ‘money’ or any other kind of fanatic, and I am sure there are Georgian fanatics. Nevertheless land tax (I think of it as a ‘rent’ to the state for ownership rights) has an important place. It also provides a salutary lesson from history. The landowners (from the aristocracy down) paid the taxes, and by the late eighteenth century that enshrined their own entitlement exclusively to run the country (Lord Braxfield actually made that clear in the trial for sedition of Thomas Muir in 1793). Land tax has a number of practical advantages over many of the less effective corporate taxes. Notably, the landed interest in Parliament managed to transfer its prime position as taxpayers to the new commercial classes with personal and corporate income taxes. These have never been as effective as the old land tax, because land is difficult to disguise, and ‘income’ or ‘profit’ is the length of a piece of string, using a movable measure interpreted by accountants and lawyers who are ingenious in the service of their clients. Campbell-Bannerman’s Liberal government threatened to return to the Land Tax idea in the Finance Bill after the 1905 landslide election; it was a key proposals. The landowners in the House of Lords blocked it, for obvious reasons of blatant self-interest, which led to the House of Lords constitutional crisis, when the Government threatened to create sufficient new peers to overturn the Condervative majority there. In the end the political issue was fixed by the House of Lords promising never to block a finance bill again; but ironically, what escaped notice was that the Land Tax proposal was simply lost.
I think Land Tax is underestimated; not least for illuminating crucial features of simplicity and security in the principles of taxation. What I would term accountancy/legal taxes; taxes on matters that are chameleon, conceptual movable feasts, especially prey to the ingenuity of vast corporations and wealthy individuals constantly defeat the purposes of the taxes that are used; taxes that are expensive to tax, and never return to the public what they should yield. We need to look for different, cleverer, more efficient ways to claw back the money issued. We have whole professions that do very well out of taxation; and their principle purpose in life is to defeat the application of the taxes, which they do very well. They do very little to serve the necessary cycle of money issue and reclaim; and nothing for the economic prosperity or well-being of the polity. Stand back from it, and it is all manifestly absurd.
As I said elsewhere, to be clear, I support LVT to replace council tax
The idea that one tax can do the job of all existing taxes is as absurd as the idea that a round of golf can be won only using a sand wedge.
It can’t, and its proponents have overstated the claims for it
Very interesting.
I have always seen MMT as the ‘technical’ means by which to achieve social justice, with the potential for those politicians and voters who care about such things to go beyond talking about something better to actually creating it (rather than going around in circles as we are now).
Maybe the issue of making MMT credible has made it too technocratic and also meant the MMT proponents have been overly keen on presenting it as so, to compete with the existing positive and normative narrative in economics?
But how it can be discussed without consideration of a tax system is beyond me. In fact, it can’t even be discussed without considering other factors of Government policy and market reaction if you wanted to put it to work.
Therefore MMT is just a start of MMT policy and practice if you see what I mean. I can’t see MMT being effective or even surviving in a Government unless other policy areas (like tax) are dealt with too.
You are right, of course
I agree. MMT should be regarded as a tool to ensure full employment and the widest possible set of policy options.
Your discussion does raise a question though. A political one. If you decide MMT is the best route to social justice, which I think we both do, you have to explain this position at some point to an electorate. You have to explain a justification for using tax.
The arguments available to you have been discussed in depth and are well known. But there could be a problem in using them. Tax in MMT is not the same thing as tax understood by the average voter.
The average voter will think tax goes back to the government in order to be spent again. The MMT view is different. It says that tax is not returned to the government in that way. It is effectively removed from the system.
I know there are perfectly good arguments to explain how this works. But there is also a big political problem. Tax is regarded generally as a necessity to pay for public services, particularly the NHS. By challenging this common sense view, you could be on a very slippery slope. The average voter may well ask, “Why bother having taxes at all then, if they’re not paying for anything?”
I am in no doubt that MMT makes perfect rational sense but I think it does present significant political challenges. You can imagine how enemies of reform might seek to undermine it. For MMT to succeed I think it needs to work politically as well as economically.
The vast majority if people have no clue how the economy works now
Which is how MMT describes
They have opinions based on what they think to be outcomes, nonetheless
That will remain the case
I agree with Martin and with John Warren below.
There needs to be some “squaring of the circle” between MMT theory and the electorates understanding of how the economy works. Its likely to take a while, but it appears it is starting to seep into the mainstream.
On a linked note, Michael Sandel has written an excellent book, The Tyranny of Merit which tangentially explores some of the social justice issues being considered here
Thanks
@ Martin
See my “Christine Desan” response to Rob Gray about being careful how a sovereign government is believed to be able to spend.
This comes down to economics as ‘description’, and as ‘prescription’. I simplify, but discussions on MMT have often oscillated around its descriptive and prescriptive content. The core of the problem here is that economics (first given full intellectual expression by a moral philosopher) has long aspired to be a quasi-natural science (the envy of physics is palpable in economics, never more so than in neoliberalism and in spite of Hayek’s obvious, indiscreet and value-laden excesses in ‘The Road to Serfdom’): but what economics aspires to describe is, in the end, unavoidably linked symbiotically to a matter of “value”; which neoliberalism wishes to reduce to a quantum pf prices and supply and demand curves. As the history demonstrates (and the history is very important), the driving force of commercial economies, which has been the evolution of ‘money’, has a very deep, imponderable connection with “value” that can be ignored (which is problematic only for ‘economics’ long-term credibility), but never extinguished.
I do not, however propose that economics should become a mere sub-species of politics either. I think the contemporary world demonstrates only that our understanding of money and economics still has a very long way to go, to become even a modestly effective predictor of economic events. That should make us all cautious. Economic history actually provides a better way to approach ‘evidence’ than the chaos of neoliberal economic forecasting of events or facts its ideology does not either accept or even understand; but economic history appears to set its ambitions too low, in the shadow of dubious conventional wisdom.
Thanks
Interestingly, I think the notion of ‘value’ and that it is too narrowly defined is indeed a problem (if not ‘THE’ problem).
The people we really need to listen on the notions of/cultural importance of ‘value’ are the anthropologists who will tell us that value is a human cultural phenomena, and that it is very diverse. So why then do we allow a mono-culture to exist in economics, concerning this issue of ‘value’; why do we immunise economics from other extant and also very useful values?
The green movement also has a lot to say about value and we don’t listen to them. Why do we only value a tree when it has been cut down and ready for market? Trees, land, rhinoceri – only seem to become valuable when they’re cut down, empty of life or dead. It’s stupid.
Again, it exposes the fallacy of contemporary economics being facts based and ‘scientific’. It’s not. Friedman, Buchanan, von Hayek are all suffused with values.
Awful, knowing ones that we allow to stand there in the defiance of other facts.
As Steve Keen says, Neo-liberal thinking just the worst case of reductionism.
I think this is the way to think about “value”……it has a dual nature – a unity of opposites. Use value on the one hand and exchange value on the other. What orthodox economics does is elevate exchange value over use value and thereby substitutes “exchange” as the definition of “use”….in other words the social value of money becomes money itself. It becomes an end in itself and not the means to an end. This results in the illegitimacy of any discussion about social/use values in economics. Political economy. of course, is based upon consideration of use values and what the purposes of money are and what they could/should be. The economics profession really is a deadweight on social progress,
@ John S Warren
“The core of the problem here is that economics (first given full intellectual expression by a moral philosopher) …”
Thanks for that!
Well done Jim and also to you Richard for standing up for your principles. Hopefully you sent a few home with some ideas planted in their heads.
For me MMT is a bare skeleton on which hangs a lot of potential. It could be used for various purposes depending on the views held by the individual considering what it reveals about money. I did watch a debate last year in which both Stephanie and Warren appeared. Both conceeded that MMT could and likely would be taken on by those with a regressive “right wing” agenda, (to put it bluntly). So any discussion of MMT has to be focussed on how to use it an dthat has to for it to be used in a way that most benefits society as whole , rather than benefit a select (wealthy) few.
It is almost as if we found the proverbial genie in the bottle ,who give us three wishes. In isolation we would all wish for something different. Some would be selfish and some would be more philanthropic in their choices, it is human nature. But this is a three wishes granted for the whole of the mankind(and the planet), We have to agree carefully what these three wishes will be, before we waste them, as those Arabian mischief makers delighted in seeing.
I would add I also believe a land tax is necessary in addition to income taxes. Property prices are very much linked to land prices. Land with planning permission increases in value form £1000s per square acre to millions per acre, this pushed up price paid by developers ,who then have to build high end housing to make a profit. This deters building of affordable housing and pushes property prices through the roof(no pun intended). Land owners thus acquire about 80 % of the profit generated from the price of a new build, this cannot be right.
Banks or builders then lend money they create to buy these houses sand we have a whole system linked to milk profit for land owners and mortgage lenders, also creating a potential economic disaster when the property market collapses. This is a particular hamster wheel we do need to step off.
I did read about land taxes a while ago. One of the claims that I found interesting was the idea land tax could encourage capital to move out of regions with high levels of capital to regions with low levels of capital. This chimed with the some of the readings of David Harvey’s work on the geography of capital. Most of my life I’ve lived with the effects of captial being sucked out of the north of England. I would be interested in knowing whether the claim that land tax could encourage the movement of capital has any value.
There is no evidence for this
To be clear, I support LVT to replace council tax
The idea that one tax can do the job of all existing taxes is as absurd as the idea that a round of golf can be won only using a sand wedge
Thanks for replying. I agree. You also answered a question that I didn’t ask (but was going to), about whether LVT could be used as part of a package of taxes. Pretty amazing insightfulness on display!
re Martin 10.48
”
https://www.bing.com/videos/search?q=thr+Millennial%27s+Money+video&view=detail&mid=40C8E798E3F5F161A71340C8E798E3F5F161A713&FORM=VIRE&PC=SANSAAND&ssp=1&safesearch=Moderate&setlang=en-gb Tax in MMT is not the same thing as tax understood by the average voter ”
J D Alt’s explanation in Vinnie’s ref. above should help the average voter to consider changing their mind about the idea that democracies raise money through taxation
No!
taxes paid are drained/ cancelled out of the system to avoid the economy from over
heating & causing inflation. dear voter etc.
I still think we will remain on the fringe unless we can persuade a new/recent intake of economists to take a professional interest in MMT & get Labour on board
@Rob Gray
You end by saying:
“I still think we will remain on the fringe unless we can persuade a new/recent intake of economists to take a professional interest in MMT & get Labour on board.”
Your first objective – getting the new/recent intake of economists on board is correct, and achievable.
Your second objective of getting Labour on board, is not only correct, and essential, but frankly unachievable under the current “flat-earther” economics advanced by Anneliese Dodds in her Mais lecture, and clearly endorsed by Keir Starmer.
I call it “flat-earther” because the programme proposed by Dodds is clearly framed in 1997 terms (BoE “independence”, fiscal and monetary prudence, and even the dangers of inflation in a “negative interest rate/danger of deflation” situation).
It could be Gordon Brown 1997 vintage speaking – fairly right then, totally wrong now, especially when matched up to an approach based on Hiliare Belloc’s “holding onto nurse, for fear of something worse”, which is NOT how Blair acted in his first administration.
Starmer needs to learn boldness, vision, indeed breadth of hopeful vision, and not fight the current war with the weapons of the war before last (the last war was, of course, the GFC of 2007/8).
I don’t hold out much hope of this happening, given Starmer’s adherence to the ‘Hilaire Belloc’ approach, and the fact that he’s called back Peter “the Prince of Darkness” Mandelson to “advise”!
It’s all “back to 1997” and LBJ’s famous comment about Barry Goldwater being “someone who thinks everything will be alright in the REAR future”!!
Final point – FDR had a great quote about tax, somewhat along the lines of “taxation is your subscription to a civilised society”, which I would say sums up Richard’s approach to both the theory and application of taxation.
@ Rob Gray
Got to be careful here. Here’s Christine Desan top of page 19 in her paper “THE KEY TO VALUE: THE DEBATE OVER COMMENSURABILITY IN NEOCLASSICAL AND CREDIT APPROACHES TO MONEY” :-
“The modern architecture of money creation adds another twist to the drama. Most modern governments do not create money by spending it directly into circulation. [65] Governments today tax in already-existing money (money created in an earlier round of government action) and spend those funds. They also borrow previously issued money now in private hands. By contrast, governments increase the money supply–or create new money–when their central banks purchase public debt, the very debt that governments issue when they borrow. [66] Central banks purchase that public debt (or other qualified assets) by issuing credit–new public credit money or fiat money–for it. In the modern world, then, money creation is conducted through a circuitous route, one mediated by central banks and public debt (and other assets). [67]”
Here are the notes 65 to 67 referred to:-
65. They always retain the ability to do so, however, and regularly recur to it. Civil War greenbacks, Treasury notes, and early American paper money are moneys made by that method. Coin is somewhat similar: insofar as governments require payment in coin and make mints available to convert bullion into coin, they effectively draft people to supply a currency made of metal that the government then collects and spends.
66. Central banks can also purchase other qualified assets, increasing the money supply by that route as well.
67. See Morgan Ricks, “Money as Infrastructure”, 3 COLUM. BUS. L. REV. 757, 772—87 (2018) (detailing modern monetary policy in the United States); Christine Desan, Money Creation by the Federal Reserve: A Note on the Basics of Legal Authority (2019) (draft on file with author) (detailing the role of the Federal Reserve in the creation of money). Randall Wray argues that, in addition, government deficit spending effectively increases the money supply. See L. Randall Wray, “Outside Money: The Advantages of Owning the Magic Porridge Pot”, in “INSIDE MONEY: RETHEORIZING LIQUIDITY AS A MATTER OF DESIGN” (Christine Desan, Editor, forthcoming, supra note 56.
Here’s a weblink to Randall Wray’s “Outside Money: The Advantages of Owning the Magic Porridge Pot”:-
http://www.levyinstitute.org/publications/outside-money-the-advantages-of-owning-the-magic-porridge-pot
Sorry Rob I forgot to include the weblink reference to Christine Desan’s paper “The Key to Value: The Debate over Commensurability in Neoclassical and Credit Approaches to Money” here it is:-
https://scholarship.law.duke.edu/lcp/vol83/iss2/2/
Hi Helen
And there was me thinking at last I understood the tax ” drain ” OUT of the system
You quote ”
Govts. today tax in already-existing money … & spend these funds ”
Are you saying that tax doesn’t drain out but it curcuitly DOES get spent ?
Or have I got it wrong again ?
No – you haven’t got it wrong – but they make it appear otherwise
@ Rob Gray
I’m sure she’s thinking of the Warren Mosler quote:-
“The National Debt is nothing more than all the dollars spent by the Federal Government that haven’t yet been used to pay taxes”
https://en.wikipedia.org/wiki/United_Kingdom_national_debt#History
The other ‘futuristic’ concept of money is bitcoin, of which I freely admit I have little understanding.
But I see its claims. There are claims that people will be using encrypted means to transfer money and avoid the control of tax authorities and weaken the role of central banks. It seems to appeal to the libertarians who want to reduce the role of the state.
It seems to be that is something which 1)has great potential to go seriously wrong 2)will only benefit a few 3)undermine any program of social justice or endeavour.
Should we regard bitcoin as a danger to a better society?
To the last question, clearly the answer is yes: this has all the appearance of being a highly volatile, energy consuming Ponzi scheme
Is blockchain useful? I can still find no reason why
@ Ian Stevenson
Here’s a conundrum to apply to Bitcoin. It comes from a Randall Wray paper in which he is quoting Thomas Smith a 19th century British accountant:-
“A bank note consequently is not a representative, as has been erroneously asserted, of any given ‘quantity’ of gold or silver, any more than it is a representative at all times of the same quantity of tea, sugar, coffee, cotton, rum, butchers’ meat, or any other commodity; but it is a representative and a very correct one, of a certain ‘value’ of gold or silver, as well as of a certain value of all other commodities.”
The key words in Thomas Smith’s sentence are ‘quantity’ and ‘value’.
Now given we know that taxation is one of the best means to maintain “the value” of a currency for the longest possible time where does taxation occur in Bitcoin?
http://www.levyinstitute.org/publications/outside-money-the-advantages-of-owning-the-magic-porridge-pot
It does not
But then it is not a currency
It is a constructed store of value, that is not what it claimss to be
Let me cut to the chase with a series of questions to better help understand the issues Richard poses in his post. (I’m assuming in my questions everybody understands the MMT arguments for needing taxation or “tribute” to the central state and therefore why we have a credit form of money and not a barter derived form.)
Should the creation of money and the imposition of taxes be fair?
What do we mean by “fair” should the “creation and imposition” be left to chance or choice?
Let’s get philosophical, do both chance and choice exist in life?
Assuming it’s logical to answer yes both exist is there more bias towards choice?
(21st century science is telling us eukaryotic cells evolved from a symbiotic union of prokaryotic cells which has ultimately led through a continuing process of symbiosis to complex creatures like ourselves. Clearly cells have to choose who to get symbiotic with since not all cells are friendly. It consequently seems reasonable to argue there is a bias towards choice.)
Assuming the bias to choice, is it not logical therefore to think that societies and nations are also symbiotic collaborations?
If as a part of a “symbiotic collaboration” do we not use democracy processes to help our symbiosis?
That we do indeed use democracy processes does this therefore not mean we can “choose” to be “fair” in regard to the creation of money and the imposition of taxes?
Does that not mean we should regard our monetary systems or monetary technology as something we should “mutually” decide on in regard to its operations?
Assuming we believe it makes sense to mutually decide these operations does it not also make sense to drop the “Modern” part of MMT (given that it doesn’t have that much descriptive power and use the word “Mutual” which has far more resonance) and use the term Mutual Money Theory?
“Mutuality” or increased democracy in money use is a Christine Desan theme. I didn’t really touch on this theme directly in my installments post on “Christine Desan’s Work In Relation To MMT” mainly I realise now because I was more interested in the evolution of money design. Here are two of her papers which put a focus on this mutuality (Note I think this has now become a big focus of her current and future research. Very pertinent given a great many people don’t appear to understand what democracy really is!):-
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3556127
https://justmoney.org/the-constitution-and-the-fed-after-the-covid-19-crisis-2/
Much to think about
And immediately much to agree with
I think I need to take a few days reading and thinking about such things
Apologies this is the better weblink for downloading Christine Desan’s paper “The Key to Value: The Debate over Commensurability in Neoclassical and Credit Approaches to Money”
https://scholarship.law.duke.edu/lcp/vol83/iss2/2/
Many thanks as usual Helen.
“Purpose” is the key to establishing the social value of money. If we choose what we want – and choice is open to humans because we are a conscious form of complex life – (I wholeheartedly disagree with Helen’s ill founded insistence that “choice” plays a part in the evolution of life) – then those choices give both purpose and value to our money. So government can set the value of our money – it does so by offering bonds at a discount (say 2% for example). If we choose to develop our energy resources and energy production capacity the value of money for this purpose can be set at a higher discount – say 2.5% on hypothecated “energy bonds”.
On the other side of the fiscal balance there is taxation – taxation puts a negative discount on money – taxation then needs to focus on excess money that has negative effects on the social choices we have made. So excess money causes harm by creating inflation, which undermines the value of the purposed money we have created in order to deliver what we want. Income tax may be the tax of choice to deal with this, depending upon where the actual source of inflation is found. If we want to redirect money from rent seeking activity and into productive activity we need to tax rents – e.g unearned incomes taxes, capital gains tax. Good government involves tuning the parameters – its like the skill of flying an aeroplane.
@ Jim Osborne
“(I wholeheartedly disagree with Helen’s ill founded insistence that “choice” plays a part in the evolution of life)”
Good job your immune system disagrees with you! 😉
Sorry you are behind the times and still haven’t caught up with the implications of hologenomics. Here’s Seth Bordenstein on the subject:-
“The hologenome concept is a holistic view of genetics in which animals and plants are polygenomic entities. Thus, variation in the hologenome can lead to variation in phenotypes upon which natural selection or genetic drift can operate.”
Put more simply choices made in the hologenome lead lead to variation in the phenotype.
https://journals.plos.org/plosbiology/article?id=10.1371/journal.pbio.1002226
Lamarckism strikes back; that will cause a ripple. Have you informed the neo-Darwinists? I think I would counsel against assuming that is ‘cut and dried’; in evolution it never is…. which of course is neatly proved by your own argument…..
Helen…we should continue this debate about evolution elsewhere…my e-mail address is Jim.osborne@talk21.com
As we all know the choice of words can be important in making your case for a particular viewpoint, for putting over your argument, and deciding what the point of MMT turns out to be is no exception. So here goes!
I want to argue that for me my interest in MMT is like Richard’s that it offers the opportunity for social justice.
In my Oxford University Thesaurus when I look up the word “selection” the first synonym it has to offer is “choice.” To make my argument though I believe there’s a need to define the use of the word “choice” more precisely and I think you can do this by saying there’s “collectivist choice” and “exceptionalist choice.” I believe, however, there’s a bias in life towards the former largely because of increased complexity in the evolution of life forms. Let me explain.
I introduced the recent development of hologenomics in biology thinking to help illustrate the existence of a new collectivist way of thinking about “choice” as opposed to the old Neo-Darwinist exceptionalist way. The latter way of thinking is only a random mutation in genes can achieve adaption, hologenenomic thinking argues that’s not the only way.
I now want to make it clear I believe it’s a sterile debate to turn it into an either/or argument because at this stage of scientific knowledge we don’t know enough to do that even if we ever can. Let me illustrate this by example.
At the “collectivist choice” end of the argument you have a former radiologist, William B. Miller, who basically argues a strong built-in error correction mechanism in gene production biases against much in the way of random mutation in gene expression and hologenomic expression is much more productive for adaption purposes. He’s written a whole book of argument for this view called the “Microcosm Within: Evolution and Extinction in the Hologenome.” Here’s a relatively short article explaining his views:-
https://jonlieffmd.com/blog/q-a-with-william-miller-about-his-new-book-on-microcosm-evolution
On the other hand here’s a sociologist’s argument, David C. Bell, that I’ve referenced before on Richard’s blog that would appear to suggest it was a random mutation that pushed life forward to a more mutualistic, collaborationist, collectivist phase in species development:-
https://www.researchgate.net/publication/247759661_Evolution_of_Parental_Caregiving
By way of a quip for those of you familiar with the work of John Bowlby on Attachment Theory such a random mutation has spawned a whole cottage industry furthering thinking on Attachment Theory and rightly so!
Of course, we also need to be mindful of the political argument underlying the Neo-Darwinist “exceptionalist” argument that there is only one way adaption can take place in life and that’s random mutation. This concept reinforced the heyday of rampant Victorian capitalism that society needed its exceptional entrepreneurs and they “justly” acquired along with their “exceptionalism” the right to amass large quantities of money for personal benefit.
We’ve seen the same or similar argument before with the 17th century philosopher Thomas Hobbes who also believed in a form of “rich man” exceptionalism “the divine right of kings” (he was a mathematics tutor to Charles II when Charles was in exile in Paris) as opposed to the development of a democratic state. The state was regarded by Hobbes as a monster Leviathan. Look at how Oliver Cromwell oppressed you! Well Cromwell wasn’t really that big on democratic theory was he Thomas?
In having a touchstone about what’s really going on in life in current day human societies I always hark back to one sentence in the anthropologist Christopher Boem’s book “Hierarchy in the Forest” in which he said the following on pages 75 and 76 in connection with early man’s experience in foraging bands:-
“The foragers’ dilemma is to make use of the wisest heads available, yet prevent these gifted people from gaining undue political influence or power”
This, of course, takes you straight to the study of comparative government and Lord Acton’s famous dictum “Power corrupts, absolute power corrupts absolutely.”
Now we’re back to the whole idea that for purposes of improving social justice we must have improved collectivist control over money creation and taxation, must have a “mutualist choice,” and we can best express the arguments for this in something called Mutual Money Theory a more precisely targetted term than Modern Money Theory. Who knows one day we might have trained Labour or SNP Party members explaining such a mutualistic theory to citizens in their own local community.
I have a strong inkling that your redefinition of MMT is appropriate
@ Jim Osborne
Jim I have no idea what your views are about the existence of “choice” in life other than a vague feeling on my part you believe there isn’t. You see fit to criticise me but never clearly explain your own views. Now’s your chance to clear this up by setting them out for us all to see!
On a complete tangent, Channel 4 just advertised they will be showing a programme exploring “who will pay for Covid”:
Britain’s £400bn Covid Bill: Dispatches
Channel 4
Mon 22 Feb, 8pm
About the programme
Lockdown Britain’s enduring the worst economic nosedive in centuries. Liam Halligan looks at the pandemic’s soaring financial cost and asks: who will pay for Covid?
https://www.channel4.com/programmes/britains-400bn-covid-bill-dispatches
The advert I saw even had the line ” with no magic money tree, who is going to pay for it?”.
Promises to be interesting/infuriating viewing.
Halligan is revolting
Hi Richard,
I understand that, as your specialist subject, it must be an irritant when people who have not got to grips with it start ladling out tax recommendations. It’s not a field I intend to dip a toe into, other than to say that the MMT position on tax is broadly in agreement with yours in terms of purpose (quibbles over a few details but not the basic principles) but that, as a discipline, it considers the detail of tax policy to fall into the political scope and outside the strict macro view.
I think it was Steven Hail on that thread who said (I paraphrase) that Warren’s views on tax are informed by MMT but not part of MMT. Clearly tax policy (how and what you tax, rather than why you tax) is something that can be debated if not ferociously argued about for a long time!
However, I am very concerned to see that you seem to be implying that Sara Holland in particular and GIMMS in general has a small state and/or Georgian approach to tax. GIMMS produces a regular weekly blog which makes clear what the social and political position of the organisation is, called ‘the MMT lens’. It is specific in saying that understanding currency issuance and the power of the £ means that we can understand the nature of political choice – ie that there is no money constraint on public spending, but there is a resource constraint. And the political dimension lies in how tightly or generously the State chooses to provision its public purpose. From that the blog always looks at a particular element of public spending – health, social care, social security, etc, according to what the government’s priorities are – and challenges the ‘Deficit Myth’. The issue holding back spending or creating austerity is not that by doing so we will fail to balance the books if we don’t but a political drive to transfer wealth and resources to the richest in society.
As for the land tax issue it is not one the organisation espouses. It is outside its remit.
I am particularly concerned that you say that the GIMMS crew ‘enjoy maligning’ you. Whoever may be having a go at you in whatever sphere it is not the GIMMS team and I feel very sad that you have chosen to portray them in this light.
I am reliably informed that GIMMS advises people who write to it to have nothing to do with me. I am certain my informant was honest. He was shocked.
As for GINMS nit having a position in tax I quote Sara Holland from yesterday:
“There’s an important debate to be had around the structure of our tax system and one that recognises the vast amount of time and human effort that’s accumulated over time. The tax laws in this country have become vastly over complicated, much like our national accounts which have taken researchers three years to decipher! Layer upon layer, thousands of jobs and processes developed over time that when stripped away, reveals a system that could be run by a small team of people with a spreadsheet. Time to liberate ourselves from the nonsense, we have more important things to be doing?”
And at the same time endorsing the Mosler view in no ales or income taxes, which would destroy the capacity to tax.
With respect, I think you have not much idea what is being done in GIMMS name, but I find it abusive at many levels.
Just as I find Sara’s instruction that I have to now “ win the …. respect of the MMT community” pretty patronising.
I am sorry, but your claims cannot be reconciled with what Sara is saying which is exactly as I have described, with all the threats to social justice implicit within it. I suggest you get your house in order. I had high hopes for GIMMS. They are shattered.
Deborah
I need to mail you with evidence to support the suggestions I have made
Might I do so?
Richard
Richard
I do agree lots of MMT advocates seem to be Latin prayer book types which is why I’m so delighted to be able to spin different lines on http://www.progressivepulse.org/
It seems to me we really should be engaged in original thinking and if MMT in describing the practicality of today’s monetary system, is found wanting then so be it – we need to call out the problems and differences.
It describes what happens now though the government never says so, but even so we need from time to time to shape differences in order to benefit the generality – ie everyone – and not be obsessed by MMT tenets.
Unfortunately I don’t agree that the only MMT role is the promotion of social justice as I think there is unfortunately a very good case to believe that the current UK government has, without public admission, taken on the precepts of MMT.
(That’s why in my sometime writing to them, as well as the BBC, I’m simply trying – gradually – I hope – to get them to admit it.)
I think the only reason for promoting MMT is that is promotes and enables social justice in a way other methods of thinking do not
Agreed entirely.
But the current government is worryingly deceptive…
Land Taxes as proposed by Georgeists (not Georgians btw), does away with the need for accountants. All that is required is an official receiver to collect the tax. Standing orders can be set up. It doesn’t get cheaper than that to process revenues. No expensive accountants necessary. No hiding the land offshore!
All rent DOES start with land, as no other rents can be collected without land. Think of utilities and their dependence on land access. Richard, you are an accountant, so it’s no wonder you oppose it. Land monopoly is the means by which society is denied the value of the increased wealth generated by the effort of the community. Land values soar, not by any effort of the landlord, but by the efforts of the entire community. You are seriously wrong on this issue I believe.
The argument that I have self interest in opposing thus is, to be polite, pathetic when I am so willing to argue against the interests of my profession on so many occasions.
If your case for this is an ad hominem you have remarkably little confidence in your other arguments.
And so have I. Of all the lunatic tax ideas in the world (and there are many) this one ranks high in the order of outright craziness. However important it us to tackle rents (and it is) racing them is the worst possible idea. Why? Because building the tax system in them requires their perpetuation when reducing them is what is required. You could not design a tax system more certain to create inequality than one that ensures the perpetuation of rents.
Applying a LVT reduces rents, it doesn’t increase them. I would have thought we both want that outcome.
Mosler describes taxing employment (NI) and economic transactions (VAT) as undesirable as it acts as a barrier to such activity. Taxing pollution, gambling and drinking alcohol deters such activity and should thus be maintained. The idea that if we don’t tax income or transactions that there would be no ability to underpin the tax system is simply not the case. The facts are that every square inch of privately held land would be taxable. The land can not be hidden or taken offshore. Unlike income which can be obscured and/or lied about (esp with the help of accountants) or transactions (who hasn’t paid cash to a builder or taxi driver?) – land ownership can not be avoided or obscured and is therefore the most certain way of forever predicting the government revenue stream. The quantity of land, never changes.
Wrong
An LVT based economy would increase rents as resources to pay for the scarce resources – land – would increase as there would be no tax on income
So rents would increase dramatically
A landlord’s delight
On land taxes
Tax can only be paid from income. The imposition of a land tax potentially has 2 consequences, an increase in rents so that the tax is paid from the additional income or the tax is paid from non land based income. The problem for those who own land but lack income is to sell that land to those who do have income. A land tax then becomes an income tax on those who own land but also have high income. There is nothing inherently wrong with that but the same can be achieved by progressive taxes on income. Land tax then becomes a hidden income tax. The land tax is imposed because of the assumption that those who own high value land also have high income which is probably correct. The advantage of a land tax is that it cannot be removed from the tax region so the owner has to pay the tax or lose the land. That doesn’t mean that schemes would not be invented to circumvent the tax.
Land taxes will reduce rents, not increase them. Landlords already charge the maximum rent the market allows…unless you know of a landlord who offers below-market rents! Confiscating rent in the form of taxes will ensure landlords offload their properties rather than having their rent seized in tax. Empty properties will be the first to be put on the market. Taxing income on those landlords (rather than LVT) would simply encourage them to keep the property vacant and rely on capital appreciation for their ROI. We need to punish land hoarding and speculation in the housing market. Try playing Monopoly according to LVT rules – it’s an eye opener.
Wrong
Land races will massively increase rents if other taxes are eliminated as the capacity to pay will grow
Land taxes reward rentiers
There are two parts to MMT. The description of how money is created, which is a technical description and can be judged by whether or not it is an accurate representation of reality. It passes this test of course. The second part is how this accurate description might inform policy, at which point we are, almost instantaneously, deep in the political weeds. It is to be regretted that the prescriptions that follow are formed from the same old ideologies that, right or left, have failed to deliver both equitable and wealthy societies. There needs to be a consensus around what MMT can do to build a better future, but I very much doubt that will come from forcing old ideologies onto MMT. A better approach is to define what we want our civilisation to be like, defining the objectives in practical, objectively measurable terms, and apply the economic abilities that MMT releases to achieve these goals. A pipe dream of course.
Martin said: “The average voter will think tax goes back to the government in order to be spent again. The MMT view is different. It says that tax is not returned to the government in that way. It is effectively removed from the system.”
Agreed that the average voter may not understand it, but surely that understanding depends on realising that all money is an IOU and therefore that should be the focus of explanations. Once that is understood, it’s much easier to understand that ultimately, it all boils down to bookkeeping entries. When tax is paid credits cancel pre-existing debits and vice versa and no currency gets burned in the furnace – it just disappears from the records. From an accountant’s perspective it’s pretty straightforward, but I can see that anyone without a knowledge of bookkeeping might struggle with it. What we need is to ensure that all secondary schoolchildren are given elementary, but non-partisan tuition in how the political and money systems work. Within a few years that would start to educate future voters, encourage greater involvement in elections and gradually improve public understanding before votes are cast.
Agreed
The Exchequer willow tally-sticks (split into ‘stock’- from which we have the name for Treasury Bonds – and ‘foil’, and re-joined) provided the real IOU process in a way everybody could have understood; this was how public finances operated in England for centuries. Historically we may have understood this much more easily long ago; but they burned the lot (very, very few survived); and there were so many and the furnace in Parliament was so inadequate, they managed only to burn the whole Parliament as well. Pugin’s Westminster is built in the ashes of tally-sticks.
Hi Ken
As a former accountancy lecturer, I can see my students readily understanding the double – entry aspect of what happens to our taxes when we pay them.
Where I think they would struggle is in the economics & politics parts
” All money is an IOU ” is a leap of faith ”
Why doesn’t the tax just help to pay for future Govt. spending ? I can almost hear them saying in disbelief
I’m scratching my head trying to think of ways of getting this MMT point across to the average voter
All money is an IOU
Why the hell isn’t tax in that case
What else can it be?
You can’t trade it
It does not buy anything
It is statutory debt
Why can’t that be explained?
Most people I explain this to always smile and then usually say….”so why do I pay taxes?”
The most useful answer I can think of is that we all have a tax burden to share and we must all make that sacrifice for the greater good. If we didn’t, the govt would not be able to spend at all as it would cause massive inflation, taxation gives room for govt spending. So we each have to do our bit to allow this to happen. Which is also why those that avoid taxes are dodging their fair share of burden and putting their burden onto someone else. It is a civic duty, and most people understand that once they remove that fleeting thought of never again paying any tax : )
Teach them about tally-sticks. The debtor or creditor each held half the split stick. They were joined back together on repayment (Read Desan ‘Making Money’, Ch.4, pp.171-190. Also Graeber, Martin or Milevsky also make shorter references, for example). The Exchequer used tally-sticks for about 600 years in England’s public finances; the final repayment (for example taxation) was the end of the matter. They just accumulated in large numbers of completed transactions in the Exechequer (but they were transferable before repayment, or even as advances; omeone could always complete the cycle); then in 1832 in a world of paper money and bonds, they just burned the tallies – they saw no point in keeping them. The loss was rather to history.
It sure sounds like he has been building off that Beardsley Rummel classic. Here is him posting it a decade ago.
https://www.huffpost.com/entry/taxes-for-revenue-are-obs_b_542134
While most of his points are objectively correct I think a lot of his opinions on taxes work back from his rich person’s desire to not pay them. On the other hand, the potemkin ‘democracy’ I live in would sooner euthanize every single poor person in the country than do anything that might make a billionaire sad. So if his wild eyed fantasies about no taxes go any ways into quelling the latter’s explicit preference for the former than I’m satisfied to let him have at it.
Quite unhelpful re Scotland though, I suppose.