On Wednesday I noted the speech that Sajid Javid had made on the future of the NHS in England.
In that speech he said:
As someone once said: ‘There is no such thing as public money, there is only taxpayers' money.'
He was, of course referring to Thatcher.
In response, Andrew, who is a regular commentator on this blog, said this:
Here is the whole quote, from Margaret Thatcher's speech to Conservative Party Conference in 1983:
“Let us never forget this fundamental truth: the State has no source of money other than money which people earn themselves. If the State wishes to spend more it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay—that “someone else” is you. There is no such thing as public money; there is only taxpayers' money.”
But that paragraph above gets the economics entirely back to front. Perhaps we can try something better:
“Let us never forget this fundamental truth: there is no source of money other than the State. If our State with its own currency wishes to spend more, it can do so simply by creating the money. There may be good reason to tax some of that new money back, but the State's resources are not limited to taking money from its citizens: it literally prints the money. There is no such thing taxpayers' money: it is all public money.”
Ultimately, it is all about priorities and distribution. The rest is bunk.
That is something I wish I had written. It is correct. It is a perfect retort. It is the essence of the thinking on which our economics should be based.
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Yes – that will do nicely – precisely and much more nicely making the point I was trying to get over to Jason was it (?) in my angry retort to him yesterday.
This should be in the book you are writing in my view.
I’ve had enough of liars – I know that for sure.
It may be in the book
Also worth a mention is that woman’s interview with the Sunday Times;
“Economics are the method; the object is to change the heart and soul”
“What’s irritated me about the whole direction of politics in the last 30 years is that it’s always been towards the collectivist society. People have forgotten about the personal society. And they say: do I count, do I matter? To which the short answer is, yes. And therefore, it isn’t that I set out on economic policies; it’s that I set out really to change the approach, and changing the economics is the means of changing that approach. If you change the approach you really are after the heart and soul of the nation. Economics are the method; the object is to change the heart and soul.”
https://www.margaretthatcher.org/document/104475
Or something along the lines……..
Let us never forget this fundamental truth: the State has no resources other than its citizens. If the State wishes to do something it can do so only by educating them, keeping them safe and healthy before deploying them to do the projects essential to our wellbeing. It is no good thinking that “the market” will sort it out—it hasn’t over the last 40 years; don’t quibble about “public money” or “taxpayers’ money”. The constraint on Government is not money, it’s physical and human resources…. and will.
Agreed
And a good addition
Yes – the social utility to a nation’s people – ALL it’s people – is where the heart of MMT lies. Definitely.
I still think it a good idea though to debunk what Thatcher said and present your version as what she SHOULD have said.
Her deceit is so imbedded in every day life.
I out it out on Twitter
But I am not sure it was in the mood for it today
My ones on energy are what are working for me right there at the moiment
“[D]on’t quibble about ‘public money’ or ‘taxpayers’ money’. The constraint on Government is not money, it’s physical and human resources…. and will.”
I confess I prefer this characterisation. The use of the State’s special prerogative over money, after all generally only becomes a matter of public consciousness ‘in extremis’, in a crisis; when it is discovered that what seemed – or was assumed – to be ‘money’ for other users (and worked day-in-day-out as if it was money), turns out only to be credit; and, suddenly cannot easily be cashed; because it isn’t State money. Then, and only then, it turns out that only the State has money that can be guaranteed, because it alone can create money, tax it, and offer a safe haven for holders. The ‘doing’ can and will lead the ‘theory’, as a matter of brute fact; which in this regard is more like the ‘laws’ of thermodynamics.
This charaterisation also avoids much of the difficulties and insurmountable tedium of explaining the problem with the ‘household budget’ metaphor to the faithful (it is a deep, almost quasi-religious faith), to which so many people are committed; not least as a powerful expression of the marrow of their system of values (think of the widely used Latin motto ‘pro aris et focis’ – for hearth and home), and to which there is exceptional resistance to being overturned, whatever the facts.
We may, and should overturn the prevailing confidence in a flawed economic proposition over time, but we need to recognise that turning-over forty years of false, sound-bite friendly, neoliberal ideological dogma in the public mind (which was based on the fears of haunted refugees from Nazism like Hayek – understandable, but palpably wrong); also requires a paradigm shift in the teaching of economics, which takes time and the passing of redundant generations of economists. This last requires the collapse of the prevailing economic orthodoxy in the Universities (which is now buckling under the assaults of forty years of economic and political failure at last coming home to roost with overwhelming force), but most established mainstream economists can’t change (too old or lost in over-commitment to bad theory), and so this is happening at the slow beat of a funeral march when the world has already radically changed, leaving economics and the economists notably over-reliant on theory over practice, behind: and transforming the ‘theory ‘is not something that can be done, before the politics is first transformed in the real world. The economic theory will require to catch up when it can; if it ever does.
The focus (not focis) must be on pragmatic practice, and usable methodologies that work.
What I find odd about Thatchers economics is that while the Monetarists were concerned about the money supply they never addressed the question of where the money came from, indeed as far as I can see nobody apart from MMT addresses this issue
Classical nacro economics goes nowhere near the issue
Indeed, it basically assumes money dies not exist
I first read that typo as “narco economics” and spent a moment considering whether its all just a drug addled dream!
Weirdly I read it as ‘necroeconomics’ … ‘money dies does not exist’…!
@ John
And even worse than that, neoclassical economists tend to be of the view that during a recession, when net borrowing drops and people start to pay down their debts more substantially, that this does not cause a decrease in the monetary base as it’s just “the changing of hands of money from debtors to creditors”. This completely ignores the reality that the action of paying back a loan destroys money, and hence decreases the money supply.
Bafflingly, they just pretend that debt deflation isn’t a problem at all.
True
And surely it follows logically that there is an inescapable binary here by which all politicians can be judged (this is especially the case for someone such as Javid, who, in his speech, boasted of his having led six government departments, including the Treasury).
The core binary for categorising a politician whose hands are on the levers of power and, hence, the distribution of sovereign currency and resources:
a) they know that government spending is not constrained by tax revenue and borrowing (as is plainly obvious to anyone from repeated rounds of QE during a locked-down economy) but continue to willfully lie to the electorate in pursuit of their political goals, and so are wholly unfit for office
b) they don’t know that government spending is not constrained by tax revenue and borrowing and so, by virtue of this damning ignorance, are wholly unfit for office
It really is as simple as that. There is, and can be, no grey area. Fitness for office and power over millions of lives depends on these people being judged by this simple metric.
https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F82e5aa50-4ea2-11eb-9157-375164004c69-standard.png?dpr=1&fit=scale-down&quality=highest&source=next&width=700
Richard, a while ago you posted the graph above from the FT which showed central government’s borrowing requirements correlated with asset purchases by the Bank of England over the same period during the early months of the pandemic. How could any politician keep a straight face repeating the lie, “There is no such thing as public money, there is only taxpayers’ money”, when confronted with such irrefutable proof to the contrary?
They are liars
That is the explanation
I understand and agree with the point you’re trying to make.
But, strictly speaking, there is another “source of money” – the banks, which create money when they make loans. (Unless you argue that they only create deposits, which give deposit-holders the right to receive or transfer government money).
In their book ‘Monetary Economics’, Godley and Lavoie write that “money is created in two fundamentally different ways” and they use the terms “outside money” (created by the government) and “inside money” (created by banks).
Banks can only create money under government licence and not for their own gain
In that case what I say remains exactly true
Godley and Lavoie’s claim is reconciled with mine in that case: there is no distinction, which is why no one can spot the difference between these types of money in practice
What you have written is what is known as “a giant steaming pile of horse****”.
The state is the only actor able to print note and coin. That much is true. But after that you get everything wrong.
Credit is by far the biggest source of broad based money, and anybody can issue credit – in an currency or other denomination they so choose.
And it is true that states can print as much money as they want. But because the money itself has no intrinsic value, only value as a medium of exchange, printing more of it only devalues the amount in circulation. So the state can print more and spend more, but it won’t change the purchasing power of the state by doing so.
It’s one of those utterly stupid MMT fallacies that states can print and spend. If that were the case Russia wouldn’t be on the verge of bankruptcy and economic collapse. They would just be able to print more Rubles and MMT would claim there would be no problem. Just once again proving how MMT doesn’t stand up even for a second to real world economics.
And there really is such a thing a taxpayers money. It may be printed by the state but after that point the state has no control over it’s ownership. By extension, what you are saying is there are no such thing as property ownership rights.
Which I suppose for an authoritarian like yourself is just fine. Take everyone else’s assets (which I have seen you suggest in other blogs) as long as they don’t take your own.
Your retort is only perfect if you don’t understand basic economics, think MMT is a real thing (MMTers really are the funniest) and think authoritarian state control is a good thing.
So not very perfect then.
Oh dear, is all I can say
I can’t even be bothered to note all the stupidity in what you have to say, including extrapolating that a country subject to sanctions for starting violent warfare is operating an economy that can in any way be equated to one in a normal situation.
I suggest you go and learn something about how to organise your thoughts into a coherent argument before trying to engage again
Oh come on Luke for goodness sake………………
If you’re talking about Russia as it is now, it’ because the West has decided not to exchange roubles for pounds and dollars OK? You can print as much money as you like, but if you are now an international pariah state no one wants your money because of your bad behaviour, no matter how much you print. Got it?
How does that relate to MMT or undermine it? It’s nothing to do with MMT at all – its about international relations and war.
I still am sceptical about whether or not we have stopped all flows of roubles into the West and vice versa. But that is what is happening Luke – Russia is being punished for its aggression – states are turning their backs on it.
MMT has as far as I know nothing to say about that scenario because it’s just about money – mostly about domestic money creation I think and how it is managed (created-destroyed) within a sovereign state.
Russia could indeed use MMT should it so choose. See the below link for Adam Tooze discussion of the possibility.
https://adamtooze.substack.com/p/chartbook-91-what-if-putins-war-regime?s=w
Russian economic problems stem from many different sources-inefficiency, corruption, public lethargy when it comes to carrying out state diktat and much more besides.
I think anyone who wants to issue credit in any substantial way requires to be licenced by the FCA especially where such credit relates to consumers so it is not true that “anybody can issue credit – in an currency or other denomination they so choose.”
Last true
And Russia will be using MMT
MMT does not stop your economy crashing when you are sanctioned as an international pariah
Only idiots would think it does
Russian has been “sanctioned” by the “West” in many forms since 2012. Due to this, over the years, it has probably turned itself into the worlds largest autarky and will weather the sanctions. The primary danger of using a weapon too frequently. Perhaps some diplomacy should have been tried earlier.
What would the diplomacy have achieved that our open-armed reception for Russia did not?
I like Andrew’s second paragraph
But I am troubled by the sentence; ‘it literally prints the money’.
The idea of money ‘printing’ is a hook on which hangs many a fatal misunderstanding of MMT, and opens the mind to images of wheelbarrows full of printed notes. Weimar republic. The poster-child for MMT detractors. What the govt ‘literally’ does is mark up accounts using a computer keypad. I know this may sound pedantic but using ‘printing’ to describe anything other than the manufacture of paper notes presents an avoidable opportunity for misunderstanding.
I use the word creates
Another aspect of the Weimar hyperinflation is the fact that it was caused by the private banking system.
The Treaty of Versailles severely restrained the powers of the Reichs Bank, giving the private banks lots of scope for creating a mess, which they did. The problems were solved, and the hyperinflation defeated and brought under control by re-empowering the. Reichs Bank. During the Versailles negotiations, the US was advised in matters financial by a chap named J.P. Morgan, so no surprise there.
It is interesting to note that the rise of Hitler and Nazism was powered by the economic catastrophe of deflation.
From the political economy perspective, it’s a period well worthy of study, principally because, just like today, it was all the result of right wing (lack of proper) thinking.
Blushes. Thanks Richard. There is a need for simple but convincing messages to counter the household narrative so I left this to see what comments came. There are some improvements above (and the original has a typo) so here is a new version:
“Let us never forget this fundamental truth: there is no source of money other than the State and the banks it licenses. If our State with its own currency wishes to spend more, it can do so simply by creating the money. There may be good reason to tax some of that new money back, but the State’s resources are not limited to taking money from its citizens: it literally creates the money. There is no such thing as taxpayers’ money: it is all public money.”
My main point is there last one: priorities and distribution. Money is just a unit of measurement, like inches or pounds, or centimetres and kilograms. We can do anything that we have the physical and human resources to do.
Money is not a constraint, unless we make it one. Just look at how, immediately after a six year world war, and burdened with a mountain of real debt owed to other people and huge defence commitments around the world, the 1945 Labour government created the NHS and the welfare state, and nationalised the railways and electricity and coal and other important industries, setting a post-war social consensus that lasted for more than 30 years. We’ve had 40+ years of neo-liberal individualistic hegemony since 1979. We can do something different now, if we want it.
Agreed, and thanks
Richard – pls review and comment.
https://www.bbc.co.uk/news/uk-60741942
The government has launched its Homes for Ukraine site for those wanting to host a refugee, with 43,800 signing up in the first five hours.
Each household housing a refugee will be offered £350 a month, tax-free.
Local authorities will also receive £10,500 in extra funding per refugee for support services – with more for children of school age.
Assuming 1 refugee per application the total costs are:
Total costs for each household = 43,800*£2,100 (£350*6) = £91,980,000
Total costs for local authorities £10,500*43,800 =£459,900,000
I assume these amounts were not inuded in any government budgets, forecasts, or accounts.
In effect the government has just created over £0.5bn out of thin air, costlessly, and through electronic ledgers and double entries.
Agreed
We can always do that
I will tweet based on this