This is the third in my reaction series to the discussion on modern monetary theory (MMT) on this blog this week. The others are here and here. There may be another over the weekend trying to draw some conclusions.
The basic approach to tax that Warren Mosler, who is recognised as one of the founders of modern monetary theory (MMT), proposes is that:
MMT recognizes that taxation, by design, is the cause of unemployment, defined as people seeking paid work, presumably for the further purpose of the US Government hiring those that its tax liabilities caused to become unemployed.
In his white paper in which he suggests the key elements of MMT this is all he has to say on the subject of tax.
As someone who I think to be UK based MMT exponent and expert Neil Wilson has said in comment on this blog (although I have edited for flow, combining comments in the process), what this means is that MMT requires that:
- Government imposes a tax in its currency of issue.
- The person on whom the tax is imposed must then work for the government to earn the currency required to pay the tax.
- The government spends into the economy by paying the person who takes employment.
- Government starts to collect taxation revenue out of the payments made to those it now employs.
As a result it is claimed by that
- MMT forces people into unemployment in their existing tasks.
- It forces them into employment with the government.
- It threatens them with violence if they do not secure the funds needed to pay the tax.
- That threat of violence forces the currency that the government wishes to be used into use in the economy.
I have tried to offer a fair summary. This is consistent with numerous comments, Mosler's claim as well as those of Bill Mitchell, and the arguments of Matthew Forstater on which they both seem to base their ideas.
The result is that MMT clearly has a view of the state that is:
- Malign, seeking to impose itself.
- Sub-optimal because it disrupts a state of natural equilibrium that existed before its intervention (based on Mitchell's commentary on this issue).
- Both unemployment and inflation creating (as per Mosler).
- Contrary to general well-being.
And all this because those running government wish to impose a currency that the population do not, apparently, want into use.
Forstater argues this case from a Marxist perspective.
It seems to me to be at least as likely to be motivated by sentiment consistent with James Buchanan's public choice theory, much beloved of the far right. That theory suggests that political decision-making often results in outcomes that conflict with the public's preferences because those making the decisions put their interests first. The very strong implication in MMT literature that the imposition of the currency and the taxes that imbue it with value is consistent with this idea and is against the public interest, which is why violence is required to enforce it.
The use of the word violence would appear to come from the work of sociologist Max Weber, who in 1918 defined the state as a
human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory.
Violence in this context is the right to restrain and constrain those who will not comply with the rules of society by breaking its laws.
Is that a necessary choice of language by MMT? I suggest it is not. The state is not, as a matter of fact, violent with those who do not pay tax. It does penalise them. But that is not violence. Nor is it a violation of legal, because to describe it as such would presume that taxes were not legitimate. The choice of words is, then, deliberately provocative. It suggests the state is the aggressor. It implies the lawbreaker is the person suffering. The implication is of penal obligation when the vast majority, in my opinion, pay tax voluntarily.
Is the language of violence necessary in that case, or is MMT, by using it, seeking to misrepresent the nature of the relationship between the taxpayer and state?
A poll:
Is modern monetary theory right to suggest that taxes are imposed with the threat of violence?
- No (41%, 105 Votes)
- The language is poorly chosen (38%, 98 Votes)
- Yes (14%, 37 Votes)
- I'm abstaining, but show me the results anyway (7%, 19 Votes)
Total Voters: 259
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All these discussions are above my paygrade…. but when has that ever stopped me!
Our ideas about currency and our cultural understanding of money are rooted in hundreds or even thousands of years of history where money has been ‘convertible’ (if only theoretically in some cases) into something tangible (usually gold or silver). Indeed, that deep rooted history of ‘convertibility’ is the main barrier to the wider public understanding of MMT.
But the idea that one theory “works” (without adjustment) for “all time” is unrealistic.
When the Sheriff of Nottingham was taxing peasants then, yes, it was imposed violently. Does the local HMRC enforcer ever knock on my door demanding money with menaces? No, the worst I get is a polite reminder to fill in a tax return.
For me, I think the clue in in the first “M” of MMT – MODERN. I take it to be a theory about the way money works in the modern world; not a new theory of money as it operated in ancient times.
Having said that – looking at history is useful. For example, John Warren’s comments are always illuminating… but that is the key – they illuminate. They are not paraded to score points.
Neat summary
“Violence in this context is the right to restrain and constrain”
Don’t all laws and regulations do this, in which case should be asking, who do they benefit, who do they disadvantage?
Those with the most privilege seem to be able to modify the laws so they are more in their favour.
I agree. It is used with the threat of violence (not necessarily literal violence) against those without power or means to resist. It’s a different story for those who have power and money – it’s a helping hand to not pay as little as possible.
What I find so very troubling about this worldview is how lopsided it is
Richard, I certainly think it can be used in this way. The evidence suggests that it is is. Of course, tax in itself is a good thing and is often used in good ways and many pay it willingly. I have no dispute with that. However, given that the wealthy have the means to avoid their tax or have greater opportunity to pay less, I don’t think it is wrong to suggest that, as it plays out in our country today, tax can be a form of violence or oppression against those without means or power. I don’t quite understand why you disagree with that.
The government is not abusing
The cheats are
That is the difference I see
I am puzzled as to how you can miss understand and miss represent Mosler’s and Mitchell’s views so profoundly. You take certain statements totally out of context to build your argument. Neither view the Government as evil. Much the opposite. They seek to promote the understanding that the government has great capacity to work for the common good through its fiscal policy. Very much in opposition to the neo liberal views that continuously try to undermine government action in favor of the false and mystical power of the raw market.
I think you are creating your own view of what they mean based on what you see in tweeter without having read their work. It would be wise for you to review their basic papers before starting to criticize them. It won’t take you long to review Mosler’s views. He is a very concise writer. I would recommend to start with “https://moslereconomics.com/wp-content/uploads/2022/10/Soft-Currency-Economics-October-2022.pdf”.
I have read Mosler
In particular, I critiqued a paper that he said summarised all I needed to know
I have critiqued it, I think accurately, referencing his own words, which I find worrying, to offer a kind interpretation.
Why not stop saying I am wrong and evidence why I am?
Right now you have not come close to presenting an argument and that is just trolling.
Looking at the Mosler paper you reference, I couldn’t find the actual word, “violence” explicitly used anywhere. Also, you yourself didn’t explicitly quote Mosler’s use of this word. Yet you’ve got our whole Mosler fanclub doubling down on defending this explicit word use.
I myself frankly find the rest of what you said here to be good points that are at very least worth discussing, except for this one point, the theme of the essay–no not the theme per say but I guess it’s this doubling down again, on the explicit word choice that I couldn’t actually find in the referenced Mosler paper.
You are right.
It was not in the Moske4 paper.
But others noted it as a standard MMT trope. So I commented. I think that fair, and I have not misattributed it.
No – tax is not imposed violently in this country.
You only have to look at how the difference between tax avoidance and tax evasion is dealt with surely?
Again, reading Mattei, she’ll give you the history of how AUSTERITY – involving punitive taxes on the lower classes (pp 226- 228) was imposed with real physical violence in Mussolini’s fascist Italy. Tax was used to control the workers – not for progressive reasons.
Clara Mattei goes on the compare and contrast Italy and Britain. The violence in Britain was more subtle and economic – it saved its physical violence for the empire. By deliberately creating unemployment and job insecurity – I’d call that violence of a sort and it has a destabilising effect on working people to organise themselves.
How would I define ‘economic violence’?
I would say economic violence is any policy of deliberately degrading a persons economic viability from a higher state to a lower state that impinges on their quality of life whilst holding the view that it has some sort of benefit.
Taxing the rich will not make them into paupers over night or even in the long term, so I see no violence there – just a dent in the wealth gravy train they are on.
But austerity has been genuinely hurting people and putting up VAT to 20% is not particularly nice either.
I still don’t think people work because they feel that they have to pay taxes.
Weber is only describing one aspect of a state – more reductionist nonsense. A state could choose to go to war on the problems within its borders like poverty, poor health, bad education, an out of control banking sector couldn’t it? Or not to go to war on anything.
Tax is imposed by tradition – it has been in our society for a long time, but its role has changed and it is now collected for different reasons which are still misrepresented and these changes are not discussed enough and understood in the public domain. And then someone like Mosler or Forstater comes along and because there is no agreement or low awareness yet more guff is added to the mix.
I do not get Mosler at all, nor the others.
Thanks
“No – tax is not imposed violently in this country.”
What do you call up to seven years in prison, and fines with no upper limit, for tax evasion?
What do you call a any penalty imposed by the state?
Are they all violent?
Is law itself repugnant to you?
Does MMT say we should minimise violence in that case?
Why?
Cant really get my head around all the ‘violent state / tax before spend’ stuff, but Just lifting from Mosler’s ‘Soft Currency’ :
“The amount of federal spending, taxing and borrowing influence inflation, interest rates, capital formation, and other real economic phenomena, but the amount of money available to the federal government is independent of tax revenues and independent of federal debt”
Superficially looks as though Richard and Mosler might be able to almost agree something along these lines, although maybe ‘influence… interest rates’ may not be a clear enough statement that govt decides them.
It may serve the body politic best if there is at least a clear ‘minimum’ statement agreed across the MMT world before the different schools diverge. Maybe Richard has already tried to do that.
My next step is to identify the issues needing debate
Your statements
“The person on whom the tax is imposed must then work for the government to earn the currency required to pay the tax.
The government spends into the economy by paying the person who takes employment.
Government starts to collect taxation revenue out of the payments made to those it now employs.”
These statements are NOT true. That is NOT what MMT states. Nor do I believe that Mosler ever said that. He said that citizens must work and earn money in order to pay the govt taxes. That does NOT mean working for the govt. If they can live without paying taxes or requiring govt services in order to survive, they are free to do what they want.
It is NOT violent unless you mean people are coerced into paying taxes which is a fact and has been true since ancient times in England. In ancient times, try and avoid your tithes to the church, goods to the Lord of the Manor or paying your taxes for a King’s/Queen’s war and watch what happened. Remember debtors’ prison. Now if you do not pay your taxes you will be charged and if you continue not to pay you will be charged with contempt of court. If you have wages and you do not pay they will be garnisheed in my country (Canada).
The job guarantee is part of the MMT proposal to provide work for people so that they can earn a decent living. The govt would fund private or maybe subnational govt operators to hire the unemployed workers to do necessary tasks. Unemployment has been the strategy to fight inflation using a theory called NAIRU based on a misunderstood Phillips Curve theory that is itself flawed.
You have conflated violence with coercion.
I attended the Summer Seminar at the Levy Economics Institute to which you presented last year and at NO TIME were any of those statements made.
Matthew Forstater made an excellent presentation.
I could say more but not today.
I quoted words used by major MMT writers.
You have not.
You have just said you don’t like me considering what their wires mean.
Now, why not address the issues the words they use raise? Start with discussing why they clearly say tax precedes spend, I suggest.
If you won’t, please don’t waste my time again.
Might there be a confusion between the words “violence” and “power”?
No
I think the confusion us between government by consent for the common good and opposition to the notion of government
I’ve had to abstain because I’m still getting my head around MMT, a lot I really don’t still understand. I’ve done 4 years of finance & economics and worked as equity analyst but I’m totally out of my depth here. I’ve realised just how bad my understanding of political economy is, my feeling is that universities are training us to be econometricians instead?
Spot on
Thinking about economics is not encouraged
The threat of violence is implicit in all effective government. If I break the law, including that on paying taxes, I may be arrested. If I resist, the state will use violence – or measures which, while falling short of violence, are underwritten by it – to make me comply.
Without that threat, even if only as a last resort, we have anarchy. The question, for those who are not anarchists, is how legitimate are the governments we live under, hence how legitimate is their monopoly on violence? It’s my belief that Western democracy is largely a chimera, beneath which we have rule by oligarchs. Many will disagree but that’s one for another day. Every government, good or bad, is backed in the last analysis by its exclusive right – police, armed forces – to use violence.
None of which negates or affirms the view – having never read Mr Mosler I don’t feel I can usefully comment – that his language, given his audience, context and communicative goals, is needlessly provocative.
Hang on, so law abiding citizens, who wish the law to be upheld (that;’s most of us) are actually going around imposing violence on those who are not law abiding?
Can you please explain the logic of that? I really don’t think you can. But it is what some in MMT endorses, and the question is why would they do that?
Agreed.
Look Philip – the reason why we pay tax has changed over time as money has changed.
Tax is what could be called a social convention – it’s that old – especially when it has been more recently associated with the provision of public services which it has been for some time (even though we know that it does not need to be, within the context of MMT – the government can print the money it needs, and tax becomes a cooling agent, not a source of cash).
There are people however who disdain this convention and they are usually very well off, and not only do they have a whole tax and investment practice sector to look after them, they also encourage the lower paid who depend more on distribution not to pay their taxes or vote for tax cutting political parties etc.
There has been a war waged on tax by wealth – it has been a war of mis-information and downright seditious as well since it also impugns state sovereignty which is associated with democracy. A state as an issuer of a currency is acting in a sovereign capacity. Currency issuance is as important or even more so than borders or laws.
This process of ‘disowning’ of money from the state sounds pretty violent to me. The latest version of this escapade is called crypto currency.
Perhaps you should ask the victims of the latest crypto scam how violated they feel?
“Is tax imposed violently?”
Short answer: Yes.
Long answer: UK punishes tax evasion with imprisonment up to seven years and fines with no upper limit.
My questions: Does anyone need a lengthier explanation? Does “tax imposed violently” has some alternate meaning?
For economists: https://deficitowls.wixsite.com/mmt4mainstreamecons
So is al, law violent?
Do you think government exists to be violent?
Why?
And that link was to a generic page.
I would say tax is asked for in MMT but here is the problem with MMT and how it fails….
MMT will ask for the tax if you can not pay due to whatever reason they will fine you more with interest which has now gone up so a bigger deal. But according to your theory you are stating the government wishes to have full employment and currency circulation yet in the UK costs are rising in a far more extreme way than is being properly reported. If the Government in question is honestly blind to this then they should be now worrying about Tax payments in a cost crisis where their ask could be deferred as It can be and should be if it was that somone should end up destitute for paying tax.
If you have lot’s of money and a good lawyer you can play the rules hide in tax loop holes trust funds shell companies and being able to get to that Level of wealth it is your Right and proper benefit to make you richer as you can afford that privilidge. Bot to say that Tax is not Paid but it’s able to open a different set of rules that people with wealth can play a different game.
If however the Tax you refuse to pay is indeed criminal then this can be prosocuted in a violent fashion or similarly is you choose to circumvent the system like counterfitting this is also at risk of being prosecuted against violently.
So I will say you have 4 types of people in terms of .government approach
Can’t pay = Threatened eventually prosecuted
Will Pay = Unthreatened
Can pay but dodge = Admired and in it together
Won’t Pay = Prosected.if caught
I have to say I really think you are missing the point
@ Richard,
“I have tried to offer a fair summary. ”
Maybe you’ve not tried hard enough?
For example the following statement is obviously not correct:
“It forces them into employment with the government.”
Not everyone ends up working directly for the government.
Steps 2 and 3 in your 4 point list are perhaps better expressed as follows.
2) Organisations and individuals become strong incentivised to work to get the money to which the imposition of tax by government has given a value.
3) The government spends into the economy by paying both to provide the goods and services it requires.
This does not mean that the State is in necessarily malign. It depends on the purpose to which these goods and services are used. We can all have differing opinions of what constitutes socially responsible spending. I think we might agree that spending on health, education, social care etc by a democratically elected government is just the opposite. Nevertheless the State does have to impose its authority on the question of tax to make such spending possible.
Randall Wray is, IMO, the MMT economist who explains this in a way that is acceptable to most. The “taxation creates unemployment” line isn’t wrong but it can lead to misunderstandings as we’ve seen on your blog recently.
See my reply to Paul
You are playing angels on pinheads wholly unnecessarily
I will post more about this today
I think you are missing my point though too although tax is not imposed violently in any system there needs to be conformity for it to work,
0. Joins the System
1.Can’t pay = Threatened eventually prosecuted
2.Will Pay = Unthreatened
3.Can pay but dodge = Admired and in it together
4.Won’t Pay = Prosected.if caught
5. Leaves the system for another
0 & 1 both requite the Government of the Juristiction to create a job for them to tax. but they may jump to 4 or 5 at any time. A 0 may decide to stay a 0 and a 1 may also decide to become and stay a 0 ultimately a 0’s & 1’s want to be 2’s
2 would like to become 3 but might go back to 1
3 are relatively safe providing there are not to many 0 & 1’s & 4’s & 5’s they will follow the 5’s should it be in their benefit to do so.and do not feel they need be held in any system unless it benefits them and they will never want to be seen as a 4.
4 are relatively safe if 2 & 3is are predominant should 4’s be cracked down on this will lead to more 3’s & 2’s
5. are created from 1 & 2 & 3 & 4
Conclusion
The system is unbalanced and 3’s going to 5 to abuse another system in their favor is the root of violence while 1’s 2’s & 0’s depended on the system abuse that 3 provided. 2’s go down to 1’s and 1’s go to 4’s in their absence 0’s stop showing up and follow 5.. It is with Abuse that violence follows wether it be legal or illegal abuse.. to succeed you must be a 3 or a 4 rather than a 2. for all to be a 2 would be an ideal world and just as impossible. It’s an imperfect system but 3 are the ones that cause the violence when they leave.
No one needs a job to pay tax unless – as MMT claims – an unplayable tax is created.n
The claim is that happened using colonial power. I am not wholly convinced. But to suggest that proves the case is absurd. And also irrelevant. MMT is itself a phenomena of fiat currency – a successor to asset backed money. MMT needs to start not with no money but with how the transition from asset backed money works. The rest is irrelevant.
That means you model is too, I am afraid.
@ Richard,
“MMT needs to start not with no money but with how the transition from asset backed money works. ”
The MMT argument is that money has only ever been partially asset backed. Randall Wray uses the example of “tally sticks” to show that taxation has long been a key component of the monetary system.
In the days of gold and silver coins the danger, from the government’s POV, was that they could be melted down for their metal content, if the price of gold and silver rose enough to make it economically worthwhile. Stringent laws were passed to deter others from doing this, but nevertheless it was safer to keep the metal content much lower than it should have been if the currency had been fully asset backed. When paper notes replaced metal coins the backing was by means of gold bullion stored at the BoE. Naturally government made it as difficult as possible for anyone to make good on a demand for gold. If an administration fee is charged, this in itself makes the currency only partially asset backed.
If it’s only partially backed, the currency is only one step away from having no backing at all. During times of war the backing was indeed removed entirely , only to be restored when the conflict was over.
There was no great difficulty moving between the two regimes, contrary to what you are implying. This suggests that “asset backing” was more for psychological reasons than anything to do with the actual functioning of the economy.
https://www.parliament.uk/about/living-heritage/building/palace/estatehistory/from-the-parliamentary-collections/fire-of-westminster/tallysticks/
I will be posting a blog in response to this
How does what happened in Lebannon with their central bank?
I am no expert on this at all but here the Central bank managed to make a sudden loss of 100% of GDP and their currency crashed hyper-inflation ensued and from what I gather this has become a cash only economy.
Lebanon once known as the switzerland of the middle east with all the finnancial institutions we have here had problems but it overcame it’s civil war which lasted 20 years. it was pegged aginst the dollar and was artificially kept stable probably whilst money was siphoned off.
Now we see a Government with a central bank it’s currency is still in circulation but there a huge disagreements between the people and their government so we have a cash only economy where people trade pretty much only privately with the currency and refuse the central bank tax as much as possible. The Government wants one thing the people there say the givernment does not listen as so it continues….
Would a central bank in this predicament destroy any money it did recieve in tax?
This is a won’t pay in the extreme as their is a complete disagreement and all money that is swilling around is privately distributed pretty much all paid in cash. People still need jobs people still need money they still need to pay for things but this country it seems is starving it’s government out of tax.
Lebanon borrows in dollars
The loss was a currency devaluation.
In a country like the UK where borrowing is only in sterling that could not happen.
MMT is very clear that borrowing in the currency of another country is a disaster for the country doing it. Experience backs it up.
I dip my toe into these turbulent waters with some trepidation – but here goes. I want to enter the debate in this post with just one issue – your horror at the thought of a “violent” state forcing people to use a desired currency.
As I know little about sociology, the first thing I did was to google “Weber” and “state monopoly on violence”. Which came up with –
“Arguably the foremost social theorist of the twentieth century, Max Weber is known as a principal architect of modern social science along with Karl Marx and Emil Durkheim.” Stanford Encyclopaedia of philosophy.
“The concept that the state alone has the right to use or authorize the use of physical force…. is widely regarded as a defining characteristic of the modern state.” Encyclopaedia Britannica.
Surely, the threat of sanctioned violence by agents of the state to regulate our behaviour is an integral part of the functioning of the state. If we commit an arrestable offence, the police are legally entitled – indeed expected – to use physical force to arrest and detain us. If I start shooting at people the police or army are authorised by law to stop me by using force/violence.
If I don’t pay my taxes in the required currency I know that ultimately the state will use physical force/violence against me i.e. eventually I will go to prison. If I refuse to enter the prison cell, physical force/violence will be used against me to get me in there and then they will lock the door and force me to stay there against my will.
Does this mean that the state is malign? From the viewpoint of the tax avoider or other law breaker, yes. But from the viewpoint of society as a whole, of course not. We do indeed consent to the sanction of force/violence carried out by the state on behalf of all of us to deter behaviour we consider to be against the general well-being of all, and to force behaviours that work for it – such as the establishment of a common fiat currency issued by the state. Doesn’t this have a parallel in the frequently opposed perspectives of micro and macro-economics eg the paradox of thrift ? What is of benefit to the individual may well be to the detriment of society and vice versa.
You posit – I think – that instead of this threat of “violence”, a currency may be established merely by the government declaring ( by statute of course) that X is legal tender. But if I try to pay tax in non-legal tender, the consequences , and “violence” that might occur to me – ultimately prison – are exactly the same as before.
Whichever way you do it you are forcing the use of the desired currency. Either way I would be got bang to rights by the state and banged up. And quite right too !
It seems to me quite reasonable therefore for MMT to appeal to Weber’s theory of the state in support of its propositions.
We are, it seems, back to arguing about angeks and pinheads, which discussion does, it seems to me, to be largely irrelevant to MMT, except in terms of its political framing, which is an issue with some significance.
You are right that Weber did define the modern state in terms of its ability to administer a jurisdiction in terms of the achievement of common goals, in the course of which it exercised a monopoly on legitimised violence within that location.
Let us also be clear. The definition of the state was disputed before Weber ever created his, and it has been since. Hegel and Markus had their own views of the state, and a great deal of sociology and international relations has, since the time that Weber wrote, been dedicated to a discussion of what precisely the state is, without ever coming to agreement on a definition.
My questions are, therefore, threefold.
First, most obviously, is why Weber’s definition should underpin MMT? I am not aware that there is an obvious reason for this.
Second, why in its political framing, does MMT wish to use the language of violence? Violence is, after all, defined as ‘ using or involving physical force, intended to hurt, damage, or kill someone or something’. I do not think that, very rare exceptions apart, that applies to any form of tax enforcement that I know about (China, excepted). So why use such a particularly unfortunate choice of terminology with regard to MMT when alternative are very obviously available?
Third, does this choice of language actually indicate an attitude towards both governments and tax which would appear to be the complete opposite of that which many within the MMT community would appear to have?
You argue that it seems ‘quite reasonable therefore for MMT to appeal to Weber’s theory of the state in support of its propositions.’ I suggest that it was one choice out of many that could have been made. I also suggest that it was a very bad one in terms of the political framing of MMT, and the way in which most of its proponents think of the state. I therefore think you are wrong, and Warren Mosler was wrong to use this framing.
But, and I stress the point, it is all a matter of choice. But then, so is all politics and within the framing of MMT, this is a bad political choice.
Please do not waste my time on this again.