In one of Steve Keens's latest Substack posts, he has this to say:
Steve then proceeds to demolish the absurd notion that Bill Mitchell and Warren Nosler have put forward on this issue, which has never made the slightest bit of economic sense.
Steve and I both agree with the basic premise of money creation implicit within modern monetary theory.
We have both continually warned that the biggest threat to MMT is the absurd economic logic of some of its founders, like Mosler and Mitchell.
I am pleased Steve has stuck his head above the parapet again. He is right to do so. MMT would be much better off without Mitchell. I have little more to add to that comment. It is obviously true.
The whole piece is worth reading.
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“Giving something real thing away is a cost – getting some real thing is a benefit.”
Yes. But who is talking about “giving” something away. Stuff is usually sold.
All seems like staw men stuff to me. Wierd reasoning to stir up discussion on……..something daft.
I did like Keen’s comment on marginal pricing.
Whilst agreeing with Mike, I still do not see how trade balances interfere with the sovereignty of producing your own currency.
I’m not saying there is no relationship or consequences between the two but these things would just need to be managed. Trade solves and creates its own problems and can compromise sovereignty and create dependencies and inter-dependencies – you open yourself up to competition and the like – there are pluses and minuses.
But your currency is your currency.
Removing yourself from trade usually means that you are satisfied with the political situation that your wealth/welfare is dependent on the wims of those who control/own/manage your domestic economy. Those that can ignore trade completely are usually rich enough to just immigrate and retreat from politics.
Warren M osler, not Nosler. Why did the QWERTY keyboard people put those two letters side by side?
Pioneers can be over defensive of their creation seeing revision as heresy. We all have to be open to modifying our understanding.
Well done to you and Steve for posting this. I found MMT ‘fairly obvious’ but always found the exports are a loss very strange.
Well …. I thought I’d address the substance of the main issue in this topic …..
“Why did the QWERTY keyboard people put those two letters side by side?”:
Because M and N are rarely used consecutively – so are less likely to clash in a traditional typewriter when typed quickly. If only there was a mnemonic for it ….
Damn
Sing a hymn to amnesia, and boast of our omniscience till someone calls for an amnesty.
Ouch, my head hurts!
The issue of trade always floors me, along with ForEx.
But I think I sort of get the main point, I just don’t have a clue what the explanations mean, due to my lack of theory.
I’ve been trying to think about 2 adjacent S. Pacific islands, one with coconut palms, but no bananas, the other with banana palms but no coconuts. Both have available boat builders, canoe paddling teams, a supply of machetes (imported by barter for coconuts and bananas), and unemployed people who could harvest coconuts and bananas for reward. Both populations need coconut flesh, coconut milk, door mats, and bananas to eat, as well as the occasional tipple of fermented coconut milk or banana flesh (drunk out of specially carved coconut shells).
Exporting their main surplus product to a neighbour in exchange for the neighbour’s surplus product seems like a good idea. I mean, they “lose” some product but overall, each island seems “better off” by doing the trading (as long as the fermenting doesnt get out of hand, maybe the chief could demand taxes on it?).
Is that what Steve Keen is getting at?
(Once conch shells come into the picture I get v confused!)
No
Steve is saying that to think of this as barter at the margin makes no sense
So they each have their own (unique) variety of conch shell which they use as currency?
Banana island has pink conch shells, palm island has blue shells.
How do they get the export/import business going? On day 1 they each only have their own conch currency (which each chief uses to pay the islanders and they use to pay the chief their taxes (his personal bodyguard collect the conch shells and have a monopoly on the conch harvesting boats).
Banana island wants to buy coconuts from coconut island and coconut island wants to buy bananas from banana island. If barter is not allowed, how does the trade get going? Can an island use its own conches to import goods from the other island? Or must they buy with the OTHER island’s conch currency, and how do they get hold of it in the first place?
I’m trying to learn, this isn’t a challenge. If Mitchell/Nosler & Steve Keene can’t agree then I don’t feel too guilty if bears of little economic brain like me haven’t got our paws round trade & MMT yet.
Sorry – you are going down a rabbit hole
They just have an exchange rate
That’s it
And MMT has not got its ideas around trade is what Steve is saying
Ignore MMT on trade is the message – Mosler and Mitchell are talking nonsense
I’ve been reading Richard for quite a few years now and think I have an okay grasp of the MMT fundamentals. When I tried to extrapolate what I think I know to international trade it never made sense, and the conclusion I drew was that MMT doesn’t explain international trade, and is only really relevant for sovereign currency creators. I still don’t understand international trade / exchange, but that’s okay with me.
I’m sure if I’m wrong with the above I’ll be corrected.
MMT explains international trade.
It simply says let exchange rates float.
That is it.
My first thought is that it depends on the circumstances of the import/export. To me, the follow circumstances are different:
1. UK company pays a Chinese company to make goods that are imported into the UK.
2. A Chinese company makes goods that are imported into the UK.
And conversely:
3. A Chinese company pays a UK company to make goods that are exported to China.
4. A UK company makes goods that are exported to China.
We are also made aware that Britain has effectively exported its jobs to China and no longer has its own manufacturing base, and that after 40 years, it is recognised to have been a poor decision.
Perhaps I’m overcomplicating it, or don’t really understand the question!
Mosler once said something like ‘We send China pieces of paper while we’re driving round in new trucks, playing golf’. No, the displaced workers are driving round in 15 year old trucks, cooking crystal meth.
I just wanted to point out that all the links seem to be 6 years old. Also I could not find the referenced argument between Mosler and Keen.
So?
Just read the whole article from Prof Keen. I suppose it’s obvious that I’d agree, But I wanted to add just one real world example of the nonsense of the marginal cost ‘theory’ that I – along with millions of others who have studied economics as part of our undergrad degrees were taught – and thus accepted as gospel.
The difference between me and most of the students on my course was that I was a mature student and had worked in several industrial settings prior to becoming a student. And so when I was presented with the theory of marginal costs (that they always rise) it got me thinking about places I’d worked where that didn’t seem to be true.
One example that always came to mind was working on the production of tyres at Pirelli. I was one of a team who ran a massive machine called an extruder. Sheets of processed rubber were fed into huge rolling machines which ground the rubber until it was soft, at which point it was fed through to the extruder to make all the various parts for different sizes and types of tyre (sidewalls, tread, etc). The extruded components then moved through a huge series of conveyor belts/rollers/sprays/etc so that the rubber cooled at exactly the right rate for the rubber compound being used.
For an eight hour shift (less 30 minutes for mid shift break) our production rate was set at 800 units. But it was well known – to both management and workers – that the extruder could operate at a much higher rate than that. Indeed, on quite a few occasions we ran at anywhere up to 900 units, because it was not possible to leave a batch of rubber in the rolling machines (it solidified and then they were near impossible to start). And so we’d often end up running the machine faster so that we could get through a batch of rubber by the time our shift was due to end. The important point here is that when this happened we (i.e. labour – the six workers that ran the extruder) got no increase in the pay, and nor would we get overtime if we ran over our shift.
Now I appreciate that running the extruder faster meant we input more rubber, and used more energy to run the machine. But labour costs didn’t increase. So actually any components we produced above 800 were actually cheaper than those produced within the quota. And I can tell you that even then the men I worked withknew that (as did the management, which was why they were always quite keen to try to get us to start a big/new batch of rubber when it was too close to the end of our shift, so that we ‘overproduced’). And I’m damned sure Pirelli never sold tyres produced from the components where the marginal cost went down cheaper than any others.
Anyway, apologies for the rather longer explanation than I’d planned when I started the comment.
Perfect!
I like it. Thanks.
Thanks for another interesting post.
I went away and read Steve Keen’s article – very interesting. And I can’t disagree with him.
I was, however, interested in the marginal cost of production. I didn’t realise that increasing marginal cost was embedded in neoliberalism. I’ve read articles about this over the years. My understanding was that for almost all manufacturing industries there was a “learning curve” which led to reduced marginal costs as production increased. There is lots out there (e.g. https://en.m.wikipedia.org/wiki/Learning_curve). Surely this is part of economies of scale, which everyone has heard of? So, increasing marginal cost of production seems to be simply wrong.
With decreasing marginal cost of production it makes sense for individuals, companies, and countries to specialise. Was this not what Adam Smith said?
However, there is/should be a limit to how far specialisation goes (at least in my opinion). As there become fewer, bigger, suppliers we move towards monopoly, with the corresponding opportunity for exploitation. And similarly supply chains become more fragile, especially in an unstable geopolitical environment.
Marginal cost = marginal revene = profit maximsiation is what made me realise microeconomic theory was gibberish as far back as 1976. I went to univesity knowing just a little about real business, and certainly enough to know this never happened, and no one could know how it could happen.
I’m wondering a bit about the concept of “full employment” as a limitation in a world where automation can massively increase individual workers’ productivity, especially now that even service jobs may be subject to such automation. In the real world, companies faced with a recruitment problem will invest in better tech to increase their output when the market of their products is there. My conclusion is that ‘full employment’ is also a function of available investment capital.
@ Kim SJ
You need to define “full employment”.
My amateur definition is that full employment is reached when every task that needs to be performed by a human being is offered to, and accepted by, a human who is capable of the task and wishes to work.
The task may require expenditure of effort for 8 hours every day for 5 days a week, but it could just as easily be for two hours a day at the weekend. (Exaggeration for Effect.) Parkinson’s Law applies, of course.
After the end of WW2, when much of the country needed rebuilding, unionised bricklayers refused overtime until all the trade workers in the Branch area were employed. The work that was available was shared out. The same principle should apply to the other end of the supply chain.
A “thriving wage” may turn out to be simply a remuneration for being part of society, contributing to the productive economy in its widest sense.
Please recalibrate your notion of “full employment”.
The advocacy for Modern Monetary Theory (MMT) oversimplifies complex economic dynamics and risks dangerous policy outcomes. While ot is correct to note that governments with fiat currencies can create money, the assertion that deficits are benign until full employment is reached ignores real-world constraints. MMT’s core claim—that taxation, not borrowing, primarily controls inflation—underestimates the practical and political challenges of rapid tax adjustments. The dismissal of central bank independence in favour of Treasury-led tax policy assumes governments can nimbly calibrate taxes to curb inflation, yet historical evidence, like the 1970s stagflation, shows fiscal tools often lag behind economic shifts, exacerbating instability.
The portrayal of government debt as a harmless tool for private savings glosses over crowding-out effects, where excessive public borrowing can raise interest rates and stifle private investment. The reliance on MMT’s job guarantee as a stabilizer ignores implementation hurdles—bureaucratic inefficiencies, skill mismatches, and potential wage distortions could undermine its efficacy, as seen in past large-scale public works programs. Furthermore, optimism about MMT’s applicability to economies like the UK sidesteps risks in open economies with significant foreign debt or trade deficits, where currency devaluation could spiral if money creation is unchecked.
Empirical cases, like Japan’s decades-long stagnation despite massive debt and monetary easing, challenge the narrative that MMT-inspired policies inherently drive growth. While there is reason to critique neoliberal austerity, MMT’s prescription of unrestrained spending invites fiscal recklessness, potentially fuelling hyperinflation in mismanaged scenarios, as seen in historical examples like Weimar Germany. This vision of MMT empowering democratic governments is appealing but naively assumes political actors will prioritize long-term stability over short-term populism. A balanced approach would be to blend monetary and fiscal prudence, as this better safeguards economic resilience without MMT’s speculative leaps.
What utter drivel.
MMT is obsessed with inflation. But this is just stupid:
“MMT’s prescription of unrestrained spending invites fiscal recklessness, potentially fuelling hyperinflation in mismanaged scenarios, as seen in historical examples like Weimar Germany.”
Not once, not ever, has any serious economist in any way asociated with MMT suggsted unrestrained spending. If you cannot win your argument without lying you have no argument.
You might say that no serious economist has ever advocated unrestrained spending, but I’ve never searched your blog and never seen you advocate spending restraint.
Then you have not read this blog.
Would you care to give an example or link to any occasion which shows when you have proposed spending restraint by the UK government. Examples which amount to less than 0.1% of GDP excluded of course e.g. abolishing monarchy or the HoL.
HS2
Sizewell C
Hinckley C
Pension tax relief for the wealthy
VAT relief for the finance industry by exempting it
Not charging VAT on private education
The list goes on and on….
But your time here is up.
@ Dr Eleanor Voss
Your argument fell flat with the smear about “unrestrained spending”.
Then there was “Weimar Republic”…
Oh dear, the old ones are the best! Nice try.
I’m a novice to all this economics stuff, learning basic macro-economics near the end of my life, but even I have noticed, again and again, the constant reminders here from Richard, and from Stephanie Kelton, warning against “unrestrained spending”. Yet you’ve missed them?
Or maybe you’ve seen them but pretended otherwise?
You may know more economics jargon than me, but you’re a novice at truth-telling.
You owe him an apology for the smear, and the rest of us an apology for your impenetrable jargon. I’ve always found that REALLY clever people don’t need to use jargon.
“MMT’s prescription of unrestrained spending”
MMT does not prescribe unrestrained spending.
As usual, all the above are well trodden accusations which say nothing about the failure of the current mode of capitalism to deliver a fair allocation of resources.
Note the argument about delays in effects and the dig at beaurocracy.
Well, why not acknowledge the beaurocracy that is ‘finanicial instruments’ like derivatives and look at how destabilising they are for once.
Any activity in the market affects the market, not just what the government does or does not do.
And note that once again there is no mention about who the main beneficiaries are if the arcane system as it is. It is all process led argument, typical behaviour from a monopolist like Dr Voss.
I am not convinced Dr Voss exists, by the way…
https://www.taxresearch.org.uk/Blog/2025/04/22/steve-keen-on-bill-mitchells-absurd-claims-on-the-economics-of-trade/comment-page-1/#comment-1017274
“Sorry – you are going down a rabbit hole”
Bears of little brain don’t go down rabbit holes, they are too big.
I thought it was getting dark down here 😉
I was rather hoping for a fact-finding tour to some S Pacific islands to study conch shells…
But – I am immensely cheered to know that MMT theorists haven’t “got” trade either so there is still hope for me.
Clearly international trade and ForEx is going to stay off the omnibus conversation list for a while.
Now I have to go and analyse a 2 page reply from my Junior Health Minister MP for McSweeneyisms.
KUTGW!
🙂
“Imports represent real benefits—goods and services we get to enjoy without having to produce them ourselves.
Exports, on the other hand, represent real costs—the time and effort we expend to produce things for others.”
—Stephanie Kelton, The Deficit Myth (2020 p. 147)
I disagree.
As much as I would disagree that internal trade is necessarol;y harmful, as this implies.
I have never bought all of MMT, and do not care if I do not.
Does, the BoE try to manage the exchange rate in particular US dollar versus Sterling?
I think the answer is yes.
Does BoE try to track US Treasury bonds?
I think the answer is yes.
Is this driven by trade relations?
I think in part it must be but capital inflows probably the main consideration.
Richard do these apparent dependencies arise from Trade or the greater dependency I think MikeP was alluding to?
I am not sure I follow your logic.
And I have to prepare to record, so I am sorry, but that question is just too much for this moment.
In summary – the Treasury/BoE has little real control ove these issues – they are outgunned in the markets, excepot on base rate setting.
Richard, Good for you and Steve Keen on the reality of international trade. Perhaps some MMT evangelists go astray because the Bank of England can’t “print” $USDs or €EURs. For different currencies, MMTers need to go back to thinking in conventional economic terms. When the UK exports goods to the Eurozone, Euros need to be traded into £s. When the UK imports goods from the Eurozone, £s need to be traded into Euros. The exchange rate is subject to simple supply and demand. The point that Trump and a lot of us miss is that trade in goods or materials is only one of the components determining the exchange rate. We may acknowledge “services” as a component, but what about investment? what about tax avoidance? are there other components? There is a whole area that needs careful analysis and integration into our thinking. Richard’s excellent post today (April 23rd ) on Trump’s crash is directly relevant to our understanding of international trade. My take-home message. Don’t look at the value of imported versus exported goods, look at exchange rates for a better picture. And analysing the components of exchange rates more carefully may show that some MMT as well as conventional economic thinking is wrong.
Not forgetting that exchange rates are not just about trading goods across borders, and paying for them, but about buying and selling currencies as currencies, as a money-making (or destructively political) exercise in itself.
That’s the bit that confuses me. Speculating in pink and blue conch shells… ooops, fell down the rabbit hole again.
I’m stretching my memory so may be misremembering but I first came across the concept that imports are a gain and exports a cost in Richard Body’s ‘Agriculture: Triumph and the Shame’ (1982) book.
Richard Body was a conservative politician so reading this as a concerned undergraduate ecologist in the early 1980’s took some doing but it was well worth it. Although some of the material will certainly be out of date, I would recommend reading this to anyone wanting an insight into this topic and it is both readable and short.
On that note, I’ll put it onto my reading list and revisit the book to see if my memory is correct and to regain an understanding that imports are good exports bad, which still seems instinctively wrong for some reason.
Tony Jones:-) (my real name given posts on this matter recently).
Thanks
Mitchell had a go at me (rather than my arguments) – now more than six years ago:
https://www.progressivepulse.org/economics/modern-monetary-theory-mmt-and-international-trade
My suggestions were, naturally, not as technically argued as Steve Keen’s, but it does suggest there is a level of religious ideology among the so called MMT economists, which is really not ideal …
I was chatting with an “Austrian” economist and retired lecturer the other day. It was weird experience but interesting.
Essentially everything wrong with the market is down to govt interference.
Govt must be very small and provide very basic functions and services eg Defence.
If the market is left unfettered all will be well.
Markets existed before govts trade to take them over. We must return as much as possible to this nascent state.
Leaving aside implementation of some of their ideas would produce social harm on an Epic scale. The dislike of other streams of economic thought that differed from theirs was striking.
All this emnity in one field of academic study.
What has happened to the scholarship tradition? Or am I just hopelessly nieve?
All that matters is the model.
Reality is just an annoying irrelevance. The quality of the maths is all that matters.
…. Ah … That Maths thing again …
We do know that economists don’t really do “proper maths”. I accept that “modern economics” is obsessed with trying to be “scientific” …. But it seems the sense of things is lost in pointless / spurious accuracy and an aspiration for credibility.
There are many jokes around the hierarchy of maths in the physical sciences (along the lines of an engineer, a physicist, a mathematician walking into a bar ….). We recognise that proper maths is quite a different beast. Economics maths seems less of a tool to gain insight — rather than a tool to seek to preclude. Mystery! Magic!
Dismal science indeed….
[in the bar: how do you calculate the volume of this red rubber ball?
Mathmo: measure the diameter. Calculate radius. Perform a triple integral – and get the volume.
Physicist: measure mass of a full bucket of water. Put in a basin. Submerge the ball (displace the water). Measure mass of water displaced. Knowing density calculate volume of the red rubber ball.
Engineer: hold the red rubber ball. Find its serial number. Look up the volume in the red rubber ball book ……
Very good
I would add, Economist: assume we know the volume of the ball