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Thanks for this worthy compilation which needs to be disseminated as widely as possible.
Until there’s a critical mass that understands and votes for politicians who advocate this macro-economic ‘truth’, there will not be any systemic improvement in the way the country is managed. So entrenched is the household analogy that it will likely take several decades before it is popularly and conventionally discredited.
Of course it’s in the visceral interests of the Tory Party to promote and maintain a sense of money scarcity in order to facilitate its control over the lives of the general population. That I understand. What I don’t understand is the subservience of the LP and LDs to this obscene, failed ideology. In a way that is worse than the Tories’ position, though in no way endorsing the intellectual and moral bankruptcy of the latter.
“The household analogy” is a mostly British fixation you don’t hear of it elsewhere, at least not to any significant extent. Elsewhere a similar message is implied, of course, but not directly expressed in those terms.
Personally, I like it for purely cynical reasons whenever I come across it in arguments. If someone says something to suggest that government is like a household I ask them if they have a household, then I politely ask them if they issue their own currency, if they have a central bank of their own and if their household has been known to levy taxes upon others, pausing for effect between each point. That usually puts an end to it. Nice and quick.
I don’t usually follow up by joining the dots for them. One can sense a recognition of the unexpected in the mildly stunned expression that often appears on their faces. That’s enough for starters. In the meantime they can come to terms with it themselves. They suddenly realise that something very obvious hadn’t occurred to them. They hadn’t thought of it before. Now they can.
As for some of the pompous dimwits that appear in that video (Thatcher included) it is remarkable how they assume that money is an end in itself. That wealth IS money rather than the sum of goods and services produced. For the most part that isn’t deception, it is thoughtlessness. Not so much a case of the wrong idea about money but no idea whatsoever or any recognition of the need for one.
There is something very obvious that hasn’t occurred to them. In politics and personal debate there will be occasions when the best way to deal with that is to drop the cruel penny and let them figure it out for themselves. Ask them what they think money is (that’s unexpected), don’t tell them. Ask them if they they really think that wealth is money and then tell them what wealth really is – not money, but the things that money can buy. So how do we make those things and who gets the rewards? That’s the real question. Just leave it there. For some people, initially, anything more is just too much information.
For those that are on a higher level, I like the comment that Stephanie Kelton makes in the video about the Gold Standard (or absence thereof). Its the point brings us to thinking about what, in essence, MMT really is. On one level it is a refined extension of Chartalism and Post-Keynesian thought. More simply it is the logical outcome of the switch to fiat currency that came with Nixon in 1973. The end of Bretton Woods.
Historically interesting to note however that this is how long it takes. 44 years and more to shake off the unrecognised ingrained, assumptions of a bygone era. Assumptions that disguise themselves as intuition, assumptions that date back to the Bullionist debates of 200 years ago (if not further).
44 years and more is a disturbingly long time. Why so long? Neo-liberalism has definitely slowed the progress being as it is, I believe, a reactionary movement (hence “neo”), and a limited attempt at reviving the 19th century concepts of laissez faire (“free markets”), colonialism (“globalisation”) and Sound Finance (low taxes, balanced budgets etc.). The revived doctrine of Sound Finance effectively serves as a substitute for the Gold Standard by acting as a constraint. The doctrine constrains the public sector in favour of the private and (arguably) constrains inflation. With the obvious problem being that it constrains consumer price inflation but it does not restrict asset-price inflation, the bloated corporate sector or the invevitable financial crises that come with them.
Another obvious problem is that in Gladstone’s time the original advocates of Sound Finance were committed to the Gold Standard. They were consistent at least. The neo-liberals are not, and it is not that they have promoted an ill-conceived concept of money but rather, no concept whatsoever, successfully avoiding that thank you very much. Until now. That is why it has taken until 2014 (!) for the BoE to officially recocognise the endogenous creation of money by private lending and how it is that many of us have spent 40-odd years in a state of thoughtless vacuity on this subject.
It is also why the “houselhold analogy” and “magic money tree” platitudes appear to be so embarrassingly dumbed-down on an intellectual level (or any level). They are the furtive bleatings of a ruling culture without any academic foundation on this subject (an historic first perhaps). Those platitudes are not a sign of strength on their part but critical weakness, a weakness that can be vulnerable to the simplest of semantic devices.
So, into the vacuum steps MMT which articulates the role of money and government in a fiat currency economy. It had to happen eventually, didn’t it?
Yes, it had to happen
And why 44 years? Because it took a l9ng time to realise
I was pretty slow in the uptake. It was only when I began to think seriously about money in about 2000 that I crept towards MMT, and actually did it from first principles, realising all money was debt, before finding others had already got there
Richard,
I am beginning to think that the reason so many of us missed the train on this is that it was successfully, quietly and deliberately suppressed. My evidence:
Theories of money were quite common until they went quiet in recent decades. There was early Irving Fisher (quantity theory), the Chartalists, early endogenous (Knut Wicksell and the Swedish school) Later endogenous (Post-Keynesian) and last but not least, the later quantity (exogenous) theory that came courtesy of non-other than Milton Friedman himself. – Friedman also mused on his own version of “helicopter money”.
In fact it was the neo-liberals, Thatcher foremost among them who were known as “monetarists” when they arrived with Friedman in tow, hoping to control the business cycle with Friedman’s idea of directly increasing and decreasing the money supply. The result was disastrous as their attempted checks on inflation resulted in volatility and record high interest rates.
‘Monetarism’ failed massively for several reasons most notably its failure to recognise endogenous money. It got quietly knocked on the head by its own masters in the very early ‘90s and replaced by inflation/ interest rate targeting. The targeting regime demonstrated how central banks did quietly come to understand endogenous money (more or less) but didn’t quietly admit it until 2014.
From the start of the ‘90s all talk about monetarism and monetary theory mysteriously evaporated. The ‘monetarists’ themselves suddenly had nothing to say about it and nor did anyone else for the most part until recently. The failure of monetarism was followed by a deliberate vacuum and it has worked.
Most people in and out of public life have no real concept of money and aren’t aware of the need for one. Take a look across the HoC in recent times. Most of them don’t have a clue. Corbyn and McDonnell might (because you told them?). The PM with her BoE background probably would as might Osborne but they won’t let on. As for the rest…?
Thanks
Marvellous.
In the last 6-7 years since I first came across your blog I have read or watched all these people. The tragedy is that much of MMT was beginning to evolve in the immediate post war period and if followed through would have created a much better world than we have now.
Mr Mitchell is very learned but, it may just be me, I get the impression he has little time for different views, even from those who basically agree with him.
Bill has, like many pioneers, developed a thick skin but it shows
Some say I suffer the same trait
@Ian Stevenson,
Bill may tend to be influenced at times by his followers and there is an element among them who behave like a theological sect. I am often amazed by their annoyance at the fact that ordinary people and those in public life are not very familiar with MMT concepts when there is no reason to expect that they would be. At least not yet.
I am not sure about your suggestion that “that much of MMT was beginning to evolve in the immediate post war period”. It predecessor, Chartalism dates back to 1905 and beyond. I won’t cite academic articles on that subject (that no one is going to read) but I’ve read enough to know that this Wikipedia page, for those who may be interested, is quite OK and so are some the links on it.
https://en.wikipedia.org/wiki/Chartalism
Thanks
Thanks for this, it’s very useful. What would be as powerful a metaphor as “gvt budget like a household budget” for the MMT?
I wish I knew….
Ann,
In this case at least, ‘metaphors’ such those are objects to be destroyed not emulated. If want to find a meme, go negative.
Hi, thanks. I just believe that to communicate with the vast majority, who have no time/interest for politics, a ‘quick and dirty’ analogy is a very poweful tool. Wish I could think of one as well, Richard, thanks.
The metaphor I like is: money is like the charge in an electrical circuit.
Households are the wires, motors and electric lights (or even capacitors when we choose to save).
The government is the battery. It creates the money and it all flows back there in the end.
Great video by the way!
I like that too…
Give me a wiring diagram!
Charles,
Banks & private lending (bank money) doesn’t seem to have a place there.
BTW I think that both you and Richard might want to have a look at this monetary circuit diagram from 1952 (batteries and all).
https://www.concertedaction.com/2014/01/09/augusto-graziani-and-the-theory-of-the-monetary-circuit/
Fascinating!
Ann, I’d suggest instead labelling other economic theories (those used to justify TINA ‘There Is No Alternative’) as ‘flat-earth economics’ as it correctly infers they’re outmoded and wrong.
When RLB and other Labour leaders spout the nonsense of ‘living within our means’ do you suppose the basis of their belief in this ideology is somehow different from most Tories who spout tge same nonsense?
RLB = Rebecca Long Bailey for those wondering
I did. And I know her
Roger
I do not think that in the Labour party it is consciously ideological about this issue. Some in the Tory and Lib Dems are the same. The fact is that many do not know any better.
The household analogy is purely a case of ‘received wisdom’ in my view – purely inductive thinking rather than deductive thinking. It’s intellectual laziness.
The induction happens in our Universities, media outlets and in our other institutions.
There are though I think you would agree certain parties who know it is a lie and wish to sustain it.
@PSR I agree the received wisdom is deeply ingrained.
My concern is that too often the message that comes across is “Tories bad” and “Labour good”. I don’t believe that to be true or fair. Most of the Tories I know just accept the “household model” just like most non-Tories I know.
There are no doubt those who understand the nonsense is nonsense but for financial reasons carry on with the lie.
There are those who understand the nonsense is nonsense but for tactical political reasons don’t say anything and carry on with the lie. Such people come in all hues. My greatest anger is directed at those Labour politicians in this group.
Roger,
” Most of the Tories I know just accept the “household model” just like most non-Tories I know.”
Are we elevating this to a “model” now? This “household model” thing has become a disproportionate obsession in this forum. Its not “a model” its just a dumb, flippant, dishonest platitude (or part thereof), a banality.
Most of the Tories and non-Tories I know either haven’t heard of the “household model”, have forgotten it, or just don’t care.
Haha So that’s why they made plastic £10 notes eh Richard?
I have to use £20s now…..
They still sellotape back together
🙂
Try doing that with a Bitcoin… 🙂
Before long the Bitcoin will probably need it.
I can see the truth behind “money”, the problem is how does any party get elected on a manifesto that even mentions such an approach, does the Public Investment Bank approach help with that by taking this figure out of the normal government accounts, making it an asset rather than borrowing? iirc the money used to purchase RBS etc is excluded from pretty much all the government stats with the exception of the BoE reports and nobody looks at their figures otherwise they might wonder what happened to the 92 billion created by the BoE since the referendum in the TFS and why it’s “in our best interests” that money is made available to us through loans rather than jobs?
Despite MMT reflecting the real world, I’m not sure that some of the messages like tearing up cash are helpful, because of course cash isn’t physically torn up for those reasons (most people don’t even pay their taxes in cash) and most people will look at that in disbelief and switch off. I know
Whilst much of what MMT tells us about money is correct, I suspect government accounts aren’t geared around this view at all do they ?
https://www.gov.uk/government/publications/whole-of-government-accounts-2015-to-2016
how does this change? isn’t it catch 22, nobody will be elected on such an approach, so the secret can’t be made public even though it’s there in the background? so the questions is how does it get used to our advantage without the public freaking out?
“nobody will be elected on such an approach”
Says who? Where’s the evidence?
“how does it get used to our advantage without the public freaking out?”
It could be that you’ve been sucked into a fearful perspective about a straw man “public”. A lot of them aren’t as hung up on this stuff as you seem to think they are. One doesn’t change the paradigm by fixating on an existing narrative, being frightened or slavishly defensive. You change the narrative. If that is done well, with real confidence and conviction, the public goes with you – intuitively for the most part.
For better and worse that seems to be how it has been done in the past.
The only way we can change is by grass roots advocacy. Spreading the word, ‘Each one Teach one.’…. From the bottom up.
Its difficult…really difficult when even many left progressives do not accept what is in this video…. but, we keep chipping away. One day we’ll break through into mainstream acceptance…. I hope for the sake of the planet.
I am pondering a book on Money
Hmm, that’s a big commitment, almost open-ended, worthwhile though.
Last wed on R4 11am, there was a programme on the use of metaphor. An economist spoke v clearly and interestingly at length, against the “household budget” metaphor in current use to describe the country’s economy. The purpose of the prog was to show how powerfully metaphors grab our imagination, and mislead us into believing we understand particular concepts. I wish I knew who the economist was.
Hi Gabrielle, I believe it was John Weeks