A closeup of adollar

A reply to a Firedoglake post on “Manic” Monetary Theory

When I saw Dan ps’s latest post, I set out to reply in the comments, but found myself unable to because the reply links were no longer there. Hence this post in reply.

My thanks to Boo Radley, stratocruiser, caleb36, bluedot12, sihlkee, and TarheelDem for their comments making common sense points about MMT. I think you set the stage well for what I’ll say below.

My main reservation with Modern Monetary Theory is probably this: It is named a monetary theory, yet its proponents expand its scope – in all directions, it sometimes seems – to include topics that have nothing to do with monetary theory. I think it’s reasonable to expect a monetary theory to describe the way money works, and nothing else. Here is how money is created. Here is how it is destroyed. Here is how it gains value. Here is how it loses value. Here is what governments must do to increase its value, here to decrease it.

Another name for the Modern Money Theory (MMT) approach is neo-chartalism. It is also sometimes called “functional finance” because it follows the orientation, emphasized so strongly, by Abba Lerner in earlier times. That said, Modern Money Theory, or alternatively, Modern Monetary Theory isn’t a name its developers chose. It is a label given the approach by others, which over a period of time in the 1990s, stuck. Once that happened its developers decided not to fight it, but to just live with it. Right now, some of us are using “Modern Money Theory,” in an effort to get away from the implication that MMT is about monetary policy, because the most important emphasis of our approach is on fiscal policy, rather than monetary policy.

Next, MMT is not, as Dan ps says above, a monetary theory. It is an approach to the subject matter of macroeconomics. The approach contains all sorts of propositions and sets of propositions. Definitions, value statements, conceptual frameworks, descriptive (fact) statements, theories, accounting identities, normative propositions, etc. So, when Dan ps objects to the proponents of MMT encompassing a lot more in their writings than just “monetary theory,” his objection, while based in part on fact, is just a reflection of his view of what the scope of something called MMT ought to be. But, unfortunately, his view is a purely personal one and is not shared by MMT, developers, practitioners, or writers.

So, what can one say about this? Only that MMT people think differently than Dan ps about what MMT ought to be and is about. So, who’s right about this, the guy who’s a “casual reader” of MMT work, or the various people who do MMT? :) :) :)

Yet proponents insist that other things, things that have nothing whatsoever to do with monetary theory, are part of Modern Monetary Theory. I’ll illustrate using my exchange with letsgetitdone since it’s fresh, but I think it’s also representative.
He writes that ’economics ought to be practiced, as Galbraith, the elder said, to fulfill the public purpose,’1 that Modern Monetary Theory ‘is an approach and not a theory’ (!!) and that ‘public purpose is core to MMT.’ Public purpose may be core to economics, but not a monetary theory. A monetary theory exists to describe how money works. One may advocate for public purpose, as one understands it, and show how it works under a given monetary theory – but that is no longer monetary theory.

Well, again, this argument may sound plausible, but it is based purely on Dan’s misinterpretation of MMT as a narrow value-free descriptive theory about money. If one actually looks at the MMT literature, something Dan as as “casual reader” has done to only a limited extent, then you will find that all the main MMT developers, as well as some less important writers such as myself, continually refer to MMT-based policies compared to alternative policies, such as neoliberal ones, in the context of the idea of public purpose.

We all agree that when we talk about “public purpose” proper we are not talking monetary theory or monetary policy. We know we’re talking about the purpose of macroeconomic policy and about fiscal and monetary policies in relation to public purpose. But so what? We think that’s what we should be talking about.

When Dan says: “. . . Public purpose may be core to economics, but not a monetary theory,” I say first, that MMT isn’t just a monetary theory, and second that public purpose isn’t core to most approaches to macroeconomics and particularly not to neoclassical and neoliberal approaches, but it is core to MMT, and that is one of the ways in which MMT differs from the other approaches.

If he (and other advocates) would just call the thing Modern Monetary Policy or Modern Monetary Advocacy or anything else that encompasses ‘public purpose’ commentary, I wouldn’t have any argument. But you can’t have it both ways: If you want to present your ideas in the dispassionate, technocratic, scientific-sounding mantle of monetary theory, then you need to stick with monetary theory.

Well, we’ll take that under advisement, and we’re sorry you have an argument with what other people, including critics, decided to call our approach to economics. But, unfortunately, the presence of an abundance of literature calling our approach by that name, makes it very difficult for us to change now. If we tried we would have to constantly make the connection between our new label for our approach and our old label, so people could know what we’re talking about.

As for your worry that people will think MMT is a science when it is not, I think there is a questionable view of what science is in back of your criticism of our approach. And I also think the whole issue of whether MMT is a scientific approach or not is a “red herring.”

First, there is much disagreement among scientists and philosophers about the definition of science, and there is no truly authoritative definition shared by all or most who say they are scientists. Second, unless we want to define “science” as a body of knowledge that works, and is clearly established; a definition that would have excluded most of today’s scientific disciplines, approaches, and theories in their early days, it makes no sense to require “success” before we apply the name “science.” This is even more clear if we reflect on the idea that we will probably want to be able to talk about “successful science” and “unsuccessful science,”which by itself suggests that such a definition won’t work.

Third, what about defining science as a “method,” why won’t that work? Simply because there isn’t an agreed upon scientific method extending across all disciplines. As Karl Popper said in the 1956 preface to his Realism and the Aim of Science, 1983 there is no scientific method and he ought to know because for some time, at least, he was “the one and only professor of this non-existent subject within the British Commonwealth.”

And fourth, what does it matter what we call MMT as long as the pattern of inquiry we find in it, is the most effective we can devise? That is what counts; not whether the label we place on that pattern is “science.”

So, it seems to me that the real issue is not whether MMT or any alternative approach to economics, is “scientific,” but rather the kinds of norms and practices of inquiry an approach to economics or any other area of inquiry should be fostering both in terms of its own problem solving, and the problem solving of those whose performance and policy decisions MMT or any other approach is trying to enhance. I think we must settle that issue for the present by comparing MMT with other approaches in macroeconomics and other sciences and by asking ourselves how MMT compares in its norms and practices of inquiry and its problem solving capabilities relative to its competitors.

My claim here is that it stacks up a lot better than its competitors in macroeconomics and very well compared to other approaches and paradigms in the social sciences. If you think differently, then name some alternatives and argue for them.

Proponents of Modern Monetary (not a) Theory choose instead to use the monetary theory as a launching pad for a bewildering, sometimes contradictory, variety of prescriptions. For instance, the un-theory endorses a basic income (“Job and income guarantees are complementary policies”), except when it doesn’t:

‘basic income guarantees are unlikely to achieve the objectives of alleviating poverty, income inequality or poor standards of living, because the proposals have an inherent highly inflationary bias with disastrous consequences for the currency.’

Well, again, MMT is a not “a theory,” it is an approach, and approaches to research leave room for disagreement among practitioners. There is no MMT gospel that is the same for everyone with respect to the Job Guarantee vs. the Basic Income Guarantee. The first reference you cite above is a recent overview of MMT written by Rebecca Rojer. It’s a good piece of work, but Rojer is a newcomer to MMT writing, and her take on MMT ought not to be quoted as representative in comparison with your second citation which is to a co-authored piece by two MMT leaders, Randy Wray and Pavlina Tcherneva, on the JG vs. the BIG. The first cite isn’t to an MMT authority; the second is written by two authors at the center of MMT work.

Further, your take on the comparison also seriously misrepresents what Rojer said. In the paragraphs just before the quote you give above, she states views of MMT leaders including Bill Mitchell, which talk about the things that a BIG fails to do, but a JG would do, and which also cites MMT fears that a BIG would stoke inflation. When she says that the two policies are complementary, my view is that she’s stating her own opinion, which btw, I share, and have clearly stated in my series on the JG ending here.

But this is certainly not the MMT view which is more properly stated as one of MMT tolerance for current safety net measures including unemployment insurance, along with skepticism that a BIG program could avoid being inflationary. Most MMT writers including Mosler, Wray, Mitchell, Kelton, Fullwiler, and Tcherneva generally urge caution, or state misgivings, about the BIG while urging the JG very strongly. It is definitely a minority point of view in MMT that the JG/BIG combination would be beneficial and would still hedge against inflation, an important purpose of the JG in addition to full employment. From my point of view, I think there’s an empirical question here about what size gap between the living wage of the JG and the amount of the BIG subsidy would be compatible with price stability. I don’t think anyone knows the answer to this question, and that it has to be answered by experience.

Modern Monetary Theory has no equivalent of Keynes’ General Theory of Employment, Interest and Money (which, incidentally, advertises itself as something more than a monetary theory).2 Without an identified creator and foundational text, everything is up for grabs. And untethered from actual monetary theory, proponents are free to turn it into whatever they want.

Already covered. It’s not “a theory.” It’s an approach. It has room for competing views and theories. Warren Mosler was the first to synthesize MMT in an earlier edition of this work. But others, such as Bill Mitchell, and Randy Wray were in at the beginning, and they have books that are also widely read. Bill and Randy are currently co-authoring a text book which, if I recall correctly, is scheduled to appear later this year, and which may become a foundational text, at least for academia.

That may clear up some problems, for people looking for an authoritative source for MMT. But there will always be room for disagreement about the approach, because anyone characterizing it is fallible and may make a mistake in analysis of the body of literature that is MMT. That said, not all characterizations of MMT will fall into the boundary of reasonable disagreements. For example, an assertion that MMT is primarily about “x” when the literature indcates that it is also about that and also “y”, “z” and much more, will obviously fail as a reasonable characterization, as I’ve pointed out to you before, esewhere.

Turning again to letsgetitdone’s comment, he took advantage of that opportunity (‘I wrote a 16 part series on this subject’), but given his tendency to lapse into incomprehensible jargon (‘a new ecology of self-organized voting blocs and electoral coalitions fueled by an IT application enabling people to create a metalayer of constraints’) I don’t know how many folks will feel like jumping in. Oh, and also: his reference to getting ‘the right people in charge’ has a really creepy, totalitarian ring to it.

I find this paragraph is really a laugher. Dan might have been courteous enough to link to my series on this subject, and he also might have been courteous enough to link to my post in the series that makes absolutely clear that MMT is an approach and not just a monetary theory. Of course, these links would have made it abundantly clear that your contentions about MMT are absolutely false so I understand why you don’t link to them in the post.

I also understand why you tried to discourage people from actually reading the previous comments of mine on your post at Corrente you cited by calling out my supposed “tendency to lapse into incomprehensible jargon (“a new ecology of self-organized voting blocs and electoral coalitions fueled by an IT application enabling people to create a metalayer of constraints”).” Because by doing that you must have hoped that no one would read my comments and see my answer to your question asking “Why re-invent the wheel?”in reply to my citing the need for “legislating structures of vigilance” to create a political system that was newly responsive to the people, rather than special interests (I hope that’s not too much jargon for you).

However, you cut off that quote in mid-sentence. What I said in reply to your question was:

By structures of vigilance I mean a new ecology of self-organized voting blocs and electoral coalitions fueled by an IT application enabling people to create a metalayer of constraints on politicians to legislate the interests of the people they represent rather than the monied interests that are now buying them. I’ve described what I mean in more detail in the series ending here.

I think people are going to be interested in that series, since it offers discussion of a technological innovation that can re-set representative democracy and make it more effective than it has ever been before. But moving from disingenuity to disingenuity, your remark about my statement having a totalitarian ring to it, is a great example of someone playing “gotcha.” The full paragraph quote (and context of a reply to a claim that even if MMT is accepted the only consequence will be that fear of inflation replaces fear of insolvency in right wing propaganda) for those who check the reference is:

Second, so we know ‘inflation’ will replace insolvency as the crutch of the austerians. But we want to have that argument. We won it most of the time between 1945 and 1975. We then lost it during the cost-push oil and Fed-induced stagflation of the 1970s, when Carter, Rivlin, and Volcker botched up the response to the cost-push inflation and treated it as a demand-pull inflation instead. Nevertheless, we think we can win the trade-off of inflation vs. unemployment again this time around, because we know how to treat cost-push inflation now and we also know to avoid demand-pull inflation as well. But make no mistake about it, with no demand-pull inflation on the horizon the public will choose full employment and with the right people in charge of Federal policy, we’ll be able to contain inflation too.

Now, this is an innocuous statement, meaning no more than we can most successfully implement MMT-based policy avoiding demand-pull inflation, if a president who believes in such policy appoints people like Jamie Galbraith, Warren Mosler, Stephanie Kelton, Randy Wray, and Bill Black, rather than people like Larry Summers, Gene Sperling, Timmy Geithner, Peter Orszag, and Jack Lew, to key economic and regulatory positions in the Administration and at the Fed. What’s totalitarian about that? And why would you want to take that quote completely out of context, and imply that I had totalitarian tendencies, if you weren’t just playing “gotcha,” rather than providing us with a serious critique of what I wrote?

Really, your playing with quotes in the way you do in this post destroys your credibility in the face of replies, because it reveals that you’re a disingenuous critic, interested in debates and in winning arguments; but having no interest in the truth. If you want to be effective at criticizing positions you’re opposed to, then the best way to do that is to formulate those positions in the most defensible way you can, and then refute them with criticisms they can’t stand against. It is not to distort those positions, quote out of context, play “gotcha” and in general misrepresent what you set out to criticize. The first is the kind of criticism that can work, not the kind of MMT caricature you’re attempting to sell here.

Photo by c_ambler released under a Creative Commons license.