Sunday, 7 April 2013

Modern Money Theory - the economics of tyranny



Giuseppe Volpi would have loved Modern Money Theory. I picture him in some dystopic alternative history clattering across Rome clutching the incontrovertible proof needed to justify the corporate state. It seems that a theory that places the state - in the form of the central bank - at the heart of the economy provides just the set of tools that Volpi needed to build a corporatist utopia. No need to worry about where the money would come from to drain marshes, ensure the trains run on time and build a military machine capable of conquering Abyssinia.

The idea that currency sovereignty provides government with the means to control the economy is, without doubt, the economics of tyranny. I know that MMT merely describes how things are rather than proposing a substantively alternative economic model. But there is no doubt that tyrants everywhere would love the ability to print whatever money is needed and use tax or borrowing to regulate how the economy responds to that new money.

And this is the problem. It isn't a matter of whether MMT works (in narrow economic terms) but the social consequences. As an approach to economic policy, MMT fails the 'dictator test' - would the policy tools help or hinder some future totalitarian leader. And there is no question at all that the model - however much it fits with the current structures of central banking and finance - would result in the obscene situation where people are taxed for reasons other than the raising of finance for government. It is the rebirth of what Finer called the "oikos" state, a polity of de facto slavery where all work is directed to the interests of the state and that state provides, according to some plan, for the needs of the people.

The advocates of MMT - good people in the main - do not appreciate that the tools they propose provide the tyrant with more control than is healthy (assuming we wish to be free). This is not to criticise a economic approach founded on the reality of our current international finance system but to question the premise - that this international finance system is desirable. Put more simply, do we wish to have a system that allows government total control - that facilitates tyranny? It seems so appealing right now - reject austerity and simply print enough money to do all those things government wishes to do. But where is the end of that?

I'm sure there are wiser heads who can have the argument about the economics of MMT but on the wider question - the matter of liberty - we should fear a system that hands to the tyrant those tools he needs for control.

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13 comments:

Frances Coppola said...

There is no significant difference between currency issued by government and controlled by means of taxation, and currency issued by central bank and controlled by means of interest rates.

andy blatchford said...

"Put more simply, do we wish to have a system that allows government total control - that facilitates tyranny?"
Ah the old Hayek fallacy central planning leads to tyranny eh... well Germany wasnt centrally planned before Hitler took over so thats blown that one. http://www.nakedcapitalism.com/2013/01/philip-pilkington-the-origins-of-neoliberalism-part-i-hayeks-delusion.html

You have here a slippery slope argument.

Edmund said...



MMT does not do this. MMT postulates that the Treasury or a conceptually combined Treasury-CB is at the heart of the financial elements of the economy, which is further suggests is both misinterpreted and inappropriately discounted by neoclassical economics.

Neoclassical economics - through its conception of the natural rate of interest - actually puts the central bank at the heart of the economy as well. Real business cycle theory does not, nor earlier New Classical models, but that's only because they assume that all private actors in the economy immediately adjust their behavior to different interest rates and nullify the real effects of rate changes. If that's the case, however, who cares about the central bank?

Anyway, money has always been a creature of the state. Sumerian units of account were decided upon by the palace-temple complex. Coinage was created to fund soldiers, and people accepted it because the state demanded it back in taxes. So wringing one's hands about the truths of MMT doesn't really make any sense: successful totalitarians simply employ the real resources at their disposal *regardless* of the financial and accounting methods they opt for. Even if the currency they use is theoretically tied to some mineral or what have you, they can employ their position as a totalitarian to force the private sector to extend credit to the state in some way.

reasoninrevolt said...

This is some of the most remarkable garbage I've read in a long time. You keep referring to 'The Tyrant'. Who exactly would this be? I was under the impression that we live in a democracy...

Ben Johannson said...

Frances, if you can write that with a straight face then you don't understand the subject. There is an enomous difference between financial assets and net financial assets. The complete failure of the mainstream of economics to forecast the financial crash and following depresion stems largely from its ignorance regarding how debt works.

calgacus said...

Would "Air" help or hinder some future totalitarian leader? Surely help. Without Air, future totalitarian leaders invariably die. Therefore Air is Evil and we should get rid of it.

MMT isn't making any new policy proposal. The policy proposal is to have an economy that uses money.

we should fear a system that hands to the tyrant those tools he needs for control. No, we should fear mass ignorance of the tools of control that every government, every system has always had. The ignorant will then inevitably be controlled by the corrupt and tyrannical. On the other hand, widespread knowledge will allow, control governments to control economies for common purposes.

Min said...

We have already seen this in the US. After the financial crisis, the plutocracy bailed out the Big Banks and Wall Street, creating money as needed to do the job. Then they did not bail out Main Street, claiming that we could not afford it.

Ralph Musgrave said...

The problem that Simon Cooke addresses needs addressing. But it’s a problem that has already been sorted. In common with MMT, this submission to the Vickers commission (link below) advocates having the government / central bank machine create and spend money into the economy (and/or cut taxes) as appropriate. And the solution to the dictator problem advocated in that submission is to have an independent committee of economists – something like the BoE Monetary Policy Committee decide how much money to create.

http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

Of course politicians can always override a such a committee, but politicians can override the decisions of their central bank under the existing system: witness Argentina. And Bernanke is subject to some severe political pressures.

Mervyn King put an argument very similar to Simon Cooke’s, which I think I successfully demolished here:

http://www.positivemoney.org/2013/02/positive-money-says-create-money-and-spend-it-mervyn-king-disagrees/


Ralph Musgrave said...

The problem that Simon Cooke addresses needs addressing. But it’s a problem that has already been sorted. In common with MMT, this submission to the Vickers commission (link below) advocates having the government / central bank machine create and spend money into the economy (and/or cut taxes) as appropriate. And the solution to the dictator problem advocated in that submission is to have an independent committee of economists – something like the BoE Monetary Policy Committee decide how much money to create.

http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

Of course politicians can always override a such a committee, but politicians can override the decisions of their central bank under the existing system: witness Argentina. And Bernanke is subject to some severe political pressures.

Mervyn King put an argument very similar to Simon Cooke’s, which I think I successfully demolished here:

http://www.positivemoney.org/2013/02/positive-money-says-create-money-and-spend-it-mervyn-king-disagrees/


pebird said...

This is similar to criticizing the factory system because it facilitates centralization of power and hence tyranny.

The beauty of MMT is that as a description of how the current institutional arrangements function, one can see how the system could be used for much better social outcomes.

In other words, the problem is political and not technical in nature. The monetary system is not broken, we just have sociopaths in charge.

Simon Cooke said...

Thanks for the comments - most of you are so much cleverer than I. However - other than @pebird you seem to miss the point.

The problem is absolutely political and there is precisely nothing in the current systems of governance that protects liberty.

andy blatchford said...

"The problem is absolutely political and there is precisely nothing in the current systems of governance that protects liberty."

Simon with all due respect no one missed the point, we just disagree it is a point. How are you going to put something in that stops a tyrant because the point is a tyrant will change that (and i pointed out Hitler taking over in Germany who then just cancelled democracy). You could have a constitution but of course what is to stop that being changed? and of course someone could put in something like the US second amendment where people have the "right to bear arms" and still be arguing about what it means over 200 years later.

Edmund said...

My point was that monetary arrangements don't appear to protect anyone from anything.

I think you have it precisely backward. Bad monetary arrangements hurt people, promote unemployment and engender dissatisfaction with the political status quo. For example, adherence to the gold standard under Bruning created the deflation and unemployment which helped propel the Nazis to electoral success. So the restriction on the spending powers of the state actually birthed the totalitarianism you speak of.