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Hi, I’m Eve. We started discussing Modern Monetary Theory relatively early on, when a small group of academics and economic commentators, such as Randy Wray, Stephanie Kelton, Scott Fullwiler, and Warren Mosler, were trying to bring Modern Monetary Theory out of the fringes of academia and into the mainstream. The fact that some libertarians still refer to it with anger and little understanding is a testament to the fact that this group of supporters helped to raise the profile of Modern Monetary Theory.
But why the intense reaction? The reaction is often instinctive, as if Modern Monetary Theory, which holds that issuers of sovereign currencies are constrained not by their ability to tax but by the productive capacity of the economy (and to the extent that the private sector declines, governments can spend to fix it), is fiscally immoral. In fact, as Richard Murphy explains below, the more fundamental reason is that Modern Monetary Theory upends power structures by showing that currency-issuing governments do not rely on bond investors to spend. That is, financial markets and banks do not have as much power as the media and authorities would have us believe.
By Richard Murphy, Adjunct Professor of Accounting Practice at the School of Management, University of Sheffield, Director of the Corporate Accountability Network, Member of Finance for the Future LLP, and Director of Tax Research LLP. Originally published in Funding the Future
Modern Monetary Theory (MMT) significantly changes economic power dynamics by shifting control from banks to democratic governments and emphasizing the people and full employment. Although critics have misunderstood its meaning, MMT argues that governments with their own currency can print money to fund spending and therefore do not rely on financial markets. Taxation plays a key role in controlling inflation, refocusing economic policy towards full employment, addressing inequality, and ultimately empowering the financial people.
Some people claim that Modern Monetary Theory Those who say it doesn’t matter or that it won’t change anything are wrong. MMT fundamentally restructures power in the economy, taking power away from banks and the financial system and giving it to democratic government control, prioritizing people and full employment instead. It’s no wonder so many people dislike MMT – it challenges all the privileges they enjoy at the expense of the rest of us.
The audio files are here:
The records are as follows:
Why is Modern Monetary Theory so important?
I I recently made a video about MMT. And I’ve explained what it is. But knowing what it is isn’t enough to explain why I think it’s so important.
Critics of MMT say that it doesn’t actually change anything because, as they point out, and as I agree, MMT holds that in order for the government to control the economy, it must tax roughly the same amount as it spends. inflation.
If so, people say, so what, does it matter whether you think taxes take precedence over spending or whether you think spending takes precedence over taxes? In fact, they say, the books should roughly balance in any macroeconomic system whether you adopt MMT principles or not, so what’s the outcome? And I say, yeah, it does matter.
Their question is naive. It’s like a physicist saying, “We don’t need Einstein or relativity or any of that nonsense. All we can do is use Newtonian physics, which is close to the truth in 97 percent of the situations, and that will be good enough.”
But, of course, this is not the case: most important decisions must be made in the possible 3 percent of situations where Newtonian physics cannot provide a good approximation.
The same can be said about economics: MMT might be saying that taxes are fundamentally important, and that if we want to spend the majority of our national budget, we have to raise taxes substantially. National Income Through the government. But if you understand what MMT is saying, it makes a big difference in how you interpret that spending and the relationships that exist within the economy.
Let me explain. First of all, it is important to understand one of the core messages of MMT: governments are not bound by financial markets.
Modern Monetary Theory A sovereign government currency Internationally recognized and unique Central Bank You can never depend on the financial markets money This is because they can always ask their central bank to create the new currency needed to fund government spending.
The fact is, we know this to be true: it happened in the UK and many other countries after the 2008 financial crisis, and it has happened again during COVID-19. Quantitative Easing They tried to hide that fact, but they really failed. The amount of money in circulation is Bank of England Or other Central Bank It has increased significantly.
In other words, dependence on financial markets is not real – a fact that MMT acknowledges that other macroeconomic theories do not.
As a result, recognising that the government is providing financial markets with savings opportunities rather than borrowing from them fundamentally changes the balance of power between the City of London and the government in the UK, and other similar relationships.
Bankers don’t rule. That’s one of the messages of MMT. And that has to be understood. But nobody says that except in MMT. That’s why Modern Monetary Theory is really important.
Second, taxes are fundamentally important in MMT. Anyone who says taxes aren’t important is wrong. Taxes are the primary tool used to control inflation in Modern Monetary Theory. There is no other tool that can control inflation as well as taxation. Let’s be clear about this.
And the upshot of MMT is that the whole myth of central bank independence and the role of interest rates in controlling inflation, which has caused so much pain for so many people as a result of the unnecessary interest rate hikes of the last few years, is not true. Instead, taxes play that role. So again, this changes the balance of power.
The balance of power now rests with the Treasury and its decisions on taxation, including the short-term changes it can make if necessary to control inflation, such as changing the basic rate of VAT, which can happen at any time in any economy. The central bank suddenly becomes a bank regulator and no longer the manager of overall economic policy. For the past 25 years or so we have given the central bank the status of manager of overall economic policy, which is simply a falsehood.
And the role of taxation is different: it is simply a matter of raising revenue, and is seen as something much larger in terms of implementing government policy, rather than focusing on whether a particular tax is effective at raising funds.
It’s about implementing policies to address inequality.
This is about implementing policies that change the way the economy operates, for example by subsidizing things that the government wants to happen and taxing things that it doesn’t want to happen — taxing bad things like gambling, alcohol, carbon, whatever you want to call it, and not taxing good things like education books.
Also, since taxes are paid by the people, it is crucial for the people to understand how taxes work, and it is also one of the ways in which the people decide how to hold the government accountable, so building a relationship between the people and the government is also important. In other words, taxes are a fundamental driving force of democracy.
MMT sheds light on all this.
It is also clear that governments do not need to obsess over inflation because it will always resolve itself. This is what history tells us in the UK since 1210, the only time we have data for that period. Government economic policy should instead be focused on more important things.
MMT prioritises full employment, or investment, inequality, climate change etc.
All of this could potentially be a bigger focus than inflation, which as a target is becoming so destructive – in fact, even more destructive than inflation itself.
So what MMT does is fundamentally change how we account for the way the economy works – government spending and taxation. Some would argue that governments tax and spend. And the total amount of money doesn’t necessarily change dramatically as a result of MMT. But what MMT does is change our understanding of the power dynamics around it.
It’s a political economy theory, because political economy is all about power relationships, and MMT puts the power back in the hands of democratic governments, the Treasury, and the choices about how to meet people’s needs, especially by achieving full employment.
MMT is powerful, radical, differentiated and fundamentally important because it puts people, not money, bankers or finance, at the center of economic policy. And I believe it’s time for this to happen.
