More MMT boilerplate on how to fix capitalism without really trying
Here is another silly attempt to fix capitalist crisis with money: “Why Understanding Money Matters in Greece” by Robert W. Parenteau. It is typical MMT nonsense:
“The modern state, then, imposes and enforces a tax liability on its citizens, and chooses that which is necessary to pay taxes. That means a state with a sovereign currency is never revenue constrained. In fact, the government has to first create the money before the private sector can find a way to get the money it requires to pay taxes and by government bonds. Taxes and bonds are therefore not really the source of government funding or finance.”
The standard MMT boilerplate thus argues the state creates money before taxing this money back into its coffers. It “creates” the paper first, and employs the paper to purchase “goods and services” from the private sector; then it taxes the private sector for more or less the full amount of its purchases.
“Taxes simply give value to money, as households and nonbank firms cannot create money – that is counterfeiting. Instead, they have to sell an asset or a product or a service to the government to get money, or they need to be beneficiaries of government corporate subsidy or household transfer programs to get money.”
So, when individuals and businesses do what the state does, print up a bunch of currency and spend it, this is ‘counterfeiting’; when the state does it to individuals and businesses — not so much?
So why purchase the goods and services in the first place? Why not just expropriate the resources necessary to operate government? Instead of paying GM so many billions to deliver tanks to the army, why not just order them to do this? What is the purpose of the charade that government is paying for the goods and services when MMTers know the state just created the money needed to buy goods and services?
Obviously, the point of the exercise has nothing at all to do with how government “funds” itself. It really doesn’t matter if government purchases first and taxes after, or collects taxes first and purchases after. The order of the operation is irrelevant, because, in either case, the state is paying nothing for goods and service — it is engaged in an expropriation. In either case the government has received goods and services from the ‘private sector’ without paying for them. It can do this simply by ordering the private sector to hand over these goods and services, it can hand over some newly printed cash, or it can tax and spend.
The idea that the government is the only source of money is just as silly: any company can advance credit to the state; the state would then use the credit to make purchase from the company. For instance, Staples could advance $100 million credit line to the state and the state could use this credit line to buy pencils and magic markers.
In this case, money has been created by Staples — credit money — and the credit money is spent by the state in the form of purchases. To take this one step further, everyone in society could pony up about 40-50% of their annual earning into a huge pot and the state could draw down on this pot to make its purchases. Now society is creating money and has no need for the valueless paper printed by the state, while the state is spending society’s credit.
The entire scheme is, of course, silly, but it shows that the state is far from the only creator of money in society.
MMT rests on the inane argument that the state is the sole creator of money in society, when, in fact, this is not true. Companies routinely create money in the course of business and destroy this money as they satisfy their creditors. What is more, unlike state currency, this money doesn’t hang around, nor does it need to be managed. Millions of times everyday, in any economy, money is winking into existence and disappearing just as suddenly. This creation and destruction of money is regulated by the movement of commodities, of capital in the form of commodities. The flashes of money creation and destruction turn into flows of money from one sector of the economy to another.
The state’s role in all of this is zero, nada, zilch.
And, to directly contradict MMT, here is the most important part: None of this money creation falls in the category of counterfeiting. So, it is not at all true, as MMT argues, “households and nonbank firms cannot create money [because] that is counterfeiting.” Households and nonbank firms create money all the time and just as readily destroy this money when the need for it has passed. Not only is this money-creation not counterfeiting, “the economy” almost entirely consists of it.
The portion of ‘the economy’ that consists of state issued currency is, by contrast, a negligible residue. Today, about $1.2 trillion is in circulation, most of it held outside the United States, according to the Fed. Consumer credit alone stands at $3.3 trillion according to the same source. The bond market in the United States is said to be the largest by far on the world market at around $37 trillion. That is more than $40 trillion in private credit money versus $1.2 trillion in state issued currency.
MMT gets its appeal from the commonplace prejudice that money is whatever instrument you use to buy groceries. The dollars in your pocket are indeed money, but they are not the only form of money in existence nor are they even the most important. The vast majority of money never takes the form of currency and your wages depend on this non-currency money.
When one capital invoices another capital in a routine transaction, the first has created credit money. To get an idea of the scale of this activity, the Fed estimates Fedswire Funds Service settles $2.1 trillion per day. Not a single penny of this settlement took the form of some state issued currency. The daily volume of such settlements dwarfs the total mass of currency in circulation.
I cannot possibly say I know as much about the inner working of the treasury as the MMT school does. Not even a fraction. But I know enough to see when they are full of shit. The idea the state is the only issuer of money, and that private households and nonbank firms are not, is a gross distortion of the facts. Ideally, the state is the only legal issuer of the national currency, but the overwhelming majority of transactions never involve any currency at all.
Parenteau’s argument seems to be that the state should spend first and tax after; more broadly, it appears he is arguing the state should just spend as much as it needs to, no matter what taxes it collects. There is a good reason for this advice: a lot of people collect pensions in Greece and a lot of social services important to the working class are funded by the state and a huge proportion of the Greece labor force is employed by the state. If these wages, pensions and social services funds cannot be paid, a humanitarian disaster looms.
And the EU/ECB is holding this over the SYRIZA government as a threat.
Parenteau says his aim is to help Greece “exit austerity without having to exit the euro.” This should not be hard since SYRIZA is now in charge of the largest single employer in Greece: the state. SYRIZA should at least be able to reduce the hours of labor for its employees to 24 hours and free them from labor. This would allow SYRIZA to reduce the cost of government and free up needed resources for vital social services and pensions, while moving society closer to the complete abolition of wage labor.
This is the real advantage SYRIZA holds over the EU/ECB: The Left is the only political force that can really deliver on the promise of smaller government, since this reduction requires the progressive abolition of wage labor. The Right has proved it cannot deliver on less government; only less rational government that pays bond-holders while workers starve.