OCTOBER 8, 2020
THE PAST FEW YEARS have been good ones for Modern Monetary Theory (MMT). A decade ago, you would have been hard-pressed to find a mainstream economist who had even heard of this fringe school of left-Keynesian economics. But ever since Bernie Sanders made MMT proponent Stephanie Kelton a senior economic advisor for his 2016 presidential campaign, it has gradually trickled into the mainstream. In June, Kelton’s new book, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, landed on the New York Times Best Sellers list, no small feat for a tome about monetary issues.
The meteoric rise of MMT may be surprising to its many detractors (Clintonite liberals hate MMT as much as Senate Republicans do), but it shouldn’t be. Its basic message — that the spending of currency-issuing governments is not constrained by tax income — is uniquely resonant in a moment when trillion-dollar stimulus packages and zero-percent interest rates are becoming the new normal. Most of us need money in our bank accounts right now. MMT tells us that the only thing keeping the federal government from providing the kind of fiscal support we need to weather this pandemic is that they don’t want to. There is no objective economic constraint, only a lack of political will.
This goes for other programs as well. Medicare for All? We can afford it. A multi-trillion-dollar Green New Deal? We can afford it. A guaranteed job for anyone who wants to work? That, too. And, Kelton argues, we don’t necessarily need to raise taxes to do all this. The size of the budget deficit or the outstanding public debt should not, by itself, affect the policy decisions of currency-issuing governments like the United States. As long as there is some slack in the economy (unemployed people seeking work, idle factories, or other resources that are not used to their full potential), the government can spend as much as it wants. Ultimately, the true limitation is not the federal budget but the rate of inflation. Only when consumer price rises start to accelerate — when the economy has reached full capacity — does the government need to withdraw money from circulation through tax hikes.
And yet, deficit hawks of both parties continue to argue that we have a moral duty to balance the budget. This is the titular myth of Kelton’s book: the idea that deficit spending financed by bond issues is essentially a tax on “our children’s future.” Both the good citizens and the thrifty stewards of this great nation have to tighten their belts and learn to live within their means. Keynesians have long argued against this kind of thinking, but Kelton’s explanation of why it is wrong is exceptionally lucid and accessible. The basic problem is a false analogy between households, who are currency users, and governments, who are currency issuers. Where currency users can run out of money and default on their debts, a government can always pay off its debt, so long as that debt is denominated its own currency. “Sovereign currency issuers” like the United States, Japan, and the United Kingdom can never be forced into default. They can always exchange publicly issued bonds for dollars, yen, and pounds because they can always just create more dollars, yen, and pounds.
In the United States, paying off the public debt is as simple as issuing “green money” (US dollars, a liability of the Federal Reserve) in exchange for “yellow money” (US Treasury securities, a liability of the Treasury). This is why the linguistic convention that names Treasury liabilities “debt” and Federal Reserve liabilities “money” is so misleading. It would be much more accurate, Kelton argues, to think of dollars as a checking account and treasuries as a savings account — variations of the same basic kind of asset rather than binary opposites. Indeed, this is the way that US Treasuries are generally treated by corporations, banks, and money market funds: as low-yielding assets held primarily because they can be rapidly liquidated (converted into “green money”) with low risk of capital loss.
Kelton’s emphasis on the role of Treasury securities as private sector assets, rather than just public sector liabilities, works as a kind of gestalt switch for readers. Where we used to see public borrowing, now we see asset printing. “Running up the national debt” sounds dire and unsustainable; tweaking private sector holdings of green versus yellow dollars sounds benign. And, given that dire warnings about “the deficit” are among the most important rhetorical weapons in the conservative arsenal, shifting the political discourse is an urgent necessity if progressive goals are ever to be achieved.
Still, many on the left remain critical of, or even hostile toward, Modern Monetary Theory. Marxists often criticize Kelton’s book, and MMT generally, for what they perceive as an abstract focus on the fiscal capacity of the state, far removed from bread-and-butter class struggles at the point of production. When MMT proponents argue that taxes aren’t necessary to finance public spending, that sovereign states can bypass the tax-resisting ruling class by simply spending money into existence, Marxists see an illusory technical substitute for both distributional struggles and broader socialist transformations in the real economy. Focusing on “tricks of circulation” rather than relations of production, MMT turns money printing into “the new Big Rock Candy Mountain” — the classic Keynesian vision of “revolution without revolution.” The most polemical line of Marxist critique goes even further, implying that the theory is a smokescreen that provides tax-evading hedge fund managers (like MMT founding father Warren Mosler) with ideological cover.
This criticism misses the mark. Not all MMT disciples want to end capitalism, of course. Mosler and Kelton certainly do not. But for every hedge fund capitalist or moderate social democrat in the MMT camp, we can find a socialist organizer like Jesse Myerson or a radical labor historian and prison abolitionist like David Stein. In terms of anticapitalist aspirations, Marxism and left-wing MMT are not that far apart.
The deeper disagreement is about the nature of state power under capitalism. MMT literature, with some exceptions, leans heavily on the idea of national sovereignty. Framing money-issuance as a core power of sovereign nation-states, it highlights the problems that arise when the states place “self-imposed constraints” on that power, such as fixed exchange rates, gold convertibility requirements, or dollarization. The goal is for the left to escape these false limitations and “reclaim” the nation-state, harnessing its fiscal power for progressive ends. If MMT emphasizes the unrealized potential of public finance, Marxist analysis is more concerned with the limitations inherent in the capitalist state form itself. It frames the ideological separation of the political sphere (the liberal-democratic state) from the economic sphere (the market) as a key barrier to radical change. MMT looks “idealist” from this angle because it takes the capitalist division between the political and the economic for granted, imagining that delusions and wrong ideas about economics are the only things preventing the state from correcting the injustices and antagonisms of the capitalist market. With its narrow focus on formal legal prerogatives and technical details of the monetary system, MMT loses the bigger political picture. The result is a naïve optimism about the power of enlightened policymakers to achieve outcomes that are undesirable to the capitalist class.
There are real differences here, but they are not as irreconcilable as they may seem. To start, MMT hardly takes the capitalist divide between polity and economy for granted. The Deficit Myth explicitly argues that the two spheres are “ultimately inseparable” and that political change is driven by popular mobilization, not by the state. And while it is true that MMT sometimes suffers from optimism of the intellect, contemporary Marxists are just as likely to suffer from pessimism of the will. We shouldn’t fetishize the state as the only possible site of political action, of course; but we also shouldn’t fetishize civil society. As so-called political Marxists like Ellen Meiksins Wood have long argued, law and state policy are not a “superstructure” determined by an economic base; rather, legally encoded property relations are at the core of the mode of production. Even capital itself is, in an important sense, a creature of law.
All this is to say that only an exceptionally narrow view of politics would treat the operations of the Fed and the Treasury as somehow epiphenomenal to class struggle. Lenin himself speculated that a national bank would “constitute as much as nine-tenths of the socialist [state] apparatus.” So why do contemporary Marxists find it so hard to believe that the state’s money-issuing power could be a crucial part of the socialist project? Even if you think MMT is politically naïve, it has a lot to offer when it comes to understanding public finance. It is not easy to find a Marxist economist — or, indeed, any economist — that can match Nathan Tankus’s grasp of recent monetary policy, for example.
MMT’s job guarantee program could be a more important point of convergence. As Kelton points out, publicly guaranteed access to a living-wage job would dramatically enhance the bargaining power of labor. For socialists, this should be its main selling point, even if other aspects of the proposal are not particularly radical. (In its current form, the MMT job guarantee actually requires wage suppression if inflation takes off.) But whatever the intentions of the job guarantee’s architects, a likely outcome of its implementation would be the conversion of a disorganized and isolated class of unemployed people into a working class with unprecedented power to mobilize.
What would happen if the 17.8 million workers who are unemployed today were hired by the federal government? One in 10 American workers would be making a decent wage working on public projects whose success is not measured by profitability. One in 10 would be experiencing — likely for the first time — a workplace that does not measure their worth by their productivity. These experiences themselves could make deeper socialist transformations seem more plausible. The new workplaces would also be ideal terrain for labor organizing. Federal employees are not permitted to strike, but if inflation started to erode the job-guarantee wage, it takes no great leap of imagination to think that workers would be open to wildcat actions. The combination of low wages and job security could be explosive. Imagine if McDonald’s employees had tenure — wouldn’t they walk off the job?
In short, we can think of the job guarantee as a transitional demand — a reform that, while not in itself revolutionary, can build working class capacity to undermine the capitalist state. Its popularity and apparent feasibility make it an excellent candidate. Unlike the universal basic income, polls show that a strong majority of Americans support a federal job guarantee program. Even bourgeois elites might be onboard. Most respectable bourgeois economists will tell you that recent disinflation creates substantial policy space for fiscal deficits. And, thanks to MMT, now some have even tentatively embraced outright monetary financing.
In other words, now is precisely the wrong time to cling to abstract notions about what the capitalist state can and cannot do. Granted, mailing copies of The Deficit Myth to your senator will not give us socialism. (Maybe we should try sending them Das Kapital?) But its success is creating a political opening. Let’s take it.