MMT: overcoming the political divide.

Mosler never said that "points" are a form of money. The point of that exercise was simply to point out that the point didn't come from some existing pool of points, rather that they are created from nothing.

Not sure why this is so difficult to understand.

Let's say you and I are neighbors. I want to borrow your lawnmower for the weekend and mow several properties. You hesitate so I offer something in return. Let's say I promise to let you ride around in my 1957 Corvette for the day. You ask me to put it in writing.

I write it down specifying the terms of our agreement. I created the obligation or promise debt-free, but the promise itself is a debt until it is fulfilled. It is a debt.

The government creates dollars. It creates them as a debt. Why? Because they are a promise, an IOU redeemable for something specific (this isn't controversial in MMT circles). The position you two are espousing is a position held by those that support "Positive Money" who believe as you and bringiton seem to, that currency can be created debt free.

Here is a paper by Wray. The Abstract on page 1 says:



http://www.levyinstitute.org/pubs/wp_647.pdf

You both recognize Wray as a person who is an expert in MMT, right?

Lastly, from an accounting standpoint, there is a good reason that money is created as debt.

If the government creates $1 million dollars and it circulates it, if it taxes it back, what happens to it?

If you understand MMT, the answer is, it is effectively destroyed. But what is the mechanism on paper of that destruction? You can't just wave your hand, mathematically it has to work.

When the government creates and circulates $1 million dollars the accounting looks like this:



(Of course, this is in the absolute simplest of terms, I assume you both know there are more steps, what we're showing here is the result).

The money created is recorded as debt, as a negative and the money spent is earned as a positive by the private sector.

So now there is -$1 million in the public sector and +$1 million in the private sector. The negative $1 million IS A DEBT. It's a debt the government owes itself. It is merely an accounting debt, but it is still a debt.

Now, what happens when the government taxes?



The fact that money created is recorded as debt means when that same money is collected in tax payment it offsets the money created and the government returns to zero (in this example). In reality the government usually collects less in taxes than it created. That means that the public sector is always in debt so the private sector can always be in surplus.

This is represented by the sectoral balance graph:



Now if you want to refute Wray, I'm all ears, but the fact is MMT recognizes government NFA's as Debt.

 

Thank you for the interesting discussion, good stuff! Your writing style is clear and understandable, and thank you for taking the time to share your thoughts.

 

Certainly Wray is one of the co-authors of the the new MMT textbook "Macroeconomics". (by Mitchell, Wray and Watts).

Plenty to think about in Econ4Every1's post above.

I found this article about Positive Money, to see if it posits debt-free money, in contra-distinction with MMT.

https://positivemoney.org/what-we-do/magic-money-tree/

.....to support a fairer and more sustainable economy.

• Instead of the Bank of England pumping new money into financial markets through quantitative easing, it should be spent via the government into infrastructure, green technology, or as a cash transfer to help households pay off their debts and improve their finances.
• And we need to transform our banking system so that banks lend money to support investment and jobs in the real economy. This means having a more diverse range of banks and government policies that encourage lending for productive purposes.

I presume the author is talking about debt-free money (in the bolded above) .

And I expect MMT economists would posit the same government-originated spending into the economy, without creation of government debt which is owed to the private sector?

 

Why does that matter?

While I agree that monetary sovereign generally are more likely to create a legitimate form of widely accepted money, I don't think is necessary.

Take the example of the game company, QQ, (owned by Tencent). They created a game that had something to do with managing a hotel. The game was quite popular in China. The problem for QQ is that most people didn't have credit cards so in-game purchases, the way that QQ made money) would have to be done another way. So QQ began selling gift cards redeemable for in-game merchandise.

The cards were sold almost everywhere and become so popular people began to use the cards as an alternative form of currency. Cards began to be purchased by people who had no intention of playing the game (just the knowledge they had value because there was a demand for them). It got so bad that the Chinese mafia began laundering money using the cards. The amount of trade outside the game being done ion the cards was measured in the billions of dollars (I don't remember the exact amount). The Chinese government finally stepped in because the cards were starting to rival the national currency.

So if I borrow $10 from you, I'm not in debt to you for $10?

Similarly, if I promise to provide you a good or service later in payment for a good or service that you provide now until I repay my promise, am I not in debt to you?

 

Thanks! I do what I can to make my thoughts on the topic accessible to everyone as that is really the goal.

If you really enjoy this, I have a Quora Space that I have hundreds of answers to (mostly) econ question you might find interesting.

https://www.quora.com/q/economics-for-everyone

 

I will check that out, thank you.

 

Not sure I accept your contention there that anyone can create an acceptable form of currency.

But meanwhile, what are your thoughts on my final question in post #628?

(assuming the government has the inflation issue, ie resource availability and productive capacity of the economy accounted for)

 

Yes the distinction between MMT and PM is that PM posits that money can simply be created without debt, MMT says that the debt is function of accounting and accountability of money created. The problem that I see is, as I said, people here "debt" and they assume that the government owes something to the non-government. That the Debt represents an amount that each member of society is in debt for and indeed we see things like this:



This tends to scare the crap out of people because they assume this is debt owed in the form of some future taxation, which is of course false.

The "debt-money" clock shows this as well...



$80k in debt per-person vs $401k in assets per person sounds like a good deal to me!!!

 

From Misky he says, "everyone can create money; the problem is to get it accepted".

Acceptance is based on the perception of the value of the money in question and the value of the money (assuming fiat) is based on what it is a debt for. That is, what is it a promise of?

I have some errands I need to do, but I will come back to it.

 

Yes, but, there is nothing that prevents us from doing that here in the US tomorrow using the system we have in place.

I think part of the problem is that most peoples conceptualization of banks earning interest looks like this:



When in reality it looks like this:



People earn interest, not "banks". Now, how we chose to redistribute income (if at all) is another question.

I don't think so. Again look at the illustrations above, all debt is earned by someone as income, so the issue isn't debt per-se, but who earns it and what if any expectation is placed on those who benefit from the system.

Take the situation we have today. Companies want to privatize gains and socialize losses. Why should losses be socialized?

The owners of production act as if they provide jobs to people out of the goodness of their hearts and that any imposition upon them hurts their capacity to act altruistically. In reality, capitalism (which I have no issue with) the goal is to make money and do best for you. Sure there are some owners who buck this trend and give more to their employees, but overall when the owners of business complain that entitlements and the local and state taxes that accompany them are a burden that places them on the cusp of insolvency, I'd say, provide a social safety net to employees and let the business fail. The idea that business failure is always the government's fault (a position held by many) and not the fault of a poorly run business, I take exception to that. For example, a coffee shop in town goes out of business and the owner complains that it was the high taxes and regulation that caused them to go out of business, all I'd do is point to the other coffee businesses in town that are still operating and ask, what are they doing that you are not?

Businesses don't like the idea of social safety nets because then they can't hold people's capacity to provide for themselves, hostage.

Ok, apologies, I'll get off the soapbox. I'm sure you realize this all already.

-Cheers

 

That is irrelevant to the fact that in a POW camp, cigarettes are generally accepted in exchange, which makes them money.

No. Monopoly money is not accepted in exchange at all, except for in-game items.

But you are wrong. The question is not, "What do modern capitalist debt-money systems use as money?" because that is just a transparent question-begging fallacy. The real question is, "What IS money?" because that enables us to think outside the debt-money box to what we could use as money, and the potential advantages of using something that ISN'T debt.

There are four different kinds of money, which have different defining characteristics:

1. Commodity money such as precious metal coins, cowrie shells, cattle, wampum, etc. whose defining characteristic is that their exchange value is close to their production cost and independent of government or anyone's obligation or ability to pay;

2. Fiat money, whose defining characteristics are that it is issued by government at a production cost near zero with government capturing the resulting seigniorage, and its value is based on a government decree (fiat) that it settles debts, both public and private -- i.e., whether government pursues someone for a tax liability or a private party pursues someone in court for payment of a debt, a transfer of fiat money will legally discharge the obligation;

3. Deposit money, the liability a bank assumes in return for the money a customer deposits, which liability is in turn generally accepted in exchange;

4. Debt money, the liability a bank assumes in return for the loan asset a customer creates by assuming the legal obligation to repay it, which is in turn generally accepted in exchange.

Almost all the money used in modern capitalist economies is debt money. Only the latter two are always debt. Commodity money is never debt, because it never consists of anyone's obligation to pay. Fiat money is only debt when it is created as debt.

What is wrong with the economic definition: that which is generally accepted in exchange? Do we want money to be something other than the medium of exchange? Isn't that the only reason money exists at all?

No, they were not created as an IOU. They are not owed to anyone. They were simply created as a means to facilitate exchange. If I have a bunch of ordinary coins, and I don't owe any taxes, WHERE IS THE DEBT?

It is not a fact, as proved above.

How could gold coins, or anything else generally accepted in exchange, not be money? The point of precious metal coins is that they have the same exchange value even outside the issuing nation's jurisdiction, as long as people are confident of their weight and purity.

Flat-out false, as proved above. The government coining it just certifies its weight and purity, and THAT is what makes it generally accepted in exchange, even thousands of miles from the legal jurisdiction of the nation that coined it.

Also false. Taxes levied in precious metal money could be paid in any recognized money, even coins issued by foreign countries.

Also false. Gold was used because it had the same value INDEPENDENTLY OF ANY GOVERNMENT, OR ANY PARTY'S OBLIGATION, ABILITY, OR INCLINATION TO PAY. That is what made gold money and all other commodity money not debt.

Which is false. When a commodity is generally accepted in exchange such that people want to acquire it not to use it, but to exchange it for something else, then it is MONEY, not merely a COMMODITY.

Right: base metal coins are fiat money, cigarettes and cowrie shells were commodity money. See above for the difference.

False. See above. Government can't just print gold.

The difference is that one does not depend on government or any party's obligation for its value.

What is "a debt redeemable for payment of taxes"? What does it mean?

Or get by taxation. Right: it is wrong.

No. Not all people owe taxes, but all people can possess and use money. In any case, the tax liability is the debt in question, not the money used to settle it.

In the current system. It doesn't have to be that way. Until quite recently, taxes were often levied in kind, with no government-issued money needed.

No it doesn't. You may or may not owe any dollars to the government in taxes, but it does not owe you anything, other than a receipt if and when you settle any tax liability that you might owe to it.

True, but government DOES NOT OWE YOU ANYTHING merely as a result of your possession of money.

No. I am trying to make a subtle and complex issue clear.

That's not the distinction I'm making. The distinction I am making is between owing and not owing.

Other than accusing them of splitting hairs in order to avoid being wrong, of course...

 

If it's not accepted, it's not money.

No, debt money's value is more dependent on the credibility of the promise to repay it, and fiat money's value is dependent on the credibility of the government's decree that it will be accepted.

 

No. Almost none of what is paid in interest goes to anyone but banks. Of course, banks then use that interest income to pay their employees' wages, their utility bills, property taxes, etc., but what is left after such expenses is bank profit.

The illustration is wrong.

You are confusing employers, who can only offer workers access to economic opportunity they would not otherwise have, with landowners and other privilege holders, who can only DEPRIVE workers of access to economic opportunity they WOULD otherwise have.

 

I'll refer you back to Wray and leave it at that.

Cigarettes aren't money except in prisons. See how that works?

If I concede that shells can be used in very limited circumstances as money, I'd add the caveat that shells don't fulfill the properties that make shells a good choice for money and instead have arisen out of a lack of a better alternative. When better alternatives come along commodity's used for trade are replaced by a more stable, efficient and useful type of money.

That said, my answers are in the context of modern economies, not frontier towns and island tribes.

Commodities are commodities. You can trade them, but I don't believe they fulfill the definition of money. But this is a hill I'm not willing to fight for. If it helps, I can concede that in limited circumstances, when better alternatives aren't available, people can and have used commodities as a stand-in for money.

The fact that you don't owe taxes doesn't mean they aren't an IOU.

That's like saying you hold a subway farecard (an IOU for a ride on a train) but don't ride the train so therefore it's not an IOU.

Coins can be used to pay taxes, the distinction here is that the government does not issue bonds to offset the coins put into circulation.

So by that logic anything traded is money? My goat for your guitar? Are they money because we traded them?

There is a distinction here and you're missing it. I will agree that the fact that coins were made of gold created the feeling that they had value, but in fact, from the government's-point-of-veiw, the coin only had value because it was minted, not because it was made of gold. The evidence to back that up was that the government didn't accept gold as payment for taxes or anything else. The reason it had value was that the government had a monopoly on coinage.

From the private sector's point-of-view, as the government is trying to establish itself fear and distrust in the government's money (like Continentals and Greenbacks) arose because if the value of the money was inflated away or the government that coined it dissolved, at least with a gold coin you'd be left with a commodity of real value. So sure, people had faith in the value of the money based on the fact that it was made from a commodity, but in reality, as long as the government exists and enforces it's monopoly power to create coins, the value stems from the fact that only the government can issue those coins.

That said, I'll admit there is "two sides to this coin" (pun intended)

Coining money out of commodities was part of the process that lead us to where we are today with money, as you explain it, that has a very low production cost relative to it's perceived value.

That's what I said....But the last part...It was still debt as the only way to pay your taxes was to pay in money issued by the state because the state didn't accept gold in payment, only the money coined by the government.

The gold coin was recognized by the government as valuable by fiat. Base metal coins are metal and have value. Nickle, copper, zinc, these metals have value, it's just that their value is reasonably low. If the government were to collapse tomorrow, people would hoard coins even more than paper money as the metals have real tangible value. Point is, coins were made of gold because gold was and still is a commodity of real value.

The fact the government can't print gold doesn't invalidate my point one bit. It is just a form of self-limitation, it's no different than the system we have today where the government limits money creation through the sale of a bond of equal or greater value.

The government creates the only solution to resolve your tax burden (a debt), the acquisition of currency it issues. Now mind you, not every single person has a debt to the government (children, homeless and people who live on the margins of society), but if you own land or have significant property or wish to buy something in open markets, you will owe a tax only payable in the currency issued by the government.

The government imposing taxes as debt does not require that everyone owe that debt, just enough that people that don't owe the debt (taxes) will accept it because they know other people need it to repay the debt.

Agreed.

The government imposes a tax and creates the method to resolve said tax. When you hold dollars the government is obligated to settle your debt with dollars you've obtained. An obligation is a debt.

Now, I'm not going to belabor this point. I'm satisfied with my responses and I'll let other readers judge our arguments and let them make up their own minds and hopefully they can ask questions if they have any.

I think we probably agree more than we disagree, though anyone reading this might think otherwise (perhaps you do too?).

For what it's worth, thanks for toning it down.

-Cheers

 

Haha, quite right!

Perhaps, though I'd add that the capacity to enforce laws also plays a role.

 

And, in the case of a decent-sized corporate bank, who earns profits if not investors in the bank?

In a small local bank, where do the profits go when they are earned?

Investors and owners are people.

 

Has finance capitalism been associated with greater wealth equality?

 

I'm not arguing that point, just making the point that people profit not "banks".

The problem as I see it I wrote in another thread is the idea that profits are privatized and losses are socialized. Take the current situation. Companies profit when times are good and toss people aside in bad times, not eave if you think that companies shouldn't have to take care of those they can't afford to employ, the employers should expect to pay taxes that allow local and state governments to allocate services for those who lose work so they can buy necessities and not get thrown out on the street. Right now we're headed for a crisis of evictions as 1/3 of people in the nation rent.

So I don't disagree with your premise nor am I defending the system, merely pointing out that most peoples conception of banking is flawed.

 

But you are. Don't you see the bias in your choice of vocab? People profit? How can people profit when we know that finance capitalism generates wealth hoarding?

But that's non-economic prattle isn't it? Capitalism has always been built on reproduction of profit at the expense of the masses. Are you a Marxist now then?

So we only get to moan when there is a crisis? What about the hundreds of thousands killed by austerity? What about the millions killed by Western profiteering? The banking sector is focused, after all, in the City of London. Its the hub of worldwide corruption. How does the 'people' fit there then?

I'm disagreeing with you. Smart up now!

 

Sounds to me like someone is trying to pick an argument.

Is it?

I don't think it has to be. It's a question of what the society that adopts capitalism sets as worthwhile social goals.

I wouldn't call myself that, no.

No, not just when there is a crisis.

 

No actual economic comment in this. Get back to me when you can muster one.

 

OK; but if for example this pandemic proved to be deadlier than it is shaping up to be, and forced the shutdown of the nonessential economy for say a full year or longer, I would expect MMT economists would say to the population: "no worries, stay home, exercise, learn to cook healthy meals, use IT, learn a language or whatever, school curriculum will be provided online, ... and your government will pay all your expenses, without any debt overhang that would lead to future public austerity when the pandemic has passed".

What is the difference between the PM and MMT stances, in that scenario?

Indeed. People are lied to all the time by mainstream neoliberal economists, who can get away with this deception because the lived experience of people is that their debt IS a problem - which it is. But of course people are USERS of the the currency, unlike the government which is the ISSUER of the currency.

So the MSM keeps screaming "the government's money is our money", "the government doesn't have any money", to maintain this deception in order to gain acceptance of public austerity while the productivity of the nation is siphoned to the top.

 

I think we all accept that; and indeed MMT sees that as why the population accepts the government's fiat money.

But bringiton's specific point (underlined by me), namely:

...seems to be valid, in light of my severe pandemic lock-down scenario, in post #647 above.

 

Not how I would describe the MMT point-of-view.

We both know that real resources, labor, infrastructure, and capital equipment play a big role in the economy. The pandemic's effect on the economy is impacting both the supply side as factories close or work with smaller staffs and the demand side as people are making fewer purchases because times are tough and nearly 30 million people are out of work.

The government has , to date spent about $2.4 trillion according to USA Today:



Now we both know the government can create and cirtculate all the money it wants, the question, and the only question that concerns MMT'ers is, will the real productivity be available for people to purchase.

Alan Greenspan in probably the single greatest moment of clarity he ever had while explaining Social Security to Paul Ryan....

Take a listen, it's short....



Greenspan said (from memory - paraphrased) "there is nothing that prevents the Federal Government from creating all the money it wants and paying it to someone, the question is, how do you set up a system that ensures that there are real things to purchase at the time the money is created and distributed". He goes on to say "The cash is nice to have, but it is only in the context of the real resources that are available to purchase". Again, from memory and I'm paraphrasing.

So, the government can create all the money it wants and pay that money to someone, what matters and what is going to matter is, is there an adequate supply of real things to purchase with that money?

My inclination is to say yes, though I expect certain supply lines to be disrupted and we'll see (and indeed we already do see) much higher prices on certain items. Steak in my area is up 20-25%. I went to buy a monitor the other day and did a little research looking at an article titled "Best monitors under $300" written in January. I clicked links in the article, and if I could find one that was in stock it was $400-$500. That said, Steak and monitors are larger drivers of inflation. I didn't buy an overpriced monitor and I'll eat more chicken and pork while I wait for the price of steak to come down.

Now that I've built a clock to tell you the time, I'll just say that I don't think that anyone that understands MMT would be so flippant as to phrase the situation as you put it. I think the important thing is to find a balance between production capacity and assistance to those who need it most. But if the "need it most" option is employed, it will cost those who don't need it most and those people tend to have more power and influence.

So let's recap here a sec...

I said:

"If you have dollars the government now owes you relief from that debt equal to the dollars you hold."

And he replied:

"No. Not all people owe taxes, but all people can possess and use money. In any case, the tax liability is the debt in question, not the money used to settle it."

Then I think I pointed out that not all people need to owe taxes for the system to work. So I'm not sure how that response matters in the context of what I said, specifically that the government has imposed a debt that we must pay, but then it also provides the method of relief (dollars) and once we hold those dollars the government owes us relief.

There is a story of the Britsh sending people and troops to Northern Africa, what is today modern-day Zimbabwe. IIRC they wanted to establish tea and/ or coffee plantations (I'm a little vague on the details). When they got there they offered the locals Britsh money to work on the plantations. Naturally, they refused, after all, what would the locals do with Britsh money? The Brits solution was to impose a tax on the locals payable only in Britsh money, which as no surprise could only be obtained by working on British farms. Failure to pay the tax and the British troops would burn down their huts.

Now, would it matter if a local didn't have a hut when considering the value of the British money to a local? Of course not, because others had huts they wanted to protect, so a non-hut owner could obtain British money and trade it to others in the tribe who did need it for whatever they had to trade.

Next, once a local with a hut had obtained British money, what was he owed? Relief from his tax burden.

Having said that, I will agree and have already said there is a distinction between something borrowed and something owed when considering the nature of a debt, the simple fact is, it is debt. I would prefer a different word or qualifier to somehow distinguish the difference, but we have what we have.

 

I'll state that Wray was wrong and leave it at that.

Yes. A prison is a real place where people buy and sell real goods and services using cigarettes as money. Monopoly is an imaginary place where people buy and sell imaginary properties and pay imaginary rents thereon using paper tokens to represent their imaginary money.

See how that works?

But a commodity can be money in the meantime, proving Wray wrong.

My answers are correct in all contexts.

They do when they are generally accepted in exchange. Wray is just wrong on that score.

No. Not as a stand-in for money. AS money.

From whom are they an IOU, and for what?

The farecard is an IOU because you have paid for something you have not yet received. You are not owed anything as a result of holding coins.

Obviously money can be used to discharge tax or any other liabilities. That does not make it debt.

<sigh> No, anything that is GENERALLY ACCEPTED in trade is money. If people trade for an item not to use it, but only so that they can then trade it for other things, that item is money.

No I'm not.

No, they actually DID have value, value that was not dependent on government, nor on anyone's obligation, ability, or inclination to pay, and was therefore not debt.

False. The government knew very well that gold coins were quite different from base metal fiat coins: that's why they paid for the gold instead of coining cheap base metals, duh.

No, that just shows they wanted to encourage acceptance and use of fiat money.

False. Gold coins had effectively the same value as equivalent bullion.

That is self-contradictory because the latter claim is clearly false. During the Civil War, the Confederate government minted silver coins indistinguishable from the ones minted by the US government, and they had exactly the same value.

Non sequitur. The fact that a certain type of payment is required does not make that payment medium debt.

False, as already proved.

Probably not, as they are heavy relative to their value as metal scrap.

Right. So Wray is wrong.

Yes, it does.

No it isn't. It is a physical limitation.

It is indisputably VERY different, as bonds can be executed at will. Gold has to be dug out of the ground at great expense.

Right: the tax liability is the debt, not the money used to discharge it.

Part of the acceptance of fiat. Right.

No, a debt is something owed. The government doesn't owe you anything as a result of your holding money. YOU are the one who owes the government money: your tax liability. YOU are the one obligated to settle your debt with dollars. The government doesn't owe you anything but a receipt if and when you pay.

I suspect readers think we are straining at a gnat, but IMO real understanding of money is crucial, and it must be based on agreed and valid definitions.