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@ Colin Gifford
2024-09-02 06:30:20Modern Monetary Theory
For anyone to properly articulate their own views, you must be able to put others in words.
The opposite of Austrian Economics is not Keynesian, its Modern Monetary Theory (MMT).
Outlined below are the key understandings of MMT and how it works.
1. Money Is Not A Commodity But Rather A Tool Of The State
The starting point of MMT as a philosophy is on the creation of money itself. Whereas the Austrian school notes that money was formed naturally through history as a lubricant for barter, MMT instead argues that money is a tax liability built on credit which is imposed by the state and spent out into the economy.
MMT builds on the idea of the State Theory Of Money and it is the only the state – not the market - that gives value to a currency. From this framework, money must first be spent into the economy by with government, then collected by state in the form of taxes.
Because money is a product of the state, and people will always use the state’s money because of their tax liability, a government is fundamentally different to a household.
Governments don’t have to worry about “living below their means” because they are the currency issuers not the currency users.
2. Government Deficit is Private Sector Surplus
“Deficits are almost always seen in a bad light, and I would like to change that” Stephanie Kelton
MMT will point out that a deficit to the government is just a surplus to the private sector. Therefore, it’s not the deficit itself that is an issue but where the money is going. Kelton will point out that tax cuts favour the wealthy whereas infrastructure projects help all. But overall, the idea is that government spending into the economy helps the private sector flourish.
Watch her Ted Talk here : https://www.youtube.com/watch?v=FATQ0Yf0Fhc&t=610s
3. Resources are finite, NOT money
Since state’s can print its own currency, the age-old question of funding projects no longer applies. The question instead becomes ‘do we have the real resources to achieve this?’
Using Victoria’s Big Build as an example, the government doesn’t have to worry about the $90 billion cost to taxpayers. Rather, the Allen government’s only concern is whether they can source enough labour and materials to build the project without stifling the private sector.
Since are economy is perpetually underutilised, being unemployment and idle assets, MMT is a theory of utilising this. If the government pays too much and bids up the prices and causes inflation, they will subsequently increase taxes and take out the excess savings.
The Austrian Rebuttal
The Model Is Happily Built On Coercion
For one to have the opinion that money is built on the tax liability to the state, you must at some level be comfortable with coercion.
Those who are sympathetic MMT won’t even dispute this, but rather explain this is how societies fundamentally operate. Austrian Economics and laissez-faire capitalism on the other hand are developed through voluntary exchange and human action.
Government Spending is not my Savings
I think this point is a bit of slight of hand from the MMT camp
When the argument is framed this way it leads the reader to believe the following two things
- Savings cannot happen without governments providing currency to save
- Money is the same as capital
We know from our Austrian backgrounds that savings isn't just something governments kindly give to their subordinates, but it represents deferred consumption as individuals delay gratification into the future. This is different from being given money and put into bank accounts (covid stimulus)
Capital IS Finite
Capital refers to the goods and resources used to produce other goods and services and is directly downstream of savings. Menger and Mises both agreed that capital enables the production of more complex goods and services to help push civilisation forward and CANNOT happen without savings first.
Currency is not the same as capital. You can’t print capital in the same way that you can’t print wealth.
You Can’t Out Plan The Free Market
Every price and every action is a signal. No amount of manipulation and central planning can lead a more efficient and sustainable economy than robust property rights and limited to no intervention.
Overall MMT is an interesting theory and shares the same frustration with the status quo as Austrians, but is deeply flawed.