Misconceptions about MMT – Part II

This post continues our three-part (I, II, III) series by Rohan Grey that was originally an educational tweetstorm.  Rohan Grey is a Modern Money scholar, founder of the Modern Money Network (MMN)  and Lawyer.

CLAIM 2 (Claim 1)

MMT ignores the actual practical workings of institutions…institutions are presupposed, & even if they are taken into account it’s presuppose they are the same everywhere, & institutional quality is not looked at

Moving to the second claim, that MMT ignores the actual practical workings of institutions and institutional quality. First, MMT has emphasized from the very beginning the importance of a detailed institutional analysis of monetary operations (arguably more than other PKers), including intra-governmental agency dynamics, such as Stephanie’s article exploring how taxes and bond sales work in the context of fiscal deficits here:

http://www.levyinstitute.org/publications/can-taxes-and-bonds-finance-government-spending

Or Fullwiler’s article tracing the inter-institutional operational steps involved in fiscal spending in the US context here:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1825303

Or it’s detailed understanding of primary dealer markets, such as Eric Tymoigne’s piece here:

Click to access wp_788.pdf

Indeed, many MMT scholars consider themselves working in the tradition of Hyman Minsky, who always and everywhere emphasized understanding the institutional arrangements and innovations that emerge endogenously from financial systems.

Hence, MMT scholars such as Randy Wray and Yeva Nersisyan highlighting the importance of the shift towards a shadow bank-centric world, here:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1559383

And designing proposals that go into detail in terms of proposing new institutional arrangements for the financial system, such as here:

Click to access ppb_115.pdf

https://digitalcommons.bard.edu/cgi/viewcontent.cgi?article=1159&context=hm_archive

https://www.huffpost.com/entry/proposals-for-the-banking_b_432105

Or understanding corporate taxation and other possible ways of curbing corporate power, such as Nathan and my work here:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3200249

In addition to work looking at the potential for local and complementary currency systems to be integrated with food systems, such as Ben Wilson’s work here:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3411111

Or Mat Forstater and Josefina Li’s work here:

https://books.google.com/books?id=MxVBDwAAQBAJ&pg=PR5&lpg=PR5&dq=josefina+li+complementary+currency&source=bl&ots=R5HqlfokOp&sig=ACfU3U1kWB_MpODsPqkU6dYfpEpP-lBh5Q&hl=en&sa=X&ved=2ahUKEwjvqdnBnMLkAhViS98KHbTGDFQQ6AEwAHoECAkQAQ#v=onepage&q=josefina%20li%20complementary%20currency&f=false

And @RaulACarrillo ’s work tracing out the legal-institutional structures constraining individual freedom here, connecting MMT directly with Hale:

https://neweconomicperspectives.org/2014/06/keeping-real-law-coercion-frontiers-public-finance.html

And Pavlina’s research into the evolution of state-legal institutions as a vehicle for power:

http://www.levyinstitute.org/publications/money-power-and-monetary-regimes

As well as Mat Forstater’s work on the chartalism in a colonialist context:

Click to access RiPE%20Forstater.pdf

And possibilities for confederalist governance models of a JG, here:

https://link.springer.com/chapter/10.1057/9781137313997_7

In addition, MMTers were some of the first to highlight the potential for the coin seigniorage to overcome specific institutional constraints in the context of the US debt ceiling debate, as evidenced here:

http://neweconomicperspectives.org/2011/08/coin-seignorage-and-inflation.html

And more broadly have engaged with the legal and political science literature around central bank independence, such as here (Randy):

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2407707

And me:

I personally have written a lot on the unique institutional dynamics of financial systems in developing countries with mobile money systems, such as here:

https://www.binzagr-institute.org/working-paper-no-116/

As well as consulted directly with companies and the UN on new digital currency technologies and considerations for countries around the world to implement, as seen here:

Click to access TheMacroeconomicImplicationsOfDigitalFiatCurrencyEVersion.pdf

Click to access DFC-O-006_Report%20on%20Regulatory%20Challenges%20and%20Risks%20for%20Central%20Bank%20Digital%20Currency.pdf

And my advisor Bob Hockett, a MMT ‘fellow traveler’ that has regularly collaborated with MMTers, has written extensively on the legal historical foundations of endogenous money with Saule Omarova:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2820176

As well as the corporate law form and its relationship to the modern banking charter:

https://scholarship.law.cornell.edu/facpub/1451/

And this is before we get to the historical research that MMT scholars have undertaken on the origins of money and monetary dynamics in pre-modern societies, which obviously implies different institutional relationships:

Click to access hudson.pdf

Click to access wp_832.pdf

including a broader understanding of ‘the state’ that includes religious authorities:

Click to access SemenovaOriMonEva.pdf

https://econpapers.repec.org/article/blaajecsc/v_3a70_3ay_3a2011_3ai_3a2_3ap_3a376-400.htm

I’m also conducting research specifically on the privacy implications of monetary system design, specifically in the context of emerging digital currency technologies:

https://macromusings.libsyn.com/143-rohan-grey-on-digital-currency-privacy-and-modern-monetary-theory

So the idea that MMT has some ‘one-sized fits all’ understanding of institutions, and ignores actual practical workings of specific state systems, is simply false.

Misconceptions about MMT – Part I

This post begins our three-part series (I, II, III) by Rohan Grey that was originally an educational tweetstorm.  Rohan Grey is a Modern Money scholar, founder of the Modern Money Network (MMN)  and Lawyer.

Three common misconceptions originally sourced from Wolfgang Theil are:

1. MMT applies to countries other than the US, but not to the same degree … MMT tends to implicitly presuppose in a model-platonistic manner that all 200 states had the same quality of institutions, and does not connect to the state-building debate’;

2. MMT ignores the actual practical workings of institutions…institutions are presupposed, & even if they are taken into account it’s presuppose they are the same everywhere, & institutional quality is not looked at; and

3. MMT has only a partial view of law that ignores private law

The first claim reflects a misunderstanding of what MMT is. It is not first and foremost a set of policy prescriptions that presuppose a high degree of monetary sovereignty. It is a descriptive framework that discusses the implications of both having, and not having, high degrees of monetary sovereignty.

A lot of the analytical work involves exploring the capacity offered by having a high degree of sovereignty, but that analysis is not only applicable to countries that enjoy sovereignty today, it is applicable to any country seeking to understand what changes will achieve greater flexibility. In the same way as a theory of human development may stress the greater capacities adults have vis-a-vis children, without making that theory inapplicable to children as well.

This is clearly seen, for example, in the fact MMT authors were among the earliest and most vocal critics of the Eurozone on the grounds that it involved an abrogation of monetary sovereignty by individual states towards a supranational political entity, and exploring why that
abrogation in turn limited policy options in ways that could cause serious problems (and it has!). Much of this analysis was geared specifically at understanding the unique institutional and legal constraints of the Eurozone. For a brief list of some of this work, see, e.g.:

https://www.e-elgar.com/shop/eurozone-dystopia

http://www.levyinstitute.org/search/

http://www.levyinstitute.org/topics/eurozone

http://neweconomicperspectives.org/?s=eurozone

These are just as a starting point. It is also seen in the work of developmental scholars, and scholars in developing countries, who use a MMT lens to analyse the limits implied by their countries existing institutional and policy arrangements. This includes, for example, the work of noted developmental economist Jan Kregel, i.e. here:

http://www.levyinstitute.org/publications/jan-kregel

with the full list here:

Click to access JKregelcv.pdf

As well as Brazilian scholar Felipe Rezende, i.e.

http://neweconomicperspectives.org/category/felipe-c-rezende

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2555349

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2555349

along with The work of Jesus Resendiz on applying MMT in Mexican context (twitter.com/Tlacuachito), Jesus Felipe at the Asian Development Bank, & others.

I’d also mention here that noted MMT Scott Fullwiler recently coauthored a report for the ADB-BAPPENAS on ‘Policies to Support the Development of Indonesia’s Manufacturing Sector’, which can be found here:

Click to access policies-manufacturing-sector-indonesia-2020-2014.pdf

In addition to the work published at the Levy Economics Institute, which covers all regions of the world (not all of it completely within the MMT paradigm, but much is):

http://www.levyinstitute.org/research/the-state-of-the-us-and-world-economies

As well as the broader work of Fadhel’s center, the Global Institute for Sustainable Prosperity, and the various scholars
there who regularly advise on developmental policy in the Middle East and elsewhere:

Home

(see, e.g. http://www.global-isp.org/working-paper-no-113/)

It also includes work undertaken to explore the contexts in which countries may struggle to develop monetary sovereignty based on historical conditions, such as this early piece from Nathan Tankus and Nathaniel Kline:

Nathaniel Cline and Nathan Tankus: Fiscal Systems, Organizational Capacity, and Crisis: A Political Balance of Payments Approach

As well as the recent book by Ndongo Samba Sylla (a keynote speaker at the upcoming 3rd International MMT Conference) and Franny Pigeaut on monetary sovereignty in the context of the Western African Monetary Union, which explicitly cites MMT as an inspiration and key framework for its analysis:

As well as the conditions under which monetary sovereignty may be generated, and how, such as this talk by Nathan Tankus
on the spectrum of monetary sovereignty:

At the same time, there are a number of countries that do enjoy sufficiently high degrees of monetary sovereignty such that they have greater degrees of fiscal space than currently implied by their institutional and policy arrangements, beyond the United States. These include, most notably, Australia, where original MMT developer Bill Mitchell has run a center that has produced dozens of detailed empirical and theoretical papers and reports on economic development in a small, open economy context, as well as advised for the Asian Development Bank and other major international organizations. The center and its publications can be found here:

http://www.fullemployment.net/

As well, of course, as Bill’s blog, which has dozens of posts on the specifics of the Australian economy:

http://bilbo.economicoutlook.net/blog/

As well as Japan, the UK, New Zealand, and others, which can also be found at the above links and elsewhere. A special shout out to a friend of mine, @AskerVoldsgaard, who recently published his master’s thesis exploring monetary sovereignty in the context of Denmark, showing that students are also finding inspiration from the MMT framework and applying it to their local (non-US) contexts:

Shout-out to the #MMT community who enabled me to hand in my MA thesis on the Danish monetary system. I'm in intellectual debt above my head@billy_blog @StephanieKelton @stf18 @tymoignee @rohangrey @ptcherneva @DeficitOwls pic.twitter.com/wtBZt5LevB

— Asker Voldsgaard (@AskerVoldsgaard) August 31, 2018

Clearly, the fact that MMT scholars and students have engaged directly in empirical, developmentally oriented work in a range of countries with unique contextual considerations and institutional arrangements shows that they aren’t trying to peddle a one-sized fits all narrative that applies equally to all contexts. Indeed, the entire point of providing a general framework of monetary sovereignty is then to compare it to specific contexts in order to evaluate the degree to which such contexts do or do not meet those conditions, and then analyse the implications that follow from that fact.