This article is generally, missing the mark. A company can issue as many shares as it likes. You as an individual, can sign as much debt as you like. A bank can create as much deposits as it likes(obviously some laws apply). We already afford private individuals, companies, and any other financial entity, the ability to issue financial assets. MMT is merely recognizing, the extent to which a government also enjoys this flexibility.
There are a couple issues. Traditionally, the way to view inflation, was in terms flows. So in a given time period, a certain amount of money is spent, a certain amount of money is held, and a certain amount of goods and services are offered in exchange. Well, the probably with viewing the value in terms of flows, is that it can completely change in any time period, and it relies on aggregates and averages.
A much more simple and direct way to view inflation is in terms of the "stock', so the total amount people have saved in that currency. For a private company, this is the "market cap", for cryptocurrencies we similarly use the phrase "market cap". But for a countries currency, this is in essence called the "National Debt". Whereas a company wants to increase its value, we typically view an increase in national debts, as a bad thing. But really, it's no different. When a company issues shares, they use the money to buy things, and if they invest wisely, it increases their total value, more than the cost of the shares issued. For a government issuing currency it is the same. When you issue more money, that is not automatically good or bad, it depends on what it is spent on.
The typical problem, in the modern world, is not, in fact scarcity, but surplus, which leads to unemployment... Imagine that the United States was divided into two halves: east and west, and east and west fought against each other. They would spend a lot on arms, fortifications, planning, preparing, not to mention the costs if full blown conflict emerged.
Well, the value of a government, is creating a peaceful environment for commerce and welfare of its citizens. Admittedly, how well governments do this, varies. But if a government does its job well, then that creates a lot of opportunities, for entrepreneurs to start businesses, for people to specialize and trade, and all the costs that would have gone to fighting each other, now go toward trade and commerce.
Often, the result is, that (some) prices get pushed down lower, and it is ironically harder for many individuals to earn a decent living. If all prices get pushed lower, you have not problem, because prices are relative. But generally some resources are easier to control: land, housing, etc.
So some prices get pushed down very low: food, air travel, service industry etc. Meanwhile some prices stay high or even rise: housing, education, legal fees healthcare. In such an environment, it can be hard for normal people to make a living. Not everyone can be doctors, dentists or lawyers.
So the paradox is, because we have abundance, there is a shortage, not of goods or services, but of useful things to do, without excessively high barriers. Now admittedly, the trades: plumbers, construction, drivers, electricians, are great careers right now. They require enough commitment and skill, usually a long term career choice, and they often have trade organizations that ensure both quality and a bit of protectionism.
Many economists talk about a "lump of labor fallacy". They say that comments like "people are taking our jobs", or "automation will take jobs", ignore the fact that new jobs always get created. While it's true that new jobs are created all the time, sometimes these aren't as accessible. If you look at just food, or just clothing, people have a very specific level of need. Once someone gets their daily calories, and has enough quality clothing for their wardrobe, then it becomes very hard to sell them any more.
So today, we see more economic activities than ever before: music, entertainment, streaming services. It's a good thing that people are able to diversify into providing these different services. But there is an issue. Typically, unemployment hits the people on the bottom the hardest, so when food service, agriculture, textiles, manufacturing, if some of these industries contract, it's not like everyone can go out and get jobs working for a film crew...
Even if the movie industry takes in more money, than what is lost by the contraction of other industries, a film made by a few hundred people, can be distributed to millions.
So the irony is, because we have abundant wealth, some people lose their jobs and face deprivation. This isn't anything that fixes itself automatically. So what is to be done?
Well the MMT solution, is to create more work in the public sector. So you see, if the issue really is, that normal jobs have become redundant, that means we have excess wealth, surplus goods and services. So just like a company, when their share price appreciates, when we have surplus or abundance, the government has its "share price" increase... Because we have an excess of real goods and services, our currency becomes more valuable. It can be used by people all around the world to buy things, whether that's food or entertainment.
But as for the people at home without work now, what can we do? As I was saying, we can create public service jobs: clean up litter, beautify parks, build hiking or biking trails. Create anything of value. Basically, having abundance is not a good reason to force people into unemployment.
Now whether you agree with that politically or not is one thing, but the argument by MMT, is that we can afford it, especially when the nature of the problem is one of abundance and not scarcity. Right now our issues may be a little different in that we have some supply chain disruption, from decades of consolidation, efficiency boosts, and eliminating redundancies. The irony is that shortages now, are a result of surpluses in the past being an excuse to trim down workforces and outsource work.
You give a pretty good and fair overview of some principles from MMT, but I thought it would help to clarify some of these specifics.
Thank you for providing such a detailed comment! Always happy to hear others' opinions, sides, facts, etc. For me it is not so much that I struggle to understand MMT and how our governments/central banks are using it today. It is that I disagree with some of the assertions/core assumptions underpinning MMT. I respect them for what they are because I think they're a coherent way of looking at the world in and of itself, but I don't think it addresses some of the concerns that I laid out in this letter. Namely, no entity can infinitely print currency.
I appreciate that you've raised the point of comparing the country's currency to debt in a house, or debt in a company, or shares in a company. However, I don't think the currency of a country should be looked at like shares in a company or debt in a household.
Stephanie Kelton laid this exact point out in her book. She makes the case the government and central banks are special entities, unlike individuals, households, or companies. Ultimately currency and shares in a company are two totally different things. Money and financial instruments like securities are not the same thing. Bearer-asset based money (gold/bitcoin), and a debt obligation (IOU) are not the same thing.
I agree that a company should be able to create the financial instruments they like. I agree that a household should be able to take on as much debt as they like. But when a country or central bank inflates the money supply, they're borrowing from the collective, regardless of whether or not the populous wants them to or not.
I think we see eye to eye on the set of problems, and disagree on the best approach to solve them. Regardless, I am happy to see our assumptions and thesis play out on the world stage. Thank you again for commenting.
I have been following MMT since about 2013 or so. Before that I read "Human Action" by Ludwig von Mises, and was struck by the simplicity and elegance of "praxis" in that a person's actions are the true measure of their wishes.
However, I have come to see that Austrian Theory is only rooted in individualism. It posits the individual as the only meaningful unit of society. However, individuals are composed of cells, and they form groups as well.
It is impossible to say that only one level of social abstraction is meaningful. Individual desires are often expressed by which groups they identify with.
While you may understand some of the basic ideas of mmt, it is clear that you do not understand, or are simply ignoring what is claimed.
It is in fact untrue that infinite money is automatically worthless(which incidentally is NOT what MMT is talking about). If you have infinite money, but also infinite real wealth, then money can still function as normal. It is not known if the universe is finite.
Note that Austrian econ uses a definition of inflation, that is rooted in the idea of commodity money. That definition being an increase in the money stock. While this makes sense for commodities whose trade value is determined by BOTH utility and relative scarcity, it does not make sense for money based on debt or legal tokens.
Importantly, the standard definition of inflation today is unit purchasing power. "How much can one dollar buy", as measured by price indexes. So it is not measured by the money stock.
Scarcity is a necessary but not sufficient condition for commodity money to be valued. Note that bitcoin is not a true commodity money. It is in fact a protocol ledger based claim system, very similar to so called "fiat" systems.
What MMT describes is basically, instead of a gold standard, a guarantee to buy and sell gold for a given price, it proposes to have a "job guarantee", which is a commitment to buy labor at a given price. While it is possible that the marginal utility of this labor declines, such that the increase of real value fails to keep pace with the increasing stock of currency, even after one considers the effect of taxes in destroying part of the currency stock, the job guarantee pays a stable nominal amounts(not unlike monero's tail emission protocol), such that this self corrects, and any inflation lowers the minimum wage and benefit levels, thus restoring balance to the system.
It is in fact quite curious, that bitcoin relies on a "proof of work scheme", which is in some respects, similar to a job guarantee, except with 2 key differences. No useful work is done, or real value stored, by bitcoin mining, it is only a value signal, like peacock feathers or the ancient pyramids. Secondly the wage paid by bitcoin's proof of work scheme is constantly diminishing, both through halving and difficulty adjustment.
So bitcoin is like a job guarantee, that first pays $15/hr, then $7.50/hr, then $3.25/hr, etc. I am using these units only for the sake of comparison.
Fundamentally bitcoin is unsound money, because the work to mine it is not beneficial to the outside world, and there is no built-in process to destroy bitcoins or redeem them.
Everything in my initial comment was both correct and accurate, as a comparison. The proposition of issuing currency is not fundamentally different from issuing shares. Issuing new money is not dilution, unless you get nothing valuable in return.
Ultimately, bitcoin is a hybrid between a value signalling asset and a religion, which ignores its drawbacks and weaknesses. That religion is "stacking sats". At some point, like any phenomenon based on social adoption its rate of growth will slow, and many may become dissatisfied with its growth rate. But like any religion, it is hard to say how long it will last or how many followers it will accumulate.
But one thing is certain, if bitcoin is the dominant financial tool, overtaking fiat, etc. If that happens then we will return to deflationary boom bust cycles with severe recessions. Bitcoin does not help intermediate resolution of resource capture and price bifurcation, where some prices rise and others fall, such that inequality rises etc. Only if it manages to lead to wide scale destruction of wealth, through wars and revolutions, can bitcoin lead to a society with less inequality.
I do not expect bitcoin to be dominant, so I am not worried about this disaster, and in certain cases alternative payment systems can increase accountability.
Anyway, I hope your trades go well for you and wish you success with your writing!
Hey Derek! I've read, and re-read your comment multiple times and there's so much I don't understand! Keegan and I have a podcast called Go Full Crypto, and we'd love to interview you on MMT and why you think Bitcoin won't work in the long term. We invite nuance and differing opinions on our show in an effort to deliver a wholsesome perspective on interpretation of knowledge. Please let me know if you'd be interested.
P.S. - we'd also love to hear about the idea behind your semi-distributed currency platform :) Cookiejar is such a neat name for it.
This article is generally, missing the mark. A company can issue as many shares as it likes. You as an individual, can sign as much debt as you like. A bank can create as much deposits as it likes(obviously some laws apply). We already afford private individuals, companies, and any other financial entity, the ability to issue financial assets. MMT is merely recognizing, the extent to which a government also enjoys this flexibility.
There are a couple issues. Traditionally, the way to view inflation, was in terms flows. So in a given time period, a certain amount of money is spent, a certain amount of money is held, and a certain amount of goods and services are offered in exchange. Well, the probably with viewing the value in terms of flows, is that it can completely change in any time period, and it relies on aggregates and averages.
A much more simple and direct way to view inflation is in terms of the "stock', so the total amount people have saved in that currency. For a private company, this is the "market cap", for cryptocurrencies we similarly use the phrase "market cap". But for a countries currency, this is in essence called the "National Debt". Whereas a company wants to increase its value, we typically view an increase in national debts, as a bad thing. But really, it's no different. When a company issues shares, they use the money to buy things, and if they invest wisely, it increases their total value, more than the cost of the shares issued. For a government issuing currency it is the same. When you issue more money, that is not automatically good or bad, it depends on what it is spent on.
The typical problem, in the modern world, is not, in fact scarcity, but surplus, which leads to unemployment... Imagine that the United States was divided into two halves: east and west, and east and west fought against each other. They would spend a lot on arms, fortifications, planning, preparing, not to mention the costs if full blown conflict emerged.
Well, the value of a government, is creating a peaceful environment for commerce and welfare of its citizens. Admittedly, how well governments do this, varies. But if a government does its job well, then that creates a lot of opportunities, for entrepreneurs to start businesses, for people to specialize and trade, and all the costs that would have gone to fighting each other, now go toward trade and commerce.
Often, the result is, that (some) prices get pushed down lower, and it is ironically harder for many individuals to earn a decent living. If all prices get pushed lower, you have not problem, because prices are relative. But generally some resources are easier to control: land, housing, etc.
So some prices get pushed down very low: food, air travel, service industry etc. Meanwhile some prices stay high or even rise: housing, education, legal fees healthcare. In such an environment, it can be hard for normal people to make a living. Not everyone can be doctors, dentists or lawyers.
So the paradox is, because we have abundance, there is a shortage, not of goods or services, but of useful things to do, without excessively high barriers. Now admittedly, the trades: plumbers, construction, drivers, electricians, are great careers right now. They require enough commitment and skill, usually a long term career choice, and they often have trade organizations that ensure both quality and a bit of protectionism.
Many economists talk about a "lump of labor fallacy". They say that comments like "people are taking our jobs", or "automation will take jobs", ignore the fact that new jobs always get created. While it's true that new jobs are created all the time, sometimes these aren't as accessible. If you look at just food, or just clothing, people have a very specific level of need. Once someone gets their daily calories, and has enough quality clothing for their wardrobe, then it becomes very hard to sell them any more.
So today, we see more economic activities than ever before: music, entertainment, streaming services. It's a good thing that people are able to diversify into providing these different services. But there is an issue. Typically, unemployment hits the people on the bottom the hardest, so when food service, agriculture, textiles, manufacturing, if some of these industries contract, it's not like everyone can go out and get jobs working for a film crew...
Even if the movie industry takes in more money, than what is lost by the contraction of other industries, a film made by a few hundred people, can be distributed to millions.
So the irony is, because we have abundant wealth, some people lose their jobs and face deprivation. This isn't anything that fixes itself automatically. So what is to be done?
Well the MMT solution, is to create more work in the public sector. So you see, if the issue really is, that normal jobs have become redundant, that means we have excess wealth, surplus goods and services. So just like a company, when their share price appreciates, when we have surplus or abundance, the government has its "share price" increase... Because we have an excess of real goods and services, our currency becomes more valuable. It can be used by people all around the world to buy things, whether that's food or entertainment.
But as for the people at home without work now, what can we do? As I was saying, we can create public service jobs: clean up litter, beautify parks, build hiking or biking trails. Create anything of value. Basically, having abundance is not a good reason to force people into unemployment.
Now whether you agree with that politically or not is one thing, but the argument by MMT, is that we can afford it, especially when the nature of the problem is one of abundance and not scarcity. Right now our issues may be a little different in that we have some supply chain disruption, from decades of consolidation, efficiency boosts, and eliminating redundancies. The irony is that shortages now, are a result of surpluses in the past being an excuse to trim down workforces and outsource work.
You give a pretty good and fair overview of some principles from MMT, but I thought it would help to clarify some of these specifics.
Thank you for providing such a detailed comment! Always happy to hear others' opinions, sides, facts, etc. For me it is not so much that I struggle to understand MMT and how our governments/central banks are using it today. It is that I disagree with some of the assertions/core assumptions underpinning MMT. I respect them for what they are because I think they're a coherent way of looking at the world in and of itself, but I don't think it addresses some of the concerns that I laid out in this letter. Namely, no entity can infinitely print currency.
I appreciate that you've raised the point of comparing the country's currency to debt in a house, or debt in a company, or shares in a company. However, I don't think the currency of a country should be looked at like shares in a company or debt in a household.
Stephanie Kelton laid this exact point out in her book. She makes the case the government and central banks are special entities, unlike individuals, households, or companies. Ultimately currency and shares in a company are two totally different things. Money and financial instruments like securities are not the same thing. Bearer-asset based money (gold/bitcoin), and a debt obligation (IOU) are not the same thing.
I agree that a company should be able to create the financial instruments they like. I agree that a household should be able to take on as much debt as they like. But when a country or central bank inflates the money supply, they're borrowing from the collective, regardless of whether or not the populous wants them to or not.
I think we see eye to eye on the set of problems, and disagree on the best approach to solve them. Regardless, I am happy to see our assumptions and thesis play out on the world stage. Thank you again for commenting.
I have been following MMT since about 2013 or so. Before that I read "Human Action" by Ludwig von Mises, and was struck by the simplicity and elegance of "praxis" in that a person's actions are the true measure of their wishes.
However, I have come to see that Austrian Theory is only rooted in individualism. It posits the individual as the only meaningful unit of society. However, individuals are composed of cells, and they form groups as well.
It is impossible to say that only one level of social abstraction is meaningful. Individual desires are often expressed by which groups they identify with.
While you may understand some of the basic ideas of mmt, it is clear that you do not understand, or are simply ignoring what is claimed.
It is in fact untrue that infinite money is automatically worthless(which incidentally is NOT what MMT is talking about). If you have infinite money, but also infinite real wealth, then money can still function as normal. It is not known if the universe is finite.
Note that Austrian econ uses a definition of inflation, that is rooted in the idea of commodity money. That definition being an increase in the money stock. While this makes sense for commodities whose trade value is determined by BOTH utility and relative scarcity, it does not make sense for money based on debt or legal tokens.
Importantly, the standard definition of inflation today is unit purchasing power. "How much can one dollar buy", as measured by price indexes. So it is not measured by the money stock.
Scarcity is a necessary but not sufficient condition for commodity money to be valued. Note that bitcoin is not a true commodity money. It is in fact a protocol ledger based claim system, very similar to so called "fiat" systems.
What MMT describes is basically, instead of a gold standard, a guarantee to buy and sell gold for a given price, it proposes to have a "job guarantee", which is a commitment to buy labor at a given price. While it is possible that the marginal utility of this labor declines, such that the increase of real value fails to keep pace with the increasing stock of currency, even after one considers the effect of taxes in destroying part of the currency stock, the job guarantee pays a stable nominal amounts(not unlike monero's tail emission protocol), such that this self corrects, and any inflation lowers the minimum wage and benefit levels, thus restoring balance to the system.
It is in fact quite curious, that bitcoin relies on a "proof of work scheme", which is in some respects, similar to a job guarantee, except with 2 key differences. No useful work is done, or real value stored, by bitcoin mining, it is only a value signal, like peacock feathers or the ancient pyramids. Secondly the wage paid by bitcoin's proof of work scheme is constantly diminishing, both through halving and difficulty adjustment.
So bitcoin is like a job guarantee, that first pays $15/hr, then $7.50/hr, then $3.25/hr, etc. I am using these units only for the sake of comparison.
Fundamentally bitcoin is unsound money, because the work to mine it is not beneficial to the outside world, and there is no built-in process to destroy bitcoins or redeem them.
Everything in my initial comment was both correct and accurate, as a comparison. The proposition of issuing currency is not fundamentally different from issuing shares. Issuing new money is not dilution, unless you get nothing valuable in return.
Ultimately, bitcoin is a hybrid between a value signalling asset and a religion, which ignores its drawbacks and weaknesses. That religion is "stacking sats". At some point, like any phenomenon based on social adoption its rate of growth will slow, and many may become dissatisfied with its growth rate. But like any religion, it is hard to say how long it will last or how many followers it will accumulate.
But one thing is certain, if bitcoin is the dominant financial tool, overtaking fiat, etc. If that happens then we will return to deflationary boom bust cycles with severe recessions. Bitcoin does not help intermediate resolution of resource capture and price bifurcation, where some prices rise and others fall, such that inequality rises etc. Only if it manages to lead to wide scale destruction of wealth, through wars and revolutions, can bitcoin lead to a society with less inequality.
I do not expect bitcoin to be dominant, so I am not worried about this disaster, and in certain cases alternative payment systems can increase accountability.
Anyway, I hope your trades go well for you and wish you success with your writing!
Hey Derek! I've read, and re-read your comment multiple times and there's so much I don't understand! Keegan and I have a podcast called Go Full Crypto, and we'd love to interview you on MMT and why you think Bitcoin won't work in the long term. We invite nuance and differing opinions on our show in an effort to deliver a wholsesome perspective on interpretation of knowledge. Please let me know if you'd be interested.
P.S. - we'd also love to hear about the idea behind your semi-distributed currency platform :) Cookiejar is such a neat name for it.
Cheers!
Mrugakshee
Sounds interesting. Email me derek7mc@gmail.com