game piece on a monopoly board

Comments on Playing Monopolis Monopoly

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See original blog post HERE


  1. Ro | May 17, 2012 at 9:46 am |Excellent! Could we liken the $200 for passing Go to a Basic Income Guarantee?

  2. Alex B | May 17, 2012 at 10:13 am |Excellent! I had thought of a similar analogy a few months back as a possible way to teach those who are unfamiliar with MMT, but this is developed way beyond anything I thought of. Thank you!

  3. john newman | May 17, 2012 at 10:48 am |Well done!What we call the deficit should be called “aggregate wealth”. Anyone who wants to cut the “aggregate wealth” should be required to convince us why it’s a good idea. A real and current hyperinflation is the only good excuse I can think of for such a move.What is happening in Greece is an example of pointlessly cutting “aggregate wealth. The ECB and Germany insist on liquidating all the private holdings of wealth to pay for fraudulent loans extended to a corrupt Greek government, with which to purchase German military equipment among other things, buy German banks who failed to do underwriting adequate to discover the deceit in Greece’s national accounts, accounts kept by a kleptocratic and corrupt government now drummed out of office.

  4. Martin Read | May 17, 2012 at 10:51 am |So what’s gone wrong in my local version of the game, call it Zimbaweopolis, where both CIG and the players seemed to be stuffed with money, but the players are looking distinctly peaky?

    • Golfer1john | May 17, 2012 at 10:05 pm |Maybe YOU and SUE started a war with each other, and destroyed all the properties, so that no matter how much money you had, there was nothing to buy? Kinda like what happened in Zimbabwe in the real world.

  5. Brent | May 17, 2012 at 10:51 am |Thank you!!! Thank you!!! Thank you!!!You just broke the code. Finally, something that anyone who has ever played Monopoly can understand. The simplicity boggles the mind and is irrefutable.

  6. thomas haupt | May 17, 2012 at 12:11 pm |Excellent work. I too have used the monopoly game to try to explain MMT to folks but have not thought it out so well. To show the ‘vertical’ government element, I stepped further outside the game box to acknowledge Parker Bros (PB) as the game creator/government. To the ever nauseating question of “Where does the money come from?” and “How are they going to pay for it?”, I equated PB as the ‘designer’ of the game, NOT a player. PB ‘designs’ the box, the game board, the pieces and supplies the script (and the RULES of play). AND WHERE DO THEY GET THAT SCRIPT? They print it on cheap paper in any quantity they deem necessary to allow the game to function. The script has no particular value other than within the game play and has whatever value PB initially ascribes to it. If more people wanted to play the game, PB could just produce a larger game board (XY or XYZ) with more pieces and more script. Granted, our government does compete for some of our resources within the game but ultimately they can always issue additional script to employ as many players as might be required to insure stimulating game activity to the extent of available resources. PB has ultimate power; they designed the game.I think the ‘monopoly’ analogy warrants additional refinement as potentially a better explanation to the world’s non-economist citizens in understanding MMT and how the neo-liberal school is shafting us all. I think the ‘football game scoreboard (and points) analogy is tougher to wrap one’s brain around in that most citizens still view our money as those green pieces of paper. I suppose PB needs to come out with a digital game of monopoly that we can all play on our iPads before most folks can make that leap.

  7. Stephanie Kelton | May 17, 2012 at 12:35 pm |Thomas,There’s an app for that. Several actually.

    • thomas haupt | May 17, 2012 at 1:07 pm |Of course. I should have done an app search. BTW Stephanie, thank you so much for all the good work you folks at NEP are doing. I hope the message gets through so the world can quit suffering as the austerity power elite bumblers continue their bumbling.

  8. Stephanie Kelton | May 17, 2012 at 1:03 pm |PS Monopoly is Hasbro. 🙂PPS Here’s the electronic version. All credit baby!

  9. Francis | May 17, 2012 at 1:31 pm |Useful, but misleading analogy. The difference between Monopoly and real-life is that no one has to build the railroads, houses, hotels, etc in the board game. No one has to actually WORK to become “wealthy”. As long as you roll dice better than other players you become wealthy. There’s no work involved in this. There’s no production involved in this game. So yes, a fiat currency issuer might work in the same way that a banker works, but that doesn’t mean the private sector works even remotely close to how the private sector in the board game works. And if you confuse the production of the private sector with the money creation of the government then you miss the whole point of having an economy in the first place. So, decent analogy, but terribly misleading in terms of understanding how an economy actually works.

    • keltons | May 17, 2012 at 2:16 pm |Francis,I think you missed part of John’s story. Each player has a job. You were the builder, John was the writer-architect, Sister Sue was the administrator. And there was income inequality from the beginning (just like in the real world). Your salary was highest. Maybe you worked the hardest, maybe your dad was buddies with local legislators. The point is, there is work and there is production in the game. You’re accusing John of overlooking something that he quite obviously built in from the very beginning.

      • Francis | May 17, 2012 at 2:35 pm |No, I did not miss this. You seem to be missing the whole point of an economy. The real wealth of an economy is not determined by how much currency the government produces. It is determined by the real output of the citizens. Most of this wealth is accumulated through the issuance of private debt by private banks. Not by issuance of currency by the government. The private sector wealth is built on a revolving line of credit within the banking system. It is not built on the currency issued by the government. You seem to think that the private sector cannot become wealthier without government spending. That’s just ridiculous.

        • Graham Paterson | May 17, 2012 at 3:14 pm |You actually hit the nail on the head Francis when you said, “It is determined by the real output of the citizens”,and that defines that credit is merely a legal agreement, a ‘monetisation’ of future effort, and a promise to pay later from the fruits emanating from the advance. As such, all credit is really public property because only people are capable of producing products and services that will create the ability to repay any advance. So, the question is, “Who has given the private banks the right to create interest bearing credit out of thin air when it really is the property of the people?
          Obviously, the governments condone and authorise this practice of fractional reserve banking, which in truth, is a form of theft. The banks are allowed to make use of their customer’s deposits, not by lending them out, but by creating this fictional “credit money” by a few key strokes on a computer and an entry into someone’s account.
          So, as credit is really the property of the people who do produce goods and services, why doesn’t the Government, on behalf of the people, SELL properly monitored access to credit creation to the private banking industry? By ‘monitoring’ I mean relating the creation of credit to the measured productivity and consumption capacity of the nation and a growing economy. The government could do this similarly to the way Treasury creates bonds, and instead of using the bonds to borrow money, they could sell the credit access and have an income.
          Under this system, as long as the creation of new money is tied to the productive capacity of the nation, the spectre of inflation would not occur because, inflation only arises from the disconnect between the money supply and the availability of goods and services.

        • Calgacus | May 17, 2012 at 3:58 pm |In competitive tournament Monopoly, much of the art is in the “private sector” horizontal side deals, debts, agreements between the players. Conceivably their value can exceed the supply of base currency. However, ultimate settlement is in Uncle Pennybag’s money. Exactly as in the real world.The proportion of private bank debt money and government currency / debt varies in real economies. Current unstable economies have a high level of private debt. By debt-deflation or much better, by countercyclical government spending, these levels are going to be reduced. In command or war-time monetary economies, all or most of the wealth is built on currency issued by the government, not on bank credit. 1945 was much like the beginning of a Monopoly game, with lots of stable government money, relatively little private bank money, relatively few side deals between the players. 1929 & now is the reverse.You seem to think that the private sector cannot become wealthier without government spending. Overall, it’s never happened otherwise in the long run. At particular times, particularly like now, it is extremely unlikely that the private sector will expand without more net government spending to more fully employ resources idled by instability.And if you confuse the production of the private sector with the money creation of the government then you miss the whole point of having an economy in the first place. That’s precisely what sound economics, MMT does not do. The “mainstream”, one way or another confuses the “real” (production of the private sector) & the nominal/financial (money creation of the government). These are two very different things, which flow in opposite directions.The Monopoly game is more than a mere analogy. It is two applications of the same concepts.
          Present real world monetary economies are simply games of Monopoly where the game, the monopoly money has real consequences, is exchanged for real goods and services, where nominal, financial spending, efflux and reflux guide the operation of the real economy, the flow of goods and services. But a monopoly game where the players have come together and decreed that the fate of the losers is real unemployment, real poverty and death. Where the goal of the Monetary Economy game is more like “Selecting the winner of the Monopoly tournament” than “providing real goods & services to real people”.

          • Peter | May 17, 2012 at 4:36 pm |I can’t believe I didn’t think of this sooner. All we need to do is treat our economy like a board game and issue more money from the bank. Then everything will be all better! Thanks MMT. Making the world a better place is as easy as having a printing press!

            Calgacus | May 17, 2012 at 5:04 pm |Peter, as explained above, we already do treat economies as board games. Too much so. Selecting a tournament winner is good fun. But making it so everyone else is his slave is not.

        • Mitch Green | May 18, 2012 at 7:11 am |Francis,In a monetary production economy the whole point and purpose of production is to accumulate money. In no place I know does this take place in the absence of the state, and regardless of what we think of the state, when it issues orders for production you can be sure people will line up to fill them. I don’t think anybody seriously disputes that.Now, when government purchases from the private sector how do think they are remunerated? With payments denominated in the state money of account in the amount contracted for (or more if you add in corruption). When that payment clears and the transaction is complete, I ask you, what are we left with? More money and more real output. Wealth.So, yes, it is true that creating more money creates more wealth. The degree to which the wealth of nations is augmented by that government spending is another matter entirely, which is not to suggest we can’t speak of the issue, only that we need to use different language.

          • Hugo Heden | May 18, 2012 at 10:43 am |> “So, yes, it is true that creating more money creates more wealth.”(Up to a point. Creating and spending money will create more wealth only if the economy can expand too meet the added demand. If the economy is running at full capacity, increasing demand further will result in “demand side inflation”. Nobody wants that.)(Most people here will know this of course. But there seem to be a few Zimbabwe hysterics around.)

        • Ray Phenicie | May 20, 2012 at 3:02 pm |“The real wealth of an economy is not determined by how much currency the government produces. It is determined by the real output of the citizens. Most of this wealth is accumulated through the issuance of private debt by private banks.”
          You may wish to read the MMT primer to see how this statement is definitely, flat out incorrect.
          You are conflating wealth with money-granted wealth is created once people make things. However, to induce folks to work, they require a paycheck. And it is not true that most money-accepting for the moment your somewhat loose equivalency between wealth and money -comes through creation of private debt.

          • maude | May 23, 2012 at 5:40 pm |Think of it this way; In past history private entities created their own currency. They called it script. They paid their workers in script. The workers were willing to work for the script because it was accepted at the company store for goods. The real problem was that the private entities extracted a tax by overcharging and issuing credit to those who could not afford to meet the inflated price. We should all know how this story ends. The point to this story is that we need to get the private entities, and I mean banks, out of the issuing of currency as they are extracting a tax that we can not afford.

        • sgt_doom | May 21, 2012 at 1:25 pm |You’re comments sound spot on.
          I would have summed up the missing money thusly, the banksters went on another ultra-leveraged bank run (similary to the 1920s) and peddled hundreds of trillions of dollars of worthless credit derivatives — and now the deleveraging has begun. . .

  10. MattGoo | May 17, 2012 at 1:44 pm |“We can think of these “Go payments” as being analogous to many different things in the real economy—the federal government paying someone to mow the front lawn of the White House, for example, or sending out a social security check to our grandmother.”I understand the concept of the Government purchasing things and injecting currency into the economy that is the basis of the piece, and I may be picking at an aside, an example, but does social security qualify as an example similar to the Go Payments. Is social security the CIG injecting value into the economy, or is it cyclical in that, in theory, one generation pays into it so an older generation can take from it? This is obviously what we are generally told but could easily not be the case, is that what you are saying, that maybe the social security paradigm is not as flawed and bankrupt as it is often described, or is this possibly just a poor example that involves more complex actors such as “Private banking, for example, or managing inflation, or bonds and interest rates” that you acknowledge at the end? Do you believe when the fund becomes stressed the CIG will simply continuing making the payments by creating currency to maintain the status quo?

    • keltons | May 17, 2012 at 2:05 pm |I would argue (and Randy Wray and I have done so in academic journal articles) that SocSec does work like it does in John’s board game. John doesn’t have the banker rip up the bills when he collects them, but he just as easily could. FICA withholdings don’t give the government something that it later “uses” to pay (future) retirees. Taxes destroy money. SocSec payments are made just like every other government payment — by creating new money.I think a lot of the argument can be found here.
      It was subsequently published in the Journal of Post Keynesian Economics.

    • Calgacus | May 17, 2012 at 4:55 pm |one generation pays into it so an older generation can take from it Is true, if understood correctly. In the original pay-as-you-go design, one generation, current workers, pays into it so that the current, equal payments to current retirees will have no inflationary impact. Of course payments could usually be even higher than that without serious inflationary impact either. SS could safely run something of a deficit.The problem with the Loony Tunes 1983 “reform” to SS (in order to destroy it) was that it ripped up much more money from the workers than was being expended, newly created to be given to retirees. It ran a dangerous surplus. So without the “borrowing from SS” “raiding the trust fund” “using SS to lower the deficit” that some who don’t understand things decry, the impact would have been so deflationary that it would have wrecked the economy much faster.SS was originally designed by Institutional & Keynesian economists – the MMTers of the day – and they & FDR certainly knew perfectly well how things worked, that SS taxes did not pay for retirees pensions, that things worked as Kelton & Wray explain.

      • Golfer1john | May 17, 2012 at 10:15 pm |“SS was originally designed by Institutional & Keynesian economists – the MMTers of the day”How could they have done that under the gold standard? Was not the Federal government of FDR just another currency user? And if it was monetarily sovereign then, what exactly did change in 1971?

        • Graham Paterson | May 18, 2012 at 1:50 am |For your information Golfer1John, this is a synopsis of the history of money previously published on this blog –
          The History of Modern Money
          Britain officially adopted the gold standard in 1844 and it became the common system regulating domestic economies and foreign trade up until World War I. In this period, the leading economies of the world ran a pure gold standard and expressed their exchange rates accordingly.
          Currencies were linked to gold, meaning that the value of a local currency was fixed at a set exchange rate to gold ounces. This was known as the gold standard. This allowed for unrestricted capital mobility as well as global stability in currencies and trade. However, with the start of World War I, the gold standard was interrupted and over the next 25 years, significant instability arose as governments set the value of their currencies in any way they chose. In some countries, the attempts to go back to the gold standard proving extremely damaging in terms of gold losses and rising unemployment, and consequently, the UK abandoned the gold standard in 1931.
          In 1933 President Franklin Delano Roosevelt signed Executive Order 6102, which made it illegal for US citizens to hold gold bullion. Prior to that order, the $20 bill was essentially a warehouse receipt for a one-ounce gold coin. The Federal Reserve Act of 1914 actually required the $20 bill to print this on the note. After the 1933 Executive Order, $20 notes could not be exchanged for gold. A year after making monetary gold ownership illegal, FDR revalued gold from $20.67 per ounce to $35 an ounce with the Gold Reserve Act. The Act also required all gold and gold certificates to be turned over to the Treasury. Apart from resulting in a $3 billion boost to the Government’s coffers, it illustrated the farcical belief that a ‘gold standard’ could control a government’s lust for creating “money”.
          At the end of World War II, a conference was held at Bretton Woods in an effort to generate global economic stability and increase global trade. The conference established the basic rules and regulations governing international exchange. As such, an international monetary system, embodied in the International Monetary Fund (IMF), was established to promote foreign trade and to maintain the monetary stability of countries, and therefore, that of the global economy.
          It was agreed that currencies would be fixed, or pegged, but this time to the U.S. dollar, which in turn, was pegged to gold at the US$35 per ounce as revalued by FDR in 1934. This meant that the value of a currency was directly linked to the value of the U.S. dollar. If a country needed to readjust the value of its currency, it had to get the approval of the IMF to do so. This arrangement was maintained until Nixon was forced to abandon the Bretton Woods system on August 15, 1971, as a result of the excessive Vietnam spending he inherited from the previous administrations. The U.S. dollar was no longer convertible to gold on the international exchange markets. This was the final break in the links between a commodity that had intrinsic value and the nominal currencies. From this point on, governments around the world used fiat currency as the basis of their monetary systems.
          This system had two defining characteristics: (a) its non-convertibility to gold; and (b) flexible exchange rates. This was a major shift in the history of “money” that fundamentally altered the economic policy ideas prevailing under a ‘gold standard’. The logic of the gold standard system was no longer applicable to the flexible exchange rate- non-convertibility conditions and cannot be rationally translated or used in the fiat currency era.
          Under a fiat monetary system, “state money” has no intrinsic value and survives, purely on the “faith” of the holder that it can be exchanged for goods or services. Given that the Government is the monopoly issuer of the fiat currency, then the spending by the government is actually independent of the amount of revenue it can raise. It can spend however much it likes subject to there being real goods and services available for sale. This is a dramatic change in economic policy philosophy which is completely misunderstood by most people and most economists.

          • Jonathan Gwinn | May 18, 2012 at 12:34 pm |Actual Gold coins or paper redeemable in gold was a smokescreen anyway. The coins were set at a Unit of account by the government. Paper redeemable in gold was pyramided many times over which allowed for issuing currency by the dominant empire: e.g the British Empire and later the American Empire via the Bretton Woods system…….

        • Calgacus | May 18, 2012 at 4:23 am |Was not the Federal government of FDR just another currency user? No. A sovereign government is never really just another currency user. The Eurozone states are currency users, so they are not sovereign governments in reality, but administrative subdivisions. To all intents & purposes, FDR’s USA was just as monetarily sovereign as now. The biggest deficits ever. Obviously no shiny metal constraint operating. And there isn’t any question that he knew taxes didn’t pay for SS spending. He said so. Basically completely unconstrained from 1933-1946 (Bretton Woods) & hardly a constraint on the USA for the period of the worldwide dollar shortage of the next 12 years or so. Never much of one til 1971.Graham Paterson’s helpful piece is not really from the MMT perspective IMHO, and according to google is not from here, though similar pieces have appeared on MMT blogs. ” Prior to that order, the $20 bill was essentially a warehouse receipt for a one-ounce gold coin” is the orthodox commodity-theory way. The correct way is to consider an ounce of gold from 1933-71 as a weird kind of $35 bill. French collectors were obsessed by these bills, and Nixon simply stopped satisfying their desires, stopped printing these $35 bills because the material used to make them was getting too scarce. Just like stopping making pennies out of copper. As gold mine owners & gold-exporting states always knew, gold was always valuable because you could get dollars & other intrinsically valuable “fiat” currencies for it. Dollars weren’t valuable because superstitious governments ran a gold shoppe. (For a while it wasn’t so superstitious, because it was needed to pay mercenary armies.)And if it was monetarily sovereign then, what exactly did change in 1971? At the most fundamental, most important, most theoretical, most ordinary level – Nothing. Nothing, as Nixon informed the nation, as FDR had before him. No real change in people’s daily lives. Because gold is basically quite useless as a commodity. There is a higher supply of it in the world than any other commodity, compared to the real economy’s needs. Nixon ended Bretton Woods, where there was a kind of international gold standard only, relating the dollar directly to gold & the other currencies to the dollar, while domestically US citizens were prohibited from owning gold. So the last tie to gold was removed, and after hemming & hawing for a few years after, the foreign exchange value of the dollar against other currencies was allowed to float. And the dollar became effectively more desired than ever!

  11. Alex Seferian | May 17, 2012 at 2:08 pm |Outstanding work! This should be published in the WSJ or made into a proper game and marketed to schools. I have been reading MMT for months and as a former Econ major (25 years ago) it has taken me a lot of time to undo some of the mental hard-wiring. This piece has helped put things even more together. Thank you! By the way, if you ever decide to take this to a next level you could add a separate board and city, and start creating some exports and imports!!

  12. Henry George | May 17, 2012 at 2:37 pm |And just like real fascists, you will censor any information that doesn’t serve your aims. What kind of theory has to try and cover up the history of child’s board game? Pathetic.

  13. Henry George | May 17, 2012 at 2:44 pm |Again, here’s the forbidden information they have tried to censor to prevent you from learning anything:Astonishing indeed! This is a perfect example of how absolutely clueless MMT is about basic economics. The entire point of the game Monopoly was to demonstrate the effects of land privilege — and should also plainly illustrate the utter futility of printing money (in real life the ground rent is not fixed — but the supply is!). That you all have failed to grasp the most basic lesson of a child’s board game is, frankly, pathetic and embarrassing.“The history of Monopoly can be traced back to 1904, when an American woman named Elizabeth (Lizzie) J. Magie Phillips created a game through which she hoped to be able to explain the single tax theory of Henry George (it was intended to illustrate the negative aspects of concentrating land in private monopolies). Her game, The Landlord’s Game, was commercially published in 1923.”This really ought to discredit your entire theory.

    • Stephanie Kelton | May 17, 2012 at 3:10 pm |You’re delusional. No one is “forbidding” anything. You must be used to dealing with other blogs. We don’t do that here. Yes, there’s a spam filter — Joe Firestone complained that his posts weren’t sticking, and he’s one of us! Maybe you triggered something. I don’t think it’s smart enough to post only the comments we find agreeable. And for the record, MMTers have long argued for a land tax. So you’re not schooling us on the iussue of land privilege.

      • Henry George | May 17, 2012 at 4:15 pm |Stephanie, your colleagues are definitely engaged in blatant censorship. The comment posted, was then removed, and my name and email were banned. This happens regularly when I post dissenting opinions. Randy has admitted it. My comments have always been on-topic, they’re occasionally flippant but never abusive, and always apropos.Did you link to the wrong paper, perhaps? That paper is about financial regulation and mentions nothing about “land” or “tax” or “capital gains,” etc. In fact, it states “Banks should ultimately have a narrow focus and a limited set of operations. For instance, business functions not related to commercial and residential real estate mortgages and the making of short-term commercial loans should be excised from a bank’s operations.”I have never seen any hint of an LVT in the MMT platform, apart from your association with Michael Hudson. If it is part of the platform and I have missed it, I would be happy to know about it. But all of the posts and comments here point to a very distinct lack of comprehension.

        • Daniel | May 18, 2012 at 12:47 am |“I have never seen any hint of an LVT in the MMT platform..”Henry, I think you are missing the scope of MMT. MMT is a theory or model built to describe how Money works in a Fiat Currency. It says nothing about Rent (Land or otherwise) or the inequalities this results in. Just money and to a lesser extent unemployment.
          George’s theories, at least in terms of LVT and The Landlords Game, explain very well how Land works and why it is different from Labour or Capital. There isn’t really an overlap here. MMT can’t contradict George regarding the LVT because it doesn’t describe either Land or Rents. It does talk about Taxes but not the differences between them just how they relate to money and sectoral balances etc.
          Also a government with a good understanding of MMT and applying it well, including a Job Guarantee even, will do nothing to solve inequalities caused by Land Rents or the problems which a LVT would correct. And MMT doesn’t claim that it will either, these are separate issues.Many supporters of MMT (such as myself) are also supporters of George and LVT but neither theory requires the other or disproves it either.Certainly this article shows a failure to understand Monopoly and Land and there are flaws in their version that could be improved but they are hoping to teach money not land. Really a better Monopolis game would provide ways to expand and include the neighbors without doing the impossible and creating land. Also the balance sheet completely misses the transactions where the players buy the land initially from the bank, that’s where most of their money goes for a lot of the game it’s a strange thing to leave out.

          • Henry George | May 18, 2012 at 2:57 am |I beg to differ, Daniel. There’s an unavoidable discrepancy here on the fiscal side. Hudson’s last piece goes right at it — and actually that’s why I started reading this blog in the first place: to figure out why Hudson was endorsing this stuff.Until you have an LVT in place, government stimulus of any kind just ends up further enriching the land barons and bankers and will make the depression much worse. Whether it’s an infrastructure program or a pure money printing scheme, it all ends up making the rich richer and the poor poorer. Once you have an LVT in place, almost any stimulus program will work. Inflation is still theft, a dishonest indirect tax, but the effects are more subtle and spread out — and it can’t cause depressions because inflation can no longer compound on the master resource.So, in my view, MMT + JG, payroll cut, revenue sharing, whatever, WITHOUT the LVT would be a disaster; MMT with the LVT would be harmless, rather boring and unnecessary.But there is necessarily a fiscal side to normative MMT and to discuss fiscal policy without an LVT implies ignorance. This post proves it. It’s illiterate. Also think that sectoral balances line is pure junk, precisely backwards.Agreed that land is a massive capital sink — far and away the biggest there is — bigger than most wars! Just think how much productive investment would be generated by simply not parking money on land! It’d be an orgy! Of course, the original version of the board game could be flipped over and played with very neighborly, immigrant friendly Georgist rules.

    • Graham Paterson | May 17, 2012 at 3:44 pm |I’ve been monitoring this blog for quite a while and have yet to find any hint of censoring, other than the quite legitimate one of excluding spam. Frankly, I can’t see how the origin of the Monopoly game has any effect on MMT and its concepts. If anything, MMT would support Lizzie Phillips arguments about land being concentrated in private monopolies because, the origin of those monopolies can, in most cases, be traced to bankers and money lenders, unless those origins are related to looting and conquest.
      Rather than discrediting MMT, I find the analogy of using the game of Monopoly as a tool for illustrating MMT a very practical approach that relates to a vast number of people.

      • Henry George | May 17, 2012 at 4:50 pm |Graham, if you print money, they will just raise the rent.

        • Graham Paterson | May 17, 2012 at 6:22 pm |But the point is – nobody, governments or private banks creating credit out of nothing – should ever be allowed to “just print money” – a growing economy needs an increasing supply of “money tickets” if it is to grow and expand – so – if the “money ticket” supply is properly regulated to the productivity of the nation, rents won’t increase, nor will the prices of other goods and services. We need to look at the true purpose of “money” – in essence, it is purely a ticket system because, “money” is really useless unless it is used for spending.
          The real problem is – how do “we the people” control the ability of governments and banks inflating the money supply independently of designated productivity parameters. In a lawful society, that should be done constitutionally and upheld by the courts, but how many “lawful” societies still exist in this world of today?

          • Golfer1john | May 17, 2012 at 10:20 pm |Deja Vu! Isn’t this pretty much what Milton Friedman said? The same Milton Friedman who is detested and derided by all MMTers?

    • Calgacus | May 17, 2012 at 4:18 pm |The Landlord game, the Monopoly game, the Monetary Economy game has been played for a looooong time. Long enough for many big shot players to come and go. To eat and drink, and merrily spill a lot of stuff on the game board and box and themselves. And sometimes scribble phony self-serving rules, or half-baked guesses about what the rules are.The MMT academics are just the nerdy kids who had the bright idea to finally look at the inside of the top of the box the game came in, where the rules are written, scrape off all the detritus, the chocolate & spaghetti sauce, the old scribbles & guesses. And there they are- so simple that they repel the mind. MMT = rules of the game is more basic than basic economics = how to play the game, some of its objectives, which can’t be understood without it.

    • Alex Seferian | May 17, 2012 at 6:48 pm |Henry – I was hoping you could further explain. The monopolis writing follows a logical train of thought… at least it seems logical to me. I am a relative newcomer to MMT and no expert, so your comments intrigued me. Could you please explain what exactly you consider is wrong with what is written. That Monopoly was created to demonstrate the effects of land privilege seems irrelevant to the arguments made. So is the history of the game. I am not trying to defend the blog… just understand your opinion with precise comments. For example, what do you mean by in “real life ground rent is not fixed — but the supply is”? How exactly does that poke a hole in the framework? Thanks is advance for any clarification you may decide to provide.

      • Henry George | May 17, 2012 at 9:03 pm |Yes, I often make the mistaken assumption that people have at least a passing familiarity with classical economics, a al Adam Smith, Ricardo, Mill, George, and unfortunately that is no longer the case today. The author is obviously unaware of the concept behind the game.Monopoly was intended to show how a role of the dice — pure chance — creates a class of landholders that are given the privilege of exacting a severe toll on the rest of the players who weren’t lucky enough to gain title to the more valuable parcels on the board. This is exactly how it works in real life, as when the first person to happen upon “Park Place” gains an unfair advantage that is compounded over time as the population increases and development progresses.However, in the real world, the ground rent (and the sale price) of the parcels is not fixed like it is in the game. So in reality if you land on my Park Place and cannot pay the rent, we cannot simply issue more money because I will simply raise your rent. That should be easy enough to understand. If I own all the land, you can issue as much money as you want: I’ll just raise your rent. This is true in any given instance and is also true in the aggregate, where you have a class of landowners and a class of landless.The other fallacy in this new version of the game, is the idea that we can create additional parcels. In reality, the supply of land is entirely fixed and the dice stopped rolling a century ago. There are no land factories and you cannot live in the air, or at sea or on the moon — at least not without capital that comes from land! If you build a high rise apartment, I will just raise your ground rent. You see, land is that peculiar species of “capital” whose supply is fixed, wasn’t created by anyone’s labor, has no cost of production or maintenance, and always tends to appreciate because it’s absolutely required for everyone’s material existence (capital is exactly the opposite). All food, clothing, and shelter come ultimately from land, and you must “be” somewhere.Henry George believed that you should keep what you make and pay for what you take; that everyone should have a right to the fruits of their labor, but that the income from land rent ought to be shared, so as to avoid creating unfair advantage, subsidies to idleness and speculation, and the dilution of the value of labor.Since the most valuable asset in any economy is always the land, we could easily fund even our insanely bloated government budget with just a fraction of the ground rent, pay a citizens dividend with the remainder and leave goods and labor completely untaxed. That was George’s Single Tax plan.So anyway, and this should answer Graham’s comment as well, you cannot “tax” land rent through monetary policy or financial regulation except by completely eliminating the economy, savings, investment, allocation, etc, and having the government decide exactly who does what and who gets what — communism, in other words. MMT doesn’t go quite so far as to say that outright, but it comes dangerously close.

        • Alex Seferian | May 17, 2012 at 10:16 pm |Knowledge of economics in these sorts of forums is surely to vary but hopefully a respectful dialogue can ensue… helpful for those of us with admittedly limited backgrounds but lots of questions and eager to learn… so thank you very much for responding.“However, in the real world, the ground rent (and the sale price) of the parcels is not fixed like it is in the game. So in reality if you land on my Park Place and cannot pay the rent, we cannot simply issue more money because I will simply raise your rent.”I would have thought that perhaps yes… perhaps no. If one were to attempt to model the real world surely one would have to account for the possibility you indicate, but then again, the opposite could also be true. Even if prices can vary, its not a foregone conclusion that rents will be raised if someone “cannot pay the rent”. If overall demand was low, prices could fall in response to payment issues. Be that as it may, why is this a relevant point in regards to the Monopolis framework of what is going on?“If I own all the land, you can issue as much money as you want: I’ll just raise your rent.”Again, maybe yes, maybe no… I think. Depending on what your needs are, wouldn’t you agree? In any event, so what? Honestly, and I am not trying to be facetious… but what is your point, and how does this “raise rent comment” discredit the operational descriptions underpinning MMT?“The other fallacy in this new version of the game is the idea that we can create additional parcels. In reality, the supply of land is entirely fixed and the dice stopped rolling a century ago.”I respectfully disagree with you there. The actual supply of physical land was fixed not in the early 1900s but more like 4 billion years ago (if in your sentence you are linking the dice roll comment with the supply of land). Regardless, and more importantly, additional “parcels” of land are being developed (within that fixed supply) every day around the planet… Again, what is your point or how do you generate a critique of MMT by referencing the supply of land?“…you cannot live in the air, or at sea or on the moon…”Agree with you there… at least not in comfort. ☺“If you build a high rise apartment, I will just raise your ground rent.”Please see comment above.“You see, land is that peculiar species of “capital” whose supply is fixed, wasn’t created by anyone’s labor, has no cost of production or maintenance, and always tends to appreciate because it’s absolutely required for everyone’s material existence (capital is exactly the opposite). All food, clothing, and shelter come ultimately from land, and you must “be” somewhere.”So what? Forgive me again, and I openly admit that I am not an economist, but it is extremely difficult to follow your logic. What is your point in regards to the Monopolist thread?“… avoid creating unfair advantage, subsidies to idleness and speculation, and the dilution of the value of labor.”
          I haven’t found anything yet in the blogosphere where MMT argues in favor of creating unfair advantages, subsidizing idleness, or diluting the value of labor. How could anybody be against such noble principles?“you cannot “tax” land rent through monetary policy or financial regulation except by completely eliminating the economy, savings, investment, allocation, etc, and having the government decide exactly who does what and who gets what.”I don’t think that MMT is about taxing land rent, but anyways, could you please provide concrete examples of countries where what you say has happened?

          • Henry George | May 17, 2012 at 11:10 pm |“I would have thought that perhaps yes… perhaps no. If one were to attempt to model the real world surely one would have to account for the possibility you indicate, but then again, the opposite could also be true. Even if prices can vary, its not a foregone conclusion that rents will be raised if someone “cannot pay the rent”. If overall demand was low, prices could fall in response to payment issues. Be that as it may, why is this a relevant point in regards to the Monopolis framework of what is going on?”No, if you can’t pay the rent, you are thrown in jail, foreclosed upon, evicted. If you print money to pay the rent, the rent will increase everywhere according to how much money is printed. This is relevant because it proves that Keynesians do not understand stagflation, which is caused by land monopoly.“Depending on what your needs are, wouldn’t you agree? In any event, so what? Honestly, and I am not trying to be facetious… but what is your point, and how does this “raise rent comment” discredit the operational descriptions underpinning MMT?”No, everyone needs access to land or at least the products of land. Rising rents, that claim an ever larger share of the produce, strangle production everywhere because labor and capital must be deployed on land. This is not a monetary phenomenon. MMT correctly describes the operation of the financial system, although they deliberately blur the line between positive and normative economics. But they miss how it relates to the basic factors of production. This Monopoly post is a perfectly clear example of that.“So what? Forgive me again, and I openly admit that I am not an economist, but it is extremely difficult to follow your logic. What is your point in regards to the Monopolist thread?”That you cannot fix the land problem — which is the cause of the depression — with monopoly money.“I don’t think that MMT is about taxing land rent, but anyways, could you please provide concrete examples of countries where what you say has happened?”Exactly, MMT is not; Monopoly is about just that. Land monopoly has been the cause of virtually every depression in history. It’s the main cause of poverty everywhere. I heartily recommend you read it from George himself.

            • Alex Seferian | May 18, 2012 at 5:05 am |“No, if you can’t pay the rent, you are thrown in jail, foreclosed upon, evicted. If you print money to pay the rent, the rent will increase everywhere according to how much money is printed”I only partially agree with you. If you can’t pay the rent and others cannot as well, then in the real world rents may come down. It all depends on supply-demand. Moreover, in the game of Monopoly when you face a payment which exceeds your cash-in-hand, you must try to raise it by either: i) selling some of your properties to other players (including the player you have to pay to), or ii) mortgaging if no one will buy from you. If all this does not result in enough cash then you are bankrupt and game over. Hence, your comments actually lend some support to the Monopolis framework. Even if you disagree with this last comment, I still am not able to decipher a robust critique of MMT with what you say about rents going up… but that may just be as a result of my limited academic background.“No, everyone needs access to land or at least the products of land.”OK but MMT does not argue against that… I think.“Rising rents, that claim an ever larger share of the produce, strangle production everywhere because labor and capital must be deployed on land. This is not a monetary phenomenon.”I still think that it all depends… rising rents may or may not have an adverse impact. Amongst others, it depends on the country, its laws on land and private property, or lack thereof, and how that country manages its economy… and it also depends on what point within an economic cycle one may find oneself in. In any event, I don’t think that the Monopolist piece addresses what you say, so I am still lost as to how you precisely criticize what is written.“MMT correctly describes the operation of the financial system…but they miss how it relates to the basic factors of production. This Monopoly post is a perfectly clear example of that.”The Monopolis piece cannot represent a perfect model nor would I imagine its author had such an ambitious goal in mind. The aim I think was to explain how money works, and in that respect I at least consider that it does a great job. Insofar as MMT’s overall framework, I haven’t been able to poke any analytical holes regarding what the theory says about “factors of production”.“That you cannot fix the land problem — which is the cause of the depression — with monopoly money.”I think I am just now beginning to understand what it is you are saying. You believe that the root problem relates to “land”. MMT I think focuses on describing how things actually work.“Exactly, MMT is not; Monopoly is about just that. Land monopoly has been the cause of virtually every depression in history. It’s the main cause of poverty everywhere. I heartily recommend you read it from George himself.”OK I will surely do that and thanks for the invitation. I actually thought your name was “Henry George”. Now I see you have your own website so perhaps I can look into that. At least from what you have exposed in this thread, and trying to look at things dispassionately and logically, I humbly have to say that your critique of MMT and the Monopolis story is unconvincing… but then again I am just a newcomer and relatively inexperienced and rusty when it comes to economics. Thanks in any event and perhaps we can continue exchanging thoughts in Henry George once I better understand your points.

  14. Tyler | May 17, 2012 at 3:12 pm |The last time I played Monopoly was in ’08, with these guys named Mitt and Barack. Mitt had really weird rules for our game. He said Barack and I would start out with the usual $1500, but he got to start with $1 million because that’s life, man. Needless to say, Barack and I were taken aback, but we decided to play anyway. And get this… Barack won! I think it was because of how intelligent he is, although he had this bizarre habit of intermittently giving lots of money to me, the banker, because he thought I needed it.

  15. maude | May 17, 2012 at 4:57 pm |I was a convert to MMT but have had some difficulty putting it into a frame that non economists can understand. You have done it beautifully.

  16. Dan Metzger | May 17, 2012 at 5:40 pm |Well done! Thank you very much.

  17. Jonf | May 17, 2012 at 6:03 pm |Excellent! I am looking forward to the horizontal transactions , the loans, the cig operations and reserves and the building of something o credit, and the pay off of the loan. Then maybe another iteration where taxes take more out. Heck you could have multiple games here. Are you planning on selling it? I will invest in it.BTW I keep thinking your debits and credits are backwards. But I get where you are going. Liked it a lot.

  18. Jonf | May 17, 2012 at 6:04 pm |One afterthought. This and iterations would be a great teaching tool. The expansion could cover all kinds of scenarios.

  19. Jon Bubs | May 17, 2012 at 8:28 pm |Fantastic post, thank you.

  20. Schofield | May 17, 2012 at 9:32 pm |Graham Patterson whilst much of your comment gives food for thought including the notion that we’d all be better off conceptualizing government created money from nothing as being our money being “lent” into our societies I do resist the idea that everything has to be subject to a productivity analysis measured by money. How, for example, do you measure the productivity of a psycho-therapist when clearly helping an individual overcome psychological difficulties can be a lengthy process but well worth well in the sense that many clients will become much more productive members of a society? Equally and closer to most people’s experience how do you measure the productivity of a primary carer, either of children, disable individuals, the sick and the elderly?

    • Graham Paterson | May 18, 2012 at 1:35 am |I do understand you argument about productivity, but what other criteria would be better suited. A nation’s economy is assessed largely on the basis of the physical assets it is capable of producing and those assets include services such as those you mention. Thus the provision of ‘health’ services become part of the assessment of the nation’s productivity. Most developed countries have a Statistical department which attempts to measure the aspects that make up the macroeconomic elements of the nation. If these elements were to be the basis for determining the money supply, there would probably be need for a thorough examination to confirm what is truly applicable and what is not. For example, people elect a government, primarily for the purpose of advancing the public interest and protecting human rights. (Of course, they don’t always get what they aim for!) What is crucial to a modern, growing economy is the need for adequate supporting infrastructure in the areas of transportation, energy supply, health, sanitation, security and a judicial system, to name a few. Each of these essential services require planning and long term investment that will benefit the whole of the society and cannot, and should not, be controlled by the profit motive and available only to those who can pay. Thus, if Government is vested with this longer term responsibility, there is no way balanced budgets are feasible for any specific short term period. These are all aspects that need to be taken into account in determining the money supply.

    • john newman | May 18, 2012 at 7:44 am |Schofield, this is where MMT meshes so well with democratic government (no relation to our national party of that name). If a unified central bank and treasury were subject to an effective, popularly elected and truly representative government, the values of primary care fro infants, children, the disabled, sick and elderly would be established by popular decisions. Right now defense contractors, financial services providers, pharmaceutical companies and doctors have their interests well represented by high powered lobbyists in DC. Behold the “value” our society bestows on their output. These are political decisions that have been usurped from the unfocused and distributed majority by focused and funded minorities. MMT+representative government=public purpose.

  21. Beshiva | May 18, 2012 at 1:00 am |Thank you very much for your excellent post, and even more for all the patriotic effort you expended to put it together. As I frequent Occupy events and other venues for working with others to improve this world, I find always that very few understand that the old litany “we can’t afford it” is actually the BIGGEST LIE of the OnePercent. It is my suspicion that the ruling class learned generations ago that the most effective way to control the masses is though money itself. The unwritten history of money is all about the ruling class use of the “we can’t afford it” LIE, which pits two sides against each other – whatever the issue. A perfect example is the lie that we can’t “afford” both national defense and a social safety-net. Basic divide and conquer the competition stuff. Monopolis Monopoly can go a long way toward helping educate us all about the opportunity presented by Modern Monetary Theory. Thank you again!

    • Graham Paterson | May 18, 2012 at 1:07 am |You are dead right about the 1% knowing how the land lies – Mayer Amschel Bauer Rothschild said this in 1791,
      “Allow me to issue and control a nation’s currency and I care not who makes its laws.”

  22. Nathan | May 18, 2012 at 3:40 am |@Henry George This Georgist Land value stuff is absolutely irrelevant to MMT. MMT is about the operations of currency in a fiat monetary system in a market-based economy. Georgism is about the operations of a special class of capital in a market system. Regarding taxes, MMT says we should have some to control demand for the fiat currency issued by the sovereign government. It says nothing whatever about what should be taxed, and nothing specifically about how much should be taxed or who should pay the tax, only that taxes should be high enough to prevent inflation and maintain the overall demand for that currency. Georgism says land rent profits should be taxed, because the special nature of land is such that owners can luck into extravagant wealth they didn’t earn and don’t deserve, essentially behaving as monopolists, and letting them do so is a drag. Fine, nothing contradictory between them.Regarding printing money, nowhere does MMT say the government should just print and spend and be done with it. Taxes are an integral part of fiscal policy and even vastly more inefficient tax policy than a Georgist policy, like an income tax or a sales tax, will still capture some part of land rent profits, so increasing those taxes, or modifying them so they hit the land owner’s excessive rent profits harder still helps. MMT is not the cure-all for every little ill of the economy and doesn’t claim to be. Adopting an explicitly MMT philosophy of government and central banking finance won’t prevent private monopolies from occurring. It won’t save anybody’s life if a tornado hits Topeka. It won’t make nails not rust or fill up anybody’s gas tank with magic fairy dust that never runs out. But failing to adopt an explicitly MMT philosophy ties the hands of the government to deal with any one of those things.There are two ways you can deal with a land monopolist. You can tax away his excessive profits and redistribute the proceeds in some politically manipulable manner or just destroy them which would be exceedingly deflationary, or you can pay people to develop other, unused areas of land to compete with that monopolist. Without MMT, in the first case you have to overcome the political power of the monopolist in exacting the tax and manipulating the redistribution, or if you destroy those proceeds, the political fallout of the inevitable deflation that would follow such a practice, and you won’t be able to attempt the second at all because your government will never have the proceeds to complete payments for the development without printing up some money or causing more deflation. With MMT, you still have to overcome the political power of the private monopolist, but since his power is based on money, the land only being valuable in that it gives him undeservedly large amounts of it, that power has much less bite to it than otherwise. Payments can be made to develop land in competition to the monopolist’s without risking deflation, or if that is not possible, to make payments to the folks who pay rent and balance them with taxes on land rent profits. None of that contradicts MMT.Your distinction between positivist and normative economics is old-fashioned. It is impossible to have a value-free theory of anything. Positivism itself isn’t even a coherent position. Understanding how something is always involves having beliefs about how things ought to be. But that’s largely a quibble.As for unemployment, whether in an inflationary economy or not, I’m gonna go against the flow and claim that the causes of unemployment aren’t as simple as either MMT or Georgists make it out to be. Taxes play their part, and so do monopolistic oligarchs, but so do other things as well. For example, one potential cause for unemployment is a high real production capacity combined with low real demand capacity. Why do you think so many B.A. students are unemployed? In aggregate, they have a huge capacity to produce, say, irrelevant blog comments on topics they barely understand, but everybody else’s real desire for that stuff is pretty low, hence so many of them are unemployed. Or at least not employed to write irrelevant blog comments on topics they barely understand.

    • Henry George | May 18, 2012 at 5:36 pm |Quite the contrary, Nathan, it could not be more relevant.MMT says that we can end austerity and solve real world problems by printing as much money as we need. If the Georgist foundation of the Monopoly game was properly understood, nobody would be making such absurd claims — at least not without first and foremost calling for an LVT. At the risk of going in circles: absent the LVT, any added purchasing power will be immediately absorbed by increasing land rent. It only works in the game because the rent is fixed and the supply of land is also increasing. That is obviously impossible in the real world.I’m not sure exactly what you mean by “destroying” the land monopolist and causing deflation, but I suspect you misunderstand either the proposal or the dynamics involved. This “pay people to develop other, unused areas of land” is case in point. By definition, the monopolist class already owns claims on all the vacant land, and we cannot relocate our cities anymore than we can remain perfectly equidistant from one another to prevent excessive rents from accruing. If you wish to sound like you know what you’re talking about, you should keep those ideas to yourself.I will grant you that MMT is easier to understand than Georgism, and, because of that, it has slightly better political potential — which is not saying much. However, Georgism succeeds as business that doesn’t require a police state, and that’s where MMT falls flat.

  23. JK | May 18, 2012 at 7:54 am |Great Post! 🙂

    • Rodger Malcolm Mitchell | May 18, 2012 at 8:49 am |Nathan:As you may know, Monetary Sovereignty is a close relative of MMT, created about 15 years ago, differing primarily in three areas:1. The need for federal taxes to created demand for dollars. (A couple years ago, I reminded Randy Wray that there are sufficient state and local taxes for this purpose, so federal taxes are unnecessary. He agreed.)
      2. Using taxes to control inflation. (An impossible task, because tax changes are too slow, too political, uncertain in effect and cannot be done incrementally. The Fed successfully uses interest rates for this purpose.)
      3. Guaranteed jobs (Multiple problems, described at fundamental truth of MMT is actually Monetary Sovereignty, i.e. the unlimited ability of a Monetarily Sovereign government to control the supply of its sovereign currency, and thereby pay any bill of any size at any time, with neither borrowing nor taxing.Rodger Malcolm Mitchell
      • Stephanie Kelton | May 18, 2012 at 10:13 am |Rodger,1. MMT has NEVER maintained that you need *federal* taxes to “drive money”. Federal, state, local, whatever. So no wonder he agreed.2. MMT does NOT maintain that taxes are sufficient to control inflation. Following Lerner, we say that the government should use its power to create and destroy money (by changing taxes AND government spending) to target full employment and price stability. It’s about trying to limit demand-pull inflation.Can taxes be changed quickly enough to constrain (or expand) aggreggate demand? How long did it take to implement the 2% payroll tax cut? How long does it take to change a parameter in a computer program?The Fed? What makes you think the Fed’s policies have successfully controlled the rate of inflation?3. The Job Guarantee — this is how MMT attempts to constrain cost-push inflation while simultaneously achieving true full employment — i.e. Everyone who wants to work at the basic public sector wage can find a job.And, in case you didn’t notice, the government hired all the players at the beginning of John’s game. So I’m not sure he’s quite ready for your brand of MMT.

        • geerussell | May 18, 2012 at 11:05 am |” The Job Guarantee — this is how MMT attempts to constrain cost-push inflation while simultaneously achieving true full employment”Can you help me understand this point a little better? Specifically how a JG actually constrains cost-push inflation.My understanding was that the JG was more or less inflation neutral. As a fixed floor, it would not provide any upward pressure (in contrast to pump-priming) but it also wouldn’t exert a constraint on wages pulling away from the floor either. At least no more so than the current floor of zero/unemployment does. This neutrality being the key feature of a JG allowing it to achieve FE without itself being disruptive to PS.Is there a way the JG further acts to constrain inflation or am I getting too hung up on the word constrain? (Or just completely off base, always a likely prospect)

        • Jonathan Gwinn | May 18, 2012 at 1:19 pm |Stephanie you say.. . “MMT has NEVER maintained that you need *federal* taxes to “drive money”. Federal, state, local, whatever. ….I’ve missed something here…I thought one of the basic tenets of MMT is that taxes enforced by a sovereign government create demand for the issuers IOU at the top of the pyramid. I read Randal Wray’s recent working paper on the origins of money..Stated something to the effect: A precondition for markets is the system of debits & credits underpinned through establishing the sovereign currency issued as a unit account to circulate as acceptable exchange for all transactions.. Which stands the Austrians on their heads.. Austrians believe money came into existence through the necessity of invention from less efficient bartering transactions..

          • Andy | May 18, 2012 at 2:23 pm |Prof Wrays’ book Understanding Modern Money makes it clear. To me anyway.He cites examples of a trick of the British Empire to get local populations keen on working to help build the infrastructure to get the booty back to Blighty.Introduce a token/currency, impose a tax in that token/currency and use it topay the locals so they can extinguish their tax liability or else they go to Jail.
            In that sense taxes drive money.
            Without it you don’t get the work done and so you don’t get the money.Of course these days we have willing workers but not enough tokens.
            The State doesn’t need workers. Daft!

  24. Rodger Malcolm Mitchell | May 18, 2012 at 8:26 am |Your explanation is excellent. I have noted it on my site at: to Monetary SovereigntyRodger Malcolm Mitchell

  25. GaryD | May 18, 2012 at 8:42 am |Great article, but I don’t quite get this part: “In one sense, then, the government’s decision to build an aircraft carrier, while it may benefit our common defense, doesn’t really expand the economy of our game.” Doesn’t the additional money that the CIG pays the builders add to the potential for those builders to buy stuff from other citizens, like TVs, cars, labor, etc.? Or are you saying that the money for the aircraft carrier adds to inflation because the carrier “does NOT add to the inventory of things that players can buy?”

    • J.D. ALT | May 18, 2012 at 11:45 am |GaryD,
      I was inferring the latter. But inflation–and the actual transactions involved in the building of an aircraft carrier–are so complex I did not want to muddy up the simple, basic message of the overall piece by trying to have the game also explain inflation/deflation. (Actually, in an earlier version, I did try to do just that, and the complexity of it quickly began to overshadow the basic “core” idea I was trying to illustrate.) What I do try to infer with the three different “fiscal events” is that what the CIG chooses to buy from the players has important consequences. It’s not just a question of injecting currency, it’s also a question of what that particular injection makes happen. Some CIG “investments” are obviously more socially and economically beneficial than others. I’m not an economist, by the way. I’m an architect. So much of the discussion going on here is over my head. My goal, ultimately, is to begin creating a persuasive argument that sovereign governments ought to be building real Enabling Structures in the real world. I’ve written a novel that introduces that idea (there’s a link at the end of the post.) Now I’d like to work towards making it happen in reality. MMT gives me a way to argue, yes, we can afford to build a much better world.

  26. Schofield | May 18, 2012 at 9:33 am |Graham Paterson. Thank you for your intelligent and reasoned reply. Clearly for a nation it has the difficult task of determining how money (both created and from savings) should be directed to produce the goods and services it requires. It is no good adopting an extremist and impossible Neo-Liberal or Neo-Conservative position that the market can take of all these decisions. Even Friedrich Hayek, the leading creator of Neo-Liberalism, quietly conceded this (“The Neoliberal State.” Raymond Plant) particularly for providing for basic needs for those who were not in a position to provide them either temporarily or indefinitely. Nevertheless, a nation has to attempt to measure the usefulness of how money is spent and because measuring productivity in money terms is not always appropriate for some goods and services it has to have a “clearing house” to decide obviously this in part is why we have developed democratically representative bodies.However, human societies have now reached a stage with the second great recession in eighty years that it is being forced to look more closely at other aspects of the role of money. The economists Dirk Bezemer, Michael Hudson and Steve Keen are attempting very valiantly to get over the message (see their recent INET papers and presentations ) that money has a dual usage that we’ve ignored at our peril namely that you can have “financialized money” as well as money used for the production of private and public goods and services. This “financialized money” is money that is used to blow inflationary bubbles in stocks, real estate and commodities that increase the costs of the real economy through price rises and greater debt repayment amounts that ultimately devour demand in the real economy and tips it into recession.In one sense this is why the use of the “Monopoly” game analogy to explain MMT is both good and bad. Bad because it fails to challenge “rentier” behavior in our society. Why for example, should the rents go up if you manage to capture all the color coded properties of a particular color? This is why you got the Georgist argument springing up in these comments because it’s one example of how “financialized money” drives up “rents” and why John Maynard Keynes talked about “euthanizing the rentier.” Indeed this idea of “dual” money is not new. Karl Marx in his book “Capital”, Chapter 30, talked about “Money-Capital” and “Real-Capital”, the former being “financialized money” which could be used irresponsibly or irrationally for capital gains and the latter money being used to produce real economy goods and services for profit and wages. It is also the idea lying behind the debt jubilee of ancient times. I like the idea of calling this negative effect use of money Cannibal Capitalism because it devours demand in the real economy.This is where your concept of a democratically representative body (central or federal government) “lending” money into a nation’s economy interested me because it is an attempt to establish a “clearing house” of sorts that can also police the negative and positive use of money. (As an aside I would query your notion of attaching a price to the “lending” since it goes against an MMT idea I think has benefits that the natural rate of interest for government created money is zero developed by Forstater and Mosler, ) This would be an omnibus “clearing house” that attempts to control “Money-Capital” and “Real-Capital” used for both private and public creation of the goods and services our nations need.

  27. Andy | May 18, 2012 at 10:51 am |Very well put together. Some observations.I think you should use strict double entry rules and display the 4 sectors Govt, Banks, Business and Households in the same way as you have laid out the accounting above. For each sector include Income/Expense/Fin assets and Fin liabilities and individual columns under each Fin asset for bonds and bank reserves. You can add as money columns as you like under each account type.You can account any financial transaction including open market operations and QE.
    Any of the vertical transactions will have 2 lots of entries on the same row i.e. the Govt creation/destruction of NFA (always the debit column of the Govt sector) with a corresponding entry in either reserves or bonds(credit column ) with bank reserves and deposits (debit column in bank sector and bank deposits (credit column in bank sector) plus the entries in businesses or household sector affecting deposits (Debit column ) and loans (credit column).At any point in time you can ‘prepare the accounts’ by clearing the Income and Expenditure colums to the balance sheet which for each sector will then display their holdings of NFA (Credit column) and the make up of it i.e. either money or bonds (debit column) and loans (credit column) for businesses and households.
    Banks will have Reserves, Loans, Money (debit column) and deposits (credit column)
    Govt will have Reserves and Bonds (credit column) and NFA (debit column)The strict double entry rules for each sector are :
    To increase an asset or expense debit the column
    To decrease an asset or expense credit the column
    To increase Income or a liability credit the column
    To decrease Income or a liability debit the column.Not sure if that is useful or not but it works for me.
    Keep up the good work.

  28. HRP | May 18, 2012 at 11:01 am |I can see the theory if one looks at money as an absolute value, rather than a relative value. A dollar is nothing more than a piece of paper, it’s value lies in what it can buy. If there are more dollars in existence, each one buys fewer goods and services. Alas you have inflation. As infinite amounts of money enter the system, the costs of finite goods and services will go up. My builder will charge more because he can only accomplish so many projects given his time. Raw material prices will rise as they struggle to keep up with demand. Eventually I hold more dollars but they buy me less. Foolish investments are undertaken as there is little feedback by which to determine value and worthy projects will cost more as each one has to compete for resources ( see the mid-2000’s home building as an example). Then we have the issue of Monopolis being played in a vacuum, what happens when Monopolis has trading partners in a game being played exactly the same way next door? How would our Monopolis value the currency from the second, third and fourth games and how would they value ours? You are missing the origins of currency in barter exchange. If I am a baker in town and I know it takes me half an hour to bake a loaf of bread, I will value it accordingly. If you are an artist I might be willing to trade my bread for your art, provided I feel that it takes you a half hour or more to create your painting. Every week we make similar trades, some of your paintings hang in my home and some I use to trade for clothing. One day, you get a photocopy machine and you begin running off hundreds of your paintings in mere minutes and flood the town as you go on a buying spree. When I go to the tailor to buy my clothes and hand him your painting, he says this thing is worthless as they are all over the place. He can’t make my clothes for one painting he says, he’ll need more to make it worth his time. Now I have to charge you twenty paintings for a loaf of bread to get the same utility. Substitute different Monopolis games for the baker, artist and tailor and you see the point. So while your theory may make sense in a one dimensional trading environment I don’t think it is realistic to expect it to work in a complex global market.

  29. Stephanie | May 18, 2012 at 1:53 pm |We say, “taxes drive money.”. We don’t say, “federal taxes drive money”.

  30. Nathan | May 18, 2012 at 4:28 pm |State and local governments are no different than households when it comes to the currency they use. Currency users demand some kind of currency to reduce opportunity costs of the trades they wish to make. State and local governments demand federal dollars in their taxes because their constituents demand federal dollars in return for the goods and services they sell to their state and local governments. But if the federal, dollar-issuing government didn’t demand some of the dollars it issues back, then the constituents and the state and local governments would have no particular loyalty to the federal dollar as a means of payment. There would be nothing preventing them from adopting a privately issued fiat currency or a commodity backed currency if they reaped significant enough opportunity cost savings from doing so. So the sovereign, currency-issuing government must levy taxes that can only be discharged using the currency it issues to drive the demand for just this currency. If it fails to maintain demand for just the currency it issues, beyond the demand for currency in general, it loses control of its ability to use its issued currency as a means of payment for the goods and services it requires to pursue the public purpose.Part of what annoys me about this Georgist stuff is that advocates refuse to generalize or update what are really quite interesting and useful insights about how the components of production interact. The Georgist analysis of land rent is really just a special case of monopolism of essential factors of production. But the focus on land is extremely old-fashioned because location just isn’t that important a factor in much production any longer. Both capital and labor are far more mobile now than they have ever been, and that mobility erodes the monopolistic power of landowners. Monopolies are still an important part of understanding and correcting how markets behave, but the important monopolies now are the monopolies producers can’t move away from: the generation of electrical power, access to communication lines, software and operating system monopolies, fuel production, finance monopolies and so forth. A generalized Georgist would tell us to tax the profits from any monopoly, to the degree that what is monopolized is an essential factor of production.Of course, the main problem with Georgism is that if you follow the argument closely, it will tell you that any profits from rent are undeserved and depress production, and that therefore all profits from rent should be taxed away, to be spent or destroyed as the government sees fit. Anything less than 100% taxation of rent profits just slows down the inevitable unproductive accumulation of wealth by landowners, it doesn’t stop it. This amounts to de facto government ownership of all land (or other essential monopolized factor of production). That’s far closer to an avocation of communism than any kind of Job Guarantee or perpetual federal deficit scheme of MMT. Which isn’t to say it’s wrong to do so, but it’s hardly fair for a Georgist to call out an MMTers for being closet communists when they’re calling for de facto communism of land ownership themselves.

    • Henry George | May 18, 2012 at 5:55 pm |“Both capital and labor are far more mobile now than they have ever been, and that mobility erodes the monopolistic power of landowners.”Again, Nathan, that is why our factories are in China and tract homes are sprawling across the countryside. But this does not diminish the monopolistic power of the class of landlords one bit. Wherever development goes, unearned increments are collected and further created. The accumulative effect is a universal subsidy to idleness that dilutes the return to all labor, increasing the cost of subsistence and pushing the margin further into destitution. This is all covered in George’s Law of Wages. You just need to read more — you’ll get it eventually.This dynamic has been compounding for centuries: 3% of the world’s population now owns 95% of the land.The subsidy to further speculation also clogs our financial systems with over inflated assets, which eventually checks production somewhere and causes a domino collapse in asset values. This is covered in The Root Cause of Recessions“the important monopolies now are the monopolies producers can’t move away from: the generation of electrical power, access to communication lines, software and operating system monopolies, fuel production, finance monopolies and so forth.”None of those things are monopolies in a strict sense (supply is not fixed) and therefore competition is usually quite capable of keeping the cost structure down. “Natural” or “virtual” monopolies definitely exist, as does collusion, and I would agree that consumers often need to organize themselves to prevent that — but not as a general principle, except in land. Land is the mother of all monopolies.“This amounts to de facto government ownership of all land”No, ownership and use would not necessarily change, only the income from land would be redistributed. Here’s a good resource that will prevent simple confusion and misconception:

      • Nathan | May 18, 2012 at 7:17 pm |A fixed supply is not part of the definition or operation of a monopoly. In real terms, the absolute supply of everything, including the most virtual of services, is fixed by physical laws. Our real supply of almost all of those things is nowhere near the absolute supply, but that’s also true of land. A monopoly is a feature of the product or service being offered for sale, that there is no substitute for that product or service offered by a competing vendor. The very fact that factories moved to China and that undeveloped land was turned into tract housing undermines the thesis of monopoly control on land. Because factory operators and home buyers were able to choose to do this, landowners were unable to extract as much rent from the land they own than if they were true monopolists and were able to deny that choice to those agents.In fact, any monopoly is able to extract unearned rent from the markets, in direct proportion to the utility of the monopolized product or service to further production. The more essential that good or service is, the more rent they can extract, and the greater the drag that rent is on further production.Your 3% of land being owned by 95% is wholly unrevealing, and I suspect more than a bit cherry-picked. How is the land owned by governments counted? What percentage of land was owned by what percentage of people historically? Personally, I rather doubt the proportions historically have been much different and were probably worse than the statistic you provide.Finally, note my use of the phrase “de facto.” Forbidding profits from rent-taking removes any incentive to own anything and dictates usage to prevent losses on the owned asset. In a competitive market, where there are lots of replacements for a given product and lots of independent vendors for that product, profit is impossible because the competitive pricing behaviors of the vendors and buyers will reduce the profit margin to nothing. In a fully competitive market, the price of a good or service is equal to the cost of that good or service. Profit is only possible where there is an element of irreplaceability to the good or service offered. Coca-cola can make a profit on their soft drink because no one else offers just their soft drink, and the same thing is true with Pepsi. If consumers were completely indifferent to the two products, neither could earn a profit on them, but since some people prefer Coke and some people prefer Pepsi, both are able to extract rent, i.e. profit thanks to their loyal customers being willing to pay more for their preferred product, forcing everybody else who may be indifferent to pay more too. That preference means Coca-Cola and Pepsi are able, to an extent, to choose their customers instead of their customers choosing them. When vendors have an unrestricted ability to choose their customers and customers have no choice in who to buy from if they want that product, that is monopoly. In short, profit, in the long term, is rent, no matter where that profit comes from, and rent is always a result of monopolistic pricing behavior.But profit is the only reason people want to own anything: because they get more value out of it than what it cost them to put into it. If you remove profit as an incentive to own land, then what’s the point of owning it? If landowners are incapable of charging any excess to their costs at all on their land, then the use to which they can put their land will be completely determined by downstream forces of production. They would be unable to choose their renters at all, and the renters would have unrestricted ability to choose their landlords. It would be as if all land is publicly owned, whether some private citizen or business’s name is on the ticket at the local courthouse or not. But that’s just communism.

        • Rodger Malcolm Mitchell | May 18, 2012 at 11:37 pm |Nathan, one must remember that Georgism was proposed about 200 years ago by a man who did not understand the differences between Monetary Sovereignty and monetary non-sovereignty (He wanted to tax land, thinking that taxes supported government spending).Those who do not understand the difference between MS and monetary non-sovereignty know nothing about economics.

          • Nathan | May 19, 2012 at 2:30 am |Oh, I know this quite well. Marx was a pretty good generalization of George’s thesis. And I really wish I could go back and edit that post, because in that last paragraph, that should say that renters would have no choice of who to rent from either. Renters would be just as restricted in who to rent from as landlords would be in who to rent to, downstream market forces would dictate everyone’s choices, because if they made a different choice, they would face a certain loss.Obviously, the best overall economic outcome would be if everyone who had anything for sale only charged as much for that thing as it cost them to get it in the first place. That’s what competitive market dynamics are supposed to do. But almost nobody enters the market with a plan to break even. They want more for the thing they’re selling than what it cost them to get it. If they didn’t expect that they could get that, they would have little to no incentive to produce that thing in the first place. But the only way to get that in the long run is to own a monopoly. That’s why products that ought to otherwise be perfectly competitive, like laundry detergent and soft drinks, can still be profitable. Their brand is the only thing that differentiates one such product from another. And that brand is the monopoly that allows profit to persist in those markets. Imagine if we told Coca-cola and Pepsi and all the other soda producers that they couldn’t put their brand on their soft-drinks any longer, just a plain white label with nutritional (hah!) information. What possible incentive could they have to continue producing soft-drinks? We just took away the only thing that allows them to charge more for their soft-drinks than it costs them to produce them. The same thing is true of land-owners. What possible incentive could anyone have to own land if they weren’t allowed to profit from that ownership?Which is not to say that monopolists deserve the profits they make from their monopolies. But if you take away a monopolist’s ability to extract rent, you take away their incentive to offer that product for sale in the first place. The key to maintaining markets is to make sure that the rent they do extract is at a level the market can sustainably bear for a decent span of time. Eventually, Marx ends up being right, all natural monopolies have to end up nationalized, because eventually even low levels of rent extraction build up and choke off further growth. But at this point, to focus on land monopolies, when private insurance/finance monopolies are what’s really killing us, is just… well, 200 years out of date.

          • Henry George | May 19, 2012 at 3:44 am |George was a thoroughgoing statist and greenbacker, and I believe he would have agreed with MMT, minus the profligacy. But you don’t seem to be aware that modern 2 factor neo-classical economics was created as a smear campaign in response to George circa 1886. Read George and then read JB Clark and tell me if that wasn’t the corruption of economics.

        • Henry George | May 19, 2012 at 3:31 am |Nathan, if you’re not even going to glance at the links I provide, much less consider them, what are you responding to? This isn’t a typing contest. At least read the FAQ:
“The very fact that factories moved to China and that undeveloped land was turned into tract housing undermines the thesis of monopoly control on land. Because factory operators and home buyers were able to choose to do this, landowners were unable to extract as much rent from the land they own than if they were true monopolists and were able to deny that choice to those agents.”I already defined this for you earlier. Remember, from a macroeconomic perspective, land monopoly exists as a CLASS of persons that collectively own the total supply of land (and they DO deny access to the landless that cannot make the rent). The aggregate value of land can only rise due to increasing population or increasing productivity, and no matter where that happens the total rent is extracted “in direct proportion to the utility of the monopolized product.” There are some vagaries owing to the varying interconnectedness of trade, how territories are defined, timing and so on, but generally speaking the resulting effect on wages and productivity is remarkably uniform because the total subsidy to idleness and speculation is almost exactly proportional. Hopefully that’s clear.Also bear in mind that land is the only factor that has no cost of production, and therefore the owners of land do not need the rent to put it into production. We can tax land at 100% and the incentives for use will still be wages, interest and consumption. I’m sure you’ve paid 100% of land’s rental value to a private landlord at some point — did it have any effect on your use of the property?Ironically, you’re making the same mistakes that Rothbard made (takes a wrong turn and just keeps going!). So now you’re the Austrian and I’m the commie.

          • Nathan | May 19, 2012 at 10:25 am |Wrong assertions are wrong, and it doesn’t matter whether you’ve typed them out on these comment boards, or whether a buddy of yours typed them out on a different website.Monopoly is not a macro-concept, because macro is defined by aggregating micro. If you want to try to argue that land is monopolized because you can aggregate all the owners into a “landowner class,” then congratulations, you’ve defined monopoly so loosely that every good and service is now “monopolized,” including labor. I’ll spell this out for you again, and type slowly so maybe you catch it this time. A monopoly is a market where there is only one vendor for that good or service, or a very small number of vendors who collude with one another to act as if they were one, and there is no replacement for that good or service that is just as good. A monopoly has nothing to do with the fixed or open-endedness of supply. It has nothing to do with how central or essential that product is to further production or consumption.A monopoly is what happens when vendors can choose their customers. Competitive enterprise is what happens when customers can choose their vendors. If vendors have unrestricted ability to choose their customers, then that’s an absolute monopoly and there’s no point to being a customer in that market. If customers have unrestricted ability to choose their vendors, then that is a perfectly competitive market, and there’s no point to being a vendor in that market. Vendor’s abilities to choose their customers and customer’s ability to choose their vendors must be balanced against one another in order to maintain everybody’s incentive to come to the market.The value of land does not always rise because population and production don’t necessarily have to rise, moreover, migration of consumption and production plays profound roles in establishing the current value of land. And the “nominal” health of the economy is important too. Just ask anybody who owned residential property or commercial property through this last recession whether property values always rise.And the idea that land has no cost of production is stupid and wrong. You can’t just walk into the wilderness, point to a spot, and say, “I’m gonna build my house there,” and poof, the land is magically ready for your house. Land takes an enormous amount of development to be usable, and an enormous amount more to be really valuable.And sure, if you tax away 100% of the profits made from renting the use of one’s land, there will still be a demand to use that land. So what? Because the owner can no longer make a profit off that ownership, the owner has no incentive to offer the use of that land for sale. There’s a difference between incentives to use and incentives to own. Everybody has an incentive to use the local roads, but nobody has an incentive to own the roads unless they’re allowed to put up toll booths, i.e. charge rent. And since they’re rarely allowed to do this, roads remain publicly owned or if they were originally privately owned, that ownership is abandoned. When a developer buys up a huge tract of land to build houses on, and build the roads and utilities to reach those houses, he doesn’t sell ownership of the land the street’s sitting on or the land the utilities go through to the guys who buys his houses. He abandons his title to that parcel of land to the public, because he’s not allowed to charge rent for it, and just rolls up the cost for that parcel into the cost for the parcel he can sell.Were you ripped off by a landlord in your youth? Monopolistic practices by landowners do occur, and they do put a drain on further production, but they’re not the worst monopolies that are dragging down our economy, not by a long shot, and these other monopolies are largely indifferent to where their monopoly is located, so a land value tax wouldn’t mitigate their egregious practices.

      • Rodger Malcolm Mitchell | May 18, 2012 at 11:28 pm |“3% of the world’s population now owns 95% of the land.”What is the source of this datum?

    • Rodger Malcolm Mitchell | May 18, 2012 at 11:42 pm |A couple years ago, I reminded Randy Wray that IF (big “if”) taxes are necessary to create demand for dollars, there were sufficient state and local taxes to do the job. He agreed with me, although I’ve not seen that fact mentioned in MMT materials.In short, federal taxes remain unnecessary.Rodger Malcolm Mitchell

      • Nathan | May 19, 2012 at 1:57 am |I have to disagree, because states have no more loyalty to the federally issued dollar than any other currency user. Their demand for dollars is limited to the demand for currency in general. But a fiat currency, if it is to maintain its value, and thus its use as a medium of exchange against potential competitors to just that currency, must be demanded more than currency in general. Only the issuer of the currency is in a position to create such a demand because it’s the only entity that cares about just this currency. State and local government and other currency users happen to demand the federally issued dollar because that’s the medium of exchange that happens to be in use. But the federal government that issues that dollar cares about the federally issued dollar intrinsically because that dollar is created by it to fulfill a specific set of purposes.

        • Ro | May 19, 2012 at 1:47 pm |I agree with Nathan. Vesting the entire tax-collection power to the states and local governments is simply an act of delegation – if all of those states decided to start issuing gold-based taxes, the federal government would have to step in and issue its own $US denominated taxes in order to ensure that everyone didn’t switch over (maybe people would continue using $US and only trade a small amount in gold for taxes, but that isn’t a guarantee).It seems your beef on this amounts to saying “someone has to collect taxes on behalf of the federal government but it doesn’t have to be the federal government itself.” Fine – as the MMTers say, so what? It’s not necessary for them to explain in every post every single possible channel through which the federal government could utilize its taxation power – for example, your observation would be just as true if the federal government outsourced taxation operations to a private company (*shudders*) or delegated it to an independent agency with statutory immunity from interference by the executive or legislative appropriation of its resources. It will work as long as it works, and if it doesn’t work the federal government will step in.

  31. Vincenzo | May 18, 2012 at 6:09 pm |I support what said by Francis, the real wealth are the products people produce and exchange because they feel a benefit from those, not the money created by the issuer governement. How does an aircraft carrier increase the wealth of a nation? Just because, up to a certain extent, it increases its security against potential enemies. But, over that extent, whatever it is, it just consumes resources that could have been used for other purposes.
    Also, how a Building Code can increase the wealth? As described in the article it will likely be so complex that a lot of people (resources) will have to be used to understand it. And, indeed, people do not need a Building Code to build their house, an architect is enough.
    The problem with Greece is that they do not produce enough stuff to be exchanged with other goods. They export jus yoghurt and olive oil and they also sell their sun and archological sites.That’s not enough to import food, cars, cothes, oil and so on.It’s true that to run properly an economic system it’s necessary to have enough money in it to facilitate the exchanges. No system will work with one single dollar bill although people can still go on producing goods. But they will miss the tool to exhange those.
    But on the other side the money must not be too much otherwise inflation is coming.
    If in the Monopolis game I can add only one house per time and an house cost 1000 $, there is no reason for the issuer to give each player 10000 $ each time the player goes at the start.

    • Rodger Malcolm Mitchell | May 18, 2012 at 7:50 pm |I guess this proves no matter how simple one makes the example, there still will be people who simply can’t get it.The problem with Greece is they voluntarily surrendered the single most valuable any nation can have: Monetary Sovereignty. If they had retained their Monetary Sovereignty, not only could they pay any debt of any size, but they wouldn’t even need to have debt in the first place.As for inflation, the U.S. has been Monetarily Sovereign for 40 years. During that time we have run huge deficits, yet there has not been one instance of inflation caused by too much money. All inflations have been caused by oil prices. See: who does not understand the differences between Monetary Sovereignty and monetary non-sovereignty is completely clueless about economics.

      • Fallacy | May 22, 2012 at 5:59 pm |Rodger- Are you saying that Greece wasn’t running deficits prior to joining the EU? And that if they return to the Drachma they could just print and print until they satisfy their debts? The Drachma won’t be worth the paper on which it’s printed and no one will accept this as payment for anything. Secondly, of course there is a high correlation between energy prices and CPI, energy represents almost 10% of the basket. Thirdly, the CPI is not an accurate measure of inflation, this number has been manipulated by the government almost since it’s inception. Even going back to the methods used in the 80’s to calculate CPI, current inflation is around 10%, not the 2% the government would lead you to believe.

        • Rodger Malcolm Mitchell | May 22, 2012 at 7:02 pm |Fallacy (appropriate name)“Rodger- Are you saying that Greece wasn’t running deficits prior to joining the EU? “
          Never said anything like that. Not even close.“And that if they return to the Drachma they could just print and print until they satisfy their debts?”
          The fact that you use the term “print” indicates you do not understand Monetary Sovereignty. A MS government does not “print” money, because money has no physical existence. Dollars, for instance, are nothing more than accounting numbers. Anyway, the answer to your question is: A Monetarily Sovereign government’s ability to pay its bills is limited only by inflation. For the U.S., inflation has had zero relationship to federal deficit spending. There are reasons for this, but the discussion is too long for a blog comment.” The Drachma won’t be worth the paper on which it’s printed. . . “ Why?
          . . . and no one will accept this as payment for anything.” Why not?“Secondly, of course there is a high correlation between energy prices and CPI, energy represents almost 10% of the basket. “ And there is no correlation between inflation and federal deficit spending, which was the subject of this discussion.“Thirdly, the CPI is not an accurate measure of inflation, this number has been manipulated by the government almost since it’s inception. Even going back to the methods used in the 80′s to calculate CPI, current inflation is around 10%, not the 2% the government would lead you to believe.”
          Hey, you just said, ” . . . there is a high correlation between energy prices and CPI.” Now you disavow CPI? Anyway, not sure how you calculate the 10%, but the real question is: Does it correlate with federal deficit spending? Isn’t that what we were discussing?Rodger Malcolm Mitchell

          • Fallacy | May 22, 2012 at 7:45 pm |Rodger- I particularly like the condescending way you mention my screen name. I guess when your logic holds little water you can always resort to name calling.You are the one who brought up CPI, not I. I merely pointed out the folly of using such an obviously manipulated statistic to account for price increases. If you don’t see a correlation between deficit spending and CPI, how about the high correlation between M1 and CPI as calculated by the 1980 method?
   increases in oil prices explain Zimbabwe’s hyper-inflation too? Certainly it couldn’t be due to Mugabe printing money to finance his wars while the productive capacity of the country plummeted. Bottom line is that there was nothing of value backing up their currency. The US Dollar is only worth something because of the ability of the government to confiscate the wealth of it’s citizens.

            • Rodger Malcolm Mitchell | May 23, 2012 at 9:13 am |Hey, Fallacy,If you’re sensitive about your screen name, why did you choose it? All I said is, “appropriate name.”Not sure why you prefer one inflation measure to another, but the graphs show differences in the amount of inflation, but not in the incidence or slope of inflation. Using any method, inflation occurs at the same times and with the same changes.Although using M1 as a proxy for total money supply is ludicrous, even that shows no correspondence between inflation and CPI the way, next time you’re tempted to use M1 to represent the total money supply, here’s how they compare: Malcolm Mitchell

          • Fallacy | May 23, 2012 at 11:13 pm |Rodger-I chose the name Fallacy as that is exactly what I believe this MMT to be and by extension your MS theory. So I am not at all sensitive about my selection, but the condescending way in which you mention it and respond to anyone who challenges your thinking is telling.If you can’t see the direct correlation between M1 money supply and CPI as measured by 1980 era methods, than you’re either delusional or high. Look at the second graph down on the link I provided and see how 1980 era CPI has grown almost three-fold since the early 90’s. The only thing that stopped the dramatically upward trajectory was when they burst the bubble in ’08 and their house of cards almost came completely apart. This malinvestment was the logical conclusion of printing too much money.I prefer the 1980 CPI method to the current one because each Presidential administration has manipulated this statistic to hide the real erosion and confiscation of our wealth as they continue to print money to fund their worthless pet projects. Now the current administration wants to further marginalize CPI under the auspices of accounting for consumer behavior. Current CPI has little bearing to the real prices consumers pay and is not indicative of price increases. Just ask anyone on Social Security.I am not sure what you’re issue is with M1 as a measure of money in the system. The only reasons we don’t have higher prices than we currently do is because unemployment is high and banks are sitting on mountains of money as they attempt to falsely project a position health and manufacture false profits. China buying up all of our debt also helps a great deal.Perhaps you and I should revisit this conversation in a couple of years. I hope you’re right about price increases not being determined by government spending. But if you’re wrong this country is in for some very, very difficult times.

            • Rodger Malcolm Mitchell | May 23, 2012 at 11:50 pm |Fallacy,Since you don’t know the differences between Monetary Sovereignty and monetary non-sovereignty, how can you express an opinion about it?You think because M1 has gone up and inflation has gone up, there’s a correlation? Ludicrous. Many things trend up. Population trends up. The universe expands. World temperature trend up. CO2 trends up. Lifespan trends up. Average weight trends up. Graph them all, and the lines essentially will be parallel.The correct way to spot correlation between inflation and any money measure is to graph the percentage change from the previous year. Like this: as for using M1, it’s a minuscule part of the money supply. It’s only about $2 trillion. M2 is about $10 trillion. The total money supply is about $40 trillion. So you wish to use a measure that is 5% of the money supply as a stand-in for the total money supply? And you feel this deserves respect? fact, M1 doesn’t even correlate with M2, much less correlating with inflation — and M1 is part of M2! you clearly have very little knowledge of economics, why don’t you try to learn rather than trying to argue? There’s no disgrace in learning from someone who has been studying this intensely for more than 15 years.If you don’t wish to learn, fine. I won’t waste any more time on you. There are plenty of people who do wish to learn.Rodger Malcolm Mitchell

          • Fallacy | May 24, 2012 at 7:51 pm |Rodger-You think that anyone who challenges the lunacy of your non-stop printing press, monetary debasing policy lacks knowledge of economics. There is an entire school of economics that would strongly disagree.You are correct that many things may trend up, but the issue is one of causality. While there may be no causal link between money supply and weight, there certainly is one between money supply and prices.I submit that the 15 years you’ve spent studying economics have been wasted. While you may know some terms you certainly don’t comprehend concepts. You continue to advocate your dangerous opinions in the face of overwhelming evidence to the contrary and anyone who disagrees with you is lacking in knowledge. I am glad that you have found sympathy in a group of equally delusional “economists”. I and hopefully the majority of the business/financial world will continue to advocate for responsible, ethical money policy. Good day.

            • Rodger Malcolm Mitchell | May 24, 2012 at 7:59 pm |Fallacy,What do you believe to be the differences between a Monetarily Sovereign government and a monetarily non-sovereign government?Those who can’t answer that simple question, know nothing of economics.Rodger Malcolm Mitchell

  32. Vincenzo | May 19, 2012 at 2:00 am |1) Apart of the case of Euro’s countries, almost any country in the worl has its own monetary sovereignity. But that dose not mean they are wealthy. If they do not produce any goods, the value of their money is the value of the paper. Belarus, Ukraine, Kenya, Dominican Republic, Mexico, Turkey, Egypt, they all have their own currency and their wealth depends on their capability to produce goods to be exchanged for goods they do not produce. Please find for me any exporter in US that will accept to pe payed with the currency of Kenya unless that one is buying something in Kenya.
    Regarding the oil price: it started to increase just after Nixon decided “to print money” . On one side the oil producers understood that the dollars they were going to receive since that moment on was going to progressively lose its value, so they started to increase the price; on the other side the US, knowing that the dollar was going to lose its value, not being pegged anymore to gold, started a policy of military control in the Middle East to force the price of oil to be kept in dollars and not in any other currency. Saddam Hussein and Gheddafi were two bloody dictators, but not worse than many others in that area and in other parts of the world. But those are the only two that have been physically eliminated by military actions costed billions. is there any connection between that and the fact that both of them declared they were going to sell oil not for dollars but for euro?
    Regarding Greece, I agree with the fact that not adopting euro they would not have been in the present troubles.
    However remember that for 10 years, after adopting euro, they lived well above the country ability to produce goods, importing goods by making debts. Noone would have sold cars or clothes to Greeks in exchange of drachmas

    • Calgacus | May 19, 2012 at 4:24 pm |Vincenzo: How does an aircraft carrier increase the wealth of a nation? Just because, up to a certain extent, it increases its security against potential enemies. But, over that extent, whatever it is, it just consumes resources that could have been used for other purposes. This implicitly assumes full employment. There’ll be a space beyond “that extent, whatever it is” where building the carrier will consume resources that will not be used for other purposes, but will be destroyed. That space is a free lunch, the free lunch that we’ve been hell bent on destroying for decades. China doesn’t destroy this free lunch special –> China has superlative growth, like the USA did during WWII, and to a lesser extent, the whole world during the postwar full employment era.It’s true that to run properly an economic system it’s necessary to have enough money in it to facilitate the exchanges. Right. And this contradicts what you said quoted above. Almost the whole world is biased towards austerity, not providing enough money to facilitate exchanges ( & accomodate savings desires).The problem with Greece is that they do not produce enough stuff to be exchanged with other goods. No, the problem is that they are embedded in a self-contradictory monetary system which is hyper-biased towards austerity, to not enough money, and in particular, not enough money for the Greeks, and which imposes unemployment, poverty and unpayable debts on them. If the ECB had funded a Euro-wide JG, there would be no unemployment in Greece, enough Euros coming in to pay its debts, more real wealth in Greece, no “real economy” troubles, more imports of German goods, and therefore more Euros in German pockets. The JG would be a win-win all around, a free lunch, because enough money would have been spent to coordinate the economy with some degree of rationality. If Greece had remained on / returned to the drachma, its exports would not be overpriced and it could export more, to pay for imports. The ECB and its Eurocretins are forcing people to not work, to not create real wealth which they can use to support themselves and exchange, just as if they put them in cages.

  33. Rodger Malcolm Mitchell | May 19, 2012 at 11:43 am |“Regarding the oil price: it started to increase just after Nixon decided “to print money” .Nice hypothesis, but factually wrong. The U.S. became Monetarily Sovereign on August 15, 1971. See:
    and price actually began to rise more than two years later, and had nothing to do with MS.The nations you mentioned will be amazed to learn their currency is worthless. I was in the Dominican Republic recently, and found that a 100 Dominican peso bill is worth about $2.60 U.S.And really — the Mexican peso is worthless??? If so, have I got a deal for you. I’ll give you one, U.S. dollar for every “worthess” Mexican 100 peso bill you can give me. Think of it. You’ll make a fortune. Let’s do it, today. O.K.?So now that your two “facts” have proven to be utter bullsh*t, what is your latest hypothesis?Rodger Malcolm Mitchell

    • Henry George | May 19, 2012 at 12:26 pm |Rodger, US oil production peaked in 70-71.

      • Rodger Malcolm Mitchell | May 19, 2012 at 2:08 pm |That’s your response to the facts that show your comments to be wrong? Really? That’s it?? Lame. Truly lame. Anyway, send me those Mexican pesos, and you can become rich (according to your comment)Or better yet, instead of trying to justify your erroneous comments, try to understand the difference between Monetary Sovereignty and monetary non-sovereignty. I have an entire blog, with close to 700 posts, all describing MS. Read it. Learn something.

  34. Henry George | May 19, 2012 at 12:11 pm |@Nathan
    “If you want to try to argue that land is monopolized because you can aggregate all the owners into a “landowner class,” then congratulations, you’ve defined monopoly so loosely that every good and service is now “monopolized,” including labor.”I thought you might say that and now I suspect you’re deliberately trying to obscure the truth of the argument.Labor cannot be monopolized by a class of laborers because you yourself embody your own labor! All that is required for its application is access to land that is “as much and as good” or else compensation for the lack thereof. That being the case, there can never be a monopoly on capital because capital comes from the application of labor on land.You can easily find answers to your other objections in the referenced material.Finance is probably the least monopolistic thing there is, because a credit /debit ledger doesn’t even have to exist materially.

    • Nathan | May 19, 2012 at 3:31 pm |Um, actually, labor can be monopolized. That’s what trade unions and workers guilds do. They monopolize labor, as a counter to the relative monopolization of employers. If you want to buy a carpenter’s labor, you have to buy it through the carpenter’s union, which uses monopolistic pricing to maintain the profitability of being a carpenter. It’s the very definition of a monopoly. You consistently fail to understand what a monopoly is. It doesn’t have anything to do with whether there’s an absolute ceiling to the supply of the product, or with real production being close to that absolute ceiling.

  35. Henry George | May 19, 2012 at 12:16 pm |Marx was a freakshow:;col1

  36. Calgacus | May 19, 2012 at 3:52 pm |Hmm, Ro you seem to me to agree with Rodger perhaps more than with Nathan. The US states don’t have such taxing powers – e.g. gold taxation. Under the US constitution, they have to use the US dollar. Historically, the US was more like Rodger’s state tax only, no federal tax picture, with taxation delegated to the states. Federal taxes were mainly customs duties, the federal government was much smaller. Though of course it got bigger on occasion, e.g. by greenbacking, like Lincoln during the Civil War, and such wartime expenditure was financially necessary to counter the otherwise deflationary level of taxation. If there were no connection of the states to the US dollar, and if they had the ability to issue their own money, and if the US spent but could not tax in dollars, then there would really be 50 independent countries & the federal dollar would become worthless, as Nathan argues, but that is not the current situation.

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  38. Ro | May 20, 2012 at 2:22 am |Hi Calgacus,Apologies if I was unclear – I was trying to make the more general point that the issuer of a currency does not have to be the one doing the tax-collection in order for the underlying logic of chartalism to hold, provided that the issuer has the power to compel the tax-collectors to continue doing so.In regards to the US particularly, it is conceivable that the federal government could enter into an agreement with the states to indefinitely suspend all federal taxes on the condition that the states issues their own, and then simply use the soft-coercion of new money injection to influence private and state decisions (much like the Obama administrations recent Race to the Top initiative, which has succeeded through the carrot what would have been politically and presently legally unfeasible through the stick). However, in such an instance the value of the dollar would only be guaranteed because of the federal government’s threat to step in and begin issuing taxes again if the states failed to do so. As Nathan says, the states have no inherent loyalty to the $US dollar otherwise, and could attempt to switch to a gold-based currency using whatever legal tricks they have available (see below). One other little quibble – the federal dollar *could* continue to have value without any tax collection, but this is not guaranteed as it is with the taxation backing. Hence, I would probably rephrase your conclusion to the following: if the US spent but could not tax *or compel others to tax* in dollars, then the federal dollar *could* become worthless.Although my point about states taxing in gold was mostly meant to illustrate a broader structural point and not make a specific claim about the US’s current legal arrangements, I’m entirely not sure you’re right about the states not being able to issue taxes in gold (although I could definitely have misinterpreted! I am, alas, only a burgeoning student of law and do not have the encyclopedic legal knowledge of someone like Beowulf). Art. I Sec. 10 states: “No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts …” It seems to me based on a literal reading that a state is not prohibited from reducing all existing taxes to zero and issuing new taxes denominated solely in US minted gold coins. Given that states have already begun using gold coins as legal tender ( there is no reason why the citizens of such a state couldn’t decide to switch over entirely to gold coins, ignore their stamped value, trade them based on their market value, and then use them to pay state taxes in lieu of $US (although why anyone would want to is beyond me). Of course, if the federal government decided to stop minting gold coins then that state’s citizens might be in trouble pretty quickly. However, there are sufficient gold coins floating out there now that a state willing to tolerate the possibility of massively destructive deflation could theoretically construct an economy around them provided all other conditions mentioned above were met.Alternatively, if it so wished, the federal government may be able to (following M’Culloch v Maryland) delegate *its* power to mint gold coins to the states through a federal agency which approves state spending on a wholesale basis, in which case states would be able to both issue and collect money denominated in gold. I don’t think such a move would be a violation of Sec. I Art. 10’s “No State shall … coin Money” provision, since the state wouldn’t be acting in its own capacity, but through of a delegated agent of the federal government, with whom ultimate fiscal power would remain vested (although there would definitely be democratic and accountability concerns). Depending on the construction of the Court (i.e. if it wasn’t 9 Justice Thomases), this could be upheld under the Necessary and Proper Clause (under some wacked-out theory of federalism-on-steroids), provided there was an articulated “intelligible principle” to guide the states’ fiscal activity. Indeed, there is some evidence to suggest they might not even need an intelligible principle (i.e. U.S. v Mazurie).Also, it’s worth noting that local governments are not subject to the same Art. I Sec. 10 restrictions on currency issuance as states. Hence, it is possible they could create a complementary currency, and in the absence of significant state taxes would be able to switch most day-to-day activity over to a different currency (see: course, it’s also possible to go the other way and eliminate the ability of any actor other than the federal government to issue taxes whatsoever. Personally, my general ambivalence towards federalism leads me to think this would be better, since it makes fiscal policy much cleaner and more accountable for the overall health of the economy and uniformity of basic service provision (as a former teacher, the recent teacher’s union fiascos in NJ and WI and horrible problems arising from funding of education through local property taxes come strongly to mind). It is still possible to still have valid debates about the merits of decentralization of economic administration under such a system, through things like block grants and automatic revenue sharing. What it is not possible to do, however, is allow concerns about “lack of money” to trump real needs when those problems are seen as being in the domain of currency-user states rather than the currency-issuer federal government. Instead, all public policy issues could be tackled from the start with the full policy flexibility afforded a monetarily sovereign nation. Perhaps eventually, following Wendell Gordon’s proposals, we might see this lead to a global parliament with taxation power, at which point we might overcome humanity’s collective action problems and truly eliminate warfare and poverty once and for all.My own country, Australia, actually managed to centralize income taxation back in World War II through an ingenious combination of four separate pieces of legislation known as the Uniform Tax Cases (see:, and has been slowly increasing its centralization of taxation power through reforms such as the 2000 Goods and Services Tax (GST), and as a result, taking the lead in many traditionally state areas of policy, including notably education in recent years with its top-down imposition of a national curriculum (much to the ire of pro-federalists: Listening to stories in the United States about Nixon’s New Federalism Policy, the impact of highway funds on states’ drinking ages, as well as more recent initiatives like RTTT, it seems to me that it is quite easy for the federal government to undermine federalism using its currency-issuing power, and in many policy spheres this has already occurred/is already occurring today. This paper gives a pretty good overview of the history and issues regarding fiscal federalism in the US, Australia and Canada if you’re interested:’s my rambling take on the issue – if I’m completely wrong please let me know – always appreciate constructive criticism 🙂R

    • Rodger Malcolm Mitchell | May 21, 2012 at 10:38 am |” . . . if the US spent but could not tax *or compel others to tax* in dollars, then the federal dollar *could* become worthless. “A dollar with no tax support would be valued the same way gold is valued — by the belief that other people will accept it. Gold today has scant intrinsic value, yet it has enormous exchange value. Why? Because of the belief there always will be other people who value it. This is a close relative to the “greater fool” theory, and is what really supports the dollar, MMT’s tax hypothesis notwithstanding.China accepts dollars, not because it must pay U.S. taxes, nor even because other people must pay U.S. taxes, but rather because everyone else accepts dollars.And by the way, last I saw, the United Arab Emirates dirham was worth about $.25 U.S. The UAR has no taxes.Rodger Malcolm Mitchell

      • Ro | May 21, 2012 at 8:11 pm |Hi Rodger,Thanks for your reply. I completely agree that the “belief others will accept it” can be a compelling reason for placing value in a non-taxed currency. But one of the reasons why i appreciate MMT’s perspective so much is because they are looking at the situation not just in terms of current practice, but also the range of possible eventualities in the future. To that extent, if for some reason people wished to switch to a different currency in the UAR, there is nothing stopping them (think a global Facebook-Google-BitCoin merger or something). If the UAR had a constitutional provision barring any taxation, for example, they would be powerless to prevent this. (as an aside, do you think the reason UAR can get away with that might have something to do with the fact that they have sufficient valuable natural resources as to not require any form of redistribution to provide a basic standard of services to the entire country? That is to say, their pie is expanding so fast they don’t need to worry about changing people’s slices? If so, do you believe the same thing is possible in the US given current inequality levels/wealth allocation?).It seems to me (if i may be so presumptuous as to meta-comment and paraphrase) that this quibble actually falls in a continuum on the other side of MMT to the MMR’s money monopolist critique. MMR (or at least, Roche) criticizes MMT for assuming the state has a money monopoly *because of* its power to tax, arguing that the taxation power is only a function of their continued maintenance of basic productivity levels, and as such could be seen as trying to begin from a “pre-state” position. Conversely, you criticize MMT for assuming the state’s money monopoly *requires* a to tax, arguing that under current arrangements there are sufficient other incentives/social inertia that people will continue to hold currency regardless.To try and synthesize the various positions, we could say that MMR is starting at step “0” (assume a state of nature), MMT is starting at “step 1” (assume a state), and you at “step 2/3/x” (assume a state of minimum economic competency such that a currency will retain value without any coercion).While i don’t necessarily disagree with your point that popular perception of value *can* be sufficient, or MMR’s point that taxation power is preceded on the assumption of a legitimate state, I find MMT’s starting position the most useful for conceptual clarity for a few reasons.First, despite what the MMRs claim, there is no real “State of Nature”, nor, according to David Graeber (if i read him correctly), has there ever really been a social monetary system divorced from the hierarchical institutions governing that society. In other words, society doesn’t come together every generation and decide whether they want to preserve or replace the existing legal structure – from generation to generation it is passed under the authority of the government. Of course, citizens *can* always reject such legal structures, but talking in those terms is venturing into the realm of revolutionary politics, and at that point MMR is discussing something more akin to the possibility of communist abolishment of the entire monetary system than any discussion of our existing monetary regime (although i dont mean to accuse them of being communist!). So if the MMR’s insight into the “taxes drive money” discussion is “well, not if we have a revolution!” i’m inclined to agree but question the value of such an insight. Just as it is barely if at all useful to discuss issues of criminal law from the starting assumption that the existence of the state is a variable, i think starting at “step 0” here is largely unnecessary.Second, although what you claim may in fact be true (that some value of the dollar could be retained if taxes dropped to zero), it is impossible to know because you are in fact discussing a counterfactual to our present system. While we may draw insight from other countries such as the UAR, and perhaps even construct a good case for why it would be analogous in the case of a government like the United States, it is impossible to prove or disprove in the absence of an actual experiment. However, what we *do* know for certain is that barring any reversion back to “step 0”, a state has the power to issue taxes and hence can always ensure a basic demand for the currency. Perhaps, as you say, that is unnecessary – i don’t think MMTers have ever suggested to the contrary (they do not, as far as i can tell, deny the existence of complementary currencies as a climate change denier ignores evidence). Rather, they have suggested that the underlying basis of such currencies is fragile, and that it is both more accurate and more useful to acknowledge the role of tax-power in fiat nations such as exist across the world today.Appreciate the engagement!R

        • Rodger Malcolm Mitchell | May 22, 2012 at 7:12 am |Ro,Actually, in my discussions with MMT folk, I have said, “If taxes are what provide demand for dollars, there are plenty of state and local taxes to do the job. Federal taxes aren’t necessary.” They have told me they agree.I merely was demonstrating the uselessness — really, harmfulness — of FICA and the income tax structure. FICA increases the income gap, while giving the illusion that Social Security and Medicare are in financial trouble. Income taxes are the biggest waste of human effort in history, while continually destabilizing the economy.Rodger Malcolm Mitchell

          • Ro | May 22, 2012 at 9:33 am |Hi Rodger,Apologies if i’ve been talking at cross purposes then. I completely agree with your criticism of income tax and FICA, but would add to your conclusion for clarity: “Federal taxes aren’t necessary *but the federal government must retain the capacity to issue taxes in case lower governments fail to do so*” so as to make it clear that the monetary sovereign is still bottom-line responsible for both taxing and spending (even if they choose to delegate for a range of reasons).Personally, i’d i lean more towards the idea of eliminating all existing federal, state and local taxes and have set of federal LVT/monopoly rent taxes + progressive consumption tax (with appropriate deductions) for any money removed from a national private savings account at the fed (which could add/remove interest if it wanted to affect savings behavior), with *any* withdrawal to one’s complementary Fed checking account (including investment) being taxed as consumption.In addition to being easy to monitor (you could set it so that all “incoming” transfers go through the savings account, so the govt would literally only have to look at inflows/outflows), that effectively sidesteps the issue of generational wealth tax as well as temporally uneven earning/spending preferences, since it only looks at the impact of wealth at the point it is spent into the real economy (i.e. makes a claim on real resources). That way, if i wanted myself and my child to have $10m each over the course of our lifetimes, i could earn $20m and my child could earn 0 without any penalty. Alternatively, if i wanted to earn $100k in one year, save $50k and spend the next year travelling, I could do so without paying a penalty for earning all of it in the first year.I am aware there are legal issues with this, but do you have any thoughts about the idea from an economic standpoint?

            • Rodger Malcolm Mitchell | May 22, 2012 at 12:18 pm |Ro,From an economic standpoint, all federal taxes hurt the economy by removing dollars from the economy I agree that the federal government must maintain the power to tax, and I do understand the need for taxes as an anchor for money value (though state and local taxes are better, because they do not remove dollars from the economy).I’ve been toying with the notion of the federal government taxing every man, woman and child in America something like $10 per year, and immediately (next day) returning the money. The need to pay those taxes still would anchor the money value, but the dollars would come right back into the economy — and of course there would be no wasted human effort in computing them, nor wold there be the illusion that taxes pay for spending.Rodger Malcolm Mitchell

          • Ro | May 22, 2012 at 9:35 am |Sorry – would of course have space for pigovian/externality-correcting taxes as well.

  39. Ro | May 20, 2012 at 3:58 am |Here is another link looking at another state’s attempt to create a parallel state-level gold standard: the record, i think this is an absolutely ridiculous idea. It’s also dangerous, because unlike the second option i mentioned about delegated power (which would never happen) and the complementary currency idea (which would likely never truly replace a federal $ and could be quite beneficial in local development, at least according to MMT-sympathizer Bernard Lietaer), this one could get legs in some states if it were found constitutional. Unfortunately, I can’t see why it wouldn’t be under the clear text of Art. I Sec. 10, so I’d appreciate any insights on the matter – one of those times where i’d be happy to be wrong!

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  42. Helix | May 22, 2012 at 6:24 pm |The difference, of course, is the pound of flesh demanded by the banks. In contrast to the Monopolis world, in the real world there are virtually no CIGs. Instead, the central governments are under the control of (read “owned by”) the Central Banks, who loan out even the “vertical money” at interest, and especially to their respective governments. While the Federal Reserve promotes the illusion that it is in some way part of or under the control of the Federal Government by, for example, having the Bankers’ choice for chairman rubber-stamped by the President and the Congress, this is not at all the case. And while it turns over its “operating profit” to the U.S. Treasury each year, its profit is laughable, having relegated virtually all profit-making activities to its “member banks” — AKA its real owners — which are 100% privately owned.

    • Rodger Malcolm Mitchell | May 22, 2012 at 6:40 pm |Not to mention, of course, that any “profit” turned over to the Treasury harms the economy by removing dollars from the economy. The best thing that could happen is for the Fed to stop sending “profit” dollars to a Monetarily Sovereign government that is able to create dollars at will.Rodger Malcolm Mitchell

  43. Ro | May 22, 2012 at 9:29 pm |Roger, thanks for your reply, and for clarifying that you do agree about the federal govt needing to retain the power to tax. I only pressed the point because i have seen you bring this point up as a point of contrast to the MMTers quite often, and since as Stephanie said, they completely agree that *any* tax will do, the initial impression to me was that you might have thought the significance of that statement was that the federal government did not need to worry about taxation at all, rather than simply that they could delegate that power. Appreciate the clarification.Your $10 sounds like an interesting way to ensure demand for currency, but wouldn’t everyone just keep a $10 note in the bedside drawer and go back to exchanging with whatever currency they felt like?One slight quibble with your bolded conclusion – i think it’s more accurate to say “any federal taxes are a fiscal drag *provided that they are not offset with more government spending than would have occurred had those taxes not existed*”. I.e. from an accounting/agg demand perspective, there is no intrinsic value of $0 tax + $100 spending over $10 tax and $110 spending. As such, to say there any federal taxes are necessarily destructive seems to run the risk of painting an overly narrow view of the role of taxation in a broader political sense (depending on one’s ideology). Isn’t it reasonable to say that most people acknowledge that in addition to agg demand management, the role of taxation is also to ensure some level of equitable redistribution/bounded inequality, correct of market failures/negative externalities, reduce rent-seeking, and appropriate into the public sphere certain goods that otherwise may not be available to the government through regular purchasing?My own idea-toying has been with the idea of having taxation debates in entirely real terms, hence my consumption/LVT preference. That way, we could have a nominal spending debate on one side, by assessing our post-tax output gap relative to our socially desirable programs and acceptable level of inflation, and a “wealth” debate on the other, which would debate things like the optimal amount of land-rent (zero, anyone?) and the number of superyachts and bottles of kristol people deserve to be able to purchase while others are starving without paying a handicap.My only other concern about state/local taxes, which i discussed above, are the uniformity issues. While i’m all for effective decentralization and allowing sub-federal governments to be laboratories of democracy, I think allowing multiple competing tax rates on things like monopoly rents is likely to do more harm than good. Just as there is benefit from having a “universal” set of human rights, i think it is beneficial to have certain “universal” forms of taxes. I’d probably prefer to have all $US taxes set at the federal level, and allow states/local governments to use taxation in complementary currencies to achieve sub-national differentiation. I think i mentioned this before at PragCap once, but if i were to put my really utopian hat on, i could see a world with a global $UN dollar (to tax land rents, global environmental externalities, and to redistribute minimal amounts between nations), as well as complementary $US dollars, $NY dollars, and $NYC dollars, each floating against each other and being used by their respective levels of government to achieve public purpose at different levels of society.

    • Rodger Malcolm Mitchell | May 23, 2012 at 7:59 am |Ro, you said, ” . . . the role of taxation is also to ensure some level of equitable redistribution/bounded inequality, correct of market failures/negative externalities, reduce rent-seeking, and appropriate into the public sphere certain goods that otherwise may not be available to the government through regular purchasing?”*I don’t subscribe to the notion that taking money from the 1% is a good way to close the income gap. Far better merely to raise the 99%. Federal taxes don’t pay for federal spending.
      *I see nothing wrong with rent seeking. I do not subscribe to the “all-land-should-be-free” notion.
      *I know of no goods unavailable to the government.
      *Tax accounting, collection and legal processing wastes millions of valuable human hours.
      *A handful of taxes have some benefit, i.e. “sin” taxes. I would legalize some recreational drugs and tax them ala the most damaging recreational drug of all: alcohol.
      *Taxing income or “wealth” (whatever that is) has no benefit.You also said, “My only other concern about state/local taxes, which i discussed above, are the uniformity issues.”In the United States all laws are nonuniform. Are you suggesting the end of states, counties and cities, and substituting one central government? If so, that’s too big a subject for me, at this time.Finally, the notion of a world taxing authority is not “utopian” but alarming.I sense a common thread woven throughout your comments, and that is the desire for an “everyone-should-be-equal” communism. I do not believe everyone should be equal or even close to it. The fact that Mark Zuckerberg can make $20 billion in a few years is healthy for the economy. It makes big goals possible.The federal government merely should assure that every man, woman and child in America has the best possible health care, housing, education, food and opportunity. Then allow the natural differences among people provide incentives.Rodger Malcolm MitchellRodger Malcolm Mitchell

      • Ro | May 23, 2012 at 12:18 pm |Hi Rodger, thanks for your reply, and for clarifying our differences. Just to clarify – I do not support absolute equality through a complete redistributive system, nor do I wish to prevent Mark Zuckerburg from being able to *earn* $20 billion. Rather, I believe there are significant political and economic harms to excessive inequality, and also that allowing the super-rich to exert disproportionate personal claims over the economy at any one point in time can cause a skewed scheme of investment of natural resources and labor. That was more my point about government purchasing goods – imagine, for example, a fictional finite resource that can be utilized either for poverty reduction and super-yacht building. The more yacht-buyers able to exert pressure on the economy, the higher the government will have to bid up that resource in order to purchase enough to reduce poverty. Perhaps such resources do not exist – you would probably know better than I.As for your final paragraph – I do not disagree with the first sentence, but would venture (based on my limited time on this planet and amateur understanding of economics) that there is a high likelihood that it it probably difficult to achieve when the idea of “allowing natural differences among people to provide incentives” is extended to include without qualification things like inherited land-ownership and other forms of rent-seeking. Of course, this is a personal preference, and while I would not label myself as a “communist” per se, I’m happy to agree to disagree.Appreciate the interaction! Keep up the good work on your blog.R

        • Rodger Malcolm Mitchell | May 23, 2012 at 3:57 pm |Ro, Agreed,Income inequality should be reduced, not by punishing the 1%, but rather by lifting the 99%. How about eliminating FICA, eliminating business taxes, eliminating federal income taxes, providing Medicare for everyone, free college for everyone, a more generous Social Security and a stipend to every man, woman and child in America?Rodger Malcolm Mitchell

          • Ro | May 23, 2012 at 11:48 pm |Roger,Sounds like a good start to me! Plenty of low hanging fruit even if we disagree about taxation and the legitimacy by which the 1% have historically accrued the wealth they currently own (by the way, would you include something like a carbon tax as a “sin tax” or do you think such a thing would also be unfairly punitive?)Re: the stipend for everyone (i.e. a BIG), I mentioned at the beginning that the passing Go in Monopoly analogy would be a good way of framing it to people who’d be skeptical of the idea – makes it very clear how an “equal” amount given to everyone regardless of means 1. doesn’t have to be inflationary (in that increased purchasing power expands economy by building houses/hotels once initial property runs out, but you could analogize to increasing productivity of society), and 2. will disproportionately benefit the poor even though it’s completely fairly administered.

  44. Lyle | May 22, 2012 at 11:34 pm |J.D.,Very useful explanation. Another twist:When you added people to your Monopoly game, you added multiple levels of the board and created new properties. This seems similar to what actually happened in the US. When new “owners” take over a land and create (or extend) an economy into it, they apportion that land by granting it to someone according to their philosophy. In the US, we stole it from the natives and gave it widely to whites to settle, tying land ownership to the right to participate in the governance process. We had the Homestead act, for instance, through which individuals could get 160 acres free and clear after honoring commitments to farm it for a period. I live on a farm which, generations ago, became a part of our family’s assets through that means. It seems this falls into the MMT category of “real assets”, instead of “financial assets”. Real assets can be easily turned into financial assets. This seems like simply another means by which money is created, albeit over an extended period.It does not, of course, speak to whether this was ethically “right”. But it probably should be acknowledged as standard operating procedure around the world. Throughout history, people have displaced each other and used the land as booty, which becomes a part of their new economy to be distributed again. While the English colonies inherited this dispersed ownership model, in the Spanish colonies the stolen land was given to a few or kept by the crown. When the communists took over in Russia, the land went through an even different re-distribution, re-centralizing ownership away from individuals. Then when communism fell, the process reversed. While maybe there is only so much land, history shows that this problem is repeatedly handled, not only by ever increasing prices or ownership concentration, but via conquering and appropriating or “land reform”. It is almost the inverse process from the “debt jubilees” of old — instead of forgiving debt, newly appropriated or reformed lands are given out to start afresh. Not much different from “keystroking” assets, it seems.

    • Rodger Malcolm Mitchell | May 23, 2012 at 11:49 am |While I liked J.D. Monopoly explanation, and even posted a link to it on my blog, there is one part of the explanation that may be a bit misleading. In the game of Monopoly, those paper dollars really are Monopoly money. But in America, dollar bills are not money; they merely are evidence that the bearer owns dollars.Actual dollars do not exist in any physical form. One cannot touch, see, smell, hold, send, give, fold or tear a dollar. Dollars are nothing more than accounting notations. When people begin to understand that simple fact, they are on their way to understanding why our Monetarily Sovereign government doesn’t need taxes (or borrowing).The government is sovereign over dollars, so it can change numbers in any bank accounts including its own. It pays its bills simply by instructing banks to mark up the numbers in checking accounts. The government could increase the size of your checking account by $100 trillion, tomorrow. It would need neither to borrow nor to collect taxes. It would just instruct your bank to change the numbers in your account and simultaneously would change the numbers in its own accounts.Taxing and borrowing are relics of monetary non-sovereign days, which ended on August 15, 1971, when we went off the gold standard.Rodger Malcolm Mitchell

      • Hugo Heden | May 23, 2012 at 12:28 pm |Sounds familiar. “Money” is an abstract, socially determined, Unit of Account.This should be distinguished (when needed) from “money things” (coins, paper notes, tally sticks, clay tablets, measures of wheat, digitalized numbers at the central bank or whatever) – assets *denominated* in the unit of account. These can be used as means of exchange or store of value. They are “money things”, while “money” (again) is rather the abstract unit of account.This would be the Chartalist position, which can be juxtaposed with the Metalist position in which any physical items with money-like properties can be “money”.Right?Not sure if/when/why it is necessary to take care to make this distinction through?

        • Rodger Malcolm Mitchell | May 23, 2012 at 3:49 pm |You are correct, of course, and the reason to differentiate is to clarify the fact that nothing “pays for” federal spending. Because money is only accounting numbers, and the U.S. government is Monetarily Sovereign, the government has the sovereign ability to make those accounting numbers anything it wishes.For instance, to pay you $100 trillion tomorrow, the government simply would instruct your bank to increase the number in your checking account by 100 trillion. No source of money is necessary. The bank merely does as the sovereign owner of the dollar instructs, and increases the number.I often tell people they never have seen, touched, smelled, sent or handled a dollar. It exists only as a number on a balance sheet, which is why the federal government neither needs nor uses tax money or borrowing. What you refer to as “money things,” confuses people. They believe in order to “spend” things, you first need to “have” things. Not true for a Monetarily Sovereign entity.

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  47. George Baker | May 24, 2012 at 12:11 pm |Nice web site. BUT… After you have read what it has to say stop and think back. boil it all down to its basic proposition. It is saying that by spending more and more and more it is possible to make ourselves more prosperous. In other words the deeper into debt we go the more prosperous we are. Multiplier effects and pretty charts be damned it completely ignores the effects of ever increasing mountains of debt.That idea is the foundation of Keynesian economic theory and that is exactly what this web site promotes. It completely ignores what happens when it comes time to pay the debt.

    • Rodger Malcolm Mitchell | May 24, 2012 at 12:41 pm |Mr. Baker,It’s clear you do not understand the differences between a Monetarily Sovereign government and a monetarily non-sovereign government. “When it comes time to pay the debt”M/i> the federal government will do what it always does: It will credit the T-security owner’s checking account and credit his T-security account.No new dollars needed. It’s a simple asset transfer identical to when you debit your savings account and credit your checking account.Federal financing is different from your (and my) personal financing, and until you learn the differences, you will not understand economics. If you would like to learn the differences, see: It’s short, simple and will open your eyes to the reality of federal financing.Rodger Malcolm Mitchell

  48. Russ Hallberg Jr | May 25, 2012 at 7:15 am |Modern Monetary Theory was applied by Abraham Lincoln. He issued government greenbacks, financing the Union. he four people who were hung and the one who was shot for the Lincoln conspiracy were all Catholics. The plan was to also assassinate Vice President Johnson and Interior Secretary William Seward the day Lincoln was shot. (central) Bank of England was started by the Jesuits as a branch of the Bank of Rome. It begot the Federal Reserve

  49. Marco Bertalot-Bay | May 25, 2012 at 7:46 pm |I agree with the main thaughts about the characteristics of money as beeing just an accountig factor and – nothing else!
    At the same timeI understand there is a reason to keep taxation and government debts as way to mantain consciousness of the population and government about, for example, the participation of the several sectors, etc. The government debt is the mesure of the deviation from budget and must be negotiated etc etc. These are ways to avoid the so called “financialised money”. Do my american collegues see this also this way? Printing money is very easy… to easy to be left to the executive government alone! May be I am missing something..!

    • Rodger Malcolm Mitchell | May 25, 2012 at 11:32 pm |Marco, what you are missing is the economic damaged being caused by “deficit” restriction. That is exactly what has happened to Greece. They are monetarily non-sovereign, so are forced into austerity. Were they Monetarily Sovereign, they could pay their bills, grow their economy, and give their citizens a better life.Austerity = recession. Period.

  50. David | May 25, 2012 at 10:41 pm |For this model to work , a “CIG” must exist. Presently, we have in place a “CBG”(currency borrowing government). So my first question to voters is why do we consistently elect people that allow a private bank to issue our currency and pay interest to do so? Also, how does one go about abolishing the policy of borrowing currency to be issued with interest and stay alive long enough to enjoy the obvious benefit that an uncorrupted currency would provide? In a perfect world crime does not pay. But, in a world whereby the body politic is so rotten that compared to it, Al Capone looks like a choirboy, crime pays so handsomely that it is a career goal for many. Just ask Congress.
  51. Emilio Mari | May 26, 2012 at 10:55 am |So, do you think that we, in Spain in this case, should go back to ‘peseta’ with our Banco de España leaving the Euro and the European Central Bank for a correct MMT proposal to take place?
    • Rodger Malcolm Mitchell | May 26, 2012 at 4:26 pm |Emilio,Spain should not just “go” back to the peseta, you should run just as fast as you can. Giving up your Monetary Sovereignty meant you gave up the single most valuable asset the government had — more valuable than a trillion Alhambras, Nasrid Palaces and Carlos V Palaces all rolled into one.Leave the euro, regain your Monetary Sovereignty, and within two years, Spain will be among the wealthier nations of Europe, rather than among the poorer.Rodger Malcolm Mitchell

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  53. Curt | September 9, 2012 at 11:55 am |I like the simple explanation for monopoly as it relates to real life but the fact is, the CIG does not issue seed money free of interest. This version would be much more realistic if interest payments had to be made to the CIG for the entire deficit. You will find that the dynamics of the game will change dramatically because the CIG did not create the money to pay the interest.The monopoly example presented is an accurate description of life with a treasury that distributes debt free money, otherwise it is absolutely nothing like the Federal Reserve banking system in place today.

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  55. Dan H. | November 27, 2012 at 2:10 pm |So MMT says that our economy is like a game of Monopoly, where the object of the game is for one player to win by bankrupting all the other players. While this does sound like something quite analagous to our modern economic system (where an elite few are “winning” at the expense of the vast majority), I just don’t see that this should be promoted as a good thing. Further, it’s a game of Monopoly where the rules are constantly rewritten by those who happen to be winning, and where most of the players don’t even realize they are playing the game, let alone have knowledge of the current rules of the game.

  56. Stanley Mulaik | January 8, 2013 at 4:12 pm |J.D.: You don’t know me, because I’m kinda new here. I’ve been studying MMT for the past year. But you recently wrote something that I thought was a report of a Press Conference of the President, titled “News Conference of a Paradigm Shift”, and it got me to telling everyone that the President has become an MMTer. Only after trying to find independent reports of the news conference and not finding any and going back and reading more closely your essay, I realized that you were telling a story, one you’d like to come true, and not reporting. Now, the reason I bought into it as a true report is I have been sending the President e-mail messages and postal letters telling him about MMT and the $10 Trillion coin, and lately about how there is no national debt and that he can’t use the coin if there isn’t a debt.
    But there have been enough hints in the press that the President might be planning to use the $1 Trillion coin to make your story sound plausible. I suppose you have seen Congressman Walden’s plans to introduce a law outlying the use of the platinum coins for this purpose. He really wants to cut off this power of our government because he thinks money made up out of thin air is terrible, inflationary. Others were saying that he doesn’t know that the Fed makes up the money all the time out of thin air. So, I bought your story hook, line, and sinker. And I thought you did very well, because I could see the President acting just like you described on having had an epiphany of paradigm shift in his thinking. So, beautifully written–perhaps too well written because it didn’t sound exactly like typical reporters or columnist’s report of a what happened at a press conference.
    Anyway, I need to say why I think there is no national debt, but that will take another posting here.

  57. Stanley Mulaik | January 8, 2013 at 4:44 pm |Why there is no national debt.
    When Congress deficit spends, Treasury has to borrow money to cover the deficit. It does this by issuing securities which are IOU’s with a repayment date in the future. These securities are then sold at a public auction at which major banks bid on the securities. Those willing to pay the most principal (which is less than the face value of the security) will get the least interest. The winners are those paying the most principal to the Treasury. The winning banks send their money to the Treasury, which uses it to spend what Congress authorized. The Treasury also now has a debt to the banks. In the meantime the banks have taken a hit in their reserves when they sent the money to the Treasury. They need high reserves to lend a lot of money and earn interest on it. So, they take their securities back to the auction and put them up for sale. The Fed will come along and likely buy these securities with money it creates out of thin air which it will credit to their reserves. The Fed now takes possession of the securities.
    Now consider this: the Fed is a government agency created by Congress in 1913. It’s buying of the securities with money it made up out of thin air is an exclusive power of government granted to Congress in the Constitution and delegated to the Fed. So, being an agency of government and using government power to buy the securities it has automatically and implicitly redeemed the debt of the United States to the banks.
    But does the Treasury still have to come up with money to pay back the debt on the securities the Fed now has?
    That is what most people think is what constitutes the national debt: all these securities the Fed has bought over the years that have not been redeemed by the Treasury. But simply because it possesses these securities does not mean the Treasury owes it for them (except for a smaller transaction fee of 6% of the interest on the securities). Being a government agency, the Fed has redeemed the debt for the whole government, for the United States.
    There is no national debt at the Fed.
    And as for all those U.S. bonds and securities that private and foreign individuals and institutions have bought in return for depositing money at the Fed, the Fed will pays those back with money it creates out of thin air on the spot. So the Fed is redeeming all these debts of the government. Besides being the issuer of currency it is a redeemer of debts of the government.
    Now, will the Fed admit this, that there is no national debt? If it doesn’t then the President may take away all those securities from the Fed by buying them with money from a $10 Trillion platinum coin. And there still won’t be a national debt. And the Treasury may start using these coins to fund debt-free spending of deficits. And it will buy back all those securities at the Social Security Trust Fund. So, either we don’t have a debt because the Fed has already redeemed them, or the Treasury will redeem the debt and take away all those securities that the Fed uses to manage the money supply and inflation. Which might not be a good thing.

    • Rodger Malcolm Mitchell | January 8, 2013 at 6:15 pm |Yes, the misnamed national “debt” is nothing more than the total of deposits in T-security accounts at the Federal Reserve Bank.To “lend” to the federal government, you instruct your bank to debit your checking account, and you instruct the Federal Reserve Bank to credit your T-security account. The process essentially is identical to taking money from your checking account and putting it into your savings account.In order to “pay off the debt,” the Federal Reserve Bank merely takes your dollars from your T-security account, and transfers them to your checking account.The debt hawks can try to explain to you why taking dollars from your bank checking accounts and putting them in your bank savings account should be limited. They also can explain why they think you have too many dollars in your savings account.That is the succinct description of the phony debt crisis.Rodger Malcolm Mitchell

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