Originally published March 11, 2012 on the New Economic Perspectives blog.
This will be the final part of this series. Next week we turn to the Job Guarantee/Employer of Last Resort.
The answer to both questions posed in the title is, I think, a big fat no.
I’m not going to go deeply into methodological debates. First, I’m no methodologist. Second I don’t think many readers here are that interested in such debates. And, third, it really isn’t necessary.
It is not possible to observe and describe without an underlying theory and ideology. Just take a look back at the questions and comments I receive. They are invariably value-laden. Why would I focus on money? More specifically on a very special kind of money—sovereign money? Why don’t I write more on privately created money—like bank money? What the heck is money, after all? Must it be something I can touch? Use? How? Many commentators want to skip money altogether and go to the “real stuff”—the physical assets that make up our physical wealth. And why does MMT (mostly) ignore the househusband who washes the dishes?
I must make all these choices and I’ve got to have a view as to what is important enough to try to understand. Take a gander and I think you’ll agree that every question or comment ever made had some underlying “purpose”.
Science is not value-free. Cannot be. Science—including economics—is inherently progressive. Why do you think that the far right wing wants to reject science in the areas of evolution, ecology, and female reproductive health? Because they well-understand that science is a progressive endeavor. And that includes the economics that is behind policy-making. So they must deny science in order to stop progress.
All of you now understand that sovereign government cannot “run out of its own money”; financial affordability is not the issue. That is a major scientific advance; it is inherently progressive. We’ve moved beyond the “magic” or “superstition” that Samuelson referred to. It’s all keystrokes and we can have as many as we want. We can use government to achieve the public purpose, and that is necessarily a progressive advance.
The debate then turns to “what should government do”. And, admittedly, we are still left with many questions about “what can government do”. Because there are things that would be progressive (say—end racism and sexism) that may not be possible to achieve, at least now, using government. Or, as I already said, progressive goals often conflict. This is why I think it is very useful to look at the public purpose and human rights as “aspirational”—it is easier to define and work toward progress than to define and achieve some end goal. We are always striving and never reaching that “mountain top”. That is OK, I think. Whatever progress we reach will never be enough—achievements cause us to reach for more.
Again, I do not want to wax philosophical, but whenever I hear a call for value-free economics, I immediately suspect a rat. In my experience the correlation is about 100%. Those who advocate economics as description merely hide their ideology and their policy goals. And they are almost always anti-progressive. I suspect they fear that if they put their goals on the table, they’d lose support. Hence, the refusal to admit their true mission.
However, I want to be clear on this. There is huge room for disagreement on the legitimate scope for the public purpose. And even if we all agreed on the public purpose, there is even greater room for disagreement on the best way to accomplish it. As I said, there are conflicts and uncertainties, and no final end point. All of that makes these discussions contentions. But we can’t really even discuss that if we have opponents who will not lay-out their views, hopes and goals.
So MMT is inherently progressive. We choose to focus on a rather small but what we believe to be an important part of human behavior—what we might call the “monetary” part of the economy. Now, I make that even more specific—the “monetary production” part identified for analysis by Marx, Veblen and Keynes. And most of the time we focus on modern times (modern monetary production)—although it is useful for our understanding of “where we are” to look at “where we came from”. These are big topics and there are many sub-topics within the scope.
One could, for example, limit the analysis to a description of an open market purchase of 10 year treasury bonds on March 6. But why did you choose that topic and that date? What point were you trying to make? If that’s all you’ve got, who cares? More probably, the observation and description is to demonstrate a point and to comment on the policy. Was the purchase a good idea? What impact did it have? Should the Fed have done something different? What was the Fed trying to accomplish? Was the stated purpose different from the apparent aim? How does that action fit into the Fed’s strategy? Without investigating these and other questions, the description is not helpful.
But even the choice to provide such a description is most likely “purposeful” even if the investigator has no interest in any such questions—for example to obfuscate and distract, a commonly used tactic.
Finally, Stephanie Kelton has made the following analogy. Almost everyone is familiar with Milton Friedman’s work. He was a “positivist” who is often identified as one who abhorred “normative” economics. I do not want to debate whether that is a fair description of Friedman’s actual views. Instead I want to look at monetarism itself. The “descriptive” part claimed a correlation between money growth and growth of nominal GDP and can be summarized as “inflation is always and everywhere a monetary phenomenon”. But as we know, the measurement of GDP involves many choices and underlying those are theories and ideologies (why did we leave out of the measure washing one’s own dishes, but include the “shelter services” of living in one’s own home?). Likewise, what is money? And what is inflation? As if those were not problematic enough, monetarists then identify inflation as “bad” and propose policy that supposedly will prevent inflation (controlling growth of money supply—whatever that is!). Let us say the correlations do indicate causation (contestable) and that the central bank can control the money supply (contestable) and that inflation is a bad thing (contestable) and that the benefits of lowering inflation through such policy outweighs the costs (contestable). You get the drift.
And monetarism without inflation fighting and monetary growth rules just wouldn’t be monetarism. There are other approaches that agree inflation is bad and the central bank should and can fight it—but they are not monetarist. You need the ideology, the theory, and the policy recommendations to get monetarism.
So I think that the notion that we can have a group of MMTers who avoid discussing theory, ideology, and policy is naïve at best, but much more likely is designed to hide the orientation of the participants.
Now here is the bigger point I want to make, although it will be brief.
I am continually amazed at how little trust Austrians (and conservatives more generally) have in our capitalist system. In their view it is a very fragile system, easy to disturb and perhaps even to destroy. A little regulation by government overcomes entrepreneurial initiative. A bit of a tax on the rich and the profit motive is suddenly thwarted. Give a handout to someone who is starving and the whole damned workforce will just stop working to stand in breadlines. It is such a weak system that we have to be extremely careful to stand aside to let the poor little invisible hand operate. Even the slightest obstruction would be catastrophic.
I think they read way too much of the doomsday writings of Schumpeter’s Capitalism, Socialism and Democracy—where he fretted about capitalism’s future—or perhaps Marx’s theory of the falling rate of profit.
Me, I’m more down with the Marx and Engels of the Communist Manifesto—who marveled at the accomplishments of the capitalist system:
Meantime the markets kept ever growing, the demand ever rising. Even manufacturer no longer sufficed. Thereupon, steam and machinery revolutionised industrial production. The place of manufacture was taken by the giant, Modern Industry; the place of the industrial middle class by industrial millionaires, the leaders of the whole industrial armies, the modern bourgeois.
Modern industry has established the world market, for which the discovery of America paved the way. This market has given an immense development to commerce, to navigation, to communication by land. This development has, in its turn, reacted on the extension of industry; and in proportion as industry, commerce, navigation, railways extended, in the same proportion the bourgeoisie developed, increased its capital, and pushed into the background every class handed down from the Middle Ages.
…The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.
The bourgeoisie, historically, has played a most revolutionary part. The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his “natural superiors”, and has left remaining no other nexus between man and man than naked self-interest, than callous “cash payment”. It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom — Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.
…The bourgeoisie has disclosed how it came to pass that the brutal display of vigour in the Middle Ages, which reactionaries so much admire, found its fitting complement in the most slothful indolence. It has been the first to show what man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former Exoduses of nations and crusades.
The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered form, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.
The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere.
…The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population as compared with the rural, and has thus rescued a considerable part of the population from the idiocy of rural life. Just as it has made the country dependent on the towns, so it has made barbarian and semi-barbarian countries dependent on the civilised ones, nations of peasants on nations of bourgeois, the East on the West.
The bourgeoisie keeps more and more doing away with the scattered state of the population, of the means of production, and of property. It has agglomerated population, centralised the means of production, and has concentrated property in a few hands. The necessary consequence of this was political centralisation. Independent, or but loosely connected provinces, with separate interests, laws, governments, and systems of taxation, became lumped together into one nation, with one government, one code of laws, one national class-interest, one frontier, and one customs-tariff.
The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground — what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?
We see then: the means of production and of exchange, on whose foundation the bourgeoisie built itself up, were generated in feudal society. At a certain stage in the development of these means of production and of exchange, the conditions under which feudal society produced and exchanged, the feudal organisation of agriculture and manufacturing industry, in one word, the feudal relations of property became no longer compatible with the already developed productive forces; they became so many fetters. They had to be burst asunder; they were burst asunder.
I do not recognize in this Marxian ode to the power of the entrepreneur the Austrian version of the poor little impotent capitalist at all.
Do you really think that a Timmy Geithner as regulator would stand a chance against a Marxian capitalist? A true revolutionary who can “burst asunder” all the previous forces and fetters? The capitalist who during the first hundred years of capitalism “has created more massive and more colossal productive forces than have all preceding generations together”—the previous million years and more of human existence? Heck, in Marx’s view, the capitalist created the modern government to serve. And left to its own devices, capitalism gobbles everything in its path, eating its young for breakfast. In truth, it is the most powerful beast humans ever created.
And this was written 160 years ago! They hadn’t seen nuthin’ yet! The whole darned globe wasn’t enough. Now Newt is going to colonize the moon if he gets half a chance!
OK before the critics rush to accusations that MMT is Marxism, my point in this is to emphasize the potency of capitalism. It is a robust system, albeit one that is predisposed to insufficiencies of demand and to periodic financial crises. But I find the idea that a bit of regulation and taxes is going to destroy capitalism to be fanciful and unnecessarily pessimistic.
Now, why is it the conventional wisdom that capitalism is fragile?
First, it is obvious that at the level of the firm, each is struggling to get advantage. Government subsidies and tax exemptions help to provide a competitive advantage. It is really handy if local government will cover a portion of capital and labor costs. It is nice when Congress passes out the “pork” to favor local industries. And it is great if regulators will look the other way.
Second, also at the level of individuals, many entrepreneurs are of course cruel. They like to see their workers suffer, and they are willing to take lower profits if necessary to obtain the enjoyment. I can recall when the California employers of farm workers forbade the use of long-handled hoes—forcing laborers to bend over to work with short hoes. Much research showed that productivity was higher with the long hoes, but employers were indifferent. They justified the short hoes on the argument that migrant workers enjoy being close to the ground.
And so they protest mightily if government tries to regulate the size of the rod they use to beat their slaves and workers.
Never underestimate cruelty as a motivating factor for resistance to sensible regulation. Indeed, Keynes referred to the advantages of directing such cruelty to tyranny over balance sheets rather than over people.
And finally, as Keynes also argued, the problem is that modern capitalism suffers from chronic insufficient aggregate demand, compounded by excessive inequality and unemployment. This is why, he said, policy is unnecessarily devoted to trying to encourage the entrepreneurial spirit—through pro-business legislation, subsidies, tax incentives, and deregulation. This is why, he said, the supposed solution to capitalism’s ills are always said to be found in promoting private investment and other supply side measures. And take a look at the typical presidential campaign where “business experience” is said to be an important quality for a candidate. It is not enough to design every policy with the businessperson in mind, you’ve also got to put one in the White House.
But this can never succeed—because it is devoted to solving an imaginary problem–so it just promotes ever more catering to business interests—all with reference to the supposed advantages of “free markets” and “invisible hands”.
In truth, unguided capitalism cycles between explosive speculative frenzies and the following inevitable collapses. And without government bail-outs in the crash, the capitalist economy can enter a dangerous debt-deflation process that not only is devastating in its economic impact, but also unleashes dangerous, fascistic politics. But with such bail-outs, the incentive is to bubble-up the economy to new highs, fueled by ever more scandalous behavior operating against the public purpose.
In truth, government guidance makes capitalism stronger and can direct it to better serve the public purpose.