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Money and the Limits of Sovereignty

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Listen to Scott read this presentation and answer questions about it in Episode 136 of our Macro n Cheese podcast.

As many of you are no doubt aware, my colleagues and I at the Money on the Left (MotL) Editorial Collective have offered some challenges to the notion of sovereignty within MMT scholarship over the last few years. I am grateful for this opportunity to explain and hopefully clarify (a) what we are actually claiming about money and sovereignty; (b) what we are certainly not saying; and (c) why all of this matters, in our view.  

MMT is, as we know, a state-based theory of endogenous credit money creation. This means that, for MMT, money arises from and remains primarily secured by centralized governments and that credit is created as needed as a function of monetary design.

The original MMT literature draws upon the German chartalist scholar Friedrich Knapp, who argued that money is first and foremost a token of the state. 

Where things get tricky, for myself and others in the MotL Collective, is that the modern nation-state has been overwhelmingly defined by the concept of sovereignty.  

Sovereignty, to begin with a preliminary definition, typically denotes a type of power characterized as the highest independent authority within a given territory. 

The most widely used notion of sovereignty is sometimes qualified as “political sovereignty,” referring to an entire political entity in all of its various functions, domains, and concerns.  

From this wider category, MMTers such as L. Randall Wray and Fadhel Kaboub have derived a theory of “monetary sovereignty.”  

Monetary sovereignty, for MMT, is linked to political sovereignty, but forms a specialized category of its own.  

This monetary type of sovereignty speaks, in a sense, to the economic dimensions of state power.  

One might say that monetary sovereignty, in this conception, is a sub-species of political sovereignty that reciprocally helps to shape the political order.  

Kaboub, in particular, has developed a helpful four-point list of criteria for defining monetary sovereignty. A so-called “full” monetary sovereign should include all four criteria. They are: 

  1. a country must issue its own currency
  2. a country must levy taxes, fines and fees in its own currency
  3. a country can only issue debt denominated in its own currency
  4. a country must avoid currency pegs & engage internationally via floating exchange rates  

On the bases of these four criteria, Kaboub and others set forth an admittedly nuanced MMT approach to monetary sovereignty, one that works not in absolutes, but in degrees. 

Although not always evident in popular MMT discourse, deep down MMT does not actually promulgate a crude model of monetary sovereignty at all. MMT does not, for example, stretch monetary sovereignty between the twin extremes of “having” and “not having.” 

Instead, MMTers situate different monetary regimes with what they deem a “spectrum monetary sovereignty.”  

According to this spectrum thinking, countries exhibit a wide variety of different monetary powers with respect to one another.  

No country is all-powerful since there are always political and resource constraints that must be confronted and negotiated.  

Conversely, no country can be totally without monetary capacities because any polity can create new credit regimes in order to freshly mobilize people and resources.

As I understand it, this spectrum approach is no mere quantitative checklist, either. 

At least at its best, it tends to be deployed in qualitative and historically contextualized ways such that, for example, one country may share two of the very same criteria with another but also have very different monetary powers at their disposal.  

Importantly, moreover, MMTers clearly discern that none of these features are natural or inevitable. They are politically and legally constructed over time and can always be challenged and redesigned.   

Indeed, I would maintain that these presumptions about contingency and transformability are precisely what MMTers have in mind when discussing monetary sovereignty, even as their language slips occasionally into logics of having and not having as a shorthand. 

Just because a particular country’s currency, for example, is pegged to the dollar today, according to MMTers, does not then condemn them to monetary powerlessness for eternity.  

That is why MMT’s theory of monetary sovereignty matters.  

This, I hope, is an accurate and judicious account of what MMT has meant by the expression “monetary sovereignty.”  

Now as I’ve stated, my colleagues and I at MotL have criticized the term sovereignty, complicating the role it has played both in MMT literature and in popular outreach.  

This has led some in the MMT community to feel confused and others quite resistant, imagining that what we are saying must somehow undercut MMT and its explanatory power.  

Well, I’m here tonight to not only clear up the confusion surrounding our critique of the concept of sovereignty, but also explain why we think our contribution improves rather than detracts from the MMT project.  

Let me commence by stating at the outset that I come in peace. I’m not here to destroy MMT. I’m honestly here to help. 

In this spirit, the first substantive point I want to make is a meta or methodological one.  

The point is this: Words and the concepts they express have complex histories and any account of sovereignty must attend to the history of the term itself.  

Indeed, words with seemingly stable meanings in one era can often mean something very different in another. Sometimes, a word can mean one thing and its very opposite!  

To take such tangled word histories seriously is not to indulge a type of nihilistic relativism in which we toss our hands in the air and declare that nothing means anything at all! To the contrary, it only means we should be aware of the words we use and their complex semantic legacies. 

This is especially true when it comes to the central and very important words we use to make sense of politics and economics.  

What about the word and idea of “sovereignty,” then?  

Turns out, it, too, has a history.   

Modern writers tacitly deny this all of the timeWhen modern thinkers turn back to ancient Greek, Roman or Christian writers to understand the allegedly antique origins of sovereignty, they retro-actively impose a modern conception of politics onto texts that were in truth never concerned with sovereignty as it is understood in the modern world.  

In actuality, the word sovereignty arose in early modern Europe over the long course of the fourteenth and fifteenth centuries in order to articulate a new conception of political rule.  

Prior to the fourteenth and fifteenth centuries, people in the European and wider Mediterranean world referred to political rule most often as a matter of “imperium.”  

Imperium meant, pretty straightforwardly, “rule,” “authority or “command,” framed as a general condition or question.  

Today, when we hear this Latin term “imperium” we are apt to associate it with the nasty modern notion of “empire.” This implies the political and economic domination of vast lands and peoples, employing violent means toward exploitative ends.  

In its historical context, however, imperium did not actually mean empire or territorial domination in that specific and narrowly modern sense.  

In fact, the word rose to prominence within the Roman Republic well before the Empire.   

Imperium in the Roman Republic denoted broadly who, what, how, when and where authority rules. 

Particularly during the Middle Ages, the elasticity of this term proved handy since the period was very self-consciously defined by a dizzying array of overlapping and interdependent jurisdictions. 

While the Holy Roman Empire and Catholic Church oversaw enormous and interpenetrating realms, myriad kingdoms, manors, and townships within these realms formed a nested latticework of interlocking rights and obligations.  

In this period, it is crucial to stress, political rule was seen as a necessary and inescapable part of humanity’s social interdependence, no matter what form it took.  

Leaders and thinkers, too, expressly situated any particular political regime within a larger inter-reliant world of political, social, legal and religious relations, one that of course exceeded any specific ruler or regime.  

The Middle Ages definitely saw its fair share of wars, feuds, and crusades during which different and opposing communities fought over any number of matters pertaining to political rule and legal jurisdiction.  

However, medieval thought did not articulate any of such conflicts in terms of absolute insides and outsides, selves and others.  

Today, we may certainly level plenty of legitimate criticisms at the period’s hierarchal political economy and anti-democratic order of rewards and succession.  

Yet as any medieval historian will frankly tell you, the modern world’s cartoonish depictions of unquestioned authoritarianism during the Middle Ages simply hold no water. 

The medieval period did, in fact, witness plenty of political contestation, both in word and in deed.  

The period’s leaders and thinkers developed a keen sense for what constituted the legitimacy of rule. 

They appreciated the limits of authority.

Tyranny, too, was a concern, and was variously criticized and resisted.  

In late medieval and early modern Europe, however, various jurists, theologians and philosophers began to invent a new and quite unfamiliar idea of political rule, which broke severely with previous conceptions.  

To get at this historically novel idea, it is instructive to return to and inspect the word “sovereignty” itself.  

This word sovereignty combines the term “reign,” meaning “rule,” with a superlative prefix related to modern prefixes with which we are now familiar like “super” or “hyper,” meaning at once “above” and “beyond.”  

So, in a very literal sense, the word sovereignty is created to imagine a new kind of super or hyper power meant to rule over and above all others.  

With this, those who conceived sovereignty as an idea sought to reconceive and seemingly disentangle the multifarious and overlapping cascade that was Medieval rule.  

Their desire was to imagine and ground a type of authority that would be self-legitimating and stand outside of these medieval entanglements.  

It would do so in a number of interrelated ways. Here, I’m going to try to spell out eight: 

First, the notion of sovereignty tended to fuse political rule with individual will. That will might belong to particular emperor or king, but it would also be later ascribe to a particular group of people, as in Jean-Jacques Rousseau’s notorious idea of the “general will.”

Second, the concept of sovereignty aligned this notion of willful rule with a single site of power, which would then be associated with a very particular and distinctly bounded sense of territory.

Third, sovereignty as a concept demanded the political power would command exclusive authority over said territory, barring all other political actors.  

Fourth, sovereignty as an idea assumed that the political realm is an artificial construct erected through contract and backed by violence, or at least the threat of violence.  

Fifth, it presumed that political & legal institutions are not necessary for organizing relations and mediating conflict between interdependent beings and realms, as was believed in the Middle Ages.  

Instead, the logic of sovereignty began with a so-called “state of nature,” wherein apparently disconnected and naturally independent individuals, families, or organizations come together as matter of choice and, ultimately, force.   

Sixth, the notion of sovereignty tended to subordinate every relationship or organization within a supposedly sovereign territory to an expression of the overarching sovereign will.  

Seventh, sovereignty starkly divided inside from outside sovereign borders.  

That is, it held not only that seemingly external concerns or domains were simply not a matter of sovereign responsibility, but also that the people within a sovereign territory were in no way related or beholden to those outside of it.    

Eighth, whether explicitly or implicitly, sovereignty created a political vacuum between territorial regimes. In opposition to the wildly interwoven jurisdictions of the Middle Ages, this raised constant questions and problems about the order of things in the seemingly external spaces between regimes.  

Perhaps the most well-known mature articulation of the early modern logic of sovereignty came from Thomas Hobbes in his well-known book Leviathan or The Matter, Forme and Power of a Commonwealth Ecclesiasticall and Civil. That book was published in 1651 during the uncertain period of the English Civil War. But in many ways, Hobbes represents the first early culmination of a tradition that includes many earlier works such as those written by French jurist Jean Bodin.  

I cannot offer a thorough or in any way satisfying summary of Hobbes’s or Bodin’s arguments here beyond the admittedly hand-wavy sketch I’ve already provided.   

Suffice it to say that throughout the early modern period, this new word and idea of sovereignty would be twisted in various and seemingly conflicting directions.  

Sovereignty, for instance, has equally underwrote absolutist arguments for the divine right of kings or, later, modern fascism, as well as Liberal and leftist ideas about Republicanism or socialism.  

Eventually, as we know, sovereignty would give rise to the idea and institution known as the modern nation-state.  

The modern nation-states presumes an independent organic or ethnically related community–sometimes conceived as a hybrid or melting pot of several communities.  

In any case, no matter what political form said community takes, the nation-state model imagines government as the expression or representative of that organic community’s independent will.  

Equally important, the modern nation-state presumes a particular global organization of politics, one that is comprised of supposedly independent territories.  

Such sovereign territories, goes this logic, relate to one another as external, regionally specific and ethnically bounded populations.  

Said order of sovereign nation-states is sometimes referred to as the so-called “Westphalian” system after the famous “Treaty” or “Peace of Westphalia.” Constructed out of what were in fact two important treaties in the mid-17th century, the Peace of Westphalia brokered a new order of security between rival powers, closing a calamitous period of European religious warfare that had by that point killed approximately eight million people. 

It is now a truism that the Peace of Westphalia established the order of sovereign nation-states that gave rise to the modern world. 

For a critique of this just so story, I recommend a great article from 2011 by Sebastian Schmidt titled, “To Order the Minds of Scholars: The Discourse of the Peace of Westphalia in International Relations Literature.” You can find it in the journal International Studies Quarterly.  

As Schmidt and other critics have explained, the nation-state as we know it did not arrive overnight after the Peace of Westphalia.  

Nothing even close to its idealized early modern theorization arose as a generalized institutional form until the 19th century.  

Some have even argued that the nation-state as a general form doesn’t fully come into its own until the 20th century when the midcentury era of decolonization saw an explosion of freshly formed nation-states on the model of European sovereignty.  

For my colleagues and I at MotL, the ultimate problem with sovereignty and the modern nation-state system is two-fold.   

Put succinctly, we argue that the logic of sovereignty is not only violent, it is also outright false.    

Sovereignty as a concept is violent for many reasons. Most plainly, it is violent because it presumes that political rule is always founded upon violence or a monopoly on force.  

Yet fundamentally, for us, the logic of sovereignty is violent because it denies that everything in this world is interdependent—which is to say, meaningfully and necessarily intertwined–in both social and ecological senses.  

Meanwhile, we contend that sovereignty as a concept is false because everything, in our interpretation actually is interdependent, no matter how much the logics or institutions of sovereignty pretend they are not.   

The interlinked crises of global climate change are, of course, screaming evidence that autonomy is a myth and interdependence is the actual name of the game.  

But interdependence goes well beyond matters of crisis.  

It also provides at least as many opportunities for cooperation and participation as it does problems and competition.  

In any case, on MotL’s view, sovereignty disastrously fails to describe the reality of global political economy in any helpful way.  

Today, we would add, the world remains, in a sense, thoroughly medieval, by which I mean, that our world, too, remains a dizzying array of overlapping and interdependent jurisdictions, with credit creation occurring across and between different forms and scales.  

The idea of sovereignty does not permit us to actually perceive this, let alone change it for the improvement of humanity and the planet.  

To clarify: When we critique sovereignty as a concept, we are not flatly critiquing analysts, activists or legislators for focusing on the existing countries or governments in the world.  

We are all for politicizing, challenging, and transforming extant countries and governments for the better.  

Thus we do not in any way wish to ignore or overlook American, French, Japanese or Senegalese governments in the name of either a hyper-localist politics or a supranational globalism. 

Nor do we wish to immediately or unequivocally abolish the state.  

To the contrary, we don’t take the modern nation-state at its word about its own alleged sovereignty. Instead, we want to challenge this misconception, while working to radically transform and transcend the nation-state.  

In this way, we continue to argue that MMT’s fundamental insights about political economy are both correct and urgent.  

Our message is that, given its historical legacy and the problems associated with its meanings, sovereignty may not be the best descriptor for us to use when we are trying to understand present political economy and to release what have been historically repressed currency-creating powers.  

As a retort, one could persuasively argue that MMT has thoroughly transformed sovereignty’s original meaning by giving it a new and very specific set of definitions and criteria, none of which necessitate that we treat the modern-nation state as a self-standing and territorially bounded agent. 

To this we say: Fair enough! Our critique, then, may perhaps simply serve as a reminder that sovereignty’s semantic legacy is a problematic one. Maybe what we have to offer is merely a word of caution against perpetuating sovereignty’s unquestioned assumptions.  

But we can and do go further: The semantic baggage of terms like sovereignty has a tricky way of haunting new usages, even as they aim to outstrip their pasts.  

We see this around MMT, for example, when critics who, ignoring the nuances in the literature, conflate MMT with statism, as best, and autarky, at worst. 

It also comes from certain members within the MMT movement, who avowedly embrace MMT for ethno-nationalist politics.  

For this reason, we do recommend phasing out the language of sovereignty in order to avoid these problematic associations.  

Instead, we prefer to use the language of monetary “capacity,” “power,” “capability,” “agency,” or in some circumstances, “sustainability” and “resilience.”  

These terms, we think, better and more accurately describe what MMT is getting at in the first place.  

The largely unquestioned implications of sovereignty, we would also suggest, can hamper MMT from time to time, bogging us down in unnecessary contradictions.  

On one hand, for example, MMT stresses that money is an endogenous credit/debt relation, as opposed to, say, a finite thing, or a passive vehicle for individual preferences or an expression of commodified labor time.  

Money on this view is never recycled like a finite chit or embodiment of value. It is created from thin air by virtue of credit granting institutions endowed with different degrees of authority and receivability.  

On the other hand, however, MMT tells us that only sovereign currency-issuing governments have the power to create credit, while everyone else is condemned to be a mere user of credit that must recycle extant money throughout the economy.  

Such statements contradict one another.  

Which one is it? Is credit created from thin air through a hierarchy of money that extends in endogenous patterns from government to locality and across the globe?  

Or, is the government’s sovereign will the sole locus of infinite money creation, while every other person, group or institution must merely use and recycle said money as if it were a finite substance?  

The problem, here, I would wager is not that MMT is deep down just bluntly wrong or self-undermining.  

It is not wrong to emphasize the important and central role played by federal governments in organizing money.  

MMT does not undermine itself by explaining the hierarchy of endogenous monetary creation. 

The trouble is in tethering government’s role in the process to language and assumptions of sovereignty, permitting sovereignty’s absolutist and exclusionary logics to creep back in.  

This is what creates these puzzling and, frankly, needless contradictions in MMT.   

In truth, I would suggest that MMT scholars know damn well and express all of the time that state money and endogenous money are not in conflict.  

MMT scholars know that credit issuance occurs in heterogenous forms across global and local registers.  

While government currency issuers variously anchor these forms, we see myriad regimes of non-finite, non-recycled credit all of the time—from IMF Special Drawing Rights and Euro dollars to airline miles and Chuck E. Cheese tickets.  

The modern nation-state unquestionably plays important roles in authorizing, regulating and even informally sanctioning credit creation across these heterogeneous scales. And the nation-state is arguably the central institution with which we should now be concerned.  

But to take the nation-state seriously does not then mean that we must blind ourselves by naturalizing the fantasies of absolute independence and exclusivity baked into sovereignty as a historical term and concept.  

This matters not only for describing the current monetary systems of the world, but also for imaginatively transforming money into a more robust and democratic process.  

A great example of this is the proposal my colleagues and I have been developing for a public university issued credit system we call “the Uni.” 

The Uni, as we conceive it, would give credit creation capacity to cash-strapped public universities, which have been increasingly starved of funds by feckless state legislatures for decades. 

Extending what Hockett and Omarova call the “finance franchise” to public universities, the Uni would end austerity and privatization in public universities. It would also, on our design, increase the democratic agency of faculty, staff, students, and surrounding community members.

Perhaps the most mind-blowing aspect of the Uni, furthermore, is what it demonstrates about the plasticity of endogenous credit creation.

The Uni shows that no one is merely a passive user of a currency, that credit always precedes return and that, as a result, money as such is never driven by recycling revenue.  

This has tremendous implications for democratic monetary design, challenging us to imagine credit systems that transcend not only revenue constraints but also the profit motive.  

Instead of finance franchisees lending money that must be paid back, for example, we can establish granting institutions that disburse credit not according to a logic of quantitative payback but, rather, through a qualitative logic of communal and environmental obligation.

Crucially, we think, the Uni can serve as a generalizable model for similar projects elsewhere, revealing MMT’s still-untapped potentials for political and economic transformation in unexpected ways.

From one point of view, the Uni is fully compatible with and wholly stems from MMT.  

At the same time, however, we believe that the language and logics of state sovereignty that linger in MMT sometimes have a tendency to squelch such imaginative leaps and possibilities.  

Now, I’d like to quickly sum up before concluding:  

  1. I come in peace, which is to say, I’ve spoken with you here tonight in order to improve rather than to condemn MMT. 
  2. MMT’s spectrum of monetary sovereignty is important and persuasive on its own terms.
  3. Sovereignty is neither an innocent nor ahistorical synonym for the power of the federal government. 
  4. Sovereignty arose as a very specific term and concept, which sought to expel interdependence from political thinking and organization. 
  5. The logic of sovereignty is not only violent, but also false.
  6. We can and should appeal to alternative words to describe the world of monetary governance such as monetary “agency,” “power,” “capacity,” and others.
  7. Moving beyond sovereignty enables us to expand MMT and iron out some unfortunate limits and contradictions in MMT discourse.

Thank you again for inviting me to share our work at the Money on the Left collective. I am honored to have had this chance to walk you through our thinking and concerns. 

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