Episode 165 – Finding Mosler with Philip Armstrong

What a pleasure hearing Phil Armstrong tell us how MMT makes him feel supremely confident. He’s not afraid of going toe-to-toe with “experts” despite their credentials, because he has the right model. He has MMT.

Phil was teaching high school economics in Iowa before going back to the UK to get his Masters and, much later, his PhD. An interest in post-Keynesianism eventually led him to Mosler and the world of MMT. He has recently published his first book, Can Heterodox Economics Make a Difference? Conversations with Key Thinkers. He tells Steve that when he started working on the interviews, in 2018, most of the mainstream hadn’t heard of MMT. By 2020, when it was published, the profile of MMT had increased. Now everyone knows of it.

The episode revisits the many criticisms of MMT – we’ve heard them all – and demolishes them. As for Weimar, Germany:

“If you think about it, plausibly, if you imagine intelligent German bankers in the Weimar Republic — and these are bankers, they don’t like inflation. You tell me a banker who likes inflation. Never met one. So the idea that they came in one day into the Reichsbank when Havenstein gets the other guys, the chairman says, ‘Right, lads, crank up the presses. I just fancy causing a bit of hyperinflation.’ The idea is ludicrous.”

Phil talks about the failings of mainstream economics. After the 2008 financial crisis, with all its models having failed, one might ask why those models are still around. Phil has some ideas about that. Mainstream economics consists of mathematical modeling which has almost no relevance in the real world. Phil compares it to being an expert on the unicorn. You understand its biology. “When its horns are the wrong color, you know what to do; when its hooves hurt, you know what to do. Fantastic. The only problem is the unicorn doesn’t exist.”

He and Steve talk about theory – The T in MMT (which is the subject of our very first episode). They talk about the traps built into neoliberalism, and philosophy. Phil calls himself a realist social ontologist, or a critical realist. If you want to know what that means, listen to the episode!

From Phil Armstrong’s bio at Gower Initiative for Modern Money Studies (GIMMS):

As an Association for Heterodox Economics (AHE) member, Phil is a strong advocate of the need for pluralism in economics. He has spent the last 38 years teaching – in the main economics and business and lately, engineering. Phil is Post-Keynesian and a strong advocate of Modern Monetary Theory (MMT) and believes MMT provides both powerful insights into the way the economy works and how progressive economic policy can be put into practice.

@PhilArmstrong58 on Twitter

Macro N Cheese – Episode 165
Finding Mosler with Philip Armstrong
March 26, 2022

[00:00:03.810] – Philip Armstrong [intro/music]

I’m currently interviewing people from Warren’s past, and the one thing they all say about Warren is he sees things other people don’t see. In everything – in trading, in economics, in boat building, in the design of cars. But he’s very modest. He’s very kind. He doesn’t make people feel small.

[00:00:27.970] – Philip Armstrong [intro/music]

MMT is applicable to all the countries of the world. It explains it. It’s just that you have to see it in the sense that it pinpoints the problems in each of those systems differently.

[00:01:35.110] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.090] – Steve Grumbine

All right, it’s Steve with Macro N Cheese. And I am going across the pond. I’m going to be talking with a great guy, part of the GIMMS world. You know him as Phil Armstrong. And Phil is recently retired from economics teaching and now works part time in the engineering division at York College in the UK. He gained his Ph.D. in economics at the University of Solent under the supervision of Professor Nick Potts.

He is a strong advocate of Modern Monetary Theory, MMT, and has recently published his first book, Can Heterodox Economics Make a Difference? Conversations with Key Thinkers, published by Edward Elgar, and written several articles, which have been published in peer-reviewed journals. He’s an associate at the Gower Initiative for Modern Money Studies and a member of the Association for Heterodox Economics. And with that, welcome to the show, sir.

[00:02:41.840] – Philip Armstrong

Great to be with you, Steve. Always a pleasure to be part of a great podcast like yours. I’m really looking forward to talking to you and maybe having a nice conversation about MMT matters and other things. Should be great.

[00:02:57.430] – Grumbine

Absolutely. I’m looking at your book. We have transcripts for every one of these podcasts, and we have been flirting for a long time with some sort of a Macro and Cheese tome of all the interviews. And here’s a gentleman that took this great idea, did all these fantastic interviews and created a book. And that’s basically what we’re going to talk about today. That and, of course, we’ll get into your MMT roots and a little bit of background about who Phil Armstrong is.

[00:03:29.200] – Armstrong

Yeah.

[00:03:29.610] – Grumbine

But I guess let’s start. What gave you the idea to put together this book?

[00:03:34.690] – Armstrong

Well, it’s a bit of a long story, but, I mean, I did a degree in economics a very, very long time ago, and I started that in 1976, and I finished it in ’79. And then I went into teaching economics, and I just taught high school economics, what we call A-level here in England, and I taught A level economics for a lot of years, did have a year in the USA teaching high school economics, which is quite interesting.

Just as a little aside on that, I was in Iowa and I was teaching seniors and juniors economics and the classes were all full, in every single class. And when every time I was speaking, all the students are silent and I thought, wow, this is great, they’re loving their economics. So anyway, I’ll be talking about whatever it was, demand and supply, macro policy, and hanging on me every word.

I thought, this America, this is the place to be. And so I said to one of the students at the front and said, you must be loving your economics, you guys are just hanging on me every word. And she just said to me, “Oh, we aren’t interested in economics, we just love your accent!” So pardon my little poor American accent, but I learnt then that it was just the way I was saying the words.

And obviously being Iowa, they said that themselves, that foreign people don’t go to Iowa, they go to California, Florida or New York. So I was a little bit of a mini celebrity there, a mini celebrity. So I enjoyed my time in the US. And then coming back to England, I did a Masters in the 80s and I got acquainted with post-Keynesianism. And then I kind of kept up a bit with post-Keynesian stuff.

And with the financial crisis, my interest developed a bit more and I got back into my economic theory, if you like. I spent some time as an alumnus of Leeds, going to their staff seminars. I enjoyed that. But I knew post-Keynesianism had quite a lot of insight, but there was something missing. I didn’t quite know what that something missing was.

And then I came across a guy you know very well, a guy called Warren Mosler. You know the great man. So I emailed him and I asked him a few questions and no matter where he was, he would send me a little answer to my question; short, sharp, with a little “from myself” underneath. And I kind of learned about MMT from Warren.

And then I got to know about this Gower Initiative and I joined them and they’re obviously a great movement here in the UK for putting forward MMT. And then another thing I decided to do was to do a PhD in late middle age. I met this guy, Nick Potts, who’s a professor. He’s a Marxist, but he’s very interested in MMT. So we worked together on something around the MMT idea.

And I had this sense of could MMT work with other heterodox schools and in what way? So my PhD was based on qualitative research. And as you mentioned, Steve, about the interviews, I interviewed economists from a whole range of schools. MMT is, of course, Warren. I interviewed all the major MMT kind of “big three,” Warren, Bill and Randy Wray, also Martin Watts and James Juniper.

Plus people who are not MMT, even MMT critics like Thomas Palley, for example, Austrian school guys, mainstreamers, central bankers just to see what people thought about heterodox economics, whether they’d heard of MMT, whether they thought heterodoxy could work together for the mainstreamers, did they consider heterodoxy a threat, these types of things.

And that was really my research. It was about the status of heterodoxy overall, to what extent were the different scholars contradictory, and the extent to which MMT could work within heterodoxy, however defined. And it was a very interesting exercise for me. And what was interesting is I started interviewing people in 2018, and most of the mainstream guys hadn’t really heard of MMT.

But by the time I was publishing my book in 2020, everyone had really heard of it. So in that two year period, the profile of MMT had really increased. And obviously what comes out (is) a lot more criticism as well. So you’ll have noticed that it’s in the press a lot more, financial journalists will be more critical. I mean, all that criticism is not much good. They’re all easily dismissed, in my opinion, anyway.

At the end of the day, the profile of MMT is really increased in that period, and that’s been really exciting. So really the book is the qualitative research of my PhD. So my thesis is like that research plus the analysis. And Edward Elgar obviously agreed to publish the interviews. They were rather longer than Edward Elgar wanted. But I said, well, if you’re going to have one, you’ve got to have them all. They said, okay.

And I was allowed a little bit of leeway for a conclusion and an introduction. But obviously, if any of your listeners are interested in the thesis, which is the analysis of the interviews, then that’s obviously published. And I can give you a link to it if it’s working. And look at the whole thing. That’s the deal with the book. It’s done okay. It’s too expensive. Hadn’t sold as many as I woulda done if it would have been cheaper. And that’s kind of just the way it is with academic books, I think.

[00:09:34.810] – Grumbine

Yeah. Unfortunately, Steven Hail had written a book. It was quite expensive, well over $100. And then Steven Williams, who put together a collection of heterodox thinkers working toward a synthesis for ecological economics. His book is quite expensive. So it’s very challenging to get the literature in the hands of regular people because most people are not going to be able to afford $100. So hopefully podcasts like this and the MMT podcast with Patricia and Christian can help dispense this information in a way that can be consumed and used.

[00:10:14.420] – Armstrong

Yeah.

[00:10:14.850] – Grumbine

So how did you even hear of Warren Mosler?

[00:10:17.950] – Armstrong

Oh, well, it’s quite a funny story in itself, like most of these things are. When I did my Masters in the 1980s, there was a guy that taught me at Leeds, there’s a guy called John Brothwell, and he was mad on Post Keynesianism. He’s so enthusiastic. He was a quite eccentric lecturer. He’d flail his arms around and covered a blackboard in chalk.

And he was always talking about Post-Keynesianism being great and how it explained the world. This is kind of mind bending for me because when I’ve done my first degree, it was all like indifference curves and isoquants and stuff. And it didn’t really have much to do with the real world. But Post-Keynesianism, this seemed quite exciting. And the guy that he talked about a lot, John Rothwell, was a guy called Paul Davidson, who is like one of the leading post Keynesians in the world and probably the leading US, if you like, financial post-Keynesian.

So he’s quite a leading figure. And I bought a lot of Paul Davidson’s work. I was in touch with him quite a lot by email, but I’d never heard him speak. So I thought one day on YouTube, I wondered if anything existed of Paul Davidson. So I put Paul Davidson into YouTube. And the only thing was out at the time, and this is about 2009, 2010, that’s the time. The only thing that came out was “Warren Mosler introduces Paul Davidson.” That was it. The only thing.

So I listened to this and this sort of guy with a very self effacing sense of humor that we were later know about as our very own Warren, came out and gave a little introductory speech about Paul. And ironically, it cut off after that. I never really heard Paul anywhere. But to answer your question, I thought this Warren Mosler guy seems quite interesting. I was quite curious, who is Warren Mosler?

So I Googled it. I emailed someone in his office. I can’t remember who it was. And she said to me, oh, you can just email him directly with a question. I thought, are you sure? She said, yeah, just email him at this address. So I did. And I asked him a question and he answered me straight away. As I said, he gave me a little answer. So I said something like, do taxes fund spending?

And he went, no, or whatever. And I said, can the government control the long term yield curve risk free? And he goes, yes, and it would do this. And that was it. And then I said, what about the liquidity trap? And he goes, It only applies under fixed exchange or whatever and so on and so forth. So that’s how it happened. It happened because of this interview.

And if any of you listeners want to check it out, a young Warren Mosler. It’s not very good audio quality, not as good as yours, Steve. But if you want to put into YouTube, Warren Mosler, that’s the beginning of my MMT story. And then I got into MMT. As I said, I was already going to these things at Leeds, which is quite a hetrodox University, one of the most heterodox and outward looking universities in Leeds.

I was part of their staff seminar group just because I was an alumni of the place. And then I met Martin Watts, the co-author of the textbook, because he came to give a talk and I got to know Martin and then through him got to know Bill. I met and talked to him in Brighton and also the GIMMS launch. Slowly but surely, I built up the knowledge of the main MMTers.

And when I interviewed Randy Wray for my book, I actually traveled to Italy and he gave me accommodation in his Italian flat. We had a good chat to each other and that was nice. So I’ve got to know the MMTers quite well. But it all began with that little chance look at that YouTube video. And without that, well, for me, history might have been different.

I certainly wouldn’t have done a PhD because I didn’t know enough about anything. After a 31-year gap when I was not in academia, I was just a high school teacher, that I was able to write a PhD. And in a way, that’s a compliment to MMT because the fact that I can go and meet all these top professors in interviews just as a high school teacher and out-maneuver them.

Well, how is that possible? Well, the only answer you get is I’m not cleverer than these guys. I’m not of their education. I’ve not been (to) Oxford (or) Cambridge, and I’ve not been to Ivy League University in the US. The reason I can out-maneuver them and more than hold me own is because I learned MMT from Warren. I’ve got the system right.

[00:14:57.550] – Grumbine

Yeah.

[00:14:58.000] – Armstrong

And one of the things that people say to me, well, how do we know you’re right? Well, it’s because, how else can I out-maneuver these guys? One of my favorite little stories is, if you imagine that you were an astronomer who understood Copernicus and you understood the Sun’s in the middle of the solar system, even if you weren’t a great astronomer, you’d still be better, wouldn’t you, than a really clever guy who was a geocentric guy.

If he thought the Earth was at the middle, he might have all the books and manuscripts and laws, you’re still going to beat him. Because you’ve got the right model. That’s what gives an MMTer a huge advantage. My wife laughs at me because I’m always confident. You can give me a Nobel Prize winning mainstreamer or an expert in [vertical equilibrium] we talk about ISLM models and the DSGE models, and I just go in and meet them whether I’m right or not.

I don’t know. I’m always supremely confident, ’cause I’ve got the right model. I don’t think I’ve lost yet. Some of these mainstream guys might think they got a draw, I don’t know, but I think I beat them every time. You know what I mean? They won’t come out and face me, though. You see, this is me problem, Steve. They won’t argue with me because they think, well, I can’t beat this guy, but I’m getting no humor.

[00:16:22.710] – Grumbine

It’s kind of like the black knight at the gate at the bridge. Come on, fight me.

[00:16:30.430] – Armstrong

And it’s exactly that. It really is. You’ve seen the film, so that’s kind of the deal, really.

[00:16:39.550] – Grumbine

You go back to those videos that you introduced yourself to Warren on by meeting Warren in a YouTube video, you can appreciate what I, learning MMT through the interwebs, and the grainy video, the terrible audio. You had nothing but white papers, maybe some articles that you had to really dig to find. And then you had New Economic Perspectives, where Randy was prolific, Scott Fullwiler, that whole gang.

But back then, when I was learning MMT, there wasn’t any convenient podcasts. There weren’t any memes for people to use and learn easily. There weren’t the short animated videos that people can watch a couple of minutes. There wasn’t a Stephanie Kelton Deficit Myth. There was, however, Seven Deadly Innocent Frauds and the Soft Currency Economics book. And there was Randy Wray’s Modern Money Primer that you could get in the New Economic Perspectives. But that was about it.

[00:17:38.370] – Armstrong

Yeah.

[00:17:38.640] – Grumbine

And I mean, of course there was all the wonky stuff, but nobody’s going to read that stuff. Not even a person in college unless they’re forced to. So with that in mind, learning this stuff, you had to really want to learn it!

[00:17:49.830] – Armstrong

Oh, yeah. Those things that you mentioned, Soft Currency Economics. I mean, I read that. I reread it. I read Seven Deadly Innocent Frauds. I got Warren to send me a thing to stick in it, signed. And basically, my copy of Understanding Modern Money, Randy Wray’s ’98 book, that’s going to be one of the most read books in the world.

[00:18:15.480] – Grumbine

Indeed.

[00:18:16.110] – Armstrong

I read, I reread. And what was interesting is when I first got that book, I ignored the bit about money at the beginning, and I just concentrated on MMT. It’s mind bending for an economist. I’m just nodding “yes, yes!” So all the things I couldn’t quite work out, it answered, and it’s fantastic! And then I got into the money stuff because I’m really interested in the ontology of money and the stuff written about Innes and The Credit Theory and Knapp and The State Theory.

I’m really interested in the money side of things as well. So I went back into that. And that’s why I call them the big three, the elder generation, Warren, Bill, Randy. And they all are slightly different. They all approach MMT slightly different. Warren’s genius is unique. He’s a polymath. I may have mentioned on Twitter that I’m currently trying to write Warren’s biography.

[00:19:13.150] – Grumbine

Wow.

[00:19:14.030] – Armstrong

This is going to be a massive challenge because I’ve never written a biography. I’m currently interviewing people from Warren’s past. And the one thing they all say about Warren is, he sees things other people don’t see, in everything. In trading, in economics, in boat building, in the design of cars. But he’s very modest. He’s very kind. He doesn’t make people feel small. He is an incredible guy.

So it’s a great honor for me to do that. It will take me a while. That’s Warren, then you got Bill, and Bill is like the most prolific writer, if you know. And I love Bill’s politics. I just love the way he looks at history, what output this guy has. And he is a truly great academic. And then you move on to Randy. Randy can be a bit prickly and rightly so with the post-Keynesians from that background.

But, boy, he understands all about money, the ontology of money, the nature of money. And for somebody like me who loves that already, credit and state theories of money, 2004. So those three guys, for me, they’re the big three as they laid the foundations and the new generation, now picking that up: you have Pavlina, Stephanie, of course, and others. Fadhel [Kaboub].

And the new guys are coming to learn about, as you say, Steve, they’ve got the big founders and they’ve got the new stuff, all the stuff that you’re doing your great work with Macro N Cheese. And then Christian and Patricia over in the UK, the work that Dirk does as well in Europe. Fantastic scholar, Dirk Ehnts, you may know. I don’t know if you interviewed him.

[00:21:04.450] – Grumbine

Yeah, we interviewed him.

[00:21:05.760] – Armstrong

Fantastic guy. He was one of my PhD examiners.

[00:21:11.590] – Grumbine

I got to tell you, this is a shout out to another OG that frequently gets overlooked. And that’s Matt Forstater, who is very much critical to pulling all these people together. And Matt Forstater is a trailblazer in his own right. And he has been able to merge a lot of important things, especially race and other things that have contributed heavily to inequality. I love the whole gang. It’s just an amazing group of people.

[00:21:40.590] – Armstrong

Yeah.

[00:21:41.830] – Grumbine

This is my first time getting to talk to you, though. I know who you are and I followed your work. This is really an honor, quite frankly, to be able to talk with you. I remember when Bill Mitchell came out there to the GIMMS kickoff. I also remember what I consider to be very important delineation points. And I start with Bill Mitchell’s book, Reclaiming the State.

[00:22:05.560] – Armstrong

Yeah.

[00:22:06.080] – Grumbine

One of the things that really is important here for all of us to understand, it’s not just neoclassical economics that we’re up against. We’re up against the concept of neoliberalism as well, which has a definite agenda. And it uses economics to fulfill its purposes. It uses theory. It uses things that they know to be incorrect to advance their privatization schemes.

And you see that in the UK with the NHS, in the United States, even as we speak, Biden trying to privatize Medicare. So MMT is a global project. But in the beginning, and this is where I’m going, even though Bill Mitchell is one of the Big Three; frequently, one of the lies that are thrown at the MMT community is that it’s just an American phenomenon and that it doesn’t have a place in the global stage.

And we know that to be incorrect. But the UK didn’t have strong academics that were supporting the MMT movement until you and GIMMS and some of the best stories come out of Italy from Warren Mosler’s time with the Lira. How do you see the global movement for MMT through your lens as someone in the UK? How do you see that transpiring now that you’ve done so much research, especially with the book that you’ve written?

[00:23:25.750] – Armstrong

Well, I’m also an optimist. MMT explains how everything works. It explains how the system works under fixed exchange rates and the gold standard, as you know all too well. It explains how the system works when you’ve got your own sovereign currency and the floating exchange rates, which most countries have. And it also explains how it’s real constraints that are binding rather than sort of financial constraints.

When we have the last type of monetary system I mentioned in your floating exchanges, your own sovereignty, nonconvertible currency, etc. So MMT is applicable to all the countries of the world. It explains it. It’s just that you have to see it in the sense that it pinpoints the problems in each of those systems differently.

So what a lot of the critics do is they look at what MMT says about America and then say, oh, yeah, but it doesn’t apply to third world countries or developing nations or didn’t apply under the gold standards. As if we don’t know that. Of course, we know that. It’s in all the MMT literature that if you are real resource poor, even if you did achieve full employment and if the government used it exactly the right type of…

Understood MMT and developed policies that follow from that to maximize their output and full employment sustainably, et cetera, it still might not be able to produce all the food and essential resources it needed to. Of course, we know that. And there may need to be real resource transfers from the global north to global south.

And obviously, you know, well, Fadhel [Kaboub] is a good friend of ours. He’s written a lot about that. So basically, MMT explains all the problems or brings it to light what problems are. And if you like, calibrates the menu for your choices. As you know, it’s not a set of policies. It’s an explanation of what’s happening in different types of systems and different types of countries with different sets of real resource allocations. And that’s why I think it’s got real potential. The thing about it is, Steve, it needs a generous audience who will read it in that way, you know.

[00:25:55.350] – Grumbine

Yes.

[00:25:55.820] – Armstrong

So it’s developed predominantly in the US and in Australia. But if you read it and you understand it, you realize it applies across the world through all things because it’s nuanced; it hasn’t just got one thing fits all, and it opens the door, I think, and it will take a while because there’s a lot of inertia in people’s thinking.

And this comes across in my book, and it’s well known people hang on to established theories perhaps longer than they ought to. And certainly in the UK, there’s not enough academics who grasp MMT, if any. The best European MMTer that I know of is certainly Dirk. I don’t know of any guys who would self-identify as an MMTer working as a professor yet in a University.

But I’m hoping if there’s anyone listening out there from the UK or even America, and you think, I’m just going to get my PhD and you’re a bit younger than me, preferably 40 years younger. And you fancy coming to a British University and being a chair and pushing MMT because it’s what we really need in the UK, and we need it around the world. The theory is there, in my opinion, wins every time.

It’s a far superior theory to mainstream; explains better. You understand the world better when you’ve got an MMT lens and a mainstream lens. So really, the intellectual war in many ways is won, but we have to reap the rewards of that win. We haven’t really won until students are coming into universities holding up a copy of Mankiw’s book and say, hey, Professor! I found this old book. What’s this?

It’s covered in dust, you know. And the professor says, “Oh, it’s something from economic history. Quite interesting. People used to believe all that.” And the student says, “you’re joking.” “Oh yeah, they did,” then hands over the 12th edition of Mitchell, Watson, Wray and goes, “Now, let’s get back to the real stuff.” And that’s what we’re looking for.

But in answer to your question, globally, it’s moving, maybe not as quickly as we want because we’re fighting against inertia; the mainstream wants to stay where it is. People have got good careers as professors. They don’t want to change; politicians, many of the time, they don’t really understand economics, but the system as it is suits them. So they don’t want to change it either.

They got an inkling that MMT was right. They want to attack it because it damages their career. So really, it’s going to be difficult to push. But we’re getting there. And I often talk about Star Wars, if you think about the mainstream as the Death Star and MMT, we’re those guys, that ragtag Brigade  Yeah, we haven’t quite blown them up yet, but we’re taking off and we’re gathering for the Final Assault. And we got Warren. He’s Obi Wan.

[00:29:13.330] – Grumbine

That’s perfect. Warren Mosler is definitely Obi Wan. I guess I’m Jar Jar Binks, right?

[00:29:19.250] – Armstrong

No, no, you’d be Han Solo.

[00:29:24.160] – Grumbine

I’m cool with Han Solo.

[00:29:25.970] – Armstrong

Yeah.

[00:29:37.750] – Intermission

You are listening to Macro and Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or modern monetary theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube, and follow us on Periscope, Twitter, Twitch, Rockfin and Instagram.

[00:30:28.790] – Grumbine

Our very first episode was putting the T in MMT. And we’ve got a lot of philosophers that tell us this needs to be renamed. But when I talked to Bill Mitchell, he locked the door on that for me, even though he wasn’t the one that came up with the name. It is a true theory, a series of conjectures that come together.

This is a theory in the most true sense of the word, like the theory of relativity or gravity. But to Bill Mitchell’s point, the only law is that we die. And so a theory is an elaborative collection of logical conjectures that you can see, repeat and you can make some solid observations based on these conditions. Talk to me a little bit about your understanding of theory.

[00:31:19.430] – Armstrong

Yeah. Well, you go into philosophy of science, really, which is what we’re touching on. What I think is quite interesting is, the point of theory is, that it explains something. Now, by that, I mean, when you understand the theory, you go “ah, I get it now. So that’s how it is.” All right, now, sometimes, when you have a theory that explains, it can be counterintuitive.

So what you do is you check whether or not the things the theory predicts is going to happen, do happen. And if they constantly fail over a long period of time, the expectations the theory gives you don’t happen. You begin then, don’t you, to lose confidence in that theory and you move to an alternative.

Now, I learned if you listen to that Kuhnian view of science—really theories, they’re an abstraction of reality that enables you to better understand the totality of reality. Now, you might say, well, where does it start? In your mind? And now there’s lots of different views. But I believe in this idea of retroduction, and it’s a way of inferring things.

So just to give you an example, in MMT, how that would work. You look for something that stands out, if you like, in the flux of experience is a fancy term for what’s happening around you. Just take one simple example. All the mainstream economists, without exception, said after the global financial crisis, there will be a rise in government deficits, and that would drive up long term interest rates.

The old thing, big deficits, more borrowing, higher interest rates crowding out. We heard all of that. So that was an expectation. And yet in every single major country in the world which had its own currency, I’m not talking about Eurozone countries. And even there, it’s slightly complicated. But looking at the US, the UK, Japan, Australia, Canada, all of them, despite massive increase in deficits, the long term interest rate went down, in ’em all.

Now, to me, that is what I call like a major falsification of mainstream economics, but it’s entirely consistent with MMT’s model. When there’s excess reserves in the deficit, it will drive the interest rate to zero. And the long term rate is simply built on the expectations of what people think is going to happen to the short term rate, and the government can control the whole yield curve as it wishes.

So everything that happened according to the MMT lens was perfectly well explained, whereas the mainstream model had no ability at all to explain reality. So people are scratching their heads. Now at that point in economics, you have this idea of the ceteris paribus condition, where all other things being equal. So what the mainstream has said, well, “unforeseen circumstances.”

So they start to make little amendments; “Oh, well, we kind of made a little bit of a mistake and we’re going to put that right.” Now, to me, that’s bad theory. What they did was they behaved like a pseudo scientist. Their theories were falsified, but they just carried on regardless. They just kind of came in the next day and pretended the global financial crisis…

[00:35:03.980] – Grumbine

Kind of like Milton Friedman did with the quantity theory of money.

[00:35:10.470] – Armstrong

Yeah. It was disproved so they made something up. And obviously the paper that Warren and I wrote…

[00:35:13.260] – Grumbine

On hyperinflation

[00:35:14.810] – Armstrong

On the Weimar hyperinflation.

[00:35:17.790] – Grumbine

Yes.

[00:35:18.870] – Armstrong

And if you think about it, plausibly, if you imagine intelligent German bankers in the Weimar Republic — and these are bankers, they don’t like inflation. You tell me a banker who likes inflation. Never met one. So the idea that they came in one day into the Reichsbank when Havenstein gets the other guys, the chairman says, “Right, lads, crank up the presses. I just fancy causing a bit of hyperinflation.”

The idea is ludicrous. And if you actually look at the figures, if you look at the data, the increases in the money supply always lag the price level. The price level goes up first. And then the Reichsbank was forced to print the money to allow the system to operate at that. If they didn’t do that, the whole system would crash.

And if the original forces which drive up the prices still exist, well, next time you start doing it, your economy is in ruins. So it was an agonizing decision for the German authorities to allow enough money to be printed so the system didn’t crash. And the great writers of the time, Helfferich, apologies if people have good German pronunciation better than mine. They all knew that at the time.

And this ludicrous idea that the quantity of money is exogenous and people just chucked more money and it caused inflation. It is totally ridiculous when compared to empirical evidence sequencing. It’s got so many holes in it, it’s like Swiss cheese. The natural question you would ask, I think, is if what I say is true – so the mainstream was categorically falsified by the financial crisis; all its models failed – why is it still there?

Well, I would argue (and this comes out in my thesis in a way) what mainstream economics has done is got rid of all of the alternatives. So that in a sense, heterodoxy is so marginalized that it’s very difficult for people to switch to other theories because they’re not on the table. It’s very difficult to move. And a lot of the great economists are kind of pushed into, like, business school, you know what I mean?

Or maybe economic geography, because mainstream economics is all this mathematical modeling which has almost no relevance to the real world. And I was talking to a guy in my book, he’s very, very good at maths. And he says when the mainstream economists say they’ve proved something with math, they’ve just proved it in the context of their model. It doesn’t have anything to do with the world.

I guess you could say, well, if you understand the biology of the unicorn really, really well and you’ve studied the unicorn, you understand all about the unicorn. You’ve got it all written down. Great. Fantastic. It’s all logical, makes sense. When it’s horns of the wrong color, you know what to do; when it’s hooves hurt, you know what to do. Fantastic. The only problem is the unicorn doesn’t exist.

So that’s really what the mainstreamers have made up, a world that’s kind of like ours, but not quite. Their theories work for that world. And because our world is quite similar to theirs, most of the time they get away with it. When our world shows itself to be different to theirs, like if it was a horse and it suddenly got ill, their biology of the unicorn doesn’t work.

And that’s what happened to them in the financial crisis. There was a divergence and their models were all useless. And how they got around that—quite cleverly, by reinventing it as a government crisis. And that goes back to this neoliberalism thing that you talk about, Steve.

[00:39:30.810] – Grumbine

Yes. The reality of it is most people because the orthodoxy has a stranglehold on the Academy, the journals, and the universities, with very few exceptions for heterodox thinking. And so they have learned this bastardized economics and worse. You spoke of your friend that is a Marxist, but I don’t think Marx said this is the way it’s always going to be.

I think Marx tried to take a scientific approach to things, even if he got some things wrong. And Marxism would elaborate with that as well. It would change according to the material needs and conditions of the time. But we’re seeing new synthesis come out even now. The “money on the left” gang is looking at a new philosophy to marry realism and other things with that as well.

So things do change as systems change. Somebody’s got to ensure that we have a correct mapping of the new systems and how they connect. And so my explanation of people—and they ask me what is MMT—MMT is a description of currency, period. Wherever it is, however it is, it’s a description of monetary and fiscal operations, and it’s a lens. So if you tell me that we’re back on the gold standard, MMT would describe that.

It would describe any changes to the functional system, and the theory itself would continue to grow and change depending upon the nature of the system. So a lot of people think that if you say it’s theoretical, then that means that it’s not really real. And it’s that layperson misunderstanding of the term “theory” that I think is so dangerous because it is a theory. What are your thoughts on that?

[00:41:10.950] – Armstrong

I agree with you. I think there’s kind of two aspects of that. I think MMT does all the things you say. You put it very correctly, very eloquently, Steve. And I think there’s a narrative fixation in economics at the time by Edward Fullbrook, and he talks about the statue of David. And when you look at the statue of David, it depends (on) the perspective you take of the statue.

Heterodox schools take different perspective of the economic system, and therefore, at least in principle, they are complementary. And I’m not saying there aren’t a lot of scholarly disagreements, these sorts of things, but they can, in my opinion, potentially work together. And the one thing that they have in common is they’re based on this realist social ontology, a desire to understand the world as it is, as opposed to mainstream economics, which is not based on the world as it is.

It’s based on formal deductivism. In other words, let’s start with a load of self-evident truths which are very debatable, whether they are self evident. But they said they are – utility maximizing agents, the world is atomistic – and then they just develop models from that. So to me, there’s great potential for people who come from a Marxist perspective, old institutionalist, post-Keynesian, MMT, ecological—to work together. But it won’t be easy to do that, but it has potential.

Like Nick and I – who’s a TSSI Marxist. This means temporal single system interpretation with lots of different types. And he’s into Marxist value theory. We’ve written things together, some of the things that are on GIMMS. We don’t agree on everything, of course, but we have some commonality. So that’s the important thing about heterodoxy, not like glossing over the thing we don’t agree with.

We don’t do that. But there will be disagreements, scholarly disagreements, as there will be even within schools. And so to me, it’s a matter of looking where you can work fruitfully together. Sometimes you can’t. And to me, MMT is the best, bar none, at doing what you said, understanding the nature of money and the nature of monetary systems. That’s what it does better than any other school. And there are things that it can work with in other schools that MMT doesn’t talk about as much. And that’s absolutely great.

[00:43:49.590] – Grumbine

Let me ask you a question. We do talk philosophy, but we’re not a philosophical podcast, although I’m not afraid to go there. There are some concerns about the relevance of Hegelian dialectics, historical materialism and dialectical materialism and realism. I see critique on realism and dialectics. What are your perspectives of marrying the two? Are they compatible or is there something that can be learned from both sides? What do we have there?

[00:44:22.450] – Armstrong

Well, that’s a very interesting point. And personally, I am not in any way an expert on anything on philosophy. I’m not an expert in things like dialectical materialism. I have a working knowledge of it. And I’ve certainly not been able to wade through a lot of Hegel because

[00:44:43.720] – Grumbine

It’s tough. [laughs]

[00:44:44.620] – Armstrong

This guy is hard work. My daughter’s doing philosophy and she’s been doing Marxist critical theory and looking at Hegel and I know guys that have. So, on that, I haven’t focused much upon things like dialectic materialism. I get the idea of a basic dialectic, the idea of the thesis and the antithesis, the synthesis moving forward. I think it’s a lot in that on a very sort of basic route. So I’m not dismissing that.

I haven’t studied academically the link between the two philosophies, but I am what’s called a realist social ontologist, or a critical realist. And by that I mean, I would first say that whenever we do any study, we make presuppositions about the world. And I would say that in the social world there are processes and mechanisms that lie and they are distinct from our knowledge of them, if you see what I mean.

That makes sense. Now these processes and these systems result in events, and these events are studied in what’s called a transitive domain by scientists—in our case, economists. Now it’s hard work, is science. It’s a social project. And what you’re really trying to do is you can’t do controlled experiments. So you’ve got to look at what you see in these events, and they don’t happen all the time.

That’s the thing. It’s like volcanoes erupt, but they don’t erupt all the time, fortunately. So you’re looking at the events in this what’s called an intransitive domain, not the scientists’ work. So what happens is distinct from what we know of what happens. We’re not committing what’s called the epistemic fallacy, if any of your listeners have heard of that.

So what you’re thinking about is what do I think is happening here? So you posit mechanisms about what you think might explain what you’re seeing. You see what I mean? Now, to me, that’s what MMT does. So someone like Warren will see something happening, an event, and he’ll posit a mechanism and develop this mechanism in his head. And then when he thinks about the mechanism, and obviously going—moving forward—into the MMT community, we’ll look at events.

We’ve got mechanisms that we’ve developed in our head, the so-called MMT lens, and that explains what we see. So when we get things like, for example, massive government deficits, when countries have got non-convertible currencies and floating exchanges, all the interest rates go down, not up. We know why! Because we’ve posited the mechanisms to explain that.

Now to me, and this is any type of economics that’s based on that type of realist social ontology, of that type of method of mode of inference, has got potential. Not saying it’s easy, to work together. If some guys are just doing some sort of formal deductive mathematical modeling, then they can’t work with that because there’s nothing about the real world in it. I work for a good friend of mine.

He’s a very nice guy. He’s a mainstream economist. And I proofread mainstream journals and they’re just full of mathematical symbols. But there’s nothing much about the real world. They’re all like here’s four agents. They’ve got different degrees of information about each other. What will happen if… So they imagine a world which is like a giant auction, quite often, not in every paper.

And what will happen with different degrees and restricted information. So they’re kind of quite interesting mathematical puzzles. But are they applied to the real world or not? In my opinion, not. And mainstream economics achieve, in my opinion, very little. That’s a bit hard, it’s a waste of good minds. And in answer to your other question about theory, some people use it “well, in theory it works,” you know, and I think it’s just artificial and it’s inhuman where we are, isn’t it?

“Ah, well, it works in theory, but not in practice.” There are all these little phrases we use, but theory really should simply do what I said. It should explain things so that when you understand the theory, you understand why what’s happening. So when you understand MMT, the fact that all those interest rates all fell all makes sense. Whereas before, if you only understood mainstream, you’re scratching your head and go, why did that happen?

That’s no good. And another thing I think is really funny, if you’d say “the model. Right. Okay.” You know, this idea of mainstream, and say that the real economy, the real, if you  like, creator of real wealth, is the private sector. And then the state comes along and sort of pinches real wealth off it. And “taxes fund spending.” In that sense, money is an invention of the private sector, and the private sector magically creates money.

And then, like some sort of pirate, along comes the state. And you’ll hear all this time “government debt is bad” and “taxes fund spending,” “We can’t afford Medicare” and all this stuff. Now, if that was true, if that’s true, if we had a financial crisis, logically, shouldn’t it have been the government that are going to all the businesses, shouldn’t it, because they just said they’re the guys that create all the stuff.

The government is just like a parasite. So logically then, the US government, the Federal Reserve, the bank of England, the UK treasury, we should have all been on our knees begging big business and big banks like Lehman Brothers to give them some money. Did that happen anywhere, Steve? Anywhere? No,  of course not. Because in a crisis, the great thing about a crisis is it reveals things, doesn’t it?

Like if you’re driving along and you’re going at 20 miles an hour and your brakes aren’t very good, well, you might get away with it. You’re going downhill at 75, you need it. When we had a financial crisis, all the big banks all went on bended knee to the Fed in the US. And Ben Bernanke’s famous thing. You’re listening. Was that taxpayer’s money, Ben?

No, he’s got a computer and we marked the numbers up. So we all knew then. Oh, all of that is complete tripe, phrase we use a lot in England for something that’s nonsense. Obviously, the government issues a currency. So the idea that the government feeds off the private sector, it’s obviously nonsensical. And this feeds into what you were talking about because neoliberals latched onto that.

They know the state is the issuer and they sort of use the state as a cash cow and they’re soaking up state of public money for their own purposes. And the idea that taxes fund the issuer. I mean, if you think about it, it’s the most ludicrous idea in the world. Warren talks about, like, a bus token. You can’t give a bus token back. The bus company doesn’t go and collect tokens before it’s issued them.

A Roman Emperor didn’t go hunting round for his own coins before he actually told the bloke to mint them, particularly since anybody minting Roman coins without the Emperor’s permission would probably be executed. The whole idea of that… And you know, this magic money tree, it’s not MMTers that use that, it’s the other guys.

They’ve got a magic money tree. You got a magic money tree in the private sector. So the private sector, apparently using this magic tree that doesn’t exist, can all get ahold of state money—you guessed it—before the States actually printed it. Now that is a great conjuring trick.

[00:53:21.030] – Grumbine

(Laughing) Indeed it is.

[00:53:23.070] – Armstrong

I love that question. You just look a mainstreamer in the eye and ask them quietly and politely, “where does the non-government sector get the dollars or the pounds to pay their taxes?” And they “um and ah” a bit, and say, “Oh, well, it’s a circular system.” And often they’ll say, “you’re being too theoretical.” That means “you’ve got me.” I said, “if you get a bucket of water, can you pour water out of a bucket before you put the water in?”

And I like being a teacher with a naughty student, you very politely ask the same question. I don’t know if you know much about teaching, but if the student won’t do something, just (say) “Right. Bill, I want you to do that work I set you, my friend… do it right, Bill…” Keep on doing it politely and quietly, and that’s what I do in mainstream, until they give up because they can’t explain how something can get into the system before it’s been put there. And it’s the $64,000 question and they can’t answer it. That’s why they’ve lost. They wriggle a bit, Steve.

[00:54:29.850] – Grumbine

They do indeed.

[00:54:31.520] – Armstrong

And we can’t quite get ’em, you know?

[00:54:34.110] – Grumbine

I want to take you on one final thing before we close out. In the UK a few years back, Grenfell Towers burned down. A lot of people died. And this was about privatization and austerity, two components of neoliberal and neoclassical world views. And my tagline on Twitter is “austerity is murder,” because I’m trying to normalize that word.

I’m trying to get people to think about the world through the terms of austerity because I know, in Europe, austerity is a word that is used very frequently. But in the United States, we just assume that just means that you’re a taker. And so for me personally, I found my pathway with the suffering people. I’m talking to people that are materially in harm’s way, that are the vulnerable and who often are ignored.

For me, this is my gateway into breaking MMT down to where the people that are suffering suddenly say, oh, MMT does matter. And they’re not particularly polite, because they’re dying. So in communicating with different communities, they have different messages that they must hear to get to the point of MMT making a difference to them.

A lot of them are just innocent. They don’t understand. And the best way to get to them is, however that conversation works out, whatever that way is. How do you help everyone understand that every message is not for everyone. What are your thoughts about messaging?

[00:56:02.070] – Armstrong

Well, it’s a complicated issue, but think about the Keynesian revolution. If you think about the New Deal, like in ’32 or ’33, that’s before Keynesian general theory, because people know in many ways what they want. And obviously, the New Deal is something that’s very beneficial to the US economy. So what Keynes’ theory did, it explained why it would work. It justified it.

Now, if you move forward to the future, if you approach a guy and you say, well, I’ve got people living in cardboard boxes, and I’ve got African Americans who aren’t getting the opportunities they want. I’ve got people who can’t get insulin. I’ve got people who have got a lot of student debt. Can we solve it? And then the guy leans over his table and lifts his glasses and says, Look, Steve, I get it, but we can’t afford it.

Now, that is where MMT is your big thing, because you look him back in the eye and you say, “you’re the currency issuer, you can afford it.” There’s an old saying, “if you don’t want to do something, don’t explain all the complexity about why you don’t want to do it, just say you can’t afford it.” So you blow that open.

So somebody says, “Right, well, there’s a guy in a cardboard box who can’t afford it,” say, “well, have you got any unemployed house builders, any unemployed people who can build houses, and have you got the ability to produce bricks?” Yes, you can afford it. We want more people in health care. “Have you got unemployed people who could be nurses if you trained them?” Yes, you can afford it.

So once you turn it on to…If you’ve got the real resources and you’ve got the willingness to employ them, then you can afford it. Their big card is “who’s going to pay for it?” And you say, “it’s a non-question.” So you will have problems if, for example, you’re in a country where everyone’s working flat out and you want more nurses or you want more doctors or you want more teachers.

Well, you might have to raise taxes—not to pay for it, but to take some income out of the private sector so that private sector demand is reduced, resources then are freed, which the government can employ. You put your taxes up, fuels less spending, less people working in banking. The people who are spared could then move into the resource areas you want.

So you do have difficult choices, but the framing of the choices is about real resources and where they’re going to go. And then you formulate it’s a political choice, that’s all it is. And given the government is a currency issuer, I’ll explain about the student thing. If you imagine Britain, what happens is we have student loans. So a guy gets a loan, they don’t get any money.

The student loan company pays the University directly for the fees. But if they earn more than a certain amount, don’t know it’s the same in the US, then they pay the loan back loan in inverted commerce. But if they don’t earn a certain level, they don’t have to pay. So it’s a big heavy weight hanging over the head of a graduate. But it’s not really a loan. A loan, you have to pay that.

In England, you only pay it back when you earn more than £25,000 a year. What it is, then, is a graduate tax. Functionally, that’s what it is. If your income goes over a certain level, then you will pay like £100, £200 a month to the government. So all it is is taxing a merit good. There anyone as an economist, you tax DE-merit goods. You don’t put a tax on something that benefits the community.

So it’s totally immoral and has no reason whatsoever. And that is the beauty of MMT. You can’t solve all the problems. What MMT does, (it) explains how the system works. And once you understand how the system works, you can then think about your priorities, what you can and can’t do. What would stop the US government, for example, employing a real green New Deal isn’t how much money it’s going to cost, is, “has the US got the real resources, the technology, the skill, the political will to produce its energy carbon free?”

If it has it, do it; if it hasn’t, it’s going to be more difficult—might take longer. So it formulates the questions. It gets the questions correctly structured, but you’re going to hit them hard with “who’s going to pay for it? It’s a non-question,” and that to me, is the answer. It sets the theory, it explains the system, and that’s distinct from, but informs, the policies, like the job guarantee, like the idea of a Green New Deal.

These are separate to MMT. But as you say, you can explain MMT in different ways to different people. And that’s what MMT needs, an academic source. It needs people like Bill, Warren, Randy, Stephanie, Pavlina, Dirk, the top academics. It needs them. It needs activists like GIMMS. It needs people like yourself, Steve; and Christian and Patricia over in the UK. So we’re all part of the community.

We’re operating at different levels and we’re a movement, but we’ve got a purpose. And the purpose is we want to make the world a better place. I’m an old guy. I’m coming up 64. The old Beatles song will apply to me very soon. So that’s why I’m doing it. I like MMT. I enjoy it. But also it’s got a purpose. If people understood it, it ain’t going to solve all those problems, but it gives you a basis for, if you like, structuring the problems and understanding the options that we’ve got—the cost, the benefits, what we need to do—if that answers your question.

[01:02:37.470] – Grumbine

 It absolutely does. And it’s a great way to get us out the door. Phil, let me ask you your last thoughts. Parting words for the audience.

[01:02:46.830] – Armstrong

Well, it’s been a pleasure to be part of Macro N Cheese. I’ve really enjoyed talking to you, Steve. It’s an absolute privilege to be on the show. If you’re interested in MMT, whatever age you are, read about it. Read the primary literature. If you’re up to it and you’ve got plenty of time. Read Warren’s work. Fantastic. If anybody wants to ask me questions, you can always direct-message me on Twitter.

That’s absolutely fine. So if you’re interested in my book, I apologize for it being very expensive. Hopefully you can get it from a University library. That’s what I’d like to have happen, if it was available more widely in libraries. If you’re a student, ask your University librarian to buy it. That would be great. So apologies. Any questions at all, by all means, send them via Steve or via a message on Twitter.

That’s absolutely fine. I’m down as, I think,  Activearmstrong58. So you should find me there. Try and follow the GIMMS website. It’s a British website, but we link in. We have all the major American MMTers and Bill of course, as advisors and as part of the advisory board. There is a GIMMS book coming out very soon. Keep an eye open for that. All the big hitters, or nearly all the big hitters, are contributing to that book.

At least one chapter. Bill Mitchell, Warren Mosler, Randy Wray, who was the editor. So keep a lookout and John “the cowboy economist” Harvey, he’s in there. Pavlina is in there. I can’t tell you them all but great. But when that comes out, I hope it won’t be too expensive. So thanks again for the opportunity to speak, Steve. Much appreciate.

[01:04:34.830] – Grumbine

The pleasure is all mine. And with that I’m Steve Grumbine with Macro N Cheese with my guest, Phil Armstrong. We’re out of here.

[01:04:48.370] – End credits

Macro and cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Andy Kennedy. Macro and cheese is publicly funded by our Real Progressive Patreon account. If you would like to donate to Macro N Cheese, please visit Patreon.com/RealProgressives.

Weimar Republic Hyperinflation Through a Modern Monetary Theory Lens by Phil Armstrong & Warren Mosler

Warren Mosler Introduces Paul Davidson (YouTube)

GIMMS: Gower Institute for Modern Money Studies 

Solent University Southampton, UK

Can Heterdox Economics Make A Difference? Conversations with Key Thinkers by Phil Armstrong  

The Credit Theory of Money by Innes 

The State Theory of Money by Knapp

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