As someone who has read Smith, Say, Keynes, von Mises, Hayek, Friedman, Pikety, Modigliani, Krugman et numeri, I can safely say that I know enough as to why I am suspicious of Modern Monetary Theory (MMT). MMT is a largish macroeconomic theory which takes the root assumption that currency is a public monopoly and that effects such as unemployment is proof that central banks are choking the supply of that currency.
The problem is that MMT is supported by a Greek chorus of fools who seem to think that just because governments can print all the currency in the world, that they should and that any and all after effects simple do not exist.
Basically because most governments issue the fiat money of the state, that they can chuck out money like it is made of leaves and pay for goods, services, make transfer payments, and buy capital assets without giving a hoot about collecting taxation or issuing debt instruments to cover it. On that note, a central bank literally can not go into default on the debt issued in the fiat currency that it has just issued. From this perspective, Bond issues are merely a monetary policy instrument and not a funding instrument and if you disagree you can take a long run off a short pier.
Even student of economic history will tell you that this is bonkers madness. Friedrich Hayek would have opposed this kind of expansionistic argument by stating that public spending and chucking out money like it was rubbish would completely destroy the allocational function of markets for money and capital. Even his frenemy John Maynard Keynes would think that this is bonkers madness. He once told Franklin D Roosevelt that this kind of thinking where the US Federal Reserve could create new money just by clicking its fingers, would be like a man trying to get taller by buying bigger shoes or a man trying to gain weight be buying a bigger belt.
I hate to say it buy even after reading "Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems" by L. Randall Wray (2012) or Stephanie Kelton's book "The Deficit Myth" which came out in 2020, you still can not out run the rather obvious concept that chucking more money to pay for a slower slow-growing supply of goods and services, is going to lead to inflation because people who have the goods and services to sell will want more money for the same packet of goods and services.
The really massive concept that the evangelists for MMT seem to consistently fail to understand is the concept of fidus. Fidus is the faith that a thing will do the task for which it has been designed. Fidus is the belief that the future capability of a thing can be reliably depended upon. What does this have to do with money? Money has always been fiduciary since the invention of money.
When money was nothing more than metallic blobs of electrum, stamped with the markings of the authority of the state that issued it, the expectation was that the people who received these blobs of metal could take them to a merchant of goods and/or services and hand them over in exchange for physical product or work which has been or will be performed. If that sounds obvious, then good. It is. You can not build a wall of logic unless the bricks are sound.
Whether that money has been coined from a precious metal like electrum (was), silver, gold, platinum etc. or whether it purely exists as a universal token system, be it real or virtual, every piece of money from ancient electrum staters, to silver drachmas, golden aurii, golden thalers and sovereigns, paper and plastic dollars, to electric and virtual bitcoin, all relies on the basic concept that whoever is at the other end of the transaction also believes that that money will enable them to continue to hand it over in exchange for physical product or work which has been or will be performed.
The only reason that anything in the world has value is because we believe that it occasions some use to us, or conveys or has conveyed some kind of story either upon us or we upon it. In other words, the only reason that value exists, is to do with the continual choosing and election by the people wishing to extend value upon the thing.
Also, to be brutally blunt and to have reduced literally the entire world, all the things, and all the people (and God(s)), down to an elemental level, the entire concept of value and every single action undertaken ever, is dependent upon current and future fidus, and some kind of basic electing love.
This sounds suspiciously like we're veering close to the idea of Say's Law but the thing that Jean Baptiste Say never cottoned onto was that supply never creates its own demand. What happens if you have a thing that nobody wants? Say's Law should for instance tell us that there is a price that someone is willing to pay for something like nuclear waste and just because a thing exists, is no guarantee that there will be someone who wants the thing.
Because money is just a universal token system which is denominated in the defined unitary pieces of the collective group which has agreed to collectively believe in it together (which is usually the citizens of a nation state who collectively believe in the future of that nation state), then the buying power of that particular nation state can only ever be defined by the desire that people have for the tokens and the number of tokens that there are in the system. Congratulation, we've arrived at our second obvious thing and that is that the value of money is subject to the forces of supply and demand and the equilibrium position that those two forces want to push the two lots of aggregate curves towards.
The statement that carrots are worth $2/kg is not only a statement that one kilo of carrots will require two units of the universal token but that the universal token, is good for half a kilo of carrots. Both of these things are subject to change depending on the relative demand and supply of both carrots and dollars. If there is a carrot shortage, then in general you should expect that it will take more tokens to but the same amount of carrots and likewise, if for some reason that carrots are in particularly high demand then the proprietor selling carrots would be a fool not to raise their price in order to maximise the amount of profits that they could gain, without doing any real work whatsoever.
We always come down to:
- Do people want the thing?
- Do people want to sell the thing?
- Interest is the cost of credit.
- Inflation is a statement of how many more dollars you need to buy the same thing.
Now I don't even care whether you use MMT or some orthodox explanation for what money is but the simple fact of the matter is that you can not just print unlimited amounts of money without there being consequences and the MMT evangelists never seem grasp this fact.
To wit:
The price paid for the aluminium cap on the top of the Washington Monument was $225; which was comparable to if it was made of silver. The cap was placed on top of the tower in 1884. In 1886 the Hall–Héroult process which turns bauxite into aluminium, would have meant that that same cap cost about 19 cents.
If it is possible to make a lot more of a thing, the price drops. In the case of money, the buying power drops. The thing that MMT evangelists seem to consistently forget is that dollars, even though they are denominated in dollars and therefore will always be worth $1 whatever that is, are also subject to the same forces of supply and demand as any other thing, both real and non-real.
Just wishing that you can make more money is a fantasy which because you can just dream up more, is practically worthless.
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