* This originally appeared as a comment on Mike Norman’s website regarding this silly Job Guarantee (JG) disagreement among the MMT crowd as a response to questions raised by Tom Hickey.  

Tom, you said:

“If Cullen doesn’t write it up as a professional paper fleshing out his argument, no professional economist is going to take his blog comments seriously.”

I’m not in this to validate or invalidate “theories”. I am not an economist and I have zero interest in winning awards or taking credit for MMT (as some MMT economists are clearly self motivated in this regard based on their reactions to my receiving publicity at times).

I am here to offer the public a way to understand modern money and the world we live in. That was the ONLY reason I started pragcap. In 2008 I saw a world in total disarray and entirely misunderstood.  Meeting Warren Mosler changed that perspective and the message here at Pragcap to an even greater degree than before as he gave me a unique understanding of inside operations within our monetary system (and I am eternally thankful to him for everything he’s taught me).   My goal has always been the same though.  To help educate, provide a better understanding and provoke ideas and discussion. I am not trying to solve the world’s problems or fix the politics involved. My only goal is to provide people with a better understanding of the world they live in so they can make better decisions.  If they want job guarantees or no government or an end to the Fed or anything else then that’s their right as private citizens to decide.  That’s the beauty of this country.  You get to decide.  My only goal is to help provide people with the understanding that is required to digest information and make better decisions. That’s all.

It is my opinion that the JG is not an essential component of understanding modern money, the economy or anything really. It is not my responsibility to prove MMT wrong and I am not interested in trying to discredit MMT because it would be a self inflicted wound. It is also not my responsibility to publish papers validating positions (though I do so at times). It is my responsibility to stick to what my message has always been and that is offering readers a clear understanding of the world we live in. There are parts of MMT that do that and there are parts that are slapped on as nothing more than policy fixes. The latter is a clear theoretical part. And yes, the JG is ENTIRELY theoretical (which could be ENTIRELY right – I don’t know).

If the MMT economists want to sell MMT and “modern money” as part of a massive government labor program then that’s fine. It’s my opinion that no one in the world needs to understand large government labor programs in order to understand modern money. Instead, I think we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT (monetary operations, monopoly supplier function, etc). If we offer policy proposals then that’s fine, but that’s secondary. I would expect the MMT economists to do that and it should be encouraged that they use their expertise in doing so! But the JG is a very clear case of embedding a policy proposal on top of operational aspects of MM(t) – JKH has rightly noted this on several occasions. In this regard, it really is entirely theoretical and I appreciate and understand that the economists have built it this way.  But there’s a difference between reality and theory and educators have a responsibility to very specifically differentiate between the two so as to avoid misleading those they are teaching.

I had long been under the impression that there were two components to MMT – the descriptive and the prescriptive.  Readers had always been perplexed by the name “Modern Monetary Theory” because what I taught them (by removing the JG) did not appear so theoretical at all.  MMT has always been described to me as having a descriptive and the prescriptive component, but it is clear that this is not the case.  There is only the “theoretical” under the MMT umbrella.  And that’s great. I think it’s a fantastic theory (even though I disagree with parts of it).  But there’s a big big difference between the theory and the truth.   Parts of MMT are entirely factual (the operational aspects, monopoly supplier, etc) and then there are parts that are entirely theoretical (like the JG).  I guess the name alone makes that clear enough (though it never occurred to this idiot)….

In my writing I like to stick to the facts even though I am guilty of veering from that goal at times.  What you want to do with those facts is entirely up to you.  It is not my job to force you to use that understanding in a certain way even though I might, at times, interject my opinion on policy.   But what we need to be very clear about in the future is that MMT is in fact theoretical in its current form.  I won’t spend my time shooting down MMT because I respect those involved in it far too much.  But I won’t be spending my time selling it to readers as though it’s fact.  It is in fact theoretical and I hope to use the parts of it that are factual to further the public’s education.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • wh10

    I thought Mosler, the founder of MMT, agreed on the descriptive vs prescriptive. He said it’s okay if you don’t adopt the JG… just that you have to realize you have to pick some form of buffer stock.

  • FDO15

    But you’re not really MMT if you don’t buy into the JG. I think that’s been the most illuminating point from all of this. The JG is a central part of MMT. Remove it and you are working under some other theoretical framework which is closely aligned with MMT, but not MMT. That’s my take at least.

  • Dunce Cap Aficionado

    I wonder if anyone might be able to tell me which post Cullen was attempting to respond to over at Mike Norman’s site?

  • wh10

    Also, I am surprised Tom Hickey would purposefully delete your comment. He has been posting your articles, which go against his position, on his blog all throughout this debate.

  • Cullen Roche

    Me too. I thought it was a mistake (maybe it was). But I republished and 30 seconds later….gone.

  • FXTrader

    You’re a stand up guy Cullen. That’s why people trust you and your opinion. Stick to your convictions. You’re not part of a group. You’re an independent thought leader. Stay that way. Thanks for everything.

  • jaymaster

    Bravo! That summarizes my thoughts exactly, but it would have taken me days to state it as clearly.

    Now I can just link to this and say, “What he said”.

  • JRH

    I second wh10. Mosler’s statement was that a buffer stock is necessary, not any one particular buffer stock. He believes the jobs guarantee would be the most effective of the contemplated options, but freely admits that someone else might have a different opinion on that point.

    What’s in a name, really? This is a painful lesson about how names don’t matter – all that matters is the merit of the concept the name represents. Two people can utter the phrase “MMT” and be referring to two totally different things. Makes it very hard to spread a coherent message.

  • Cullen Roche

    As is, MMT is entirely theoretical. It’s one intricately woven ball (a beautiful one I must admit). Breaking it up into pieces redefines that theory as something entirely different.

  • Pierce Inverarity

    That’s just not true. Warren Mosler is one of the pioneers of this “theory” and he says that the JG is NOT CENTRAL to the descriptive aspect.

    Does this really all just boil down to a semantic pissing match for those who want to lay claim to the moniker “MMT”? Cullen, much to his credit, has disengaged himself from the acronym spat.

  • Pierce Inverarity

    To my mind, Bill Mitchell, Tom Hickey et al are acting like physicists-cum-artillerymen who disavow other physicists because they disagree on the proper shell casing for maximal carnage.

  • Cullen Roche

    Bill and Tom don’t think they’re arguing over the shells. They think we’re arguing over the weapon. Warren says you can pick whatever weapon you want, but he agrees with Tom and Bill on the weapon of choice.

  • Austrian___

    Who would have thought that MMT would end up being debunked by one of its own. This has been fun to watch.

  • Pierce Inverarity

    MMT has by no means been debunked. It’s pretty hard to debunk the truth. Try again.

  • AndyB

    doesnt make sense at all why would Tom post the “Cullen Roche — JG Not A “Price Anchor”, but a “Price Buoy”” and then not this

  • AndyB

    absolutely i suppose there has never been a difference of opinion in austrian circles… by internet standards this one is very polite

  • J Kra

    In one of the previous posts there was brief discussion of finding a new term. I liked Modern Money Operations ( or MMO) as a term that refers ONLY to the descriptive part… the part where we hear about the “operational realities” of the monetary system.

    Maybe a new name isn’t necessary?

    I think the goal is still to get these operational realities understood by more people. All the savvy people here must agree that a name that can be branded and repeated over and over again helps with marketing. If MMT includes the JG, no big deal. That actually makes the name Modern Monetary THEORY “make sense”, i.e. it is theoretical.

    Anyone have any better suggestions than Modern Money Operations (MMO)?

  • Austrian___

    So you’re still buying into the BS that the job guarantee isn’t entirely political? You can’t see that the main MMTers are using the theory to push their political agenda? Are you blind?

  • SS

    You’re not an MMTer. I keep trying to tell you this.

  • Pierce Inverarity

    No, I’m not blind. But akin to what I posted above, using physics to shell civilians does NOT debunk physics. MMT as a descriptive framework is completely intact. What certain theorists propose to DO with this descriptive framework is a separate issue. If you cannot distinguish between “is” and “ought” I don’t know what to tell you.

  • Pierce Inverarity

    I like it. Though the acronym might start attracting World of Warcrafters and the like. Not that there’s anything wrong with that, but it could be confusing.

  • FDO15

    Pavlina, Mitchell and Wray have all come out saying the JG is central to MMT. Pavlina:

    “Though clearly there is an aspect of MMT that is purely descriptive, I have always considered this division between the descriptive and prescriptive part of MMT to be a fundamentally flawed dichotomy.”

    I think Warren is trying to hold the pieces of his falling ship together. But the oceans are opening up below this ship and they stink of politics and excuses for big government welfare policies.

  • FDO15

    Yes, but the descriptive aspect is not MMT. I think the purpose of Cullen’s post is to show that they’ve embedded a theoretical aspect into their model that makes it entirely theoretical. To use your metaphor – the MMT weapon requires a specialized form of shell.

  • chris

    cullen, i have no dog in any mmt fight, as i just want to make money; i am much more interested in theory/practice thought experiments in other realms.

    but i do have a question for you: what is the difference between money and credit

    i am serious.

  • Pierce Inverarity

    According to Mosler, and other leading thinkers: nothing.

  • Cullen Roche

    Money is always debt.

  • jt26

    That’s too generous. It’s more like Galileo and the Spanish Inquisition arguing helio-centric world’s vs. rain god’s impact on precipitation in Madrid. None of the prescriptive parts of MMT are easily testable in a controlled experiment.

  • Cullen Roche

    Hardly. Its core aspects are irrefutable. The issues arise in the prescriptive aspect and the JG. Those are entirely outside the scope of what I generally focus on here.

  • hangemhi

    “money is always debt” – CR. And now i’m back to being confused. To me, it seems the very reason for our mass confusion, and hyteria over the Federal debt is that we call it “debt”. So now “money is always debt”. I guess I missed that in the primer, which I read at least 3 or 4 months ago, and can only think that such a statement will confuse the masses even more. My contribution (if I have one) is that I am the masses… meaning, it has to be dumbed down for me, or by me, so that I can understand it AND be able to explain it to the next person. If I can’t understand it, or it confuses me, than what chances does the general public have? (similary the JG can’t be included in MMT, or there must be two names, because it is too much to swallow both for it ever to get accepted/understood by the masses).

    So if “debt is always money”, then aren’t we just confusing things even more? How is the general public ever going to understand all of this if we don’t start dumbing it down, re-defining words, and turning it all into simple to understand sound bites? I’ve tried to explain that government debt is the wrong word – it isn’t really debt. But if debt is always money…. then what? Won’t we always think the government is like a household?

  • Cullen Roche

    The govt has debt. It just doesnt need to pay it off. :-)

  • Dennis

    My understanding is that MMT opens a broader understanding of where our US dollars come from (debt), and as a result we see that our government is not using the power of its currency to fullest extent possible. Our government has needlessly put many good teachers, policeman, scientist and other valuable employees out of work simply to stave off the increase in a figment created from our bankers imagination e.g. the so-called National Debt.

    The Economist (Dec 31 page 51), came with an article “Briefing Heterodox ecomomics – Marginal revolutionaries”. I tried my hardest to figure out what the article’s point was…since it seemed important to my interest here and is on point with this discussion. Does anyone have any comment on that story?

  • wh10

    Yes, although like I said, advocating for tax cuts and govt spending is prescriptive/theory too, just doesn’t diverge from tradition as much as the JG.

  • Jose

    The descriptive/operative part of MMT is incompatible with neoclassical economics. If you accept it you’ll have to drop the money multiplier, the loanable funds model and many other “core” fantasies of the mainstream.

    But a JG policy could be advocated in any mainstream textbook. Greg Mankiw could wake up tomorrow and re-write his Macroeconomics manual with a JG add-on as a substitute for UE benefits. And yes, he would keep his job at Harvard because he would still be a neoclassical guy, his newfound JG passion notwithstanding.

    Conclusion: the JG cannot be the “core” of MMT, no matter what some of the founders may say. It’s a policy prescription that may have its merits – but whose relevance simply doesn’t stand at the level of the world shaking insights provided by “operative” MMT.

  • Adam1

    The world uses a credit based monetary system. If all debts were paid off there would be zero money left over. When a bank creates a loan (debt) it also creates a bank deposit (money). When the government creates money it creates a liability (debt) – we also just happen to issue debt to go with it.

  • Tom Hickey

    Cullen, you omitted the lead up to that quote of mine, which is an answer to LVG’s absurd assertion that you had essentially demolished MMT claims. My answer was that such his assertion was ridiculous on the basis of a some blog comments that don’t show that at all. As you may have noticed LVG is now trolling over at Mike’s.

    My point was that for LVG’s assertion to be taken seriously, if there would have to be a serious debate at a professional level, which there hasn’t been. And if you don’t plan to undertake one, then LVG’s assertion is, shall we say, premature.

    BTW, I have access to post at MIke’s, but I do not have acces to delete the comments of others (or if I do, I am unaware of it). I did not ask Mike to delete your posts, and I have never ask him to anything about the blog other than to check the spam filter for possibly lost comments that people had reported. iIf someone else who has access to the delete button did delete your comments, I have no way of knowing or checking. If you have a problem with this, please contact Mike. If your comments were deleted, it could not possibly been my doing in any way, directly or indirectly.

    My intention is to clarify, not to confront. This is a macro debate that is over my head to contribute to, and all I am doing is repeating what I understand from the professional MMT contributors. I am simply interested in keeping the record straight about MMT, on one hand, and commenting on policy options based on my ideological views.

    Finally, there is still confusion over what MMT is. As JKH has observed, there is a monetary theory (Chartalism or state money and credit money, vertical v. horizontal money, etc) and a description of monetary operations (STF’s general and specific) underling a macro theory based on analytics and empirics as a challenger in the professional debate among macroeconomists.

    As a result, there is 1) a debate of monetary theory and operations (such as largely goes on here at PC), 2) a macro debate at the professional level, 3) a debate over the application of the macro theory as a policy instrument revealing a spectrum of policy options, and 4) a debate over various policy options on various blogs. I am capable of repeating what I have understood about the first two, but my background does not qualify me to enter the debate other than as a person concerned with economic policy. As citizens and people affected by economic policy choices, the debate about policy options is open to us all, I will argue about that based on my own views.

    These four debates must be kept separate in the mind. I am aware of no MMT contributor claiming that the JG is in any way connected with the monetary economics that underlies the macro theory. The claim is rather that the JG as buffer stock of employed and price anchor is an essential aspect of the macro theory in achieving FE $ PS.

    This is what the macroeconomists mean when they use the acronym “MMT.” Confusion arises from ambiguity, since many people use “MMT” to mean the monetary description instead of the macro theory. Further complicating the matter is that MMT is also used for application of the macro theory as a policy instrument.

    When MMT as a macro theory is applied as a policy instrument, the JG is essential as a policy tool in achieving FE & PS. Hence, MMT economists recommend it as a policy tool. The MMT economists have said that they would prefer to the complete package adopted by policy-makers but they admit that this unlikely. It is far more likely that pieces will be adopted first, like the sectoral balance approach and functional finance, which would be a huge advance. But they caution, don’t blame MMT as an applied macro theory, if inflation results in the absence of a JG. They also say that the JG could be chosen first, which would also be beneficial. However, it should not be judged harshly if the rest of the theory is not adopted along with it.

    If I got anything wrong in representing anyone else’s views, I welcome correction.

    I have stated that while I think that the MMT policy option of a buffer stock of employed is likely superior to a buffer stock of unemployed as MMT economists claim, I really have no way of assessing that claim professionally since I am not a macroeconomist and this is a macro claim. I accept that they have have correctly modeled it, and until someone establishes definitively that they haven’t I’ll accept that claim.

    I have also stated that I am uncomfortable with the JG because it treats labor as a commodity and that is inconsistent with my views about human rights and the dignity of work. I also don’t think that it is forward looking, for reasons that I have set forth recently in comments at hereand here. I have also stated that while I don’t agree with your approach of full productivity and living standard, in particular because it ignores distributional effects and the transition through which the world is now headed, I agree with you about quality being basic.

  • beowulf

    I think Tay Zonday explained this quite well.

  • Cullen Roche

    Hi Tom,

    Ignore LVG. I dealt with him for 6 months here before banning him. He still leaves comments. You all just don’t see them.

    I think it’s become clear that the macro theory has the JG deeply embedded in it. In this regard, there is no separating MMT from it. As such, I don’t see how one be against the JG and for MMT. You might believe that the JG is the best buffer stock and you might even believe it’s the best thing for the world. Honestly, it might be. But I can’t prove that and neither can anyone else. So, in this regard, the JG is pure theory.

    I am short on time so apologies. Your comment deserves a better response than this. This isn’t a personal debate. It’s not even a confrontation. As you stated, we are clarifying things. I think there are a lot of people out there who think they are MMTers (probably most of the readers here) who are not really MMTers in the way that some people see MMT. I am not here to prove anything wrong and contrary to some of the silly comments here and at Mike’s site, no one has proven MMT wrong. It would never be my intention to prove MMT wrong. But I will fight mercilessly to make sure that people are not misled.

    I focus on facts here. I use the facts to help people understand the monetary system. That’s it. No agenda. This MMT with the JG embedded in it is not fact. It is pure theory. I guess I am awake to that reality now. It’s my fault I never realized. No one else’s. But I can’t support it and I won’t use this website for that purpose. Ever.


    PS – I fixed the error regarding your deletion of the comments. I don’t know who is deleting comments, but someone is and that only further verifies the appearance of a hidden agenda here. It all has a very nasty political feel….My guess is the same politics that has kept MMT from going mainstream and the same politics that will keep MMT with a JG from going mainstream. It’s time to change that.

  • BarbaraNH

    Cullen, this is a great post and I’m glad you’ve returned to the JG and are clarifying your position vis a vis the whole thing. I think you’re absolutely right to let MMT define itself while focusing on helping people learn as much about it as possible. You provide a tremendous service here introducing it, providing all kinds of great educational material for people to learn it, answering the whole range of questions of people trying to understand it, and hosting great discussions about every aspect of it (as well as other things). What more can anyone do? I, for one, certainly applaud you for what you do, regardless of whether you think the JG is workable or not.

    My take on the JG after reading Bill Mitchell’s post on the subject here:

    is only this — one of the things MMT the theory does is re-cognize the place of ‘full employment’ as a central aspect of all macroeconomics, which, as Mitchell explains, it has always been, a recognition that seems to have been lost since the advent of Milton Friedman et al, and all the subsequent concentration on monetarism, as opposed to the real economy. So, he says, MMT isn’t doing anything new and different when it considers full employment to be an elemental aspect of its framework. It’s simply getting back to what was always the case before. As Mitchell puts it, “the question is, what constitutes full employment?” An example, it seems to me, of just how far orthodox economists have removed themselves from considering full employment to be the desired state in the economy is the whole notion that there even exists something they call the “natural rate of unemployment” and that it relates to something else they call the NAIRU, the non-accelerating inflation rate of unemployment, positing the idea, now well accepted, that there’s an automatic trade-off between inflation and unemployment. Now they’re even saying we may be witnessing a structural re-alignment, or “new normal” in these ‘natural’ rates that is even higher than the old one! Just what is THAT supposed to mean? So an even bigger percentage of society will just have to accept that the economy, working as the Market requires, simply cannot accommodate them? That it’s unfortunate perhaps, but it’s just the way things are given current Market requirements? Whatever happened to the premise that a fully functioning (as in everyone can earn their bread) economy is not just possible but desirable and achievable in the so-called free market system? MMT, full employment buffer stock included, labors within that paradigm, which is the right one, it seems to me.

  • Tom Hickey

    Understood. Thanks for clarifying.

  • MCL


    Learn the difference between “descriptive” and “prescriptive” aspects. I believe Austrian economics has some pretty good “descriptive” aspects as put forth by Hayek and Mises in some areas, but fails miserably in others, particularly when you apply their theories to free floating fiat currency systems. Such failures lead to, what I feel, are very poor “prescriptive” economic recommendations. Cullen’s site regarding MMT is purely descriptive, and has no political agenda.
    Unfortunately, many misguided libertarians have an overwhelming belief in the infallibility of free markets, and use the Austrian framework to champion their ideas and political beliefs in both descriptive and prescriptive terms.
    In any case, sorry to day, markets can and do fail, and this dynamic is brilliantly detailed in John Cassidy’s book: How Market’s Fail: The Logic of Economic Calamities.
    In the book you will read about Hayek, Schumpeter, Keynes, Minsky, behavioral economics, and the problems with free markets, perfect competition, and the efficient markets hypothesis. Such major issues include the lemons problem, asymmetric information, adverse selection, the principal-agent problem, herding mentality of investors – all when put together put forth a pretty damning argument against the efficient markets hypothesis.
    Not to say that free and private markets are bad, but they are not as infallible as Libertarian Austrians, such as yourself, claim them to be.

  • MacroTrader

    As an observer, it seems the MMT types are creating the JG internet debate in order to live out the debate that should be happening in Washington. It is clearly politically motivated and both sides, for and against the JG, have valid points.

    None of this is constructive at actually getting politicians to stop debating the phony issues of too much debt and too high deficits.

    The MMT community needs to first work towards having a majority of elected officials actually understand modern money. Only then can the debate for and against the job guarantee actually take place.

    Most importantly, Cullen, are you buying or selling at these levels?

  • jaymaster

    Modern Monetary TRUTHS

  • Andrew P

    I think MMS (Modern Monetary Systems) is a better TLA (Three Letter Acronym) than MMO. What we have is more than an operation. It is a whole system, and other nations have their own systems, which can differ slightly in some respects (and flaws). Furthermore, there is no nation on earth that still gets money by digging a rare element out of the ground, and international transactions are not balanced by exchange of rare metals, so I would say that all present day systems are “modern”.

  • JWG

    I vote for MMO as the preferred acronym to sever the operational realities from the JG and the big government tendency. Quite clearly the old school MMTers won’t look at tax cuts the same as they would federal spending and program expansion. I take wisdom where I find it, and so thank you MMTers for the descriptive aspect, investment gains and a killer rationale for tax cuts. Also thank you for giving me the analytical construct to laugh off Paul Krugman, his Demo-Keynesian pals and the neoclassicals. Now I know why deficits are only a problem when Republicans run them.

  • Cullen Roche

    How about Monetary Realism? Simple and to the point. After all, all we’re doing is describing the monetary reality….

  • chris

    thanks b

    so, to further my confusion, i would note that while the EU member states are not currency issuers, they are credit issuers. so while they can’t print euros, they can print euro-denominated debt.

    now, if the euro-denominated debt is “money good”, ie credit worthy, then the debt should be able to stand in the place of money as a source of financing.

    now, you say the debt may not be “money good” in many EU states, and i would agree, but that is not because the member state can’t issue euros, it is because its balance of payments, competitiveness, economic efficiencies etc are not up to snuff.

    it certainly would be convenient for a member state whose debt is not money good to issue more currency, but this lack of currency issuing power is not the root cause of the problem (not being credit worthy), it is just an alternative path of financing that is not available to a non currency printing state in the event it is not credit worthy.

    so to my way of thinking, the whole currency issuance analysis of the eu is something or a red herring, which is to say that a monetary union compels the member states to achieve fiscal interdependence to maintain the several states’ credit worthiness precisely because they have all given up their right to proceed with the more convenient alternative, which is currency printing.

    if this line of thinking makes sense, it is also an indictment of the “stability union” efforts of the eu; nothing short of a true fiscal union is the solution, and i don’t see that in the cards with german popular opinion (as opposed to german elite opinion).

    it also gives credence to trichet’s original argument that no state can be permitted to restructure at less than par; this was the tell as to whether a true fiscal union would ever be on offer.

  • SS

    Here’s a whopper for you. Over at Joe Firestone’s site Warren says there is “no long term cost, only long term benefits” [to the JG].

  • Cullen Roche

    I saw that. I guess we should have the govt offer everyone a job so we can all retire and become musicians for the rest of our lives (taken to an extreme of course). Sometimes I think people take this country’s high productivity levels for granted. But this has always been a weak point in MMT. In fact, before I joined the MMTers there was almost no hint of appreciation for productivity. No proper explanation of what causes hyperinflation. And no appreciation for the fact that currency demand is a function not only of taxes, but productivity….

  • J Kra

    Modern Money Systems would work fine as well. We’re probably just splitting hairs here, but what I was suggesting was Modern Money Operations (operation with an S on the end; plural). Seems to me “operations” is a good choice since it fits in nicely with the “operational realities” etc… though something doesn’t quite ring when you say or read MMO.

    maybe we should go with Modern Monetary Systems (MMS) and change the phrase “operational realities” to “systemic realities” :) Now they’re both sounding redundant.

    Either way, unless people like Cullen start adopting a new name that refers only to the descriptive aspect of MMT, this conversation is pointless. Make a decision Cullen! and let’s move on using the new term.

  • Chuck Hussel

    It may seem frivolous to some, but, like the people commenting above, I think it’s vital that we express ourselves clearly when discussing the monetary system. The confusion that seems to arise from the usage of the MMT label is not helpful to Cullen’s goal to essentially educate (or re-educate) all those capable of understanding the operational realities of our monetary system. It’s imperative to the future of civilization that policy makers, politicians, and voters understand reality to the best of their abilities. We can’t afford to make decisions using incorrect assumptions within obsolete paradigms. The task we’re presented with: How do we simply and effectively communicate basic monetary reality? Like an agency charged with branding a product, we must effectively brand reality in a compendious, contagious manner.

    I suggest “Monetary Realism” or “Modern Monetary Reality.” Among possible slogans: “More important than the MMR vaccine.” — Or variations on that theme.

  • Senexx

    I’m glad that has been clarified.

  • warren mosler


  • Neil Wilson

    “And yes, the JG is ENTIRELY theoretical”

    Not really. There has been work done by the MMT economists on validating it.

    JG is really a form of very subtle underemployment, and you’ll find in Australia and the UK that the response of our labour markets to the crisis has been to move people from full-time to part-time work instead of sacking them (largely due to our increased employment protection rules).

    And what that has done is anchored wage inflation – certainly in the larger (in volume) secondary labour market.

    Which is exactly what the JG theory predicts will happen. Those part-time workers are an ‘employed buffer stock’ against the full-time workers.

    Once that part-time buffer stock is exhausted as the economy slowly recovers we will start to see wage inflation pick up again (as it has done before) because the unemployed buffer stock just isn’t as good an anchor. There’s too much hiring risk in that pool – particularly amongst the long term unemployed.

    So with the first stage of JG the state just pays the wages of those who haven’t got enough work – after all the other macro adjustments have been done – up to a set number of hours at a set rate. That then defines the maximum ‘underemployment’ the society considers acceptable.

    Non-private sector actors in the economy then use that funding to sift the unemployed pool and sort them into hireable and non-hireable categories. That creates an extended ‘part-time’ employed buffer stock which reduces hiring risk and improves the liquidity in the hiring pool.

    So there is evidence for the effects Cullen. You just have to read the papers and the econometrics.

  • warren mosler

    that’s not the way I see it

    It’s not about ‘buying into MMT’

    It’s about recognizing ‘JG’ is the ‘base case’ for fiat money in general.

    Back to the beginning

    The govt wants to move real goods and services from private to public domain.

    It levies a tax payable in its currency of issue.

    this creates sellers of the real goods and services it wants to buy who now want the govts currency of issue in exchange for their real goods and services.

    the govt buys those goods and services with its otherwise worthless currency, services being ‘labor’

    That is the base case.
    And that currency of issue is a simple public monopoly.
    The tax ‘unemployed’ the labor from the private sector that the govt then hires, which was the point of the exercise to begin with.

    So how does a monopolist, in the base case, do this?

    Monopolists are price setters (vs price takers) in that they set the price/terms of exchange for their ‘commodity’ and let quantity adjust.

    So, for example, lets say the govt wants 10 employees.
    how would it get them?
    It could, for example, at inception of the new currency,
    levy a property tax for a total of $100 per year.

    Then it could offer $10 per year for labor.

    It knows it will get at least 10 people willing to work for the govt at that price from the private sector. And it might get a few more if the economy, for any reason, wants to earn ‘extra’ dollars above and beyond what it needs for tax payment and save them for whatever reason.

    That’s called the JG, and it’s an example of govt using only jg workers to provision itself. And if it gets 12 workers but only wants to remove 10 from the private sector it can lower the tax to $90.

    Yes, it could tax $100 and only hire 5 of the 12 looking to work for the $10 wage, but i call that a variation from the ‘base case’ where the monopolist sets price and lets the market determine quantity. (what more could a red blooded austrian want!). And it’s also a deviation, the way I see it, for base case because it seems ‘stupid’ to to tax $100, pay $10, hire only 5 people at that wage, and leave the economy with no way to comply with its tax obligation you imposed on it with a lot of desperate people left with a deflationary spiral as they attempt to sell their real goods and services at ever lower prices to get the $ you don’t allow to exist. But yes, it’s an option.

    What does logically follow from the base case, which hires ‘off the bottom’ and takes the least valuable from the private sector as a point of logic (what more could a red blooded austrian want!) is the desire to hire someone ‘worth more’ in the private sector, like a judge, doctor, engineer, con artist (not that govt has any use for those…) etc. This means the govt has to pay more than $10 for those people. So let’s say it hires a judge for $20 per year. That means it will get 2 fewer ‘jg’ workers at the $10 wage than it did before. And if it buys an aircraft carrier for $50, now it’s ‘used up’ $70 of it’s ‘tax base’ and will only get a minimum of 3 jg workers at the $10 wage.

    Looking back at the model, there is no ‘inflation’ as $10 per year will always buy one year’s worth of labor as described above. You only get inflation if ‘non jg’ spending rises to the point where it uses up all the tax base plus the savings desires (which can be positive or negative depending on credit conditions, etc.) and the $10 wage no longer attracts any workers. So for price stability, it’s critical to limit non jg spending to the point where people still show up to be employed to earn the $10 wage.

    This is all the base case for monopoly, which is the easiest bit to understand on the spectrum from pure monopoly to pure competition. It only takes about half a day in macro classes, vs a life time in pursuit of the understanding of the elusive outer limit of pure competition.

    So what where we are at today, is we started with the base case, and then ‘used up’ the tax base down to where we would, today, only get maybe 15 million JG workers for a wage of say, $8/hr, and then decided not to hire any of them, but instead leave them unemployed, and then pay most of them unemployment compensation.

    So my point is, what sense does that make? We should either hire more of those who want to earn the $ needed to pay taxes and net save, with that need created by our tax policy and other institutional structure that caused them all to seek employment that pays in $, or cut the tax so most all of them go away, but leaving a few for gov to employ as our price anchor, and, hopefully, get some useful work out of them as well.

    so what about all that is MMT?
    MMT is the understanding of how that all works, and the understanding that JG is the ‘base case’ and the rest a derivative.

    And yes, you are always free to chose any of the derivatives you want, and still ‘be MMT.’

    So you could say MMT is being about having your eyes wide open.

    hope that helps!

    warren mosler

  • Albert

    I didn’t read all the comments so apologies if I am repeating someone else. Cullen, I appreciate you separating the theoretical from the operational (real) aspects of MMT. The die-hard MMT’ers who insist on the JG are sowing the seeds for their own distruction. As an economics major who learned Keynesian in college, self-learned Austrian after, and now am learning MMT- I find that they all fail when it comes to “what should be done”. “What should be done” and “what would have happened” are almost always counterfactuals that can never be proven. I have come to believe there are truths in all theories of economics and there is a lot of propaganda that is harmful. Again, thanks for separating reality from theory. It would be better if all would follow in this practice.

  • Chuck Hussel

    I see Cullen made the same point a few hours before me. I should’ve read the entire thread! Regardless, I’m on board the Monetary Realism train.

    Thanks for your work, Cullen. While I’m far from an expert, what I do know, I’ve learned because of you.

  • phil

    Couldn’t the currency value explanation be simplified to the following:

    The currency is given its value by

    a) the system of taxation and law, as determined by government


    b) the free market (supply and demand)


    This would include the specifics you cover (productivity, currency management) within more general terms.

  • Charles

    Cullen , the great thing with your blog is that we can learn and understand a lot about the reality of the monetary system without any prerequisite act of faith or church membership. Keep it open!

  • Mark

    Here are a couple of things I’ve been wondering about regarding MMT
    MMT seems to say that taxes aren’t needed for government spending. Taxes serve instead to regulate demand and to make sure that there is a demand for the currency.
    So, in a democratic society, why would voters not demand that taxes be set at zero? The government doesn’t need revenue, so why should people be required to give it any? (after all in the horizontal money world that voters live in, taxes represent a real burden). Perhaps so called sin taxes (alcohol , tobacco excises) would still be politically acceptable, since part of the existing rationale for them is demand regulation. And of course there would still be fines and forfeitures, which would be OK because they payment of them is supposed to hurt. But anything else would be a really tough sell.
    And since vertical money (government spending) would look a lot like free money, why wouldn’t all voters want some of it? Sure, then presumably inflation would kick in under MMT, but so what, the government presses (I mean keystrokes) could always keep ahead of inflation, no matter how high it got-unless people refused to accept the vertical money….
    Now, this problem that government spending is constrained by issues of currency acceptance is recognized by MMT, but it seems to me that the above tendencies by voters would have to be taken into account. In the current system, voters believe that their taxes are necessary for governments to be able to fund their operations, and make transfer payments. If MMT principles were adopted voters would know this wasn’t true, and this would greatly undermine the legitimacy of any tax regime.

  • wh10

    The MAN has spoken!

  • wh10

    Cullen, did you not go over these issues with Warren during your talk? They seem reasonable and something Warren would have a grasp of and be able to address.

  • Dismayed

    Call it what you will. What we’re doing now is a huge waste. We’re keeping potentially productive people unemployed because there are too few jobs. I’m all for any approach that stops that needless waste and reduces human suffering.

  • Gerald P

    In scientific terms, it is a hypothesis until it is tried. If it works, it becomes a theory.

  • Cullen Roche

    You have an unusually condescending tone in all of your comments. It’s really unattractive. Not important, but you should probably know since it makes your comments hard to read and takes the focus off your points entirely.

    I am sure if this bill ever went up in Congress that you’d find 100 think tanks invalidating the argument. So, the fact that the MMT economists have created models “validating” an entirely unchallenged, unproven and unknowable program is just theoretical work. You speak in such absolutes that it almost blows my mind. Like the other day on Heteconomist when you implied that the JG would eliminate inflation. That’s sheer madness. I did enjoy your Steve Keen piece though! :-)

  • wh10

    I guess not, judging by your response above… BTW, I agree, there needs to be an incentive for people to accept the tax without going to war against the government. The promise of protection of certain rights, the confidence that the nation will prosper and be productive, etc… I don’t know, just thoughts.

    The “state theory of money” is definitely one of the most theoretical components of MMT, though you seem to support it, though perhaps with your ‘productivity’ modification.

  • Cullen Roche

    Well, in my primer I explain this as no other MMTer does. They think the state wields its will over the users. Warren even uses a disgusting example where the state locks everyone in a room and bars the doors shut with men holding AK 47s. This is wrong. This is not how the system works in the USA. Productivity matters. Capitalism makes socialism viable. Not vice versa.

  • Gerald P

    Cullen, you are right about describing monetary reality, certainly as it applies to the USA. It is the fictions that have to destroyed. But, as I keep writing, how could this be accomplished when so many politicians behave as if we are still on the gold standard?

  • SS

    This has always been the weakness in Warren’s argument. If you understand the basic logic then you can see how MMT is wrong from start the finish. The “base case” is wrong and the JG is wrong. End of story.

  • Cullen Roche

    It’s not wrong from “start to finish”, but it has weak points. I doubt MMTers would want me to lay them all out because I know them all….Anyhow, after a lot of discussion Warren and I simply don’t agree on all of this. We agree on a lot of it, but there are key aspects missing in his argument in my opinion that lead to faulty conclusions.

  • Mark


    That’s a a total non response. MMTers are going to have to do wayyy better than that to gain any political traction-and thats the real name of the game

  • SS

    If the base case is a myth (that taxing people causes all of the demand) then isn’t the earth kind of moving under the feet of all MMT believers? Not to mention the conclusions that this leads to about the JG which are totally wrong?

  • Cullen Roche

    Starting from a faulty foundation doesn’t render the entire theory defunct. It just means the base case is wrong and that the justification for a JG based on this thinking is wrong. The stuff inbetween, the monetary ops and all, are still right. There’s no theory there.

    But I am clearly not an MMTer based on all of this since I disagree with what are pretty glaringly core aspects of the MMT originally envisioned.

  • Ben Wolf

    If Congress were to put an end to bond issuance and direct that $100 billion be printed and then dropped into the streets, where is the debt, and who owes it? I understand (at least I think I do) the point regarding money being debt-based, but I also often see “debt” and “liability” used interchangeably in those arguments when they are not necessarily the same. In fact I at times question whether liability is even a useful term when it comes to fiat currencies. I think referring to government bonds as debt is problematic because not only does it not have to be paid back, there isn’t anyone to pay back.

    Failure to deploy alternative terminology or language is what I see as MMT’s biggest obstacle to making its observations understood as accurately as possible.

    Maybe I’m wrong.

  • Cullen Roche

    You need the taxes to drain money from the system. Otherwise, spending just creates inflation….

  • Bluto

    FOOD FIGHT!!!!!!

  • Cullen Roche

    AND is the key point. MMTers don’t emphasize this at all…I am the only one who has built productivity into the model at all. The rest just assume it will always be there. It is, perhaps, the camel that breaks the old MMT’s back because ultimately, it leads to faulty conclusions like the JG….

  • jt26

    Actually, every single person has the potential for some amount of productive output, it’s just the private sector (you, me, corporations) who decides how to use it and what it is worth, and certain structural issues.

    Unemployment is usually a mix of things but in many cases comes down to freedom of choice:
    – e.g. years ago a student decided to study modern dance and wanted to pursue it as a career.
    – many employers are **extremely** picky … if you’ve ever been involved in hiring and looking for work, you’ll know what I mean … this applies to taxi drivers all the way to PhDs. Even in high demand areas like comp sci, only the top 20% really have a “guaranteed high paid job”; have lot’s of friends from state universities that are looked down on by hiring staff …
    – global economy; freedom to buy goods from anywhere in the world

    There are many structural issues as well. E.g. Friends complain to me that they would like to do some house renos to take advantage of the recession to get a better deal, but when they get estimates, there is a lot of uncertainty when talking to contractors for the low ball bids, they have some doubts whether the contractor is recommending and getting the best material values, and labor. Perhaps some certification program or government-sponsored insurance program may help here to get some of that structural issue out of the way.

    Some people are saving too much. Really, when you have $10M, what are you waiting for, a sale at Walmart?

  • wh10

    Well you have to be careful with 2, because once you introduce free market ideas of supply and demand to the currency, that starts to go against how MMT explains the interest rate on govt debt and instead begins to endorse the idea of a natural real rate a la mainstream econ, etc.

  • Cullen Roche

    Not really. You think the govt could keep rates pinned if productivity sank and hyperinflation began to spiral out of control? The key point that MMTers miss is that productivity matters A LOT! More than taxes in my opinion….In fact, the base case for any environment is having productivity that can be taxed to begin with. So naturally, productivity precedes taxation, not vice versa as Warren’s base case states….

  • Jose

    Marx used to write about the “reserve army of the unemployed” to describe what he saw as one of the main weaknesses of capitalism.

    JG proponents offer a “reserve army of the employed” under the auspices of the nanny state as a substitute.

    I suppose they also imagine that these milions of people working at frustrating jobs for a low wage will be grateful for the “solution” they will be mandated to accept (because the alleged voluntary nature of the scheme can’t be serious – if UE benefits are maintained as an alternative, many if not most people will never take the JG option). Have they thought of asking the opinion of the putative beneficiaries – how about sounding out people in a poll about this idea, just to test the waters?

    MMT is great as a description. It opens up many policy possibilities that seemed to be closed. But proposals of the JG type will only detract from its capacity to attract a large group of followers.

  • wh10

    I’d want Fullwiler to interject here, but there is a vast middle ground between normal times and hyperinflation, so I’d need more clarity on your position regarding how the mechanics and accounting of setting interest rates changes across different economic environments. Or perhaps your ‘model’ of how interest rates are determined on govt debt has one discreet setting b/w hyperinflation and everything else. Generally, I think Fullwiler would agree that as long as the market perceives the govt debt as default free, then the govt can set the interest rate wherever it wants. If we define hyperinflation as a scenario where the govt debt is effectively viewed to be in a perpetual state of default, then you’re in agreement with MMT (except the govt could receive funds directly from the Fed at whatever rate it wants if the govt allows it).

    In any case, the ‘supply and demand’ model here would be funky, since the only difference is between non-hyperinflation and hyperinflation. That doesn’t seem to be a traditional model of supply and demand.

  • phil


    though the government doesn’t need revenue to spend (ignoring the current self-imposed constraints), tax still serves to remove money from the economy and thereby to create ‘space’ which can be filled by further spending. In this sense tax can still serve a redistributive function, even though deficits can be run without taxation (or debt) up to a point. Rather than running a massive deficit and then whacking up taxation when inflation appears, it makes more sense to spend and tax at the same time (even if tax doesn’t have to equal spending dollar for dollar), and to regulate the two as you go along, until you get to the optimum point of maximum output, productivity, employment etc (without high inflation). Tax, and regulation, can also serve to control bottlenecks or bubbles (like house price inflation) which can appear in the absence of broad inflation. They can similarly serve to control excessive credit expansion by private banks.

    The ‘printing presses’ can’t outpace inflation in the long term because inflation accelerates and can potentially become exponential (a wage price spiral of death). Inflation expectations lead to prices rising at a faster rate than money supply. The latter then has to speed up, leading to an even greater increase in inflation, etc. Beyond a certain point inflation leads to mass panic and rejection of the currency.

    That’s my amateurish understanding anyway. I hope it helps. Cullen may correct me on certain points.

  • John Carney

    “Productivity precedes taxation.”

    This is a very important point. The base case Warren lays out in his comment begins with the government wanting to move goods and services from the private to the public domain.

    But how did people acquire the service skills and goods that the government wants? Clearly, everyone was not lying around cold and starving, hoping someone would impose a tax so the economy could get going.

  • Cullen Roche

    Hyperinflation tends to be a creeping phenomenon. Corruption, war, loss of productivity or a multitude of other things chip away at the foundation of the monetary system. And then boom, it ruptures and the “money dies”. Your key statement is:

    “as long as the market perceives the govt debt as default free, then the govt can set the interest rate wherever it wants.”

    Perceptions matter. We take our highly productive economy for granted. That’s sowing the seeds for disaster. Perhaps not in my lifetime or the next, but it will come as a result of this mentality.

  • Cullen Roche

    Ding ding ding! The JGers think we NEED govt to fix all of our problems….issue a man a job digging holes and a decent wage and all of the sudden his family issues are fixed, he is happy, prosperous, etc etc. Blasphemy!!!!!!!!!!!!!

  • wh10

    I am generally in agreement, that is the key statement. What makes you say we take our highly productive economy for granted?

  • Daa

    If voters are smart enough to regognize that taxes are not needed for spending, then they are smart enough to regognize that spending without taxation creates inflation.

  • Adam2

    The vast majority of skills that the government wants is financed by the government itself through education.

  • Cullen Roche

    Because MMT doesn’t even discuss it. I am the only MMTer who spends a lot of time focusing on productivity as a key aspect of the economy. The others just take it for granted and assume it will always be there. This is why inefficient govt frightens me. Chip away at that foundation of productivity and you start destroying the fabric of this country. Now, I think the govt can help us become even more efficient, but that requires the right approach. I don’t happen to think handing men shovels, guitars and pay checks is the optimal approach. But even then, I am veering into my own theory (which as of yet is undeveloped!).

  • Neil Wilson

    You’ve got to look at the evidence as best you can. Like climate change and dieting its about building up a picture of what’s there in the hope that you can make it better.

    A JG controls wage inflation by making the ‘elbow’ of the wage inflation curve flatter and tighter as the labour supply exhausts. It does this by reducing hiring risk in the labour pool making it more liquid as the quality goes down. You’re an investment guy, surely you can see that. You can’t skim the oil off an emulsion.

    Quite sad that it’s gone ad hominem like this Cullen. Over what. Helping a few people out by getting them to work in voluntary organisations rather than sat on the backside staring at the wall.

    Sorry if I’ve upset you. That’s never my intention.

  • Cullen Roche

    Interesting point. Studies show that education is the primary deciding factor in having skilled jobs and unskilled jobs. So why hire unskilled workers? Why not give them an education? Again, this could all be part of an innovation initiative (we know taxation causes UE so let’s spend more money into the economy in the first place!). Work from the bottom up! Don’t give a man a mundane job. Give him schooling. I don’t know how to fix this exactly and I’d have to do a lot more research, but we know govt can “afford it”….

  • But What Do I Know?

    Agreed. Thanks for all that you do here, Cullen. Why is it so hard to accept that MMT is (as you put it) descriptive and not prescriptive?

  • Cullen Roche

    No ad hominems. I was simply pointing out that your tone often gives a sense of absolutism. I think that your intentions are fantastic. I am sure you’re probably a great man. I don’t doubt any of that. I just doubt that you can prove, with any level of certainty, that the JG scenario is the optimal one. And none of this is personal to me. It’s all about other people and future generations. That’s what it’s ALL about. I don’t care about publicity or getting awards or having some theory attached to my name. I could care less about all of that. I just want to take the facts for what they are and disseminate them in a manner that helps the public decide on how best to proceed.

    It’s the theory in all of this that bothers me. And I feel like there’s a certain political aspect to it all that makes my skin crawl. I keep seeing people describe me as “politically right” or they use that silly example where I said I was unemployed after college (which I later retraced, but whatever). I am pro-choice. Pro gay rights. Pro legalizing marijuana. All of the big liberal social battles here in CA I’ve been firmly in favor of. My conservative side is fiscal with a healthy dose of skepticism towards govt spending. I don’t think that makes me some raging far right extremist though as some have portrayed me. But we’ve got people like Joe Firestone essentially trying to discredit me by labeling me this and that. It’s nonsense. Joe Firestone doesn’t know me from Adam. But he’s using politics to create this image of me being some rampaging capitalist who is walking through the streets tearing small children’s hearts out.

    It just all has a very very political feel to it at this point. And it’s not even the politics I disagree with so much as it’s the lack of factual evidence proving that political point….So, nothing personal. Not at all. This isn’t about individuals. It never has been.

  • BarbaraNH

    I am amazed at the dichotomy people tend to see concerning this issue:

    ‘old school’ (now there’s an oxymoron) = big-government socialist dreamers


    ‘everything but the JG’ = free marketeers only interested in how money works

    Socialists vs. Free Market Capitalists. Really? Must we keep returning to the same creaky old categories ad infinitum? Isn’t there ANY space in “reality” for any other construction?

    On the hope that there is, I have two questions for anyone who might care to help me out:

    Would someone please explain to me what the free market is and where I could see an example of it in practice?

    What makes the Market God always right? (and such a guru when it comes to how best to live together in society?)

  • phil

    How dare you question the Market God? Stoned to death, thou shalt be.

  • Cullen Roche

    As you smartly imply Barbara, the world is not so black and white. Everyone wants to take everything to an extreme end. We either have raging capitalists like Cullen Roche who tears small children’s hearts out and step on the necks of workers or we have the beautiful govt JG where everyone gets to play the guitar for a living for a decent wage. There’s a middle ground here. The key is finding it. Part of my thinking is to keep the path a centrist one. I don’t want the capitalists rampaging around defrauding everyone (which is why I am in favor of such harsh bank regs), but I also don’t want the govt giving handouts to everyone (which is why I am against becoming a JG worker – although I would love to be paid for my new job as a “Golf Course Engineer”!!). Sense the sarcasm before responding please! Doesn’t that sound reasonable? Can’t we agree on much of this?

  • Cullen Roche

    Better yet, come work for me where I’ll tear your heart out and eat it in front of you! (only after stepping on your neck and squeezing maximum labor at minimum wage out of you!) :-)

  • Leverage

    The JG is a political issue, just like we require governments to issue debt securities or we allow governments to tax the people.

    Economy is always about politics, no shit Sherlock. Even in an anarcho-capitalistic world economy it would be about politics. Because most of economy is defined around social relationships (of ownership, debt, power, hierarchy, whatever) and the ‘regulation’ (on a broad sense) of these relationships is always a sociopolitical issue (in this case the regulation between labour and capitalists).

    It doesn’t matter if you live in a hunter-gatherer society or in a modern developed nation-state. There is no such thing as an ‘objective descriptive aspects of economics’, that’s just a delusion of economists or pure propaganda to make the majority believe ‘there is no alternative’ to the status quo (like neoclassical economics). The pure invention of money is a sociopolitical construct and, obviously, it involves politics.

    Now there are pure economical considerations (what’s more ‘efficient’ from a productive point of view), but even then word such as ‘efficiency’ have to be defined (efficient for whom?).

  • phil

    Further to the ongoing MMT/JG mini civil war (oh why can’t you all just get along?):

    Randall Wray (2007):

    “Further, in a dynamic and complex economy, growth and policy have differential
    impacts across sectors (Minsky 1961, 1964, 1965, 1968). There are always leading
    sectors, merely expanding sectors, and lagging sectors. This alters the various “tradeoffs”: efficiency and equity trade-off; the Phillips curve’s inflation and unemployment trade-off (Minsky 1968).
    Economic growth can raise demand and output in the leading sectors, inducing rising prices that feed through to CPI-measured inflation, even with substantial unemployment across the economy; conversely, employment can rise without raising prices if it occurs in lagging sectors that operate below capacity. Higher growth alone is not an appropriate goal of economic policy (Minsky 1965, 1968). Policy makers must consider the impact that growth has on allocation, distribution, employment, and prices, which, in turn, depends on such sectoral effects. For this reason, economic growth is better seen as a possible result of policy that seeks to improve distribution and employment (for example), rather than as a goal in its own right.
    Financial factors matter, affecting market processes, as well as the efficacy of
    policy (Minsky 1957, 1964). Policy analysis must include careful study of the
    implications of policy changes for balance sheet positions. Each policy mix implies a mix of private debt and government debt, which in turn affects private behavior. As will be discussed below, an investment-led growth strategy implies growth of private debt relative to government debt, which affects the financial structure in ways that might generate instability.”

  • wh10

    I’m glad you wrote this Cullen. From the vantage point of someone who hasn’t researched the JG, I view your position at times to be very reasonable, but at other times you go off and write “blasphemy” and veer into the black and white small vs large govt ideology debate. I should give you more the benefit of the doubt :).

  • phil

    He goes on to say:

    “… but that aside, appropriate policy must always aim to preserve the ruthless Killer Instinct and spirit of Self Reliance (as demonstrated by Dr. Roche, Ph.d, MMT [2011]), which as we all know is the true source of economic dynamism and prosperity…”

    smiley face (I don’t know how to make them)

  • Cullen Roche

    It’s never about MORE output. It’s about better output leading to better living standards. There’s a delicate balance there. I plan on finding it.

  • Mark

    Cullen, thanks for your response. I think I get the function of taxes under MMT. The problem that I have is that once you tell voters that taxes aren’t needed to fund government operations, then I think voters will have hard time with that, and will doubt the legitimacy of the tax regime, leading to greater tax avoidance etc.

  • Cullen Roche

    Oh no. Don’t use my rampaging capitalist joke against me!

  • Cullen Roche

    Well, this is why it’s important that the monetary system maintain some semblance of stability in achieving the goals of the people. You cannot just enact a tax on people, point a gun at their head and say “pay up”. If you build a monetary system that serves the true goals of the people then they will be happy to avoid going to jail in order to participate in that system. But build a system that goes against the will of the people and they will try to get into jail so they can tear your system down from the inside!

  • geerussell

    “So your whole scenario is based on a theory that the currency users will even pay the tax. The govt doesn’t KNOW it will get 10 people to pay the tax. It hopes it has built a strong enough union within the people that the majority of the people will remain loyal to what previous generations have built.”

    As I understand it, the “state” portion of “state money” is also the monopolist on the legitimate use of violence. They prefer you to be happy, loyal and self-motivated in the payment of taxes but if not, behind every tax collector is a man with a gun.

    Are there exceptions to this arrangement where taxation is not ultimately coercive?

  • SS

    Maybe the most poignant thing you’ve ever said.

  • Mark

    Thanks Phil

    I understand that MMT recognizes that there is a problem of currency rejection and inflation if government spends too much. My problem is that severing the link between taxes and expenditures, which MMT seems to do, is going to tend to deligitimize tax payments.

  • Cullen Roche

    It’s only coercive to the extent that we allow it to be coercive. Behind every man in uniform with a gun is 100 Americans with guns. This has played out hundreds of times throughout history. The state is not a tyrant and if it acts as one it will be demolished.

  • Mark

    Exactly.And I think that people are also likely to rise up against a system(at least by way of a tax strike) that says taxes aren’t needed to pay for government expenses-isn’t that pretty much what the Tea Party has already done?

  • Dan Kervick

    I really don’t understand this criticism, Cullen. Of course the government does hold a gun of some sort to people’s heads.

    Yes, many people pay their taxes willingly and uncomplainingly because they have some sense of social solidarity, and are happy to contribute their fair share to the running of their government. Some view taxes as the inevitable participatory cost in a free society. Adam Smith said, “Every tax … is to the person who pays it a badge, not of slavery but of liberty. It denotes that he is a subject to government, indeed, but that, as he has some property, he cannot himself be the property of a master.”

    But obviously, tax payment is also a requirement of law. If you don’t pay your taxes, you are fined and have to pay higher taxes. And if you don’t do that you are prosecuted as a criminal. Government uses its general powers to make and enforce law to enforce its tax system. So it holds a gun to our heads. Of course since we voted for these laws, in some sense we have voted to hold the gun to our own heads.

    That said, I am not fully sold on the MMT reliance on the specific chartalist concept of “tax-driven money” as it’s sole explanation of how a government successfully sustains the universal acceptance of its monetary system. The power to impose taxes and to declare what it is willing to accept in payment of those taxes is only one of several powers, it seems to me, that modern governments rely on to preserve a currency monopoly within their jurisdictions, including the power to shut down attempts at establishing competing currencies.

    I think you make a good point about the role of what people want. The fact is that in our modern world people know what it is like to have a stable monetary system organized around a currency unit that is universally accepted. Modern money systems are a technology, and an extremely useful one whose value everyone instinctively appreciates. People thus want there to be such a system. If they ever found themselves without such a system, they would want the civil authorities to create a new one expeditiously and take measures to establish and stabilize it. They want prices measured within that system to be as stable as is practicable. They want to be able to make contracts with convenient monetary terms and want the nature and performance of the terms of those contracts to be predictable and consistent over time.

    So custom and convention alone play some role, I think, in sustaining the public’s reliance on the established monetary system, with governmental power serving to buttress that system, make it more reliable, regulate aspects of monetary exchange and terms of monetary debt, prevent the emergence of a confusing motley of competing private currencies, and exercise monopoly control over the mechanisms by which additional units of the established currency are introduced or withdrawn from the economy. The power to impose taxes is one means government can use to make sure people continue to seek to acquire the currency and rely on it, rather than drift away toward currencies the government does not control.

  • Cullen Roche

    I am not saying taxation does not create demand. I am simply pointing out that the relationship is more complex than the traditional MMT explanation states. Therefore, the traditional MMT argument is incomplete and leads to incomplete conclusions (such as the JG).

  • geerussell

    Generalize to any government. They vary in how they derive legitimacy and arrange institutions for the application of violence but they all hold a monopoly on the legitimate use of it. Following from that they all use the monopoly on violence to underpin the ability to levy taxes. Those tax obligations drive money. Hence, MMT.

    Whether those taxes are levied with velvet glove on free and happy campers in a constitutional republic or squeezed from the oppressed people of a tyrant regime, non-compliance is met with violent coercion.

    Any government is liable to be overthrown should it exceed its mandate (whether from heaven or the people) but while a state exists they all seem to share those essential attributes.

    If this is not the case and MMT is wrong on the foundations, where are the exceptions?

  • Wantingtoretire

    Are you saying that without taxes on the private sector there can never be unemployment, since you indicate it is government that creates unemployment…..?

  • Cullen Roche

    This has played out time and time again throughout history. This country was ultimately founded upon the failure to coerce settlers with various taxes that they viewed as infringing on their living standards. The settlers did not roll over just because there was a tax imposed. It did not make their currency immediately in demand. The relationship is much more than that! So we threw their currency in a river and picked up guns instead.

    The goal is finding that balance where the state does not infringe on the living standards of the currency users to an undue extent. Over the course of the last 30 years we have swayed too far towards the capitalist free market ideals and now people are mad. But that does not mean we should overshoot to the other side now…

    I’ve now realized that this is where Warren and I part ways in our thinking. I’ve never agreed with his point on currency demand (and my primer is substantially different from other MMT primers in this regard), but I never knew how it influenced his JG proposal. So we’ve come full circle.

  • phil

    MMT doesn’t sever the link completely. It just attempts to identify when tax is really necessary and when it isn’t. In an economy utilising MMT, governments would still have to justify their spending and taxation on economic, political and moral grounds, regardless. People would still argue about how much to spend and how much to tax, what to tax and what to spend on, etc. Politics would not end, nor would taxation be any less ‘legitimate’ than it is considered to be today. However the illusion that taxes directly fund spending would be broken and instead people would be able to have a more informed and knowledgeable debate.

    Warren Mosler advocates lower taxes in general, arguing that the government could run larger deficits than it is at present without necessarily having to concern itself with issuing further debt. His point is that a lot of tax is useless right now, so why not have a massive payroll tax holiday to get us out of this recession? Demand-pull inflation won’t be an issue for now given that we’re operating far below productive capacity, with huge unemployment.

    An MMT government would still be judged on its ability to deliver the correct mix of spending, taxation, interest rates and other policies.

  • VII

    Cullen this is for You.

    I trully believe you’ve created a tribe here at the TPC. We don’t always agree with each other but we all have something in common.

    You’ve created something special. Thought I’d pass this on….I’ve been a little negative and this pulled my head out of my ass. It goes with out head is placed firmly where it supposed to be. I posted some negative market calls then realized that I was actually preatty optimistic about many areas.

    I’m rabbling as usual. Hope you enjoy this. :-)

    I’ve had some business ideas which I’m about to set out to start doing. You inspired me in many ways. Thanks!

  • Cullen Roche

    That’s the goal. Not to impose beliefs on each other. I want to pass on the factual understanding of the way things work. That’s why this whole debate sprang up to begin with. It’s not my goal to push you in any direction. But if we understand how things work then we’re likely to move in essentially the same direction (to some degree!). I think the traditional MMTers are mixing facts with theory (and that some of them have strict and at times extreme political agendas). I just can’t do that….Sorry.

    And thanks VII. I’ll have to watch later. Gotta run. Have a good one.

  • innertrader

    It seems that mankind never learns, therefore we obviously have to continue to return “the the same creaky old categories”. There is always someone that wants something for nothing… I guess it’s part of human nature.

    ANSWER: 1) I don’t need to explain “what the free market is”, all I need to do is show it to you, it’s self explanatory… 2) so, here it is; just check it out at, “”. It’s called a “bid” and an “offer”. Or better yet, I have a car for sale, do you want one? So far, this market is still free; I can “offer” and you can “bid” with no restrictions… at this time. There is no government program financing your bid and guaranteeing your loan (if needed), that I know of anyway!!!

    I don’t view it as the “Market God always right”, I view it as the Market God is 1000% better than whatever is in second place. Actually, it’s not a matter of “right” or wrong, it’s a matter of balance. I actually view a free market as being too low about 25% of the time and too high about 25% of the time, with the balance in the 50% in the middle. But this compares to the socialist model being out of balance 100% of the time. Why did Russia fall if socialism works? Why are we in trouble? Our Federal Socialist programs and the FEDs getting in the way of Free Markets! The FEDS are directly responsible for the bull market in housing in the early 2000s and directly responsible for it’s complete collapse in 2008. Yet the politicians that created this disaster take zero responsibility for their actions and the citizens aren’t holding them responsible… amazing!

  • phil

    “It is the introduction of State Money (defined as government taxing and spending) into a non-monetary economy that raises the spectre of involuntary unemployment.” (Mitchell)

  • phil

    “Modern monetary theory (MMT) is clear – mass unemployment arises when the budget deficit is too low.”

    There’s more to it than that of course, so you’ll have to read a bit.

  • SS

    Mitchell assumes that taxation precedes productivity so he creates this easily understandable example of two people. But that’s not at all how fiat currencies came to be. As John C states above, we were not sitting around starving waiting for the government to hire us all. We agreed to create the government knowing that there are potential costs in doing so. So we all agree to give up something in order to have something for all of us (like an army). That doesn’t mean the army was free. No, you pay taxes to allow the system to allow the existence of the military. It doesn’t mean you “fund” it, but you agree to give up something for it (some of your personal wealth). That affects your living standards. Really. And it might effect it negatively if you live in a country that is at no risk of being attacked or doesn’t even need a military (as I believe most modern societies don’t).

    This is also wrong: “the taxation provides no additional financial capacity to the government of issue.” Of course it does. If we all stop paying our taxes then the government goes out of business. As Cullen keeps noting, there seems to be no appreciation for what drives taxes other than a gun held to people’s heads. The old skool MMTers have this wrong.

    Since the government creates the unemployment then it should alter the net financial assets to employ people. That doesn’t mean its job is to hire everyone. And it doesn’t mean that 0% unemployment is the optimal operating level.

  • Willy2

    Money = Credit. But it’s a different kind of credit. You can pay for your groceries with money (i.e. banknotes). Try to do that with a pile of T-bills. Assuming the treasury still prints T-bills.

  • FDO15

    Bill Mitchell is politically motivated. 100%.

  • FDO15

    And I know we’re all a little bit politically motivated, but that guy is so far left your neck would break if you tried to look that far left.

  • phil

    your last sentence is kind of what people have been arguing about, although no one has actually said that the govt should hire everyone or that 0% UE is optimal. I think people seem to have agreed to disagree.

    Mitchell acknowledges that it’s a very simplified model.

    Keynes: “money has been chartal (state money) for the past 4000 years, at least”

    “the taxation provides no additional financial capacity to the government of issue” is one of those MMT phrases that are often followed by “… but”

  • SS

    It’s easy to see his political motivations. He created the JG before he discovered MMT from Warren Mosler in the 90s. So he wanted large government welfare programs way before he justified his findings with MMT. But now he uses MMT to justify his political beliefs.

  • SS

    I think that’s Cullen’s whole point (one I think he is right about the old MMTers are wrong about). None of this is free. But MMTers think it is free (some have even said it’s free in previous discussions). Cullen is pointing out that the real cost is living standards. There are real costs to all of this stuff that government gives to us. It might not “fund” anything, but that doesn’t mean it’s free.

  • FXTrader

    In other words, it’s one of those MMT phrases that are total bull shit. Except when you have a political agenda to promote.

  • jonf

    I am not sure I get the productivity thing, but if you were to just drop money out of a helicopter you would likely get inflation, if too much hit the ground. The question seems to be how much is too much? Can we give any sum we want to the unemployed and the elderly without knowing if there is sufficient productivity? Productivity is more than resources, as you need to be able to use those resources. If there is sufficient productivity, you are free to do so many other things to improve people’s lives, like education.

    I think some make the assumption that we can pay whatever we like since the resource is available. But unproductive payments will not help. Again, how much is too much?

    The JG does seem to me to be integral to MMT, but I am still trying to understand the whole thing. The reason I say that is it does seem to hold on to the price level and only allow it to go up when those people in the JG go back to work. Although once you hire someone off the JG you are paying that person more money per hour and is that not inflation? But then raising interest rates or taxes can control it.

    Unemployment just does not work. Millions don’t collect it and the consequences for them is simply unacceptable. So something like the JG sounds right. But I love the debates here. Keep it up.

  • Adam2

    The thing is…. FDR did do a lot of those things. Of course it is not perfect.

    “The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;” – Labor Rights were strengthened… see Labor Review Board

    “The right to earn enough to provide adequate food and clothing and recreation;” – minimum wage laws were enacted

    “The right of every farmer to raise and sell his products at a return, which will give him and his family a decent living;” – Farm policy has made this almost certain.

    “The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;” – Antitrust Division inside DOJ was established by FDR in 1933

    “The right of every family to a decent home;” – HUD was established by FDR in 1937

    “The right to adequate medical care and the opportunity to achieve and enjoy good health;” – Medicare and Medicaid

    “The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;” – Social Security

    “The right to a good education.” – GI Bill

  • Adam2

    How about a guaranteed education buffer stock?

    Yes the stats do say with more education there is less unemployment. Let the facts guide us…

  • phil

    FX Trader:

    I think that’s bit harsh. The key word is “financial”. Many MMT proponents say things like “the government is never financially constrained” and then “…but” (inflation, etc). Cullen often says something similar, along the lines of “the government has no solvency risk” followed by “…but” (i.e. the govt can never be insolvent, but it can still basically be ‘bankrupt’ if it really screws up!). But then other MMTers also argue that a govt/central bank can quickly put a stop to problems like hyperinflation by quickly changing policy, if it’s not completely incompetent/corrupt, etc.

    I agree Bill Mitchell has a political bias, but then again so does Cullen. So did Mises, Friedman, Keynes. You probably do too. As Cullen wrote above, certain things in MMT are facts and certain things are theory. Mitchell’s probably about 50/50, though his arguments are well made and backed with substantial evidence and research. You may disagree with that assessment, but there you go.

  • geerussell

    “In fact, the base case for any environment is having productivity that can be taxed to begin with. So naturally, productivity precedes taxation, not vice versa as Warren’s base case states”

    Let’s compare this to the base case Warren put forth:

    “Back to the beginning

    The govt wants to move real goods and services from private to public domain.”

    A plain reading of this is the private sector is productive else there’d be no real goods and services to move from private to public domain. You state it explicitly, Warren states it implicitly. That’s agreement with a difference in emphasis.

    Just to drive home the point, let’s insert it and see what changes:

    “Back to the beginning

    (there is an extant productive private sector into which a state money regime is introduced)

    The govt wants to move real goods and services from private to public domain.”

    Ok, now it has the point about productivity explicitly stated and… the foundation is unchanged. The govt still wants to move real goods and services from private to public domain, it levies a tax payable in its currency of issue for that purpose, and so forth as Warren elaborated.

  • Kristjan

    “taxes are endogenous” is probably the silliest statement I’ve read so far. So should be the interest rates if you follow this line, you have them too high and there is going to be revolution!

  • hangemhi

    Yeah, the right to an education…. oh what a horrible socialist.

    Oh wait, as a father I am guaranteeing my daughter’s education, her health care, a home, opportunity, etc, etc, etc. I guess I’m a socialist within my own family.

    The reason liberals believe many of these are “rights” is FOR THE POOR and under-priveleged, and most especially for children, because we know that the well-to-do provide welfare for their own children. If we allow their poor parents to suffer, and education, food and health care aren’t a right, then we are assuring their kids failure.

    We are all OK with rich mom and dad providing welfare to their own kids. But not for rich government to provide for their “kids”. The GOP is so wonderfully ok with the rich providing welfare to their own family that they are assuring welfare for the wealthy by getting rid of inheritance taxes. The original Ford, the original Walton, the original Hilton…. those were the job creators. Their kids get to love off the family teet. Not only that, they get to run the families companies. So we have socialism for the wealthy.

    If your skin is crawling as you read my words…. too bad for you. You will never convince us that “free markets” are the be all and end all. That corporate welfare and inter-family welfare is ok, but government welfare is not. Our social programs, like SS, welfare, medicare, etc have NOTHING to do with Socialism. True socialism is the banning of capitalism. It is killing opponents. It is crushing intellectualism. It is taking care of the poor in propoganda only. It isn’t even remotely close to what FDR wanted.

  • Cullen Roche

    I’m all for it. Education is key. Give our kids an education. But don’t think you can give a man’s life meaning by handing him a shovel so he can start digging his own grave….

  • Cullen Roche

    I think you’ve misinterpreted Warren’s position. This is how he explains it:

    taxes and money

    Posted by WARREN MOSLER on October 23rd, 2009

    [Skip to the end]

    you are addressing a room full of people.

    you tell them taxes turn litter into money.

    you try to sell your business cards to the group for $5 each.

    probably no takers.

    you offer your cards to anyone who stays to help clean up the room

    no takers.

    you then point to the man at the door with the 9mm who’s the tax collector, and no one leaves without 10 of your business cards.

    you then repeat the questions.


    And how do the cards get valued?
    Simple, the monopolist sets the terms of exchange.

    Or as Randy adds:

    “Other factors involved [aside from taxation] in acceptance of money as a medium of exchange are not causal in that they do not create a necessity for its acceptance, only a convenience.”

    Not pretty, huh? Productivity is assumed. But not a key part of their theory. I would argue that that’s a huge hole missing here. They seem to have no concept of the cause of hyperinflation and why living standards and productivity matter to the currency union more than taxation. Instead, it’s ALL about pointing the gun at your head and making you do what the govt wants. It has a very Soviet feel to it….As an old friend once told me, “The taxman can use his power to collect his share of pie, but the taxman can’t use his gun to motivate you to bake a bigger pie.” Ain’t that the truth.

    I sort of brushed Warren’s comments off at the time, but it’s all come full circle now and I realize that they are wrong. And they lead to wrong conclusions about policies like the JG as well….

  • geerussell

    Yes, it’s ugly. I do read it differently than you though but I’m 100% open to the possibility that I’ve got his meaning all upside down and backwards and you’re correct.

    I read that as nothing more than a very simplified example to demonstrate that the monopoly on violence, the man with the gun, anchors the ability to tax which anchors the need for the currency. The ugly, coercive pit that resides at the center of every state money regime from the first king to stamp his face on a gold coin to modern fiat.

    Not that there’s anything wrong with that :) My personal bias is towards incremental improvement of the system we have.

  • Cullen Roche

    I’m merely pointing out that MMTers have the focus entirely wrong because they don’t understand what really holds the currency together. We don’t put up with the govt so we can pay our taxes. And there is a real cost to the govt’s existence. These points seem to fly right over MMTers heads leading them to crazy conclusions like the JG is some sort of free lunch….boy is that wrong.

  • rfr

    Right now, we have people doing nothing and being paid for it (unemployment insurance) or else engaged in criminal enterprises, or else living VERY minimally and sponging a bit off friends and family. Couldn’t these people be forced (at the point of a gun, basically) to enter a government jobs program doing disagreeable but easy (i.e., even low IQers could do it) jobs such as grafitti cleanup, trash pickup, etc? And wouldn’t that result in more production than what they are doing now? Yeah, yeah, I know it’s a free country.

  • Robert Rice

    That isn’t strictly correct. Consider my counter example: the theory of evolution was regarded as such long before any experiments were performed to substantiate its tenants. Theory is often based on historical data, some of which is repeatable/testable. Big Bang theory comes to mind as another theory without experimental repetition as an option.

  • rfr

    And Cullen, I think you underestimate how much taxes are paid because the populace is forced to do so. I know *I* wouldn’t pay any taxes at all, if I could get away with it.

  • rfr

    BTW, yesterday at 7:15PM hangemhi had an excellent post in which, as a layman who has read the MMT primer, he asked some good questions which were basically ignored. I’ll paraphrase one of them “In what way is all money debt?” Who owes what to whom?

  • chris

    i can pay for my groceries with currency, a check (physical credit), or a credit card (digitized credit).

    also, i am the monopoly issuer of my own credit.

    and if that credit is “money good”, i am as a credit issuer essentially equivalent to being a currency issuer.

    so it all comes down to credit worthiness. greece’s problem is not that it can’t issue currency, it is that it can’t issue “money good” credit.

  • Cullen Roche

    I answered his question. So did many others. No????

  • Pierce Inverarity

    You’re taking this a bit too extreme here. The problems we’re in are LARGELY due to deregulation of the banks. Cullen has made this point time and time again. You have to find a balance between Somalia and North Korea.

  • rfr

    Okay, then, I guess it is just my question. How is money always debt? When I have a wallet full of bills, who owes me? It seems to me money is more like a guarantee of value.

  • Pierce Inverarity

    I say this here a lot, but definitely read Debt: The First 5000 Years.

    The cash in your wallet is a promise by another person, at some point in time, to provide you with goods or services.

  • Dan Kervick

    Cullen, I’m very confused about what kind of connection you are drawing between productivity and the established currency. Obviously productivity is an extremely important thing in the economy. But your talk about productivity in connection with the acceptance of any particular medium of exchange, and your suggestion that adding the missing factor of productivity somehow poses a challenge to the chartalist theory of tax-driven money, just seems to me like a case of mixing apples and oranges.

    Even in describing a purely hypothetical barter and production economy we could apply the concept of productivity. So what does productivity have to do with a monetary system and its acceptance?

    People can attempt to establish any monetary system they want and conduct their transactions using that system. In fact people sometimes do so, and create local systems of scrip and such. But in our worlds these amateur monies never catch hold and become broadly accepted media for exchange of accounting measures. The world we live in is one in which government power clearly pays a role in establishing a monopoly currency system, keeping it in place, and limiting the role of would-be private competitor systems. I don’t really see how the appeal to productivity helps in explaining the nature of this process.

    You might be right in holding that MMTers don’t think a lot about productivity and take it for granted. But I think that is an issue entirely separate from their account of how modern monetary systems function.

  • Cullen Roche

    Read the pieces of paper in your wallet. They say “for all debts public and private”.

  • Patrick

    Actually, I would very much like a list of MMT’s weak points.

  • wh10

    For the record, I’ve definitely read Warren, Mitchell, and Auerback on hyperinflation, and they all emphasize the spending beyond productive capacity point is central. So they seem to implicitly recognize its immense importance.

    Let’s be honest, the JG has been the catalyst for your claim the MMTers take productivity for granted, since you believe there is a substantial risk of it leading to a productive decline (at least one that warrants further research). But apparently the MMTers, based on their research thus far, simply don’t believe the JG would lead to a productive decline. Both sides are theories though, and it doesn’t mean MMTers take productivity for granted. You just think they haven’t researched it enough- and you probably won’t ever stop thinking that until there are multiple real world examples that suit your preferences. I’m not saying that’s unreasonable, I’m just stating what I’m reading.

  • rfr

    I guess you guys are used to this econo-speak, but it is off-putting and confusing to the layman. If something can pay off debts, to me, that doesn’t mean it IS a debt. It’s the opposite of a debt, in fact.

  • Dan Kervick

    Well, I think you are giving a little too much credence to contractarian theories of government, and not enough to the nature of actual historical power relations. Although popular consent is an important form of capital that governments rely on to perpetuate their rule – some historical governments more than others – there are a lot of other tools that allow power to be concentrated and organized.

  • wh10

    Cullen, I think you’re trying to go a step further than the state theory of money. You’re trying to lay out a blueprint for a sustainable, flourishing economy. The state theory of money isn’t trying to do that, and I don’t what law says it should. Why should ‘maximum sustainability’ be a requirement for a valid theory of state currency? The theory is just laying out what’s minimally required- the ability to enforce a tax (whatever makes that possible, from the most beautiful society to the most ugly, oppressive regimes- which there are tons of examples) and something to tax (which implies productivity). I don’t think many people would disagree with you that the satisfaction of the people is an important ingredient to sustaining a society. But again, that’s a level up from the state theory of money.

  • Dan Kervick

    No, I don’t think so. In general people are not legally bound to exchange something with you for your cash. But debt is an aspect of a binding contract.

  • Cullen Roche

    I don’t deny that they say productivity matters. But it’s clearly not the focus. It’s a secondary concern. The primary concern is getting to full employment and price stability. We have different targets. The JG is just a piece of this puzzle.

  • Dan Kervick

    I don’t see how that makes money debt. If people were required to accept Scotch whiskey as payment for debts, that wouldn’t mean that every bottle of Scotch is a debt.

  • Dan Kervick

    I agree with you. But in some cases, for some kinds of debt, a debt X owes to Y can be used by Y to pay off a debt Y owes to Z, after which it becomes a debt X owes to Z.

    The theory is that money is a debt instrument and represents a debt the issuer of the money owes to the bearer of the money. Personally, I have some problems with this theory, but this isn’t the place to spell them out.

  • Cullen Roche

    All money is a social debt between parties. When you drive into Exxon and buy a gallon of gas you give them a certain amount of $ with the understanding that they are selling you actual gasoline. When you walk into the store and buy a soda you are giving them a piece of paper in exchange for what you expect is a soda. If it turns out to be something else you’ll get angry and demand a refund on your payment. These are forms of debt agreements even in the most finite of periods. All “debt” as we’ve come to know it is, is an extension of this agreement. You want to buy a lot of coke today, but you can’t afford it so you borrow from someone who charges you a fee for it. The only difference between the first and second scenario is that your duration and fee were different.

  • Cullen Roche

    Well, I’m more interested in the operational aspects anyhow. That’s kind of my point. So, it’s not MMT because I don’t agree that the JG is operational. If I came up with a theory of full productivity or whatever it would obviously be separate, but one thing would be clear – I would not mix the operational with the prescriptive. That’s a big change from MMT.

  • Patrick

    Make that kid a physicist in fact, if he’ll do it, and have him figure
    out those damn fuel cells. Instant economic renaissance.

  • Bootsie

    OMG. This is all so bewildering and will never stand a chance with the general public (such as me). MMT/S/O should slowly be let out as descriptive. The gift of Monopoly supplier of currency that has the world’s confidence is the central tenant.

    Prescriptive MMT is exceedingly problematic as there are sooo many variables in society, economy, day to day ensuring the prescriptions will become perversities (Fannie and Freddie guaranteeing loans to low income borrowers under the political framework of increased homeownership, is/was the basis of the ballooning of asset values and the current credit crisis/balance sheet recession)

    Daily Human Productivity in the US is it’s greatest asset. We get up everyday and accomplish truly great things compared to the rest of the world. Watching video of other countries, so many men/women/children wandering about doing little every single day. These countries and their currency are not bankable without commensurate risk premium (if you can even get that). It is a broken corrupt society nation that results in hyperinflation.

    US daily productivity is THE Bankable, money good asset, hence the UST marketplace. This is only accomplished in a country as diverse (the most diverse) with low tax rates, low regulation and strong national security/defense of law and order, property rights. This freedom is paramount to continued US productivity. The best and brightest will strive for more innovation and greatness creating jobs and businesses for the rest who also work very hard everday providing for family and all that entails. Their sons/daughters/grandkids will have their shot at best and brightest.

    If the government raises taxes, regulates to silliness and inefficiency (and corruption), when the government seeks to create markets (solar, wind, etc) that are unable to remotely stand on their own and then is seen as lining the pockets of owners/supporters. This results in a cynical population who no longer sees fruit of labor, who sees cronyism and corruption and class warfare. This is the greatest risk to daily human productivity and the end of the US as we know it.

    MMT describes productivity and any prescriptions (if any) must point in the direction of greater freedoms to productivity. A strong, impervious military is always a worthwhile spend: engineering, materials breakthroughs, trained labor, feed the massive military industrial complex. And the military is subject to competitive pressures: the rest of the world! We are 10x greater than any other military, we should be 100x greater.

    Spend on infrastructure projects are worthwhile: engineering, materials breakthroughs, trained labor. Develop a US Energy policy, exploit the natural resources, mankind should rule (in an environmentally favorable manner) nature.

    Spend on education: University hard sciences, research and development. Leave K-12 alone however! Let kids be kids.

    Anyway I ramble.

    MMT and really the strength of the UST and USD is based as CR says Daily US Human Productivity.

  • Charles

    One thing that is true and is not a “theory” is men have egos and that will never change. Wars have been fought over ego, and great ideas broken over egos. Now that one man has a somewhat mainstream site and was not a ‘founder’ the egos have come to fruition. Now we have the pissing wars, and we revert back to our animal brains.

    So at least one thing is consistent.

  • Dan Kervick

    Cullen, I don’t think that kind of consideration shows that money is debt. You could make a barter contract with the gas station owner and trade the gasoline for a new set of wiper blades. After you pump the gas, you owe him the wiper blades. You have a debt. That doesn’t make the wiper blades themselves debt. The wiper blades are what you owe, but not the social fact of your owing them.

    Money is one of the things exchanged in most actual exchange contracts in a modern economy. So it is often that which a debt requires one to hand over. That doesn’t mean that the money is the debt.

  • chewitup

    We as humans do seem to let the pendulum do it’s complete arc before we change behavior. Frustrating.

  • chewitup

    Productivity is addressed in the sense that it creates unemployment in the short run. What to do with displaced workers? I guess that’s the whole issue.

  • rfr

    Thanks for the elaborations, Dan. Perhaps in the days of private money or the gold standard currency was debt in the sense that it represented a statement that the issuer of the money OWED the bearer of the bills that amount of gold (or silver in some cases), but today there’s nothing I can get from the government by presenting my dollars to it (AFAIK). It’s just a medium of exchange.

  • Cullen Roche

    Why is debt relegated to pieces of paper? You seem to just be making your own definition of debt…

  • warren mosler

    without enforced taxation there is no state currency as we know it.

    and yes, taxation alone doens’t make the world go round.
    (man does not live by taxation alone?)

    but it is the force that we use to provision the govt, for better or for worse.



  • Geoff

    I’d be interested in why you disagree with the theory because I also tend to view money as debt of the issuer. In the case of US dollars, the issuer is the US govt. The dollar is a liability of the US govt, as are Treasury securities, which is why US dollars and Treasury securities are essentially equivalent (along with reserves to complete the NFA holy trinity). QE was a non-event because it simply swapped one US govt liability for another.

  • breed101

    Mosler’s base case should be redefined in the terms that the amount of money that is being created in the economy, by whatever mechanism, should match the amount of money that is being taken out of the economy. A steady amount of money in the system would create price stability. Well, duh. In other words, the water coming out of the faucet should match what the sink is draining out, while leaving enough in the basin for liquidity. And why does this need a job guarantee? And to be blunt, his concept is so easy to understand, there should really be no great hurrah for figuring this out in the first place. It’s like being described a genius cause you look up and say the sky is blue… Trust me, when people catch on, there is going to be a lot more crowd into this space, so use the time now to get ahead, and actually develop workable implementations of this theory. And JG is really just kind of retarded. When has government guaranteed anything and it worked out? It should be called more aptly, we will give people something to do so they don’t get bored guarantee – cause thats the best you are going to get through government.

  • BarbaraNH


    The way I interpret the phrase “all money is debt” is not that money, the paper, IS the debt. But, first, that money is universally accepted in payment of any debt (including taxes). It represents a universally agreed-upon promise that everyone down the line will accept it in payment for anything anyone wants to buy, now and in the future, and it has no other value except as that promise. Second, the money system we have now is based completely and utterly on everyone’s promises-to-pay, or debt. Banks create loans, which are nothing more than their promise to make good on whatever it is you want the loan for. We can even leverage our promises themselves (money) with additional promises that are at one remove from the original one. Even beyond that, with derivatives for example, you can leverage other people’s promises. It’s all just debt, promises to ‘make good,’ usually with money, which is itself a promise.

  • Cullen Roche

    You seem to be forgetting your American history! The Coercive Acts were announced by England in 1774 following the Tea Party. When they were denounced by Americans the British sent 4,000 troops to occupy Boston. When that didn’t work they sent their entire armada and military! Talk about enforcement! But enforcement is not enough. Taxes can’t be forced on people….

  • Cullen Roche

    Better to think of all money as a social construct that can be represented by anything…a promise, a piece of paper, a bar of gold, etc…

  • J Kra

    Monetary Realism fits the bill. Cullen, you’ve got the power here. All you need to do is write a new post.. a “declaration” if you will.. stating that from now on when you speak of MMT, you are referring to the theory that includes the JG as integral.

    Further, when you are referring solely to the descriptive aspects of MMT, or the “operation realities” of out monetary system, you will from now on refer to that as Monetary Realism (MR).

    Use your “semantic sovereignty” :) and make the declaration already!

    You are now an MRer? (yuck) Or a MRist? (a little better)

    Cullen Roche is a Monetary Realist! (an MRist?!)

    Are you???

  • J Kra

    (reposted here from below)…

    Monetary Realism fits the bill. Cullen, you’ve got the power here. All you need to do is write a new post.. a “declaration” if you will.. stating that from now on when you speak of MMT, you are referring to the theory that includes the JG as integral.

    Further, when you are referring solely to the descriptive aspects of MMT, or the “operation realities” of out monetary system, you will from now on refer to that as Monetary Realism (MR).

    Use your “semantic sovereignty” :) and make the declaration already!

    You are now an MRer? (yuck) Or a MRist? (a little better)

    Cullen Roche is a Monetary Realist! (an MRist?!)

    Are you???

  • Dan Kervick

    Barbara, the way I see it is that there is a hierarchy of money – as described (I believe) by Stephanie Kelton and others. Broad money includes bank deposits and similar financial liabilities that are very liquid media of exchange. They are created in the process of making binding promises – acquiring debt. These debts that banks owe us can be exchanged very readily for goods and services and serve the function of money, and so in the case of bank deposits at least, money literally is debt.

    But what are these debts of? What does the bank owe us by virtue of having these debts to us? They owe us something further up the hierarchy. Some liquid, exchangeable liabilities might be debts requiring the transfer to us of other debts. But ultimately, the pyramid of liabilities terminates in something that is not itself a liability to pay something else. In the commodity standard days that might have been a precious metal of even something else that has a life as a commodity in addition to whatever role it plays in a monetary system. But in the fiat currency era it is base money that is not itself a debt to pay something else.

    So then the question becomes, if there is some form of money which is not itself a legally binding debt, what gives people the confidence to accept it in exchange for the goods and services they are offering? I don’t think we can say that the base money is a tacit debt from the rest of the society to give you something. In general, people are not required to surrender anything to you when you wave your money around. If nobody is bound to hand anything over, then the money doesn’t correspond to a debt they own you.

    There is an answer inspired by David Hume: Just as we expect the sun to rise every day without fully understanding why the sun will rise each day, similarly we expect most people to accept certain quantities of our money in exchange for goods and services tomorrow simply because they accept those quantities for the same goods and services today. And this broad social pattern of expectations, based on nothing but our habitual disposition to expect the future to be like the past, is enough to keep the pattern self-sustaining and self-reinforcing. The philosopher David Lewis built on this style of explanation, and added some game theory to develop a theory of convention that accounted for the reasonableness of the expectations.

    I think this gets us pretty far, but doesn’t explain the long term stability of modern monetary systems, and the evident role of government in administering, stabilizing and influencing these systems. I think purely conventional monetary systems would experience much more frequent flux and catastrophic changes than the actual systems we use do. Fortunately, governments can do a lot with tax laws, laws governing the payment of debt, and laws giving it monopoly powers over the production of additional units of the currency to stabilize and perpetuate base monetary systems.

  • Adam1

    Yes to be clear it has to reside on somebodies balance sheet as a liability. if the government stopped issuing bonds the currency would still sit on its balance sheet as a liability. For a fully soveriegn fiat currency issuer the bond issuance (debt issuance) is optional.

  • BarbaraNH

    Ok, all money is something that REPRESENTS value in an exchange, as opposed to something that has actual and equal value to what we’re exchanging it for. It can be in the form of anything that everyone agrees on.

    Now, it what sense does money become debt? To me, in the sense that it doesn’t represent anything concrete which DOES have value, like gold. It’s a piece of paper. What gives the $ value is that it represents the full faith and credit of the U.S. government (i.e., U.S. people). People everywhere trust that the U.S. will always make good (pay not matter what, even if it means raising taxes now or in the future) because it has always has paid, and because the society is politically stable and economically productive. It’s the on-the-ground conditions, backed up by the promise to do whatever it takes to make good, that gives the $ its value. Even if conditions change temporarily, such as in an economic depression, people trust that the U.S. will do whatever it takes to make good on its promise to pay.

    That’s what was so contemptible about the Republicans threatening to not raise the debt ceiling. Our economic conditions are not good now and our deficit was at its legal limit. But the thought that under such circumstances the government would even consider not paying its bills is reckless and unthinkable. Trust is not something that comes lightly. Those fools don’t deserve the honor of being in the U.S. Congress since they clearly don’t know what kind of responsibility they have.

  • phil

    Surely it would be more accurate to say that all money is a liability, rather than a debt.

  • Dan Kervick

    If a dollar is a liability of the US government, Geoff, what is it a liability for? The only thing you are guaranteed is that you can exchange it for is another dollar. It’s not like once you hold a government dollar, the government now owes you something. But if I own a promise by you to pay me a bottle of scotch, then that promise is my asset and your liability. When the debt is discharged I gain something and you lose something. But if I go to the government and exchange a dollar for another dollar, which is all the government is legally committed to do, neither of us gains anything.

    And I don’t think we can say that a dollar is a liability of the government just because you can use it to extinguish a tax liability. If you owe me that bottle of scotch, your promise to me is my asset and your liability. The bottles of scotch in your possession are some of your material assets. But bottles of scotch in your possession are not any of my liabilities. Similarly, the dollars in the possession of taxpayers with which they can discharge their tax liabilities to government are not themselves government liabilities.

    I think the official classification of base money dollars as liabilities of the government is a bookkeeping fiction that creates the comforting illusion that the financial system is a closed finite loop where everything balances out, and that the government is an entity subject to meaningful balance sheet constraints, and which could even be in a position of negative equity. But the monetarily sovereign government in a fiat monetary system cannot meaningfully go bankrupt. Instead the government is more like an infinite pit of potential money, where money is born and where money goes to die. And the amount of money that goes out or comes into the pit is almost entirely dependent on government policy decisions, without any meaningful bookkeeping constraints.

  • Adam1

    Assuming for a moment when you say “money” you mean some currency in existence; in the monetary systems in existence today (to the best of my knowledge) all “money” only comes into existence when a liability is entered on someone balance sheet. When the government issues bonds it creates money (although as a fully sovereign fiat currency issuer this is an optional task – they can simply issue the currency and add the liability straight onto their books without issuing the debt if they chose). When a bank issues a loan a deposit is also created, which is a liability on the banks balance sheet. The collection of taxes theoretically destroys money and the repayment of bank loans destroys bank deposits. The basis of “credit money” is to create money by creating liabilities. Even under the gold standard the central bank accepted gold in exchange of gold reserve notes which were a liability to the central bank.

  • Cullen Roche

    Another good example is the bank bailout. Our money is always debt, credit. Credit is based on trust, from the latin credere. We trust that the US government will be responsible with our money and promote its soundness. So, when we decided to bailout the banks we were directly infringing on this idea. We essentially stated that its okay to defraud people and default on your debts because someone will come in and back stop you.

    I think barter even mistakes money for debt. When you trade something you’re trusting that they’ll actually provide payment. Payment could come in the form of anything. But even for that one instant where you don’t have it in your hand you’re trusting that you’re getting something of equal value. There might not be an interest rate attached to it, but it is a debt if even for the briefest of moments. “Debt” as we’ve come to know this is just an extension of this….

  • Cullen Roche

    What’s your thinking there?

  • Dan Kervick

    Payment could come in the form of anything. But even for that one instant where you don’t have it in your hand you’re trusting that you’re getting something of equal value.

    I think that’s a good point Cullen. It seems to me that debt arises from contracts, whether formal legal contracts or informal promises. For contracts between two parties, each party has to perform some act. If the two acts are to occur at different times, then once the first party performs the required act, the second party is now in the first party’s debt.

    This is a problem I have with David Graeber’s book on debt. He holds, I believe, that the very concept of debt cannot exist outside the context of a monetary system. But I don’t think that is true. (This is a separate question from the question of whether the institution of money and the institution of debt arose contemporaneously.)

    I’m not so sure though about the claim that money is debt or credit because we trust the government to take care of the public’s money and preserve its soundness. When we drop our kids off at school, we trust the school to take care of them and return them to us in a condition as good as or better than the condition they were in when we dropped them off. But that doesn’t mean kids are debt or credit.

  • BarbaraNH

    Dan, these are really good points. The hierarchy of money is something I don’t know a lot about, but yes, it ultimately comes to the point where nothing of value is promised in exchange, except maybe cancellation of our tax debt.

    I think you’re right that it is people’s expectations and the strength of social and historical patterns that support its acceptance, and I agree we cannot say that others are bound to give anyone anything in exchange for money if they choose not to. If this happened frequently, we’d have a problem.

    But as you say, people are bound by law to accept money in payment of a debt, which nearly everyone incurs at one time or another in their lives. So I think that goes a long way too. If people didn’t have confidence in the authority of the government to enforce the laws governing debt, then the expectations we talked about earlier would also be meaningless.

    The stability of the monetary system is only as good as the stability of the society that uses it and, ultimately, the government that issues it, I suppose.
    It’s a matter of stability and trust, and whatever else besides stability that the trust is founded upon. \

  • Cullen Roche

    I totally agree with you. I actually take it through an evolutionary chain of events in my own thinking. For instance, we find debt in primitive apes. They have been found to trade sex for groomings. It’s a sort of “scratch my back and I’ll scratch yours” agreement. But it’s not a barter system. It’s a debt. A social construct. And if you don’t pay up…well, in the animal kingdom they don’t take kindly to those who don’t repay….You can actually find this throughout all social animals. I had this exact convo with Graeber right after I read his book. His only comment was “interesting….” Of course, the hard part is convincing people that we’re evolving. :-)

    Also, you aren’t giving the kids as a form of money. But you are paying someone to offer a service for you. This is why taxes serve as a form of debt payment. We pay into a system that binds us through social agreements. When the govt bails out banks they’re stabbing us in the back (extreme, but I hope you get my point).

  • BarbaraNH

    Cullen, I think trust in money having value and trust in the government to use our money wisely, are actually two different things. This is not to say that government actions do not affect the value of money. With the bank bailout, however, the government was using our money either wisely or unwisely, depending on what the circumstances truly were and whether you agree with their judgment of them. (It might have been wise to backstop bankrupt banks if, for example, their failure would have lead to a sequence of catastrophic economic events, for example disruption of energy flows, multiple major industrial failures, etc., that would have caused problems much more serious than the one that arises from backstopping a legitimate default.)

    You could lose trust in the government to use money wisely without losing trust in the money itself.

  • phil

    The government imposes a debt on part of the population (it demands payment of taxes in its currency of choice). This debt is the government’s asset. Against this asset it creates a liability (money), in the form of a promisory note. The govt promises to accept this note in the payment of taxes/ elimination of debt. It is a liability because when it is returned to the govt, it destroys the govt’s asset, i.e. the population’s debt.

  • Cullen Roche

    I am not so sure that I agree. Money is a creature of the state. But the state is a creature of the people. They’re all intricately intertwined. Lose faith in your govt and you start losing faith in the currency. Just look at the gold rush today….that’s not only due to China and the Euro mess. It’s people losing faith in our govt and our money….I’m no extremist. I think the gold rush is nonsense in the long-run, but there’s real motives behind its rally….

  • Wantingtoretire

    Yep, and if you are referring to US dollars you should state US dollars and not use the term “money”.

  • Cullen Roche

    The accounting is unnecessary. Think of money as a social construct and nothing more. It’s always a promise to deliver. The govt uses it to promise to deliver certain things to the public. We use it to promise different things in the pvt sector. The various notes the govt makes are just different durations of these promises.

  • phil

    The govt then offers the promissory note to whoever is willing to provide the labour the govt requires.

    Note, this need not be those upon whom the tax has been levied.

    For example the govt could declare that any traders entering into the city must pay twenty shekels in tax. It then offers shekels to whoever is willing build the new palace. The workers who turn up to work then take their hard-earned shekels and sell them to the traders at the city gates in return for chickens and cloth, and so the currency is established

  • Cullen Roche

    Right. But who creates the govt in the first place? Those same people! So the govt is just establishing a social construct at our command. How does it enact these social constructs? With money!

  • Cullen Roche

    This is why I’ve now realized that MMT is wrong. It’s not about coercion and the power of the state. It’s all about the power of the people and the social construct they create. Money is not about state control. It’s about the control of the people. MMTers think of state money as this exogenous form of money. And while specific, it is not that different from any other type of money. The whole starting point of MMT is wrong!!!!

  • phil

    A government can arise within a given population through a combination of general consent and/or the establishment of a monopoly on force. The two are in constant tension. Sometimes the force is imposed from without, or by a powerful group from within, sometimes it is established by general agreement. Sometimes it’s a combination of the two. The most successful societies (in the long run) combine the monopoly on force with general consent in such a way that the majority feel they benefit. Either way, once the power structure is in place the govt can impose a debt upon the population (a legal obligation), and thereby establish its currency of choice.

  • phil

    But as you say, the govt still has to have something which allows it to impose a debt by fiat. This can either be the threat of violence (in the case of an autocracy), or it can be a democratic mandate to create laws given to it voluntarily by the population.

  • phil

    In the latter case the majority of the population agree to allow the govt to exercise force in order to uphold its laws.

  • Cullen Roche

    That doesn’t change the nature of the money though. It’s still a social construct. And I am beginning to largely reject the idea that violence is the binding force here. Taxes are not based on coercion. They are based on the social construct. If the state oversteps that social construct then the state gets crushed. The MMT idea of taxes drive money is wrong.

  • phil

    The problem with most chartalist descriptions of state money is that they tend to start with an imagined autocratic state ruled over by a king of some sort. This is due to the fact that this is generally how it was throughout most of human history. It also makes the description a lot simpler.

    It would definitely be useful to reformulate the basic description in terms of a modern democratic republic, like the US.

  • Cullen Roche

    I’d go even further back through our evolutionary history. But that’s going to change MMT into a totally different idea. Which is basically what I am evolving into….

  • Dan Kervick

    Cullen, I don’t think MMT is at all committed to the idea that a state is external to the economic system or to the people who inhabit that system. Governments are socially constructed entities with the organized power to make and enforce laws. But those powers might derive ultimately from the consent and democratic participation of a people who sustain the state and its law-making powers in order to govern themselves. That certainly doesn’t mean that everything we do is voluntary. Even though I might consent to the existence of the government and even participate actively in its political processes, I still might be rip-roaring angry about some particular law that was passed, and might even obey that law solely because I fear the legal repercussions that would come from disobeying it. And others might not even consent to the existence of the government, but refrain from withdrawing themselves from its unwelcome influence due to the high costs of doing so. Modern societies are not simply clubs of happy and willing volunteers, cooperating willingly and cheerfully on such projects as they happen to agree with, and going their own way when it comes to projects they don’t agree with.

    MMTers are realistic about the reality and influence of governmental power in the monetary systems that currently exist; and they make various suggestions about how that power might be exercised to fulfill public purposes. But it seems to me their accounts and recommendations are applicable both to governments that are very democratic and republican, and to those that are not.

    It seems to me this is the most important power where governments and public monetary systems are concerned: governments use their power to maintain an exclusive legal right to the manufacture of new units of the currency – whether that manufacture occurs via a printing press or a computer keyboard. I can try to cook up some dollars of my own in my basement. And I might even succeed to some extent. But if I am caught, I will be charged with counterfeiting and thrown in jail. And I might even try to create my own monetary system, and succeed to some extent. But if that system becomes too significant and starts to interfere with the functioning of the public’s system, the government (in our own case, acting on behalf of we the people and executing laws that have been democratically legislated) will move to shut it down.

    The government, however, cannot counterfeit the production of a currency it has the sole license to produce. It can produce as many units legally as it wants. So then the question just becomes what policy purposes are served by manufacturing more of the currency, and distributing them in various ways. We want our government to maintain a smoothly functioning payments system and savings system, with relatively stable nominal prices to the extent that is practical, and with minimal transaction costs of the kinds that would be associated with using a motley collection of different private monetary systems, with ever-fluctuating relative values. The monetary system is a public utility.

    Of course, being forced to conduct commerce in a variety of competing private bank monetary systems might be good business for you guys in the money trade, who could charge a lot of fees for innumerable daily exchange transactions. But it would be a pain in the ass for most of the rest of us :)

  • phil

    You can’t get rid of the issue of force/violence/coersion however. The law is upheld by the implicit threat of force and enforced by the use of force, of course. However in a democratic republic if the laws are deemed to be unjust or undemocratic by the majority then the state will eventually lose its ability to enforce them.

    I think you’ve touched on an important point. Whilst law and tax establish the currency, for the currency to be accepted and viable in the long term the laws and taxes must be seen to be just by the majority of the population.

    So I guess in a democracy a binding agreement between state and populace precedes the imposition of debt by fiat. That is, a constitution!

  • phil

    Yes but in a democratic republic the state is supposed to be “of the people, by the people, for the people”. So the two are not really separate. The people obey the state, and the state obeys the people.

  • Cullen Roche

    They’re part of the social construct. That’s kind of my point. There’s a given and take. It is not a one sided monopolistic view of the world where the supplier must set prices on everything and coerce you into making the system work.

  • Malmo


    Are you now saying that you are disavowing all that you have previously written regarding MMT? Good grief!

  • Cullen Roche

    No, just clarifying some of the key constructs that I now realize I disagree with. The operational aspects are what they are and that’s been the primary focus of this website. So, no retracting previous thoughts or beliefs. But I am clearly not an MMTer as the “founders” envision. That doesn’t mean the operational aspects aren’t true or that my articles have been wrong. It just means some of the politics and prescriptive aspects have muddied the waters and need to be cleaned out through a new clear set of guiding principles so as to avoid confusing me with what other people believe to be MMT.

  • phil

    I don’t think that the MMT view is that the supplier must set prices, only that it can if it chooses to, for the advancement of ‘public purpose’.

    My little example with the shekels sketched out how the establishment of a currency by the state can give rise to free trade amongst independent individuals. In that example you can see how too much spending could lead to inflation, how traders might increase supply to meet the increased demand, and how they might also save excess shekels and then later use them to employ others.

  • Cullen Roche

    Must is too strong a word. Should is probably better. That’s why the JG is embedded as part of MMT. This is what makes it a “theory” in the first place. The whole thinking is based on the idea that the state has a responsibility to act forcefully as the price setter….

  • phil

    Of course, according to the principles of functional finance ‘public purpose’ doesn’t mean “what the state wants”, but rather what is good for the non-govt sector as a whole. And it’s up to the population to decide what that is through the dual processes of democratic government and free trade.

  • AndyB

    sorry im still trying to get my head around all this but not being an economist certain parts i struggle and your productivity point is confusing me, tell you why (whether the JG is a free lunch or not) i dont get your argument because by your reckoning the USA is the only productive country and its the only innovators because it doesnt have a large safety net? the USSR was the first country to put a satellite in orbit and a man in space (im definately not arguing their system was the best, its absolutely abhorent to me, did their living standards rise over the time it was the USSR, yes but very slowly compared to the west but nevertheless it did rise) As im English are you saying we dont innovate and we are not a productive society? look around you plenty of British inventions… in fact our computers are talking due to protocols put in place designed by a brit, your smart phone at its core probably uses a brit designed processor. Even now the UK really punches well about its weight, Germany has a very good safety net are you seriously trying to tell me they arnt productive?
    It seems to me if i have it right (and if not i totally apologise) that you are concentrating on a small part of society that could be helped and saying that because of the what in normal times 4 to 5% we are talking about that its going to make the rest of us unproductive? I want to get on in life nevermind whats happening at the “bottom” of the labour market
    as for your musician point, at first i laughed and nodded and then realised i have quite a few musician aquantinces and even more surpising it was actually quite a percentage, 1 guy i know even runs an opera company

    cheers, love reading your site and everyones comments, like how you show the rail traffic stats, might want to look at airfreight and seafreight as well (and not just fedex on the air side)

  • Dan Kervick

    But Cullen, don’t you get the same conclusions pro or con the job guarantee whether you say that the monopoly power over the public monetary system is exercised by the people acting collectively or by “the state” considered as some exogenous entity?

    I mean, suppose we had monthly online plebiscites in which every adult citizen voted on exactly how much new currency should be issued by the government that month, and then proceeded to a series of votes on what to do with this money – spend it on things; buy financial assets with it; bolster bank reserves with it, etc.

    These actions would clearly have major impacts on prices and other economic phenomena. There would be all kinds of intense public debates and lobbying over these decisions.

    My guess is that you would still have people like Warren and Randall Wray and Bill Mitchell arguing that, we should create a job guarantee program and then manage it as a buffer employment stock. And they would still be arguing that we need to do things this way because our previously enacted taxation decisions are partly responsible for creating the unemployment in the first place. And they would still be arguing that because of the inviolable laws of coherent stock flow accounting it is necessary for the public, in times of collapsing aggregate demand, to expand the public deficit to meet public savings desires and restore demand. And they would try to get people to vote accordingly during the online plebiscites.

    And you would have opponents of the job guarantee arguing against them for a variety of reasons.

    So I don’t think the key MMT results and arguments depend on any kind of authoritarian theory or picture government, as opposed to a picture of government in which power strongly rests with the people and is applied in a very democratic fashion. In either case, you have government making laws and setting policies..

  • Ben Wolf


    If we accept that then the most accurate way to think of money is as anti-debt is it not? Just as anti-matter annihilates normal matter, bringing money into contact with the debt effectively destroys the debt. This is incidentally how I visually model assets and liabilities netting to zero.

  • Cullen Roche

    Not sure where you’re getting the notion that I claim other nations aren’t productive? Can you elaborate….

  • phil

    I think there’s a lot to be said for setting a wage floor and aiming for a better distribution of wealth however (ideally through investment and regulatory policies rather than through excessive redistribution). Whether this should extend to a JG is moot point.

    This is all very debateable. There’s the Keynesian idea that excessive wage cuts are self defeating and the Minskyan idea that disproportionate distribution of wealth leads to excessive debt and financial instabilty. On the other hand you have the view that the market should set wages without interference, and that this could be offset by a basic income or wage subsidy.

    I think a good thing about what you’re doing is that you’re breaking open the hermetic MMT world and opening all of these things up for debate. Ideally I’d like to see competing versions of MMT, rather than seperate schools which ignore each other.

  • Cullen Roche

    Well, I think what’s happening is that I am becoming an offshoot of Warren’s ideals. Kind of like the circuitists (differnt starting point I know) but probably with more in common. We’re still friends. Don’t worry. We just disagree on some of the details. :-)

  • Pierce Inverarity

    Phil, can you hit the reply button on the lower right of responses to your posts please? It’s getting increasingly difficult to follow your conversations. Thanks.

  • phil

    An important outcome of your USD viability triangle diagram is that it hints at how complex the interrelationship between state, population and free market really is. Many MMTers seem to want to simplify it, which is a mistake.

  • AndyB

    sorry this bit and other things like it but will concentrate on this for the moment,

    Why don’t we all just join the govt dole and work as musicians (a JG job listed)? Then we can all live happy lives singing to eachother. Sounds nice, huh? Too bad living standards will never increase, but don’t mind that. :-)

  • Cullen Roche

    Yes! It took us a long time to come to that simple conclusion! :-)

  • Dan Kervick

    The public does have a choice in the matter if they run their government. MMT simply puts forward arguments claiming there is an optimal way of running the monetary system, given the way it is set up as a kind of public utility over which the public exerts monopoly control. Lot’s of economists make recommendations about what they take to be the best way of doing things. That doesn’t mean they are saying there is no choice.

    Think of it in comparison with other utilities like radio broadcast frequencies. We could have a totally unregulated free market system for radio broadcasts, in which private people and firms fought it out to preserve access to some portion of the spectrum to get their messages out. Maybe they would buy all kinds of fancy jamming equipment, etc. to fight off competitors who want to horn it on their slice of the spectrum. This seems wasteful. So we have a regulated system. But because we have such a publicly regulated system, the public has additional responsibilities that it wouldn’t have otherwise, at least insofar as the public is interested in achieving the most socially beneficial results. isn’t it just the same thing with the monetary system?

    Cullen, it seems to me that your real beef with MMT job guarantee aspect is with other aspects of the JG analysis, not with the “state theory of money” as such. There is a lot of additional reasoning going from the state theory to conclusion of the need for an employed buffer stock. Isn’t this the statement from Warren that is the most subject to challenge:

    “The tax ‘unemployed’ the labor from the private sector that the govt then hires, which was the point of the exercise to begin with.”

    By the way, when Warren says:

    “this creates sellers of the real goods and services it wants to buy who now want the govts currency of issue in exchange for their real goods and services.”

    it seems to me you are interpreting him to mean that the government’s creation of a currency and a tax liability payable in that currency is responsible for the very existence of the production and exchange of real goods and services. But I take it all he means is that the government’s creation of the currency and tax liability are responsible for the creation of a market in which people are willing to exchange the goods and services they produce for that currency.

  • AndyB

    the UK rubbish at music, wish we had the rolling stones, the beatles, david bowie, clapton etc etc… oh wait…. Have quite a few good golf course engineers though… obviously not me playing off 18 on a good day !! ;)

    seriously though, i just dont see how the JG would have any affect on not wanting to improve living standards or any kind of welfare scheme, no doubt be some who would be quite happy on but do they have any effect now i doubt it as they are probably lost causes anyway
    Although i am realistic enough to know you would have more than just serious trouble getting it past some of your countrymen, I frequent a rather geekish hobby forum where politics do get talked about, some of that lot would be grabbing their guns with even the suggestion of something like that
    sorry rambling now

  • phil

    You’re still going to have to properly counter the MMT claim that state money “raises the spectre of involuntary unemployment”, at some point.

  • Cullen Roche


    This is a very specific point that a lot of people have misconstrued about my perception here (not that you are necessarily). It’s not that I am against the JG. I just don’t necessarily believe it is the optimal policy to implement to achieve our long-term goals. Of course, I have different goals than guys in ivory towers so that’s a big difference, but it is what it is.


  • AndyB

    completely with you on education, unfortunately the lot in power here now are not only cutting teachers and are then putting up the fees to university (ok i can see some point in fees for some courses, arts, media that sort of thing… but physics,engineering etc should be actively encouraging them) its complete madness and i voted for them cos the other lot are as bad… could drive someone to drink i tell you!

  • Cullen Roche

    Well, I’m all in favor of the govt altering the NFAs to fix what it causes. There’s never been any dispute over that…..I just don’t agree that the JG is the optimal approach. MMTers say we can’t reach FE without the JG because inflation will surge and ruin the party. But I don’t see that the JG is a price anchor at all. It’s a price buoy as I described the other day. And then we have Warren saying the other day that the only goal of the JG is to serve as a more liquid buffer stock (a questionable claim) so the comments seem to be conflicting….

  • Cullen Roche

    Seriously. They’re doing the same thing in the states. We are cutting education because we think we’re out of money. Gotta run. I’ve spent too much time here already today! Have a good weekend everyone.

  • AndyB

    fair enough and cant argue with that, people are people i spose and i would want assurances/checks that something like that we would be protected against well us really

  • rfr

    Anti-debt. I like it!

  • rfr

    Holy cow! Just when you’ve convinced us all that MMT is right, YOU decide it is wrong! Oh, well, we’re listening.

  • Dr. George W. Oprisko

    Cullen, you must be a Republican. Most certainly you are not objective.

    You claim to embrace MMT, but only those features you like. The inconvenient ones, those
    which support labor against capital, you don’t.

    An excellent theoretical treatment of JG was given in one of the earlier comments, mine is not theoretical.

    Only a govt run JG program can embrace the arts as worthy of remuneration, and I include the full gamut of music, poetry, photography, sculpture, drawings, and paintings. While private patronage does exist, traditionally through the centuries, it has been government which supported the arts, except in Sparta of course. Thus we have the Taz Mahal, Pyramids of Giza, aqueducts of France, the parthenon, and numerous others.

    I agree that the JG is much kinder to the social structure than Unemployment or the dole, and further propose national service for all young adults between 18-24. This would deal immediately with the current crisis this age group faces, offering employment school debt forgiveness, and the opportunity to develop useful skills, while delaying the onset of child rearing in this group and thus slowing population growth. This program could employ 12.5 million at a cost of $100 billion annually. Those in it would harvest fruit and vegetables, put up hay, plant trees, prune forests, cull diseased timber, nurse the aged, provide community policing, fight fires, man the 6 uniformed services, go to university on full scholarship, complete technical training, apprenticeships, and many other useful things private enterprise currently does not engage in, like sandbagging levees, repairing bridges, double tracking and electrifying 66,000 miles of mainline rail way.

    It’s about time the discussion shifted away from denigrating govt to figuring out how to make govt work again, and in my view, the first thing that need to are all the arcane rules imposed by the Republicans so they can claim to offer benefits, but don’t.


  • BarbaraNH

    Cullen, in a democracy the State IS the people. It only has legitimacy as long as the people agree it does. When they don’t agree, they’ll challenge it.

    In the case of the U.S., there were multiple currencies in the colonies and everything was fine. But when the discussion started about creating a federation of states, the whole matter of money was brought to the forefront. At a certain point (I don’t remember the date offhand), the representatives of the various colonies, now states, agreed to a single currency. This was a consensual decision — the people gave the power to institute a single federal currency to the new state.

    Of course the ultimate power is with the people in the a democracy. But that does not nullify the power, now a power of the state because the people gave that power to it, to issue a single currency.

    I just can’t see the distinction you’re making. The State has the “coercive” power precisely because the people have given it that power. The fact that the people are ULTIMATELY in charge doesn’t deny the PRESENT and ACTUAL power the State now has. (Sorry for the caps – I don’t know how to do italics here).

  • chewitup

    Just to be clear, doesn’t the JG only set one price? And and all the others follow- the point being to control inflation. Sometimes you make it sound like the JG would lead to a command economy.

    By the way, i think a golf course engineer is worth more than $10/hr.

  • Ramanan

    “We don’t live in some authoritarian state where men with guns walk around shooting people because they don’t do the govt’s bidding.”

    Agree very much.

    Reminds me of the Buckaroo. Never really thought of it as a currency (doesn’t appear on fx trading systems’ bid-ask quotes!)

    There is no currency really in the usual sense. The students are just forced to do some social work. They can’t say no because they won’t be able to go to the next semester. It’s an authoritarian/dictatorial society.

    The Buckaroo doesn’t really prove anything.

    The JG arguments have really made me question things about MMT I wasn’t doing earlier!

  • Cullen Roche

    You embarrass yourself when you attack me politically. I am a fiscal conservative, but far more centrist than right in this regard. The fact that I am a pseudo Keynesian proves this.

    Socially, I am pro choice and pro gay rights and pro just about everything socially liberal. Welcome to beach town California. So please take your accusations and enjoy your weekend slinging them at other people.

  • Cullen Roche

    I’m not creating something new. All the old lessons still apply. We’re just taking a little detour. You’ll like what I come up with. I think it will make a great deal of sense (at least I hope!).

  • BarbaraNH

    Indy, I’d advise staying clear of making assumptions about personal loyalties. People here, including Cullen I think, seem to be really a mixed bag on the whole, and applying labels doesn’t advance the discussion; it only makes people defensive. As to the points you make, I think they’re good as far as they go. The question at the moment — or at least one of them — is, is a JG (or something like it — let’s call it an employment buffer stock) economically effective and desirable, or would it dampen people’s initiative as well as their opportunities to get ahead, as a result of the direct or indirect consequences of a JG? (At least that how I’m framing it to myself.) Beyond that, there’s the question of whether it’s politically feasible, but I suggest that’s something that should be dealt with separately from whether it’s a ‘good and effective idea’ or not.

  • http://. Octavio Richetta

    So I finally finished reading Cullen’s primer on MMT. What can I say? There is So much to say…

    A good starting point is the title of this post theory vs practice.

    So as a. First sentence i will say that communism and centralized planing work wonderfully in theory. But there is. Plenty of evidence of how, due to human nature, they have failed miserably…

  • http://. Octavio Richetta

    Take out the first and last period which my iPad threw in for free:-)

  • BarbaraNH

    Sorry if I’m being dense, but it actually isn’t clear at all.

    Warren says the taxman points a gun, and you say it’s more complex than that. Well, the taxman does point a gun, and it is more complex than that (of course it is, and Warren would no doubt agree that it is). I think he’s talking in the sense of when push comes to shove, bottom line, etc. The government can put you in jail if you don’t pay taxes or abide by existing laws governing the use of the currency. But of course there’s a whole range of social, political, and economic complexities involved in how the government’s coercive authority actually works out in society. Do you agree, though, that the state does have a certain coercive power, which we have given it? There is a ‘bottom line,’ so to speak? (This is not to say the government will always and forever have that power, under all conditions, only that it does have it now, because we agree to it.)

    Warren says that as the monopoly supplier, the state has a responsibility to create an optimal operating environment, but you disagree. What do you disagree with? Isn’t it only fair and just that the single, unique supplier of the currency – a thing everyone needs, if only to stay alive – as well as the single ultimate authority that we all recognize willingly, should concern itself with the environment that its (our) the currency is used in? If the government, through laws and regulations, etc., shouldn’t create an optimal environment, that what should create it, and how would that other entity be more fair and just than the elected representatives of the people who make up the society that uses the currency? This is an important question.

    Warren says we have the choice of other means besides the JG by which to create an optimal environment (though he thinks the optimal choice is the JG). We do have other choices, but again, what are they and, most important, how are they better at creating an optimal environment than the monopoly supplier (that we authorize)?

    I don’t agree that “MMTers” claim we have choices but that they’re ‘false’ ones. There are other choices; what’s false about them? If they would work better than the JG, then how? The thing is, in answering this question, we need to compare the different choices on the same set of criteria, at least as a beginning. Otherwise we start mixing apples and oranges.

  • phil

    The point is that the monopoly supplier of the currency can choose who to favour…

    The generally accepted point of view within MMT circles seems to be that it is better to inject money into the base of society than into the top (as opposed to the current orthodoxy, which seems to see the preservation of fantastical bank remuneration as the most important goal).

    As far as the MMTers are concerned, it would appear that financial injections into the base ultimately lead to better overall socio/economic outcomes than classical Keynesian ‘pump priming’ – which over time only seems to benefit the usual wall street gangstas, hustlers and hoes (poetic licence at play here).

    An underlying theme within MMT (which is logically derived from Keynes, Minsky, Lerner, etc), appears to be that inequality is actually detrimental to long-term output/productivity.

    A better distribution of wealth actually leads (in theory) to a more functional societal and economic system – less bedeviled by financial collapses, and more capable of providing the economic/social opportunities so lauded by the right- wing of the political spectrum.

  • phil

    But as a red-blooded capitalist I reckon that that’s all just a load of soviet bullshit… hang on, what’s the gold price? Shit you’re kidding me, BUY! No, wait, SELL! Oh crap I just lost a million dollars. Hang on, Hold!.. No wait Sell.. oh shit BUY! F*ck I have no money left… click click BANG! (All losers go to heaven)…

  • Dan Kervick

    Isn’t the price fixing only a feature of the fictional “base case” where every one is an employee of the government at the JG wage? In the real world situation the job guarantee only stabilizes prices. It doesn’t fix them. How is this different from any other school of thought about monetary policy? Government has a role to play in stabilizing prices. Not only is this standard fare in economics, it’s codified in US law.

    I don’t get all this fuss. For years people of various stripes have had limitless criticism of various MMT proposals that posit a strong role for government. MMTers have routinely said government should make aggressive use of fiscal policy and run large deficits to boost aggregate demand. They have said deficits don’t matter much and the debt ratio is unimportant. This is radical stuff for mainstreamers, but not for MMTers. So why when the government role turns to hiring people do we suddenly get a sh..storm from formerly supportive people?

    MMT is a part of the Keynesian tradition that says that private sector activity by itself can fail to generate sufficient aggregate demand to employ all of the workers and purchase all of the output an economy can produce, and that when such demand shortfalls occur, government has to stand ready to expand its deficit and spend to restore demand and full employment. I thought this was well-understood and well accepted. The JG proposal is just one specific proposal about how the government should implement that demand regulating role.

  • phil

    Seriously though, I know what you’re saying.

    Capitalism is about capturing the essence of competition – that which has spurred man on for millenia.

    Socialism (in all of its multifarious forms) promises a short cut to eternal bliss (which of course is always just out of reach).

    The fact is that (socialist fantasies aside) life is hard – and the hardest individuals stand to both appreciate this fact to the utmost, and (potentially), to capitalise the most from this understanding.

    There is no crock of gold at the end of the rainbow. Instead, its always already about proving who you are and what you can do. And then it’s about enjoying the rewards, or else paying the price.

    Those who are cursed by life should be treated with compassion and respect – but society should not be built around them.

    Long live the winners.

  • phil


  • Cullen Roche

    Not sure if you’re actually serious or not. :-)

  • phil

    Actually I think I mean it. Society should be built on the following principles:

    Allow people to reach their maximum potential – Do not try to clip their wings.

    Make people realise that they have to take responsibility for themselves. Try to discourage people from offloading blame onto others.

    Give people the maximum opportunities possible. Use whatever means are at your disposal to ensure that the people achieve their full potential.

    Treat those who fail or are failed by life with compassion and respect. Understand that you could just as easily be in their shoes.

    Do what you can to help others, whilst ensuring that they understand that they must always ultimately take responsibility for themselves.

    Make sure that your actions are just, and ensure that the society you help to build is similarly just.


  • Anonymous

    I believe you exaggerate Comrade Roche.

    There is a long tradition in classical and neo-classical economics, and then also among many of the more recent heterodox thinkers, of arguing that we need government and an active public sector to achieve the best overall outcomes we can achieve for our societies. There is a massive and diverse literature on the nature and existence of market failures, on various inefficiencies of market-oriented economies, and on tendencies toward instability, crises and recession in complex financial market system that can only be combated with various forms of government regulation and participation. Marxian economics is only one classical corner of this very broad area of thought. The idea that we need some mix of private and public, with some combination of privatization and socialization is totally mainstream stuff.

    The public sector already employs a lot of people. It has always employed a lot of people. The public sector already buys a lot of stuff. It has always bought a lot of stuff. We’re only debating how many people it should employ, and under what circumstances. Since it’s demonstrable from historical evidence that the private sector routinely fails to employ all of the people who want to be employed, and since its pretty obvious that there is a lot we could do which isn’t getting done, then the debate just seems to be between those who think the public sector should always stand prepared to employ those people the private sector doesn’t want to hire, and those who think it is a good thing for there to me some significant amount of involuntary employment all the time.

    The laissez faire model promoted by contemporary libertarians has never existed – ever. And it is only during the past few decades that the Chicago school approach has been so dominant. Of course even Friedman with his vaunted “freedom to choose” preached a very active monetary policy directed by a government-run central bank.

  • Dan Kervick

    That was me Cullen, I didn’t intend to post anonymously.

  • Anonymous

    I’ve always thought of MMT as just a factual look at whats really happening. The US can’t default, thats a fact, it can’t run out of dollars, it doesn’t need to borrow before it spends, the bond vigilantes won’t be coming, … if the US gov’t tried to wipe out its debt it would in the process wipe out the savings of its people and cause a depression, deficits represent money created, etc.

    The JG is wholly outside of the sphere of “simple facts” and this recent ruckus and controversy over it threatens the gains that a “just the facts, ma’am” presentation of the things mentioned above (and others) would be able to bring to the world.

    Some recent comments and blogs seem aimed to politicizing MMT (and political views are sort of anti-facts), and whatever the case many of these recent arguments and debates are running wildly ahead of public perception.

    Nearly the whole of the econo-sphere still thinks the US is near “bankruptcy” and nearly no bloggers that you read realize that savings and deficits go hand in hand. There are literally dozens and hundreds of bloggers arguing AGAINST deficits while arguing FOR savings.

    Point out that the bond vigilantes can’t come, point out sectoral balances, keep it simple until the really basic points are made, and don’t destroy the momentum of MMT and the chance of it really actually helping the world over a big fight about a theoretical JG.

    That just seems like an epic waste. :)

  • Cullen Roche


  • Cullen Roche

    I’m by no means beating on some Friedman bible over here. I thought the man was rather destructive. But I do think that MMT takes things beyond mere Keyenseianism. I don’t use the term Marx as an insult. It just is what it is. Minsky had very socialist leanings and that influences MMT. Hey, it could be a good thing. Social capitalism could be the wave of the future. I don’t know….but I think the principles Phil listed are good and should not be forgotten. And those are more capitalist than socialist….

  • son

    CR, i think i really like where you are going. Cant wait to read more about your thoughts.

  • Anonymous

    I suppose. I suppose that whomever founded and named MMT has a right to include in it whatever they wish… Tremendous loss of brand recognition and goodwill in separating MMT (a familliarish name, and the one branch of economics that zeroed in on some facts) from, well, a facts-focused thing and politicizing it so aggressively.

    The power of MMT as a brand was always that it was right, factual. There’s nothing right or factual about political views. Super left wing politics will not quickly draw a grand audience. I don’t even disagree with the JG idea, its just absolutely the wrong thing to focus on so vehemently while the entire world still thinks taxes fund government spending and we may wake up one day, if China doesn’t buy our bonds, to a collapsed society. I think this whole turn of events is incredibly unfortunate.

    Is this MMT jumping the shark?

  • Ramanan

    Fully agree Cullen.

    To me this discussion which has been happening has been useful because I agree on many things with MMTers so I am interested in their views, opinions over time.

    There are some parts of MMT which I kind of overlooked even though it is all there – just didn’t strike. I don’t know how to say this, but I had to think for a while for the following attempt.

    I can categorize people (apart from WM/WM/STF/PRT/LRW/SBK and other academicians such as Forstater who blog less) around here in two. In the first category, I will have you, Winterspeak, JKH and a few more who are more interested in monetary operations etc. So they are interested in details such as accounting, national accounting, banking, central banking and all that. They may get interested if some central banker gets it right -even if partly – and so on.

    But there is a second set of people who are more interested in concepts and ideas such as “public purpose”, JG, “End the Fed”, OWS etc.

    Most people actually fall in the second category.

    Of course there is an overlap so this is rough. It seems to me that MMT as in Soft Currency Economics is very different from MMT as in Modern Money and Billy Blog.

    I simply fail to understand when someone goes currency is for public purpose etc. The government is for public purpose, but currency?

    The Buckaroo experiment seems to want to demonstrate that currency is for public purpose but life is not as simple as you say.

  • Greg


    The truth is, it seems to me, if the govt doesnt act forcefully as price setter in SOMETHING then someone else will. In any system of money where people are allowed to accumulate as much as they can, once the accumulations reach a certain level they will become defacto monopolists. You can either have private monopolists or public monopolists. Pick one. In the US, with our mostly reasonable system of govt, I side with public monopolists. I dont trust any individual with very much power. Our system is NOT one individual and is therefrore inherently more trustworthy with the power than any individual.

  • BarbaraNH

    Phil’s list of social goals doesn’t include anything a good socialist couldn’t also agree with, so there’s nothing intrinsically ‘capitalist’ about it.

    For me the point is how to achieve those goals, and others, without sacrificing the guiding principles of freedom and justice. That’s been the question from the beginning.

    I just don’t see how we can achieve a free and just society if we accept a priori a certain level of unwilling unemployment as an intrinsic part of our economic system.

  • Cullen Roche

    I’m not saying govt shouldn’t intervene altering NFAs. But there are varying degrees of intervention….

  • BarbaraNH

    Large government labor programs based on the idea of coercive monopoly control? Authoritarian perspective? There are a lot of unfounded assumptions in that choice of words (and maybe a little fear of the unknown?) because they do not describe MMT, no matter what you may think of the JG.

    I don’t know where you get the notion of ‘coercive monopoly control’ from MMT or even just the JG.

    The monopoly aspect of money is a fait acompli, as you know, not something new from MMT. And the ‘coercion’ part (not a word I would use) doesn’t refer in MMT to the reason WHY people agree to use dollars (in the U.S. case), but only to the fact that once they have agreed to use them, they have to pay their taxes in dollars and in nothing else. Do you feel coerced into using dollars? I seriously doubt it. Do you feel coerced into paying your taxes? Possibly. That’s not as far-fetched an idea.

    Seriously, are you saying that what MMT argues is that some external, all-powerful government comes out of nowhere, makes up a currency, pronounces that it will be a monopoly, and then imposes a tax, thereby coercing people into using that currency? Is that what you interpret MMT to mean? Because that would indeed be authoritarian. But it is not what MMT say when I read it.

    Forget about the base case and why people use a monopoly currency for a moment. Let’s talk about a real case, like the U.S. dollar. Do you suggest that MMT, coming from an authoritarian perspective, says that people here use dollars because the government tells them to, and that it enforces that edict by levying taxes? I don’t hear that at all, and it would be wrong right off the bat if it did, because that isn’t how it happened! People were using all kinds of currency until they AGREED to use a monopoly currency issued by the federal government, and they did so because they thought they’d be better off for it. No coercion there. No authoritarian government edicts.

    What MMT says is that, when reduced to the most elemental function – the most basic element describing how that currency system works – it says, people use a monopoly currency because they need it in order to pay taxes. Now you can argue that imposing taxes is itself an authoritarian act, but that’s neither here nor there when it comes to MMT because MMT isn’t saying, “governments must impose taxes.” Taxes are a necessary part of any open economic system. All MMT is saying is that in a monopoly currency environment, taxes function as a claim on the population, and that claim reinforces the use of the monopoly currency. I see no authoritarian perspective there. It’s a simple explanation. Do you know of a different elemental function going on that keeps a monopoly currency going? If you do, maybe it will work better.

    I’m just very uncomfortable with the wrongheaded political interpretations being thrown around about MMT. It isn’t a socialist, authoritarian, coercive monopoly control economic theory, for god’s sake. It’s totally based in free enterprise! It includes the assertion, based on its theoretical models, that full employment functions better — more productively – in a free enterprise economy than partial unemployment does. Now if that theory is right, it could be a huge step forward. Working out how best to get full employment – well, that’s another thing. JG or something else, I have no idea. But turning away from investigating and discussing the theory, including the assertion about full employment, just because it might prove a few dearly-held notions about free enterprise to be wrong (such as partial unemployment) is – well, I don’t know what to call that without offending anyone.

    Oh, and freedom and justice come into it because they’re intricately tied up with the economic system. You haven’t reached the idea of a free and just society, such as we all say we want, as long as millions of people routinely can’t find work. Full employment should at least be the goal, if not yet the reality, of whatever economic system we have, and that is not the case now.

  • RobertM

    “[...]the JG is ENTIRELY theoretical”

    But the next closest thing, the WPA was not and I think one could make a pretty good case that the JG would work as expected.

    “There is no gun held to their head as you have said before.”

    Tell that to thousands of people who have had their assets seized by the IRS. That’s utter nonsense.

  • RobertM

    Education is not the ultimate solution. I’ve seen studies that disprove your theory. There’s a correlation between education and a good paying job but not causation (although innovation can (sometimes) create demand). Demand creates jobs. If all the unemployed suddenly overnight gained a college level education, there still wouldn’t be any jobs for them. Just ask all the struggling recent college grads.

    The fact is we don’t need 20 million new lawyers….or psychiatrists… or whatever. We will *always* need people to do those mundane jobs you seem to despise. Someone has to carry the bricks that build the hospitals. Someone has dig the ditch to pour the footings for the house.

  • RobertM

    re:“The taxman can use his power to collect his share of pie, but the taxman can’t use his gun to motivate you to bake a bigger pie.”

    I think to a large percent the taxman does EXACTLY that. That and man’s innate desire to innovate. If it looks like the only way one can change the stagnation of one’s current salary and tax bite, that person will look for ways to move into a position where they CAN “bake a bigger pie”, perhaps through working longer hours or perhaps educating themselves and moving into a field where there is more demand.

  • RobertM

    “Why don’t we all just join the govt dole and work as musicians (a JG job listed)?”

    This just getting silly. Are there just a lot of rich guys here that have no real world experience with what it’s like living at the bottom? Anybody who has worked for minimum wage will gladly tell you it’s not easy and frankly, it sucks. Do you actually think that people LIKE it? Really? Everyone I’ve ever known in that position was working on a way to get out of that position.

  • Cullen Roche

    So you wake up in the morning and use USDs because you need to pay your taxes? I didn’t think so.

  • Cullen Roche

    So pointing a gun at a mans head is the best path to better living standards?

  • Cullen Roche

    So handing them a shovel so they can dig ditches is the path to prosperity???? Or are there better approaches?

  • Cullen Roche

    I didnt say it was the ultimate solution. I said it was one piece of the puzzle. I have always said demand creates jobs. Study my positions and try to understand my complete position before you go off writing a series of comments misrepresenting my statememts.

  • AWK


    I’ve always thought there was more to a state’s monopoly of money than coercion. Coercion may play critical or initiating roles at critical times for money, conscription, and legal compulsion but it’s more of a backstop than a driver. I would argue that the main driver of acceptance of any currency, after it is established by any means, is mostly private inertia. All my contracts, my mortgage, as well as my taxes are paid in dollars. If the dollar ceased to exist tomorrow… what a mess. I don’t have any clauses in any of my contracts that specify what to do if that happens. We all (almost) take the dollar monopoly for granted.

    Not so the Euro. Perhaps speculating about the ways it could collapse (and/or re-emerge) would be an informative exercise as well as a speculative opportunity. What types of coercion would be involved there? In some ways, it seems the easiest thing to understand (and implement?) would be to replace the Euro with the original state currencies according to some mutually-agreed peg and agreement to divvy up the pre-existing Euro debt. Obviously, each state could use the coercive power of taxation, but their governments will have to find a way to balance the internal wrath of their population (populist coercion) over perceived peg inequities (or advantage seeking) vs. multinational financial coercion between the divorcing parties. These are the rocks and hard places that will make any Euro collapse ugly. In fact, I’d argue that it’s the inertia I describe that mostly keeps it going now in the face of uncertainty. Otherwise, why would countries like Greece be committing economic suicide? Greece, through taxation and austerity can only coerce its own people so far, especially if the source of the coercion is seen as an outsider, i.e., Germany.

    Alternatively, it seems very likely that some subset of states (most likely the northern ones) might retain the Euro. But in my mind, it wouldn’t be the same thing either, even if it retains the name. As Aristotle argued, “the is a point where a difference of degree becomes a difference in kind”. My point is simply this, wherever these new currencies land up, it’s going to be the result of both public and private coercion, inertia, and whatever level of public outrage emerges to counteract both.

    Having said all that Cullen, whether state monopoly derives from tax coercion or private inertial “coercion”, what real difference does that make to the dynamics of Mosler’s MMT thesis or for or against any JG argument? I’m not seeing it. If we look at history, state money is usually established and becomes entrenched soon after the establishment of the state in some unified form. States don’t reinvent their money from scratch unless revolution essentially replaces the state or the state’s money collapses along the lines of a Zimbabwe or Weimar. The later is a non-issue unless you’re MMT views have really changed dramatically. The former does not invalidate tax coercion. It simply ties tax coercion ability to the legitimacy of the state which is self-evident in my view.

  • Greg

    I just realized that our largest “export” is actually dollars and dollar-denominated securities. The world demands dollars because, ultimately, they can be used to buy actual products and services from the US. Everything rests on confidence. If people lose faith in the ability of the US economy to grow, dollars will start to be rejected for something else that is perceived to be more trustworthy. Money chases the highest possible risk-adjusted returns, and if investors stop believing that a decent ROI can be found in the US, demand for dollars will ultimately decline.

    Leaving the issue of the JG aside, the size and power of the federal government will determine whether or not the economy continues to grow or whether it stagnates. The Austrians/libertarians have and continue to be right on this point. If it’s the former, the game goes on; if it’s the latter, the dollar will be increasingly rejected in favor of other currencies/assets, and then economic decline will accelerate.

    The legal framework of our society is, in this context, of paramount importance, and if it stifles entrepreneurship and job creation, which are responsible for driving economic growth in the long run, then we may as call it quits right now. I don’t see much talk about the legal aspect of things on this blog…but the entire argument about full employment vs. partial unemployment seems totally irrelevant if the government makes it too difficult for entrepreneurs to start businesses and for companies to grow and create jobs. Also, the issue about whether taxes are “coercive” or were “voluntarily agreed to” by the population makes no difference. What does matter though, for MMT is the fact that the supplier of the currency (Fed/Treasury) and the remover of the currency (Taxes) do not act in coordination with one another. This is entirely different from most of human history when spending was contingent on tax receipts, and both were regulated by the same entity.

  • Dan Kervick

    I think we preserve the public monopoly over the monetary system in other ways, not just via tax obligations. Inertia, as AWK says, is certainly a major factor. But we have a vast court system, backed by law enforcement, that every day decides and enforces disputes over contracts, and enforces the role of the dollar as the both standard for measuring value and the instrument for settling the debts.

    It would be a very bad thing, by the way, for the public in a democratic country to surrender its monetary sovereignty to private sector entities. We would lose our seignorage power, and bestow seignorage power on whomever succeeds in establishing widely used currencies. Our government would become the mere dependent currency user that the debt hysterians already try to pretend we are. We would all be subject to the currency manipulations of a few monetary kingpins, and would have few political channels through which to establish stability and steer monetary power toward public purpose. In the long war between democracy and organized corporate power, losing monetary sovereignty would be a major lost battle for democracy.

  • JWG

    The Pragmatic Capitlaist is an accurate title. You take wisdom where you find it, believe in capitalism but not financialism, are libertarian on social issues and believe in the superiority of the private sector in terms of resource allocation. It is too bad that the left cannot see that it can have allies on the right on key issues. Doctrinaire leftists tend to dominate academia. It is too bad. Anyone who has ever had to make a payroll, manage a work force or wrangle with the tax and regulatory burdens on labor and business is rolling their eyes at the naïveté of the JG.

  • JWG

    Our public benefits such as SS, UE and social welfare have everything to do with socialism, because it is the old school socialists such as Eugene V. Debs and Upton Sinclair who brought such ideas prominence in the USA and who led the early charge for them. They have humanized capitalism and free markets. I am a conservative, but I take wisdom where I find it and socialism offered much to humanity. Its idea that government can own the means of production and plan a complex economy is, of course, ridiculous, but humane capitalism is the offspring of socialism.

  • PV

    Good stuff. Don’t let those fools bug ya cullen.

  • JWG

    Oh the horror. A Republican! The JG is hopelessly naive and totally ignorant of legal, regulatory, social and market realities affecting labor and employment in the USA in 2012. The dreamers who long for the days of the WPA and the CCC do not realize that 77 years and an ocean of laws, regulations and changing social attitudes lie between then and now. An example: a Democratic candidate in my county proposed free bus service linking unemployed city youth to agricultural jobs in the periphery a half hour out of town. He was accused of being a racist, being in favor of forced labor etc. and lost the primary. Wake up naive left wing dreamers!

  • JWG

    Phil’s policy statement is the essence of humane capitalism. Government buffers risk and helps those in need but risk and self responsibility remain. The JG wants to eliminate risk but will create imbalances and another huge bureaucracy and boondoggle.

  • SH

    I would say it’t like being in a traffic jam. You accept you’re in a traffic jam when you’re in one but if you could find a short cut you would take in a heart beat. Who cares how well you can explain a traffic jam? Only those that are stuck.

  • jrbarch

    “I need dollars because they’ll help improve my living standards”.

    Why do you want to improve your living standards?

    To enjoy being alive even more …. [??]

    So, what you really want is to Enjoy?

    Can recall one aging fable where the Emperor burdened with the affairs of the State wonders what it would be like to live the simple life of the peasant? And the peasant the luxurious life of the King? At all levels of productivity and technology!!

    We all abdicate for love (careful with your answers if your partners are reading)!!

  • Greg


    If I may interject in your exchange with Dan

    You said;

    “I don’t deny that the state has vast controls that help bind the currency with its users. Taxes, laws, etc all matter. But they are only a piece of the puzzle. Like I keep saying, the state is a creature of the people. Therefore, the ultimate power always resides in us. Ultimately, I think currency usage derives from the desire to interact in society and better one’s living standards.”

    Thats a curious use of “piece of the puzzle” because ultimately money is a social contract, and one thing most everyone agrees that the govt SHOULD do is enforce private contracts. Ive never heard anyone of any political persuasion argue that there is NOT a primary role for the state to enforce contracts. Many consider that and military/police to be their only legitimate roles. Outside of murders and thefts, contractual disputes are what dominate our legal system dockets.
    I would argue that it is THE table that the puzzle is put together on. Without the hard surface of the table the puzzle has nothing to be put together on.

    ” Using a common currency is a matter of convenience and achieving societal goals, not imposing taxes or other coercive acts on ourselves. The state exists to oversee this smoothly operating process, but must be wary of the limits its loose monopoly has. We understand the state can help improve overall living standards by offering certain things, but we also know the state is not the solution to all our problems.”

    I do wish people would stop characterizing those who question whether or not the private sector CAN solve the unemployment problem by itself as thinking that “The state is the solution to all our problems”. First off, since “the state” IS we the people, in a certain sense it is true that the state is the answer and secondly, we are talking simply about getting income into peoples hands to generate more demand for the products our businesses wish to sell. Call it a JG or something different, but everyones answer to our current dilemma (outside the lunatic fringe who has a morbid fascination with seeing everyone suffer much more *for our own good*) are looking for ways to get more money or demand into our economy. Its mainly a matter of where the money should be injected. There is no doubt that ONLY the currency issuer can inject new NFAs into our economy. The private sector cannot do it on its own

    “I wake up in the morning and say “I need dollars because they’ll help improve my living standards”. Not, “I need dollars to stay out of jail”. It is not some desire to pay taxes or pray at the altar of Washington DC. It is a human desire. An innate drive to be productive and valued in society. Therefore, the chartalist starting point is entirely wrong and their conclusions are misguided….”

    I think its a little extreme to suggest that Chartalists are making the argument you suggest they are. As I understand it this is merely a question of “prime mover”. How can little pieces of paper be introduced into a functioning state and circulate as money? Having a credible tax enforcement system gets the job done. Obviously now 100+ yrs after getting the US$ to be the currency we do not wake up asking the question you pose, but ……. go start a new country and introduce a new currency (you certainly wouldnt use anyone elses currency I hope). How will you ensure that your new currency becomes the dominant one, or only one? Every answer you give will be a law of some sort, a social contract enforced by the state. This is the Chartalist position as I understand it.

  • BarbaraNH

    Cullen, MMT does not dispute that the “ultimate power lies with us.” It does not dispute the notion of self-governance.

    MMT says taxes drive money, not taxes drive people. Paying taxes is not what motivates people to work to improve their living standards. Of course not. MMT does not say they do. It says taxes drive money in a currency monopoly, i.e., the requirement to pay taxes in a certain currency is what keeps that currency a monopoly. What is there to dispute in this? Once the state has been given the power to issue a monopoly currency, the act of imposing a tax payable only in that currency reinforces the monopoly. That’s all.

    None of this has anything to do with what motivates people to get up in the morning and go to work. People’s economic motivations are a separate thing from whatever money system they use. MMT isn’t saying that paying taxes is what motivates people to work. MMT has only to do with how a monopoly currency system works. It says taxes in a monopoly currency system are what motivate people to continue to use that currency, once the monopoly has been established.

    One of the elements of the description MMT provides is that the state maintains the agreed-upon monopoly by requiring that taxes only be payable in the monopoly currency. This is simple logic, because if it didn’t do that, the monopoly would break down.

    I think what you’re resisting is the knowledge that a certain amount of power is transferred from people to the state when they establish state money. But this is simply a fact, and it has nothing to do with MMT. People give up a certain amount of independence when the live in society. For one thing, when they establish a state they give it the power to tax them. For another, in a society where they’ve established state money, they give the state the power of a currency monopoly, i.e., the state issues the money, the state establishes laws concerning its use, the state enforces those laws. This is how it works.

    In a fiat currency monopoly, people have give up yet another degree of independence. Now, the money they allow the state to issue (along with whatever powers that gives to the state) doesn’t even have any intrinsic value! It’s not gold, that they can pick up and move to some other place with, independent of the state. It’s totally state money. That’s what the gold bugs are screaming about.

    All of this is the way it is in a fiat currency monopoly.

  • http://pragmaticcapitalism Michael Schofield

    I just wish we Americans could get past this ridiculous, paranoid obsession with socialism. Germans have labor representatives on corporate boards and government subsidizing of payrolls to prevent layoffs during production cuts, and in case some of you haven’t noticed, they’re pretty much kicking our asses. They don’t get their shorts in a twist over polar opposite philosophies, socialism and capitalism, (true forms of which never have and never will exist in the real world); they’re just truly smart people who have sense enough to find a solution that works. It’s like some goofy caste system, “we can’t do that, it is unclean”. Surely we’re smart enough to get past this right wing fearmongering. I’m not saying JG is or isn’t a good thing but some of the arguments here are at the least way too dogmatic. Let’s just find something that works.

  • BarbaraNH

    Lots of interesting points here.

    “the entire argument about full employment vs. partial unemployment seems totally irrelevant if the government makes it too difficult for entrepreneurs to start businesses and for companies to grow and create jobs.”

    Yes. It’s the crux of the matter really. Where is the economic balance between state and private, and how do we maintain it once it’s found. The level of employment, though, needs to be seen as an intrinsic part of whatever formula eventually evolves, as it represents the labor part of the equation.

    Your last point about the lack of coordination between money going in and money taken out of the economy is spot on. It’s as though the powers-that-be (whether government or private) want to have it both ways – a fiat currency bound by a budget constraint they insist on treating as real. It makes you wonder…

  • BarbaraNH

    I second that motion!

  • Dan Kervick

    Ultimately, I think currency usage derives from the desire to interact in society and better one’s living standards. Using a common currency is a matter of convenience and achieving societal goals, not imposing taxes or other coercive acts on ourselves.

    Cullen, I think these factors alone can account for the existence of currencies in the first place. A monetary system is an extremely useful social technology, and so if the people in any area didn’t have one they can rely on, they would quickly set about creating one. But those don’t go far in accounting for the existence of a single public currency used nearly exclusively over a large geographical area, and sustained in exclusive use over that area for a long period of time. This phenomenon reflects a public choice dependent on a series of very significant legislative decisions and enforced every day by the long arm of the law. Preserving the national system also requires a very sizable regulatory apparatus, along with a central bank. A system of this kind doesn’t just happen.

    Since there is a monopoly producer of the dollar, that monopoly producer has a large influence on the price at which dollars are exchanged, both in primary and secondary markets. And we want to operate our governmental monetary operations in such a way as to preserve price stability. It’s an incredible convenience to have a single money with a relatively stable and predictable exchange value against various goods and services. If we didn’t have that, we would have a tangle of interacting private systems. Many everyday transactions would resemble foreign trade, with currency exchange transaction fees of all kinds being levied just to buy simple items. There would be ongoing speculative distortions caused by bets placed on the fluctuating exchange rates of these currencies, with all the crises and bubbles that go with such speculation. Every John and Jane Doe would have to become an amateur Forex trader just to avoid being screwed and wiped out by the commerce of everyday life. We would live in a much more unstable, wasteful and unproductive world. I think it’s pretty awesome that we don’t have that world in the US, and instead have a reliable national currency with relative price stability.

    There seem to be different emphases in the JG debate.

    When I read Bill Mitchell, the whole focus is on employment and the value that is generated by putting our unemployed people and resources to work, and on the social ills that are relieved by eliminating unemployment. The fact that a project to employ people and do this work could, in principle, be stabilizing as well is used as an additional piece of supporting argument to show that, contrary to mainstream macroeconomics, a system of full employment need not be inflationary.

    When I read Warren, however, the whole focus seems to be on the price stabilization, with the actual work done serving as a kind of afterthought.

    I incline more toward Bill Mitchell’s orientation. I think we have massive unmet social and economic needs staring us right in the face, needs which are beyond the appropriate sphere, capability reach and incentive structures of private sector entrepreneurialism, and that can and will only be met by mobilizing the public sector to do the work. At the same time we have a massive pool of unemployed workers. We also have a national government with monopoly control over the currency. To me that shouts out, “Let’s roll!”, and the idea that we should leave these social needs unmet and the workers unemployed, as we wait on private sector enterprise to figure out on its own good time what to do with these folks, if anything, just seems stupidly wasteful to me – a kind of national insanity that can only be the result of blind ideology.

    So I feel like it’s 1941, and we need to get moving as a nation in a major way. Although in this case the project isn’t defeating fascism with military arms. The project is building a first rate national infrastructure, educated workforce and energy system for the next century. It will pay off. The mobilization of the country during WWII doubled the size of the national economy and laid the foundation for decades of subsequent prosperity. Arguing over whether we need to employ the unemployed only as measure to stabilize prices seems to me like arguing over whether or not to to hire up a bunch of soldiers in 1941 at minimum wage, only as a means of stabilizing labor costs.

  • Dan Kervick

    Yea, and Amen.

  • phil

    From Wikipedia (Early American currency):

    “In 1690, the Province of Massachusetts Bay created “the first authorized paper money issued by any government in the Western World”.[4] This paper money was issued to pay for a military expedition during King William’s War. Other colonies followed the example of Massachusetts Bay by issuing their own paper currency in subsequent military conflicts.[4]

    The paper bills issued by the colonies were known as “bills of credit”. Bills of credit were usually fiat money; that is, they could not be exchanged for a fixed amount of gold or silver coins upon demand.[5][3] Bills of credit were usually issued by colonial governments to pay debts. The governments would then retire the currency by accepting the bills for payment of taxes. When colonial governments issued too many bills of credit, or failed to tax them out of circulation, inflation resulted. This happened especially in New England and the southern colonies, which unlike the middle colonies, were frequently at war.[6]”

    “After the American Revolutionary War began in 1775, the Continental Congress began issuing paper money known as Continental currency, or Continentals. Continental currency was denominated in dollars from 1/6 of a dollar to $80, including many odd denominations in between. During the Revolution, Congress issued $241,552,780 in Continental currency.[10]

    Continental currency depreciated badly during the war, giving rise to the famous phrase “not worth a continental”.[11] A primary problem was that monetary policy was not coordinated between Congress and the states, which continued to issue bills of credit.[12] “Some think that the rebel bills depreciated because people lost confidence in them or because they were not backed by tangible assets,” writes financial historian Robert E. Wright. “Not so. There were simply too many of them.”[13] Congress and the states lacked the will or the means to retire the bills from circulation through taxation or the sale of bonds.[14]

    Another problem was that the British successfully waged economic warfare by counterfeiting Continentals on a large scale. Benjamin Franklin later wrote:

    ‘The artists they employed performed so well that immense quantities of these counterfeits which issued from the British government in New York, were circulated among the inhabitants of all the states, before the fraud was detected. This operated significantly in depreciating the whole mass….’[15]

    “In MMT, money enters circulation through government spending; Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that can only be met using the government’s currency.[2][3] An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value.”

    NOTE the words “private CONFIDENCE and acceptance”.

  • phil

    Beyond the basic value established/maintained by taxation and law, the value of the currency is determined by individuals operating in a free market. Therefore issues of trust in the govt, confidence in the value of the currency (i.e. its ability to deliver what you want, say ‘higher living standards’), confidence in the country’s ability to grow and produce wealth, and acceptance of the law and its legitimacy, are all important factors in the final value of the currency.

  • Cullen Roche

    I don’t entirely disagree with your thinking. But see my comment below for why I don’t think it’s justified that the state come in a begin hiring up everyone at a specified price. I am all in favor of altering net financial assets to hit economic targets. You all know that. But there’s a line in the coercion argument that MMTers seem to have very little appreciation for. In fact, there might not be any line at all so long as the state can be forceful enough….

  • FDO15

    It all really comes down to one easy to understand point. Every MMT argument uses some form of explanation where the government is like a mom or dad, a school board without democratic rule or a man holding a gun over a group of people. But this is not how democracy works. Democracy is not based on two parents giving out business cards and being able to enforce a tax. Democracy is not based on a school board choosing the coerce students into doing community service through its Buckaroo program. Democracy is not about pointing a gun at someone’s head and forcing them to pay taxes. MMT doesn’t seem to understand this though. They see the state’s authoritarian powers as being complete. They’re wrong.

  • Cullen Roche

    Yes and they use these dramatic authoritarian examples to prove their taxes drive money myth. Of course, they qualify these statements with all sort of other “buts”, but the crux of the argument is clear. This ultimately leads them to conclude that massive government intervention is always necessary. If you build this whole point from the currency user having the choice to create the currency and form of taxation then the state is not as powerful and the argument for massive intervention crumbles….

  • Dan Kervick

    If you build this whole point from the currency user having the choice to create the currency and form of taxation then the state is not as powerful and the argument for massive intervention crumbles….

    This is the part you haven’t established Cullen. It doesn’t matter whether we’re talking about an ideally democratic government or a more authoritarian government. It doesn’t matter whether the tax system and other laws are based primarily on a spirit of liberty and public cooperation, or on simple coercion. It doesn’t matter how the currency monopoly has been established. The point is simply that if there is a currency monopoly, then the currency monopolist has the power to regulate the price of the currency. And if the currency monopolist is us – we the people – and our aim is to run the monetary system in a way which serves the public interest; and if the public interest is served by maintaining price stability; then we should run our public monetary system in a way which maintains price stability.

    You keep talking about “the state” as though it’s some awful foreign entity imposing its demands on us from without. It’s just us. It’s our government, our instrument for setting and enforcing the rules under which we are going to live. When we talk in a democratic society about “state” actions vs. private actions, we’re just talking about the difference between actions we undertake collectively, in a deliberated and organized fashion, and those we leave to individuals to work out on their own as they think best. There is always plenty of both going on.

  • phil

    Well obviously if you get rid of the money monopoly and allow competing currencies on a large scale then you’re no longer really dealing with a situation described by the state theory of money. In that case you would probably have currencies backed by gold, silver, oil, labour, electricity, whatever.

    Mosler’s simple example of a man with an AK47 simply serves to make a point.
    Even a tyrannical dictatorship, military junta, or autocratic regime can impose a currency of its choosing upon its population. However we have seen that over time, dictatorships are fragile and eventually collapse.

    In a constitutional democracy the government is generally seen to be legitimate by the majority, and the people implicitly place their trust in their elected representatives to serve the interests of the people.

    So a democratic government can issue a fiat currency if it chooses to, and can spend it into existence before a demand for taxes is issued. However, the basic value of this currency is still based on the idea that it can be used to eliminate tax obligations in the future. This is the mechanism that creates a basic demand. Legal tender laws can then be introduced (perhaps at the outset, perhaps later on) which can then establish the currency as the dominant national currency (if the government so chooses). Laws against counterfeiting must be established at the outset, otherwise the currency would be worthless.

    There are historical cases where governments have allowed their currency to exist alongside other, privately issued and commodity currencies (even today there are some private currencies, they’re just not very popular).

    Once the government currency has been introduced, its overall value will still rise or fall depending on a number of factors.

    If trust in the government is lost (i.e. in the govt’s ability to manage the currency, to uphold the law, to not abuse its seigniorage, to create just laws and to not abuse its power to tax and spend, etc), then the currency will lose value. If the government fails to control counterfeiting, or creates too much currency whilst taxing too little, the currency will lose value. If the country’s economy fails, if there is an economic crisis, if output and productivity falls, the currency will lose value. If the people feel that the currency can not be used by them to buy a better standard of living, then its value will fall.

    All of this fits with the basic MMT description of money.

    The examples I posted above from Wikipedia show that the BASIC value of fiat currencies is always established and maintained by taxation and law.

  • Malmo

    Bingo!, Michael.

  • RobertM

    No, the reason is the government (who collects those taxes) has declared by law that I am not allowed to use any other currency.

    “Today, in the United States there is only one medium of exchange universally recognized as money and that is the Federal Reserve Note, called the dollar. By law nothing else is allowed to compete with it.”

  • Dan Kervick

    This seems completely right to me.

  • RobertM

    I’m not trying to put words in your mouth. This is one of my favorite sites and I agree with a lot of what you say. What I said was in response to this “So why hire unskilled workers? Why not give them an education?”.

    My point is that an education is great (I support free college education for everyone that wants it and I spend more than I should supporting free education sites like However, converting unskilled workers into educated workers is not an answer to the jobs question if there is no demand for what they are educating themselves in, especially when there are so many unskilled jobs that need to be filled to fix our crumbling infrastructure.

    In the South, where I live, there are many crops that go to waste because there are so many farm jobs that go unfilled and (even more so now with the immigrant hysteria).

  • RobertM

    No, I’m simply describing reality. We work within the confines of that. Is it the “best way”? Certainly not. I’m one of those people that thinks the robotic revolution will increase unemployment dramatically by 2050. We may actually NEED people to ‘sit around and play guitar all day’ as you and others have said. The question is how do we use technology to improve the lives of everyone when that time comes and not just enrich a few people while unemployment grows to 40-50%.

  • BarbaraNH

    As usual, it comes down to a question of power and who has it, or can divert it, to forward their own interests. Also, typically, achieving some balance seems to work best in a complex system. But whatever balance may be arrived at isn’t necessarily self-perpetuating, as there will be constant tension among all the various parts, each pulling in its own direction. So it’s a constant struggle.

    The seemingly inexplicable fact that today, people in power (of all kinds) either don’t know or don’t acknowledge how the money system works. This must have something to do with power. These are not stupid people (well, except for Congress). So are they consciously trying to protect something, a political or academic position, an ideological belief, or, on a grander scale, an existing perception of money that (falsely but effectively) maintains a certain order, a certain balance of power between public and private economic activity that currently advances their own interests, whatever they are? If MMT is right, then government has more policy space in the economy than is currently understood. I should think that would make a lot of people benefiting from the existing perception of money, which restricts public policy space to the accounting realities of the budget constraint as if they were real, to be uncomfortable, whether for political, ideological, financial, or social reasons. I just can’t see how the lack of coordination that Greg referred to before between spending and taxation could go on otherwise?

  • phil

    It’s important to remember that taxation is essentially payment for government services. The only difference is that the population decide via the democratic process to make it obligatory.

    Of course we know that taxation doesn’t ‘fund’ spending, but it is still essential to regulate the currency when the government spends.

  • FDO15

    Cullen, here’s Scott Fullwiler on this point:

    He doesn’t seem to understand that MMT is an excuse for a more authoritarian policy approach.

  • Cullen Roche

    Tell that to the people who founded this country on the exact opposite form of thinking….If your statement were true then the Coercive Acts of 1774 would have been enough to scare the people into paying taxes. History proves this point 100% wrong.

  • BarbaraNH

    Phil, were you responding to me or is this a separate post?

    “Of course we know that taxation doesn’t ‘fund’ spending, but it is still essential to regulate the currency when the government spends.”

    Yes. But my point is that no one seems to know that taxation doesn’t fund spending (among other things) — not Congress, not the President, not mainstream economists, and most of all, not the public.

  • Dan Kervick

    I don’t get it, Cullen. Where is the authoritarianism? Surely not everything a government does in pursuit of some public purpose is authoritarian. Doesn’t it make a difference whether the government is democratic or not?

    If I run a business and decide to make a job offer to someone who is unemployed, in order to pursue some purpose I have, am I now acting in authoritarian way? Why does that action become authoritarian simply because the employer happens to be the public, pursuing some purpose it has?

    The MMT argument is that whatever choice our government makes in this area, that is going have an impact on the price of labor. There is no responsibility-free choice here. Each alternative government choice, whether of omission or commission, will have an effect. MMT just makes predictions about what those effects will be, predictions that are based on the MMT understanding over the way the modern monetary system functions.

  • phil

    I think it is possible to re-formulate MMT without a JG, if you so wish.

    I really can’t see why it absolutely HAS to be included, practically or theoretically.

    The price stability/ automatic stabilizer function can be achieved by unemployment insurance/allowance, basic income, etc.

    Full employment is not necessarily an optimum economic outcome, if it negatively affects psychology/ culture and thereby leads to less overall productivity/ output etc.

    The idea that an ‘employed buffer stock’ is more liquid than an unemployed one is theoretical.

    Other means could potentially be used to reduce unemployment.

    If the aim is to improve opportunities for the unemployed, good-quality training might be a better option than ‘make-work’.

    In short, the benefits of the JG are debateable, and it can be argued that the cost of such large-scale govt intervention is too high.

  • Cullen Roche

    Your private business does not impact every citizen in the country as a massive government labor program would. You’re comparing apples and oranges.

  • Dan Kervick

    That doesn’t make it authoritarian. The FDA and Center for Disease Control impact everyone in the country too. The question is whether the impact is on the whole beneficial or detrimental. Can’t we debate possible government programs without getting bogged down in paranoid libertarian thinking which defaults to the idea that government itself is an evil or oppressive force?

  • phil

    Cullen, FDO15:

    I think you’re making a mistake in thinking that intervention = authoritarianism.

    An authoritarian government imposes its will on the populace without necessarily gaining consent through the democratic process.

    An interventionist government is not authoritarian if the population have given it a mandate (through the democratic process) to intervene.

    If the majority feel that the government is getting too big for its boots, that mandate can be taken away. There is nothing within MMT which argues that the government can do anything that is not permitted by the democratic will of the people. Nothing.

    MMT is not anti-democracy. There is nothing in there that suggests the people should somehow lose the right to control their own destiny. Nothing in there that suggests any of the democratic checks and balances should be removed.

    If the majority of the population choose to implement certain MMT-type policies, then fine. If they choice not to implement others, fine. No MMT dictator is going to come along and force them to do anything.

    Your argument seems to be that MMT = big government = creeping authoritarianism.

    But MMT is open about the size of the state. If people prefer less spending and lower taxes, that’s perfectly OK.

    The only thing is this issue of a JG, which would see a large group being either directly OR INDIRECTLY employed by the state. This is not about financial oppression or forcing things on people. It’s about giving the unemployed the OPTION of paid work. But if you think that’s a step too far, because you think it could lead to negative unintended consequences, that’s OK. You disagree with the main MMTer’s on this point. BIG DEAL.

  • Greg


    I wonder if a way to flesh this out is for you to do a thought experiment. Imagine you are now in charge of a new country, one that formed as a result of a mostly peaceful separation form the old USA. Lets just say its all the old confederate states.
    All people in those states are free to move to the old USA if they wish but you are trying to keep them where they are. You will have some questions to answer;

    What will you use for money? ; Your citizens will have dollars of course but you will not want to use dollars I would imagine (that is a currency you dont control)

    How big will your military be? What goods and services will you have to produce in the private sector to equip your military? Will you just buy it form elsewhere? With what?

    How big will your court system be? Education system?

    How will you maximize production in your new country? What will you look at to determine if you have maximized production.?

    Your citizens will certainly have to paid something. If they were previously making $60,000 how many “Cullens” would they get now?

    If you go far enough down this line of thought you start to see that if you want a single currency area, you will be imposing some sort of coercion to get it in use. There can be no other way. The market will never settle on a single currency by itself.

    You might wish to argue that a single currency is not necessary or better….. okay. But in order to have ONE, some knuckles are going to get twisted somewhere.

    I think it is true that production is taken for granted in a sense in the MMT models because we are talking about ACCEPTED currencies not imaginary ones. Accepted currencies arise in places where there is productive activity going on. I dont think the problem in the USA is our lack of productivity, by any stretch of the imagination. We are producing plenty. We produce plenty of food, plenty of energy, plenty of shelter plenty of healthcare (we could use a little more healthcare …..but) plenty of cosmetics, movies and music.

    We are producing all that is currently demanded by customers but we need/want more customers. Where do we get more customers? Outside the country? Maybe but something tells me we will not be a net exporter very soon unless Germany, China, Japan, Korea and Brazil change THEIR habits. How likely are we to have that happen?

    To get more customers inside the country is where we should focus. It occurs to me that by focusing only on private sector hiring we are asking the private sector to go against its natural productivity tendencies. The goal of the private sector is always to do the most with the least…. right? Even if they hired everyone tomorrow, within a few months/years we would expect, if they are doing their job, that someone would develop a new way that would allow them to do more with less employees (isnt that A measure of productivity?) and we would be trending back to where we are. The goal of private businesses is to do the most with the least employees, its not to hire more people.

  • http://pragmaticcapitalism Michael Schofield

    That’s really gonna stir things up, Cullen. A whole new branch? I guess that’s fine with me, I just want to see the job done. I hope we don’t get too carried away with this “Big Government” arguement. We just need coordination between govt/capital/labor pool. This free-for-all system we have needs to go.

  • phil

    Warren does shoot himself on the foot by emphasising the coercive nature of taxation. The truth is that in a democracy we can ultimately choose the desired level of taxation. Once this is done, it is written in to law and each individual is obliged to pay their share.

    Libertarians will always say that taxation is violence. But then again they dislike democracy, belive in mystical/religious notions of ‘natural law’ and think that only gold is really money. So…..

  • http://pragmaticcapitalism Michael Schofield

    BTW I’m not trying to endorse JG. I’m on your side on this one, this just isn’t the right time for it.

  • phil

    (BTW I didn’t mean ‘big deal’ in an offensive way)

  • Cullen Roche

    It is kind of a big deal because removing the JG makes you something other than MMT. Even in Warren’s case, you’re not full MMT until you implement the JG….So, you’re either on board or you’re something else. Clearly, I am something else.

  • Cullen Roche

    My point is not that it is authoritarian, but that it is increasingly dangerous to believe that we need the govt to fix all of our problems via direct intervention. The govt can help and I am in favor of the govt helping, but we blur the lines here when we start advocating programs where the govt hires up to 30MM people by directly intervening in labor markets via wage setting. That’s not just a CDC or FDA. It’s a massive expansion in the role of govt in our society. Authoritarian is a strong word, but a JG being “moving in that direction” is not an exaggeration….

  • Cullen Roche

    I am not against govt intervention to some degree. I don’t know how many times I have to repeat this. People seem to think I am making some anti govt argument. I am not. Some people have pointed out that it’s unfair of me to claim to be an MMTer while also disagreeing with core aspects. I think that’s true. It is what it is. Bill Mitchell drew a line in the sand and I am very clearly on the other side of him. So be it.

  • Cullen Roche

    I’m not against a common currency or govt spending to fill the UE gap taxation causes. Not sure you’ve absorbed my position yet. Or maybe I haven’t fleshed it out fully….

  • phil

    Fair enough. I just think it’s a mistake to say that there might be the seed of something inherently authoritarian lurking in the basic MMT foundations, which comes out when the theory is followed to its ‘logical conclusions’.

  • BarbaraNH

    Cullen is mixing up different aspects of MMT in order to make an argument but it doesn’t work. He says MMT takes the ‘monopoly argument’ to its extreme via the JG. But the JG is only a policy proposal. He says it’s integral to the theory. But what’s integral to the theory is not the JG; it’s the notion of full employment, not how full employment is reached.

    MMT shows that the economy works better the closer to full employment it is, whether through the JG or any other way. Cullen is trying to conflate the ‘monopoly argument,’ as he calls it, with the JG. But the monopoly aspect of how the currency works is separate from the JG policy proposal. Trying to link the two because you don’t like the implications of a JG creates total confusion. They need to be disambiguated.

    Either there is a monopoly on the currency or there isn’t (there is). Either the currency monopoly is enforced through law, which he calls coercion, or it isn’t (it is). Either full employment is more productive than partial employment (it is).

    Nothing concerning the monopoly aspect of the currency, or the power of the government to enforce the laws concerning it, including taxes (‘coercion’), has anything to do with whether full employment is actually more productive than partial employment. The whole tangled up argument makes no sense.

    Lots of people seem not to like the idea of government offering minimum wage work to anyone who’s unemployed because they think it will create too much collateral damage in the economy. As it is now, the government pays unemployment insurance to the millions who are out of work. Instead of unemployment insurance, that money would be spent in exchange for some amount of productive work with a program like the JG. Maybe there are better ideas for reaching full employment, but either way, how is this a “dangerous” idea?

  • Cullen Roche

    Authoritarian is pejorative. I think it’s safe to say that MMTers tend to advocate govt intervention in markets in various different ways.

  • Cullen Roche

    I don’t think you actually understand the position held by the main MMT proponents.

    Warren wrote: “base case *happens to be* the jg.” He said the same thing here: “It’s about recognizing ‘JG’ is the ‘base case’ for fiat money in general.”

    Bill Mitchell calls the JG “central” to MMT: “The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability.” (see MMT is biased towards anti-crony).

    Pavlina says:

    “The JG is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism.”

    Wray says:

    “Perhaps the most important policy pushed by most MMT-ers is the Job Guarantee/Employer of Last Resort proposal. ”

    This is all very clear now. If anyone is confused it is those people who think the JG is not integral to the theory. And if you remove the JG then you’re not really working within the MMT theoretical paradigm any longer. In fact, if there is one facet of the theory that is theoretical it is the JG in the first place. So one could even argue that the JG is what makes MMT a “theory” to begin with.

    I am not against full employment and I have never said I am despite your attempts to put words in my mouth. I acknowledge that the govt can and should do more to help the economy. But I think there is are clear limits to this that are not fully appreciated by the primary MMT advocates.

  • phil

    In certain cases that is true. And it would be true to say that when intervention is advocated, it is based on an understanding of the conditions that exist within a monopoly-supplier monetary system. However, if you are correct, some of the conclusions drawn from this understanding may be flawed for different reasons. They may be flawed partly because some of the aims they seek to achieve involve trade-offs and unanticipated consequences that are not at all desirable.

  • http://pragmaticcapitalism Michael Schofield

    I prefer your perspective on MMT to the others. It’s much more… pragmatic. Keep up the good work.

  • Roger Ingalls


    An almost perfectly succint despription of Cullen’s position, only lacking “and believes governments have a productive role to play in the welfare of it’s citizens.” That is almost necessary to separate him from libertarians and hard core capitalists who do not beleive that governmnents provide any useful role besides defense.

  • JWG

    Because the state jobs will never end. The work force will produce no value. The workers will become government employees. They will vote themselves raises and benefits. More bureaucrats will be hired to run the program. And state coercion will be used to squeeze more taxes from me to support this politicized and bloated boondoggle.

  • Payam

    Cullen, I’m really saddened by your comments here. You really shouldn’t be talking about what the academic MMT’ers do or don’t talk about. MMT is a single paradigm that excludes many other factors, it’s a paradigm that explains only a few things…it’s not something you deduce onto everything else. MMT’ers come from an institutionalist, Post Keynesian perspective(exception being Warren mosler) and to make the arguments you’re making simply shows your ignorance. One other thing you have to realize is that academic MMT’ers operate as political pragmatists…not economic ones…they feel the JG is a pragmatic approach that simply offers itself as a stabilizer, and in fact many many left wing economists from the Post Keynesian side have talked about it as “slavery” among other things.

    but the reason I say i was saddened is that your commentary is no different than that of a capitalist free market pig. First of all, as I said of MMTers, they are the pragmatic ones, they still want to operate within a capitalist system with a few tweaks, so to suggest that they somehow don’t think about productivity enough when they are disciples of Keynes and know what something called effective demand is, i mean come dude, seriously? If you’re going to dig your head into this stuff you need to go all the way in if you’re going to explain it or discuss it, I would start reading some Keynes/Kalecki/PK work if you want to totally get it, but if you don’t that’s fine, but don’t talk about MMT as attempting to be THE paradigm to explain everything and failing, when it is not that at all. I can’t say that about Mosler himself, and so I understand the fracture in your thinking, but I’ll just leave it at that.

  • FDO15

    I want a JG supporter to tell me why 95% of the country should pay more in taxes and inflation to support 5% of the population?

  • http://pragmaticcapitalism Michael Schofield

    What a shitstorm. At one time in my career I was expected to give presentations to a large, diverse group of people. I learned that if you speak the truth as best as you can estimate it, it has a good chance pissing off 95% of the people in the room. You must be very close to MMT truth, Cullen.

  • Roger Ingalls


    I like a lot of what you said, but must disagree with the following:

    (Fannie and Freddie guaranteeing loans to low income borrowers under the political framework of increased homeownership, is/was the basis of the ballooning of asset values and the current credit crisis/balance sheet recession)

    It was private banking that started the stampede of subprime lending to lower income, less qualified borrowers. Fannie Freddie came very late to the game.

  • phil

    Of course if there wasn’t popular support for higher taxes then there wouldn’t be higher taxes.

  • Cullen Roche

    I’m equally saddened when people waste their time writing long comments with various insults inserted here and there. What a waste. Let the personal attacks continue. You bury your own argument along the way….

  • Payam


    I’ve look at your comments closely, and you’re a true believer in free market capitalism. In today’s society, after the financial crisis and still in recession and vast income inequality, that is an extremist statement to make. It simply shows that your views on capitalism itself has changed very little other than in the technical details of how it operates. I stand by the argument that you’re a free market capitalist pig…and that’s to be taken as an insult only if you deem it to be so. And look, that isn’t surprising anyway, you’re a trader that likes to golf and wear 3 piece suits, what else should we expect? You’re smarter than the average trader for your deep knowledge of MMT, but it’s obvious that you don’t even know something like why Keynes wrote the general theory, or that the MMT’ers are also post keynesians/heterodox economists(again, not including Warren).

    Furthermore, I guess I’m more of a man that I graciously accept the insults and just go after someone’s argument. One reason I’m insulting you is that you’re insulting the intelligence of these academic MMT’ers by insultingly forgetting they are keynesians(not the bastardized variety either like Krugman). Productivity is all they fucking care about, EFFECTIVE DEMAND MY FRIEND!!!!

    Oh btw, MMT academics don’t have marxist roots, though they do admittedly have marxist colleagues and may have some marxist leanings, but it’s not reflected in MMT literature at all.

  • Dan Kervick

    Well, the JG proposal as developed by MMT does not call for higher taxes, and argues that the program will not be inflationary.

    But personally, I would be willing to pay higher taxes if it meant that all of my fellow citizens who want to work would have a job.

  • Cullen Roche

    You don’t know the first thing about me. I’ve never owned a 3 piece suit in my life. You insult me because I’ve accomplished a fair amount at a young age. Yes, I am the bad guy because I have succeeded in life. That’s right. All of us big bad capitalists ruining everyone’s lives. How absurd.

    You’re just making wild accusations and slinging insults around ridiculous rants. I have been a vocal advocate of more govt stimulus and more banking regulation. And you come here calling me all these names. I am so sorry I couldn’t come slide all the way to the left with you. I really am. But it’s an ugly place to sit as your comment clearly demonstrates and frankly, I am as tired of the leftist ideologies as I am about the conservative ones that have been slamming a wrecking ball into the financial world and the economy for the last 30 years.

    Next time you want to rant you might want to actually understand the person you’re talking to or maybe even think twice about your tone and language before you bury your own argument under immature and ideological absurdities.

  • Dan Kervick

    Not solve all our problems – just this problem of chronic unemployment. Either the proposal has merit or not. We should think it through and study it, and experiment with different ways of implementing it so that the parts that work can be kept and the parts that don’t work can be unwound. But I don’t see why we we should think it’s dangerous.

    I work in a big corporation these days, and it’s by far the most authoritarian structure I have ever been part of. How much worse can it be than more of that.

  • BarbaraNH


    “I am not against full employment and I have never said I am despite your attempts to put words in my mouth. I acknowledge that the govt can and should do more to help the economy. But I think there is are clear limits to this that are not fully appreciated by the primary MMT advocates.”

    First, I have never put words in your mouth. I have consistently responded to your own words, which I usually put at the head of my various comments. That was an unnecessary crack.

    Second, what you said in the quote at the head of this comment is not what you’ve been saying throughout this whole diatribe. Instead, you have tried, over and over, to link your objections to the JG (so clearly and simply stated in your last sentence above) to ‘monopoly’ and ‘coercion,’ and ‘authoritarianism.’ (I notice you’re now backing away from the authoritarian claim). As I and many others have said repeatedly (which you have not responded to), ‘monopoly’ and ‘coercion’ are a priori characteristics of state money, not MMT ideas. MMT is not “taking them to an illogical extreme” (your words). If you want to dispute that the government, by virtue of its monopoly, has a responsibility when it comes to employment, then say that. But instead, you said this:

    “They use these dramatic authoritarian examples to prove their taxes drive money myth.” But you don’t make a convincing argument that it is a myth. You don’t respond on that point to others who give examples showing it is not a myth. Instead, you just imply MMT itself is authoritarian.

    You go on to say,

    “Of course, they qualify these statements with all sort of other “buts”, but the crux of the argument is clear. This ultimately leads them to conclude that massive government intervention is always necessary.” That’s false. The MMT assertion that taxes paid in the state currency maintains the state currency as a monopoly does not “lead” anywhere. It’s your unfounded assertion that it does. The JG is comes into it because it would provide full and direct (I now realize) employment, not because taxes reinfornce a monopoly currency.

    and then you continue:

    “If you build this whole point from the currency user having the choice to create the currency and form of taxation then the state is not as powerful and the argument for massive intervention crumbles…” (your words to FDO15 earlier).

    I and many others have clarified that in a democracy the currency user does have a choice ‘to create the currency.’ Currency users having a choice over the form of taxation is also true in a representative democracy, since Congress determines how taxes will be levied. So your assertion that “the state is not as powerful” as MMTers describe it to be is unfounded.

    As for MMT’s “argument for massive intervention” goes, well, I stand corrected there. After reading Stephanie Kelton’s post, I realize the JG itself is integral because it provides for direct employment, whereas other ways of reaching full employment would not be direct and therefore not as effective. So it is the JG and not just the notion of full employment that MMT calls for.

    This leaves many of us with questions about the JG.

    I have to say, however, Cullen, that you really should not be so surprised at people’s reactions to your objections. You’ve stated them again and again in this thread in an unnecessarily exaggerated and ideological way that, in most instances, required long and patient responses from others to clarify. You may not like the word “patient” but there it is. You provoke, and then you say, Who me?

    Finally, in response to your assertion that there are “clear limits to this that are not fully appreciated by the primary advocates,” Stephanie Kelton puts it perfectly:

    “Make your case against the JG based on its intrinsic features, not on its political viability. Tell me why your policy of choice is more sound and more effective than the JG. Tell me why and how tax cuts will produce and maintain high (full) employment better than direct job creation. What are your assumed transmission mechanisms, your multipliers, your estimated effects on prices and wages? Let’s debate these types of issues, as I do not think that tax cuts and direct job creation are policies of equal merit. Tell me why subsidies or contracts to private firms are more expedient and efficient stabilization methods than direct investment by government. I may disagree but will be happy to engage.

    But to claim that fiscal policy is somehow more susceptible to crony capitalism, corruption, inefficiency than monetary policy (Fed lending facilities, anyone?) or any other private sector behavior (Enron, WorldCom… heck, all the pervasive control fraud in the financial and non-financial sectors!) is simply a nonstarter.”

  • Cullen Roche

    You could join the largest govt work force. The US military. :-)

  • Cullen Roche

    This is pointless. I tell you I am in favor of fiscal policy of many kinds (something I’ve repeated a million times in this thread) and your big crescendo finishes in a statement from Stephanie Kelton justifying fiscal policy vs monetary policy. What are you even reading here? Clearly not me.

    Look, I am not even remotely surprised at the backlash from MMTers on this. I’ve been a vocal proponent for a long time and now I am saying it’s wrong. You didn’t think that would ruffle some feathers? I did. But what I haven’t heard is a single good explanation countering my points. Most of it is just vague ad hominems of various kind or totally unfounded political ideology like your comments above.

    Sorry if you take it personally. It’s nothing personal though….I don’t claim to have some perfect view of the world, but something stinks here and I think I know what it is….extremist politics veiled as economic theory….Unfortunately for the rabid MMT supporters, I happen to hate the extreme left just as much as the extreme right. :-)

  • Greg


    I probably am not getting my points across well. I was not accusing you of being against a common currency. Its pretty clear to me you understand the advantages. What I was trying to flesh out is more to the direction this discussion has taken lately, namely the Chartalist position of taxation driving money, or the extent to which it does.

    I think its pretty clear that AT FIRST it is quite necessary to use some sort of force/coercion/law to get a currency accepted. Yes, this can only be maintained if the govt shows a commitment to maintaining productivity and not confiscating all the products for itself but without a promise to give something of value in return for the currency (a gold/commodity standard) a certain level of force is necessary to get a new fiat currency circulating. As long as enough of the private sector is producing and selling goods to the govt in order to maintain their “monopoly on violence”, so to speak, the trick is done. A currency will have value within the currency are at least. Thats certainly not enough to reach the status the US dollar has, the worlds reserve currency, and I dont believe anyone is suggesting it is.

    Someone suggested earlier that the way we got the US dollar was because we decided via a democratic process that it would be so. I dont think that is strictly true. Just like when Nixon closed the gold window. It wasnt discussed with the people. Im not suggesting it should have been either. Its just that the notion that we the people agreed at an earlier point to accept the dollar is a stretch.

  • Cullen Roche

    I disagree. Sorry….

  • jrbarch

    A long thread: being a compulsive list-maker I gathered up (hopefully) the gist of Cullen’s views here (helped me to understand where he is coming).

    I’m not in this to validate or invalidate “theories”. I am not an economist and I have zero interest in winning awards or taking credit for MMT.

    My goal has always been the same though. To help educate, provide a better understanding and provoke ideas and discussion. I am not trying to solve the world’s problems or fix the politics involved.

    It is my opinion that the JG is not an essential component of understanding modern money, the economy or anything really.

    And yes, the JG is ENTIRELY theoretical (which could be ENTIRELY right – I don’t know).

    Parts of MMT are entirely factual (the operational aspects, monopoly supplier, etc) and then there are parts that are entirely theoretical (like the JG).

    But what we need to be very clear about in the future is that MMT is in fact theoretical in its current form

    History shows that merely imposing a tax is not a reason to pay taxes. The currency users have to want to pay the tax.

    Why does anyone obtain a monopoly in the first place? Because people want their products! The monopoly is not only a function of the issuer. It is a function of the user!

    The govt is a creature of the people. Therefore, the money and the monopoly is ultimately a creature of the people. They decide.

    There has never been any appreciation for productivity.

    Unemployment is a creature of the state. But that doesn’t mean it is the role of the state to hire all of the workers.

    But I am clearly not an MMTer based on all of this since I disagree with what are pretty glaringly core aspects of
    the MMT originally envisioned.

    Behind every man in uniform with a gun is 100 Americans with guns. This has played out hundreds of times throughout history. The state is not a tyrant and if it acts as one it will be demolished.

    The goal is finding that balance where the state does not infringe on the living standards of the currency users to an undue extent.

    I am not saying taxation does not create demand. I am simply pointing out that the relationship is more complex than the traditional MMT explanation states. Therefore, the traditional MMT argument is incomplete and leads to incomplete conclusions (such as the JG).

    Life is an evolution of living standards, not a static college 4 year environment in a vacuum.

    Money is always debt.

    The govt has debt. It just doesnt need to pay it off.

    You might believe that the JG is the best buffer stock and you might even believe it’s the best thing for the world. Honestly, it might be. But I can’t prove that and neither can anyone else. So, in this regard, the JG is pure theory.

    In fact, before I joined the MMTers there was almost no hint of appreciation for productivity. No proper explanation of what causes hyperinflation. And no appreciation for the fact that currency demand is a function not only of taxes, but productivity….

    Productivity matters. Capitalism makes socialism viable. Not vice versa.

    And none of this is personal to me. It’s all about other people and future generations. That’s what it’s ALL about.
    It’s the theory in all of this that bothers me. And I feel like there’s a certain political aspect to it all that makes my skin crawl.

    I am the only one who has built productivity into the model at all. The rest just assume it will always be there. It is, perhaps, the camel that breaks the old MMT’s back because ultimately, it leads to faulty conclusions like the JG….

    You think the govt could keep rates pinned if productivity sank and hyperinflation began to spiral out of control?
    The key point that MMTers miss is that productivity matters A LOT! More than taxes in my opinion….In fact, the base case for any environment is having productivity that can be taxed to begin with. So naturally, productivity precedes taxation, not vice versa as Warren’s base case states….

    I don’t happen to think handing men shovels, guitars and pay checks is the optimal approach. But even then, I am veering into my own theory (which as of yet is undeveloped!).

    Ding ding ding! The JGers think we NEED govt to fix all of our problems….issue a man a job digging holes and a decent wage and all of the sudden his family issues are fixed, he is happy, prosperous, etc etc. Blasphemy!!!!!!!!!!!!!

    Don’t give a man a mundane job. Give him schooling. I don’t know how to fix this exactly and I’d have to do a lot more research, but we know govt can “afford it”….

    “The taxman can use his power to collect his share of pie, but the taxman can’t use his gun to motivate you to bake a bigger pie.”

    Money is a creature of the state. But the state is a creature of the people. So really, money is always a creature of the people. A social construct. The entire idea of the state theory is misleading.

    And how do you keep people happy? You give them an increasingly better standard of living. Hence, the need for productivity, innovation, etc. Clear? I am still thinking much of this through myself though….

    Part of my thinking is to keep the path a centrist one. I don’t want the capitalists rampaging around defrauding everyone (which is why I am in favor of such harsh bank regs), but I also don’t want the govt giving handouts to everyone (which is why I am against becoming a JG worker

    It’s about better output leading to better living standards. There’s a delicate balance there. I plan on finding it.

    I think the traditional MMTers are mixing facts with theory (and that some of them have strict and at times extreme political agendas). I just can’t do that….Sorry.

    Education is key. Give our kids an education. But don’t think you can give a man’s life meaning by handing him a shovel so he can start digging his own grave….

    All money is a social debt between parties.

    We pay into a system that binds us through social agreements. When the govt bails out banks they’re stabbing us in the back (extreme, but I hope you get my point).

    This is why I’ve now realized that MMT is wrong. It’s not about coercion and the power of the state. It’s all about the power of the people and the social construct they create. Money is not about state control. It’s about the control of the people. MMTers think of state money as this exogenous form of money. And while specific, it is not that different from any other type of money. The whole starting point of MMT is wrong!!!!

    Taxes are not based on coercion. They are based on the social construct. If the state oversteps that social construct then the state gets crushed. The MMT idea of taxes drive money is wrong.

    I’m not saying govt shouldn’t intervene altering NFAs. But there are varying degrees of intervention….

    MMTers are double talking. They’re saying the democratic process chooses how we proceed, but operationally, there is only one choice that optimizes economic outcomes (setting prices). I think that’s wrong.

    MMT provides us with a set of principles and understandings that guide us. The foundation of that is that the currency issuer is the monopoly supplier and that therefore they are the price setter. This leads them to conclude that policies like the JG make sense because it helps set prices. I am saying there is more to the story than this. That it’s not so black and white as “monopoly = price setter”. There’s another side to the monopoly argument.

    I know it sounds like all of this is coming out of my disagreement with the JG, but it actually goes back much further to the basic root of the state theory and taxes as a binding force. I am the only one who ever emphasized the idea that productivity and living standards matter as much if not more than the tax component. I never connected the dots on that until I realized that the JG was embedded in the coercion and price setting argument….

    It’s my personal opinion (I know I’ve veered off into the theoretical now) that the best way to increase living standards is to give people more time (so they can do whatever it is they prefer to do with their lives that maximize their personal living standards).

    Warren is saying that we have the choice, but that the monopoly supplier using its coercive powers is the optimal choice.

    However delicately or politically you want to phrase it – the real point MMT makes is that the monopoly supplier has a responsibility to be the price setter to create the optimal outcome. Call it distribution of wealth or whatever. The purpose is clear. It’s a command economy. Which might very well work. I say it’s not the optimal approach and is based on the myth that the govt has a full monopoly.

    What MMTers don’t want you to know is that they have just as much in common with Marx as they do with Keynes. This is clear once you connect the dots between their idea of the full monopoly to the JG….which could be a good thing for all I know, but let’s stop pussy footing around the truth.

    State money is not driven primarily by taxation. It is driven by a personal desire to improve living stds. Therefore, policy should be focused not on how the monopoly can best set prices, but hiw the state can best influence living stds. I say productivity is the only logical focus since reducing labor hours to obtain goods and services is the best way to imlrove living stds….so, from start to finish its quite different.

    I wake up in the morning and say “I need dollars because they’ll help improve my living standards”. Not, “I need dollars to stay out of jail”.

    I don’t think the currency’s value rests solely on the state’s ability to set prices. It ALSO rests on the people’s ability to expand the size of the pie through productivity and improve their living standards.

    I see MMT’s monopoly argument as being an excuse for an increasingly authoritarian govt (i’m not calling anyone a communist or implying that so please don’t read into that too much).

    The govt can help and I am in favor of the govt helping, but we blur the lines here when we start advocating programs where the govt hires up to 30MM people by directly intervening in labor markets via wage setting. That’s not just a CDC or FDA. It’s a massive expansion in the role of govt in our society.

    But what I haven’t heard is a single good explanation countering my points.

    Bill Mitchell drew a line in the sand and I am very clearly on the other side of him. So be it.

  • Colin, S.Toe

    I have been trying to follow this discussion, but have not felt the need to comment as others have effectively made relevant points.

    For what it is worth, BarbaraNH’s comments have struck me as being carefully reasoned and not based on either ‘ad hominems’ or ‘political ideology’.

    In her last comment, she also corrected herself from her original impression that the JG was not indispensable to MMT: acknowledging that for some of its core supporters it is viewed as an integral component.

    My own position has been expressed in comments by Dan K. and Michael S: This may not be the time for a full-blown government JG, but “we need to get moving as a nation in a major way” (Dan). We need to progress beyond this outdated ‘Capitalism vs Socialism’ bugbear and sterile ideological gridlock, have the courage to try some new approaches and “find something that works” (Michael).

    In support of this, even if you choose to differentiate yourself from them, I would urge you not to overstate your differences with the MMT proponents.

  • Payam


    Obviously the 3 piece comment/golfing was a stereotype and a rather good one for traders(or maybe traders don’t actually ever wear 3 piece suits? my mistake). It was for kicks, calm down. BTW i have no idea how rich or poor your are, and in fact I commend you for having made some good trades and looking to expand your knowledge. But the point was that you’re trying to bring yourself up here in a rather distasteful fashion in my opinion…these MMT academics that you critique have spent their entire lives looking at these issues and I won’t let you say whatever you’d like on what they do or don’t take into account. This is the same thing John Carney did in his article about MMT and other schools of thought, and though I excused his ignorance I can’t say I would be OK with excusing yours.

    I say all this with a little reluctance due to you being the main reason MMT has expanded outside of the small clique it belonged to, but understand that there is a huge, vast heterodox school of thought that MMT belongs to and that you simply cannot make the argument that they didn’t take something into account unless you know their entire intellectual viewpoint and knowledge, which is beyond MMT. What you are essentially doing without realizing it is criticizing the entire heterodox profession for ignoring something when it is this profession that criticizes everyone else for the very same reason. MMT is only one of the few political pragmatist arms of heterodox economics, designed for broad popular appeal.
    So you may have seen my argument as an attack on your success(which again, I know nothing about your wealth or your trading business) but it was instead an attack on your status, as a lonely trader saying that a heterodox school of economics doesn’t know economics better than I, a trader, does. One can say whatever they want, but excuse me if I tell you that it was far too bitter a pill for me to swallow.

  • dave

    oh, good god. Not that again.

  • dave

    Ben, the $100 billion are tax credits. It is an asset of whoever picks it up in the street and a liability of the US Treasury. No bond issuance necessary.

  • dave

    rfr, the bills are a tax credit, as said to Ben Wolf above. the bills are your asset, the Government’s liability. Bond issuance changes those bills from a non-interest bearing asset to an interest bearing one.

  • Cullen Roche

    That’s funny. MMTers (myself included) spend endless time insulting the intelligence of other economists who have spent their entire lives doing this. But attack one of the MMT economists and their positions and you’re stepping over the line, right? That’s ridiculous.

    And I didn’t say I know better than anyone. I offered my opinion based on what I understand. If you don’t like it then refute it instead of coming here writing anonymous insult filled rants. And if your stomach can’t handle a little criticism aimed at people who you hold in high esteem then maybe you should just stick to reading other websites.

  • dave

    fdo15: 1st, it is clear that there’s isn’t necessarily more inflation or more taxes. Likely you will get one or the other but certainly not right now.

    And, maybe you could tell us why 95% of the population have the right to deny the other 5% the use of its resources if they are ready, willing and able to be a productive member of society?

  • dave

    Cullen, sorry obviously I am getting to this conversation late. And also obviously you are trying to put a fair amount of distance between your views and the original MMTers. I think there is some disagreement over what MMT means and how it is implemented but I am not interested in that. Want to see if I can push your thinking forward a little bit.

    jrbarch summed up some of your statements from this thread. I want to pick one out that seems important to me and one that I think I agree with: “I say productivity is the only logical focus since reducing labor hours to obtain goods and services is the best way to improve living stds.”

    So, yes, increased living standards is the ultimate goal of society. Better than FE and PS, IMO. But in doing this through increased productivity, you are reducing the amount of labor hours necessary to complete the basic functions of society.

    So, my question becomes: how to do this without leaving a significant percentage of the population behind? And, importantly, how do you accomplish that without massive state intervention regarding working hours, pay, etc?

    Thanks for being host to a terrific piece of political philosophy. Great comments throughout from you, DanK, BarbaraNH, Phil and all the others.

  • phil

    More potted history from wikipedia:

    “An early form of fiat currency were “bills of credit”.[9] Provincial governments produced notes which were fiat currency, with the promise to allow holders to pay taxes in those notes. The notes were issued to pay current obligations and could be called by levying taxes at a later time.[9]

    Since the notes were denominated in the local unit of account, they were circulated from person to person in non-tax transactions. These types of notes were issued in the British colonies in America, particularly in Pennsylvania, Virginia and Massachusetts. Such money was sold at a discount of silver, which the government would then spend, and would expire at a fixed point in time later.[9]

    Bills of credit were controversial when they were first issued, and have remained controversial to this day. Those who have wanted to highlight the dangers of inflation have focused on the colonies where the bills of credit depreciated most dramatically – New England and the Carolinas. Those who have wanted to defend the use of bills of credit in the colonies have focused on the middle colonies, where inflation was practically nonexistent.[9]

    Colonial powers consciously introduced fiat currencies backed by taxes, e.g. hut taxes or poll taxes, to mobilise economic resources in their new possessions, at least as a transitional arrangement. The repeated cycle of deflationary hard money, followed by inflationary paper money continued through much of the 18th and 19th centuries. Often nations would have dual currencies, with paper trading at some discount to specie backed money.

    Examples include the “Continental” issued by the U.S. Congress before the Constitution; paper versus gold ducats in Napoleonic era Vienna, where paper often traded at 100:1 against gold; the South Sea Bubble, which produced bank notes not backed by sufficient reserves; and the Mississippi Company scheme of John Law.

    During the American Civil War, the Federal Government issued United States Notes, a form of paper fiat currency popularly known as ‘greenbacks’. Their issue was limited by Congress just slightly over $340 million. During the 1870s, withdrawal of the notes from circulation was opposed by the United States Greenback Party. The term ‘fiat money’ was used in the resolutions of an 1878 party convention.[10]”

    “The Greenback Party (also known as the Independent Party, the National Party, and the Greenback-Labor Party) [1] was an American political party with an anti-monopoly ideology[2] that was active between 1874 and 1884. Its name referred to paper money, or “greenbacks,” that had been issued during the American Civil War and afterward. The party opposed the shift from paper money back to a bullion coin-based monetary system because it believed that privately owned banks and corporations would then reacquire the power to define the value of products and labor. It also condemned the use of militias and private police against union strikes.[3] Conversely, they believed that government control of the monetary system would allow it to keep more currency in circulation, as it had in the war. This would better foster business and assist farmers by raising prices and making debts easier to pay. It was established as a political party whose members were primarily farmers financially hurt by the Panic of 1873.”

  • Vincent Cate

    Over a 10 year period the bigger the government the lower the growth in GNP. So any theory that argues for more government will hurt in the long run.

  • Vincent Cate

    “It’s why there was never really a good explanation for hyperinflation before I came along and explained its odd relationship within the monopoly.”

    The reason MMT does not have a good explanation of hyperinflation is that they don’t really understand what bonds do in the modern world. They think there is no need for bonds except to mess with interest rates. But when the government sells a bond it is as if it has collected some tax money and then maybe 10 years later when the bond comes due it is as if it gives out stimulus money. So it reduces demand and then later increases it back. It is a temporary reduction in demand that temporarily helps control inflation. If MMT people really got this they could understand hyperinflation.

  • Vincent Cate

    “Money is always debt.”

    This is not true when money is gold and silver coins.

  • Frank Lansdorp

    I enter this discussion after 378 earlier exchanges.
    That is a bit presumptuous.
    Let me first of all state that I enjoyed every contribution and that various subtleties, in theory, emphasis, tone, have not escaped me. (If that makes sense.)
    Yet I am a bit worried.
    I discovered MMT a month’s ago, after having found Steve Keen first in a struggle to understand what is happening with me and Europe.
    Gradually, through browsing the internet, I found three quarters of all relevant economic sites, really scores of them, and re-read some old economics literature.
    I found out about MMT through L.R Wray, Godley,B. Mitchell, C. Roche.
    Taken together MMT provides an excellent explanation of the role of fiat money, the nature (and solvency) of the monetary authority, government spending and taxing, deficits and surpluses. Europe’s problems become much clearer, although D. Farouvakis (implicitly making use of some MMT like thinking), was very helpful too.
    Now there is an interesting discussion with respect to the question to what extent a monetary authority, a state, can enforce a currency upon its citizens through taxing, when citizens can always reject the state through disobedience/revolution. There must be some form of acceptance of a currency by other mechanisms than force. Clear. But the chartalist argument does not seem to be intended to be anything other than thinking things through to the “bitter” end. Practically speaking there is a state (US 20% of GDP, France 50%?) with some acceptance. If it does not manage the currency badly, if “money” serves its purpose, why would anyone want to attack the currency from the inside? It is just a convenient mechanism (about which a lot can be said).
    Much more important is that citizens may operate with multiple currencies. If there is expectation of too much inflation of the sovereign currency, with respect to exchangeable alternatives, citizens may transfer their wealth to it. For instance we see this happen with gold right now. The consequence I do not know exactly, but it undermines the monopoly of the sovereign currency and it certainly must have all kind of effects. The conclusion can only be that spending and taxing must be very carefully managed in order to avoid inflation. I feel MMT is a bit sketchy about this issue.

    But the the thing that worries me, is the “schism” that now seems to develop around JG.
    Once the conclusion has been reached a state spends and taxes, and some abstraction concerning relative proportions over time have been addressed, it is natural to start working on the question what actually to spend and tax.
    Opinion here may diverge. How big should the state be relative to the private sector? What is the role of unemployment? Scores of policy decisions.

    Now I read through the discussion about descriptive and prescriptive aspects of MMT. P. Tcherneva is very outspoken they cannot be separated. Perhaps.

    All I want to say is, that the contributions of C. Roche have fascinated me, just as much as those from others, irrespective of differences of opinion about such issues.
    I would be unhappy if this coherence is lost by “drawing lines in the sand”, by futile, and shrill, debates about doctrine.
    Is there any of your excellent earlier writing you now wish to retract on the basis of your rejection of JG, Cullen?
    Frank Lansdorp

  • Gary Causer

    taxes are used to reward political friends, punish political enemies and socially engineer society.

    Why do MMT theorist get all excited about the JG? The only place I know a derivative of the JG was instituted was the Soviet Union.

    And we know that our government that invades any sovereign nation it pleases and arrest anyone who doesn’t like it (label them terrorist)is trust worthy right?

  • AWK

    I’ll be looking forward to hearing what the theory part is and what predictions and prescriptions naturally flow from it. Drop your clients and get to work you lazy bastard!

  • Cullen Roche

    Well, that will be the best part. It’s time to divorce the theory from the realities. I’ll leave the theorizing to other people and focus on the realities so I can help people navigate life a bit better. :-)

  • AWK


    LOL. OK, now I know you’re a pragmatic capitalist. You’ve called YOUR new theory “The new theory is Monetary Realism” and you decided to outsource the theory part. I hear Vietnamese economists are really cheap right now.

    Actually, wait, that’s not capitalism. It’s called being a grad student. You gotta go get yourself some of that Perfesser.

  • Mitt Romney (aka AWK)


    I have two words for what we can do with all the poor unemployed…

    “Soylent Green”

  • Vincent Cate

    In reality when a government monetizes a huge amount of debt there is inflation within a few years. The existing MMT theory does not match this reality. I think the reason is they view bonds as money and really they are an asset not money.

  • Vincent Cate

    Hyperinflation is the process by which a population rejects a government currency. Many people think of hyperinflation as a single event, but that is wrong. It is a set of positive feedback loops that can go on for years. The end result is the death of a currency. But the process by which it dies is the hyperinflation, not the death.

    Even in the face of laws mandating the use of a currency a black market develops and the currency is replaced. This happens again and again. The feedback loops and stages of hyperinflation are in the links below.

  • Anonymous

    Maybe you should broaden your research

  • paul

    post hoc ergo propter hoc?

  • paul

    Planet-brained physicist Lee Smolin describes how his friend reacted when the SU(5) unified theory finally failed experimentally (due to the lack of proton decay.) “I would have bet my life – well not my life, but you know what I mean – that protons would decay. SU(5) was such a beautiful theory, everything fit into it perfectly – then it turned out not to be true.”
    Smolin himself says, “Even after 25 years I still find it stunning that SU(5) doesn’t work.”

    The JG may be more theory based than the rest of MMT. It makes sense to me, but the only way we will know if the JG works is if we can get some (more?) real world experience, and do the best “experiments” we can.

    I thought one of the virtues of the USA was that different states could try different things? Historically in the UK, if we want to do something that may go horribly wrong, we try it out in Scotland first.

    (By the way Randall Wray has quoted some research (by a right leaning group, I think) that the JG would costs on the order of 1-2% of GDP. (Haven’t got the link, sorry.))

  • paul

    (Obviously a state’s JG would have to be federally funded.)

    Perhaps what we could all agree on is
    1) that the conventional affordability constraint on a JG does not exist – at least in the short term. (i.e. “Where is the money going to come from?” is not a valid question.)
    2) opponents of the JG say that moral/psychological issues will ultimately lead to less productivity, wealth and wellbeing than would be otherwise be the case. Proponents of the JG claim the opposite.
    3) the only way we will know who is right is if we see what happens in the real world. While the JG has to be financed at the national (currency issuer) level, it could be implemented on a national scale, or, if politically preferred, on a trial/experimental and localized basis.

  • Vincent Cate

    “post hoc ergo propter hoc?”

    True. That does not fully prove it. If you look at things right it is very reasonable though. The government is mostly an overhead expense for the productive part of the economy. The bigger the overhead the less the rest of the economy has to invest in growth. The overhead comes as taxes, inflation, borrowing, and red tape.

    I do not mean to imply I am in favor of anarchy, I am not. To have civilization work well I think you need laws, police, courts, and many things. But these are overheads and too much government does seem to hurt an economy.

  • Anonymous

    I think having a currency that gives as much price stability as possible is crucial for a functioning economy. You just need to see the loss of production, poverty and chaos that comes from severe inflation or deflation to see that. Money is working best when people don’t need to think at all about possible inflation or deflation (of assets or consumables). If what makes business sense in terms of producing what people really want and need is also what makes financial sense then the monetary system is doing its job IMO. The colossal waste of the FIRE sector we have now is an artifact of our deranged monetary system IMO.
    What would be a sensible price anchor in order to have price stability? A JG wouldn’t work because it wouldn’t be viewed as credible that the government would stick to the anchor. As many people have said, a gold/silver standard tends to only work whilst massive gold/silver mining is successfully taking place, otherwise it just hits the buffers and gets abandoned. In Babylonian times they pegged together the shekel currency, silver and barley by law. The link to barley was crucial for the functioning of the system because it meant that hoarding of silver did not create a deflation spiral. In this day and age though, even agricultural commodities can and do get hoarded by financiers (eg as in the 2008 financial crisis and resulting famine). I think there is a potential “better than gold” price anchor a bit like the JG but credible. If the USD was redefined as 1/1400th of a starting low rank soldier’s pay then perhaps that could be such a credible price anchor. It could be extended such that there was a fixed ratio between that pay and the pay of a five star general (perhaps 5x as much?) and the president and any federal employee they decided to peg (perhaps all).

    The crucial difference between federal employees and say private sector car mechanics is that the government has total power over how much to pay their own employees and also it is the government that creates the USD (in “net financial assets sense”). If the peg were made to private sector car mechanics then disaster would ensue because the private sector car mechanics would constantly be changing their pay so as to keep ahead of the government in a cat and mouse spiral. The government its self pays the federal employees so no such event can occur.

    The reason to choose military pay (rather than the president’s pay or whatever). Is because military pay is such a large amount that it can not be messed around with and also, as WildAboutHarry said, the military are not going to be messed around with. Everyone relies on them being on our side. That would give international credibility to the idea that the government would not devalue the USD and just let the military suffer. That would make the USD a very strong, trusted and sort after reserve currency even in a (near) zero interest rate environment as I guess we are heading towards.

  • stone

    The anonymous comment about using military wages as a price anchor was from me. I’d forgotten to login

  • hangemhi

    I agree with your 3. As to #2, I really don’t get all of the hand wringing about a guaranteed job somehow hurting someone’s physche. It also seems like a lot of anti-JG people think it is a forced job…. it’s a fall back if you’ve got nothing else – is it not? How does a non-forced job hurt a man? Finally, I don’t get the statism and socialism/marx comments… maybe I haven’t read the other MMT bloggers enough…. is that really what they want? I did read some other MMT blog today and it was so convoluted and anti-Cullen that I couldn’t get through it. So maybe there are marxist/socialists out there, but most of the pro-JG arguments here are anything but IMHO.

    Personally I’m not in favor of the JG because it would seem that there would be very little need for it if we had a well run economy and much smarter taxes and regulation. We may need a JG right now, but right now is the product of 30 years of misguided “free” market crony capitalism. Let’s fix that first. First by educating the general public about “modern money” or “money realism” or whatever the heck we’re calling the descriptive part. And second, by arguing over what the tax code and regulations should be.

  • Cullen Roche

    The big MMT insight is that we should spend to offset the unemployment. We’re all on the same page there! But do we need to do that spending through massive and potential costly govt labor programs? I think we could make govt spending much more efficient than it is. And I don’t necessarily think a JG is the right path in that direction….

  • paul

    Hi, I pretty much agree with you. I think I haven’t expressed myself clearly.

    My own view is that in a hundred years time, when MMT is universally accepted, the opposition to a JG will be viewed in the same way we now view the opposition to abolishing slavery, or child labour, (or universal health care!)

    However, given the strength of feeling on this issue, we can at least agree that sovereign currency issuers can easily afford to experiment and see what happens with a JG on a small scale – perhaps starting on Warren Mosler’s island!