Does Anyone Actually Know What MMT is?

As many regular readers know by now, I had a rather public falling out with MMT earlier this year leading to the creation of Modern Monetary Realism.  This was in large part due to disagreements over the Job Guarantee and the fact that many MMT founders said you can’t have MMT without the Job Guarantee (JG).  Specifically, Bill Mitchell said the JG was “central” to MMT.  Pavlina Tcherneva then wrote a piece at the MMT website asking if the JG was “crucial to MMT” in which she said:

“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.”

It became clear that MMT was a macroeconomic theory that offered comprehensive solutions to price stability and full employment with the JG being the “most important policy proposal” (Wray’s words) in achieving this.  If you believe in unemployment buffer stocks you weren’t working under the theoretical framework that has come to be known as MMT.  So you can see how some of us find it odd that Randall Wray, an MMT founder, wrote a piece yesterday directly contradicting the comments of his founding colleagues saying:

“So, can we have MMT without a JG? Certainly!”

What makes this comment even more bizarre is that Wray wrote a piece earlier this year confirming that Mitchell’s comments were right and that price anchor (JG) was something we “need”:

“Bill’s post led to a bit of a scuffle over what is actually in MMT—with Cullen arguing that the Job Guarantee cannot be a component, while Bill insisted that it mustbe. Warren has sided with Bill and written very persuasive comments arguingthat we need the price anchor.”

So earlier this year MMT included the JG and this fellow named Cullen was wrong.  But the MMT of today doesn’t include the JG and this fellow named Cullen appears to have been right?  So the obvious question is – does anyone actually know what Modern Monetary Theory is?

Comments
  • JK May 1, 2012 at 1:01 am

    Whether the JG is integral to what “is” MMT is indeed confusing. Who knows what they will ultimately decide, or if there will ever be a consensus. Such is the nature of language and how we categorize. Pluto used to be a planet, but not anymore.

    I hope if Wray & company ultimately decide that the JG is not integral, that they take the time to explain why they previously argued that it was but now no longer believe that.

    Back to the point of language and categorizing: would it be considered a JG if instead of providing employment for any and all willing and able unemployed workers… the U.S. government instead subsidized training and schooling?

    What “is” gets tricky.

    • AK May 1, 2012 at 1:10 am

      Yes, I agree with your observations on language.

      All a theory “is”, is the body of work that has been written on that particular subject by its exponents. Since the JG has featured as a part of MMT from day one, it’s hard to see how it can not be a central part of MMT now or in the future.

      Even if all the MMT writers decided that they didn’t like the JG anymore, it would still make more sense to then start writing under a new banner, as this site has decided.

    • AK May 1, 2012 at 1:13 am

      As to your second point about training and schooling – I don’t think that would count as a job guarantee of any sort, because ostensibly you wouldn’t be getting paid for training – you would simply be paying less than you otherwise would thanks to the government subsidy. Therefore you still return to your first position, that the unemployed remain unemployed.

      Not saying the training subsidy is necessarily a bad idea – just saying that it doesn’t necessarily do anything for unemployment caused by an output gap.

      • JK May 1, 2012 at 1:49 am

        Ok, so what if the U.S.Gov actually paid people to get training and schooling? (bare in mind I realize this would then require the U.S.Gov to subsidize all education).

        • AK May 1, 2012 at 10:03 am

          I suppose that would semantically fall into the category of a guaranteed job. However, I think that there are plenty of jobs that would instantly add value -> production ->, which aids the JG’s role as an automatic stabiliser. Those should be targeted first. This is all implementation, really.

          But like I said, I’m not necessarily against training, where there exists a clear and obvious need for it and a bottleneck exists. This could be dealt with by way of subsidy and other programmes quite separate (and more politically palatable) than a JG.

    • Cullen Roche May 1, 2012 at 1:46 am

      They’d do themselves a big favor by all getting on one page here. Otherwise, they’re just contradicting each other and causing huge scuffles like the one that led to MMR. And that only hurts MMT….

  • AK May 1, 2012 at 1:04 am

    Upon reading Wray’s article, it really doesn’t sound like he’s saying anything new.

    He’s clearly saying that MMT still gives useful insights even when a JG isn’t implemented.

    But the MMT position is, and always has been, that NOT implementing a JG is a bad policy choice.

    It’s just the standard MMT position, nothing new.

    • Cullen Roche May 1, 2012 at 1:38 am

      The disagreement is more fundamental than this. The reason we originally rejected the JG was because we disagreed with the MMT idea of the money monopolist. This is the basis of the MMT idea rationalizing the JG. According to MMT a monopolist sets prices. That’s just what it does. But we don’t have a money monopolist in the USA. We have two distinct and separate money issuers in an independent banking system and the state. So the whole money monopolist idea doesn’t apply and the rationale of the state always being a price setter is wrong. MMR disagrees with this MMT theory of the way the money system works and I think anyone who understands modern banking can see that the MMT ideas are wrong. There is no money monopolist, banks don’t serve public purpose and the MMT hierarchy of money is easily proven wrong.

      I think Pavlina and Bill are right. You can’t separate MMT from the JG. It is all tied together in one neat little theory from start to finish. Tom Hickey has repeatedly explained this and how MMT is one tight macro theory. Eliminating the JG from MMT is like separating counter-cyclical spending from Keynesianism. You can’t do it. Wray’s comments claim otherwise and blatantly contradict the comments of other MMTers. But that only begins to unpeel the onion. And the onion stinks the more we unravel it…..Wray’s contradiction here is just one of many.

      • JK May 1, 2012 at 1:48 am

        Even if the U.S.Gov isn’t a pure monopoist, does that change it’s ability to “set” the price of labor by creating a floor-wage via the JG?

        I definitely understand the point you often repeat, that the U.S.Gov isn’t a monopolist, but what I can’t wrap my mind around is whether that really matters as far as the JG is concerned. It seems like the U.S.Gov could still effectively act like a monopolist by setting the floor price of labor through a JG.

        Could you clarify what I’m missing?

        • Cullen Roche May 1, 2012 at 1:51 am

          The govt CAN set the price of anything it wants. It can also put us all in jail, murder everyone, give everyone a job, tax us all 100%, etc etc. But none of this means they SHOULD. MMT takes the monopolist argument to this extreme claiming that the govt SHOULD hire everyone just because it can – based on the idea that this is just what monopolists do – they set prices, etc. It’s just wrong because the idea of the money monopolist is wrong. And instead of building a persuasive moral argument here they build a faulty economic argument based on a misleading perception of the way the monetary system works. Wray says it’s all just based on an understanding of modern money. Except the MMT idea of the way the money system works is wrong! Which is why they make these faulty conclusions like the JG. Personally, I think they’d have more luck selling the JG as a moral policy because the economic argument is very weak in my opinion.

          • JK May 1, 2012 at 2:27 am

            Are they fundamentally wrong, or just semantically imprecise?

            Meaning.. while it may be inaccurate to say the U.S.Gov is a money monopolist, it still seems accurate (at least inthe case of the JG) that the U.S.Gov can “act” as a money monopolist. Is this just semantics?

            • Cullen Roche May 1, 2012 at 2:37 am

              It’s far from semantics. MMT says the state is a monopolist. But it’s not a monopolist. It disperses the power of money creation primarily to pvt banks. So building a policy proposal and theory around this idea is faulty. Can the govt hire everyone? Yeah. Big deal. That’s no grand insight. Does the govt have a bottomless pit of money? Yeah, thats no grand insight. But MMT takes all these arguments to extremes and builds the monopolist idea around them to rationalize them….MMT specifically rationalizes price setting because of this myth. It’s the basis for the JG and it’s wrong.

              • JK May 1, 2012 at 2:59 am

                I’m not yet convinced one way or the other. It still seems to me like mere semantics to differentiate between what “is” a pure monopolist and what can “effectively act” as a pure monopolist.

                If the fact that the U.S.Gov isn’t a pure monopolist somehow prevented it from having the ability to act like a monopolist, then I think what you’re saying makes perfect sense. But so long as the U.S.Gov (not as a pure monopolist) can do everything that it would be able to do (as a pure monopolist), then it seems to me just semantics.

                This gets into how language and how we categorize things can be confusing. What makes something a monopolist?

                1.) No compeition
                or
                2.) The ability to do dictate “as if” it had no competition.

                In theory, it seems like 1. But in practice (reality), it seems like 2. I can’t get over the thought in my head: does it really matter if 1 is inaccurate so long a 2 is true, because they are “effectively” the same thing.

                Anyways, thanks for engaging.

                • Cullen Roche May 1, 2012 at 3:05 am

                  Thats just it. MMT only really applies in a system with a pure monopolist. Otherwise, the argument for price setting contradicts the actual construct in which we reside. We could establish a pure monopolist, but that’s not how the system is designed currently. It’s designed to disperse the power of money creation away from the govt to the pvt banking system. I’m not saying thats necessarily good or bad. It just is. MMT wants to “bring the state back to center stage” as Kelton says. Doing so requires changing the design of the system….So in short, MMT built a theory around a system they want. Not the system we have.

                  • JK May 1, 2012 at 4:23 pm

                    In response to “Europe has a min wage even though they’re not sovereign in Euros….”

                    The ability to set a minimum wage and the ability to set a floor wage are two fundamentatlly thing. All governing bodies, be them currency issuers or currency users, have the ability to make law and set the minimum wage. There is nothing interesting or unique here.

                    The JG is different. In order to employ all those that are willing and able, the governing body must be a currency issuer. Otherwise, they are dependent on “the market” to obtain the money to pay the floor wage for the JG. That is, the market can force insolvency of the government (as in the Eurozone), which can prevent it from being able to make any and all payments to those interested in the JG.

                    I don’t think the ability to set a minimum wage through law is at all comparable to the unlimited ability to set AND pay a floor wage like the JG. One of them requires monetary sovereignty, the other does not.

                    • JK May 1, 2012 at 4:47 pm

                      Sorry, this post above here was supposed to be below

                • JK May 1, 2012 at 3:09 am

                  Ok, consider two scenarios:

                  1) The U.S.Gov is a pure monopolist, so it can either…
                  a. choose to act like a pure monopolist
                  b. choose not to act like a pure monopolist

                  or

                  2)The U.S.Gov is not a pure monopolist, so it can either…
                  a. choose to act like a pure monopolist
                  b. choose not to act like a pure monopolist

                  How is this not just semantics?

                  • Cullen Roche May 1, 2012 at 3:15 am

                    2) If the govt is not a pure monopolist then how does it have pure monopolist powers? Your comment makes no sense.

                    • JK May 1, 2012 at 3:20 am

                      In one of your comments above you said “The govt CAN set the price of anything it wants.”

                      Isn’t that a pure monopolist power?

                    • Cullen Roche May 1, 2012 at 3:26 am

                      Yes, in an alternate reality the US govt CAN (in theory) set the price of credit, stocks, your house, etc. That doesn’t mean it is allowed or able to do so under the current structure of our laws and system. But yes, in this MMT alternate reality the govt could theoretically set the price of whatever it wanted to. But again, thats the pure monopolist arrangement. A mythical world….Not the world in which we live.

                    • JK May 1, 2012 at 3:34 am

                      You’re calling it an alternative reality, but admitting that the U.S.Gov technically CAN do it in this reality, right? How is the alternative reality then not this reality? (hence my confusion about this being semantics)

                      Or are you saying the U.S.Gov CAN NOT (in this reality) set the floor price of labor? MMT just thinks it can, but they are wrong?

                      It sounds like what you’re saying is that because the U.S.Gov is not a pure monopolist, it shouldn’t act like one (even though technically it can). Doesn’t its “ability” to act a pure monopolist effectively mean that it is a monopolist (at least int he case of a JG) even if it isn’t technically a pure monopolist by definition?

                    • Cullen Roche May 1, 2012 at 3:53 am

                      You keep twisting my words. The govt does not have a pure monopoly in this reality. Not sure why you keep saying they do.

                    • JK May 1, 2012 at 4:03 am

                      I apologize. I’m not trying to twist your words. I’ll try to clarify:

                      In this reality, does the U.S.Gov have the ABILITY to set the floor price/wage of labor? Would it be “possible” for the U.S.Gov to create a JG and say “X price/wage is what we will pay anyone that doesn’t have a job that wants one” ?

                      If the U.SGov does have that ability, how is that not monopolist power (at least in the case of a JG)? If the U.S.Gov does not have that ability, then I think I agree with you.

                    • Cullen Roche May 1, 2012 at 4:47 am

                      The govt sets a min wage already and has for 80 years. Not because of a supposed monopoly, but by law. I presume the JG would work similarly. Setting the price is not rationalized by supposed monopolist powers, but by moral standards and it is enforced through law. Does this prove the USA has a money monopoly? Of course not.

                      Can the US Govt buy up labor at a specific price? Yes. Does that mean it has a money monopoly? No. Banks set the price of credit. Does that mean they have a money monopoly? No. Banks wield monopolist powers in this regard. Should we go formulating policy based around this idea? The term money monopolist just doesn’t apply. And as you are displaying, it’s generating a great deal of misconception and misunderstanding. We should just stop using it.

                    • JK May 1, 2012 at 6:10 am

                      It seems the U.S.Gov’s ability to set and maintain a floor wage is defnitely dependent on it being a sovereign issuer of dollars (though not necessarily a monopoly issuer?). I say that because as I imagine states, cities, Eurozone countries etc…it’s obviously true that because they don’t create their own currency, they do not have the unlimited ability to set a floor wage and always be able to pay it.

                      Hmmm. I’m gonna have to think about this.
                      (Need some sleep. Will come back to this tomorrow)

                    • Cullen Roche May 1, 2012 at 9:48 am

                      Europe has a min wage even though they’re not sovereign in Euros….

      • JK May 1, 2012 at 1:51 am

        Cullen,

        Also… if you’re going to respond, no need to get into the reasons why you don’t think the employed buffer stock would work the way they describe it for price stability and inflation. I’ve read it many times. No need to rehash.

        I’m just wondering if the fact that the U.S.Gov ins’t a full monopolist really matters ‘for all intents and purposes.’ (for the JG)

        • AK May 1, 2012 at 10:08 am

          “I’m just wondering if the fact that the U.S.Gov ins’t a full monopolist really matters ‘for all intents and purposes.’ (for the JG)”

          No, it doesn’t.

          Or at least, I have heard no good reason as to why it does. Sure, it has been stated as an axiom plenty of times by MMRists that “the JG relies on the monopolist argument” – but never explained in any coherent manner as to why this is the case.

          That is why I continue to respectfully disagree with the MMR position on this issue.

          • Cullen Roche May 1, 2012 at 10:35 am

            AK, this is not true. The whole idea of the JG is based on the monopolist idea. Here’s the link to the paper by Pavlina which is linked on the front page of Warren’s website. It’s called “Monopoly Money: the state as price setter”. I know you can set prices without being sovereign. Europe proves this through the minimum wage. Ironically, this also pokes holes in the MMT idea that taxes drive money. It would seem that Knapp was indeed right saying that laws drive money. But MMT built the idea of the money monopolist and attached it to the state theory in order to rationalize the JG and price setting in an attempt to build a an economic argument and not just a moral one….The argument is not that strong in my opinion.

      • Jonf May 1, 2012 at 11:04 am

        The way I understand Wray is the analogy to a disease. You don’t have to get the vaccine, but that is simply ignoring the best solution provided by science. So you can separate the JG from MMT if you like, but then you are leaving out a big part of the solution to full employment and price stability. In that sense it is very much in agreement to Mosler and Mitchell.

        I don’t understand your point about money monopolist. I don’t think Wray would argue that the banking system does not impact money. Not sure what the problem is here.

        • Cullen Roche May 1, 2012 at 11:15 am

          1) MMT without the JG is like Keynesianism without counter-cyclical spending. Or to use your analogy, it’s like patenting a drug called MMT and then not issuing it to cure the disease. Wray seems to be saying you can issue a placebo and still call it MMT. I don’t see how you can call it the same drug without the cure????

          2) The money monopolist is not my creation. It’s an MMT creation. And yes, they justify the banking system’s money issuance by building the MMT hierarchy and trying to connect the state’s money issuance to bank money creation.

          • jonf May 1, 2012 at 11:29 am

            Yes, I get that point and it seems ok by me. It is not the most desirable outcome. I don’t think he says it is. The placebo is not as effective. But if you don’t want the chemo, that’s your choice.

            Still not with you on the second point.

            • Cullen Roche May 1, 2012 at 11:35 am

              There’s nothing new in the placebo. It’s just good old fashioned pump priming. Don’t bother calling it MMT. It’s just regular old Kesynianism. The meat in the MMT “cure” is the JG. It’s what makes MMT distinct from standard pump priming. You guys seem to be rejecting this fact now and claiming that you can still have MMT without the JG. It’s a strange retraction from the very clear line in the sand Mitchell drew. Is this all because Jamie Galbraith rejected the JG and forced you all to alter your stance here?

              The hierarchy of money is designed to explain how banks settle payments in state money and are therefore dependent on the state’s money. But MMTers are very careful not to create a link to the money multiplier here. But if you understand how modern banking works you know that banks create their own reserves in essence creating their own state money. So the hierarchy is dead in the water. The banks are basically just rogue entities running around raping and pillaging the system without any real connection to the state. But MMT tries to create a connection in order to maintain the money monopolist myth. But it doesn’t apply with a private horizontal component which serves purely private purpose for private profit.

              • jonf May 1, 2012 at 11:45 am

                I just don’t see it that way. Wray also said:

                “But if we leave out the JG in our recommendations, we are seriously remiss in our advice.” So he is not abandoning this policy tool, as I see it.

                Someone reminded me once that Mitchell once said the JG was “essential”. That has the connotation of “indispensable .” I don’t know how he meant that but I understand it to mean, something like ‘ if you are serious about unemployment, this is what you do.’

                I don’t believe this is worth all the words.

                • Cullen Roche May 1, 2012 at 11:51 am

                  It’s clear he’s not abandoning it. But he is trying to have it both ways. He’s trying to say you don’t need the JG to have an MMT world. Except MMT is a macro theory offering solutions to FE and PS so eliminating the policy tool that gives you FE and PS sort of defeats the whole point of MMT to begin with.

                  I’m not sure why some of you are so confused about this. Wray’s own book is titled Understanding Modern Money-The Key to Full Employment and Price Stability. Not, Understanding Modern Money – a Guide To Understanding the Modern Monetary System…..Pretty cut and dry. FE and PS are integral and central to MMT. Remove the piece that achieves that and you have a shell of MMT. No need to try to confuse people here with double talk.

                  • FDO15 May 1, 2012 at 2:23 pm

                    It’s academically dishonest for him to have written a book about the “key to FE and PS” and then claim that the key to FE and PS is not actually a necessary part of Understanding Modern Money. But prof Wray, that’s the title of the only book about MMT and the one YOU wrote! Haha.

              • geerussell May 1, 2012 at 12:00 pm

                MMT without a JG isn’t a placebo, it’s more like failing to finish a course of antibiotics. A lot of individuals can get pretty healthy but you still create a macro problem of stimulus-resistant unemployment. Which is the system we have in existence today and the one described by MMT.

                • Cullen Roche May 1, 2012 at 12:09 pm

                  You guys seem confused on this. The JG is what provides FE and PS. That’s the whole purpose of MMT – providing FE and PS. It’s a comprehensive macro theory offering answers to macro issues of FE and PS. Are you now claiming that MMT doesn’t need to have FE and PS. Surely, you’re not saying that. But you are clearly saying you can have MMT without the JG. But the JG is the MMT answer to FE and PS….So do the math….

                  Lots of double talk here….I don’t get it. Why not just step on the Bill Mitchell side of the sand and stay consistent????

                  • geerussell May 1, 2012 at 12:34 pm

                    There are two aspects. First is a description that bounds the policy space. Second is a policy recommendation that identifies a point in that space where FE&PS can be achieved.

                    Both are important and useful. The first explains the world as it is, the second offers a path to FE&PS.

                    • Cullen Roche May 1, 2012 at 1:12 pm

                      The two aspects are what make up the comprehensive macro theory known as MMT. Wray’s entire book is a justification of the JG. The entire concluding chapter is about the JG and how it provides the solution to the macro problems of FE and PS. Eliminate the JG and you don’t have the answers to what the macro theory claims to achieve. It’s pretty cut and dry. And MMT founders explicitly disagree with your idea of there being two components of MMT:

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

                      Explain to me how your comment is not a blatant contradiction of these comments by Pavlina??? Or those by Wray???

                  • Cullen Roche May 1, 2012 at 12:45 pm

                    I just cracked open Randy’s book. You know, the one titled Understanding Modern Money: The Key to FE and PS”. THE ENTIRE CONCLUDING CHAPTER is about the JG. So this man wrote an entire book justifying the JG and now claims you can believe in MMT without the JG. Boy, there is some serious political work being done here. MMT is trying to reposition itself as I always framed it – being more politically palatable by making the JG an add on. It’s just more obfuscation. Nothing new here.

                    • studentee May 1, 2012 at 1:32 pm

                      “So this man wrote an entire book justifying the JG and now claims you can believe in MMT without the JG”

                      That’s hardly what the book’s entirely about. Simply pointing out the order of the chapters is irrelevant

                    • Cullen Roche May 1, 2012 at 1:40 pm

                      Oh, so the fact that the entire conclusion is about the JG is meaningless? An entire book is written with a conclusion designed around justifying the policy that achieve full employment and price stability and you come here claiming that it’s meaningless. I seriously wonder if some of you even know that MMT is a macro theory offering solutions to FE and PS. Take out the piece providing FE and PS and you don’t have MMT. It’s very cut and dry. No need to come here getting mad at me just because you didn’t pick up on this previously….

  • Tschäff Reisberg May 1, 2012 at 6:01 am

    It’s problematic when you try to define MMT. There is no official that declares what is or is not MMT. So everyone can have a different view… and be right!

    That said, one objective of MMT is to get the operational realities of the monetary system right, correct accounting logic of real world transactions, correct tactical knowledge on how to achieve ends for a monetary regime, You need that in order to have an honest framework for discussing policy or you come up with bad conclusions (like the federal government will go broke).

    Like all engineers, they have ideas on what policy they’d like to see to optimally achieve certain ends. This is where the developers differ somewhat, and is the cause of your post.

    They all build on Minsky, who used a stylized model of the economy that centered around financial instability inherit to capitalism. Given this “feature” of capitalist economies the MMTers want the government to do something to prevent depressions and hyperinflations. They see existing macro-policy as having failed achieved its aim of price stability and TRUE full employment, true as defined as everyone able and willing to work able to find a job. You see economists haven’t figured that one out, so they redefined unemployment as NAIRU.

    There are some conservative MMTers such as yourself who don’t like the Job Guarentee, there is room for disagreement in MMT over what government should or shouldn’t do for the people living under a given economy, but the debate won’t be an honest one unless both share a proper understanding of our monetary system.

  • Erik V May 1, 2012 at 11:15 am

    Cullen,

    I think you’re right on about MMT not being a coherent theory, and additionally not politically possible in our lifetimes. I think there is a huge a opporunity for MMR to become the economics of the future, combining the best elements of the left and right and some of our own. We need a plan to share the knowledge more, and get MMR into the mainstream. We need to continue to infiltrate mainstream outlets like we did with John Carney at CNBC. Then take over think tanks, university econ departments, etc, until finally the politicians wake up to reality and we can actually start implementing rational policy.

    • studentee May 1, 2012 at 1:29 pm

      lots of delusion on this little blog, but this takes the cake

      • Cullen Roche May 1, 2012 at 1:37 pm

        Typical abrasive MMT comment. Save your breath if you’ve got nothing to contribute.

        • Erik V May 1, 2012 at 2:35 pm

          Optimistic might be a better word than delusional. I’m well aware it will take decades, if we are ever successful. But if other schools of economics which are based on pure religion can become so pervasive, why can’t a fact based branch of economics? Long years of hard economic times open people to new ideas.

          • Cullen Roche May 1, 2012 at 2:57 pm

            We’re trying to establish exactly that. A branch that just explains how the system works with no prescriptions and all that attached. I am confident it will gain traction with time. So yes, I am optimistic as well. And maybe even delusional at times. :-)

  • I'llHaveADouble May 1, 2012 at 11:41 am

    To me – just an interested outsider – the crucial components are:

    1 Money is created by spending, destroyed by taxing.

    2) In practice, it doesn’t matter how deficits are financed.

    3) Monetary policy is the following: setting the upper boundary of the overnight rate with the discount rate; setting the lower boundary with the interest paid on reserves; if it so chooses, setting upper boundaries on rates for government assets of any maturity; and determining the quantity of reserves in the banking system.

    4) Monetary policy stops working terribly well at the zero lower bound unless the central bank is buying things like new goods and services instead of government bonds. At that point, “fiscal” and “monetary” policy dovetail together, revealing the joint nature of the Treasury and Federal Reserve.

    5) Sectoral balances matter, and government deficits help the private sector amass assets and feel less like the sky is falling.

    6) Nominal shocks can and should be countered by fiscal policy.

  • Brian Ripley May 1, 2012 at 11:59 am

    Thanks Cullen, your explanation seems simple enough to me.

    The Government is not a monopolist or price setter; as you point out the private sector creates money by lending and the government creates money by spending.

  • Tschaff May 1, 2012 at 12:47 pm

    The issue of govt being a monopoly supplier of the currency or not since the CB defends its target is not important here, though I take issue with equating private bank lending to vs govt spending. The point is even if the govt isn’t the price setter because of bank’s privilage, it doesn’t help the full employment if banks won’t lend enough to generate full employment. Typically they don’t. Like it or not keeping a stable value of the currency requires an activist government.

    • Cullen Roche May 1, 2012 at 1:01 pm

      Interesting Tschaff, this is not the usual MMT perspective. MMT’s entire monopolist argument and hierarchy of money is designed to justify the price setting of the JG. See Pavlina’s piece linked to above called “Monopoly Money”. You seem to be taking a different approach here….

      Either way, I agree. Monopolist powers or not, the govt can set the price a labor via law and it can spend til the cows come home. Nothing insightful in any of that though. It doesn’t even need a monopoly on money. See Europe and their minimum wages. They don’t have monopoly power over the money, but the states set wages. States in the USA do the same. There, MMT monopolist myth debunked.

      But what’s really baffling about all of this is that MMT claims to be a macro theory providing solutions for FE and PS. And now Wray is saying you can still believe in that theory without believing in the piece that provides FE and PS. What? Did he forget that he wrote an entire book justifying the JG and this world view????

      • Greg May 1, 2012 at 8:56 pm

        I gotta ask though Cullen how does this comment;

        ‘ the govt can set the price a labor via law and it can spend til the cows come home”

        Square with a non monopolist idea? I get the price of labor and minimum wage laws but I mean how can you seriously argue that the govt can spend til the cows come home and say they arent a monopolist in their currency? If there are no limits that DEFINES monopoly doesnt it?. No one else can say they can spend without limits can they?. Even banks have limits since they only make loans and they have to deal with other banks. No bank would ever say it could spend whatever it wanted would it?

        I’m a little puzzled by this. It seems you admit here that in fact they do have powers that no one else has. NO ONE.

        That sounds like a monopoly

        • Cullen Roche May 1, 2012 at 9:40 pm

          The govt has many powers. It could drop a nuke on every city in the country if it wanted to. It could tax us all 100% of our incomes. It could make it illegal to perform pvt work. Does this mean the govt has a monopoly on pretty much anything it wants? In theory sure. But theory and reality are two different things. And reality is that banks issue most of the money in this country and do so independent of the govt. In fact, they even create their own reserves in doing so. So there’s not state money monopoly there. Pretty cut and dry if you ask me. Unless you are into creating alternate realities where banks are essentially part of the vertical component serving public purpose, which is precisely what Warren does…..

    • Brian Ripley May 1, 2012 at 1:20 pm

      My understanding of why banks don’t lend is that the prospective borrower is not credit worthy and especially in a deflationary environment… why would you lend if asset prices are falling?

      When the speculative boom was on and prices were rising, who cared about credit worthiness? One could lend without fear as prices rose.

  • FDO15 May 1, 2012 at 2:07 pm

    First Cullen leaves MMT. Then James Galbraith says the JG won’t work. Now the main MMTers are saying you don’t need the JG to believe in MMT. Cullen is right. This is like a Keynesian saying we live in a Keynesian world (where there is no counter-cyclical spending), but you don’t need to believe in counter-cyclical spending to call yourself a Keynsesian.

    Don’t we all know that MMT is just playing politics by now? Move on. Nothing to see here. MMT is losing relevance by the day.

    • studentee May 1, 2012 at 5:54 pm

      You have not, and will never, have an original thought in your entire life.

    • AK May 1, 2012 at 7:42 pm

      James Galbraith said quite clearly that he believes the JG won’t work for political reasons – it will get “cut up in the budget firing line”.

      And he’s probably right.

      But that is extremely different to the MMR position – i.e. that the JG is theoretically wrong on the basis of the monopolist argument.

      Many people here sound like they didn’t even read Galbraith’s comments.

      • Cullen Roche May 1, 2012 at 7:55 pm

        I don’t think Galbraith’s comments are necessarily relevant here or that they prove or disprove anything.

        This conversation has been about whether the JG is a crucial piece of MMT. MMR was formed because Mitchell drew a line in the sand and said we were on the other side of the line from him. Now Wray is trying to erase the line. I wonder what Mitchell would say about the idea that the JG is an afterthought in MMT….I also wonder what the 1998 Randy Wray would say since he wrote a book almost entirely about the “key to full employment and price stability” based on the JG and “understanding modern money”.

        • studentee May 1, 2012 at 9:04 pm

          ‘I also wonder what the 1998 Randy Wray would say since he wrote a book almost entirely about the “key to full employment and price stability” based on the JG and “understanding modern money”.’

          Have you actually read the book? What are the number of chapters devoted to the JG? I don’t remember it being more than two. The rest of the text describes how modern money works. It’s basically a primer, not entirely different from the one you host here.

          Randy also recognizes that sometimes the JG will not provide price stability, or that sometimes too many people will be in the JG. Other policy options are on the table (I believe he describes something similar to the TC rule). MMT does not equal JG.

          • Cullen Roche May 1, 2012 at 9:42 pm

            Yes, I have the book right in front of me. The entire book is a justification of the JG starting with the JG and concluding with the JG. Have a read again maybe?

            • studentee May 1, 2012 at 10:14 pm

              What are the number of chapters devoted to the JG? What chapters do you specifically disagree with?

              • Cullen Roche May 1, 2012 at 10:34 pm

                This is semantics. The book is an explanation of modern money and the key to creating full employment and price stability. It’s titled “Understanding Modern Money: The Key to FE and PS”. I am not sure what’s confusing about this. The first line in the book is about the ELR and the last words in the book are about the ELR. From start to finish it is a justification of the ELR. Marc Lavoie’s review, published on the back of the says “In this important book Wray argues that the govt should act as ELR….Wray’s book clears up many misunderstandings about ELR. It presents an excellent case for its desirability and its feasibility.” Lavoie basically says the whole book is about the ELR. Maybe you need to take this argument up with him???

                I don’t know what’s confusing you. Have you even read the book? Do you own it? It certainly doesn’t appear so.

                • studentee May 1, 2012 at 11:33 pm

                  I own it and hold it in my hands right now. I don’t care about arguments based on where a sentence is placed or what a specific blurb says. The book does much more than present a justification for the JG, at least for me it did. It was an explication of the modern monetary system and how a particular policy approach working within this monetary system could potentially produce price stability and full employment. I found it illuminating.

                  You are making the argument that all MMT’ers want is the JG, and that they will run roughshod over reality to justify it. This is why this argument is not semantics. You’re basically accusing the entire body of literature of acting in bad faith.

                  • Cullen Roche May 1, 2012 at 11:40 pm

                    Well, Wray did describe the JG as MMT’s “most importantly policy”. Mosler described it as the “base case” for MMT. Mitchell says it’s “central” to MMT. Pavlina said it’s “crucial” to MMT. Over the weekend Wray presented the JG as an afterthought and a mere policy option.

                    And don’t get me wrong. I found Wray’s book to be quite excellent. I recommend it to people. But I also understand that MMT is a macro theory providing FE and PS and once you eliminate the JG from MMT you basically just have a bunch of post-Keynsian understandings of money. That’s fine. That’s basically what MMR is. But I was under the impression that MMT was more than that and that Pavlina’s statement about disconnecting the descriptive from the prescriptive being a flawed dichotomy was accurate. But Wray is explicitly disagreeing with her here….It’s very strange.

                    • studentee May 2, 2012 at 12:31 am

                      “Well, Wray did describe the JG as MMT’s “most importantly policy”. Mosler described it as the “base case” for MMT. Mitchell says it’s “central” to MMT. Pavlina said it’s “crucial” to MMT. Over the weekend Wray presented the JG as an afterthought and a mere policy option.”

                      None of this has any relevance to whether the economic behind the JG is correct.

                      “But I also understand that MMT is a macro theory providing FE and PS and once you eliminate the JG from MMT you basically just have a bunch of post-Keynsian understandings of money. ”

                      I also believe that part of MMT’s contribution to the Post-Keynesian literature is the rigorous understanding of monetary operations and their comparability across regimes.

                    • Cullen Roche May 2, 2012 at 12:33 am

                      Fair enough. Nice talking to you.

  • geerussell May 1, 2012 at 2:26 pm

    Cullen Roche
    Eliminate the JG and you don’t have the answers to what the macro theory claims to achieve. It’s pretty cut and dry. And MMT founders explicitly disagree with your idea of there being two components of MMT:
    “Though clearly there is an aspect of MMT that is purely descriptive, I have always considered this division between thedescriptive and prescriptive part of MMT to be a fundamentally flawed dichotomy.”
    Explain to me how your comment is not a blatant contradiction of these comments by Pavlina??? Or those by Wray???

    I agree with their comments completely but maybe I just have a different read on it than you do. My take away is that if you’re not finishing with policy applications you haven’t done anything useful. A proper descriptive framework is essential for good policy but the actual work of devising policy still has to be done or it’s just idle chatter.

    If your goal is FE&PS you face three alternatives. Adopt the MMT framework including the JG as a means to reach it, propose an alternate means to achieve the goal or abandon the goal.

    Talking about MMT without the JG doesn’t negate any of the other components or descriptions, it just leaves one squarely in the third category of abandoning FE&PS as a goal. That’s a political decision and there will always be a wide range of political views.

    • Cullen Roche May 1, 2012 at 2:42 pm

      The whole purpose of MMT is establishing solutions to FE and PS. Not just describing how the monetary system works. If that were the goal then Wray probably would have titled his book something like MMT: The Key to Understanding How Modern Money Works. But that’s not how MMT has been designed. It is specifically designed to provide a comprehensive macro response to the problems of unemployment and inflation. I mean, Wray’s book and its title is pretty cut and dry. But here he is saying you can believe in MMT without believing in its entire conclusion as a macro theory. Clearly, that’s misleading….

      Unfortunately, I think it’s become pretty clear that the MMT operational aspects are also somewhat flawed. From the monopolist idea to the idea that banks serve public purpose to the idea of the hierarchy of money to that idea that exports are real costs and on and on. The explanation of the monetary system is all designed to bring the power back to the state and establish the JG as the solution to FE and PS. It’s hard to see this perspective at first as MMT is like the movie Inception with levels of understanding that take a great deal of time to fully comprehend, but once you get it it becomes clear that it’s not just MMT’s conclusions that are wrong, but also the operational aspects. So sure, you can fall back on the operational aspects, but that doesn’t mean they’re more right than the prescriptive aspects…..but still, you can’t separate the two as Pavlina explained because without the JG MMT is basically just post-Keynesianism with no real unique insights that haven’t already been around for a long time….

      • geerussell May 1, 2012 at 2:58 pm

        But here he is saying you can believe in MMT without believing in its entire conclusion as a macro theory.

        Perhaps. On the other hand, it’s difficult to agree with your take on it when I read this:

        We already have modern money systems with sovereign currencies and without the JG. MMT is the proper way to analyze these. I believe it is a policy mistake to operate a modern money system without a JG—but that is what almost all countries do. MMT allows us to analyze them, and to offer policy recommendations.

        But if we leave out the JG in our recommendations, we are seriously remiss in our advice.

        I’m hard pressed to see a repudiation of the JG in those remarks.

        • Cullen Roche May 1, 2012 at 3:08 pm

          Okay, you’re just repeating the view that Pavlina already said was wrong. Wray is basically saying that MMT has a descriptive part and a prescriptive part and that you don’t need to believe in both to call yourself MMT. Other MMTers have explained how that’s wrong and why the JG is the central and most crucial piece of the macro theory as a whole. Remove it and throw in NAIRU and unemployment buffer stocks and you don’t have anything much different than what’s been around in the form of the state theory and the sector balances with neoclassical economics of some form. Is that now MMT? I mean come on guys. Get consistent here. Describing THAT as a form of MMT is just absurd and quite frankly misleading. The JG is the key piece to MMT because it ties all of this together and provides the macro solutions to FE and PS. Again, you guys sound like Keynesians who say you can understand how Keynesianism works, but you don’t need to believe in counter-cyclical spending to call yourself a Keynesian. Clearly, you can see how confused that view of the world appears….

          • geerussell May 1, 2012 at 3:47 pm

            Cullen Roche
            Okay, you’re just repeating the view that Pavlina already said was wrong. Wray is basically saying that MMT has a descriptive part and a prescriptive part and that you don’t need to believe in both to call yourself MMT.

            That’s why I added the quoted material above. There’s nothing in it that supports the way you’re describing it. Take it point by point, where do you find “you don’t need to believe in both to call yourself MMT” … ? It’s simply not there.

            A proper reading of the whole statement is the world we have, with modern money and no JG, is one that can’t achieve FP&PS.

            • Cullen Roche May 1, 2012 at 6:24 pm

              Okay fine. You claim MMT just describes our reality. Let’s just briefly shoot holes in that. MMT says the hierarchy of money justifies the idea of a money monopolist because bank money ultimately has to settle in govt money. But Warren admitted a few weeks ago that banks create their own reserves therefore forcing the creation of state money when loans are made. Clearly, you can see who the issuer of money is in this case – not the state, but the private banks. This operational understanding clearly contradicts the MMT hierarchy theory and the idea of the money monopolist. Bank money forces the creation of state money. Not vice versa. The state is at the mercy of the banks. There is no monopoly control there. Only a govt that is a slave to its banking system.

              MMT says exports are a real cost and imports are a real benefit. Tell that to the Chinese workers who are getting real jobs, real incomes, real investment, etc through their trade arrangement with the USA. Americans, on the other hand, are getting real pieces of plastic which are ending up in landfills in a few years. I assure you China does not think they are losing in “real” terms.

              MMT says taxes drive money and use Knapp’s state theory of money to rationalize this thinking. But taxes don’t drive money. Even Knapp understood this. His book, the State Theory of Money opens with the line saying that laws drive money….

              Warren says banks serve public purpose and are part of public private partnership. The reality is that banks are private profit seeking entities who serve their shareholders and not the US govt or the US taxpayer. But MMT tries to bring the banks into the vertical component in order to rationalize the state theory and the monopolist idea. Other MMTers seem to actually understand that a pvt profit seeking banking system is at odds with the goals of MMT and money for public purpose and so advocate policies like bank nationalization. They know we need to actually change the system in order to bring MMT’s policy objectives in-line with how the world actually works. This is not our reality. It is MMT’s vision of an alternate reality.

              I can keep going here if you’d like….MMT does not just describe our reality. They describe the reality that best justifies their policy agenda. It’s all an attempt to “bring the state back to center stage” on roads that all lead to the JG. This is not our reality. It is a Robinson Crusoe style myth. So no, MMT is not just an accurate description of our world. It is an alternate reality all created in order to validate a policy agenda. This is what this debate has been about since day one. And you have to believe in the MMT policy agenda to believe in the MMT world. It’s a lot like being a Rothbardian. You either buy the political agenda or you need to get off Crusoe Island….

              • studentee May 1, 2012 at 9:36 pm

                “Okay fine. You claim MMT just describes our reality. Let’s just briefly shoot holes in that. MMT says the hierarchy of money justifies the idea of a money monopolist because bank money ultimately has to settle in govt money.”

                How does the hierarchy of money “justify the idea” of a money monopolist? What relationship do these concepts have in your mind? The US has a monopoly on bank reserves and currency.

                “But Warren admitted a few weeks ago that banks create their own reserves therefore forcing the creation of state money when loans are made. Clearly, you can see who the issuer of money is in this case – not the state, but the private banks.”

                In this case, yes, the monopolist has set the base price of reserves and allowed quantity to float. Quantity has floated.

                “This operational understanding clearly contradicts the MMT hierarchy theory and the idea of the money monopolist.”

                Can you explain what you think the hierarchy theory is, and what it entails?

                “Bank money forces the creation of state money. Not vice versa. The state is at the mercy of the banks. There is no monopoly control there. Only a govt that is a slave to its banking system.”

                No, the government is still the monopolist. It has set the price, and allowed quantity to float.

                “MMT says exports are a real cost and imports are a real benefit. Tell that to the Chinese workers who are getting real jobs, real incomes, real investment, etc through their trade arrangement with the USA.”

                Go ask a Chinese worker if he would rather trade places with an American.

                “Americans, on the other hand, are getting real pieces of plastic which are ending up in landfills in a few years.”

                “I assure you China does not think they are losing in “real” terms.”

                I assure you that the Chinese government thinks its doing quite fine, as well as Chinese factory owners. Chinese workers, on the other hand, may disagree.

                “MMT says taxes drive money and use Knapp’s state theory of money to rationalize this thinking. But taxes don’t drive money. Even Knapp understood this. His book, the State Theory of Money opens with the line saying that laws drive money…”

                A tax is sufficient to create a demand for a currency.

                “Warren says banks serve public purpose and are part of public private partnership. The reality is that banks are private profit seeking entities who serve their shareholders and not the US govt or the US taxpayer.”

                This description is a public private partnership. Clearly, they sometimes abuse this partnership.

                “But MMT tries to bring the banks into the vertical component in order to rationalize the state theory and the monopolist idea. Other MMTers seem to actually understand that a pvt profit seeking banking system is at odds with the goals of MMT and money for public purpose and so advocate policies like bank nationalization. They know we need to actually change the system in order to bring MMT’s policy objectives in-line with how the world actually works. This is not our reality. It is MMT’s vision of an alternate reality.”

                You are mixed up here. Where do MMTers deny the importance of private debt, of credit, of the horizontal sector? What do you think is the MMT explanation for the crisis?

                I don’t think you properly understand why the vertical component is so essential. It’s not just so the government can make the minimum wage a truly market clearing wage. Once, on Prag Cap, you said that MMT’ers were “Minksyites.” Have you actually read Minksy? Have you read the financial instability hypothesis papers?

          • studentee May 1, 2012 at 5:54 pm

            “Oh, so the fact that the entire conclusion is about the JG is meaningless?”

            “That’s hardly what the book’s *entirely* about. Simply pointing out the order of the chapters is irrelevant.”

            emphasis mine

            weren’t you just complaining about putting words in other people’s mouths?

            “Again, you guys sound like Keynesians who say you can understand how Keynesianism works, but you don’t need to believe in counter-cyclical spending to call yourself a Keynesian.”

            Absolutely you can. You can be “Keynesian,” recognizing the economy is best described in a Keynesian way, and be opposed to Keynesian policies, for whichever quixotic reason you prefer.

            MMT recognizes how the system works, and argues that the JG is best the way to create a stable, productive system.

            • Cullen Roche May 1, 2012 at 6:13 pm

              I’d say the conclusion of a book is pretty important. In this case, the entire 8 page concluding remarks are about the JG and how understanding modern money helps one rationalize the JG. You are trying to marginalize that. Fine.

              So I guess we can just conclude that we’re all MMTers then. You might want to inform the world of this. They’ll be happy to know they’re part of the MMT family since, well, MMT has the whole world figured out and that’s just the way it is….

              • studentee May 1, 2012 at 9:17 pm

                “So I guess we can just conclude that we’re all MMTers then. You might want to inform the world of this. They’ll be happy to know they’re part of the MMT family since, well, MMT has the whole world figured out and that’s just the way it is….”

                You agree that descriptive MMT describes the reality of the current system? New Keynesians, Monetarists, Austrian would dispute the way that both MMT and MMR describe the system.

                • Cullen Roche May 1, 2012 at 9:48 pm

                  MMT and MMR don’t agree on all the operational aspects either. It sounds like you haven’t taken the time to understand MMR.

                  • studentee May 1, 2012 at 10:15 pm

                    What specifically are the operational aspects that make descriptive MMT different from descriptive MMR?

  • Cullen Roche May 1, 2012 at 3:12 pm

    Yeah, I just said the same thing above. They’re basically saying that you can understand how MMT works and that you can believe in unemployment buffer stocks, NAIRU, austerity or whatever you want and still call yourself MMT. Well, then what doesn’t fall under the umbrella of MMT? I guess I can believe in the gold standard and NGDP targeting and govt budget surpluses and still call myself an MMTer!!! It’s like saying it’s okay to call yourself a Keynesian and be 100% against govt budget deficits. It’s not difficult to see how wrong this is and how blatantly misleading it is.

    • JK May 1, 2012 at 5:05 pm

      I don’t understand why Wray is suggesting that the JG is not integral to MMT. As has been hashed and rehashed over and over and over again… isn’t what makes it modern monetary THEORY… the theoretical part? (the JG)

      • Cullen Roche May 1, 2012 at 6:04 pm

        The only reason they’re being rehashed is because you keep making the same comment in different terminology in every single comment. We know where you stand on this issue. Why keep beating a dead horse?

  • JK May 1, 2012 at 6:19 pm

    Am I on your shit list now? I feel like I’m I’m trying to understand the differences. I’m picking and prodding at the nuances of each position. Are you not interested in this learning process? Is this comment section just for cheerleading?

    It seems you’ve decided you are right and anyone that questions your arguments and your reasoning is just beating a dead horse. Do me a favor… tell me where I stand, please.

    Just because: [1] “so far” I think the JG seems integral to what “is” MMT and [2] I’m not convinced by your reasoning on the money monopoly, doesnt’t mean that I’m firmly entrenched in either belief. (though more so 1, than 2)

    You’ve become so much nastier and impatient with disagreement since MMR emerged. I appreciate that you engage comments, but get off your high horse. And if you don’t want considerate debate about MMT, then don’t post articles challenging MMT. (I think I’ve been very considerate and not engaged in any low blows or name calling)

    • Cullen Roche May 1, 2012 at 6:37 pm

      Did I say anything that justified this type of response JK? Get off my high horse? I am becoming nastier? I am inconsiderate? I’ve engaged 20 of your comments on this one thread and done so in an honest attempt to clarify your concerns. All I said was that you’ve repeated the same comments several times and that’s why the same comments have been rehashed here. It’s not a personal jab. It’s just reality. Geez. You guys are all so sensitive to MMT criticism. I don’t understand it. You’re right. I don’t know why I engage you all. I must be a masochist. I just glanced at the Mike Norman site where you guys have once again converged to attack me and try to tear my name down. There isn’t even a single comment actually refuting my points. They’re mostly ad hominems. And yet I am the bad guy over here? Never mind….MMT is doing what MMT does best. Attacking like rabid dogs rather than actually engaging in thoughtful discussion. As if we need more evidence of how this story goes….

      • JK May 1, 2012 at 7:00 pm

        I very much appreciate when you engage my comments. I try to be direct and respectful. If it seems like I’m repeating something over and over again, it’s probably because I’m trying to clarify what I meant because it seems you either didn’t understand what I meant or I didn’t feel you responded to the point I was trying to make.

        But yes… I do feel you’ve become (in general) nastier since the MMR/MMT split. I can go back through comment sections and find quotes if you’re interested. (btw, maybe impatient is not correct. You do take time to engage)

        I’m not senstitive to criticism of MMT. What I am sensitive to is being lumped in with the MMT people that get nasty and trash talk you. For example, when you include me in the “you all” that is “Attacking like rabid dogs rather than actually engaging in thoughtful discussion” …

        I take offense to that. That’s why I called you inconsiderate. If you look at any of my comments here, at PragCap, as well as MMT sites, I haven’t trashed either side, or any person. I’m just trying to learn.

        I apologize if I overreacted above, but your comment about me repeating the same things, and knowing where I stand, and beating a dead horse… those are the type of criticisms you make of MMT people when (it seems) you are tired of dealing with them. So it comes off as you being on a high horse.

        • JK May 1, 2012 at 7:02 pm

          Sorry.. to be clear… when I said “that’s why Icalled you inconsiderate” …I’m referring to comments LIKE the rabid dog comment. Obviously I know I called you inconsiderate before you made the rabid dog comment.

          • Cullen Roche May 1, 2012 at 7:22 pm

            Look, I don’t write these sorts of posts so that I can see a bunch of MMTers relentlessly attack me and call me names. My intention is always to shed light on an issue that I believe is misunderstood by many so we can provide clarity. This was an interesting comment by Wray because it was really the crux of why we started MMR. 6 months ago Mitchell drew a line in the sand and Wray said I was on the wrong side of it. Now he’s saying you can have MMT and not believe in the JG (essentially saying my original stance was right). This is the sort of confusion that led to the creation of MMR and the persistent back and forths. MMTers just aren’t very clear where they stand on this issue. And it’s become clear that many of the readers here don’t know either.

            I am not interested in personal battles. I am interested in finding clarity to these issues. Prior to Wray’s recent comments it was clear and often repeated by MMTers that MMT is a comprehensive macro theory offering answers to FE and PS. But now it’s not that. It’s a description with add-on prescriptive options. But you’ve got several different MMTers disagreeing with these views at various points. So which is it? Is MMT a description with potential prescriptions? Is the JG just an add-on and an afterthought? No one knows because the founders talk out of both sides of their mouths.

            Anyhow, it’s never personal with me so don’t take it like that. But your comments generally have a “I am an MMTer questioning your views” sort of feel. Maybe I am wrong to conclude as much….If so, apologies.

            • JK May 1, 2012 at 7:38 pm

              Indeed… I am questioning your views, and I am questioning them from an MMT perspective (I think), but all that means is that so far I’m not convinced by your reasoning on the particular issue we’re discussing.

              It doesn’t mean I’m “one of them” and being hostile just for the sake of it.

              For example, I’m not convinced that the JG is a good idea. I’m open to other options. But at the same time I have no problem putting that to the side and questioning the rationales and underpinnings of your opposition to it. Just because I question your position, doesn’t mean I’m for the JG. What it means is I’m trying to understand the root of where each side is coming from. And I suppose my questioning may come off as suggesting you are wrong. Just think of it as me challenging you to clarify why you are right.

              • Cullen Roche May 1, 2012 at 7:49 pm

                Good to know. Thanks JK. And sorry if I came off abrasive. Not my intention.

                • JK May 1, 2012 at 8:11 pm

                  No problem. Thanks again for engaging my comments.

  • studentee May 1, 2012 at 9:39 pm

    A longish quote from MMT’er Scott Fullwiler:

    “I’m not sure how any non-MMT economists are interpreting the MMT view of “monopoly money” (and I don’t really care—there are blogs by MMT economists that can answer and authoritatively discuss that question rather easily for those interested, so I’m not quite clear on why there’s any interest in relying on secondary sources), but here’s what it actually means:

    1. By virtue of naming the thing that settles a tax payment (i.e., reserve balances in the US, which provide the final settlement of tax payments; while the IRS and govt accept checks drawn on private bank accounts, these are not what is actually transferred to the Treasury’s account at the Fed), there is a demand created for this particular “thing.” Note that this is ‘sufficient’ to create such a demand, though not necessarily ‘necessary AND sufficient’ for doing so. Also, ‘naming the thing that settles a tax payment’ presumes tax payments can be enforced—i.e., in a democracy, the people in the aggregate have submitted to this. It’s a state theory of money, not a theory of the state (that would be the realm of politics and political theory, by the way).

    2. If the “thing” that settles tax payments is also something that the govt itself can create costlessly (i.e, via keystrokes), then there is no limit to the govt’s operational ability to spend, and neither tax revenues nor bond sales actually finance the government’s spending. Further, the govt’s “money” is its own liability in this case (as opposed to if it were to name gold as the “thing”) and also an asset of the non-govt.

    3. The state can set the bid and the ask for its liabilities and thereby control the interest rate on its own liabilities (i.e., the federal funds rate in the US). Other rates will generally arbitrage to varying degrees against this rate, but the state can only set these other rates in a more precise manner by actively entering those markets. So, there is a monopoly over the “own” interest on the state’s liabilities, but not necessarily on other rates.

    4. The state can set the price that it will pay to purchase goods and services, and this will have some effect on the aggregate price level. How much depends on how significant the state’s purchases are relative to purchases others make. (In the case of the Job Guarantee, for instance, this effect wouldn’t be overly strong—the stabilization effect on aggregate prices in that case comes mostly from the functional finance nature of the spending on the program. Setting the JG wage has the effect of not pushing up private sector wages, but it does not itself mean private sector wages won’t rise—that effect will mostly be tempered by the countercyclical spending on the program, and even then there are other things in the economy that can affect costs and prices. The claim is that the JG will not be inflationary and will be somewhat stabilizing, not that it will set the aggregate price level—and again, even in that case the effect is through functional finance, not setting the wage.) So, “monopoly” here is simply monopoly over the prices of the things it buys or sells, which in the real world states often don’t exercise at any rate.

    5. The state cannot directly control the quantity of non-state liabilities (such as bank liabilities) that circulate as media of exchange. And it shouldn’t try (those that think it should try are called Monetarists, or at least traditional Monetarists). This is quite clear in Randy Wray’s first book, Money and Credit in Capitalist Economies, as well as in the horizontalist/circuitiste literature that we largely agree with. So, there is no “monopoly” of non-government monies. They have always existed—Randy’s very clear that private credit money pre-dated state money—and are created endogenously.

    6. The state cannot directly control the quantity of state liabilities circulating. As we’ve noted many times, the government’s deficit is endogenous—attempting to balance the budget or run a surplus in a recession, for instance, could lead to even larger deficits.

    7. So, overall, beyond the fact that it is not operationally constrained given 2 above, the state’s “monopoly” is generally a monopoly over the price of its own money–the interest rate on its money–and the price of things it purchases or sells. Nothing more than that. Nothing less, either.”

    • Cullen Roche May 1, 2012 at 10:37 pm

      The term monopoly has a very precise meaning. MMTers use it in very imprecise ways. A monopolist controls the supply and price by virtue of this control over supply. The US govt does NOT control the supply of money. The pvt banks do. This is a very basic point. MMT claims the govt causes UE by not supplying enough money as the monopolist and that it should therefore just hire everyone. But this is false. The reality is that the banks do not supply enough bank money and the govt does not supply enough govt money to support this expansion of the money supply which leads to inevitable instability and crash. You don’t need an ELR to reach full employment. You just need a booming economy and a govt that isn’t incompetent about the relationship between banks and govt. But MMT just misconstrues this point to push their policy agenda forward by claiming that the only way to reach full employment (their modified definition of course) is through the ELR. I really don’t know what’s so confusing. Anyone who understands banking knows that the banks control the money supply. They even control the reserves in the banking system by virtue of forcing reserve creation by the central bank. This is far from monopolist control. So arguing that the govt has a monopoly on money is just plain silly.

      • JK May 1, 2012 at 11:04 pm

        Ok, I’m going to rehash a disagreement we had a month or so ago :)
        (feel free to ignore it)

        Let’s say I’m the monopoly supplier of heat, and it’s winter time. And let’s say I’m trying to maximize my profits. Would I…
        l
        1) limit the supply of heat in order to drive up prices? Or..
        2) raise the price to whatever I wanted it to be and let the supply of purchasers float?

        Cullen, it seems like you have too narrow of a view of how a monopoly can act. Or maybe there are different “kinds” of monopolies?

        With regard to the JG, it’s similar to the heat analogy. The U.S.Gov could set the floor price/wage of labor, and then let the supply of workers interested float.

        I’m not arguing here whether they should or shouldn’t. This is just my understanding of what “kind” of monopoly power the U.S.Gov has.

        • JK May 1, 2012 at 11:23 pm

          Actually.. maybe as Cullen suggests… “monopoly” isn’t the right word. The definition of a monopoly suggests that it has the power to control either 1) quantity supplied, or 2) price for sale …and let the other one float.

          A true monopoly can choose either at any given time, but not both. But the U.S.Gov can not choose either. it can only choose #2 (price for sale).

          I think what this means is that both MMR and MMT are correct and incorrect, but in subtle ways. MMR is correct that the U.S.Gov is not a true monopolist. But MMT is correct that the U.S.Gov has a particular monopoly power at its disposal.

          The confusion lies in that MMT calls the U.S.Gov a monopoly issuer of currency, and that is incorrect. BUT, even if that is incorrect, it doesn’t change the fact that the U.SGov does indeed have a particular monopoly power, namely: the ability to set a price for labor and allow the quanity of interested workers to float.

          I’m not sure if there is even a word in the English language to describe that unqiue ability. Monopoly seems like the closest word to it. Actually, it would make sense we don’t have a word for it because this “sovereign currency issuer” notion is a relatively new concept (as far as I know).

          • Cullen Roche May 1, 2012 at 11:28 pm

            I can agree with this. It’s the terminology. Words have precise meanings. Monopolist is a very powerful word with a very very specific meaning. It’s not used properly by MMT.

        • Cullen Roche May 1, 2012 at 11:23 pm

          I am not denying that the govt can theoretically set the price of things. It can also drop nuclear bombs us all tomorrow. It can make it illegal to play soccer. It can make it illegal to do pvt work. It can steal all our property. Does this mean it is the monopoly supplier of everything in the world? Of course not. It just means the govt has substantial powers assigned to it by its people. There’s no denying that. Out here in the real world (not the MMT world) there are many suppliers of heat (or money). Not just you (or the govt). So there is no monopoly and no justification for price setting based on a monopolist description. Can the govt set prices if it wants to? Sure. But that’s not the result of being a money monopolist. It’s the result of the powers vested in it by the majority of its citizens. But MMT uses this monopolist idea to claim that the govt can and should fix prices in order to achieve certain public policies. It’s based on a blatant myth.

          The JG is a moral imperative from the MMT perspective. Not a sound economic argument based on operational realities of the monetary system. It’s a lot like the minimum wage. Govt’s don’t set minimum wages because they have monopoly powers. You think FDR pitched the min wage to Congress by claiming that the govt has a money monopoly? Of course not. He knew better than that. They set the minimum wage because it’s a moral position upheld by the citizens of the country. A JG is no different. But for some reason MMT sells the JG as an economic program that is supposedly based on operational realities and sound conclusions regarding optimal use of resources….

          And now MMT is even backing away from the idea that the JG is necessary to MMT. Yet MMT claims to be a macro theory providing FE and PS based on an operational understanding of the monetary system…..There are so many contradictions in all of this….

          • JK May 1, 2012 at 11:44 pm

            So I guess my question is: does it matter?

            I know it matters for the sake of being precise. But..

            1) If the rationales for the JG have always been based on “the ability to control supply,” then it seems the MMT argument is wrong. Or,

            2) If the rationales for the JG have always been based on “the ability to set price” …then again, it seems like the disagreement is all semantics.

            (I think its time I read the original literature) :)

            • Cullen Roche May 1, 2012 at 11:54 pm

              It’s a very precise point. MMT says the state is the money monopolist and is therefore a natural price setter. The argument is designed to connect the dots between the operational realities of the money system to the ELR based on the thinking that the govt creates UE by not supplying that which it is the monopoly supplier of. MMT takes it even one step further and argues that the govt should not just supply currency, but should fix the price of labor because that’s what monopolists do – they set prices.

              My beef is that the JG argument is presented by attempting to provide a sound economic rationale as opposed to just stating that the state can and should offer every citizen a living wage in exchange for work. Clearly, I don’t think the monopolist argument is applicable here so the economic rationale falls flat on its face before you even begin to argue the merits of the actual JG in action (which has proven equally weak in simulations and in real-life such as in India where it’s proving to be a real problem).

              • Cullen Roche May 2, 2012 at 12:11 am

                And so, ultimately, in building this monopolist argument and trying to bring everything back to the state theory, they’ve actually developed a misguided explanation of the way the monetary system actually works. That’s been my problem since day one. It’s not that I hate the JG. Hell, I might even support the JG if it could be shown that it’s really effective, but what bothers me is the similarities with the Austrian Crusoe Island myth. MMT has created a world they want as opposed to describing the world we have. It’s just not accurate. It’s very good and trust me, a million times better than the Austrian myth, but it’s not complete….

              • studentee May 2, 2012 at 12:22 am

                Let’s see if I can figure out the steps in your argument. Please point out where I’m wrong.

                1. Unemployment is caused by an insufficient lack of money things.

                2. The private sector can create credit money (a money-thing) in the horizontal sector.

                3. The private sector can thus eliminate unemployment if it can create enough credit money.

                4. The JG is unnecessary. Arguments for the JG rest on the assumption that only the government can provide enough money things to eliminate unemployment.

                How does the money monopolist argument fit into this equation? I can see where MMT’ers use it to allow for the JG, but I’m not sure why it would matter in steps 1 through 4.

              • studentee May 2, 2012 at 12:27 am

                “(which has proven equally weak in simulations…”

                Can I see a citation for this? Fullwiler seems pretty confident in his simulations

                • Cullen Roche May 2, 2012 at 12:31 am

                  You really haven’t done your homework on MMR or my positions before coming here and basically insulting everything I’ve written, huh?

                  • studentee May 2, 2012 at 12:34 am

                    How was I insulting your everything you’ve written? What simulations have you run? I’m curious, because I’m a part time econometrician.

                    • Cullen Roche May 2, 2012 at 12:44 am

                      Your first comment here today was about how this “little blog” was delusional. If that was not meant to be insulting then I’d hate to know what you do to people who you actually try to insult. But honestly, I am not interested in the personal conflict. I have seen the MMTers over at Mike Norman’s website tearing my name apart and doing nothing productive. They do it to everyone who disagrees with them (Tom Hickey is actually being his usual upstanding and respectful self while trying to stay on point so big kudos to him). This sort of stuff is why you all have such a nasty reputation everywhere and why no one wants to write about your work. Me, I don’t really care about the personal stuff. I care about the facts and breaking through the petty personal stuff to get to the real meat of the arguments so we can provide an honest and objective view of modern money. My advice to you would be to not contribute to this sort of behavior that MMTers often engage in. It’s counterproductive and really makes MMT look terrible.

      • studentee May 1, 2012 at 11:25 pm

        “A monopolist controls the supply and price by virtue of this control over supply.”

        The government is still the monopoly supplier of reserves. It is the monopoly supplier of dollars. The MC of producing a dollar or reserve is zero, so the dynamics change.

        “Anyone who understands banking knows that the banks control the money supply.”

        Based on the price set by the currency/reserve monopolist. Borrowers of course matter here, as well. I can very well say that borrowers control the money supply (based on the price set by the currency/reserve monopolist and various intermediaries).

        • Cullen Roche May 1, 2012 at 11:34 pm

          Let’s be very clear here. A monopolist controls the supply of that which it supplies to the market. In doing so it has pricing power. That’s pretty simple to understand. The govt does not control the supply of money. It does not control the supply of reserves. Banks create money. Banks also create reserves and even force the govt to supply reserves. This is anything but monopolist powers. No control of supply = no monopolist. Pretty simple again.

          Can the govt set the price of money? Sure. It could set the price of my house, the tacos I ate tonight, the coke I drank, etc. This doesn’t mean the govt is a monopolist. It just means the govt has vast powers. Lots of govt’s that weren’t sovereign in their currencies were able to set prices and fix prices based on the power of govt.

          A monopoly is a very precise thing. You’re abusing the term by applying it here.

          • JK May 1, 2012 at 11:46 pm

            “Lots of govt’s that weren’t sovereign in their currencies were able to set prices and fix prices based on the power of govt.”

            Good point.

            • JK May 1, 2012 at 11:48 pm

              It still seems like fixing prices through laws are different than the JG.

              Fixing prices requires the power of law creation and enforcement.

              Providing a JG requires monetary sovereignty (or else the government can run out of dollars to pay the JG workers).

              • Cullen Roche May 2, 2012 at 12:07 am

                This is not correct. Argentina has been running the Jefes program since 2002 and has never been sovereign in the peso. It carries a substantial foreign denominated debt burden. So MMT loves to cite the Jefes program, but doesn’t point out important little details like the one that they wouldn’t even consider Argentina sovereign in its own currency. So no, you don’t need to be sovereign in your currency to run a JG.

                • studentee May 2, 2012 at 1:39 am

                  The JG in the US can be run under any conditions because the US is fully sovereign and has unlimited supply of US dollars. Argentina also has an unlimited supply of pesos, but likely faces more economic restrictions because of foreign-denominated debt (maybe this partly why they suffer so much inflation?). Eurozone countries could run a JG program, but would face even higher economic restrictions. There is a spectrum of sovereignty. Not sure why this disproves the fact that the JG works best in countries that are fully sovereign.

                  I’m curious where you found this information about Argentina.

                  • Cullen Roche May 2, 2012 at 1:42 am

                    How can you proclaim the “fact” that a JG “works best in countries that are fully sovereign”? Is there any evidence validating this claim? I presume not since there’s not a single shred of empirical evidence proving this….

                    • studentee May 3, 2012 at 5:50 pm

                      Are you serious Cullen? One government can run out of money, another cannot. Which one will be better able to implement a JG?

          • studentee May 2, 2012 at 12:25 am

            I believe any entity that can set the price of something is considered a monopolist. What other market conditions would allow for something like this? I don’t think you have the correct definition of monopolist, or else the definition of monopolist is broader than you think.

            • Cullen Roche May 2, 2012 at 12:29 am

              Not true. For instance, Greece sets the minimum price of labor, but is not the monopoly supplier of Euros to Greek citizens. This point is easily disproven by going through history and studying cases of price fixing and whether the issuer of that currency was autonomous.

              A monopolist is the SOLE supplier. And they control price by virtue of controlling supply. It’s a very precise definition. http://en.wikipedia.org/wiki/Monopoly

              • studentee May 2, 2012 at 1:21 am

                Think of the government as a firm. Greece, as a firm, does not set a price for Greek labor. It sets a minimum price. What sort of firm can set a *single* price (not minimum, not maximum) in the long run and not be considered a monopolist?

                Anyways, I’ll lob this one out there: if markets were actually clearing, and there was no other demand for minimum wage Greek labor, Greece would be considered the monopoly supplier of minimum wage Greek labor within Greece. Think of the Greek citizens as its product. Again, the Euro is irrelevant. Still need to think that one through.

                Your wikipedia citation suggests that the US is in fact a monopoly supplier of reserves and currency. The two characteristics of monopoly that are relevant are price maker and single seller, which the US has over reserves and currency.

                When has an MMT’er every argued that the government can control the money supply? What does this have to do with the JG?

                • Cullen Roche May 2, 2012 at 1:35 am

                  Again, the govt does not control reserves. Quite technically, it does not even control the quantity of state liabilities at all. I don’t know why MMTers keep saying this. It’s not correct. Banks create their own reserves. Warren has stated this many times. You guys don’t seem to have all the facts right here.

                  I am not sure what term you guys are looking for, but monopolist is not the right one.

                  • studentee May 2, 2012 at 1:49 am

                    But it can. Monopolist is precisely the word we should be looking for. True private sector monopolists often do not exercise all of their monopolistic abilities.

                    • Cullen Roche May 2, 2012 at 1:52 am

                      No, the state has no choice or control over the quantity of reserves supplied. You just admitted that borrowers control reserve quantity. What changed in the last 5 minutes?

      • studentee May 1, 2012 at 11:37 pm

        “…full employment (their modified definition of course)…”

        What is your definition of full employment?

        • Cullen Roche May 1, 2012 at 11:45 pm

          My definition of full employment is the same as most mainstream economists. The rate at which there is no cyclical unemployment and resources are being used in their most efficient possible way. MMT changes this to zero involuntary unemployment. That’s fine, but they’re often not clear about this so it causes confusion.

          • studentee May 2, 2012 at 12:13 am

            Ask a new Keynesian what he or she thinks is full employment. I think you will get many different answers. Although, in general, specificity is nice.

            • Cullen Roche May 2, 2012 at 12:18 am

              Okay, there’s no disputing that the govt can hire everyone and eliminate unemployment. I don’t think anyone would dispute that. The question for an economist is whether that is the optimal use of resources or not. So ultimately, all economists should agree that true FE is the rate of UE at which resources are being optimally utilized. MMT says this is 0%. I don’t think it’s a slam dunk that they’re right about that. They could be right, but I don’t think they’ve provided the evidence to prove it. Personally, I find the JG much more appealing from a purely moral perspective. I am much more sympathetic to the JG from the perspective of the minimum wage – it’s just the decent thing to do. But let’s not go building an economic argument around it. And let’s certainly not create alternate economic realities to help jam this square peg through a round hole….

  • JK May 2, 2012 at 12:41 am

    Cullen,

    Tom Hickey said something that got me thinking that maybe the U.S.Gov actually is monopoly supplier of the currency. I’ll try to put this into my own words..

    Earlier I said, and I think you agreed that:

    “The definition of a monopoly suggests that it has the power to control either 1) quantity supplied, or 2) price for sale …and let the other one float. A true monopoly can choose either at any given time, but not both.”

    But then I said, and now I think I might be wrong in saying:

    “But the U.S.Gov can not choose either. it can only choose #2 (price for sale).”

    Hear me out:

    In our current setup, the U.S.Gov chooses option 2: it choose to set the price of money and let the quantity supplied float.

    But couldn’t the U.S.Gov choose option 1: it could say to private banks “this is how much money is available” and then let banks bid on that money, thereby choosing to set the quanity of money supplied and allowing the price (the interest rate) to float.

    I think there are very good reasons why it makes sense for the U.S.Gov to choose option 2 (set price, allow quantity supplied to float), but technically couldn’t it choose option 1 (set quantity supplied, allow price to float)?

    If it’s true that the U.S.Gov could choose either option, then it seems the U.S.Gov is indeed a monopoly supplier of currency. It just happens to exercise option 2 instead of option 1.

    What am I missing?

    • Cullen Roche May 2, 2012 at 12:50 am

      The govt could only control the supply of money if the horizontal banking system was actually controlled by the state. This is a true state money system. China essentially has this. The US govt could control the quantity of bank money. But they don’t. They let the pvt banks issue money entirely free of govt constraint. So, the reality of our money system is no monopoly. Could that be changed? Yes. Warren likes to say it’s just a political decision to let the banks be money issuers. But that doesn’t change the fact that it is our reality and a reality that isn’t changing any time soon. You can see how MMT blurs the lines between reality and the MMT alternate reality. In Warren’s alternate reality the banks serve public purpose. He actually believes that. Warren’s too nice and has too much faith in humanity though. :-)

      • JK May 2, 2012 at 1:03 am

        Hmmm. I think I disagree. I’m not certain I do, but I feel like the fact that both options are avaialble to the U.S.Gov : 1) set price, float quantity supplied, and 2) set quantity supplied, float price, …and it just so happens that the U.S.Gov excersies it’s monopoly by choosing option 2, might prove that the U.S.Gov is indeed a monopoly supplier of the currency.

        Why couldn’t the U.S.Gov choose option one AND allow private banking? In this scenario, Tom Hickey says “deposits would no longer create reserves and banks would have to compete for a limited amount of reserves driving up rates when demand for credit rises.”

        Isn’t the fact that the U.S.Gov HAS THE ABILITY to choose either scenario proof that IT IS ultimately the monopoly supplier of currency?

        Does it really matter that in choosing to set price and float quantity supplied, that it disperses some of that power to private banks?

        • JK May 2, 2012 at 1:08 am

          i.e. couldn’t the horizontal component be private or public in either scenario?

        • Cullen Roche May 2, 2012 at 1:27 am

          Ability has nothing to do with reality. The govt does not control supply. The fact that the govt could control supply (off in some mythical world that will never exist) has nothing to do with the fact that they don’t and will not.

          • studentee May 2, 2012 at 1:46 am

            Yes it does! If the government can control the amount of reserves (god forbid it does), then it is in fact a monopolist. A monopolist does not have to exercise its various monopoly powers to be a monopolist, it just is.

            • Cullen Roche May 2, 2012 at 1:50 am

              The govt cannot control the quantity of reserves. It has no choice but to make reserves available when needed. There is no control there. Not sure what’s so confusing here.

              • studentee May 2, 2012 at 2:04 am

                It does have this choice. It is the monopoly supplier of reserves. What other entity can create reserves?

          • JK May 2, 2012 at 1:58 am

            But I thought we agreed that a true monopoly has the choice to either control quantity supplied (and let price float) or control price (and let quantity supplied float)? A true monopoly can choose to control either one of them at any given time, but never both at the same time. Why does it matter which one it chooses? Isn’t what defines a monopoly: the ‘ability’ to choose either of those options?

            • Cullen Roche May 2, 2012 at 2:08 am

              I am not here defining or even using the term monopolist in relation to a currency issuer. MMTers are the ones doing that. I prefer to never say the term as I don’t think it applies at all. The monetary system is a machine. It does not help us to describe this machine as having monopolist parts. It only distracts from the way the machine operates.

              Is the USA an autonomous currency issuer? Yes. Does it have a money monopoly? No. It’s pretty cut and dry. No need to create some weird monopolist argument to validate policies whose efficacy can’t even be proven.

              • studentee May 2, 2012 at 2:14 am

                What is the importance of the monopolist argument vis-a-vis the JG?

                • Cullen Roche May 2, 2012 at 2:20 am

                  The monopolist argument is the basis for the JG. The JG is a price fixing scheme. Have you read any of the literature? This is JG 101….

              • JK May 2, 2012 at 2:50 am

                Referring to the U.SGov, you said: “Does it have a money monopoly? No.”

                In order to judge the truthful of that question and answer, we must define money monopoly.

                I’m defining money monopoly as the ‘ability’ to choose between 1) set the price of money, float quantity supplied of money or 2) float the price of money, set quantity supplied of money.

                In my mind, the defining characteristic of a money monopoly is the ability to choose between those options.

                It seems like in your mind, a money monopoly is option 2 (or some version of it). You must think it’s soe verson of option two, hence why you said: “The govt cannot control the quantity of reserves. It has no choice but to make reserves available when needed. There is no control there. ”

                It seems like you’re arguing that a money monopoly is “controlling the supply,” when in reality controlling the supply of money is only one of two possible options that a money monopolist has to choose from. And in the United States, the U.S.Gov does not choose that option. It chooses the other option: control the price, loose control of of the quantity supplied.

                I’ll stop here. I’m sure you’re getting tired of me repeating the same thing :) Feel free to respond to this though. I’ll read it. (and might respond tomorrow)

                • Cullen Roche May 2, 2012 at 2:57 am

                  I actually wouldn’t define what a money monopolist is since I think it’s a counterproductive term in describing the money system. But if you forced me to define it I would likely go with controlling the supply and hence price of sll money.

      • Cullen Roche May 2, 2012 at 1:04 am

        Also, Tom is over at MNE saying the govt controls reserves. This is not true. Banks essentially determine reserve issuance via loans. Warren has explicitly stated this. Tom has this wrong.

        • JK May 2, 2012 at 1:10 am

          Yes.. he’s was just responding to some of my comments and confusion.

        • studentee May 2, 2012 at 1:44 am

          It really depends on how you look at it. Banks don’t determine reserve issuance, borrowers do. Does not change the fact that US is monopoly supplier of reserves.

          • Cullen Roche May 2, 2012 at 1:48 am

            It only “depends” if you’re looking through MMT’s alternate reality glasses. The CB does not supply reserves by choice. The CB does not control the quantity of outstanding reserves. You just admitted that borrowers determine quantity. Again, you’re just changing the definition of the word monopolist to validate your alternate reality. Why do you keep doing that?

            • studentee May 2, 2012 at 2:01 am

              How have I changed my definition of monopolist? The US gov’t sets the price of reserves and on currency. It could control the supply of reserves if it wished to. Monopolist? I think so. But it’s semantics at this point. The gov’t setting prices, not quantity. That’s the reality we both recognize. Still not sure what any of this has to do with the JG, heirarchy of money, etc.

              The reason I said “borrowers” is to respond to your earlier comments claiming that the gov’t is slave to the banks, or somesuch. I don’t think this is the right way to look at it.

              • Cullen Roche May 2, 2012 at 2:18 am

                You’re right. It is semantics. You guys are trying to take a small sliver of the money supply and extrapolate it out across the entire money supply to rationalize some mythical monopoly control. Fine. We might as well just start fixing prices left and right. Or do we get to be selective in our price fixing schemes? ;-)

        • Tom Hickey May 2, 2012 at 9:02 am

          Cullen, you are citing the present institutional arrangement. If the political winds shift that could change overnight, as FDR ended convertibility and a fixed rate domestically and Nixon unilaterally closed the gold window.

          People in the US are agitating for drastic change, the Austrians to return to sound money and the AMI folks to end private banking, fold the cb into Treasury, quit issuing tsys, and go to direct issuance only. While Ron Paul is willing to step back from the gold standard per se, it would like to get rid of the Fed, end LLR and guarantees, institute free banking and let the government borrow from banks to obtain funds.

          These are all options for a sovereign government. In the event of another financial crisis of an equal or greater magnitude, it is not unlikely that some drastic changes will be adopted politically. It is entirely possible that to eliminate moral hazard, LLR and government guarantees be terminated and a fixed supply of reserves provided, meaning that quantity is fixed and price (interest rate) fluctuates with demand for the fixed supply.

          Arguably some change like this is not only possible theoretically, but probable in event of crisis, given the political climate, and crises are now coming every five to seven years.

          • Cullen Roche May 2, 2012 at 10:29 am

            Tom,

            two things: 1) Thanks for always being so honest and respectful. You don’t know how well you represent MMT. They need your voice badly even though you don’t seem to be fully on board with MMT and the JG specifically. 2) I am agreeing with you. I am ONLY describing the system we have. MMT describes a system they want. You’re right, if the political winds change then the system could very much change. But what I know right now is that the state does not have a monopoly on money. It just is what it is. And while MMT has a very very good description of the monetary system it is wrong with regards to this monopolist idea.

  • studentee May 2, 2012 at 1:53 am

    “This sort of stuff is why you all have such a nasty reputation everywhere and why no one wants to write about your work.”

    Au contraire, everyone is writing about MMT. Paul Krugman, Yves Smith, Robert Reich, Jared Bernstein, etc. Big names. Apparently Martin Wolf has an article coming out soon. Definitely the most well-known Post-Keynesian school out there.

    Still waiting on your simulation data.

  • studentee May 2, 2012 at 2:18 am

    “No, the state has no choice or control over the quantity of reserves supplied. You just admitted that borrowers control reserve quantity. What changed in the last 5 minutes?”

    It’s a difference of what *determines* the total stock of reserves (demand-side via bank lending, borrower willingness), and what entity *controls* those reserves. That entity which has final control over the reserves is the monopolist. That entity is the US gov’t.

    The producer always controls its product, and the consumer determines how much product is sold.

    • Cullen Roche May 2, 2012 at 2:25 am

      The producer in this case does not control its product. Either way, you’re trying to take one small sliver of a product (govt money) and extrapolate monopolist control out across the entire product (all money via the JG and wage setting) even though the govt does not have a monopoly on its entire product. And in doing so you’re just making a semantic point again and again.

      Unless that is, you believe the state controls the price and quantity of credit????

      • studentee May 2, 2012 at 2:34 am

        Fine, forget that analogy, it’s not precisely true even in a competitive market. Poor choice. The specific product I was referring to was of course, as always, currency and reserves. Not credit money, etc.

        “Either way, you’re trying to take one small sliver of a product (govt money) and extrapolate monopolist control out across the entire product (all money via the JG and wage setting)”

        Can you explain to me what I’m trying to say here? Because I cannot follow that sentence. Re: JG the government sets the price of minimum wage workers, makes it a market clearing wage, that’s all.

        • Cullen Roche May 2, 2012 at 2:39 am

          Okay, so you admit that the govt doesn’t have a monopoly on bank money, but you feel that the govt is justified in using monopolist powers across the broad wage spectrum despite a lack of monopolist powers over the broad money supply. That makes zero sense to me.

          The whole point of the JG as a price setting policy is to set the floor for labor. Theoretically, this will influence all prices. So MMT is trying to justify a monopolist action on the broad wage spectrum even though there is no monopoly power on the broad money spectrum. Again, that makes no sense. Only someone politically motivated could believe that is a sound economic argument….

          • studentee May 2, 2012 at 2:59 am

            “Okay, so you admit that the govt doesn’t have a monopoly on bank money, but you feel that the govt is justified in using monopolist powers across the broad wage spectrum despite a lack of monopolist powers over the broad money supply. That makes zero sense to me.”

            Why does that make zero sense? What does “justification” have to do with anything? The JG either works or doesn’t work. It’s either a good idea or not a good idea. You’ve admitted that the government could set the ELR wage. Why are we talking about monopolies, broad money supplies, etc?

            The ELR sets one wage. That’s it. Just like the rate on reserves sets one price. Everything else adjusts, floats.

            “Only someone politically motivated could believe that is a sound economic argument….”

            C’mon, Cullen.

          • Tom Hickey May 2, 2012 at 9:16 am

            “Okay, so you admit that the govt doesn’t have a monopoly on bank money”

            The government at this point has not chosen to exert monopoly power over private banking very strongly. That is a political choice that could change at any moment with shifting political winds — as it has over the history of the US.

            For example, if the government were to terminate LLR, shut the discount window, and end guarantees in order to eliminate moral hazard, as some now recommend, then the cb can fix the quantity of reserves and let price (interest rate) fluctuate to control the amount of credit creation based on changing demand instead of permitting unlimited credit creation as demand rises by supplying reserves through the LLR and discount window and maintain the rate it chooses.

            BTW, even now the cb maintains the target rate by adjusting the quantity of reserves, reducing excess reserves by selling tsys through OMO. This is exercise of monopoly power.

            • Cullen Roche May 2, 2012 at 10:33 am

              I don’t think monopoly is the word you’re looking for, but it doesn’t matter. Being the monopolist of one component of a market doesn’t make it a monopolist on the entire market (in this case money).

              Also, the govt CAN exert lots of powers. But the system is designed not to allow these powers to be exerted. The govt CAN drop nukes on my house. It CAN chop your head off. Of course, there are checks in the system to avoid this tyranny. The USA is designed with a pvt banking system that disperses the power of money creation away from the state. It just is what it is. MMT tries to explain away the reality of a large and powerful horizontal system. And in doing so they create an alternate reality just like Rothbards do with Crusoe Island. It’s a good description, but not necessarily an entirely accurate one.

  • studentee May 2, 2012 at 2:28 am

    “You’re right. It is semantics. You guys are trying to take a small sliver of the money supply and extrapolate it out across the entire money supply to rationalize some mythical monopoly control.”

    Yes, whatever on the monopoly control. I could be wrong here, but you haven’t convinced me. But the concept has nothing to do with the JG, as far as I can see.

    Re: small sliver. Again, have you read Minsky? Do you understand how MMT works in the Minsky tradition? That small sliver is very important.

    “Fine. We might as well just start fixing prices left and right. Or do we get to be selective in our price fixing schemes? Okay, fine, let’s be selective.”

    Wray made this precise point in Understanding Modern Money. :)

    • Cullen Roche May 2, 2012 at 2:35 am

      The point is easily proven. The state does not control the price or quantity of bank money. So, to take, for instance, the quantity of reserves and claim that this justifies price setting across the entire spectrum of money (all the lowest wages) is highly misleading. The fact is, the US govt does not control the quantity or quantity of its product.

      And it has everything to do with the JG. The whole basis of the JG is this idea of the state as a monopolist and price setter. You clearly haven’t read the literature on it. Again, MMT rationalizes the use of monopolist powers across the broad money supply by setting the price of the ELR even though there is no monopolist power involved across the money supply. We know the govt CAN do it. The govt can also chop off my head tomorrow. But that doesn’t mean it is justified or right. And it certainly doesn’t mean it has a money monopoly.

      I was being facetious with the last line. Apparently you’re not very sensitive to price fixing schemes. :-)

  • studentee May 2, 2012 at 2:53 am

    “So, to take, for instance, the quantity of reserves and claim that this justifies price setting across the entire spectrum of money (all the lowest wages) is highly misleading.”

    This is unreadable. What is “justifies” doing in there? What “spectrum”? How is this related to the “lowest wages”?

    “The whole basis of the JG is this idea of the state as a monopolist and price setter.”

    Do you not believe that the government can set a minimum wage and make the market clear by hiring all involuntarily unemployed laborers at that price? How will it fail? What does this have to do with credit money?

    “And it certainly doesn’t mean it has a money monopoly.”

    Why would the government create the JG program simply to show that it has a money monopoly? I thought you were claiming that the money monopoly was a necessary condition for the JG. If the JG works, why does the money monopolist argument matter at all?

    “Again, MMT rationalizes the use of monopolist powers across the broad money supply by setting the price of the ELR even though there is no monopolist power involved across the money supply. We know the govt CAN do it.”

    So the government can in fact use its monopolistic power to set the price of minimum wage labor and make the market clear? What is the word “rationalizing” doing in there?

    “The govt can also chop off my head tomorrow. But that doesn’t mean it is justified or right.”

    Agreed! You’ve got a lovely head. But now this debate turns to a rational cost-benefit analysis of the JG policy, which is where it should be. It has nothing to do with the money monopolies or hierarchies of money or whatever.

    “I was being facetious with the last line. Apparently you’re not very sensitive to price fixing schemes.”

    Oh, I am very sensitive about what I think the government should set prices on. Air craft carriers, for instance. Setting quantity and letting price float in this market seems like a bad idea.

    • Cullen Roche May 2, 2012 at 3:00 am

      Whats the point of this? There’s no point arguing with MMTers. You guys really think you have the whole world figured out. Good night Student. Thanks for putting up with the back and forth even though I don’t think it went anywhere….

      • studentee May 2, 2012 at 3:05 am

        The point is to get the debate where it belongs: a rational, cost-benefit analysis of public policies such as the JG. Or your innovation initiative. You’ve admitted that the government can set the JG wage and clear the market. No more worries about money monopolies, hierarchies, etc.

        • Cullen Roche May 2, 2012 at 3:08 am

          Agreed! Let’s stop using the money monopolist argument to rationalize policies and let’s rationalize plicies based on their efficacy as economic programs. That’s been one of my main points since day one of this debate! Okay, now i am really off to bed. Good night. Nice chatting.

    • Cullen Roche May 2, 2012 at 3:04 am

      Oh, and I 1,000% agree this should have nothing to do with monopolist powers. That’s one of my main points. But many MMTers present the JG using this price fixing rationale stemming from the monoolist argument. I don’t know why. The merits of the JG don’t stem from any operational realities. It should stem from its efficacy as an economic program. But since there’s almost no evidence showing that a JG works in real life I think they’ve created other arguments to justify it….I don’t understand that approach….

  • studentee May 2, 2012 at 3:22 am

    “But many MMTers present the JG using this price fixing rationale stemming from the monoolist argument.”

    Ah, I see.

    Nominal anchors are important. I would just subsume its potential value as a nominal anchor into the cost-benefit analysis. But I like the JG program on its own, that’s why I was here.

    • Tom Hickey May 2, 2012 at 9:27 am

      “Nominal anchors are important”

      The importance in the MMT JG is that the price the government sets is fixed rather than indexed to inflation, like many government programs such as SS. Indexing is inflationary.

      The important of currency sovereignty to the JG is that government as the capacity to actually fund the cost of the JG no matter how it expands. This is is the similar to the cb setting the yields across the yield curve by announcing it stands ready to purchase any quantity to hit its target. Government can maintain the price it sets because it has the capacity to do so as the sovereign currency issuer.

  • Matt May 2, 2012 at 4:17 am

    Whether or not to call the ability of the state to create any money it wants a monopoly is debatable, as it depends on the exact definition of a monopoly, etc. As this long thread shows. However, isn’t the most important point the sole fact that it can? (create money that is) That is something 99.9% of the people don’t even know/realize. Ask any citizen around the world and he/she will tell you that the government debt has to be paid back, the US state can go bankrupt, run out of money, etc.

    By the way, I’m an amateur in this and very new to the subject so I don’t take any side (wouldn’t even know which sides there are..). Just trying to figure this out, with the great help from sites like these (thanks for that).

    • Cullen Roche May 2, 2012 at 10:24 am

      The govt CAN do lots of things. But the system is designed specifically not to allow it to do all these things. This is why we have checks and balances. The current system segregates the power of money creation away from the state. MMT is trying to say that doesn’t exist and they’ve created a mythical world to bring the state back to center stage. I don’t know if the current structure is right or wrong. I just know it is. And MMT does not describe what is.

      • Matt May 2, 2012 at 11:59 am

        You are talking about the budget deficit restriction or debt ceiling in the US right? And the self-imposed 3% rule in the EU? I guess in a strict sens you are right: The governments have decided in the past to restrict them selves to those restrictions. So they are – for now – bound by those rules. (I am not sure which rules other countries with their own currency like the UK have). But in a broader sense, those same rules can be changed. The EU, when the depression worsens, can decide to loosen fiscal rules or let the ECB buy up government debt (indirectly “printing money”). As the ECB already does, in a way.

        At least, for now I still assume the definition of government is still something like “by the people for the people”. Although I have my doubts about that lately …

        • Tom Hickey May 2, 2012 at 12:26 pm

          The ECB and Eurocrats have already change the rules or ignored them big-time to hold the EMU together, and they will have to go to greater lengths to do so if the currency union is to last out the crisis. This is not going well for them. They have designed a system that doesn’t work, as MMT economists and others warned in the first place.

        • Cullen Roche May 2, 2012 at 12:52 pm

          Yeah, so they’ve built an almost purely credit based system with no support mechanism. It’s great except when you realize that the credit system isn’t supported by any entity that can actually facilitate the credit creation in perpetuity. Only an outside entity like a currency issuer can do that. So you’ve got the credit system in Europe and no facilitator. It can’t work. The USA, on the other hand, has the credit system which is largely unregulated and running around in a free for all and it also has the facilitator which ends up having the bail out the banks running out dishing out credit without constraint….Our system is arguably just as messed up as theirs is because the regulatory framework is so disjointed.

  • Geoff May 2, 2012 at 11:03 am

    I see that there as been a good attempt to define “monopoly” in this thread, but perhaps more important is to define “money”. Granted, the definition of “money” his highly controversial, but if it is defined as Net Financial Assets, does the govt not have a virtual monopoly?

    • Cullen Roche May 2, 2012 at 11:12 am

      Sure, but money is not just NFAs. The majority of the money in circulation is bank money in the form of credit.

      • Geoff May 2, 2012 at 11:35 am

        Understood. I believe someone in the MMR community (JKH?) has argued that new NFA’s could be created by the private sector. I couldn’t quite follow that argument, which is most likely my fault. Something to do with stock price appreciation. In any event, it would be interesting to see an elaboration on that point.

        • Cullen Roche May 2, 2012 at 11:41 am

          Well, the key point is that the pvt sector’s wealth creation and debt accumulation needs to be facilitated and supported by the govt. That’s essentially why pvt banking as a system of credit issuance alone does not work. It needs that entity that can come in and support the system in times of fragility. Otherwise, you basically get what Europe has and an unworkable system. So, it’s important to understand how the system works and how the pieces work in tandem. But it’s not appropriate, in my mind, to try to attribute monopolist powers to a system like the one we have. That only causes confusion about what we really have. And as you can see, many MMTers genuinely believe the govt is a money monopolist and that this somehow rationalizes the use of monopolist powers. It’s similar to say that it’s okay to drop a nuke on Hiroshima just because the USA had a monopoly on atomic bombs. “Well, they CAN, therefore it’s okay if they do”. No, that’s not true. And since then, there have been limits and human rights laws set up in the global community to deter govt’s from exercising these kinds of extremist powers. The USA CAN still drop nukes anywhere it wants. Does this supposed monopoly on violence mean they should or really CAN? No. Of course not. Just like the govt CAN chop my head off. It doesn’t mean they should and it doesn’t mean the system is designed to allow this. In the USA the power of money creation is dispersed away from the govt to the pvt banks. I’m not saying it works great, but it is what it is. MMT just tries to ignore it by claiming silly things like “banks serve public purpose” or the hierarchy of money means bank money is inferior to govt money.

          • geerussell May 2, 2012 at 12:02 pm

            “the hierarchy of money means bank money is inferior to govt money.”

            I don’t think inferior is really the right word to describe it. It is convertible though. This certainly does have some implications on where the power and authority reside. I think it’s fair to describe any form of money as subordinate to the thing it is convertible to.

            • Cullen Roche May 2, 2012 at 12:58 pm

              Subordinate, inferior….aren’t we splitting hairs? I also don’t see the value in this hierarchy of money idea that MMT has created. Yes, it’s important that a credit based money system have a facilitator in the form of the govt whose legal powers are vast. But I wouldn’t claim that credit is subordinate to govt money. That implies a level of importance that is misleading. Is the credit issued through the banks less important to the system than the govt issued money? Of course not. That’s like saying that red blood cells matter more than white blood cells. Describing the system like that doesn’t tell us anything about the system. It only causes confusion.

              Again, it’s best to think of the monetary system like a machine. The machine doesn’t have monopolist parts and it’s not a pyramid of importance. All the parts are important to its functioning. Building a hierarchy of money or establishing monopolist descriptions in an attempt to “bring the state back to center stage” is politicizing the understanding of the system and adds little real value and possibly even detracts from the understanding.

              • Tom Hickey May 2, 2012 at 1:31 pm

                Let’s hypothesize a system with state currency and a free banking system in which banks create their own unit of account separate from the currency and not allowed to represent it as the currency, but only convertible into the currency. Is there superior and inferior here, even though credit money by law is separate from currency and not directly subordinate to it in a cb or Treasury system in which the unit of account is homogenous and denominated in currency. That is to say, people have to convert their bank credit money into currency to pay their taxes. since this doesn’t happen automatically in an integrated vertical system like it does in the cb\Treasury system that we have.

                • Cullen Roche May 2, 2012 at 1:37 pm

                  The argument is conflated in MMT. You can pay your taxes with credit. And banks settle tax payments in govt money even though they directly influence the creation of reserves through lending. MMT tries to downplay this relationship claiming that the state sits atop some hierarchy. It’s very misleading. I am realizing that Steve Waldman was right. We are diagonalists. MMTers are really verticalsts attempting to always “bring the state back to center stage”.

                  • studentee May 3, 2012 at 11:28 am

                    Please, please actually read Minsky, Cullen. You will do yourself a huge favor.

                    • Cullen Roche May 3, 2012 at 11:43 am

                      Not sure why you keep saying this. A lot of my work has been based on Minksy’s FIH after I read Stabilizing….

                    • Cullen Roche May 3, 2012 at 11:54 am

                      Also, I’ve seen enough trolls to know when you’re on other sites using an anonymous name to sling insults my way. I guess we can add you to the list of MMT trolls who regular this website. Please try to behave more maturely on the internet. It’s not a playground for angry old men. You’re making MMT look very bad running around anonymously insulting people who disagree with you. Just some friendly advice.

  • Matt May 2, 2012 at 2:14 pm

    Somehow I have a feeling you’re right Cullen. It’s like looking at a clockwork with different wheels. They all turn and influence each other and looking at each one in isolation you could argue one influences the other but at the same time you could vise versa.

  • Ben Wolf May 2, 2012 at 4:30 pm

    Looks like two billion comments on why Cullen won’t accept the JG.

    • Ben Wolf May 2, 2012 at 4:32 pm

      Oops, hit the post button early.

      Looks like two billion comments on why Cullen won’t accept the JG, from people who keep claiming it isn’t central to MMT. At this point Cullen I think you should just stop responding to certain commentors.

      • Cullen Roche May 2, 2012 at 4:49 pm

        This has been a good development. It’s shown why MMT’s view of the world is incomplete….they’re verticalists who take the other extreme from horizontalists. MMR is more balanced….

        • Ben Wolf May 2, 2012 at 6:57 pm

          Oh, it’s shown quite a bit regarding where MMTers heads are in this . . .

          • Cullen Roche May 2, 2012 at 7:08 pm

            Go read the comments over at Mike Norman’s site. They’re appalling. MMTers literally can’t control their tongues. Sometimes I think they’re worse than Rothbards in the way they attack and spew venom at others in defense of their dogma. http://mikenormaneconomics.blogspot.com/2012/05/cullen-roche-does-anyone-actually-know.html

            • studentee May 3, 2012 at 4:31 pm

              Beo and Mike just seem to think that the JG is a bad idea. That’s fine. But you’re accusing the entire literature of being a bad faith, politics-based argument. It’s understandable people would be incensed.

              • Cullen Roche May 3, 2012 at 4:40 pm

                Yeah, there’s a lot of politics involved. That’s one of my big problems with MMT. I don’t think they’ve established a rational view of the world and then applied policy to it. Instead, I think they’ve established a policy they want and tried to create a world that fits it. That’s my perception at least and there’s ample evidence of this. The money monopoly, claiming that banks serve public purpose, etc. These are easily disproven assuming you don’t take a Crusoe Island approach to viewing the world….

                • studentee May 3, 2012 at 5:52 pm

                  How wikipedia defines a public-private partnership:

                  “Public–private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.”

                  Seems like banks fit this definition.

                  • Cullen Roche May 3, 2012 at 5:55 pm

                    Wrong again. Banks in the USA are mostly owned and funded by private shareholders.

                    • studentee May 3, 2012 at 5:58 pm

                      Yes but they have the unique ability to create liabilities that can be exchanged for government currency. This has nothing to do with ownership.

                    • Cullen Roche May 3, 2012 at 6:01 pm

                      Are banks owned by the govt? Or are they owned and funded by private investors who own those companies? An example of public/private partnership is the state parks….You’re not applying the right definition here….

                  • studentee May 3, 2012 at 6:05 pm

                    Banks fit the definition I provided. They have unique powers that are given to them by the government.

                    • Cullen Roche May 3, 2012 at 6:08 pm

                      More word games. Do you also think banks exist to serve public purpose? Or do they exist to serve their shareholders (their private partners/owners)? Hmmmm….. :-)

  • studentee May 3, 2012 at 4:24 pm

    “Not sure why you keep saying this. A lot of my work has been based on Minksy’s FIH after I read Stabilizing….”

    You need to read John Maynard Keynes. State money is essential for stabilizing the horizontal. It’s necessary for the horizontal. It’s part of why it’s so important, and why MMT brings it back to the center. You are essentially saying that the entire MMT literature is bad faith argument because they bring state money front and center. Minksy is absolutely key in why they bring it back.

    • studentee May 3, 2012 at 4:29 pm

      “You are essentially saying that the entire MMT literature is bad faith argument because they bring state money front and center.”

      should read

      “You are essentially saying that the entire MMT literature is bad faith argument because they bring state money front and center in order to justify the JG.”

      You can understand why people would be insulted.

      • Cullen Roche May 3, 2012 at 4:38 pm

        Some people get things wrong. “Tough titties” as my big brothers still say.

    • Cullen Roche May 3, 2012 at 4:36 pm

      Did you just steal that quote from one of my previous comments because I’ve specifically said the same thing here a bunch of times….

  • studentee May 3, 2012 at 4:29 pm

    “Also, I’ve seen enough trolls to know when you’re on other sites using an anonymous name to sling insults my way. I guess we can add you to the list of MMT trolls who regular this website. Please try to behave more maturely on the internet. It’s not a playground for angry old men. You’re making MMT look very bad running around anonymously insulting people who disagree with you. Just some friendly advice.”

    I only post anonymously on MNE because I’m too lazy to create an account. I’d also bet I’m five, ten years younger than you. I’m an angry young man.

    • Cullen Roche May 3, 2012 at 4:36 pm

      At least you admit it….Good to know.

  • Greg May 4, 2012 at 5:35 am

    Cullen

    Some comments and a question.

    You rightly say (and no one disagrees) that banks are private institutions, with private shareholders and their main purpose is to earn a profit for those shareholders. They also have a unique relationship with the government via the CB, since the CB all but guarantees at least one definition of solvency (always having enough NFAs to settle their payments….something I am not personally guaranteed). MMR agrees with MMT (part of the over 80% they have in common) that the way this relationship is viewed by virtually all the other schools is …………….. skewed. They are the only two schools that have studied the mechanics of banking operations and accounting and included these in their analyses of the macroeconomy. ( MMers seem to relish in their own ignorance of these matters mainly because they believe so strongly that the “expectations fairy” has the power to control everything if he is just more like Chuck Norris)

    MMR agrees with MMT that the imbalance currently (and almost always since credit money has accounted for over 75% of the money in the economy during most of time we have been “measuring” economic variables) is within the private banking system. They also agree, I think, that this imbalance is inevitable within the private money system. In other words a pure privately driven credit system will always result in these imbalances over time. Its inherent in the way the system is designed. I think they also agree that these imbalances are hugely detrimental to the general economy when they get large enough. The things which we have done institutionally over the years have been with the purpose of limiting the damage that private credit crashes do to the non financial sector….also known as the real economy. I dont think there is any disagreement there from anyone in MMT and MMR. Limiting financial sector instabilities is one purpose and then ringfencing them when they happen so they dont destroy other real economy sectors is another.

    It seems to me that the two schools agree that “money” has a public purpose. Banks create most of it but when they destabilize the rest we mostly agree that a public purpose MUST be served by not letting the banking system take down everyones government too. SO banks are, and should be made to pursue a public purpose to a degree. That purpose being “dont burn the whole place down as you play with matches in your own basement” Many bankers do see them selves as serving a public/community purpose, I hear their commercials all the time.

    Do you really think any big banker after getting bailouts would stand in front of the camera and say “We are not here for ANY public purpose, we are here strictly to make as much money off you US citizens as we can” ?

    They want us to think they are serving a public purpose in fact they believe they serve more public purpose than “bureaucrats”.

    Just some thoughts