A « pure » MMT ?


Robert Cauneau – MMT France

Ivan Invernizzi – Rete MMT Italia / MMT France

14 September 2019


Most of the pioneers of MMT are academic people. But this is not the case for everyone. Indeed, at least one of them, Warren Mosler, was not originally a theoretician but an expert in financial markets, a successful trader and co-founder of AVM, a broker/dealer providing advanced financial services to large institutional accounts and the Illinois Income Investors family of investment funds. Its primary objective is not to seek acceptance in the academic community. He has a clear vision of the monetary system in which we live, and he provides importance to what essentially explains the dynamics of monetary and economic variables, as well as to predict them. He thus suggests reliable elements for the understanding of the monetary system, and above all totally independent of any theoretical bias. It is therefore about his thoughts and writings, as well as those of Pavlina R. Tcherneva, which is very close to him, that MMT France wanted to concentrate as a priority.2

It should first be recalled that most economists who support MMT, before joining it, are heterodox, most often Keynesian3. In a completely natural way, they therefore feel the need to project MMT into their previous understanding of the system, using a different language from each other, but often with a heterodox tone. The aim is to promote the transmission of their message and intellectual communication to the rest of the scientific community, in particular with their colleagues who have not joined MMT but with whom they remain very close, and thus to maintain cohesion within their own community.

And this is probably the main reason why the issue that the authors address in this article, which is by definition sensitive because it can raise susceptibilities, has never been explicitly developed before on paper within the MMT community. However, it seemed to them, within MMT France, that it was right and legitimate to do so.

MMT is an autonomous theoretical structure…

While it is true that presenting MMT with heterodox, even Keynesian, language and concepts can be useful, especially for a neophyte or non-academic audience, MMT France preferred to approach the subject by focusing on the « pure » MMT alone.

The main reason for this choice is based on the fact that MMT has an autonomous language and concepts4, as well as a powerful predictive power of the monetary phenomenon, in fact superior to that of Keynesianism. Moreover, it is based on premises5 that are specific to a given currency, different from those of Keynesianism which, in a generic language, lacks precision. Unclear language leads to unclear lines of reasoning. A more precise language governs its development.

It is therefore essential, from a scientific point of view, to present MMT using a refined language, preserved as much as possible from an uncontrolled semantic influence of any other approach, and therefore on the basis of the concepts that this language underlies.

Keynesianism, to mention only one, because of its very generic nature, has important limitations. For example, when it develops the question of effective demand, it does so without ever referring to the currency. It does not recognize the currency as a monopoly of the State and therefore does not recognize the power of the State to determine, create a constraint, structurally influence the term of exchange6 of the currency. He therefore fails to accurately describe the process leading to inflation, while MMT does. Nor does it master the instruments necessary to understand structural movements in the exchange rate. Keynesian theories actually have no more capacity to anticipate and explain exchange rate developments than dominant theories7. This explains, for the most part, why, in the 1970s, Keynesian thought was supplanted by monetarist thought, which led to neo-liberalism and which has now become dominant8.

That’s why, Keynesian argument concerning external constraint is based on a gross misunderstanding that creates many pernicious effects and is a real poison for economic policy making9. Thus, it does not take into account the role of the State in determining the value of the currency. Based on the idea that international markets decides the value of the currency, it does not fully recognize the power of the state in the field of economic policy. This is probably the main reason why MMT advocates should not accept the use of Keynesian language, which is in fact far too imprecise

For all these reasons Keynesianism recognizes to the State a management power of capitalist development that is way smaller than its actual one. On the other hand, MMT better recognizes the limits of State power in the definition of economic policies. It is much more successful in defining the space for possible economic policies on the part of the State, within which it can develop, decide and act. This is a major plus of MMT that allows the MMT economist, despite certain differences in language and ethos, to go as far as to define and converge on the MMT basic policy proposals10.

… which must be respected, at the risk of undermining its important potential.

One consequence of this is that MMT is able to demonstrate that it is always possible to maintain full employment and meanwhile maximizing price stability. It also manages to distinguish between, on the one hand, an increase in the general level of prices due to a change in the value of the goods themselves (e. g. an oil shock, a drought causing the price of apricots to rise, etc.), and, on the other hand, government intervention at the level of the currency in the process of its redenomination, thus in the development of « real » inflation.

Thus, to the question sometimes asked whether MMT presented by authors other than Warren Mosler and Pavlina R. Cherneva is « compliant », especially those who do not use their own specific language, it can be answered that, if their approach can be effective in presenting MMT to a neophyte or non-academic audience, it quickly shows important limitations, as it risks proposing a vision that is not as precise as it could be and incomplete of MMT, particularly because of the silence often encountered regarding the concept of « the currency as the State’s monopoly « 11, thus preventing MMT from expressing all its power. It is in fact not possible to explain a given paradigm in terms of another paradigm.

Finally, it is important to note that MMT is a much more complete theoretical structure, than Keynesianism can be, for linking economics with other social sciences. Where other approaches only use assumptions, MMT explains what elements are necessary in reality to make the emergence of the market possible, for example. It therefore goes deeper, both in its premises and in its conclusions. Based on solidly established historical facts, as well as on the logical relationships between theoretical elements, it recognizes in its premises elements that are outside the economy, which relate to political science, also to historical sociology. It is therefore a basic structuring element and it is clear that it is not merely a contribution, and not only for what concern economic thinking, but also to the social sciences as a whole. It is a profound challenge to it, in the sense that it lays common foundations for all social sciences, recognizing the structural elements necessary for the emergence and existence of monetary societies as we know them today.

It therefore contains an epistemological value that goes far beyond the economic dimension. It provides an explanation of the foundations of society and presents itself as a possible starting point for understanding the whole social sciences. It therefore suggests the possibility of transdisciplinarity to lay the foundations for an integral social science, not only to build bridges between the conclusions of the social sciences, but also to lead to a great theory that would combine the theoretical hard cores of the different disciplines, thus forming a coherent structure explaining society as a whole.

The role of the State is central here. In the State, as explained by MMT, there are the basic elements of the functioning of the economy, as well as the politics and influences of cultural and sociological construction between the dominant classes and the working classes. Economics, anthropology, sociology, political science study society, which in fact is one of them. These social sciences come together on issues such as urban planning. But, to date, they have not been able to recognize this unity of society. Attempts at collaboration are being made, but not in the sense of an integral global approach that would allow these various ways of analysing reality to interact with each other, and thus to try to explain how this complex system of society works. The idea developed here is therefore to allow MMT to highlight the hard core that could act on the various theories themselves, not just on their conclusions.

And this possibility, which to date has not yet been the subject of any study, suggests the extent to which the MMT has a potentially very significant influence12.


1 By « pure » MMT, the authors of this article mean the one based on the recognition of and respect for its primary concepts, which therefore constitute its core, in particular the concept of the currency as the State’s monopoly, as well as all the concepts directly connected to it. On the other hand, lines of reasonning which, if not inconsistent with the primary discourse, for sure are not driven by it, and therefore come from parallel, more general, less precise reasoning, which could lead to believe that they are the product of another tradition, should be avoided as far as possible.

2 Only the names of Warren Mosler and Pavlina R Tcherneva are mentioned in this article as « pure » MMT authors, as they seem to use language and lines of reasoning that express their close connection with the primary elements of MMT. But this should not obscure the fact that other authors, such as Bill Mitchell, Randall Wray or Stéphanie Kelton, share the content of the theoretical core and the nature of the economic policies suggested, but do not always care about the language used or how to connect with other pre-MMT authors and other social science traditions in general. They often express themselves with a language and lines of reasoning that are the extension of the core of MMT. And, for didactic purposes, particularly for a non-informed or non-academic audience, they tend to reconstruct a discourse using a language from another tradition

3 The authors of the article voluntarily refer to Keynesians, and therefore to all the traditions that refer to them, including that of post-Keynesians.

4 However, it should be pointed out that there is a neo-Keynesian theory called « Optimum currency area », which also develops a discourse that is specific to a given currency, but which is limited to monetary policy without integrating either elements of fiscal policy or the recognition of the currency as a public monopoly.

5 For example, only MMT explains, in the economic field, the origin of the labour force, the reasons why, in a specific territory, this labour force is sold in a given currency. It thus increases the accuracy of the line of reasoning.

6 In the context of this article, this is the expression for the « value » of the currency.

7 For example, in recent decades, monetarist and Keynesian theories have shown their limitations, particularly in the case of Japan, a country with a very high level of public debt, a very low unemployment rate, and an appreciating exchange rate. Despite interventions by the central bank on the exchange rate, despite quantitative easing operations, contrary to the expectations of monetarists and Keynesians, there has in fact been continuous not inflation, but deflation, with very low interest rates. It should be added that, when their predictions are not accurate, the proponents of these theories make adjustments that suggest that they believe they can actually explain and justify everything in any situation.

8 Especially in the euro zone.

9 This question of external constraint will be developed in another article, currently being written by the authors of this article.

10 The main policies that can be cited are, for example, the job guarantee program, the management of public deficit in function of full employment, a policy not seeking to maximize net exports, and preference for a sovereign floating exchange rate system over both : fixed exchange rate system and the adoption of a foreign currency.

11 Thus, in his book « Understanding Money Theory », L. Randall Wray never mentions the concept of « the currency as the State’s monopoly » or that of « Net Financial Asset ». Similarly, in a conference in Berlin on 17 January 2019, he developed ten main points that are at the heart of MMT, but without including the « currency as a state monopoly »: https://www.youtube.com/watch?v=cL9mseTFbWA&t=124s&fbclid=IwAR2pXhoYrhAZpzpFxKrhVPL8MRk28AyLEmZIJo8iqiXOpet5X4QrfBTq5dM

12 This point is also developed in another article that the reader may find useful: https://mmt-france.org/2019/08/16/mmt-fondements-historiques-et-logiques/

Illustration : Le lac Léman pixabay.com

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