This is the first part of a series on framing money.
I studied with Hyman Minsky in the early 1980s when he was writing his 1986 book (Stabilizing an Unstable Economy). There are two phrases in that book that I remember him saying in class:
“Anyone can create money, the problem lies in getting it accepted”.
“The need to pay taxes means that people work and produce in order to get that in which taxes can be paid”.
Most of my work on money for the first decade after my PhD studies concerned the first statement—I was one of those who developed the Endogenous Money approach most closely associated with Post Keynesians however it also drew heavily on the Franco-Italian circuit approach.
That is all about the private money system; government enters through its Central Bank as the provider of bank reserves. My first book, “Money and Credit in Capitalist Economies” went through all of that in 1990, and I’ve continued work in that area as I examined the causes of the 1980s Thrift Crisis and later the collapse of what Minsky called Money Manager Capitalism in 2007.
However, I never forgot the other point he made: we work hard to get the government’s money because we have to pay taxes. That led me to Keynes of the Treatise and to Knapp’s The State Theory of Money when I was writing my dissertation in Bologna in 1986.
I included a section on Chartalism or the State Money Approach in the 1990 book but it was very brief since I was focusing on the role of money in the private sector. So in the mid-1990s I returned to the role of the state, and discovered what I believe to be the best two articles ever written on money, by A. Mitchell Innes in 1913 and 1914. Keynes reviewed the first one and aside from some quibbles he declared it to be correct.
What struck me is that Innes was able to integrate both a State Money approach and a Credit Money approach. To understand our money, what Keynes called Modern Money, you must have both. Otherwise, to borrow a metaphor, you’ve got Hamlet without the Prince.
A group of us first at the Levy Institute in NY and then at UMKC, but also including others, especially Warren Mosler and Bill Mitchell and Charles Goodhart, dug deeper into this and gradually developed what is now called MMT.
Many think we claim to have invented some stand-alone entirely new approach to money. That is false. We stand on the shoulders of giants (the third phrase I recall from Minsky)—there is no new theory in Modern Money Theory; the theory is an integration, one that integrates those two phrases from Minsky.
What is somewhat novel is an updating of the description of the way the modern monetary system works in a country that issues its own currency. While I’m sure there were economists in both the Fed and the Treasury who understood all the operational details, these were not understood in academia or policy circles. They mostly still are not.
In any case, I first tried to lay out MMT in my 1998 book, Understanding Modern Money, and tried again in my most recent primer, Modern Money Theory.
I sent the manuscript of the first book to Robert Heilbroner to see if he would write a blurb. He called me on the phone—I have no idea how he got my home phone. In his soothing voice he told me he could not write the blurb, and that money is the scariest topic there is. My book would scare the hell out of readers.
And here we are a decade and a half later. In the past 2-3 years MMT has taken off, indeed, it has taken on a life of its own in the blogosphere. It is loved by many and hated by more. And as Heilbroner warned, it scares the hell out of even more.
That is why I’m shifting gears. I don’t think I can say anything more about MMT. It is as correct as a theory can be, and as good a description as we can have about real world monetary operations. At least at this point in time.
Where we continue to fail is in our explanation. We have to stop scaring people. I’ve become ever more convinced that George Lakoff is correct. The problem is not with the theory–it is with the framing.
The reaction against MMT is largely moral.
That is not a back-handed slap at critics. Everything you understand is through framing, as Lakoff argues. You cannot understand without metaphors; you cannot think without stories; you cannot do policy analysis without morality.
Let me give you an example. Outside of the crazies, everyone knows the US government cannot run out of money. From Greenspan to Bernanke they all understand there is zero risk of involuntary default by the sovereign issuer of a currency.
And so the way that an MMTer approaches the current deficit hysteria is by pointing out that as the Federal government spends through keystrokes that credit bank accounts, it can afford anything for sale in dollars.
The reaction typically goes through four stages:
1. Incredulity: That’s Crazy!
2. Fear: Zimbabwe! Weimar!
3. Moral Indignation: You’d destroy our economy!
4. Anger: You’re a Dirty Pinko Commie Fascist!
And those are our Post Keynesian/Heterodox friends. The reaction of others is far more hostile.
Rather than winning the debate about unsustainability of debt and deficits, MMT loses the argument. How can that be?
Because it’s immoral for the government to spend through the stroke of a key.
It makes no difference how accurately MMT explains the monetary operations that allow government to spend—operations that begin with budgeting by Congress, and then that involve complex procedures adopted by the Treasury, the Fed, and special private banks to ensure the Treasury has sufficient deposits in its account at the Fed so that finally some firm or household gets a credit to its bank account.
MMT will lose the argument by precisely presenting the facts. Because one can see facts only through framing. Without the proper framing, MMT cannot win policy debates.
This series will explore alternative framing. We cannot adopt the conservative, textbook framing that automatically invokes a particular market metaphor, one based on “fair exchange”. From that vantage point, there’s nothing fair about government getting something for nothing—for mere keystrokes.
Instincts prefer the “taxes pay for things” metaphor: I paid into the Social Security Trust Fund, so now I get to draw down my balance there in my retirement. It makes no difference that this description is completely wrong no matter what angle of approach you take. It trumps. And so we get self-identified progressives fighting tooth and nail against payroll tax holidays even though they completely understand the tax is regressive and that maintaining the myth means tax rates must be raised to become ever more regressive in the future–which makes money’s worth calculations ever worse. Progressives will destroy the program rather than abandon the myth.
We need a new meme for money. The meme cannot begin from markets, from free exchange, from individual choice. We need a social metaphor, a public interest alternative to the private maximization calculus. We need to focus on the positive role played by government, and its use of money to serve us well.
Stay tuned for Part 2.