MMT vs. the merchants of doom: And the doomsayers don’t all hail from the right!

By Glenn Stehle

MMTers, I’ve observed, tend to be a somewhat optimistic lot.  This is true even, or maybe even especially, when placed in juxtaposition to influential factions of the left.

A great example of this was a recent post by Raúl Ilargi Meijer:

Winter In America Gets Colder : Why We Choose Poverty

Ilargi, it seems to me, has slid off into a too consistent pessimism.  His foreboding determinism leads him to make statements like this:

Over the next 30 years, 1975-2005, the standard of living still seemed to rise, but if we look behind the numbers and between the lines, we see that much of the wealth increase over that period is illusional, because it was increasingly based on credit, i.e. it was borrowed from the future.

Or this:

Today, in 2013, debt numbers all over are at levels that nobody would have believed possible only 30 years ago. Household debt, national debt and corporate debt hang around our necks like so many nooses, and all we can do to prevent ourselves from suffocating is to borrow more. And so, inevitably, debt levels rise further. And just as inevitably, more and more people fall by the wayside….

Or this:

Because, and it’s high time we acknowledge this, at this point in time, the only way the upper echelons of our societies can achieve some level of growth is to take it away from everyone else.

All of these statements are predicated on a single prediction, and that is that there can be no future aggregate “growth,” whatever in the Sam Hill we assume “growth” to mean.  And in so doing Ilargi treats the economy more like the 17th-century mercantilists did, who devoted themselves to the promulgation of

legislation, which devoted itself, after about 1650, to the defense of the status quo or to the effort, by political action, to obtain a larger share for oneself of what was regarded as a static and unexpanding body of the world’s wealth.

–CARROLL QUIGLEY, The Evolution of Civilizations

We see this same thinking reappear in the writing of Ludwig von Mises some three hundred years later: 

The material means of production and the labor available have not increased; all that has increased is the quantity of the fiduciary media which can play the same role as money in the circulation of goods. The means of production and labor which have been diverted to the new enterprises have had to be taken away from other enterprises. Society is not sufficiently rich to permit the creation of new enterprises without taking anything away from other enterprises.

And we see this same thinking reappear in the words of Ross Gittins, the ultra conservative economics editor of The Sydney Morning Herald, only a couple of weeks ago:

What hasn’t yet occurred to many business people – but you can be sure is well understood by the politicians and their advisers – is that when industries lobby governments for favours or in opposition to new imposts, the various industries are in competition. It’s easy to imagine the government’s coffers are a bottomless pit but, in fact, there’s only so much rent to go around. As an economist would say, all concessions have an opportunity cost. It’s easy to believe all industries could pay less tax if the pollies would only make households pay more tax, but I wouldn’t hold my breath waiting for it to happen. I doubt either side of politics would see that as consistent with their own self-interest. The truth is, when one industry gets in for a big cut, there’s less left in the pot for the others.

–ROSS GITTINS, “The Political Economy Outlook for Reform,”  

But there’s a competing theory out there to that of the 17th-century mercantilists, 20th-century Austrians, 21st-century paleoconservatives and their fellow travelers on the left, one which holds that monetary expansion can, at least under some circumstances, lead to economic expansion.  This theory requires a more nuanced appraisal of debt, credit and money creation than the simplistic formulations of von Mises and the mercantilists.  It requires making a distinction between fictitious and real capital.

Many people have observed and written on this distinction beginning in the 16th century, starting in the wake of the massive monetary expansion which occurred during that century.  The distinction between fictitious and real capital became all too apparent when the rivers of gold and silver began flowing into Spain and the rest of Europe from America.  But perhaps the best of these commentators was Marx, as Michael Hudson notes here:

From Marx to Goldman Sachs: The Fictions of Fictitious Capital

The bottom line is that Ilargi’s no-growth determinism gets the entire debt, credit and money thing only half right.   Without growth, it logically follows that debt, credit, and monetary expansion are indeed, as he asserts, always and invariably bad. 

It’s of course not always easy to tell, before the fact, what is going to be real and what is going to be fictitious capital.  A thoughtful Boston observer in 1840, during the height of the money wars in the United States, “noted that speculation was what, when it succeeds, is called enterprise, an evil thing only when it fails” (R. Hildreth, Banks, Banking, and Paper Currencies, 1840).

Regardless of the economic vagaries, however, great leaders, and I would put FDR in this category, must find a realistic balance between a too consistent pessimism and a too consistent optimism, between surrender and defeat on the one hand and nugatory tilting at windmills on the other.  One thing is for sure, however, and that is doom has never sold well in America.  It has always been the kiss of death, as Roosevelt knew well:

That the large property owners and the managers of large businesses should have become indignant was not at all surprising.  Buffeted and frightened by the Depression, they had at first hailed Roosevelt as a deliverer.  Presently they had discovered that he did not intend the “recovery” for which he was working to be a recovery of things as they had been in 1929; he wanted things changed.  He not only continued to press for reforms, he tore to bits the fiscal promises of the 1932 Democratic platform and of his own campaign speeches.  He set out to champion the less fortunate, to denounce such financiers and big business men as stood in his way; and as their opposition to him hardened, so also did his opposition to them.


Yet the lengths to which some of them went in their opposition, and the extent to which this opposition became concentrated, among a great many of them, into a direct and flaming hatred of Roosevelt himself, constituted one of the memorable curiosities of the nineteen-thirties….

Much that Roosevelt did lent a color of justification to this version of history; yet in reducing so much to so little these people performed one of the most majestic feats of simplification in all American history.

This hatred of Roosevelt was strong, though far from unanimous, among the well-to-do in all sections of the country.  It was strongest and most nearly unanimous among the very rich and in those favored suburbs and resorts where people of means were best insulated against uncomfortable facts and unorthodox opinions.  (To live in Locust Valley or Greenwich, let us say, to work in Wall Street, and to read only the New York Herald Tribune in the morning and the New York Sun at night, offered excellent insulation, especially if one concentrated devotedly upon the daily lamentations of Mark Sullivan and the uniformly sour interpretations of administration policies in the financial columns of the Sun.)


A good deal of the bitter anti-Roosevelt talk could not, of course, be taken at its face value.  Often it was a form of conscious self-indulgence in the emotional satisfaction of blaming a personal scapegoat for everything that went wrong…. To find a scapegoat is to be spared, for the moment, any necessity for further examination of the facts or for further thought.

Yet to the extent that it stopped factual inquiry and thought, the Roosevelt-hating was costly, not only to recovery, but to the haters themselves.  Because as a group (there were many exceptions) the well-to-do regarded the presence of Roosevelt in the White House as a sufficient explanation for all that was amiss and as a sufficient excuse for not taking a more active part in new investment, they inevitably lost prestige among the less fortunate.  For the rich and powerful could maintain their prestige only by giving the general public what it wanted.  It wanted prosperity, economic expansion.  It had always been ready to forgive all manner of deficiencies in the Henry Fords who actually produced the goods, whether or not they made millions in the process.  But it was not disposed to sympathize unduly with people who failed to produce the goods, no matter how heart-rending their explanations for their failure.  Roosevelt-hating thrust the owners and managers of business into inaction–into trying to resist the tide of affairs, to set back the clock.  It made them conservatives in the sense that they were trying to hold on to old things, whereas before 1929 they had been, in their own way, innovators, bringers of new things.  It made them, as a group, sterile.  And they were soon to learn that sterility does not stir public applause.



9 responses to “MMT vs. the merchants of doom: And the doomsayers don’t all hail from the right!

  1. Over the next 30 years, 1975-2005, the standard of living still seemed to rise, but if we look behind the numbers and between the lines, we see that much of the wealth increase over that period is illusional, because it was increasingly based on credit, i.e. it was borrowed from the future.

    Credit is not borrowing from the future; it is theft by the government-backed banking cartel on behalf of the so-called “creditworthy” of the general population’s purchasing power TODAY!

    Therein lies the solution to lack of purchasing power today since theft requires restitution and the monetary sovereign is just the one to supply that restitution in the form of new fiat distributed to the population.

    But continue thinking that ethics has nothing to do with money creation and this world will shortly end; to be followed by another one where ethics IS taken seriously.

    • But note that borrowers are victims too since to not borrow is to be priced out of the market by those who do borrow. So it seems everyone deserves restitution except the bank owners themselves.

      Such a pity that justice could be administered so painlessly yet probably won’t be?

  2. The irony is that Roosevelt saved capitalism from itself. Had the New Deal not succeeded, it’s likely the country would have adopted some form or socialism, either democratic or fascists. As it is we have been moving steadily rightward since the 1970’s.

  3. This is a massive problem on the left, Glenn.

    In some cases it is based on the “limits on growth” mindset that confuses the economic concept of growth with the concept of growth in the rate of consumption of resources, and forgets that if you increase the efficiency of the production of output value from input value – and increasing such efficiency is a big part of what technological progress is all about – you can get an increase in growth in the economic sense without increasing your resource consumption.

    You also find on parts of the left a lot of pessimistic doctrines to the effect here is no such thing as “progress”, and that the belief in the possibility of progress is some sort of capitalist illusion. Strangely, some of these people call themselves “progressives”.

    A lot of people in the present generation are also are haunted by all sorts of dystopian nightmares. People in my generation grew up thinking that the future was going to turn out to be a burned-out, post-apocalyptic nuclear wasteland.

    When the criminal VP Spiro Agnew called the left “the nattering nabobs of negativism”, he wasn’t entirely wrong, although he was really only talking about one strain of thought.

  4. A failure to appreciate the difference between the ‘real’ world (people, machines, knowledge, resources, etc.) and the ‘money’ world. Or to paraphrase Mosler, no ones sends cars back into the past to pay off debt.

    Another group on the left that seem to have developed some pretty pessimistic attitudes are environmentalists (side note: I used to lead hikes for the Sierra Club). They have really adopted an attitude of ‘limits’, we must all do with less, etc. Of course, they mean less in the context of a very comfortable OECD life-style, not some poor schnook in Africa living in a run-down shack.

    As a Scientist I am a lot more optimistic than that. I truly believe we have the technology right now to produce a very good standard of living for everyone in the world. And, there is only better stuff coming down the road. What stands in the way are our social structures.

  5. Is humanity in the aggregate “rich”? Is there actual “wealth” (irrespective of its skewed per capita distributions toward recipients)? Beyond the various PhD definitions, and boiled down to its most basic — excess food stores relative to consumption (otherwise we’re all again hunter-gatherers).

    By what rational measure do we still have “wealth”? Across what accounting time frame? Is our species headed for decimation?

    Left unremediated, I would say “likely, yes.”

  6. Surely they key is productive use of money/credit, whether public or private. It’s that that has been lacking particularly by the private sector with it’s poor allocation of credit. So whether public or private credit/money is created are there clear mechanism and constraints behind its allocation aimed at productive use. And if it’s not productively used clear mechanisms for it to be written off.

  7. There is a tension between those that earn and those that transfer.

    As a break from economics, I have been reading those in India that engage in thuggee, commonly called thugs. They were a hereditary religious cult that strangled travelers, some say millions, and transferred wealth to themselves. They thought hunting men, with only your hands and your wits, was the highest level of sport and looked forward to the month that they came together for expeditions. When captured, they expressed only pride and never remorse; an accomplished strangler may have killed a thousand victims over a 40 year period. They were careful to hide evidence and leave no witnesses. They lived in the shadows for centuries as moderately prosperous citizens. They operated in gangs disguised as helpless travelers, engaging other travelers in friendly conversation until they were certain of success. A knotted cord was thrown around the victim’s neck while one thug grabbed his ankles. Thrown face forward, another held his arms while the third tightened the noose. I could not help but see the parallels to the sociopaths of Wall Street as they hunt for the billions of wealth to transfer to themselves. Why would such men be concerned about providing safety-nets?

  8. Speaking of entitlements, why aren’t entitlements for the rich on the table such as their government-backed credit cartel, the means by which they legally steal the purchasing power of the poor? Hmm?

    Do you think the haters of the poor and weak might beat a hasty retreat if that was threatened?