It’s a short piece that you should read, but I understood it as going a bit like this:
- Case 1: If there is lots of economic slack in an economy (think loads of folks unemployed sitting at home wasting their skills and producing nothing), government can spend newly printed cash to boost the economy and there are frankly few immediate downside consequences.
- Case 2: If there is not much economic slack (eg everyone has a job), printing loads of cash to spend on new projects will mean bidding folks away from their private sector jobs (which were presumably economically productive and need to be filled) and also puts more cash into the system than is wanted, so those with cash balances play a game of hot potato (trying to rid themselves of cash balances and transferring them to one another in exchange for goods, services, financial assets like shares, real assets like houses, or indeed foreign currencies – resulting in higher prices for some or all of these).
- The problems in Case 2 can be addressed with taxation. This reduces aggregate cash balances and “the wasteful consumption of the wealthy” to make resources available for “socially-useful spending”. And actually, taxation can be deployed in Case 1 too.
Jo’s beef looks to be with the MMT crowd, who I think he reckons have dragged elements within The Left away from understanding taxes as useful (given that the magic money tree really does exist). Jo was pretty careful not to go all inflationista in his piece, but it’s plenty obvious that monetary stability – or what Keynes referred to as confidence in the currency – is at the heart of his argument.
But I do wonder whether some folks on the Left may have taken to MMT either because:
- they have different views around the strength of institutions in the political economy (eg, print now and we’ll have no trouble whacking taxes and/ or interest rates up at a later date if we need to). I have my doubts. Or;
- they see lower confidence in the currency as a *desirable outcome*.
There are lots (and lots) of problems with capitalism as an organising system, but I would not describe myself as anti-capitalist and as such see a reduction in confidence in money as an undesirable outcome.* If I were an anti-capitalist Leftist then Keynes’ famous argument (citing Lenin) that the best way to destroy the Capitalist System is to debauch the currency makes debauching the currency sound pretty interesting!
I’d always understood this Keynes/ Lenin argument to be that you need money to make capitalism function, and so destroying money as a store of value, unit of account, and ultimately as a medium of exchange through hyperinflation collapses the economic system. Pretty straightforward. If this is what attracts some on the Left to MMT I don’t think Jo’s arguments for creative use of the taxation system will shift them.
But it was interesting today to read chapter 6 of The Economic Consequences of The Peace from which Keynes/ Lenin’s phrase is taken. I’m now less sure that my straightforward understanding of Keynes/ Lenin’s argument was right.
Keynes elaborates that inflation destroysI Capitalism by:
- Allowing governments to “confiscate, secretly and unobserved, an important part of the wealth of their citizens” presumably collapsing confidence in government;
- Undermining “confidence in the equity of the existing distribution of wealth”;
- Disordering the “permanent relations between debtors and creditors, which form the ultimate foundation of capitalism”;
- Degenerating “the process of wealth-getting … into a gamble and a lottery”.
I find this fascinating. These are four points that I would recognise as being pretty zeitgeisty, although not points I would have immediately associated with inflation. I don’t know whether they really are the Four Horsemen for the Capitalist system, but they seem to be gaining ground despite the absence of inflation.
With regard to the use of the tax system, I’m with Jo here, and have been for some time. Monetary financing needn’t spell disaster and may indeed be required to prevent deflationary spirals. But tax serves a purpose – in fact many. What sort of taxes should the Left focus on? Wealth taxes!
* I reckon that many/ most of the problems associated with capitalism can be offset or corrected by a liberal democratic State designing and revising a rules-based framework, with discretion to compensate for inequitable outcomes and the power to offset market failures of many descriptions. This makes me, I think, a social democrat. This may be naive, but I would prefer to channel energy into improving the rules/ governance rather than dismantling the construct.