Money, Tax and The Left

Jo Michell has written a good piece in Tribune countering arguments from some on the Left around the necessity of taxation.

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:

  1. 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;
  2. 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:

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.

4 thoughts on “Money, Tax and The Left

  1. This and Jo Mitchell’s piece seem to misinterpret what I see as the MMT position on taxation. Nowhere in the MMT literature do I see the suggestion to ‘go easy’ on taxing the wealthy. Currently increasing levels of inequality are explicitly described as a reason to tax the rich, (one of the ways) to stop them monopolising all the stuff (because it’s all ultimately about commanding resources). But an important argument that the MMT view does emphasize is that the tax money of the wealthy is not directly transferred to, and hence ‘paying for’, all the nurses and teachers. This kind of ‘paying for’ belief is held by most of the general public giving the impression that we are dependent on the wealthy to keep employing those nurses and teachers. In fact you can extend that ‘tax-payer’ argument to say that those who pay the most in tax have the biggest stake in society, they’re important for that reason and must be listened to. Not a significant net tax-payer? Sorry you’re not contributing, you’re not important. That’s the political frame MMT is most usefully attempting to shift. If anything it’s the orthodox position of pandering to the wealthy and the fear of losing what taxes are currently pulled from them that is politically limiting increasing that taxation, not the MMT perspective.


    • This blog I wrote in 2015 very much in accordance with your view of the role of taxes in money terms: But I love the way that you characterise the political narrative that might (and does) develop between taxpayers and political importance. I think that this is an interesting topic that touches more generally on the ‘unit if account’ function of money and how societies deploy it as a heuristic for worth.

      I’ve often been asked whether I am MMT because of my understandings of and writings about money, debt, and taxes. My answer has been that I tell things as I see them and that if recasting tax as a firm of monetary sterilisation is an MMT thing to say – we are on the same page in this regard! But I think pretty much everyone who thinks this through will be on this same page also and so am unsure whether it helps me to identify as MMT rather than one of the myriad of other folks who would agree with monetary truisms.

      I wrote that it looked to me that Jo’s beef was with the MMT crowd. I guess it is actually with *understandings* that MMT has generated among pockets of the Left. I also understand that such *understandings* have shifted the prospective policy emphasis around taxation. Rather than argue whether such understandings are associated with the one true message of MMT, I see Jo’s piece as a call to arms in favour of deploying taxation. This might be in accordance with MMT’ers (which you reckon is true, and I don’t doubt you) or independent of MMT’ers (which is def true).

      So maybe I wrongly characterised Jo’s beef, inferring that a movement of loosely aligned folks interested in the nature of money have allowed themselves to be heard more on the issue of the nature of money than the importance of progressive taxation.


  2. I appreciate your thoughtful response.
    But for me I think just listening to the Chancellor Rishi Sunak’s speech yesterday, and it’s reinforcing of the orthodox narrative on government finance – immediately picked up by the media, highlights how the (largely Keynesian flavoured) Left’s efforts to knock-back MMT are so misplaced. The conservative right must be laughing…
    Perhaps the overriding message I have uncovered from my amateur interest in economics is that economics operates entirely within the sphere of politics. For the large part critiques of MMT boil down to “I don’t like the politics” – that’s fine but more often that not it’s being uttered by people for whom the current political economy landscape is actually much further from their ideals than the MMT view.


  3. Pingback: Talking tax, gender divides and predicting crises • Resolution Foundation

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