Modern Monetary Theory: Neither modern, nor monetary, nor (mainly) theoretical ?

I’ve been working for some time on a review of the first full-length text based on Modern Monetary Policy, Macroeconomics by William Mitchell, Randall Wray and Martin Watts. A near-final draft is over the fold

<h3>Macroeconomics – Review</h3>

Voltaire once said of the Holy Roman Empire that it was “Neither Holy, nor Roman, nor an Empire”. Something similar might be said of Modern Monetary Theory, which has shot to prominence in policy debates recently. It is neither modern, nor genuinely monetary, and it is at least as much a set of policy proposals as a theory.
It might be thought that “modern” refers to the fiat money world in which we have lived since major currencies broke with gold convertibility in the 1930s (the final vestiges of the gold standard disappeared with the end of the Bretton Woods system in 1971). In fact, however, it is a kind of inside joke, motivated by this observation of Keynes


The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contracts. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time – when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern states and has been so claimed for some four thousand years at least. (Keynes 1930, p. 4, emphasis added).


As regards “monetary”, MMT is notable for its rejection of concerns about the money supply, and monetary measures of budget balance and public debt. On the contrary, its focus is on the employment of the real resources available to the economy. As Mitchell, Wray and Watts put it (p256, bold in original) “The real cost of any program is the extra real resources that the program requires for implementation”.


Finally, in theoretical terms, MMT offers little in the way of radical innovation. Rather it is a variant of traditional Keynesianism, drawing heavily on the functional finance approach of Abba Lerner (1943), and rejecting both the Hicks-Samuelson neoclassical synthesis and (even more strongly) the ‘New Keynesian’. The central point of functional finance is that, since the budget balance is a policy instrument, it is incorrect to think of taxes as ‘financing’ public expenditure. Rather, for any given level of public spending, taxes ensure that the budget balance is at a level (which may be a surplus or deficit in conventional accounting terms) sufficient to keep the economy in a stable equilibrium with full employment and low inflation.MMT incorporates some post-Keynesian ideas, such as Minsky’s (1982) model of financial instability, but makes little use of other post-Keynesian ideas, such as that of fundamental uncertainty.


MMT is also prominently associated with particular policy proposals, such as that for a Jobs Guarantee. This is a variant of the traditional Keynesian case for full employment based on aggregate demand management, but is not unique to MMT. Indeed, the first version of the Mitchell-Watts jobs guarantee (Mitchell and Watts 1997) proposal predated MMT and coincided closely with that of Langmore and Quiggin (1994), based on mainstream Keynesianism.


To complicate things even further, there are two versions of MMT circulating in popular discussion. The one we’ve been discussing so far, which might be called ‘academic’ MMT, is the macroeconomic theoretical analysis and policy program derived from a synthesis of Keynesian aggregate demand analysis, functional finance and support for public job creation to maintain full employment.


The second, which might be called ‘popular MMT’, or, more pejoratively, ‘vulgar MMT’, is a movement in which the statement ‘taxes don’t finance public expenditure’ is interpreted to mean that governments can increase spending as much as they like, with no need for an offsetting increase in tax revenue. This view was presented by pastor Delman Coates, speaking at the Third Modern Monetary Theory conference at Stony Brook University


I don’t want my community to have to wait until we tax Jeff Bezos and Amazon in order for us to have dignified jobs, Medicare for All, and a Green New Deal, or to have our roads and infrastructure rebuilt in America.



The relationship between academic and popular MMT is complex. On the one hand, economists who espouse MMT understand that the ‘free money’ view is incorrect. On the other hand, they favour a more expansionary fiscal policy, which implies at least some increase in expenditure relative to taxation. Moreover, like most people who find themselves leading a popular movement, they find it more appealing to criticise the errors of their opponents than those of their supporters.


The result in many cases is a ‘motte and bailey’ rhetorical strategy in which MMT advocates make strong statements which sound as if they match the popular view, but retreat to a less interesting but more defensible position (the ‘mottte’ in the medieval castle that gives rise to the analogy) when challenged.


With all these complexities in mind, the publication of Macroeconomics by Mitchell, Wray and Watts is a welcome development. At more than 500 pages in length, it is both an introductory textbook and an exposition of the central ideas of MMT. The task of reviewing the book raises many questions, of which this review will address three?


First, how well does the book perform the role of an introductory textbook? Second, how does it illuminate the differences between MMT and the standard version of Keynesianism ? Third, what position does it take on the gap between academic MMT and the popular ‘money for nothing’ view.


Considered as a textbook, Macroeconomics does a good job on the basics: explaining what the subject is about, introducing the concepts behind macroeconomic statistics and setting out the Keynesian aggregate demand framework which is the basis of the distinction between macroeconomics and microeconomics. Index numbers, labour market statistics and the national accounts are all covered well.


There is also plenty of historical context, including discussion of the development of capitalism and of economic theory. The presentation is far from neutral, with a sympathetic treatment of a variety of heterodox schools of thought, and consistent criticism of neoclassical orthodoxy. But this is still preferable to the ahistorical treatment common in many introductory textbooks, where the relatively short-lived consensus that prevailed from the early 1990s to the GFC (Keynesian short run, classical long run, monetary policy as the primary tool of macroeconomic management) is presented as if it were scientifically established truth, with no intellectual history.


The theoretical presentation here is, in most respects, a standard presentation of Keynesianism, as it was generally understood before the emergence of the Phillips curve, which generated a long and ultimately futile debate about the existence of otherwise of a long-run trade-off between unemployment and inflation. Having argued elsewhere that macroeconomics has been on the wrong track since 1958 I sympathise with this approach, at least in an introductory text.


The emphasis throughout is on the case where, in the absence of government action, the economy is substantially below full employment. This is evident, for example, in the presentation of the macroeconomic demand for labour (p212) with a graph in which there is no money wage consistent with full employment (the graph line is cut off just above the zero wage line, still far from full employment).


This focus is consistent with the primary criticism of the Hicksian IS-LM framework, based on the claim that the money supply is endogenous and not controllable by policy. This leads to the view that ‘the LM curve will be horizontal at the policy interest rate’, that is, that the economy is always in a liquidity trap.


Keynesians have long been dubious about the capacity of monetary policy to stimulate the economy out of a low-employment equilibrium – the phrase ‘pushing on a string’ expresses the traditional view on this. The continued appeal of the IS-LM approach rests largely on the observation that, over a wide range of conditions monetary policy can be effective.


Most obviously, contractionary monetary policy is highly effective in reducing what is seen to be an excessive, and potentially inflationary, level of economic active. Often, indeed, it is too effective – excessively contractionary monetary policy was the primary cause of the early 1990s recession in Australia. It isn’t made really clear how this experience fits with the model presented here.


Finally, how do MWW respond to the idea that, given functional finance, governments can spend as much as they want without increasing taxation. Their answer (p323) is entirely in line with mainstream Keynesianism.

Taxes create real resource space in which the government can fulfil its socio-economic mandate. Taxes reduce the non-government sector’s purchasing power and hence its ability to command real resources for the government to command with its spending.

Take a situation where the national government is spending around 30 per cent of GDP, while its tax revenue is somewhat less, say 27 per cent. The net injection of spending coming from the national government is thus about 3 per cent of GDP. If we eliminated taxes (and held all else constant) the net injection rises towards 30 per cent of GDP. That is a huge increase in aggregate demand and could cause inflation.

Ideally it is best if tax revenue moves countercyclically, increasing in an expansion and declining in a recession.


MWW go on to suggest (p 325) that the government’s fiscal balance should be set equal to the value of the current account deficit at full employment. This formulation takes the income-expenditure identity used by advocates of the ‘twin deficits hypothesis’ (correctly criticised by MWW) and inverts it.


Overall, then, the position advanced by MWW is that of traditional Keynesian economics, with some distinctive presentational features and policy proposals. Anyone looking for a defence of the claim that we can have a Green New Deal, or some other large-scale expansion of public spending, without any increase in taxation, will be disappointed.


On the other hand, the authors miss the opportunity to set their own followers straight on this point. While the errors of orthodox economists are pointed out in the sharpest terms, the criticism of the idea that taxation is unnecessary is brief and anodyne. The result is that we are likely to see a continuation of ‘motte and bailey’ rhetoric for some time to come.


Overall, this text would work well for a course taught from the MMT perspective, and would provide a useful counterpoint to the standard text for a mainstream course. A more advanced book, giving a comprehensive treatment of the relationship between the various flavours of MMT and of Keynesianism would be a valuable followup.

42 thoughts on “Modern Monetary Theory: Neither modern, nor monetary, nor (mainly) theoretical ?

  1. To be fair I haven’t read beyond the headline yet but modern is used in the sense of Keynes reference to chartalism and the closing of the US Gold standard window that began in 71. It is monetary as in it is about how money instruments (currency) shifts real resources and it is a theory as in a scientific theory – an evidence based framework.

    I’m very keen to read your review of the MWW undergraduate textbook

    I’ll be back later to read the post in full. I have other commitments for now. Just gave a quick scan for now

  2. I think J.Q.’s review is good as far as it goes. However, contentions between economic schools which accept the same (fallacious) ontology are really beside the point. While economics (of any school) aggregates in the “dimension” of the numéraire it will continue to have a foundational ontological problem. Yet numéraire-based economics and its practitioners continue to steadfastly skirt any debate about the ontology of economics.

    The dollar (as numéraire) is not a discovered real dimension of objective, physical existence. It is rather a sociocultural “dimension” of customary and fictive construction. This is no mere quibble. It indicates a basic ontological problem which is fatal for conventional economics. If one gets the base ontology of a discipline wrong, then everything will be wrong after that. Before the germ theory of disease, the basic ontology of proto-disease theory was wrong, namely the humors theory. Medical science for diseases of pathogenic origin could not be advanced until the humors theory was overturned by the germ theory, by getting the basic ontology right or at least more nearly right: meaning broadly homomorphically congruent with what was really existent at the more fundamental level.

    Economics is still at the “humors theory” stage of development. Economic theory relying on the numeriaire or the “util”, deserves to be ranked alongside the theories of the humors, aether and phlogiston, as theories with no ontological basis and which will continually hold back understanding until they are superseded by ontologically valid theories.

  3. John, you’ve used this quote twice now: “If we eliminated taxes (and held all else constant) the net injection rises towards 30 per cent of GDP. That is a huge increase in aggregate demand and could cause inflation.” I don’t find this a persuasive argument that taxation is necessary as a similar argument could be (was?) made about the GST and other structural taxation changes. I’m not an economist or trying to be very practical here, so what follows should be taken as a thought experiment/brain fart.

    Concretely, sure, the transition to a tax-free situation would be inflationary, but what happens once it is bedded down? i.e., what is the new equilibrium? (Again I’m thinking of what happened with the GST.) In this new setting we’ve lost the accounting role played by tax returns/BAS/etc. but this could be replaced by ABS surveys etc. — which were the evidentiary bases for the recent Federal Government stimulus programs AIUI. Could these surveys etc. be constructed to be more incentive compatible than current tax schemes? Might it be possible to conform the RBA and Treasury prognoses better with reality? (e.g. by having less political pressure put on them with calls for balanced budgets etc.)

    Putting it another way, is your structural concern that dropping taxes completely discards some critical feedback loop(s) in an economy that cannot be recovered any other way? Would it lead to recurring (runaway) inflation? If so, why would this not occur with UBI (coarsely negative taxation)?

    Again, this is not arguing for policy — I just think you need to work a bit harder to make your case that taxes are necessary than that quote does.

    thanks,
    peter

  4. @Peter The quote is from MWW, and my objective is to describe their position, not mine, so you may want to raise it with them. But here’s what I would say.

    There isn’t a new equilibrium. If you try to finance expenditure on that scale (or anything like it) without taxation, inflation turns into hyperinflation, until the process is eventually stopped by state collapse or a currency reform.. The Confederacy in the Civil War provides pretty typical example https://en.wikipedia.org/wiki/Confederate_war_finance

  5. Peter,
    Whilst the introduction of the GST was a significant structural change, it probably wasn’t a significant revenue change – remember there were various offsets – in particular the elimination “Sales Tax” of the time which probably was a consumption tax in all but name.

  6. @John — I thought it was your position given the lead-in text: “Their answer (p323) is entirely in line with mainstream Keynesianism.” and your earlier broad identification with Keynesianism, and your previous post https://johnquiggin.com/2020/05/23/mww-on-mmt-from-twitter-via-spooler/

    Perhaps you can be more nuanced about your position in your review here.

    Thanks for your explanation. I take it to mean that the control aspect (negative feedback) of taxation is crucial, while the information gathering could be done by other means. I have only a passing understanding of the Arrow/Debreu model and AIUI it’s notion of equilibrium does not require taxation.

    @Troy — I wasn’t paying too much attention at the time, but IIRC there was a one-off increase in inflation due to the GST. My point was that saying how things go when structures change (inflation) does not entail what happens in the new structure (in JQ’s take, necessarily perpetual hyperinflation if we eliminated the negative feedback of taxation).

    I’d still be keen to hear about alternatives (not necessarily realistic ones or how we get to them). On a naive reading, this concern with inflation goes straight to @Ikonoclast’s point: a dollar has no intrinsic worth; what matters are the relative prices. So who cares about inflation.

    (Sorry if this sounds too much like spherical cows to the more empirically minded.)

    cheers,
    peter

  7. Back and very good up until this point

    [blockquote]The second, which might be called ‘popular MMT’, or, more pejoratively, ‘vulgar MMT’, is a movement in which the statement ‘taxes don’t finance public expenditure’ is interpreted to mean that governments can increase spending as much as they like, with no need for an offsetting increase in tax revenue. This view was presented by pastor Delman Coates, speaking at the Third Modern Monetary Theory conference at Stony Brook University[/blockquote]

    I think this is a misunderstanding. Governments can increase spending as much as they like with no need for an offsetting increase in tax revenue or non-fiscal offsets if there is little to no risk of politically unacceptable inflation. This is what these people mean and is perfectly compatible with ‘academic’ MMT.

    Which brings us to [blockquote]Anyone looking for a defence of the claim that we can have a Green New Deal, or some other large-scale expansion of public spending, without any increase in taxation, will be disappointed.[/blockquote] which is fairly reasonable but it dpends on what we include in the GND, what we don’t spend on, the use and access to resources we already have. It is a little US centric but you can see it demonstrated quite successfully by Stephanie Kelton here: https://youtu.be/AaAlJXaWTEI

    Overall, a decent review, I’m satisfied. As you say some of the views are perfectly within various Keynesian paradigms but mainstream keynesianism is never provides the clarity that MMT has. Even from yourself, on MMT and Russia you wrote:

    [blockquote]…so it’s usual to speak of public expenditure being paid for by taxes (or, better, tax revenues)..[/quote]

    To say this, is completely misleading to all except but perhaps well-heeled economists. Even as you wrote and intended to mean
    [blockquote]…Taxes are the primary instrument by which resources are transferred from private to public expenditure…[/blockquote]

    Saying it is paid by tax revenues gives the wrong impression. Reframing from money’s “how will you pay for it?” to “how will you resource it?” makes it much clearer and shows money itself is no object [also the title of a Kelton presentation].

    This itself exposes its not about an increase in tax revenues but about access to resources and thus resource constraints (inflation) which is detailed informatively here: https://ftalphaville.ft.com/2019/03/01/1551434402000/An-MMT-response-on-what-causes-inflation/o

    Anyone a little MMT literate will not deny the use of taxes in an MMT frame, its foundational point is taxes drive currency. The point about not increasing taxes or tax rates is that it may not be required to raise them to use particular resources especially if they are currently idle.

    Now can you be more specific about various flavours of MMT? There are different flavours of informed MMT policy but not different flavours of MMT. Unless of course you just meant vulgar-pop MMT and Academic MMT which I hope I reconciled above for you. MMTers and MMTists typically take a Joan Robinson view of mainstream keynesianism – bastard keynesianism.

    So yes there is no denial that an MMT paradigm and a Keynesian paradigm can align or reach the same or similar conclusion but usually for differing (but may be similar) reasons.

    Also, I’m sure I read it years ago but can you provide a copy of the Langmore and Quiggin paper to peruse please?

    I hope that clarified some issues.

  8. @Ikonoclast

    The dollar (as numéraire) is not a discovered real dimension of objective, physical existence.

    Is the centimetre, inch, yard, foot? None of these are a discovered real dimension of objective, physical existence either. They’re arbitrary. There’s a great scene in Without Limits (about Steve Prefontaine) discussing this & hair length vs 100m in a 100m race and what’s acceptable.

  9. My point is more than just saying “a dollar has no intrinsic worth”. That could be taken as saying “a dollar has no intrinsic worth but is a representation of worth”. I am saying financial capital is not even a representation of worth (value). It’s an instantiation of (social) power. See “Capital as Power” by Shimshon Bichler and Jonathan Nitzan.

  10. Senexx,

    Your question is useful. It reminds us all, me included, to not confuse dimensions with their base units.

    You are confusing the dimension with its chosen base unit. Time is the dimension. The second is the chosen base unit. Space is the dimension. The meter is the chosen base unit. Next comes the issue of the definitions of the base units. A base unit is defined against a dependable fundamental existent or existent(s). The 2019 redefinition of the SI base units can be checked on Wikipedia.

    In economics, value or utility is the implicit dimension. The numéraire (say the dollar) is the base unit. But there is no way to objectively define the base unit against the dimension. The lack of objectivity has long been thought to not be a real problem. The prescriptive heuristics of subjective market valuations were thought to be sufficient to facilitate efficient allocation of resources. This assumption is breaking down with ecological collapse and climate change (illustrating among other things that the conception of efficient allocation was not broad enough in the first place).

    Why do I say utility value is the “implicit dimension”? In short, it has to do with the fact that we can only aggregate disparate items in a common “dimension”. If we are aggregating disparate items, apples, oranges, insurance policies and cars in one measure (dollars) then we are implying they share a dimension, in this case the utility value dimension. But there are many kinds of utility values. It is clear that this is not one commensurable dimension in dimensional analysis terms.

    Why does this matter? Well, in science one cannot just make up stuff. Theories have to withstand empirical tests with the results measured objectively in detected real dimensions. Unfortunately, economics without an objective ontology is just social-fictive in nature.

  11. Ikonoclast would do well to reread Das Kapital. Not only did Karl Marx name capitalism he provided it with an ontology. In very simple terms Marx proposed his Labour Theory of Value. In simplistic terms this means that nothing in economics has value unless some labour unit has given its usefulness. That usefulness relates to the satisfaction of needs and wants. It is at the core of the economic concept of scarcity. The four fundamental resources of economic theory since Adam Smith are given as LAND, LABOUR, CAPITAL and ENTERPRISE. But Marx said that all this was wrong. There is only one economic resource: LABOUR. For anything to be an economic resource it must be available and usable. Now LAND items may be available BUT they are not usable until LABOUR units make them so. Agricultural fertile soil must be cleared and prepared by labour units BEFORE it becomes usable. Minerals in the ground are just more rocks until units of labour dig them up and transport them in bulk to where they can be used in production. Capital items are lumps of metal until they are handled by labour units. Enterprise is so much “Social-fictive in nature” (to borrow Ikonoclast’s phraseology) unless labour units use their brain power to take risks that increase production through the processes of innovation/management/organisation.
    Nothing works in economist without labour units being the prime mover. Go back and read the origins of economics. There it was not a theory in sight back in that distant past. It is pure survival. The tenants of economics are tested daily if not hourly. Back then there was only the household sector. Dirt was cleared and worked by hand. The capital units were very basic but invented/maintained by labour units. Enterprise was vested only in the householder.
    Marx was right nothing in economics has value without labour. Money is just an invention of a labour unit from the distant past. For thousands of years there was no money. Production still occurred because there were labour units to clear, till, harvest, sort, barter and invent.

  12. “@Troy — I wasn’t paying too much attention at the time, but IIRC there was a one-off increase in inflation due to the GST.”

    Peter, there may have been a bump in inflation with the introduction of the GST (Year 2000?); if there was, it wasn’t anything particularly abnormally significant. There was probably a far greater impact from the GFC stimulus measures later on in that decade.

    https://www.rba.gov.au/chart-pack/aus-inflation.html

  13. Typo spotter here…

    One “mottte” has three Ts.

    “level of economic active”

  14. Gregory J. McKenzie,

    I have read Das Kapital Vol 1, excerpts from Vols 2 and 3 and excerpts from the Grundrisse. I am Autonomist Marxian in quite a lot of my thinking. Like the utility theory if value, the Labor Theory of Value also fails as an objective theory of value. There is simply no objective way to measure economic value or economic utility value, including by “socially necessary abstract labor”.

    If you read the “Fragment on machines” from the Grundrisse you will understand that Marx himself began to realize that machine production, especially automatic machine production with non-human power and non-human controls, would begin to progressively obsolete the labor theory of value itself, as the next historical contradiction inherent in the development of capitalism.

    Marx essentially understood that he was dealing with what we would now call “complex system emergence”, The term “dialectical materialism” was coined a little latter by Joseph Dietzgen. Dialectical materialism infers in essence a complex system with feed-backs, particularly reinforcing feed-backs leading to the emergence of a qualitatively new system (the synthesis).

  15. J.Q. has not mentioned a couple of things.

    MMT is a description, primarily, of how a government’s expenditure is conducted and the role the central bank’s operations play. The point is that the government can finance its operations without taxation and the government has no financial constraint.

    The other major point is that the central bank’s bond buying exercises have nothing to do with financing government expenditure but are the means by which the policy interest rate is set.

    MMT also believes that a currency issuing government that does not borrow in foreign currency is not constrained by the foreign exchange rate.

    MMT also deploys the (ex post) sectoral balance equation, which shows that a government deficit contributes to the accumulation of financial assets by the private sector, to argue that deficits are a good thing.

    MMT believes that an inflationary episode can be extinguished by increasing taxation, creating unemployment which is then soaked up by a Job Guarantee scheme.

    And there is a band of MMT misguided devotees who, disturbingly, seem to believe that MMT means governments can finance anything to any limit.

  16. What does MMT say beyond the following 1-paragraph of logic (other than detailing current legal restraints).?

    GDP is the measure of a nation’s productive (ie., production-and-consumption) economy. GDP is the sum of household, business and government spending (and likewise the income of those sectors equals that spending, because all spending is another’s income). The economy depends on household spending (2/3 of GDP). That spending is limited by household income (which comes only from those three sectors). Business provides that income to the extent demand (ie., business opportunity) exists, and government provides the rest. All that’s important to the economy is maintaining this flow, and with a fiat currency (whose value, by definition, depends only on currency-users perception), there are no limits other than that perception.

    The household spending in GDP includes everything that the public buys to consume — food, housing, transportation, healthcare, entertainment, etc. The income side of GDP includes neither government borrowing nor personal or corporate income taxes – so they do not (and never have) paid for (or funded) that spending. It appears there is a magic money tree, just as MMT maintains. (Note that GDP (and MMT) measures the essential economy; not the non-essential FIRE economy, which appears to me to be unmeasurable as well as non-essential.)

    So why doesn’t government make everyone rich? Because that would change users’ perception of the currency. If too abundant, it would be perceived to have no value. But government could freely spend to pay for the public’s livelihood needs, and likely many of its wants, if it took care to ensure that there was adequate (and competitive) supply before spending. That this is not currently happening is a political problem — not financial.

    And why isn’t government paying for these public livelihood needs? Because it needs a method to ensure that most of the currency paid out gets spent, not saved. Additional dollars spent flow through the economy, creating more business activity (increasing GDP). Additional dollars saved have no benefit to the production-and-consumption economy.

    Is there no one who will push back with substance to these assertions?

  17. As someone self educated in economics, I’m trying to get across the MMT debate.
    This is helpful, but the arguments around it are very messy – combination of polemical assertion and technical pontificating. Have you written anything yourself that summarises key points?

  18. What might be called ‘popular anti-MMT’, or, more pejoratively, ‘vulgar anti-MMT’, is are movements in which the statement ‘taxes don’t finance public expenditure’ is either:

    denied, or

    considered irrelevant to a requirement for budget balance, either always or on average, or

    taken to mean that MMT calls for inflationary competition for real resources.

  19. The core innovation of MMT is that governments are not actors within a market, but creators of a market. That taxes drive currency, and that a government cannot borrow a unit of currency that it issues. Keynes still talked about “borrowing” and “debt”. Bond sales are not a borrowing operation, and unless you call all money debt, there is no government debt. This, in addition to the design of a Job Guarantee, is the contribution of MMT to economics. Whether or not this is Modern, Monetery or Theory is a matter of semantics, but even I can see this is not simply dressed up Keynesianism. And I’m not even a bloody economist!

  20. The obsession of conventional economics with measuring almost everything in money is extreme. The principle that we should measure things in money is taken much too far in economics and in some ways is the source almost all our current problems from huge human inequalities to environmental destruction and climate change. The process of valuing and measuring by money impedes and supersedes the processes of valuing by ethics (moral philosophy) and of measuring and implementing necessary changes via empirical data collection, science and technology.

    MMT would seem to continue this obsession with money simpliciter unless it explicitly posits that money is and ought to be a managing tool only to implement ethical and scientific requirements and should not be considered or used as a measuring rule that compares values in any valid way.

    The question of whether we should, or even can, validly measure things in money at all is a fraught one. We certainly share ethical values which prevent the legal sale and purchase of certain goods or services. We can’t legally buy or sell slaves and we can’t legally hire a hit-man to kill someone. These are examples where it is considered that money is incommensurable with commonly shared ethical values. In addition, we no longer have to wonder, as stated above, whether valuing by money is commensurable (or commensurate) with human and ecological survival. We no longer have to wonder because measuring by money is at the heart of the current economic system which is clearly and presently destroying the planet.

    We have to seriously reconsider the validity of measuring value in money at all. Sentences in quotes below are taken from Wikipedia.

    Measuring anything in the real world for scientific and technical and even sometimes for administratiive and management purposes requires dimensional homogeneity.

    “1. Only commensurable quantities (physical quantities having the same dimension) may be compared, equated, added, or subtracted.”

    The operation of the real economy requires the measurement and manipulation of real things in real dimensions (as per the S.I. table where mass and moles (amount of substance) for example are also termed dimensions as well as space and time). Rule 1 is perforce obeyed in the real economy or disaster ensues. Mixing a complicated industrial chemical formula is done by mass or moles of chemicals, not by the money cost of the chemicals. On a category basis, rule one is also obeyed, in a sense. We do not treat cars and kids in the same way. Petrol and oil go into cars and food and water go into kids.

    “However, the dimensions form an abelian group under multiplication, so:

    2. One may take ratios of incommensurable quantities (quantities with different dimensions), and multiply or divide them.”

    “In mathematics, an abelian group, also called a commutative group, is a group in which the result of applying the group operation to two group elements does not depend on the order in which they are written. That is, the group operation is commutative.”

    Continuing our example, which is using incommensurable categories rather than incommensurable dimensions we can say this. If each car of a given type may safely and legally convey 4 kids as passengers then 10 cars of that type may may safely and legally convey 40 kids. This is valid so it seems categories may validly form an abelian group under some conditions which would include provisos that all else remains the same. (All cars have the same number of seatbelts installed for example.

    The next question, perhaps, is whether an “ontology for abelian groups”, if I may use that phrase at all, can be developed which permits and validates, in logical, mathematical and ontological terms, the operation of comparing ratios of incommensurable items via a mediating “claimed commensurable” term, namely the numéraire (money). Of course, pragmatically we can do it in the immediate and near time. We do it in extant economics. The question is whether it is valid, and even sustainable, in the time dimension. If we extend these operations over time does the evolved and emergent financial and social system remain compatible with the real systems? The empirical evidence is “No” as we are clearly approaching the asymptote which proves it is incompatible. Ergo, conventional economics works based on money operations with the numéraire as both prime measuring ruler and prime managing rule works for awhile but fails in the long term under the conditions of attempted endless growth which it axiomatically programs.

    One shouldn’t need to continue with theory and ontology to prove something which is being proven empirically. However, the attempt to do this theory work might help elucidate a way in which our current economics can be mutated to a form which might be sustainable (even via evolutionary algorithm research for example in analytical economics).

  21. @Ikonoclast

    I’ve always found ontology-based discourse in economics very much a matter of mere quibbling. I mean, I like Tony Lawson and I attended his seminar in Cambridge for a few years before giving up at the lack of progress. When I went back a decade later I found that nothing had changed. I’m yet to see the Critical Realism project produce any actual economic analysis of anything. Endless critique ultimately becomes hollow in the absence of a demonstration of superior analysis. What use is someone who perpetually stands off to the side saying ‘well, that’s not how I’d do it’?

    The ontology discourse is especially prone to fatuous observations such as yours relating to growth. The ‘endless growth’ idea (and problem) has several roots. One is the switch away from a dynamic frame of reference to a static one in the 1870s (the Classical economists all through growth was inherently limited for one reason or another) which kicked growth *theory* (what actually causes growth?) to the side and ultimately replaced it with growth *analysis* (i.e. what does an economy *that is growing* look like?). Once you make the actual growth an exogenously determined process in analytical terms it is no great step to treating it as a permanent feature. Not defensible, but explicable in terms of the historical dynamics of a professionalised discipline. Another is the fact the national accounting aggregates that became the focus of policy making and evaluation were created in what appeared to be an empty-world context and so do not take into account the depreciation of natural capital that accompanies production throughput. Growth possibilities in such adjusted aggregates would be much more limited and the world would be a very different place today had they been in the forefront of the minds of policymakers.

    Neither of those factors have anything to do with the use of monetary values as a common unit, of course, since that convention has none of the mystical implications you appear to think it does. What is actually intriguing is that you place far more weight on money than the theoretical frameworks I assume you hold in most contempt. In those money is basically a nuisance, the existence of which in fiat form economists struggle to explain theoretically and so they tend to proceed as if the whole world runs on barter.

  22. Wylie Bradford, would you please explain this small step,
    1) “it is no great step to treating it as a permanent feature” 
    And,
    2) “In those money is basically a nuisance,

  23. @KT2

    Sure. Note up front that I was describing those features, not endorsing them.

    The top-level academic literature on growth for the majority of the 20th century focused on the analysis of the properties of equilibrium growth paths in contexts where it was assumed that growth was occurring and the ramifications were examined. Given the path-dependent nature of the development of research programs it is not surprising to find that after years of refinements on exercises that begin with an assumption that an economy is growing uniformly at a rate g, the idea that constant growth at the rate g forever might not be possible an d the question of why it’s growing at g in the first place might fall below the radar and stop being perceived as important questions.

    The existence of fiat money has always been a problem for pure theorists in that it is hard to come up with a theoretical explanation as to why something with no intrinsic value would be held by agents. Those same theorists tended to avoid it and pretend that it was merely a lubricant for underlying barter exchanges, which could therefore be studied directly in theoretical models.

  24. Wylie Bradford,

    There is no mystery as to what money is in an economic system. Money is information. In systems theory, information is any pattern which may influence the formation or transformation of other patterns or structures. Money clearly operates, or is operated, in this fashion in a socio-economy.

    The difficulty lies in determining what kind of information money contains or rather encodes. The key debate these days is probably whether it contains value information or (social) power information. The argument that it contains value information by measuring relative values (through market operations) is now comprehensively debunked. See “Capital as Power” by Shimshon Bichler and Jonanthan Nitzan. It’s just that almost all economists have not caught up with this cutting edge theory yet; a theory which is amply supported ontologically by complex systems science and information science.

    (Though it should be noted that Bichler and Nitzan take an empirical, not an ontological approach, and this indeed is a strength of their work. Those who come after, like me, and attempt to make some ontological sense of matters most follow the empiricists or else be condemned to mere speculative metaphysics.)

    What we see is that money is an implementation of power. It encodes this power in information form and then that information, when applied to the decoding system which reads and enacts it (the totality of the socio-economic system) influences patterns of persons. materials and processes in the real economy. The socio-economic system is, in part, designed to act as a calculating system and servo-system constituted to enact the commands of money (which really are the commands of people with money).

    Of course, the above does not exhaust what a socio-economic system is. A socio-economic system is more than this and persons are more than just passive and obedient decoders, recoders and servos. Sometimes they resist and sometimes they abet the power operations of money. Mostly they abet these days due to the strength and depth of their enculteration and of the punishment-rewards system which gets them to believe in, accept and obey money and operate according to its instructions. In addition, most still accept and believe our current key cultural myths surrounding money; the most central one being the myth that money measures value. It doesn’t measure value. It implements power and is a key instantiation of power in our socio-economic system. The only powers which are greater in our society are hate and violence (especially as the state monopoly on violence) and “love” to use the inadequate English word. Greek philosophy did better with;

    Agápe – love, charity for fellow-feeling for all humans and even animals, plants and existence;
    Éros – love, both of the sexual passion and of the full appreciation of a person so loved;
    Philia – affectionate regard and friendship;
    Storge love, affection especially of parents and children;
    Philautia “self love” or regard for one’s own happiness or advantage” (The Greeks further divided this love into positive and negative: one the unhealthy version is the self-obsessed love, narcissism, and the other is the concept of “self-compassion”); and
    Xenia – “guest-friendship” – hospitality, generosity and courtesy shown to strangers.

  25. Ikonoclast,

    The reference to information in your reply is at least somewhat ironic given that it contains no actual information.

    As for Bichler and Nitzan I am aware and it is not that I am yet to catch up, as you have it. It is that I recognise garbage argumentation when I see it.

    A real tell that someone has fundamentally no idea what they are taking about with regard to economics (a tell shared by them and you) is any reference to ‘utils’ in anything but a historical setting. Economic theory began the process of dispensing with a conception of utility as a measurable/comparable magnitude in the late 19th century. Some equivocated – Jevons at one point declared utility to be whatever it was that was maximised in the act of choice but couldn’t wean himself away from hedonic conceptions, and Fisher (who B&N refer to on ‘utils’) did indeed get caught up in pursuing measurement but had earlier declared that for the purposes of determining prices and the allocation of goods factors such as measurability of utility were quite irrelevant. Pareto put the skids under the idea well and truly – interestingly, one of the aspects of applied economics that is commonly derided – cost-benefit analysis – stems from the compensation principle ideas a la Kaldor and Hicks that seek a way around the roadblocks thrown up by following Pareto in junking utility as a concept. Cassell and Barone argued that we didn’t even need Pareto’s replacement conceptual apparatus and that we should just specify market demand and supply relationships upfront a la Cournot and work with those. Slutsky outlined ordinal choice theory, which completely abandons utility as a psychological measurable/comparable concept, in 1915. It came into the English-language mainstream in 1934 with Hicks and Allen who independently came up with Slutsky’s approach. Samuelson wanted to ditch all psychologism with his revealed preference approach. In modern theory ‘utility’ has no meaning other than indicating the place of a consumption combination in an agent’s preference ordering. An agent is better off if they move to a more-preferred combination and it will be assigned a higher utility number than the previous combination to indicate that fact. No other meaning than that.

    So all talk of ‘utils’ in relation to economic theory is at least 100 years out of date. Perhaps that explains why B&N put the spotlight on Veblen. The fact that some introductory textbooks still use outdated language means nothing, and just indicates the level of knowledge of those who rely on that kind of evidence. The claims of B&N to the effect that economics regards prices as representative of quantities of ‘utils’ are straight trash and demonstrably so. If you base your ontological argument on the unreality of ‘utils’, as you do, then you are just shouting at clouds and making no meaningful comment on economic theory.

    This kind of thing reflects a structural problem in Political Economy education that I have encountered many times. People educated in that tradition don’t learn about economics as it is – they learn a catechism of critique which has ossified into caricature. Hence B&N can reveal the apparently amazing fact that heterogeneous things cannot be compared in the absence of a common unit. Firstly, index-number problems are no surprise and second that very issue is at the root of the history of economic thought. The wellspring of economic thought in the Western tradition is Book V of Aristotle’s Ethics wherein he asks: what is equalised when two different things are exchanged? This is the same question asked by Marx in the first Chapter of Capital Vol 1 (leading to a labour theory of value answer) but is also addressed by Petty in the 17th Century (labour theory of value), Cantillon in the 18th (land theory of value), Smith in the 18th (two aspects – a cost-of-production theory of value and a labour-commanded standard for comparing different combinations of goods in welfare terms) and Ricardo in the 19th (labour theory of value). It ought to be a source of profound embarrassment to claim that this question is some kind of surprise revelation.

    Similarly with regard to the idea that market prices signal something important. The 13th capitula of Carloman (884) instructs those charged with adjudicating price disputes to use the local market price of goods as a measure of their just price. Aquinas held the just price to be the market price established in the absence of fraud and monopoly, and other medieval Schoolmen, such as Tancredus and Simon of Bisignano echoed the idea that things are worth what they can be sold for (an idea that actually traces back to the work of Roman Jurist as represented in the Codex of Justinian) and that the exchange values of things are determined by the community at large. Right or wrong, these ideas have deep roots that have nothing at all to do with modernity or capitalism.

    As Geoff Harcourt was my PhD supervisor I can only scoff sardonically at the hay B&N attempt to make out of the idea that there is no such thing as ‘capital’. That isn’t something economists have missed (being essentially just another manifestation of the index-number problem referenced above) – I can give you three names right off the bat: Sraffa, Robinson, Pasinetti. There was quite the kerfuffle about it 50-60 years ago actually. Certain branches chose to close their eyes to that reality, and others were never really troubled by the problem in the first place (e.g. the post-Walrasian General Equilibrium program). In any case, only the deeply uneducated play this as some kind of dramatic surprise card.

    I’m actually a trenchant critic of a lot of economic theory, and there is plenty of ammunition from within the tent to allow for killing blows. There is no need for obscurantist hand-waving from without and, as someone with a good deal of investment in the history of economics, I am always disheartened and annoyed at the notion that announcing yourself as a critic of economics somehow inoculates you against the requirements of scholarship and knowledge.

  26. Voltaire once said of the Holy Roman Empire that it was “Neither Holy, nor Roman, nor an Empire”. Something similar might be said of Modern Monetary Theory, which has shot to prominence in policy debates recently. It is neither modern, nor genuinely monetary, and it is at least as much a set of policy proposals as a theory.

    It has nothing to do with the subject at hand, but I can’t resist mentioning that whenever that wisecrack of Voltaire’s is mentioned, I remember my late father saying that the Democratic Labor Party was neither Democratic, nor Labor, nor a Party. (I don’t know whether he made that up himself or was quoting somebody else, and if he was quoting, I don’t know who he was quoting.)

  27. Reposting as I forgot to log in before and came up as ‘anonymous’. JQ – can you delete the earlier one?

    Ikonoclast,

    The reference to information in your reply is at least somewhat ironic given that it contains no actual information.

    As for Bichler and Nitzan I am aware and it is not that I am yet to catch up, as you have it. It is that I recognise garbage argumentation when I see it.

    A real tell that someone has fundamentally no idea what they are taking about with regard to economics (a tell shared by them and you) is any reference to ‘utils’ in anything but a historical setting. Economic theory began the process of dispensing with a conception of utility as a measurable/comparable magnitude in the late 19th century. Some equivocated – Jevons at one point declared utility to be whatever it was that was maximised in the act of choice but couldn’t wean himself away from hedonic conceptions, and Fisher (who B&N refer to on ‘utils’) did indeed get caught up in pursuing measurement but had earlier declared that for the purposes of determining prices and the allocation of goods factors such as measurability of utility were quite irrelevant. Pareto put the skids under the idea well and truly – interestingly, one of the aspects of applied economics that is commonly derided – cost-benefit analysis – stems from the compensation principle ideas a la Kaldor and Hicks that seek a way around the roadblocks thrown up by following Pareto in junking utility as a concept. Cassell and Barone argued that we didn’t even need Pareto’s replacement conceptual apparatus and that we should just specify market demand and supply relationships upfront a la Cournot and work with those. Slutsky outlined ordinal choice theory, which completely abandons utility as a psychological measurable/comparable concept, in 1915. It came into the English-language mainstream in 1934 with Hicks and Allen who independently came up with Slutsky’s approach. Samuelson wanted to ditch all psychologism with his revealed preference approach. In modern theory ‘utility’ has no meaning other than indicating the place of a consumption combination in an agent’s preference ordering. An agent is better off if they move to a more-preferred combination and it will be assigned a higher utility number than the previous combination to indicate that fact. No other meaning than that.

    So all talk of ‘utils’ in relation to economic theory is at least 100 years out of date. Perhaps that explains why B&N put the spotlight on Veblen. The fact that some introductory textbooks still use outdated language means nothing, and just indicates the level of knowledge of those who rely on that kind of evidence. The claims of B&N to the effect that economics regards prices as representative of quantities of ‘utils’ are straight trash and demonstrably so. If you base your ontological argument on the unreality of ‘utils’, as you do, then you are just shouting at clouds and making no meaningful comment on economic theory.

    This kind of thing reflects a structural problem in Political Economy education that I have encountered many times. People educated in that tradition don’t learn about economics as it is – they learn a catechism of critique which has ossified into caricature. Hence B&N can reveal the apparently amazing fact that heterogeneous things cannot be compared in the absence of a common unit. Firstly, index-number problems are no surprise and second that very issue is at the root of the history of economic thought. The wellspring of economic thought in the Western tradition is Book V of Aristotle’s Ethics wherein he asks: what is equalised when two different things are exchanged? This is the same question asked by Marx in the first Chapter of Capital Vol 1 (leading to a labour theory of value answer) but is also addressed by Petty in the 17th Century (labour theory of value), Cantillon in the 18th (land theory of value), Smith in the 18th (two aspects – a cost-of-production theory of value and a labour-commanded standard for comparing different combinations of goods in welfare terms) and Ricardo in the 19th (labour theory of value). It ought to be a source of profound embarrassment to claim that this question is some kind of surprise revelation.

    Similarly with regard to the idea that market prices signal something important. The 13th capitula of Carloman (884) instructs those charged with adjudicating price disputes to use the local market price of goods as a measure of their just price. Aquinas held the just price to be the market price established in the absence of fraud and monopoly, and other medieval Schoolmen, such as Tancredus and Simon of Bisignano echoed the idea that things are worth what they can be sold for (an idea that actually traces back to the work of Roman Jurist as represented in the Codex of Justinian) and that the exchange values of things are determined by the community at large. Right or wrong, these ideas have deep roots that have nothing at all to do with modernity or capitalism.

    As Geoff Harcourt was my PhD supervisor I can only scoff sardonically at the hay B&N attempt to make out of the idea that there is no such thing as ‘capital’. That isn’t something economists have missed (being essentially just another manifestation of the index-number problem referenced above) – I can give you three names right off the bat: Sraffa, Robinson, Pasinetti. There was quite the kerfuffle about it 50-60 years ago actually. Certain branches chose to close their eyes to that reality, and others were never really troubled by the problem in the first place (e.g. the post-Walrasian General Equilibrium program). In any case, only the deeply uneducated play this as some kind of dramatic surprise card.

    I’m actually a trenchant critic of a lot of economic theory, and there is plenty of ammunition from within the tent to allow for killing blows. There is no need for obscurantist hand-waving from without and, as someone with a good deal of investment in the history of economics, I am always disheartened and annoyed at the notion that announcing yourself as a critic of economics somehow inoculates you against the requirements of scholarship and knowledge.

  28. Wylie Bradford,

    Thank you for illustrating a classic motte-and-bailey defense. It seems appropriate given the mention of same in the original post. Conventional academic economics has retreated from crude utility theory and the “util” and replaced it with “Rank-dependent expected utility”. As you write: “In modern theory ‘utility’ has no meaning other than indicating the place of a consumption combination in an agent’s preference ordering.” It might have been better if you had ended the sentence a bit earlier as in; “In modern theory ‘utility’ has no meaning.”

    Nobody has spotted a “util” and nobody has spotted a rank-dependent expected utility. The basic critique of the crude util holds equally well for the sophistry of rank-dependent expected utility (RDEU). Mathematization of imputed phenomena (the RDEU in this case) only gains an empirical knowledge justification or truth warrant if a dependable homomorphic congruence can be demonstrated between the mathematical model and the real phenomena it seeks to explain. This homomorphic congruence must be demonstrated by a combination of explanatory and predictive power. String theory remains so far useless ,to give another example of so far unwarranted faith in pure mathematics. Does the RDEU explain and link any phenomena consistently and permit any useful predictions of real-world economic behaviour?

    I am disheartened and annoyed at the notion that announcing yourself as an economist somehow insulates you from having to declare your ontological underpinnings. Conventional economists have an implicit ontology despite their pretense that they either don’t have one or that if they do they don’t have to explain it to anyone. Any intelligent layperson is right and within his or her right to question “professions” which can’t offer any empirical evidence. The hard sciences can offer that evidence. Conventional economics cannot and does not.

    Debating with professional and academic economists is like debating with theologians. In each case their ontology and epistemology (their metaphysics if you like) is purely a matter of belief. There is no descriptive discipline connection between their models and the real world: at least not any connection that hard science can discern. There is no ability to describe the fundamentals of phenomena consistently, no ability to understand cause and effect and no ability to make useful predictions. Truly, conventional economics is a degenerate research program to use the term coined by Imre Lakatos. It needs to be consigned to the scrapheap of history. Indeed, it WILL be consigned to the scrap-heap of history. It will either destroy the world (by the attempted endless growth encoded in its prescribed processes of capitalization) or it perforce will have to be discarded to save the world.

  29. Reposting as I forgot to log in before and came up as ‘anonymous’. JQ – can you delete the earlier one?

    That’s unlikely to happen, but I wouldn’t worry about it.

    The wellspring of economic thought in the Western tradition is Book V of Aristotle’s Ethics wherein he asks: what is equalised when two different things are exchanged?

    As a matter of logic, the question ‘What is equalised when two different things are exchanged?’ (let’s call that question ‘Q’) presupposes the truth of the statement ‘Something is equalised when two different things are exchanged’ (let’s call that statement ‘S’). If the statement S is false, then the question Q is meaningless. So I want to know whether the statement S is true. What reason is there to think it true, or what reason to think it false?

  30. Ikonoclast,

    In fact, I was lounging comfortably outside the bailey observing you tilting at a windmill of your own ignorance nearby. Actually, in order to me to have employed the motte-and-bailey device I would have had to have been defending utils to begin with. Which I was not. So there’s something else you might need to check up on.

    You, on the other hand, have been straw-manning and consider to do so. Feel free to double down but it just makes you look foolish. To restate – you base a lot of what might charitably be called your specious ontological case on the claim that economic theory is at root based on ‘utils’. That is demonstrably, not arguably, false. Throwing around terms like ‘rank-dependent expected utility’ doesn’t establish any credibility when you use it in the wrong context and apparently seem to think that it denotes the same thing as the standard ordinal utility approach. These are the potential pitfalls of the second-hand commentator. To be clear (taking the intended meaning of ordinal utility) ‘nobody has spotted a rank-dependent expected utility’ is quite the dumb thing to say, as that is entirely the point. In arguing for dumping the measurable/comparable idea of utility Pareto suggested that the word itself be discarded as it was irreparably tainted by the existing associations. Perhaps he was right – it clearly has a hold over minds such as yours who want to insist on the term meaning something that it no longer does. There is no need for anything quantitatively measurable at all underlying the theory of choice in economics now, and there is nothing. As I already explained, welfare is simply construed in favour of attaining preferred outcomes or not. You can build the story up from individual to market demand without ever using the word utility nor alluding to what it once was taken to mean in the isolated intellectual hermitage you and your sources seem to inhabit.

    The theoretical propositions that flow from that need not be true or useful, and there is plenty of destructive ammunition for such a position lying in plain site in the top-level academic literature. As I indicated, I am always very critical of the paths that much economic theory has taken but not every criticism is soundly-based; vapid intellectual posturing being a good example.

    As for your (predictable) theologian reference, arguing with you is very reminiscent of the times when I have a young person who has decided that they are an Austrian turn up in my history of economic thought course. They crib some material from the Mises Institute website and hurl it at me with the same unearned censorious hubris, and they are equally transparently mistaken to anyone who actually has some direct knowledge of the field.

  31. J-D,

    Of course, that is correct. I was not suggesting that there should be, just pointing out that facing the issue of how to compare things which are different is what effectively kicked off economic analysis in the Western tradition, reappearing periodically. The source that Ikonoclast relies upon presents this idea as some kind of surprise demolition of economics, which is absurd.

  32. In Ikonoklast’s defence, I’ve always seen him freely concede errors in discussion, but have never seen him write as a condescending snob.

  33. Wylie Bradford,

    Fair enough. I will take on board that I may have been barking up at least one wrong tree there. I like robust debate and I always try to learn when I lead with my chin and get pasted. I think you can understand the frustration of the layperson when confronted by economics. Just as there is crude MMT, there is also crude “conventional economics”.

    In public discourse, for at least the last twenty to thirty years the economics, if it deserves that title, pushed at the layperson has been of the most basic kind. And always it pushes the idea of value, implicitly or explicitly, and that markets correctly value things or at least correctly allocate things (including rewards to workers, owners, investors and so on.) When one rebels against this and beards the economists in their public blog dens, the economists say “No that’s wrong, that idea was obsoleted/superseded/ refuted fifty years ago, a hundred years ago,” or whatever. At that point one feels like saying, “Well why in the hellcat tarnations is the political and public discourse still about this? Why haven’t you economists done your job and got better ideas into public discourse? You’ve had long enough to do it.”

    Then again, one can read plenty of dissenting and unorthodox opinions, some from excellent writers like Marx and Veblen who make some very good points. One starts to smell a rat (if one is of a slightly suspicious nature about human nature) in the middle of “conventional economics”. I am old enough BTW to have personal experience of some fairly crude labor exploitation; in laboring, machinery driving, gravel pits, farm work etc., with low pay and sometimes dangerous conditions and dangerous machinery without proper penalty pay, danger money, training or safety equipment. I even worked in a James Hardie fibro factory and was sent into the extractor silo to clean fibro dust from filters; so since I am 65, still alive and still without mesothelioma or asbestosis clearly my luck and genetic endowment is holding out so far. Plus, I later endured noeliberalism and managerialism down in the clerical levels of the Australian public service. The political policy idiocy and management stupidity we endured there was infuriating. As I have admitted before in this blog, I actually have a visceral hatred of owners, bosses, capitalism and neoliberalism from lived experience plus from my own reading of Marx in my 20s. He made a lot of sense to me.

    There was something rotten in the state of Denmark and there is something rotten in the theory and state of “conventional” bourgeois economics and this rottenness remains perennially persistent. The locus of greatest danger and misery just keeps moving about. In about 1977, if I recall the year correctly, I was going into thise extractor silos at James Hardie, Pinkenba to clean fibro dust (read asbestos dust) from filters. In 2010 or thereabouts, Chinese Apple factory employees were suiciding off the roof (Foxcconn suicides) because that seemed more desirable than working any longer under their conditions. All of this courtesy of wage slavery and (in China’s case) global labor arbitrage.

    Something IS rotten in the state of bourgeois economics and there are rats behind the arras. I’ll keep stabbing at the arras for sure. My only regret is I don’t have a rapier mind and I can’t tear the arras down. The ideological presumption that the institution of private property leads to (greatest) innovation and just rewards is threadbare. History moves and the arras is so diaphanous now one can almost see through it. I hope to see through it before I die.

    We can certainly argue about justifications for capitalism in the blog sandpit at any time. Churchill once said “Democracy is the worst system of government… except for every other system.” Perhaps capitalism is the worst system of economics… except for every other system. I would hate to think though that would remain true in the future in a world with emergent / evolutionary possibilities. However, we face the danger of the natural world foreclosing on us by the end of this century or sooner unless we do something radical urgently by fully transforming or superseding capitalism itself.

  34. Ikonoclast,

    I don’t disagree with you at a higher level – some fundamental aspects of economic theory post-1870 should rightly be regarded as outright failures and some of the consequences of that are quite profoundly bad. I became disillusioned with the whole ‘heterodox’ thing that I used to be more involved in because of a tendency to (self-serving) intellectual looseness and so my frustration at things written by people who aren’t you might have flavoured my posts and lead me to go off-piste tone-wise. I apologise for that and retract that aspect of my remarks.

  35. This is whyMarx wrote that all private property is theft. Modern economic theory divorces ownership of resources from usage. So a government may own the land in which a coal mine is located BUT it leases it to a mining company. The moral question then is who is responsible for the environmental damage. The owner or the user? So it is for labour. We own our labour. But we ‘lease’ our time to an employer, If we are exploited and do nothing about it then are we to blame? Again Marx urged labourers to take back ownership rights by using collectivism. The commune was his chosen solution. However Marc warned that a new economic system could not just be imposed on a country. It had to evolve from a workers’ movement. Again the owners had to take responsibility. Exploitation needs to be fought against constantly. But the first helping hand must be the worker’s own hand.

  36. This is whyMarx wrote that all private property is theft.

    Marx did not write that all private property is theft.

    But we ‘lease’ our time

    Time can be bought and sold, but it can’t be leased.

  37. Wylie Bradford,

    That’s okay. I’m opinionated and verbally combative so I end up provoking people at times. I agree that self-serving intellectual looseness can operate on all sides of a difficult debate. That is particularly the case when there is an unavoidable ideological or moral philosophy dimension to the subject. The temptation to haul out a “gotchya” point via a straw-man argument or other fallacy is always there.

    Overall, I am still struggling with some quite basic issues in economics but I feel the discipline of economics itself is also struggling. This is particularly so because economics calls acutely for an answer to how the real and the nominal interact and even for an answer to what the “real” and the “nominal” actually are. Economics looks in the mirror and asks, “Am I a prescriptive discipline or a descriptive discipline?” The answer I think is “both” which makes it an especially difficult discipline.

    What we particularly need to do in economics, I think, is sort out the prescriptive and descriptive elements and such a sorting is not easy or neat when these elements continually and complexly interact. Specifically, they interact in a complex systems feed-back fashion. This leads us to the real economy / financial economy debate. We could call it the real economy / nominal economy debate. Using the terms real economy / formal economy would make sense ontologically (as in real systems and formal systems) but that unfortunately runs into a definitional problem since the term informal economy means the illegal and/or untaxed and unregulated part of the economy and formal economy thus means the inverse of that.

    If we are wondering about the real and the nominal and how they complexly interact, I think we have arrived at a a very significant ontological problem. Certain ontological problems in economics have previously been side-stepped because of their intractability and specifically because economic ontology (like religious and ideological ontology) shades off into moral philosophy and metaphysics, even speculative metaphysics. The applied sciences, say engineering and medicine, do not have that problem to anywhere near the same extent (except at one end of the spectrum for medicine). The ontology of engineering is “settled” by physics. The ontology of medicine is “settled” at one end of the spectrum by physics, chemistry, biochemistry and neuroscience but it is still contested or contestable at the other end in psychology and psychiatry. Of course, by “settled” here I mean not absolutely settled but adequately settled to a certain degree (not precluding further knowledge progress) such that the applied sciences have a known arena where discovered scientific laws and developed disciplinary principles and practices operate dependably; this being so because more fundamental existents and their properties, plus the causes which arise and effects which flow from properties and properties interacting, are known to a dependable and manipulable degree.

    Side-stepping intractable problems is a pragmatic response which can and does permit progress. At a given state of knowledge we side-step intractable problems if there is a longer, harder way which yet leads to our goal or at least to a goal-approach which satisfices. It is my contention that “conventional” economics has side-stepped what were intractable ontological problems at a lower stage of scientific and technical knowledge historically and it pragmatically improvised to satisfice; although who gets satisficed and who gets “screwed” (unsatisficed or de-satisficed) is a power question with ideological and moral philosophy dimensions.

    Scientific progress has been accelerating rapidly since the Darwinian and Einsteinian revolutions and has accelerated much more again post WW2 and especially with the computer and instruments revolutions since about the 1970s/1980s. Economists who are of my age of 65 plus or minus 10 years probably (remembering I am not an economist) were educated into economics, and other disciplines they may have taken, before some of the fruits of these last revolutions arrived. I am thinking particularly of complex systems science and information theory, the latter meaning both computer information theory and general information theory. These disciplines have moved the boundary between “empirical ontology” and metaphysical and speculative ontology very considerably. I don’t feel confident that all economists in the age group I mention are quite up with this boundary shift. I think this boundary shift has radical implications for an (ontological) reappraisal of economics.

    It is quite clear that empirical ontologies as well as metaphysical ontologies can be developed and thus do exist and have pragmatic and practical value. We can do useful things with them. Some ontologies refer to the real like the Relational System Model of modern physics. Some ontologies are formal like those of computer systems science. In each case the ontology “settles” and defines a set of base existents and their properties plus their interactive properties to a given degree of resolution (empirical ontology) or definition (formal ontology) with the goal being ultimately pragmatic; discovery of the real and manipulation of the real to human ends.

    I don’t think economics as a discipline is immune to the need for a (at least partly) “settled” ontology which;

    (a) deals with the real (empirical ontology);
    (b) deals with the nominal (formal ontology); and
    (c) deals with the ontology of interactions and feed-backs between real and the nominal (formal) systems.

    There is a way, I contend, to fuse empirical ontology and formal ontology. To sketch it ever so briefly, the way lies through Physics Relational System Monism to Complex System Monism incorporating evolution and emergence (in the form of a priority monism ) and utilizing the insights of information theory and information science. A key deduction in the philosophical “logic chain” implied by the priority monist premise is that since all sub-systems in a real monistic system (the cosmos) must also be real then a formal sub-system in the real monistic system is also real. This leads to the seemingly paradoxical assertion that a formal system is a real system. It is indeed a real system but one with special characteristics. Its operations while real-system instantiated are informationally (in patterns of matter or energy) stored and transmitted. Data and the ability for data operations are stored and enacted in media after all, including computer compontents and human brains as media. A salient point is that the information content (which exists in patterns in media and which is capable of influencing / producing other patterns and structures) is more important than the matter or energy content. This might almost hold as a definition of efficiency. An efficient information system is one where the information content and/or transmsions rate is high relative to the matter/energy requirements.

    Where this theory leads to, in part, is to a workable ontological delineation between “fundamental laws” as in the discovered laws of the hard sciences and “rules” as in legal laws, regulations, customs, and mores. The human agent (the human being) is they key in all this of course. As a human agent he/she possesses some autonomy (which as a concept would be need careful and extensive definition), a physical body actuated by servos and servo systems (muscles, nerves etc.) and finally and importantly a brain which among its other capabilities encodes and decodes information sources and the rules they can encode. The human agent may then obey rules or disobey rules with the key proviso than a human cannot obey a rule if that would entail breaking or ignoring a fundamental law of nature discovered, or yet undiscovered, by the hard sciences (physics, chemistry and biology).

    Key questions for economics are these. What in economics are laws? What in economics are “mere” rules? What parts of the moral philosophy presumption for the efficacy of private property (to use that example) as a personal and social good can be related to fundamental laws and what parts can be related to mere human prescriptions as human rules? Then, what empirical effects, from effects on the well-being or welfare levels of all social participants (effects especially as differential or unequal effects) to effects on environments and the biosphere can we note from different rules and rule sets and different variants of rules and rule sets for private property and other economic rules and institutions? What factors exogenous to the limited rule inputs we are examining could be affecting the outcomes?

    To sum up, or else this post will become way too long, I think conventional economics’ bias is to think rather too often that it has found laws (as in fundamental laws) when rather it has “merely” found some empirical and some axiomatic outcomes of its current prescriptive rule set (as per my definition of rules above). It is certainly the case that humans obeying humanly created rule sets can generate both axiomatic and empirical (fundamental law) outcomes. But I should leave it here or this becomes too long for a blog. Any further discussion I guess should go to a sandpit.

  38. @ikonoclast Re: our discussion

    That would be an interesting discussion but beyond the scope of the original post
    I thought perhaps JQ would have responded to a comment or two here since I was last here but I think his one response indicates that he still strongly disagrees with the MMT conceptual framework.

    On the positive side MMT was assessed with a very good review that I am satisfied with, except for perhaps the headline.

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