Comment on MMT


Some people can’t get with MMT because they find MMT claims to be unproven or not explained well enough. I sympathize with these people. They remind me of the old axiom, “There’s no such thing as a bad pupil; only a bad teacher.”

The fact is, most MMT people are not clear enough in their writings. This is one reason (among many) why society tends to ignore MMT.

Let’s see some examples of poor writing, chosen at random. This is from a thirty-page-paper written by one Phil Armstrong. It appears on the web site of noted MMT advocate Warren Mosler.

[1] We are now in a position to consider the core propositions of MMT and the extent to which they are consistent with state and credit theories of money. MMT is founded on the insights provided by the state theory of money. Money is chartal; a creation of the state, and also a creation of banks whenever banks make loans. (My addition, E.H.)  

Both banks and Monetarily Sovereign governments create money. MMT people affirm this, but they should do it more often, especially when their papers extend for thirty pages. Never presume that your reader understands a point, even if you have already made the point several times. It is better to be thought repetitious than muddled.

[2] The state decides upon the unit of account and is able to issue its own debt or ‘tax credits’ denominated in this unit.

“Issue its own debt” means the State can sell sovereign bonds. Why don’t MMT people say that?  When MMT people become sloppy with the word “debt,” they open the door to things like the “national debt” hoax, and to false claims that banks create all the money.

[3] In MMT, money is considered as a social institution, where ‘credit and credit alone is money’ (Innes, 1914).

Whoops. MMT people are as sloppy with the word “credit,” as they are with “debt.” In this case, they fail to clarify that “credit” can mean two different things. It can mean faith in the currency, or it can mean a loan. If “credit” means faith in the currency, okay, but MMT people need to clearly say that, always. If “credit” means a loan, then they contradict themselves, for it means that all money consists of bank loans, which is false.

[4] Here Armstrong’s paper quotes Warren Mosler himself …

MMT recognizes that the currency is a public monopoly, taxes function to create unemployment, and the funds used to make payments to the government come from the government.

Huh? Taxes create unemployment? How? And is government-created money the only money that can be used to pay taxes? Can’t I get a bank loan and pay taxes with those loan dollars? It would be unadvisable, but it is possible. MMT people are not clear enough in their writing.

[5] (Returning to Armstrong’s paper): One of the key insights of MMT is the explicit recognition that the state must issue money before it can collect it. Spending precedes taxation; the currency is a public monopoly. Only money that has already been issued by the state can be collected in taxes.

No, no, no. In trying to show that Monetarily Sovereign governments do not run on tax revenue, Armstrong traps himself in a chicken-and-egg paradox. Which comes first: government taxes or government spending? Armstrong and MMT say spending. Oh? Can’t I pay this year’s taxes with money I have left over from last year’s spending? Yes I can. And didn’t taxation exist before last year’s spending? Yes it did. So which came first, the chicken or the egg?

Moreover, if you claim that a government must first spend before a government can tax, then you ignore the fact that banks also create money. This confuses your readers. What further confuses them is when you fail to differentiate between “money” and “currency.” Banks can create money, but only central governments have true sovereignty over the currency. MMT writers assume you already know that. That is a crucial error. MMT descriptions are too academic, too unclear, and too full of assumptions and sloppy word use.

For my own explanation of why the U.S. government does not need tax revenue, see this for example…

I shall end here, but there are many more examples from this paper. There are also quotes from Warren Mosler that are flat wrong. (An example is when Mosler discusses the “gold standard.”)

If you have questions about MMT, or you are confused, ask me and I’ll try to clarify things for you. Thanks for reading.

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