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Modern Monetary Theory on Money, Sovereignty, and Policy: a Marxist

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Modern Monetary Theory on Money, Sovereignty, and Policy: a Marxist Modern Monetary Theory on money, sovereignty, and policy: A Marxist critique with reference to the Eurozone and Greece Costas Lapavitsas SOAS, University of London Nicolás Aguila Centro Interdisciplinario para el Estudio de Políticas Públicas, Buenos Aires Abstract This article compares and contrasts MMT and Marxist monetary theory, focusing on the relationship of money to commodities, the role of state power in monetary processes, and the significance of global hierarchy for world money. Money is indeed a social relation, as MMT claims, but for Marxist theory capitalist money is specifically a relation of class, both domestically and internationally. The room for state policy is correspondingly constrained, not least because the international monetary system is hierarchical. These issues are placed in historical context by analysing a Greek plan for Eurozone exit during the crisis of the 2010s. It is shown that regaining monetary sovereignty was a demanding technical problem but also, and more fundamentally, a class issue embedded in relations of international subordination. Keywords: Marx, Modern Monetary Theory, money, state, Greece, Eurozone JEL codes: B14, B51, E40 1 1. Introduction During the last two decades, Modern Monetary Theory (henceforth MMT) has won wide academic recognition and public influence. MMT has updated the Chartalist theory of money, originally proposed by Knapp, Innes, and Keynes, putting forth a notion of monetary sovereignty (Tcherneva, 2016; Wray, 2019). On this basis, it has advanced powerful criticisms of mainstream economics regarding monetary and fiscal policy (Tcherneva, 2006; Wray, 2014). There are considerable areas of agreement between Marxist political economy and MMT but also profound differences. The critical discussion of MMT in this article aims to be constructive and in the spirit of common opposition to mainstream economics and economic policies. It focuses on the relationship of money to commodities, the role of state power in monetary processes, and the significance of global hierarchy for world money, all of which have consequences for monetary sovereignty. These seemingly abstruse issues are integral to state economic policy but are often side-lined by vocal critics of MMT keen to debate monetary and fiscal policy, particularly within the institutional context of the USA. Yet, the policy proposals of MMT are of a piece with its underlying theoretical understanding of money. A coherent critique must depart from first principles. Marxist theory has a very different understanding of sovereignty from neo-Chartalism, and thus of the room for monetary and fiscal policy, particularly for smaller countries in the world market. Money is a social relation, as MMT frequently states, but capitalist money is specifically a relation of class, both domestically and internationally. The monetary sovereignty of a state and the exercise of economic policy are constrained by this fundamental aspect of money. 2 The test of theoretical debates is, of course, practice. The last section of the article places the Marxist critique of MMT in context by examining perhaps the most prominent recent case of contested monetary sovereignty, namely Greece in the Eurozone in the 2010s. The analysis brings to the fore little-known aspects of the crisis, especially the formulation of a plan for exit from the Eurozone by domestic political forces opposed to the bailouts imposed by the lenders to Greece. It is shown that regaining monetary sovereignty was certainly a demanding technical problem but also, and more fundamentally, a class issue embedded in relations of international subordination. 2. Neo-Chartalist theory of money According to Wray (2014), MMT has retrieved the Chartalist theory of money developed by Knapp and Innes and updated it with further contributions from Lerner, Goodhart, and Ingham. MMT has been called neo-Chartalism, “tax-driven money”, or “money as a creature of the state” (Lerner, 1947; Tcherneva, 2006). For neo-Chartalists, money is a unit of account legally determined by public authorities to measure mutual debt obligations within a community (Tcherneva, 2016). Modern nation-states impose a liability in the form of a tax obligation, and name the “thing” they will accept in payment (Tcherneva, 2006). Since agents must possess the “thing” to pay taxes, it becomes the general means of exchange and payment, and thus it becomes money. From this standpoint, money is an institutionalised social relationship based on state authority. Since the state has the monopoly of issue, it can choose anything as money, irrespective of material (Wray, 2010); it can also define money’s value by unilaterally determining the terms on which it is offered (Tcherneva, 2006). If, for instance, the state introduced money through a Job Guarantee scheme paying the wages of public sector 3 workers, it could establish the money-value of an hour of work (Mosler, 1997-8; Tcherneva, 2016). 1 Pursuing the analysis further, money is essentially a credit relationship representing a promise to pay, with the dual character of asset for the lender and liability for the borrower. Anyone can create money, but the real issue is the degree of social acceptability of private money. There is a hierarchical structure of monetary forms within a community, with the state at the apex, followed by banks, firms, and individuals (Bell, 2001). State-issued monetary forms are at the top because the state is the only agent that does not have to settle its obligations by delivering someone else’s promises to pay (IOU) (Tcherneva, 2016). The barter economies constituting the foundational myth of neoclassical economics have no historical basis (Graeber, 2011). Moreover, according to Innes (2004), exchange transactions would simply be registered (in a tally, for example) and the debt obligation would be subsequently settled by using other commodities. Registries of past societies show that mutual credit networks predate coin minting, and credit predates cash. Wray (2010) stresses that coin minting does not have spontaneous origins in exchange but in the actions of the public authorities. An original instance of this process was wergild or wergeld (Tcherneva, 2016; Wray, 2010). This was a system used by the assemblies of Germanic tribes to determine penalties for offences among community members to prevent potential escalation into intra-communal conflict. 2 In time the assemblies established a common unit of account, 1 Furthermore, the imposition of money tribute could lead to profound social and economic change on the dominated (Goodhart, 1998). In Africa the imposition of taxes by European colonisers forced change toward wage work and export-oriented production (Forstater, 2005). 2 The classic account of the origin of money in wergeld was given by the authoritative numismatist Grierson (1977) but with deeper roots in the tradition of the German Historical School. 4 gradually transforming penalties into tributary payments and finally taxes. Once a unit of account had been established, credits and debts began to be denominated in money (Wray, 2010). The same notion could easily be extended to other forms of recompense, such as dowry, bride-price, and blood money. Stripped of its historical associations, this is a truly extraordinary theoretical claim. Apparently, tribal assemblies in the forests of Germania or priestly cabals in the temples of Egypt and Babylonia were able to identify a common denominator (essence) among things, actions, rights, wrongs, beliefs, and sentiments. They then defined an abstract unit of account (commensuration) for all these species manifestly belonging to different genera. The “thing” that corresponded to the abstract unit of account was able to equate apples and oranges in social practice because the assembly or the priests had somehow equated these in the mind (abstractly). This is the assumption underpinning the claim that money is inherently a purely abstract unit of account defined by a public authority. If indeed it were true, it would represent a magnificent philosophical breakthrough, long before Aristotle proposed his ten categories. Critics of MMT often seem ill at ease with these issues, perhaps perceiving them as abstruse debates on the historical and analytical origin of money, a sideshow to the “real” issue of fiscal and monetary policy. 3 The opposite is true. The policy suggestions of MMT depend fully on the underlying assumption of what is money. It is impossible coherently to criticise the former without also criticising the latter. For Wray (2016), if a taxpayer is to be able to pay, the state as monopoly issuer of money must have already provided the means of payment. Indeed, the government must engage in expenditure prior to collecting taxes, making it possible for individuals to obtain the 3 Palley is characteristic of this approach in a series of critical assessments of MMT; see for instance, Palley (2015 and 2020) focusing on the “meat and potatoes” of fiscal and monetary policy. 5 means to pay taxes and purchase goods (Tcherneva, 2016). Government spending is not financially constrained either by tax collection or by public debt (Bell, 2000). Taxation is merely a way of destroying money and redeeming state debt, as happened even in physical terms in the American colonies (Wray, 2019). MMT rests on the assumption that state authority is the foundation of money. Monetary sovereignty is to exercise the ability to define the unit of account and make it the means of settling state transactions
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