This is Richard Wolff from Democracy at Work, responding to another Ask Prof Wolff question
from our Patreon community. This question comes from Jeffrey Zentz, and it reflects what a number
of people have asked us to comment on. Namely, what do we think- what is a Marxist approach
to the work being done under the name Modern Monetary Theory? Well first of all,
I have to remind everyone, there really is no such thing as the Marxist response. Marxism is a 150
year old tradition. It includes a whole host of different perspectives, different interpretations,
sometimes clashing interpretations. So different Marxists, working in different ways,
will come up with correspondingly different notions of what Modern Monetary Theory means.
Let me then give you but one of them. The one that makes sense with me and for me.
Okay, money in the modern Capitalist system is introduced to the economy, produced in and for
the economy, first and foremost by the government, and secondarily by the private banking system. The
way the government does it is by issuing debt. For example, to cover a budgetary deficit,
uh of the sorts we are now having in huge numbers uh working its way into the trillions of dollars.
When the government spends trillions more than it takes it in taxes, it has to borrow
money. It does that by going to domestic and foreign authorities, corporations, individuals,
governments. Borrowing the money and issuing in return, IOU's generally referred to as treasury
securities because the US treasury issues them. it's a promise to pay- repay whatever the amount
borrowed is in 5, 10, 20, 30 years and to pay a certain interest rate each year
over that period of time. The public, that buys these treasury securities, that is, lends money
and gets those securities, those IOU’s in return, is then free to sell them to the federal reserve,
to sell the government debt they purchased, they got by lending to the government,
to sell it to the federal reserve. The federal reserve buys such instruments in order to increase
the quantity of money in circulation, because the fed and the fed alone has the authority
to print the money or to credit the account of someone who wants to buy a government security.
The federal reserve then holds that security because it has accomplished its purpose, it has
increased the quantity of money in circulation. So, let's follow that. The government by borrowing
doesn’t increase the quantity of money, because the money it gets is money taken away from the
private entities or the foreign governments that want to buy U.S. treasuries, that want to lend
to the U.S. government. So there's no increase. The money just moves from those who owned it
before to the government that borrows it. Money does increase if those who got those securities
can convert them into money, which they accomplish by selling them to the federal reserve, and that
was how more money in this case, for example, more dollar bills more quarters and nickels
entered into circulation. One of the key points of Modern Monetary Theory is that this arrangement
means that the private sector has an effective veto on the use of money to shape economic events.
Here, It is the government trying to do that, trying to use the monetary system, but because
of the middleman status of the private dealers who buy government debt by government securities,
they can not play the game and thereby frustrate the policy. So, Modern Monetary Theory enjoys
pointing out that the government doesn't need such a middleman. The government does not have to go
into debt in order to play or shape the monetary system. The government could print money itself.
Moving it into the economy by using it to buy all kinds of things that the government deems
the society needs: more roads, more bridges, more active anti-covid programs, more welfare,
for poor people, more more more. And then if there's too much money in the economy,
it can pull the money back and how does it do it? Basically by its taxing system, it can
tax and that pulls the money out of the economy and the government could then store it or burn it,
doesn't really matter. It erases it and so it can control the quantity of money but doesn't
need the whole apparatus of a middle man who buys treasury securities and then resells them
to the fed. It's an important way of understanding that the creation of money is not limited,
constrained, or controlled in the way that tradition implied was necessarily the case.
Modern Monetary Theory shows it isn't necessarily the case and in that way it is a critical uh
transformation of our understanding of how money works. And, as everyone knows in a Capitalist
system, money makes the world go round. So, that's a first installment, there will be others
about how we look at what Modern Monetary Theory has done. What I might add is it doesn't address,
because that's not what it's about, the relationship between employer and employee
inside each workplace. The critique of the undemocratic structure of enterprise, that
we emphasize a great deal and that we think is at the core of the socialist project, is a different
issue and a different set of arguments with a different set of objectives than those that
animate the Modern Monetary Theory school. This is Richard Wolff for Democracy At Work.