Congress Discussion: MMT and the economy

The following piece is submitted by Chris Williamson as a contribution towards the development of our policy in this area.


No political party in Britain has ever expressly embraced the possibilities provided by the fact that Britain issues its own currency.  Consequently, governments can never run out of money for anything that is available for sale in pound sterling.

This offers the WPGB an enormous opportunity.  We can explain to the public that a good society is possible and that they’ve had the wool pulled over their eyes about the way in which the monetary system in this country actually operates.  Henry Ford acknowledged this nearly a century ago when he said: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”  Our job in the Workers Party GB is to facilitate that revolution.  Tony Benn used to say that if we can find the money to kill people, we can find the money to help people, and he was right.  But governments of every stripe have always insisted that the funds necessary to deliver a good society are limited and that tough choices have to be made.  However, as Tony Benn pointed out, there is never a problem finding the money for military adventures.

The covid crisis proved that when there is political will, money is no object, even for a Tory government.  Myths about the size of the deficit were thrown out of the window, only to be dusted off when the lockdown was over.  The problem was that much of the government’s spending spree was squandered, and simply lined the pockets of their Tory friends.

But if the Workers Party embraces Modern Monetary Theory, we can use it to explain how we’d fund a good society without falling back on the myth about raising taxes to fund public expenditure.  Such an approach is a trap that is used by the Establishment to ridicule socialist proposals and frighten the electorate.  It also bestows a status on the billionaire class that they don’t deserve.  When the billionaire, Alan Sugar, said he’d leave the country if Jeremy Corbyn was elected as prime minister, my response was to say, “good, I’ll happily drive him to the airport”.  MMT also destroys Thatcher’s enduring maxim that: “The problem with socialism is that you eventually run out of other people’s money.”

I’ve drawn on the work of Richard Murphy, who established the Tax Justice Network, and was advising Jeremy Corbyn in his first leadership bid.  In fact, it was Richard’s economic prospectus that resulted in Jeremy Corbyn’s economic agenda being labelled ‘Corbynomics’, but it was subsequently jettisoned by John McDonnell when he was appointed as the shadow chancellor.

Pound sterling is a fiat currency, which means there is no asset backing (like gold) to the money in circulation.  Our currency obtains its value from the government’s promise to pay. The same is true of every major currency in the world.  They have all been fiat currencies since 1971, when Richard Nixon scrapped what was known as the Bretton Woods Agreement.

It is important to recognise that the government has to spend money into the economy, before it can collect any taxes.  The government creates money every time it spends by instructing the Bank of England to extend it the credit that makes this possible. It isn’t constrained by the availability of taxation funds when doing so and the Bank of England, will always act on instructions from the government, because it’s owned by the government.

Taxation is utilised to prevent this new money creating excess inflation by withdrawing currency from circulation. That is the primary fiscal purpose of taxation, but taxation has other significant, social functions as well.

Politicians and media commentators often talk about government borrowing, but that is a misnomer.  A more appropriate description would be to refer to it as corporate welfare, whereby the government offers corporations and super rich individuals risk free investment opportunities in government bonds.  Pension funds often hold government bonds as part of their overall portfolio, but the truth is government borrowing makes little economic sense.  Furthermore, a government that only borrows (issues bonds) in its own currency cannot ever default on its own debt because it can always issue an instruction to the Bank of England to settle the debt whenever anyone wants to redeem it.  This enables governments, with the political will, to face down the financial markets.

Although the primary purpose of taxation is to control inflation, its social purposes are also essential.  It can be used to create the space for public spending priorities when the economy is at or near full capacity.  Otherwise, inflation would be created because the public and private sectors would be chasing scarce resources.  Taxation can also be used to address income and wealth inequality and incentivise or penalise certain activities like promoting healthy lifestyles by taxing smoking and reducing taxes on low emission vehicles etc.  Tax is a reflection of society’s values and is the primary mechanism that governments have for reinforcing those values.

So, to summarise:

  1. The government can and does create money.
  2. Government debt is just a means for saving private wealth.
  3. Deficits are not a problem, as long as they’re not overheating the economy, but taxation can be used to stop the economy over-heating.
  4. Governments cannot create money without limit.  The key is ensuring public spending is matched to the availability of real resources in the economy.

For further information, these links are useful:

This lecture by Stepanie Kelton is worth watching and her book ‘The Deficit Myth’ offers an excellent overview of MMT.

Carlos Hernandez’s book – ‘Fiat Socialism’ is also worth reading, as it explains how an MMT understanding can be used to implement a socialist programme.  Copies of his book will be available at the WPGB congress.

11 thoughts on “Congress Discussion: MMT and the economy

  1. All this is true in the abstract, and it could possibly work in a closed economy. I would make three main points.
    1. MMT describes the bare bones of an economy, as such it is not socialist.
    Putting MMT into practice is socialism (unless it is for short exceptional periods like the 2008 financial crash or Covid), because it turns the State into an important economic investor and employer. As such a government proposing MMT will encounter fierce political resistance at home.

    2. MMT put into practice in the UK would be a model that the US would do everything to crush; and the US, Australia, Canada etc could pull their capital out of the UK. Britain depends on foreign capital and its goodwill for almost every aspect of the economy.

    3. The MMT analysis of tax misses out the social cohesion aspect. People feel they have paid for the infrastructure of the country, its health and education etc. Nobody wants to destroy that feeling. What can be done is to explain that the government can spend more money without raising taxes because the result of that spending will be economic improvement that will pay for itself in the long run.
    The point needs to be made that government spending is not determined by financial considerations: it is determined politically. The government can decide to spend money directly on running the railway itself, or it can pay private companies, that will cost more because of the profit demanded. The public already agrees that it’s better for the state to run the railway, water, energy etc! That is the argument that should be put forward strongly. The arguments about the wastefulness of using the private sector are numerous: look at the profits of the water and energy companies! that’s money wasted for work not done properly. Look at PFI, a catastrophic waste due to contracting to the private sector. Show how withdrawing from council house building has created the housing shortage and astronomic housing inflation. Pile it on about how much the state not spending has cost the nation.

    I suspect that is why MMT was not pursued by the Corbyn team. MMT is abstract, could not withstand the pressures of a globalised economy and is socially unacceptable.

    1. Re Chris Williamson

      I think Chris Williamson’s description of the capabilities of a currency creating state are correct. It is important that a political party aspiring to power should fully understand this capability.

      Re Cathy’s comments

      Cathy is right. MMT is not socialist. It describes how a currency creating government finances itself.

      MMT has no policies. It does not advocate any of the policies that a left-wing party might propose: free education, free healthcare, social housing etc.

      Many proponents of MMT would support such left-wing policies. But the policies do not follow from MMT. The policies are value judgements about the kind of society one would like to live in.

      MMT, i.e. an understanding of how a currency creating government finances itself, will however allow a left-wing government to more successfully implement its policies.

      Cathy raises the issue of paying tax as a form of social cohesion. That’s a fair point. But I think it’s also important to understand why a currency creating government, with an infinite amount of money, should still need to levy taxes. Clearly, it is not for the money since they already have an infinite amount of money. It is important that a party aspiring to power should understand that the primary role of taxation is to free up resources which can then be bought by the government to do the things that it considers important.

      The real purpose of taxation is, as Cathy suggests, one of the hardest things to explain to people. That explanation may need to be worked on. But the real purpose of taxation, to make resources available for the state to purchase rather than to get money to spend, must be understood if the question ‘how will you pay for it’ is to be correctly answered.

      When Cathy states that ‘The point needs to be made that government spending is not determined by financial considerations: it is determined politically’, she is close to an MMT position.

      It puzzles me that Cathy concludes her comment with the statement that MMT is socially unacceptable given that she says that MMT in practice is socialism. I assume that she’s referring to the fact that it’s difficult to explain.

      Rachel Reeves does not understand how a currency creating government finances itself. She believes that government expenditure is limited by its tax revenue and what it can get the private sector to lend it. This leads her to refuse to commit to ending the limitations on child benefits.

      A left wing party that does not understand how a currency creating government finances itself, severely limits its ability to act when in power.

    Cathy Winch begins her response to Chris Williamson by saying ‘MMT describes the bare bones of an economy, as such it is not Socialist.’
    She continues: ‘Putting MMT into practice is Socialism.’
    She then says that we can’t do that because the US, Australia and Canada won’t allow it.
    She is informing the Workers Party of Britain, a Socialist party, that they can’t have Socialism because the US, Australia and Canada won’t allow it.
    But actually she is wrong to say that ‘putting MMT into practice is Socialism.’ The Bank of Japan could be said to be putting MMT into practice when it refuses to raise interest rates as a weapon against inflation, but Japan is far from being Socialist and is probably the leading ally of the US in the Asian Pacific.
    MMT, as Bill Mitchell keeps having to point out, is just a lens through which the economy can be understood. It is in fact the necessary lens through which the economy can be understood. To understand MMT is to understand the economy. To fail to understand MMT is to fail to understand the economy. But you could be a Neo-Liberal and understand MMT and through it the economy. What you couldn’t do is pretend that Neo-Liberalism is an economic necessity. You would have to argue for it as a political choice.
    Back in the 1920s it was understood that currency didn’t have to be tied to gold, that this was a political choice. The US President Herbert Hoover said that we need gold because we can’t trust governments. The gold standard was a restriction governments placed on themselves voluntarily because their unlimited spending power was seen to be dangerous. And maybe it was. Apart from providing an opportunity for unlimited corruption, unlimited palatial houses, fancy yachts, not to mention inflation, it enabled them to pay for wars and armaments. It is interesting to note that the most rigorous small government economic theorists – the Ludwig von Mises Institute – founded the website, and two of the most consistent opponents of military adventures overseas in US politics are the small government libertarians Ron and his son (named for Ron’s admiration of Ayn Rand) Rand Paul.
    The disciples of Ludwig von Mises (or Friedrich von Hayek, or Milton Friedman) will argue their case based on certain supposedly scientific principles enunciated in the nineteenth century and broadly accepted by, among others, Karl Marx. If the truths enunciated by MMT were more widely known (Cathy Winch has not denied that they are true) they would have to argue their case on the basis of political preference.
    As would those of us who believe in government spending as a means to further public welfare.
    Cathy Winch continues: ‘The MMT analysis of tax misses out the social cohesion aspect.’ It’s rather an odd thing to say in reply to Chris Williamson who has said: ‘Tax is a reflection of society’s values and is the primary mechanism that governments have for reinforcing those values.’
    But she continues: ‘People feel they have paid for the infrastructure of the country, its health and education etc. Nobody wants to destroy that feeling.’
    What MMT says is that government spending on health, education etc is independent of tax returns. The money raised by taxes doesn’t pay for anything. It goes in the bin. But MMT also says (and Chris Williamson has said it) that the competition between enhanced government spending and non-government spending is likely to be inflationary. Therefore tax (reduction in non-government spending) is necessary. The government doesn’t spend the money it raises in tax but tax is necessary to enable government spending.
    Cathy Winch doesn’t dispute the truth of the MMT argument. She just argues that belief in something that isn’t true is necessary to maintain a ‘feeling’ that nobody wants to destroy. But the basic contention that people need to make a sacrifice (tax) in order to allow the government to spend (infrastructure, health, education etc) remains in the MMT understanding intact. So where’s the problem?
    Cathy Winch seems to be teetering on the brink of saying something consistent with an understanding of MMT, which is to say of ‘the bare bones of an economy’, when she says that ‘government spending is not determined by financial considerations [ie in terms used by MMT, government is not finance constrained – PB] it is determined politically’. She uses this to argue that direct government spending is better than handing pubic services over to the private sector. We’ll all agree with that. But why did the Blair/Brown government hand so many public services over to the private sector or to pubic/private schemes of one sort or another? Because Brown was following his ‘golden rule’, evoking ‘prudence’ etc. He was arguing that government, constrained to balance its budget, needed to draw in private capital. Brown’s ‘golden rule’ was the same as McDonnell’s ‘fiscal credibility rule’ (defended in Cathy Winch’s last paragraph) and Rishi Sunak and Rachel Reeves would not disagree. It’s a logic that is inescapable so long as we remain within the bounds imposed by the ‘household budget analogy.’ MMT enables us to go outside those bounds. To borrow an old slogan from Christianity: ‘The truth will set you free.’

  3. Reply to Peter Brooke

    We agree that the amount of government spending is determined politically, not because of financial constraints. It was a choice to impose austerity after the 2008 bailout of the banks for example, not a financial necessity as was claimed at the time.

    I would like to make just one point, as things are complicated enough as they are.

    The truth of MMT was exposed to the public twice: in 2008, the bailout of the banks, and in 2020, furlough payments. Both instances showed that the state can spend extra without raising extra tax. That is not controversial. The Bank of England agrees. The Bank of England in a book called “Can’t we just print more money?” answers “Yes, we can, but there are limits.” (It doesn’t tell you what the limits are).

    How is MMT possible? Because Britain is a rich country with an internationally accepted currency which it can create when it needs it.

    Now the public wants to know: what are the limits to this money creation? This is what we all want to know, what are the limits?

    This is where it becomes interesting, and it can’t be answered in the abstract, as MMT does when it says ‘the limits are the resources available to put into the economy’. The example given was that Sunak had the money but could not get Protective Personal Equipment for medical staff because not enough had been manufactured.

    But we need to be much more precise than that. What are Britain’s resources? It has divested itself of its industry, and now depends on services, especially financial services. That must make a difference to the freedom of action Britain has. Britain is not financially constrained on one level, but on the level of reality it must be.
    It’s not just the resources, it’s also the international network of finance that Britain is part of and can’t just pull out of.

    MMT pushes against an open door (money creation) but falls down on the detail (what are the limits).

  4. The economic arguments are worth having but there is a political argument to suggest that there should be no hurry to adopt MMT under present conditions. It is an abstract and contested economic theory that will not be easily understood and it challenges the more easily understood and politically motivating labour theory of value. There are also tough prior conditions for the implementation of MMT (something similar applies to Universal Basic Income and similar policies).

    The first is the detachment of the national economy from the international capitalist system without destroying an economic system that has developed into a global trading economy over some 500 years – in other words the socialisation of an existing trading economy is prior to any attempts at radical innovation that would cause massive disruption and be certain to fail under democratic conditions. I assume no one is advocating a suspension of democracy.

    The second is to understand how inflationary and bureaucratic effects resulting from a ‘closed economy’ approach necessary for an early adoption of MMT would harm working people long before they harmed the middle and upper middle classes let alone billionaires. In the real world, the propertied would have ample warning of the arrival of the WPB as socialist force in society. It is not likely that the WPB would achieve an early majority of legislators but it could develop a significant and growing representation and then be a broker in a coalition before earning the right to run the country.

    In that real world, there would be a dangerous gap between actual power and the potential for power. During that period, capital would rapidly scuttle the country to hedge its bets. We all saw how this broke the political spine of the Truss Administration (a Tory!) in a matter of days. What is needed instead is a powerful statement of intent regarding the value of socialism to the voters and a strategy of implementation that takes account of reality. This reality (already noted above) is that the United Kingdom is deeply embedded in a globalised capitalist system that has had at least forty years to get a near-stranglehold over the population. Any attempt to buck that system in one revolutionary act (short of total social breakdown) is doomed to failure because the consequences of doing so would have results that would alienate the very working people whose lives we wish to transform.

    Having said that, there are great merits to this debate. There are ideas here that can be used as a ‘gateway’ to a more radical economics when trust has been built in the socialist model which, it would appear, is now only credibly represented by the WPB (a credibility that should not be sacrificed on a theory) given the utter moral decay of the Labour Party. The key idea is to end ‘welfare for corporations’ which could be both popular and an aid to significant levels of redistribution towards social and economic infrastructures that are badly needed in our collapsing country. We can argue more positively for direct state investment on our terms and not on market terms as a re-nationalisation of failing assets and for the ending and reversal of PFI operations that solve short term political problems at the expense of future generations. And, above all, we can argue for investment in housing and other social infrastructures and concentrate on ‘selling’ this through an abandonment not only of welfare for corporations but also support for our military-industrial complex and expensive overseas non-development commitments.

    There is an economic debate to be had that includes consideration of new economic thinking but the Corbyn team were not stupid in rejecting MMT for all the basic reasons outlined above – real world financial constraints and real world socio-political resistance. There is really no point in the WPB becoming a representative of relatively fringe economic theory when our target should be the long haul to power by replacing the Labour Party rather than challenging it as not radical enough in one contested area and being consigned to the fringes ourselves. Let the debate continue …

  5. The aim of any monetary reform policy must be first of all to create the conditions whereby the general public can be informed and educated as to the fraudulent and corrupt nature of the international banking system, and secondly to replace the fraudulent and usurious mechanisms of banking, whether it be the Bank of England or commercial high street banks.

    The fraudulent nature of banking is essentially this:

    1) banks issue newly created money into circulation as interest bearing debts.

    2) newly created money doesn’t usually relate to anything but is magically conjoured up literally out of nothing and becomes a fraudulent debt burden upon society.

    The best book I’ve ever read on this subject is available here. It’s concise and essential reading for anyone interested in the subject of money and banking.

  6. And the nature and role of money must be clearly understood: that it’s merely a simple token of exchange and has no intrinsic value in itself. It is something sterile. It does not reproduce itself or enlarge itself by the fact of it’s being or it’s use.

    And so a precise understanding of what usury is, its condemnation, and its outlawing must also become an essential part of any radical and just reform of the financial system.

  7. The insight of MMT is not controversial, it’s a statement of fact:
    A sovereign state that is responsible for its own currency cannot run out of its own currency.
    Therefore, it does not need to borrow in order to finance expenditure.

    How to make good political use of these insights is the big challenge for us.

    For socialists, the task is to use the MMT insight without getting bogged down in theoretical debates and instead focusing on the practical benefits of not worrying about ‘where will the money come from’. Michael Lerner has explained in Labour Affairs how this can be put in a way that resonates with the public.


    and here

    and here

    WPB can dismiss Labour’s iron clad fiscal rules. We do not need to obsess about 3% of GDP deficit rule.
    We can argue that the deficit does not need to be worried about so long as funding is for investment.
    The best way to rally the public is first to fund activities that both have a tangible effect and create real assets for the British people (eg revival of our bus network with affordable fares).
    When confidence has been gained we can be bolder after a few ‘quick wins’.
    We explain that the task of a socialist government is to create assets that benefit working people and attract public and private investment. Companies will want to invest in a region if there are good skills, good transport links, good housing and good amenities.
    We explain that one of the purposes of taxation is to damp down demand in one sector of the economy and stimulate it in another, eg a move from non productive to productive investment.
    We denounce public private initiatives and whatever schemes Labour is cooking up as scams which are in fact ‘socialism for capitalists’ rather than for working people. These schemes also stoke up future debt which Labour is supposed to be worried about.

    A note of caution:
    We need to explain the use of taxation as a means of transferring resources (both human and material) from one sector of the economy to another, as directed by the state. But it usually involves private companies being supported in one sector of the economy rather than another, rather than the state ‘crowding out’ private enterprise.

    So if retail activities are taxed this is not to directly pay for, say, HS2, but to free up resources for building HS2 including recruiting and training workers. The actual construction is undertaken by (properly regulated) construction companies.
    State financed investment involves excellent opportunities to mandate worker participation, better regulation and enhanced training in private companies that take up government contracts.

  8. what makes a worker a worker?

    The economic basis of civilisation as it currently stands in Britain is what we term capitalism. This system has come to dominate the globe in the last three centuries, having superseded the previous economic mode of feudalism that came before it, the epoch of the peasant and the lord, and before that the slave and the slave master.

    Just as slave society had the slave master and feudalism had the lord, capitalism has the capitalist, the exploiter. The capitalist may be a factory owner, a shareholder or an investment banker, but regardless of the niche they hold economically they exist as a parasite. Their exuberant wealth and privilege rest on a single exchange that characterises the existence of the vast majority of human beings today: the extraction of surplus value.

    This process is facilitated by a handful of means. The first is that the capitalist owns the means by which all things are produced, be it a mine and the equipment required, agriculture and means to plough and harvest or even the call centre or the coffee shop chain – the capitalist owns all of the means of production. But unlike the slave master the capitalist does not own the slave – instead the economic system compels the worker to sell their labour power to survive, to house themselves, to feed themselves, to clothe themselves etc.

    As such, money therefore exists as a representation of labour value, for all things are made by labour. The capitalist must pay the worker enough to buy their necessities of existence so that they may continue to work, and those necessities are of course also in turn made by workers. So money is but the token of time labouring.

    Very well, one might say, such is life. But we must take into account that the capitalist does not pay us to work, and we must work to survive, out of the kindness of their heart. The capitalist extracts surplus value.

    Surplus value is the wealth created, the money generated, that is unpaid to the worker. A worker may be paid £100 a day, but may generate £200 a day, for example. In essence this means the worker has been paid half a days wealth for a full days work. The capitalist of course may pay rent, and upkeep and other costs. But even suppose £50 of the £100 extracted is lost to overheads (rent, upkeep etc.), if the capitalist employs one hundred workers at this rate they make £5,000 a day. By these numbers we can more easily understand how billionaires who employ thousands if not hundreds of thousands can attain their staggering heights. As such surplus value can be understood to be profit. This is the simple, if glib, basis for the exploitation of the working class. In this vein the state of the vast majority of people, who are exploited, can be termed as wage slaves.

    This basis of the exploitation of labour plays host to numerous posited solutions, some state universal basic income is a solution, others hold modern monetary theory can halt all ills and other theories such as Keynesianism were the foundation for the Labour party’s thoroughly discredited track record.

    But, if we are to accept the above formulation of the exploitation of the working class, on the basis of the extraction of surplus value. And further still, the inner basis that all wealth is generated by the labour of humankind. Then we must posit that the principle we must endeavour for is the right to work in the first instance, and secondly, the right to the full wealth of ones labour.

    The former can theoretically be attained under capitalism, the latter cannot, as the latter implicitly accepts that in order for workers to not be exploited there must be no exploiter – this is the keystone of socialism. As for the former, the right to meaningful work is the right to a purpose. Civilisation, let alone humanity as a species, could not be attained or maintained without labour. Percy Bysshe Shelley said of labour in his notes to Queen Mab:

    “There is no real wealth but the labour of man. Were the mountains of gold and the valleys of silver, the world would not be one grain of corn the richer; no one comfort would be added to the human race.”

    To abandon the right of the worker to labour is to abandon entirely the field of battle of the working class against those who seize the wealth of their labour.

    The right to work, to labour, in order to generate wealth and be paid is self evident in this context. But further to this are several other important factors. Chief amongst these is the social nature of labour. Few if any jobs exist in isolation – lighthouse keepers on isolated isles hardly abound – the mode of production therefore is social in spite of the means of production being privately owned. This highlights the social nature of the working class, and the contradiction between labour and capital. Workers do all, produce all, make all collectively and yet do not own the means by which they do this, despite having made and created the means of production themselves! Yet it is the very basis by which workers have organised for centuries.

    The trade union is the means by which workers have organised since the 1800’s in order to improve their lot with respect to their conditions under capitalism. The trade union movement in organising workers in the workplace to improve their lot is the nucleus of working class organisation.

    The trade union and the field of battle for better pay and workplace conditions, however, are limited in scope. In the first instance it is usually limited to bartering with single capitalists or single corporations. Secondly, the limits of struggling for better pay and conditions are a transitory; back and forth tug of war against the capitalists.

    Workers must be brought into the political struggle for political demands. The political struggle can be of course waged locally, but when sufficiently developed struggle can place forth, fight for and win demands of the working class on the national level against the capitalist ruling class. Whilst these too can be transitory in nature they are far more useful in their breadth as well as depth. The workplace may win a pay raise for a hundred workers, the right to work may set to work a million unemployed workers and set a precedent that no able bodied worker should suffer the indignity of idleness and destitution.

    A politicised class-conscious working class is one that understands better the interrelations of the economic base (capitalism) of society, and the political superstructure (government, education, media etc.) that maintain it. In simple terms, we workers must understand the game of the capitalist class in orderto beat it.

    The well meaning but misguided advocates of universal basic income however would have workers under the reign of capitalism idle, disorganised and in a dire situation that if they step a foot out of line the taps could be turned off. UBI would gut the British working class of able-bodied workers and throw the unemployed into the scrap heap of penury – enough to survive, enough to entertain and buy cheap trinkets. They would debase the human condition to bread and circuses. What must be understood here is that a mass of unemployed, the reserve army of labour exist precisely to drive wages down. The threat of unemployment and paltry relief acts as a looming threat to the working class to accept worse wages and worse conditions, as it is a better lot than being on unemployment benefits. UBI would not change or relieve that dynamic; it soon would merely become the colloquial term for the dole.

    Modern monetary theory by contrast proposes different approaches to economic management, primarily in addressing capitalist state management of the economy. In broad strokes it is modified Keynesianism and therefore is a capitalist critique of austerity. Within this lies the primary issue, the understanding of what money is.

    We have conceived already that money is representative of labour power, but we must elaborate. As already stated, a worker must feed, clothe and house themselves with all the necessities of life – these themselves are produced by workers and must be obtained with a charge. A quantity of labour is spent in producing these necessities and therefore determines their value, and as such the necessities required of a worker determine the value of the labour power of a worker.

    Money therefore is an embodiment of value, and that value is labour power, so as such, money is representative, abstractly, of labour.

    In contrast, the advocates of modern monetary theory advocate money is debt:

    “What is money? All money exists as an IOU. It’s a debt. When we say, ‘I owe you,’ we mean two people are involved in every monetary relationship. The ‘I’ is the debtor. The ‘U’ is the creditor.” – Stephanie Kelton a professor of economics and MMT advocate

    “Well, all money is debt.” Michael Hudson a professor of economics and MMT advocate

    This is misleading explanation of what money is and ignores the fundamental fact that money is a universal equivalent and embodiment of value and therefore signifies labour. This explanation therefore bypasses the class nature of economics, it ignores the very basis of labour and exploitation.

    Stephanie Kelton goes further:

    “The money of account is something abstract, like a metre, a kilogram, a hectare. It’s not something you can touch or feel. It’s representational, something only a human could imagine.”

    There are three problems here. Indeed, money is an abstract insomuch as it is a measurement of abstract labour. Secondly, measurement is representational of real material things, we may use a kilogram metal weight to weigh a kilogram of flour and it is thus scientifically quantifiable and therefore can be replicated. Thirdly, accepting money is an embodiment of value of socially necessary labour time, a universal equivalent of measurement and thus exchange is necessary – in shopping for groceries it is not stated the price of potatoes contain one hour of labour! Actually, we say they cost £2, and a large part of the price is determined by the labour that is necessary to produce the commodity.

    Modern monetary theory, however, or at least some of its proponents like Michael Hudson do make many valid critiques of current finance capitalism. For example:

    “So the new form of imperialism is essentially monetary and financial in character. It works via the American control of the International Monetary Fund and the World Bank, which oblige other countries to focus their economies on helping the United States balance of payments, financing the US. military spending abroad, financing American takeovers, and being willing to balance their foreign exchange by privatizing and selling off their public infrastructure to American and foreign investors.”

    But good analysis is not the same as good solutions. You cannot analyse a thing out of existence. The proponents of modern monetary theory advocate a revitalised form of social democracy, essentially running capitalism with the carrot rather than the stick. They advocate full employment, public healthcare and education but in doing so, as shown with their understanding of money, ignore the fundamental class nature of society. Therefore they advocate a better run form capitalism that turns away from austerity towards public spending.

    This leaves us with two final comments.

    The right to work can and must be differentiated from a capitalist policy of full employment. The right to work is a reform that must be fought for by the working class itself, the working class in organising for said reform will grow and organise from strength to strength. A working class that has grown from strength to strength to win this right is a working class that can hold on to that right. We well know that the capitalists will rescind all rights when they have the power to do so. No progressive policies are gifted, they are won, and they are transitory with respect to the relative waxing and waning power of the working class and the capitalist ruling class.

    Lastly, the right to the full wealth of our labour is not accommodated by UBI, MMT or Labour party social democracy. These theories do not advocate socialism; they advocate a fleeting kinder capitalism. Socialism cannot and must not be understood to be a morally kinder capitalism, it must be understood to be the economic realisation of the end of exploitation of the working class by the capitalist class, and therefore, it is the capitalist class removed from economic ownership of the means of production.

    Edward Renyard

  9. MMT
    As a member of the monetary reform movement for the best part of two decades I absolutely welcome your paper on MMT. Since the power of banks to create money out of debt sits right at the apex of the transnational power pyramid this is the most important policy any party could possibly embrace. It is a key which unlocks many doors.
    As you know almost all modern states subcontract the creation of money to the transnational cartel of private banks. Many in the monetary reform movement, and this even before the 2008 financial crisis, calculated the lien on private money creation in this country, basically the cost to the taxpayer at around £80 billion per annum.
    Monetary reformists in this country used to have a forum called the Bromsgrove Group which used to meet annually near that name. Its attendees came from a wide spectrum of politics and activities and included many eminent reformist from other countries especially North America.
    In 2011 I presented a paper to the session which I reproduce below (the figures relate to the situation at that time). It is diagrametic in style and explains how over a period of years capital investment in the public sector can be used as a vehicle to progressively replace broad money by narrow money whilst minimising any risk of economic shocks. And all this at virtually no cost to the taxpayer. All capital spending would thus be progressively lifted from the taxpayer leaving only current spending to be covered by taxation. Clearly there would be scope for significant increases in that capital budget.
    At the time the paper attracted some interest from the likes of Ellen Brown, Bill Still and Ben Dyson (later of Positive Money) but no-one picked it up and ran with it.
    I recall discussing monetary reform with George Galloway many times when he was on Talk Sport many years ago. Indeed he started calling me his ‘shadow chancellor’. Perhaps you could remember me to him.



    The money supply is like a bath with two taps. The first tap, M0, or ‘narrow money’ is created interest and debt-free by the government. The second tap, ‘broad money’ or M4 is created by private banks out of interest-bearing debt.

    After World War II,, 47% of our money was ‘narrow money’. Before the present crisis this had fallen to 3%. Therefore 97% of our money is interest-bearing debt created by private banks. Since debt accumulates exponentially within the economy, it is little wonder that we now face a massive debt crisis affecting all sectors of the economy … public, private and corporate.

    This crisis cannot be resolved until we create our money debt free. This paper proposes a new mechanism for achieving that through public capital investment.

    Instead of borrowing money for its capital investment on the money markets, public investment capital would be created in the form of debt and interest free credits by the Bank of England, using a form of ‘quantitative easing’.

    The problem with the policy of quantitative easing is that it has been used to buy bad debt from financial institutions, rather than to invest in the real economy. In contrast the Chinese, who in any event were already financing a large part of their public infrastructure through narrow money and ‘soft loans’, have using quantitative easing to directly stimulate their domestic economy.


    Each year the government capital budget would be financed, interest and debt free from the Bank of England.

    A proportion of this money would return to the government through user charges in the case of public services such as health and education, and in income from such income-yielding projects as social housing, student loans and public transport. This would enable such a return to be re-invested, creating a year-on-year accumulation which would progressively increase the return thus progressively reducing the net requirement for new money. This process would continue over a period of years until a point of balance is reached where a given level of investment can be achieved without the need for further new money, whilst at the same time create an entirely interest free money supply. At that stage the carousel will be complete and what is effectively a perpetual motion mechanism for government capital investment would be achieved.


    The simplified diagram below shows how the Carousel would operate an issue of £80 billion of interest free money per annum at a return of 10% over 10 years. Figures are given in £Bn.

    Year Cumulative Investment Annual Return Net New Money Required Cumulative Money Issue
    1 80 8 72 72
    2 160 16 64 136
    3 240 24 56 192
    4 320 32 48 240
    5 400 40 40 280
    6 480 48 32 312
    7 560 56 24 336
    8 640 64 16 352
    9 720 72 8 360
    10 800 80 nil 360

    • Effectively the taxpayer would be getting an annual capital investment of £80Bn at a cost of only £8Bn.

    • The net cumulative money issue is equivalent to the interest-free money supply created. During the 1930’s, Irving Fisher, whilst working for the Chicago school, calculated the optimum interest-free money supply to be around one third of GDP. Our current GDP is around £1,300Bn, so the figure of £360BN still gives some leeway for further investment.

    • Around £40Bn could be removed from the public deficit at a stroke.

    • The economic stimulus, and consequent increase in tax revenues and reduction in benefit payments, from raising public investment in housing, transport, public services, coastal defences etc. by 50% would rapidly reduce the remaining deficit..

    • PFI, with all its attendant long-term debt problems, would be eliminated.

    • Such a policy could easily be devolved through a local and municipal financial network.


    As a postscript such ideas have been around for a very long time. The notion that money is the product of law and not of nature dates back to Aristotle. That money creation is the prerogative of government can be found in article 5 of the Charter of Liberties of 1101. We might perhaps refer to Benjamin Franklin’s defence of colonial scrip currencies before the House of Commons committee in 1783 and fast forward to the Bradbury issue of 1914.
    At that time there was some work being done on monetary reform at Southampton University. Simon Mouatt of that department was a regular attendee. I don’t know, however, whether that is still the case.
    By all means use this paper but an acknowledgement would be appreciated. Feel free to contact.

    Frank Taylor,
    Chetton, Shropshire

  10. Modern Monetary Theory Discussion

    The best definition I’ve heard of money was from a very old British CP publication written by Emile Burns:

    “Money is the general title to the ownership of goods.”

    It contrasts with a title deed of, say, a house which confers ownership on a specific commodity.

    Money can be thought of as a legal document giving the owner the right to buy a given amount of commodities. This is true regardless of whether the money is in paper, metal or electronic form.

    Since money has no intrinsic value (it only confers a right to purchase), money printed by the State to finance State expenditure is in effect reducing the purchasing power or value of a unit of money (or it takes more units of money to purchase a given volume of goods). If there is no change in the overall volume of goods as a result of an increase in the supply of money it follows that the value of each unit of money diminishes. This is simple mathematics.


    PV = M (Note 1)

    Where P = Price; V = Volume; and M = Money supply, then the price level is:

    P = M/V

    However, if M is increased by 10% then the formula is:

    P = 1.1M/V

    So, the price level has increased (i.e. inflation) by 10%, the same level as the increased money supply.

    MMT advocates will no doubt say that the volume will increase as a result of the stimulus brought about by Government expenditure. Well, how do they know?

    My understanding is that the UK is at close to full employment. If government spends money it must take labour from the private sector. So, an increase in production from the public sector will be counteracted by a diminution of production in the private sector. If the increase in public sector production is equal to the reduction in private sector production inflation will be 10%. However, if the increase in public sector production is less than the reduction in private sector production then inflation will be greater than 10%.

    Another factor is the economic condition of Britain. MMT advocates say public debt doesn’t matter. They’re not wrong as long as there is a private surplus. Japan has a larger public debt than Britain, but also, unlike Britain has a massive private surplus.

    Britain, on the other hand also has a large private debt. It has one of the largest balance of payments deficits on its current account in the world (second only to the US). In simple terms the UK is dependent on borrowing from abroad in a way that Japan is not.

    If foreign creditors see the British government printing money they will be concerned about the value of their loans. At best they will insist on a premium on the interest that they charge. At worst they will withdraw credit facilities altogether.

    In my view MMT is a distraction from the real problems of Britain which are a declining manufacturing sector and low labour productivity because of a bloated service sector.

    It is perfectly possible for socialist objectives to be achieved without compromising the value of sterling. What’s wrong with “tax and spend”?

    Note 1: The formula is slightly simplistic. It doesn’t take account of the velocity of circulation. But incorporating this in the formula will not change the result in terms of the increase in prices.

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