On this episode of Wine, Women, and Revolution (The Socialist Podcast) Heather is joined by Professor Mike Merrill for a conversation about capitalism the often-controversial modern monetary theory. Your host, Heather is a supporter of striving for a cashless economy. She presents this topic to expand how we think about money and economies. Could Modern Monetary Theory be a step toward a socialist Utopia? Maybe. Check your feelings about MMT at the door and listen to this discussion. It will challenge everything you think.
Mike is the director of the Rutgers L.E.A.R.N. program. LEARN is the extension division of the department of labor studies at Rutgers University. Rutgers has offered this program for 50 years with the goal of teaching how to better organize workplaces and the economy. The focus is not just labor history, but wider social justice impacts. Heather met Mike during the income inequality training. Listen to an in depth discussion of that here
The Early Economy
Professor Merrill has been studying the transition to capitalism for most of his academic career. When he began his career, the popular theory was “capitalism came in on the first ships” and there was no alternative. Capitalism is usually used to mean the market economy. That is not exactly the real definition though, it is a specific type of market economy. Specifically, it means one run entirely by the capitalist class. A market economy does not need to be run by capitalists, it can be run by workers, farmers, or anyone. The early American economy was not one dominated by the monied class but concerned itself more with everyday people.
Capitalism requires infinite growth which is impossible on a finite planet. When a market economy is dominated by capital, the principle goal is to maximize profits. This is a zero-sum game, and the question is how much share everyone gets. When workers have power to demand good salary, capitalists must fight back to maintain their power and wealth. There are 2 solutions to this conflict. The capitalists can agree to accept less, or they can continue to grow so there is more to spread. In a sense, they bought labor off to allow capitalists to get as filthy rich as they wanted, if there were enough scraps left over for everyone else. “Growth” is used as the solution to all social ills. The planet we live on is not infinite. It is extremely finite, and we have gone far beyond sustainability.
The current economy is organized like a game of musical chairs, but the elite have reserved seats. They sit comfortably and watch the rest of us scramble for an insufficient number of chairs. The are deliberately not enough seats. Economists say the healthy rate of unemployment is five percent. That is if things are running perfectly. That results in 1 out of every 20 people being without a job at any point int time. This strips the voice from workers who are always forced to compete for insufficient jobs. The dramatic power disparity results in 40% of American citizens who are unable to meet basic material needs.
Introducing Modern Monetary Theory
Modern Monetary Theory rejects the traditional theory of money completely. The traditional theory of money is that it is a market commodity like gold. This could also be known as the commodity theory of money. Even Marx feel victim to this theory. The paper money like we know today is a relative recent phenomenon. Successful paper money is only a couple hundred years old. Modern Monetary Theory tries to explain how paper money works, since in theory it shouldn’t.
2 Kinds of Money
With the introduction of deposit banking, banks gained the ability to create money. They can create “notes” that are a valid form of payment for debts. Banks are not the only institutions that can create money. In fact, banks aren’t even particularly good at creating money. Banks have a limited supply of credit and goodwill. This can lead to financial crisis. The alternative to private (bank) paper money is public paper money. In the early 20th century people began to realize that governments create money, not banks. Unless governments create the money, the monetary system is unstable. Look in your wallet and you can see that dollar bill is guaranteed by the faith and credit of the us government. It is legal tender.
Taxes Don’t Fund Spending!
This is where MMT really shows is value. It is a common mistake to believe we pay taxes, so the federal government has money to spend. The exact opposite is true. We pay taxes, so we have money. The government does not need to wait for tax dollars to roll in. When it has a need it writes a check. It prints the money. If there is a natural disaster or a war, the government does not need to wait for tax money to come in. It just writes the checks. This revolutionized the bank-based idea of money. Money is not in short supply. There is no need for austerity. In fact if you organize your money on shared prosperity instead of austerity, you have all the money you need. The only limits are you must create the money wisely. If you invest in making an economy based on services people want, the will pay taxes to support them. Hyperinflation is not a function of too much money but too little taxes.
Worker Power Comes First
This is not a magic spell. If we drop it into a capitalist system of power, it wont work. Worker wages and power must come first. Then we create a virtuous cycle. We can support higher taxes as long as wages rise more than the new taxes. If someone offered you 10 dollars but said you had to give 2 back. You would still be ahead 8 dollars. Not many would turn that down. Higher taxes don’t equal poverty. Unequal power equals poverty.
Job Blackmail and Wage Extortion
How would things change if you were guaranteed a job? You suddenly would have choice and power. We would not have to compete in that sadistic musical chairs game. The race to the lowest wages could halt. With MMT, the government can become the employer of last resort. This takes the power from capitalists and puts it in the hands of workers.