What puzzles me about Simon Wren-Lewis’s response to MMT is his claim that he finds nothing new or surprising in the theory. I think his claim can be understood in light of the fact that MMT is not a theory of economics. It is a bit of political economy, or, more generally, a bit of political philosophy.
When I read Warren Mosler’s Seven Deadly Innocent Frauds, I found it refreshingly plain and non-theoretical, but also very radical. I find it hard to imagine Wren-Lewis reading the book and finding nothing surprising or interesting in it. Maybe he hasn’t read it. But if he went to it looking for a proof that the consolidated budget equation is incorrect, or something else of obvious relevance to an economics professor, he was no doubt disappointed. But only because he was looking for the wrong thing. It would be like reading Joyce’s Ulysses and saying: “I don’t see how this book is innovative; it fails to refute Newton’s Laws.”
The most radical claim that Mosler makes is summed up in the quotation from Paul Davidson that opens his 1997-8 paper on full employment. The claim is that the state creates unemployment, and this is the only reason unemployment exists. I do not find this claim in the macroeconomic textbooks I have read, and if it is something that Wren-Lewis knew all along, I don’t see how he could have found it too unimportant to bother mentioning.
Imagine a society where there is no state. People use their own labour and available resources to produce what they need to survive. There can be fights over land, enslavement of the weak by the strong, and poverty and deprivation for those who are unable to procure what they need, or forcibly prevented from doing so. But there is no unemployment.
Unemployment is unsatisfied demand for work arising from a need for basic commodities. In the current monetary system, that almost always amounts to a demand for work that pays in state-issued currency, since that is what you need to earn in order to buy basic necessities (lack of currency is a barrier between you and what you need – see this post). In a society with no state, nobody has any demand for pieces of paper and metal with pictures of sovereigns on them, nor for bank accounts that represent debts denominated in those pieces of paper and metal. People will work in exchange for real goods, or even for privately-issued tokens that promise real goods, or because somebody is forcing them to do so. But they will not work in exchange for tokens issued by the state that are not redeemable for anything.
The state, Mosler explains, creates unemployment by imposing taxes. It threatens sanctions against those that do not hand over a certain number of its tokens. It forbids anyone else to create the tokens. Thus it can procure for itself however much labour and real capital it likes, by creating and paying the tokens, the demand for which it creates by force. It is true that those who give up labour and capital to earn the tokens are not always those who need them for tax payments. Once the tokens are needed for tax payments, non-state actors can also accumulate them and use them to purchase labour and capital. Those who do not directly need the tokens for tax payments will then find that they need them to procure food and other necessities, but only because the state has created a general demand for the tokens by coercing payments in them.
Those who say that “the state can print money but it can’t print wealth” have completely missed the point. Suppose the state prints a new sort of special token. It tells you that you must pay a tax in that token, or you go to prison for life. You don’t have the token and neither does anyone else besides the state that prints it. Then it offers to hire you to do twenty hours of labour to earn the token. I suspect you’ll take the deal. Has the state “printed wealth”? No. Has it procured your labour at no cost to itself? Absolutely. A gun doesn’t magic shoes into existence. But a robber can point a gun at you and take your shoes. Or, if he is a tricky robber, he can ‘buy’ your shoes with his own token that you only want because he tells you he’ll shoot you if you don’t pay it to him later. The token is merely ‘printed’. But the coercive apparatus that gives it value is very real.
So why does Wren-Lewis say that MMT doesn’t provide any insight that isn’t already contained in the consolidated budget constraint equation? MMT shows that the concept of a budget constraint is entirely unilluminating when applied to the state. The state’s real purchasing power is its coercive power, not the tokens that disguise the exercise of that power. When facing the tricky robber with the tokens, it would be very unhelpful to draw a budget equation telling us that his total spending power consists of the tokens he prints and then demands back or borrows back. Like a conjuror, the robber has got us looking at the wrong hand. The hand with the tokens is a distraction. Look at the hand with the gun. MMT is trying to remind us about the gun.
Getting distracted by the tokens leads us to forget many important things, for instance that there is only ever as much unemployment as the state wants there to be – for the details of why this is the case, read Mosler’s paper.
So is MMT, as Wren-Lewis claims, just standard macro with tedious accounting details attached? Well, find me a passage in macroeconomics textbook that says something like this:
The monetary economy is the mere byproduct of a system by which the state coerces labour. If the state forces only as many people to need paid work as it employs (or pays others to employ), then there is no unemployment. If it forces more people to need work than it employs (or pays others to employ) then there is unemployment. Therefore, if there is involuntary unemployment at all, it is only because the state has explicitly chosen to have it, quite pointlessly.
Then I’ll concede that the MMT insights are already well appreciated within standard macro.
Was this a new idea in 1998? Not completely, of course. Adam Smith makes mention of something like it in the Wealth of Nations (book 2, chapter 2), though he doesn’t develop the thought. It’s also a part of Marx’s story of primitive accumulation. Knapp’s State Theory of Money says something not quite the same: that the state can give a new sort of value to a preexisting currency by accepting it in tax payments (this, possibly, is also what Smith meant).
But the idea that the state currency is fundamentally a device for coercing labour is not clearly put forward in any of those sources. Mosler’s paper and book put it more plainly than anything else I’ve read. Macroeconomists do not mention it at all. It would appear to have some pretty important implications for political economy, and, again, for political philosophy more generally. Does Wren-Lewis really think it’s not even worth mentioning? Or has he, perhaps, missed the point?