Debate on “Modern Monetary Theory” Misses the Mark

Artificial wealth comprises the things which of themselves satisfy no natural need, for example money, which is a human contrivance.

~  St. Thomas Aquinas

Buzzwords seem to rule public discussion of just about everything. Money is no exception. Now it’s “Modern Monetary Theory.” What’s that? Well, it depends on who you ask. In modern times, debates usually center on public debt and the government’s fiscal and monetary policies.

An article in Boomberg News argued that the supporters of The Green New Deal favor Modern Monetary Theory (MMT). Critics argue that the costs of universal health care, publicly funded higher education, infrastructure buildout, and conversion to 100% renewable energy production would require unsustainable public debt. MMT supposedly sets no limits on public debt. That is apparently not quite true, but within the U.S. monetary system and corporate political squeeze on public spending, the costs of the Green New Deal, if financed by public debt, would be quite high.

Of course, if we calculate the infrastructure damage of climate chaos even if we met the limits of the Paris Accords – never mind the costs in terms of human lives – the comparative costs of implementing the Green New Deal would be trivial. In that sense, costs are relative. The underlying question is: What does society want to achieve and is it willing to pay for achieving it?

The Debt Illusion

Money is a social construction. It exists by social convention, by consensual definition. Throughout history, money has taken diverse forms, as long as the forms taken could provide the security needed for money to be money. That is why gold worked so well as currency until the global economy grew so large that the supply of gold could not keep up with the need for more currency.

Scholars have written some very large books on the nature of money and debt. How money evolved is quite fascinating. David Graeber’s book, Debt: the First 5000 Years, is quite enlightening, particularly regarding the diverse forms money has taken in history.

Public debt is not necessary; instead, it is a convention devised by bankers to control the economy of nation states. In that, the banks have succeeded.

If a sovereign nation controlled its central bank, it would not need to borrow the currency it issues since it is the sole source of authority to create money. The creation of the U.S. Federal Reserve as a banking cartel in 1913 made that impossible.

The expanding Roman Empire paid its soldiers using gold and silver coins it minted from metals mined mostly in Spain and Portugal. It did not borrow its money from anyone. Among the many causes of the fall of the Empire, was the fact that when the mines played out, the Empire could no longer satisfy its need for more coins to pay an expanding army. The operations of the Empire were stifled because it could not pay its soldiers.

Money need not be based on public debt, but in the industrial economies of the modern era, it is. That political choice enriches the banks and the corporations they fund, and it impoverishes nations. Neither supporters nor critics of Modern Monetary Theory seem to get this.

Implementing a national project or sustaining an institution is not a matter of how much debt we can tolerate. Rather, it is a matter of political will. The lavish support for the military that sustains the global modern industrial-consumer economy demonstrates that.

Fearful Fantasies and Fiat Money

To work effectively, money has to be made of a material and in a form that has some unique irreplaceable quality that makes it impossible to replicate by just anybody. That is why rare metals worked so well until economies grew so large in the modern era that the money supply could not expand enough using gold and silver.

When paper money replaced gold, the idea of “fiat money” implied that paper money was not really “real money” like gold. Nevertheless, it worked because it is hard to counterfeit, making it unreproducible by anyone other than the sovereign (for the most part).

Unnecessary debt combined with the failure to tax corporate profits creates annual deficits, which add to the national debt. The central bank creates fiat money through the sleight of hand of issuing government debt in the form of bonds as the basis of “loaning” money created out of nothing, to the government. If the sovereign issued money without the mechanism of “borrowing” from the central bank (in the U.S., the Federal Reserve) it would not create debt by issuing money.

It’s crazy. But the banks that in practical terms own the Federal Reserve love it.

If a sovereign issued money solely on the basis of needing to fund worthy projects, to hire the workers and buy the materials to complete the projects, the money would, as a result, circulate among the population of the nation, providing the ‘buying power’ needed to generate the goods and services people need.

National debt is unnecessary. In stark contrast, something very much like the Green New Deal is as necessary as anything can be. It is a matter of survival.

Public Renaissance: What Ebola, Ferguson, and Finance Can Tell Us

Public concern over the possible spread of the Ebola virus epidemic from West Africa to the U.S. is growing. While the Centers for Disease Control (CDC) is taking various precautions, the situation is nevertheless of sufficient complexity to warrant concern. The outrage over the police killing of unarmed black teenager Michael Brown continues as a grand jury takes its time mulling over evidence. The Wall Street pundits on CNBC and the corporate economists claim the economy is turning around, yet most people are having trouble feeling it. What do these seemingly disparate events have in common?

It’s really quite simple. Each of these situations represents a larger problem that pervades our society. Ever since the Reagan presidency, well, ever since the economic reforms following the Great Depression, the power elites have tried to wrest economic and political control from the citizenry. The push to privatize public functions has succeeded in reducing the public interest in social and economic conditions to an afterthought. Importantly, these are only three examples among many. The corporate controlled political culture has carefully failed to recognize the public interest as a legitimate concern for citizens. Meanwhile, the cult of “free market” extractive economics has raised the specter of private greed to a nearly religious status.

Privatizing Public Health
The interest in public health as a concern for the entire society is almost universally recognized bymost nations, even those unable to provide adequate health resources. Universal healthcare is found in nearly every ‘advanced’ industrial nation, except in the U.S.A. With far lower costs, Europeans produce far better health outcomes for their citizens than we do and nobody is excluded. On many indicators of health and well being, we are down toward the bottom of the rankings. Further, in the interest of privatizing every public function imaginable, our politicians have been cutting budgets for the CDC and other public health institutions. But wait, there’s more.

Since the entire U.S. medical sector is organized around private profit for doctors, hospitals, insurance companies, and the pharmaceutical industry, only drugs deemed able to garner very high prices are developed. Flu vaccines are widely available in the U.S., since they are promoted by every medical institution and drugstore in the nation, subsidized by the federal government and profitable for Big Pharma. Ebola has been around for years. Some effort was made to develop a vaccine, but it was abandoned; little profit was projected. Public policy has not been driven by the public interest.

Jim Crow Law Enforcement
Ferguson is a symptom of a national failure to shape law enforcement policy in the public interest. Similar situations abound nationwide. Several trends converge to implement a destructive pattern resulting in what is best described as Incarceration Nation. The New Jim Crow, as aptly described by Michele Alexander, has created a caste of economically exiled men of color. The so-called war on drugs has been a war on young people of color prosecuted by increasingly militarized police targeting vulnerable neighborhoods.

Police no longer serve the public interest; they serve their interests in gaining funding and military equipment useful only for controlling an enemy population. The citizen is the new enemy and the police are the occupying force, as SWAT teams even serve minor warrants by heavily armed home invasion – innocents die. The bifurcation of police and public is palpable. Only a massive reorganization of police from top administration to recruitment, education, training and strict accountability of officers can come to serve the public good.

The Banksters and the Booty
The history of money is a mystery to most Americans. So is its current incarnation. But the essence of money is its function as a public medium of exchange. In societies where money is/was issued by the government to facilitate exchange of goods and services, economies have operated with stable prices and little taxation. Where money creation has been handed over to privately held central banks, governments have gone deeper into debt and taxes have grown to pay this arbitrary public debt.

The Federal Reserve Act of 1913 put the U.S. on the path of a debt-based money system. Instead of issuing money for public purposes, the government still borrows money from the central bank it authorized to issue money. There are many other absurdities in the U.S. debt-driven economy, but the basic problem is the same. A fundamental public function – issuing and managing the money supply for the nation – was given to a privately held central bank, which extracts booty in the form of interest and fees for the money it is allowed to create from nothing in its electronic accounts. Only public banks will manage money to serve the public interest.

Public Institutions for the Public Interest
Health, law enforcement, and the economic policies, among others, are three core elements of society that are inherently public functions. Their ‘privatization’ incurs extra costs and destabilizes the economy. In each of these areas, and others, we need public control over decisions in order to serve the public good. Until these important functions are returned to the people and their government, the plundering of the commons will continue.