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Interview Modern Monetary Theory: meet the economists fighting the economy

Morning Star editor Ben Chacko speaks to BILL MITCHELL about the new hypothesis disproving the core assumptions of neoliberalism

FOR Marxists, challenging ruling ideology has always been a central part of the struggle to liberate people from capitalism. Marx noted in The German Ideology that “the ideas of the ruling class are in every epoch the ruling ideas.”

The power a dominant narrative has is demonstrated by the course of British politics since the bankers’ crash of 2008. Quickly the Tories moved to assert that high levels of public debt were due to excessive public spending. We had to pay down the debt. The savage programme of cuts to public services and privatisation known as “austerity” followed.

Plenty of economists pointed out that the narrative was misleading. But it caught the popular imagination and played its role in the right-wing election victories of 2010 and 2015.

A feeble Labour mantra of cuts going “too far and too fast” made the fatal mistake of accepting the Tories’ premise and it wasn’t until Jeremy Corbyn came to lead Labour that the political fightback found a parliamentary voice.

That’s been accompanied by an intellectual fightback with a resurgence of socialist ideas. But key economic misconceptions based on swallowing a self-serving neoliberal approach to economics still dominate the public mind.

The Gower Initiative for Modern Monetary Studies is a non-profit organisation seeking to challenge that economic orthodoxy, and I met economist Bill Mitchell to find out what Modern Monetary Theory (MMT) was all about.

For Mitchell, misconceptions on how value is created are at the heart of misunderstandings that entrench capitalist economic values.

“The reason Marx is where I think you should start” (if you want a deeper understanding of economics) “is because he outlines the difference between the fundamental relations of capitalism and the superficial exchange relations,” he says.

“To understand value and profit you can’t just look at what happens at the exchange level. You need to dig deeper into the relationship between capital and labour, at how surplus value is created.

“So it might look as if we’re working eight hours a day and getting paid an hourly rate, but actually we’re only really working say three hours for ourselves and the other five we’re working for them, producing surplus value for the capitalist over and above the value of the work for which we’re paid.

“Under feudalism surplus value and subsistence value is spatially and temporally separated, the serf works on the lord’s land for a defined time and on their own plot as well. It’s transparent what labour is performed for yourself. Under capitalism, that’s completely blurred.”

So MMT accepts the labour theory of value?

“Nothing we have done in Modern Monetary Theory, a macro theory, is inconsistent with it. That’s not to say that MMT is Marxist or of Marxist origin: of the core developers most don’t come from Marx, I’m the only one who does, they mostly come out of Keynes. But MMT is not inconsistent with Marx.”

Neither Keynes nor Marx is in vogue with mainstream economists, however. Mitchell contends that “the dominant paradigm, still taught in economics courses,” is based on marginal productivity theory that claims different factors such as land, labour, capital, knowhow and more contribute marginally to profit and “the return is commensurate — labour puts in and gets a wage, capital puts in and gets a profit — that sounds fair.”

But a series of debates known as the Cambridge controversies proved that “it couldn’t be demonstrated mathematically or logically that profit was derived from marginal productive capital.”

The discussion is very technical to a layperson and what, I wonder, does it have to do with overthrowing capitalism?

“The whole body of distribution theory in orthodox economics, that justifies wage cuts to reduce unemployment and all that stuff, should have been scrapped. It’s wrong. But it’s still taught.

“That tells you how inconvenient information is filtered out of the narrative — because if they were to admit that surplus value is created and expropriated, that’s not a good look.

“You start with monetary ignorance actively promoted by the elites. Why?

“Because they have an agenda they know will be deeply unpopular — redistributing income from the rest of us to them. That’s what neoliberalism is about.

“To operationalise an unpopular set of policies they’ve got to have a smokescreen.

“In the book Reclaiming the State we talk about depoliticisation strategies. Governments that know policies will be unpopular push the blame onto external forces. They make local government carry out cuts and then say: “Oh, councils should manage their money better.’

“They make central banks ‘independent’ so they are not accountable and blame them.”

One of the most powerful depoliticisation machines in the modern world is the European Union.

“The European treaties are designed to take decision-making out of the democratic realm.

“It’s beyond my belief that any left-wing person could be a supporter of any association with the EU,” he argues.

“The anathema of any progressive left position is embodied in the legal architecture of the EU. It’s not a fleeting political preference that can go away, the neoliberalism is in the treaties, starting with the Single European Act then Maastricht, Lisbon.

“So what I call the Europhile left say all we need are a few reforms — that’s not going to cut it. It requires all 28 nations, hopefully 27 soon, to agree on any reform.

“I see people argue that Brexit is driven by the right. To me that just shows a lack of leadership by the left.”

The EU’s European Stability Mechanism is a classic example of the orthodox economic thinking Mitchell is so keen to dethrone, telling governments to rein in their spending and putting a cap on deficits. MMT argues there is no need for governments to do this.

“In the fictional world they’ve created and we’ve bought, government is somehow like a household which can’t spend too much or it’ll go broke.

“But a currency-issuing government cannot run out of money. It has no financial constraints other than those it creates itself. A currency-issuing government can buy whatever is for sale in its own currency, including all idle labour. So government really chooses the unemployment rate, not the market.

“That means fiscal policy needn’t be about achieving some number, like a 2 per cent deficit or a 1 per cent surplus. It’s there to do things we can’t.

“The government is our agent and as a currency-issuer has a tremendous capacity to advance our wellbeing — create full employment, proper healthcare, education and water and energy and transport and income protection for the disadvantaged or sick or old.”

Is he saying that a government can spend as much as it likes?

“No. Government can buy whatever is for sale in the currency it issues. Whatever is for sale. Neoliberalism is about financial constraints, we say that governments that issue currencies don’t have those, but is there a constraint, yes, because there is only a certain quantity of real resources that can be brought into productive use.

“If you spend at a faster rate than the productive economy can expand, then you’re spending too much and that leads to inflation.”

The government’s ability to purchase all idle labour is at the heart of the jobs guarantee, a key demand of the Gower Initiative which argues that parties should commit to full employment.

This is part of why Mitchell is opposed to one of the more fashionable ideas on the modern left, universal basic income, which shadow chancellor John McDonnell says will be trialled in certain areas if Labour wins power.

“As a rule of thumb, if the CEOs of some of the worst companies in the world start supporting something then I’m deeply suspicious,” he smiles.

“What UBI does is concede that the government cannot do anything about unemployment. But MMT says the government can employ all idle labour. That is doesn’t is a political choice.

“So UBI is acceding to the neoliberal story that unemployment is inevitable, so we make things a little bit better for the unemployed. It constructs people as consumption units, so we hand out a few pounds a week so they can keep consuming.

“That completely ignores the broader concert of things that emerge from paid work — the social benefits, we get our identity from work, our social networks stem from workplaces, we meet our partners and get a sense of self-esteem from work.”

A shift away from a neoliberal fixation with jobs providing profit would allow a more rational approach. In his 1980s book on walking Britain’s coast The Kingdom by the Sea, Paul Theroux notes the Thatcher government’s determination to close branch railway lines because they aren’t profitable — before observing “though neither are motorways.”

The fact that you pay for things because they are useful, rather than profitable, is the whole rationale for public services from the fire brigade to the police force, but disappears as soon as services are marketised — hence the government’s drive to remove guards from trains despite the social benefits of ensuring disabled access to transport or protecting those travelling alone from harassment or assault.

The jobs guarantee has the crucial advantage over universal basic income that it encourages the employment of people to do work that needs doing, and there’s no shortage of that.

“There are a whole set of activities that address unmet community need that the market will never address because they can’t be reconstructed into profit-making activities,” Mitchell argues.

“Think of the environmental care needs alone that are going unmet. In Australia 40 per cent of agricultural land is now unusable because of rising salt content because of clearance and phosphate use and that – there are huge clean-up jobs that need doing.”

Modern Monetary Theory is technical and perhaps unlikely to inspire slogans on demonstrations. But the focus of the Gower Institute and of Mitchell is on using their economic analysis to build a better and fairer society.

In that sense they are meeting the demand made of us all by Marx: that while “the philosophers have only interpreted the world in various ways, the point, however, is to change it.”


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