Understanding monetary ‘plumbing’ and where it gets us

There is an interesting podcast from the American site Macro’n Cheese with the Scottish Professor Mark Blyth, who, though he long ago emigrated and has become Eastman Professor of Political Economy at Brown University in the US, he has certainly managed to hang to most of his Dundonian dialect!

I have to say I usually avoid listening to any thing on this Macro’n Cheese site as it is an absolute echo chamber for everything on Modern Monetary Theory (MMT) and is preaching, it always seems to me, to the converted.

But Mark Blyth, as a fomer stand-up comic in his youth, manages to deliver his sharp conclusions with both humour and style and is thus much more engaging than most interviewees.

He starts by referencing a Bank of England paper which discovers that interest rates have been falling since 1300. (Presumed link here.) He suggests that as the flow of money expands so the price goes down and with the roughly 20% increase in world money after the financial crash that is where interest rates are likley to stay. But of course globalisation has pushed down the price of labour as employees are supposed to compete with Shanghai even when they are in Spalding or Spague, and global capital has taken all the gains, and been able to drive up stock prices by using this government created money to buy back its own stock and redistribute the stock gains to boardrooms.

So far, so fairly conventional…

He gets more interesting when he says that MMT is a perfectly accurate description of the plumbing of the monetary system, but that promoting the idea that you tax just to prevent inflation is both a gift to the rich and powerful, and says nothing about its other purposes when “taming plutocracy” is an important one of those. He goes on to point out that unless you are the US, operating with the world’s reserve currency, tax is not the only thing you need in order to prevent inflation. You also need to have currency stability. China achieves it by three types of capital controls. But in ‘free trade’ and ‘capital control free’ Britain, for example, we operate an MMT supported floating exchange rate. Since the Brexit vote this has engendered a notable decline in sterling. And, as the UK imports roughly half its food, that is distinctly inflationary. It is instructive just to look, as an example, at a half litre of Tesco organic olive oil, which I seem to buy regularly. This has increased from £2.50 a bottle prior to the vote, to £3.50 recently, and although a few months ago it went back down to £3.25, with the Johnson ‘no deal’ inspired Sterling decline, I fully expect it to increase back to £3.50. Have I had a pay rise of 30% in that time? As if!

Increasing my taxes in order to keep down this imported inflation would actually make the inflation less easy to cope with. So perhaps my taxes should go down as compensation? Perhaps, but that does not address the core problem. If we continue importing inflation then on that basis we end up paying no taxes at all. Theoretically possible of course, and the wealthy would be delighted with a new tax haven, but what do we do the next time we import inflation?  So – whither MMT?

Mark Blyth thinks that we have to get politicians to somehow agree on the future response to climate change. The lobbies of the rich and vested interests who are doing so well under the status quo will resist with all their might. So achieving this will be a very difficult task, but the absolute and of course affordable priorities are to devote time and resources to tackle urgently the changing climate and also to drive down private debt. Both those things make people currently afraid of the future, which is why populations are having children later or not at all and American suicides are at record levels. In those terms he considers that getting the right story about how the printing presses work is “utterly immaterial to the real world”.

I find I have some sympathy with this view.

The point I think that Mark Blyth has missed is that promoting how the plumbing of the monetary system works may not get you very far as such: he is correct to point out that it includes no provision for social justice (aside from the Job Guarantee, which, he never actually mentioned and I personally consider even, if it were, in any way desirable, not to be part of the money system.) When, however, his rich and powerful vested interests come in to oppose things such as a Green New Deal, or debt forgiveness, then they will have no traction when everyone knows how the money system works – and how one man’s debt is another man’s surplus or asset.

‘There is no Magic Money Tree’ and ‘financially we cannot afford it’ are always going to be lies. But people will only know they are being deceived if they understand the workings of the monetary system. And unfortunately that knowledge is currrently very far from widespread.

MMT is there to shine a light on the monetary plumbing, inform the electorate, and show up the deceptions for what they are. When we know and can show that we are being lied to, the arguments of the ‘status quo’ vested interests are destroyed.

That would greatly assist a majority political consensus and that is very material to the real world.


  1. Andrew (Andy) Crow -

    ‘When we know and can show that we are being lied to, the arguments of the ‘status quo’ vested interests are destroyed.’

    Not so, sadly. You discount the factor of the wilful suspension of disbelief.

    The likes of Boris Johnson (and he’s by no means a one-off, just a current bogeyman) can pronounce great things ahead and a significant part of the electorate grasps the straw of optimism.

    Contrary to experience ‘we’ choose to believe the empty promises of politicians. It was Goebbels, wasn’t it, who said if you were going to lie you might aswell make it a big lie.

    I have a friend who sums up the human condition as ‘People are evil’. I disagree with him. I think people are stupid (well most of us are) and there is know known limit to the extent of the gullibility of our species.

  2. Peter May -

    I suggest the arguments are indeed destroyed. But your’e right that some people will still believe them, bogus as they are. That’s why the education in and of itself is so important…

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