In the cases over the decades where Modern Monetary Theory (MMT) has been applied, not a few have been spent reacting to the relevant policies of governments and central banks, focusing on the mix of options and the efficiency they will bring to the economy.
There is also a minority, however, who have targeted monetary policy itself and how it ultimately serves the domestic/global economy and citizens. There is quite a bit of hypocrisy in (eg, mainstream, Keynesian, monetarist) critiques of MMT by major economists.
Alan Greenspan, former chairman of the Federal Reserve (1987–2006) and certainly not an advocate of MMT, once said: “The United States cannot go bankrupt because it can always print money, so there is zero chance of default.”
While this is literally true, it shows that nominal debt and the dollar are not the issue and overlooks the distorting effects of this manipulation on the entire system.
However, such a claim by the former Head of the FED is often repeated by MMT proponents, as if it contains some missing magic ingredient to unlock greater stores of wealth.
In fact, MMT provides a justified critique of other schools of economic thought that share an underlying premise, while not reaching the same conclusions. This assumption is so-called monetary policy – that governments through a central bank monopoly should be the sole entity that issues and controls money as an instrument of policy. The dubious justifications for this are that it provides greater economic stability and an expansion of money and credit according to need—both of which are false, theoretically and empirically.
That said, MMT and mainstream economists share this premise, assuming the validity of monetary policy. As an example of the broad prevailing trend in the definition of “monetary policy”, the popular financial encyclopedia Investopedia has stated the following:
“Monetary policy is a set of tools available to a nation’s central bank to promote sustainable economic growth by controlling the total money supply available to the nation’s banks, consumers, and businesses. The main weapon at his disposal is the nation’s money.”
The casual use of the word “weapon” is apt. In the hands of a state monopoly, money can indeed be a weapon.
Inflation is the artificial expansion of money and credit that results in the transfer of wealth from all money holders to the inflationist(s). This can be done under the guise of “politics” – appearing official, orderly and legal – but it involves power elites taking actions that would otherwise be criminal (eg fraud and forgery).
Even without the moral-philosophical debate about whether changing the money supply is fraudulent, the economic consequences remain.
The inflation of money:
- causes financial miscalculations,
- causes price boom cycles,
- distorts the structure of production,
- encourages capital consumption,
- undermines the actions of individuals,
- discourages saving,
- transfers wealth from citizens to government and the politically connected;
- affects the purchasing power of money and
- it has a host of other unintended consequences.
All of this, of course, is done under the legal guise of the “policy” of achieving “stable economic growth” as well as the two-way maintenance of the false dichotomy between full employment and inflation.
“The Federal Reserve is responsible for monetary policy in the US. The Federal Reserve (Fed) has what is commonly referred to as a dual mandate: to achieve maximum employment while keeping inflation under control.” A phrase used by officials every day.
Whether through MMT or otherwise, proponents of so-called monetary policy essentially believe that money is a policy tool (or weapon) that government elites must use to rearrange:
- the prices,
- the resources and
- the production structure against the proven preferences of millions of people.
As such, the United States has been under a monetary policy regime of “stabilizers” who have been arguing over how to implement a fundamentally flawed “policy” for more than a century. Whenever this fails and destabilizes the economy, we face critics who blame the free market and deregulation and who want to use monetary policy to “run the economy” differently.
Instead, we should abandon the misdirection of monetary policy and heed the words of F.A. Hayek on the effects of monetary policy leading to America’s Great Depression: “It must not be forgotten that for the last six or eight years [until 1932] monetary policy throughout the world followed the advice of the stabilizers. It is time to reverse their influence, which has already done enough harm.”
