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Framing MMT

L.Randal Wray
Framing MMT Table of Contents
from blog posts on New Economic Perpectives in
December 2012 by L. Randal Wray
linked from Te Modern Money Network
Table of Contents
1 Introduction
2 Te Conservative Framing
3 Framing the Alternative Approach
4 Te Alternative Tax Meme
5 Te Spending Meme
6 Alternative Framing on Ination
7 Framing Decits
8 Conclusion
9 Coda
4 5
studied with Hyman Minsky in the
early 1980s when he was writing his
1986 book (Stabilizing an Unstable
Economy). Tere are two phrases in that
book that I remember him saying in class:
Anyone can create money, the problem
lies in getting it accepted.
Te need to pay taxes means that people
work and produce in order to get that in
which taxes can be paid.
Most of my work on money for the rst
decade after my PhD studies concerned
the rst statementI was one of those
who developed the Endogenous Money
approach most closely associated with Post
Keynesians however it also drew heavily on
the Franco-Italian circuit approach.
Tat is all about the private money system;
government enters through its Central
Bank as the provider of bank reserves. My
rst book, Money and Credit in Capitalist
Economies went through all of that in
1990, and Ive continued work in that
area as I examined the causes of the 1980s
Trift Crisis and later the collapse of what
Minsky called Money Manager Capitalism
in 2007.
However, I never forgot the other
point he made: we work hard to get the
governments money because we have
to pay taxes. Tat led me to Keynes of
the Treatise and to Knapps Te State
Teory of Money when I was writing my
dissertation in Bologna in 1986.
I included a section on Chartalism or the
State Money Approach in the 1990 book
but it was very brief since I was focusing
on the role of money in the private sector.
So in the mid-1990s I returned to the role
of the state, and discovered what I believe
to be the best two articles ever written on
money, by A. Mitchell Innes in 1913 and
1914. Keynes reviewed the rst one and
aside from some quibbles he declared it to
be correct.
What struck me is that Innes was able to
integrate both a State Money approach
and a Credit Money approach. To
understand our money, what Keynes called
Modern Money, you must have both.
Otherwise, to borrow a metaphor, youve
got Hamlet without the Prince.
A group of us rst at the Levy Institute in
NY and then at UMKC, but also including
others, especially Warren Mosler and
Bill Mitchell and Charles Goodhart, dug
deeper into this and gradually developed
what is now called MMT.
Many think we claim to have invented
some stand-alone entirely new approach
to money. Tat is false. We stand on the
shoulders of giants (the third phrase I
recall from Minsky)there is no new
theory in Modern Money Teory; the
theory is an integration, one that integrates
those two phrases from Minsky.
What is somewhat novel is an updating
of the description of the way the modern
monetary system works in a country that
issues its own currency. While Im sure
there were economists in both the Fed
and the Treasury who understood all
the operational details, these were not
understood in academia or policy circles.
Tey mostly still are not.
In any case, I rst tried to lay out MMT
in my 1998 book, Understanding Modern
Money, and tried again in my most recent
primer, Modern Money Teory.
I sent the manuscript of the rst book to
Robert Heilbroner to see if he would write
a blurb. He called me on the phoneI
have no idea how he got my home phone.
In his soothing voice he told me he could
not write the blurb, and that money is the
scariest topic there is. My book would
scare the hell out of readers.
And here we are a decade and a half later.
In the past 2-3 years MMT has taken o,
indeed, it has taken on a life of its own in
the blogosphere. It is loved by many and
hated by more. And as Heilbroner warned,
it scares the hell out of even more.
Tat is why Im shifting gears. I dont think
I can say anything more about MMT. It is
as correct as a theory can be, and as good a
description as we can have about real world
monetary operations. At least at this point
in time.
Where we continue to fail is in our
explanation. We have to stop scaring
people. Ive become ever more convinced
that George Lako is correct. Te problem
is not with the theoryit is with the
Te reaction against MMT is largely
Tat is not a back-handed slap at critics.
Everything you understand is through
framing, as Lako argues. You cannot
understand without metaphors; you cannot
think without stories; you cannot do policy
analysis without morality.
Let me give you an example. Outside
1 Introduction
6 7
of the crazies, everyone knows the US
government cannot run out of money.
From Greenspan to Bernanke they all
understand there is zero risk of involuntary
default by the sovereign issuer of a
And so the way that an MMTer
approaches the current decit hysteria
is by pointing out that as the Federal
government spends through keystrokes
that credit bank accounts, it can aord
anything for sale in dollars.
Te reaction typically goes through four
1. Incredulity: Tats Crazy!
2. Fear: Zimbabwe! Weimar!
3. Moral Indignation: Youd destroy our
4. Anger: Youre a Dirty Pinko Commie
And those are our Post Keynesian/
Heterodox friends. Te reaction of others
is far more hostile.
Rather than winning the debate about
unsustainability of debt and decits, MMT
loses the argument. How can that be?
Because its immoral for the government to
spend through the stroke of a key.
It makes no dierence how accurately
MMT explains the monetary operations
that allow government to spend
operations that begin with budgeting by
Congress, and then that involve complex
procedures adopted by the Treasury, the
Fed, and special private banks to ensure
the Treasury has sucient deposits in its
account at the Fed so that nally some
rm or household gets a credit to its bank
MMT will lose the argument by precisely
presenting the facts. Because one can see
facts only through framing. Without the
proper framing, MMT cannot win policy
Tis series will explore alternative framing.
We cannot adopt the conservative,
textbook framing that automatically
invokes a particular market metaphor,
one based on fair exchange. From
that vantage point, theres nothing fair
about government getting something for
nothingfor mere keystrokes.
Instincts prefer the taxes pay for things
metaphor: I paid into the Social Security
Trust Fund, so now I get to draw down
my balance there in my retirement. It
makes no dierence that this description
is completely wrong no matter what angle
of approach you take. It trumps. And so
we get self-identied progressives ghting
tooth and nail against payroll tax holidays
even though they completely understand
the tax is regressive and that maintaining
the myth means tax rates must be raised to
become ever more regressive in the future
which makes moneys worth calculations
ever worse. Progressives will destroy the
program rather than abandon the myth.
We need a new meme for money. Te
meme cannot begin from markets, from
free exchange, from individual choice.
We need a social metaphor, a public
interest alternative to the private
maximization calculus. We need to focus
on the positive role played by government,
and its use of money to serve us well.
1 Introduction 1 Introduction
8 9
The Conservative Frame
2 Te Conservative Frame
e all know the usual approach
to money, that begins with a
fantasized story about barter, the search for
an ecient medium of exchange, the role
of the goldsmith, and then on to the gold
standard, the deposit multiplier, at money,
and monetary neutralityat least in the
long run.[1] It provides a perspective
on the nature of money, on the primary
functions of money, and on rules for
proper monetary management. It frames
all mainstream discussions of money
whether by economists, by policymakers
and by the population at large. Tat
framing is also largely consistent with the
conventional view of the economy and
of society more generally. To put it the
way that economists usually do, money
lubricates the market mechanisma
good thing because the conventional view
of the market, itself, is overwhelmingly
positive. Te market meme frames our
view of the economy and society, too
the market is the place we go to exercise
choice, to assert our individuality, to
catch and bring home prey to the adoring
family. Te king of the market, of course
is the highly vaunted, entrepreneurial
small businessman (gender specic) who
provisions society with useful work as
well as consumption goods and services.
Each productive member of society is
appropriately rewarded with money which
preserves the freedom to choose how to
apportion his claim on output in a manner
consistent with preferences. Te biggest
potential threat to ecient allocation
of scarce resources among competing
unlimited wants comes from governments
exercise of control over moneyrst by
replacing natural, intrinsically valuable,
commodity money with at money,
second by taking away peoples hard-
earned money through taxes, and third
by proigate governments uncontrollable
urge to inate away moneys value.
It is a beautiful meme, entirely consistent
with the individualistic sentiment that
has dominated public discussion since
Margaret Tatcher asserted that there is
no such thing as society. Governments
destructive impulses must be constrained
by strict rulesbalanced budgets, debt
limits, and especially an independent
father-gure central banker who keeps
tight control over the purse strings. Voters
must insist on frugality, and can enforce
it through tax cuts to starve the beast.
Wasteful spendingwhich includes
almost all government spendingmust be
reigned-in to allow the market to allocate
scarce resources to more productive,
private, use.
We need an alternative meme, one that
provides a frame that is consistent with a
progressive social view.
To be sure, in my view the conventional
story is wrongit is inconsistent with the
ndings of historians, anthropologists,
legal scholars, sociologists, and political
scientists.[2] Id prefer a meme that is
more consistent with these ndings.
However, I also know from experience
that truth doesnt automatically trump
myth. George Lako has brilliantly
explained how our minds work, using
metaphorsmemesto understand the
world.[3] Tis is especially true the more
abstract the concept under examination.
Economics uses highly abstract concepts
and reasoning: economy, market,
equilibrium, productivity, supply and
demand, and, especially, money. Simple
storiesCrusoe and Friday agreeing to
use seashells as a medium of exchange
simplify dicult concepts and also draw
attention to the lesson the speaker wishes
to teach. Te story of money outlined
above provides the proper framing for the
conservatives lesson. Money simplies life
for Crusoe and Friday. More importantly,
the story diverts attention away from
inconvenient topics: Crusoe and Friday
come together as equals, of their own
free will to engage in mutually benecial
exchanges, in a free market only
lubricated by moneynot as conqueror
and subject. While the simplistic story
adopted by economists is inconsistent with
historical facts, it is not dicult to adapt
the story to bring it in line with many
of the ndings of historians (who, after
all, generally do adopt the conservative
As Jack Balin argues, memes serve as
the basis of stories, networks of cultural
associations, metaphoric and metonymic
models, and other mental structures.[4]
Memes are self-replicating, sort of like a
virus. Since we think through metaphors,
according to Lako, as the virus spreads
through the population, the meme controls
the way we think about a topic.
Conservative memes dominate all
discussion about the economic sphere.
Te market is free; the government
intervenes. Consumers choose;
government regulates. Trough judicious
framing, the conservatives have won all
the important economic debates of our
times. Decits crowd out, cause ination,
and bankrupt our nation. Weve run out of
10 11
money. Government is the problem. Taxes
and regulations destroy initiative. Small
business creates jobs and government
destroys them. Yet, in every case the
conservative claims are demonstrably false.
But it does not matter. Teyve got the
better framing, the better money memes.
In most cases, the progressives adopt
the conservative framing and so have no
chance. For example, take the current
debate about government budget decits
which progressives propose to reduce
by raising taxes on the rich to pay for
government spending. Without knowing
anything about government or budgeting,
the listener knows a) decits are bad
somehow government is decient;
and b) the progressive solution relies on
more taxesand no one likes taxes. Te
conservative framinggovernment spends
too muchhas a much more appealing
solution: reduce government waste. It
addresses the problem more directly, and in
a morally superior manner. Lako explains
why conservatives always win:
Tey understand the importance of
morally-based framing, the importance
of language, the importance of repeating
language, the importance of not using the
oppositions language, and the importance
of an extensive communication system
that operates daily everywhere
Everything you understand is a
matter of framing. And what counts
as a fact depends on the frame used in
Hence, it is not so much the accuracy of
the conventional view of money that we
need to question, but rather the framing.
We need a new meme for money.
Tat meme would emphasize the social,
not the individual. It would focus on the
positive role played by the state not only
in the creation and evolution of money,
but also in ensuring social control over
money. It would explain how money helps
to promote a positive relation between
citizens and the state, simultaneously
promoting shared values such as liberty,
democracy, and responsibility. It would
explain why social control over money
can promote nurturing (parental bent
as Veblen called it) activities over the
destructive impulses of our undertakers
(Smiths evocative term for capitalists).
According to Lako, there are two
competing views of the parent: the
strict father gure who constrains and
punishes versus the nurturing parents;
most individuals simultaneously hold
both viewsbut the conservative views
about the dominant father who needs
to discipline the kids is most prominent
in political discussion. Adults, of course,
want to escape the strict father represented
by government, and so want to limit its
power. Conservatives emphasize that we
need to get government o our backs. In
Lakos terminology, progressives need to
emphasize the nurturing characteristics of
the statethe mother and father working
together in the interest of the family,
rather than the stern, punishing, strict
father model with rules and constraints.
With respect to money, the conservatives
emphasize scal discipline and ination
targets enforced by our Father Chairman
who art at the controls of the Central
Bank. Progressives can win this debate
only by taking a higher moral stance,
emphasizing the nurturing role that can be
played by our government working with
our monetary system to support us, to help
us to achieve more, and to make us better
[1] See L. Randall Wray, Modern Money Theory: A primer on macroeconomics for sovereign monetary
systems, Palgrave Macmillan, Basingstoke, 2012 for a discussion of the orthodox approach and for the
alternative presented here.
[2] The best place to start for a sociological approach to money is with Georey Ingham, The Nature of
Money, Cambridge: Polity Press, Ltd, 2004. See also Wray (editor), Credit and State Theories of Money: the
contributions of A. Mitchell Innes, Cheltenham, Edward Elgar, 2004 for a number of contributions that
counter the story told by economists.
[3] George Lako, Dont Think of an Elephant: Know Your Values and Frame the Debate, Chelsea Green
Publishing, 2004.
[4] See http://en.wikipedia.org/wiki/Meme, and Jack Balin, Cultural Software: A Theory of Ideology, Yale
University Press, 1998.
2 Te Conservative Frame 2 Te Conservative Frame
12 13
Framing the Alternative Approach
3 Framing the Alternative Approach
n Chapter 2 we looked at the
mainstream framing of discussion
about money and about the economy and
society more generally. Following Lako,
my argument is that framing is important
and that so far orthodoxy is winning all
of the important policy debates because
it has the better framing. Policy is always
and everywhere a moral issuenot merely
an economic issue and certainly not a
technical issue. To win policy debates, we
mustlike orthodoxyengage the moral
issues. We can take the higher moral
(Tanks for all the comments; I have just
returned from Finland. Ill get around to
a few responses to comments tomorrow.
A bit shout-out to the 300 who attended
an MMT-infused conference on full
employment policy in Helsinki to listen
to my presentation! Little did I know that
Finland is a bastion of MMTers.)
Te approach that I take is the Modern
Money Teory (MMT) approach. In the
discussion that follows, I will presume
that readers have a working understanding
of MMT.[1] It goes without saying
that I believe MMT provides a correct
description of the operation of modern
monetary systems, so it makes sense
to base our alternative meme on the
correct approach to money. However, this
particular post is not so much concerned
with a correct theory, but rather with
developing a progressive meme for
moneya story of moneys origins, nature,
functions, and operations that can serve as
an alternative to the orthodox story briey
presented last time.
Tere are several approaches to the
history of money that are consistent with
the alternative meme. I prefer the one
I adapted from the great Cambridge
numismologist Philip Grierson, who
located moneys origins in the ancient
practice of Wergild.[2] I nd that story to
be most consistent with what I understand
about tribal societybut, again, what is
important is the frame.
According to Grierson, money evolved
as unit of account used to measure
debts for the purpose of paying nes in
compensation. Tis is inherently a social
story, not an individualistic story. Te
purpose of the payment was social: to
prevent blood feuds and to maintain social
cohesion. Further, the fees were established
by agreement in social assemblies, socially
imposed, and payment was collectively
enforced. Tere was no higgling and
haggling, no market exchange, no
thought to individual eciency.
Further, the story begins with a debt
not a voluntary transaction between
equals to satisfy personal preferences,
but with a wronged party who demands
compensation or else retribution will
be taken. With the imposition of a ne,
the social assembly turns the tables:
the perpetrator becomes the debtor,
the victim is the creditor. Te debtor is
nally redeemed by the payment of the
ne. With that, the slate is wiped clean,
restoring equality and social cohesion.
With that framing, money is not
something that intermediates trade
between self-interested globules of desire,
but rather is part of an institutionalized
practice designed to further the interests of
the communitymaintaining peace and
To be sure, we do not know exactly how
payment of nes in-kind (there was a
specic payment to be made depending
on infraction: a pig for this, a bushel of
wheat for that; note also that the practice
of paying bride-price to the family losing
a female to marriage is also an example of a
wergild ne) to harmed individuals were
transformed into payments of money to
the authorities (nes, fees, and later taxes).
Again, there are alternative stories. My
favorite is that with the transformation
from tribal society to a civilized
command society, the authorities were
able to rst obtain a share of the nes paid
and later to transform transgressions into
crimes against the crown (later, against
society) rather than against identiable
victims. It then made sense to establish
a measuring unit (the money unit) to
measure the ne and to value the things
delivered in payment, and later to actually
issue the means of paying the nea
money thing, currency, to be used in
paying nes.
Note that this reverses the orthodox
sequence: rst liabilities, then a money
unit, then a money thing, and nally
money prices and markets based on sales
for money. Why did markets develop? Not
to barter what you have but dont want, but
rather to obtain the means of debt (tax)
And while the creation of money
as a means to move resources to the
authority (in payment of nes, fees,
tithes, and then taxes) was not initially
a progressive development, with the rise
14 15
of the democratic state the monetary
system could be used to further the public
purposeincluding promoting peace and
Of course, even the modern state also uses
the monetary system to pursue war and
conquest, and as well private interest that
runs counter to the public interest. But for
reasons we will discuss, use of money is
on the wholea progressive development
that supports economic activity in the
public interest, in spite of the danger
(often a reality) that money can be used in
inimical ways.
In truth, the same can be said of the
development of democracy.
What is important for our argument here
is that we need to change the focus
away from money as cost-minimizing
medium of exchange and to money as
an institution, as Geo Ingham has long
argued (echoing the work of Dudley
Dillard[3]). And leaving to the side all the
ancient history and speculation on moneys
origins and evolution, it is clear that our
modern monetary system arose with the
development of capitalism and the rise
of the modern state. Tat is to say, the
capitalist state.
In that respect, all the stories about
barter are irrelevant for two reasons. First,
production for the market bears no
resemblance to hypothesized production
for barter. Capitalist production begins
with money, to produce commodities for
sale, to realize more money (as Marx,
Veblen and Keynes all insisted). Capitalists
do not produce with a view to exchange for
other commoditiesthey want money and
if they do not get it, the production was a
failure. And hence, there must be a credit
system to supply the production process
with the money it needs to start and to
ensure that purchasers have the money
(indeed, the more money) that validates
capitalist production.
Second, in almost every case, the money
of account is a state money of account
chosen by the state and sometimes backed
by legal tender laws, but always backed
by a tax system. Indeed, it could be said
that currency issued by the government
is the means of tax settlement. (Today,
we should include central bank supplied
reserves in the denition of currencythat
is, high powered money, HPMsince
taxes are paid for customers by banks
whose reserves are debited.) Previous to
the European Monetary Union, exceptions
to what Charles Goodhart called the
one currency, one nation rule were rare,
usually limited to small states closely
connected to another, or to currency board
arrangements. And when a new nation was
formed (usually by breaking up a nation),
one of its rst acts would be to create a
new currency.[4]
So, modern moneys are state moneys.
Te alternative frame must therefore
stress this dual link between money and
capitalism and between money and the
(capitalist) stateas Ingham insists. Te
Crusoe-Friday meme is not useful either
for understanding the way our system
works, or for framing our discussion about
how to use money to further the public
and private interests.
To that end, we need to begin with the
state and its money, that is, with the state
and its treasury and central bank at the
center of our monetary system.
On one level, that monetary system is a set
of credits and debits: I Owe Yous and You
Owe Mes. One of our memes is: money is
what we owe each other; or: money is the
tie that binds.
Tese IOUs are recorded on balance
sheets, with banks handling much of the
record keeping. At the aggregate level, all
the IOUs must cancelthere are always
two entries, a debit on one account and a
credit on anotherbut that takes away all
the fun, all the action, all the power.
If I strike you, you are struck by me and
so the two cancel but that does not mean
there is no impact.
Te credits/debits necessarily represent a
social relationthe creditor and debtor
are related in a social bond. While we
normally think it is better to be a creditor
than a debtor, throughout history both
parties have always been thought to be
tainted by this relationship. In any case, it
is unavoidable in a society in which much
of the economy is organized through and
oriented toward the monetary system
which itself consists of layer upon layer of
debits and credits.
While we can imagine a Crusoe-Friday
barter economy, it excludes by assumption
these credits and debits and the social
relationship of creditor to debtor. Even if
Crusoe and Friday decide to use seashells
as a money medium of exchange there
is no social relationship, no creditor, no
debtorjust an impersonal relation with
the commodity for which one traded. Te
seashell money is asocialas betting
a theory that denies the very existence of
Note also that in the currently fashionable
economic models that use a representative
agent (ie: Real Business Cycle and
Dynamic Stochastic General Equilibrium
models) the debits and credits would be
sillyyou owe yourselfwhich is precisely
why theres no room for money, whether it
is social or not.
Our alternative approach needs the debts,
the power of creditor over debtor, and the
threat of bankruptcy. It also needs the state
in the center. Weve already mentioned
the states choice of the monetary unit. It
is dicult to perceive how the haggling
of a number of self-interested individuals
bartering a reasonably large number
of items could ever settle on a single
measuring unit.
In any case, it is rather clear that today,
3 Framing the Alternative Approach 3 Framing the Alternative Approach
16 17
at least, it really is the state that chooses
the unit, taxes in the unit, and issues the
currency denominated in that unit (again,
we recognize the caveat that there are
a few minor exceptions plus one major
exception in which EMU member states
chose to adopt a common unit and chose
to constrain currency issue through self-
imposed rules).
So while we can imagine a creditary
system without the state at the center,
it wouldnt be our capitalist system with
the bourgeois state (or democratic state,
depending on ones ideological orientation)
pursuing the interests of the dominant
capitalist class (or the public purpose
depending on ones political persuasion).
We could also imagine the capitalist state
functioning without money, with only
the private sectors keeping accounts in a
mutually approved unit of account on the
books of private banks. Rather than using
money to move resources to itself, the state
could use force to take what it wanted
from workers and capitalists. Tis would
be a sort of command state economy
operating outside the capitalist monetary
system (perhaps a feudal system but with a
modern state).
As Warren Mosler always jokes, in the old
days youd go to the pub for some drinks
and wake up in the crowns navy with a
big bump on the head. From this view, the
use by the state of the monetary system
to exercise claims on resources is a big
improvement as one can choose to sell or
to withhold labor and other resources from
the states use. Join the navy if you want,
but drink freely in the pub tonight without
worry that youll be in uniform tomorrow.
To be sure, however, this development of
the monetary system to be used for both
production and allocation is not without
negative aspects. It is dicult to conceive
how organized prostitution as well as illicit
drug markets could have reached their
current level of development in the absence
of the monetary system. (While one could
imagine some one-o sex for coke barter,
sophisticated and violent long-distance
trade based on complex production chains
would be dicult to organize without
As much of the trade in sex and drugs
runs across national borders, it is unlikely
that it would have been possible without
well-organized currency exchanges
and especially the international reserve
currency in which illegal activities are
priced. Im sure the drug cartels thank
Uncle Sam for providing the almighty
dollar to lubricate their trade.
Still, on balance, the development of
the monetary system must be benecial.
Government purchases what it needs and
imposes liabilities (mostly taxes and fees
today, not nes) to ensure a demand for
its currency. In that sense we say taxes
drive money. While taxes are largely an
involuntary liability, sales to government
are largely voluntary. Exactly what one
does to obtain the means of paying taxes
(money, although technically taxes are
paid using HPM, with payment handled
by private banks) is at least in part
But, as they say, only death and taxes are
unavoidable. Most people have to sell
something to get the means of paying
1] Those who do not can read my new book, Modern Money Theory, cited above. Unless otherwise noted,
references to support arguments made here, as well as citations to literature mentioned, can be found in
that book.)
[2] See Philip Grierson, The Origins of Money, London: The Athlone Press, 1977; also see L. Randall
Wray, Understanding Modern Money: The key to full employment and price stability, Edward Elgar,
Cheltenham 1998.
[3] See for example Dudley Dillard, A monetary theory of production: Keynes and the institutionalists,
Journal of Economic Issues, 14:255-273, 1980.
[4] Charles Goodhart, Two concepts of money: Implications for the analysis of optimal currency areas,
European Journal of Political Economy, 14:407-432, 1998.
3 Framing the Alternative Approach 3 Framing the Alternative Approach
18 19
The Alternative Tax Meme
4 Te Alternative Tax Meme
et us continue to develop an
alternative frame for money. As you
know, MMT says that taxes drive money.
Lets develop that further.
According to the orthodox meme, taxes are
badthe far right views them as outright
theftso the lower they are, the better.
Most view taxes as necessary to pay for
government spending, but again since in
the conservative framing, government
does next to nothing that is useful this
represents a redistribution from productive,
private, use to public waste. Hence, again,
it is best to keep taxes as low as possible to
starve the beast and to keep the private
sector humming along.
Yet, from the state money view, the
monetary system that weve actually
inherited is a state money system. And
from that framing, the most important
purpose of taxes is to create a demand
for the states money (specically, for its
currency). Further, as well see, the state
really does not need tax revenue to spend
and in fact really cannot spend tax revenue.
Our meme: taxes create a demand for the
currency, ensuring willing sellers of goods
and services for money.
Taxes serve two other important purposes,
too. Tey can be used to regulate
demandby increasing costs and reducing
net income. Tis is especially important
as the economy reaches full employment;
if the government continues to increase
its resource intake it will drive up prices
unless it reduces nongovernment use of
resources. And sin taxes are used to reduce
socially undesirable behavior (or tax credits
are used to reward good behavior).
Another use of taxes is to prevent
accumulation of wealth over generations
the so-called death taxalthough it
is doubtful that in practice inheritance
taxes are very eective (at least in the
US where tax rates have fallen and most
wealth is excluded thanks to exemptions,
evasion, and legally-sanctioned avoidance).
However, Jamie Galbraith has argued
that inheritance taxes do drive charitable
contributionsincluding university
endowmentswhich supports a large non-
prot sector serving the public interest
alongside government. So, to some degree,
inheritance taxes can be used to drive
resources to the charities.
So in addition to driving money, taxes can
be used to further the public purpose.
We can examine in some detail three
examples of use of taxes to further the
public purpose: favorable tax treatment
of mortgage interest, tax advantaged
saving, and payroll taxes to nance social
All of these have unintended and perhaps
undesired consequences, and may not
actually be in the public interest. Te
mortgage interest deduction is widely
believed to increase house prices. By
lowering net after tax monthly payments,
it allows owners to take on more debt and
thereby pay higher prices. Te deduction
might also increase the demand for
housing, which if supply constrained
also pushes up prices. Home ownership
is also believed to be socially benecial
(promoting stable communities and
providing a secure asset against which
families can borrow to nance education,
or expensive healthcare). However, once
home ownership is widely established as
a nearly universal goal of households in
a nation, it probably does not require a
tax advantagewhich may be more than
oset by higher real estate prices, anyway.
Tere is also the question about equity
since homeownership and the benets of
the deduction are skewed to higher income
families. For these reasons, it is not clear
that the deduction is in the public interest.
Favorable tax treatment of saving
whether in individual retirement accounts
or in pension fundsincreases individual
desire to save. However, as we know from
Keynes that leads to the paradox of thrift:
increased propensity to save reduces
aggregate demand and thus income so that
saving actually does not increase. While
thrift is a private virtue, it is a public vice.
Nor is it even possible to provision for
future retirement through nancial
meansas J. Fagg Foster (following
Keynes) put it so clearly.[1] Financial
saving cannot transfer aggregate
purchasing power from the present to the
future. Te nancial sinking fund can
actually make it more dicult to provision
in the future, by depressing demand and
thus investment in capacity today. Only
investment, today, in productive capacity
can actually help to provision for the
And, as Keynes insisted, saving does not
nance investmentindeed it is better
to see investment as nancing saving
in the sense that the income to be saved
is generated by the investment spending.
Again, Fosters take on this is informative:
saving is the pecuniary accounting of the
investment. It looks like this is another
poorly designed feature of the tax system.
20 21
With that in mind, let us look at the third
example: imposing payroll taxes to pay
for social security retirement. While the
US Social Security program began as
paygo (revenues set to more or less match
benet payments through time), after 1983
it became advanced funded with taxes set
high enough to accumulate a trust fund
(sinking fund) to be drawn down in the
future. We wont go into all the problems
here, but let us focus on three topics: the
undesired consequences of taxing wages
and salaries, the accumulation of trust
funds, and the belief that taxes pay for
Te US payroll tax as designed is at up
to a base income after which it drops
to zero. Hence overall it is a regressive
tax. It is applied only to income derived
from work, and taxes both employees and
employers. Hence, as supply siders would
say, it drives a wedge between the cost of
labor and take home pay. It reduces both
the incentive to work and to hire labor. To
the degree that this actually does reduce
employment and output, the payroll tax
makes it harder to provision for retirees in
real termsboth today and into the future
if investment is thereby reduced.
In spite of what my teenage son thinks,
work is not a sin that we want to reduce,
so why tax it? Obviously, reduced
employment is counter-productive to the
purposes of the social security program
supporting retirees with real goods
and services. For the reasons discussed
previously, a sinking fund makes this even
worse. So accumulation of a trust fund
not only cannot add to national savings
that can be drawn down in the future to
support aged persons, but it might even
reduce national saving through the paradox
of thrifts eects on investment.
And nally we turn to the main
conventional tax meme, the notion that
taxes are needed to pay for government
provision of services and entitlements like
Social Security. Tis meme is adopted by
both conservatives and liberals, but it suits
only the purposes of the conservatives. It is
a disaster for progressives. And it is wrong.
Conservatives have used this meme to
great advantage since the early 1970s, as
they successfully changed the framing
of taxes from the price we pay for
civilization to something closer to fee for
service payments to government made by
stakeholders. Tis was important in the
US for the devolution of government
in which primary responsibility for many
government services was moved from the
federal to state and local governments. (In
the US, since 1960 the federal government
has not grown relative to GDP, while state
and local governments grew rapidly until
around 1980, to become approximately
two-thirds the size of federal
governmentreecting the devolution
In many cases, these extra responsibilities
were imposed on state and local
governments without federal funding
unfunded mandates. Tat necessitated
local tax increases that were sold on the
basis that they would pay for enhanced
serviceswhich were typically targeted to
middle class homeowners.
And that promoted the view that taxes are
paid in exchange for government-provided
services, some of which are targeted to the
stakeholders (suburban homeowners)
who paid the taxes.
At the same time, social welfare
entitlement spending grew (some due
to unfunded mandates). Aided and
abetted by Daniel Patrick Moynihans
culture of poverty thesis, the taxpaying
stakeholders grew increasingly angry that
their taxes were being used to pay welfare
to the undeserving. Problems were
compounded by white ight from cities to
suburbs and from public to private school.
Parents of children in private schools
objected to their taxes going to support
public schools attended by the children
of others (often of other racial or ethnic
Candidate Romneys candid dismissal
of the 47% who dont pay taxes reects
the orthodox tax meme: those people
are not worthy of our attention because
they are not stakeholders in our society.
[3] President Reagan successfully framed
the social safety net as supporting welfare
moms driving Cadillacs, while President
Clinton ended welfare as we know it by
setting lifetime limits on support for poor
families with children in order to wean
them from the public teats.
Te point is this: if taxes are seen to pay
for government, then the stakeholders
who pay more ought to get more from
government. Progressives cannot win
within this frame.
Everyone knows what pay for means
we all go to the shopping mall, and we
pull out our wallets to pay for the Gucci
handbag. You do not grab the bag and look
around for someone else to pay. Hey bro,
Im a bit short today; can you spare a few
hundred to buy this for me?
No, if you cannot aord the Gucci you buy
the Wal-Mart store brand made in China.
It does little good to argue that those who
can aord to pay taxes ought to do so for
the benet of those who need welfare. Tat
is what the charity meme is for. Of course
we all ought to give to charityfrom each
according to ability to each according to
need. If the tax system comes down to
charitable contributions, then it should
be based on voluntary contributions.
Good luck with that! Te mixing of these
memes will at best lead to confusion,
but more predictably it will lead to tax
revolt and social spending cuts. (Ex post
predictions are relatively easy to make
that is precisely what happened after 1980.
Liberals are still struggling to come up
with a response.) We need new tax and
spending frames.
4 Te Alternative Tax Meme 4 Te Alternative Tax Meme
22 23
4 Te Alternative Tax Meme
[1] J. Fagg Foster, The Reality of the Present and the Challenge of the Future, Journal of Economic Issues,
15(4), December p. 963, 1981
[2] See L. Randall Wray, The Ownership Society: Social Security is only the Beginning, Public Policy Brief 82,
August 2005 (www.levy.org).
[3] In fact, Romney was actually overly generousit is pretty easy to make the case that a much higher
percent of Americans are deadbeats when it comes to paying federal income taxestheir incomes are
too lowalthough payroll taxes hit virtually all who work. The bottom 90% of the population contributes
an insignicant proportion of federal income tax revenue.
A Spending Meme
et me repeat and clarify my purpose in
this series. I am attempting to initiate
a discussion among progressives on how to
frame discussions about money and related
issues. My perspective is MMT. To be
sure, on one level MMT is a description.
It provides a correct description of the
operation of a sovereign currency system.
Some commentators have objected to my
progressive framing; they assert that one
can accept MMT without the progressive
bias. Sure they can. One can understand
how money works but prefer NOT to use
money in the public interest.
Science is necessarily a progressive
endeavor. Or, as Stephen Colbert puts
it, reality has a well-known liberal bias.
Of course it does. From global warming
to the problems of unemployment, the
liberal perspective is based in reality, while
the conservative view necessarily denies
But one can accept the MMT description
and still pursue a reactionary policy
agenda. Te conservative is willing to
take the technology of a modern money
system to use it against the public purpose.
Technology can be used in highly anti-
progressive ways. Tear gas to put down civil
rights demonstrators. Nuclear weapons to
vaporize humans. Concentration camps
and gas chambers.
Science, however, is progressive.
Paul Samuelson said that we need
the old time religion, the magic, the
mysticism, the outright lies about the
way money works in order to dupe the
population. Tis is a fundamentally anti-
progressive position. It is based on a fear
that democracy might lead down the
wrong road, and so our anointed leaders
need to obfuscate the truth in order to
confuse the population. As I discussed, the
belief that payroll taxes pay for Social
Security benets, and that paying taxes
justies ones receipt of benets, is a good
example of the fear of democracy to which
Samuelson was referring.
24 25
Policy must go beyond description. It
must deal with ought. As Lako says,
that necessarily brings up morality. All
policy and all politics involve morals.
Progressives can take the moral high
groundthey are on the right side of
science. Unfortunately, they have (mostly)
adopted the conservative framingwhich
is morally inferior, and is not consistent
with the progressivepolicy agenda.
Te purpose of this series is to develop a
progressive meme for money. I have no
desire to provide advice to conservatives.
First, theyve already got the memethe
dominant framing of money. As I said,
they tie money to free markets and all
the other hot-button conservative frames.
Second, Ive got no desire to help them.
Tey are winning, without my help.
Progressives need a new meme for money.
Tis series is addressed to them.
Alternative Spending Meme
At the level of the national government,
taxes dont pay for nothing. As discussed,
they serve three purposes: they drive
money, they prevent excess demand, and
they inuence choice. All of these are
within the proper purview of public policy;
all have substantial social benets. We need
to stress these, and discard the conservative
tax meme that taxes pay for government.
Now, at the local and state (or provincial)
level, government is a user of the
currency, not an issuer. It needs an income,
including tax revenue, bond sales, and
federal government transfers (or block
grants). Tat is true.
As discussed, promotion of the stakeholder
view is a slippery slope, but for some
government services it may not be too
dangerous: police and re services, garbage
collection, toll highways, and so on, where
benets are fairly easy to see and are widely
shared. But the conservatives brilliantly
took advantage of the devolution of
government in the area of social services.
As the federal government underfunded
social services in the face of growing
inequality and an aging population, the
burden on state and local government
increased. Te welfare queen framing of
the social safety net pitted stake-holding
taxpayers against undeserving loafers
demanding entitlements. Hence, welfare
was ended by Clintonjust as it took a
Republican to initiate dtente with China,
it took a Democrat to end a half century of
safety nets for the poor.
Te biggest loser, however, was Social
Security. It had long been sold as an
insurance scheme: workers pay in to a
fund that they draw down on retirement,
with benets linked (somewhat loosely)
to earnings. Tat made it easy to produce
moneys worth calculations and as well
to estimate the programs solvency over
periods up to 75 years!
For the rst half century of the programs
existence, moneys worth was good for
most workers as the payroll tax rate
was low due to the relatively young
demographics of the American workforce.
Over time, tax rates rose in part due to
slower economic growth and in part due
to changing demographics. At the same
time, the programs long-run solvency
came into questionleading to the
transformation mentioned earlier from
paygo to advanced funding.
In truth, Social Security was never an
insurance plan, but rather an assurance:
you work today to support yourself as well
as seniors, and when you retire the workers
of the future will take care of you. Really,
there is no other way, since as we discussed
above there is no way to nancially
provision for the future at the aggregate
level. Tomorrows consumption will come
out of tomorrows production.
But heres the problem: liberals and
progressives bought the conservative
meme. Tey believe that the conservative
tax framing protects Social Security: I
paid into the Trust Fund through my taxes,
so I deserve retirement benets. With that
framing, Social Security is doomed. On
narrow moneys worth calculations, Social
Security is already a bad deal for many
middle class workers, and it has always
been a bad deal for high income workers
(who dont want the insurance, anyway).
And it means that those whose work
lives and pay for work were substandard
do not deserve decent lives in old age.
Teyve got to dumpster dive and eat tins
of dog food because they do not measure
up, in terms of their own tax payments.
Tey didnt pay in so they do not deserve
benets. As long term unemployment rises,
as labor force participation of men falls,
as wages stagnate for most workers, as the
wage share of national income continues
to fall, the problems with this conservative
meme are compounded. Te elderly of the
future will not deserve decent retirements.
Te program will go broke.
All the conservative scare tactics work
and are at least grounded in some truth if
one accepts the meme that taxes pay for
benets: tax rates will have to rise, benets
will have to be cut, and retirement ages
increased to maintain program solvency;
Social Security wont be there for todays
young workers, who would be better o
taking their money elsewhere.
Te best that progressives can do is to
say that the future tax revenue shortfall is
only 25% of promised benetswhich
only whips up fear in the listener who
imagines a future retirement at three-
quarters pay.
I watched in horror as some of the most
prominent progressives fought tooth-and-
nail against President Obamas payroll tax
holiday on the argument that payroll taxes
protect Social Securitys future! As if what
Americans love about the program is the
tax they have to pay.
5 A Spending Meme 5 A Spending Meme
26 27
Bruce Springsteen knows something about
We take care of our own,
We take care of our own,
Wherever this ags own,
We take care of our own
Heres the alternative meme on the social
safety net. We dont let old folks sleep on
the street. We take care of our own. We
dont let children go hungry. We take care
of our own. We dont exclude the 47%. We
take care of our own.
Were all stakeholders in this great nation.
We take care of our own. White, black,
brown, yellow and red, we take care of our
own. Young or old, healthy or sick, we take
care of our own.
Heres the alternative meme about taxes
and government spending. We pay taxes
to keep our currency strong. A strong
currency keeps our country strong. A
strong currency and a strong country
ensure that we can take care of our own.
We need a good government to help us
take care of our own. We need good public
services and infrastructure to keep our
country strong so that we can take care of
our own. Our government spends to keep
our country strong so that we can take care
of our own.
If government doesnt spend tax revenue,
how does it nance its spending? It spends
its currency into existence. In modern
economies this is accomplished through
keystrokes that credit bank reserves, with
banks crediting accounts of recipients. A
government that issues its own currency
can never run out of keystrokes.
Sovereign government cannot be forced
into involuntary insolvency. It can always
aord to make all payments as they come
due. It can always aord to buy anything
that is for sale for its own currency. It can
always nancially aord any spending
that is in the public interest. It can always
aord to take care of its own.
Anything that is technologically feasible
is nancially aordable for the sovereign
issuer of the currency. It comes down to
technology, resources, and political will.
Weve got the technology to take care of
our own. Weve got the resources to take
care of our own. All that is missing is the
political will. We need the right meme to
quicken the will.
Even the institutional home to Milton
Friedmans version of monetarism, the
St. Louis Fed understands these points
about sovereign aordability. Two of its
economists wrote:
As the sole manufacturer of dollars, whose
debt is denominated in dollars, the U.S.
government can never become insolvent,
i.e., unable to pay its bills. In this sense,
the government is not dependent on credit
markets to remain operational. Moreover,
there will always be a market for U.S.
government debt at home because the U.S.
government has the only means of creating
risk-free dollar-denominated assets.
Sovereign government spends the currency
into existence. It cannot run out of money.
It cannot be forced to default. It never
needs to either tax or borrow its currency
in order to spend. It is never subject to the
whims of bond vigilantes. It can aord
anything that is for sale in dollars.
Tats our state money meme: Te
currency-issuing sovereign can aord to
buy anything for sale in its own currency.
Government can no more run out of
money than can the scorekeeper at Fenway
Park run out of runs to award the Boston
Red Sox.
In our modern economy, government
spends by keystrokes that mark-up the
deposit accounts of sellers. In practice
because banks handle the records of
debits and credits for us, bank reserves are
increased, and banks increase our deposits
whenever we receive a payment from
Government cannot run out of keystrokes.
5 A Spending Meme 5 A Spending Meme
28 29
Alternative Framing on Ination
s we have discussed, sovereign
government cannot run out of the
keystrokes it uses to mark-up balance
sheets as it spends. Does our argument rely
on modern technology, that sends electrons
or photons (Im not sure which) pulsing
through copper or ber-optic lines? No, of
course not.
Government always spent by notching
hazelwood, imprinting clay, stamping
coins, chalk on slate, or running the
printing press. Tere has never been
another alternative. Tese marks or
electronic entries represent government
No matter what time period we are talking
about, I would have received government
payments as Government Owes Mes.
Obviously, government cannot run out
of these. Government can aord to buy
whats for sale in its own currency.
Te question is not about aordability but
rather concerns eects on the value of the
currency and impacts on the pursuit of
private interest.
As Stephanie Kelton says, cash registers do
not discriminate: they do not care whether
that dollar comes from government
spending or private spending. If something
is in scarce supply, more purchases of it by
either government or private buyers might
push up the price. A government purchase
of something that is scarce can crowd
out a private purchase. Government
purchases need to be, and can be, planned
to avoid undesired crowding out and price
Where the public purpose trumps the
private purpose (say, use of rubber in
WWII), government has at its disposal a
number of options to reduce price pressure,
including patriotic propaganda and
rationing. It also has the big gun: taxes. An
excise tax raises the cost to private buyers;
an income tax reduces disposable income
to free up production for the public
In those cases, the tax hike keeps the
currency strong. It is not needed to pay
for the government spending, but to avoid
the crippling eects of high ination.
Progressive taxes can be justied on the
basis that higher income people pose a
much greater ination threat than do
low income people. Cash registers dont
discriminate. Rich folk take more dollars
to market, and their spending cannot be
planned, budgeted, coordinated in the way
that government spending is done.
And their spending is largely discretionary,
not essential to daily life. Indeed, as one
group of rich folk ramps up conspicuous
consumption, other rich folk take up the
challenge. Keeping up with the Joness it is
When resources are scarce, taxes on the
rich need to be raised to protect the
We dont tax the rich to pay for
government spending. Government is not
in the position of Robin Hood. We never
need rich folks money in order to provide
for the poor. We can keystroke the bank
accounts of the poor so that they wont be
We increase taxes on the rich only when
their spending threatens our currency with
ination. If theres no ination danger,
there is no point in taxing the rich before
keystroking the poor. Linking the two
operations only reduces public support for
helping the poor. And its confusing. And
its operationally wrong. Except in the
unlikely event that all resources are already
fully utilized.
Progressives must stop linking the two
that only plays into the hands of the
Te rich also are much more likely to
endanger the currencys value by pulling
out of the domestic currency and running
to safe havens at the rst sign of ination
(as they are doing in Argentina now,
creating pressures on the currency that
raise ination fears and fuel a cascading
run out of pesos and into dollars). We need
progressive taxes and inheritance taxes
to protect our currency from antisocial
behavior by the rich. (And we might need
capital controls, too, to prevent their runs
to tax havens.)
Tere is also a strong argument to be made
for using taxes on the richespecially
capital gains taxesto discourage sins of
various kinds. Te sin of speculative excess.
Te sin of usury. Te sin of conspicuous
consumption of prestige goods and
services. And the sin of excess inequality.
Most important: the goal of taxing the
rich has nothing to do with raising
government revenue. Taxes are used to
keep the currency strong and to punish sin.
An ideal sin tax raises no revenue because
it eliminates sin. While we cannot achieve
that ideal, we can make sin less enjoyable.
6 Alternative Framing on Ination
30 31
It is tting that those who already enjoy
all the benets of life at the top ought to
suer more when they are sinful. Dont
tax the sin of the worker who enjoys the
occasional six-pack of brew. Go after the
real sinnersthose with the wherewithal
to engage in truly anti-social sinning
speculative and consumption excess.
To conclude:
1. When ination threatens, in some
circumstances it makes sense to raise
taxes. Since the rich pose a greater
ination threat, put the taxes on them.
Cash registers dont discriminate, so tax
those with greater purchasing power.
2. Tere are additional measures that
can be taken when ination pressures
arise; depending on circumstances, they
are probably more eective: rationing,
targeted wage and price controls,
patriotic saving.
3. At full employment it makes sense to
tax the rich while providing income to
the poor. At less than full employment,
this is not necessary (government is not
Robin Hood who must steal from the
rich to give to the poor). However, to
reduce inequality it may make sense to
tax the rich to reduce their richness.
4. Government spending and taxing need
not be closely linked; however, as the
economy nears full employment taxes
need to be raised if there are strong
public purpose interests in continuing to
increase government spending. Te goal
is not to increase government revenue,
but to reduce competition for relatively
scarce resources in order to direct them
to the public interest.
5. Not only does the high income and thus
potential spending by the rich threaten
domestic value of the currency, there
is a danger that the rich will speculate
against the currency. Tis provides an
additional justication for removing
excessive income from them through
taxes, and perhaps also for taxing their
speculation. Again, the goal here is not
to raise government revenue, but rather
to punish the sin of anti-social excess.
6. Explaining that government cannot
run out of its own keystrokes (or other
records of its IOUs) does not mean that
one is promoting run-away government
spending. Rather, it means that one must
confront the ination danger directly,
ensuring that government spending
and tax policy take account of ination
We use taxes to keep our currency strong.
We raise taxes when speculative excess
threatens the value of our currency. Unless
there is a strong reason to move resources
to the public sector, once full employment
is approached, either taxes need to be
raised or government spending needs to be
reduced to avoid inationary pressures.
6 Alternative Framing on Ination
Framing Decits
ecits and Debt are probably the
most terrifying topic that MMT
addresses. We need to be careful. We are
treading on moral (or religious) grounds.
We know that one should not be a debtor
(or, a creditor)most religions tell us
so. One who proclaims that decits and
debts are OK is automatically engaged in
blasphemy of various sorts, not least of
which is a crime against morality. Lets try
to frame the discussion.
When government spends more than it
taxes, we not only get the services and
infrastructure that we need but we also
get to accumulate net nancial wealth. We
are richer in both real terms and nancial
terms. Government also oers to pay us
interest on that nancial wealth if we
prefer to hold treasuries rather than HPM.
Government spending greater than taxing
should not be called a decit, rather, it is
governments contribution to our saving;
government bonds are not debt, they are
our net nancial wealth.
Decits and debts are bad framing; saving
and wealth are good framing.
Te clock that used to sit in Times Square
doesnt record our national governments
debt, rather, it shows our net nancial
wealth. President Obama has added
trillions and trillions to our nancial
wealth, making up for some of the losses
Wall Street imposed on us. Tanks Uncle
Of course, as discussed earlier, government
can spend too mucheven if it balances
its budget. It might not leave sucient
resources to promote the private purpose.
It might cause ination and currency
But there is no automatic causal sequence
running directly from a budget decit
to ination. Indeed, to a large extent the
governments ex post budgetary outcome
is not discretionary as it depends on the
nongovernment sectors actions.
32 33
7 Framing Decits 7 Framing Decits
At the aggregate level, a government decit
is oset by (and identically equal to) a
nongovernment surplus; and a government
surplus is oset by a nongovernment
decit. Te governments budget can
balance (spending equals taxes) only
if the nongovernment sectors budget
balances (spending equals income).
Te nongovernment sectors balance
is complexly determined (and indeed
depends partly on the governments
actions) but we can take it as at least
somewhat discretionary. To the extent that
the nongovernment sector (which includes
the domestic private sector plus the rest
of world that includes both foreign
governments and private sectors) exercises
discretion over its budget it means the
governments budgetary outcome is not
Let me repeat that: if we believe that the
nongovernment sector has discretion over
its budgetary outcome, then we believe the
government does not have discretion over
its decit.
Te government and nongovernment are
thus inextricably bound in an inescapable
balance. It makes no sense to talk about a
government decit as either imbalanced or
A government decit will result if the
nongovernment sector has a surplusa
perfect balanceand can persist as long
as the nongovernment sector wills it to
be soa perfectly sustainable balance.
Balances balance! Of course they do.
Balances balance. A meme that bears
Calls to cut the governments debt are,
equivalently by identity, calls to cut our net
nancial wealth.
Fiscal Austerians are, by denition, wealth
destroyers. And they are not just any
wealth destroyers: they destroy the safest
and most liquid kind of wealth we can
holdgovernment IOUs.
We like it when the government owes us.
Why on earth do the Austerians want to
turn the tables, reducing the number of
Government-Owes-Mes?; would they
be happier if we all owed the government?
Holding a Government-Owes-Me is like
holding a Get out of Jail Free cardif
worse comes to worst, I can pay my taxes
or other bills and stay out of jail.
Decit cutters are prot destroyers, too.
As we know, government decits mean
nongovernment surpluses. For Households
and for Firms. In the case of rms, that is
gross prots (receipts less spending). (We
could get into the Kalecki prots equation,
but we shall hold o on technical details.)
Cutting decits means cutting prots.
Decit hawks are prot destroyers. Tey
are the worst enemies to the capitalist
system. Tey would destroy it but have
nothing with which to replace it.
At least the Bolsheviks had an alternative!
MMT recognizes the important role that
government plays in protecting prots.
Budget decits mean private prots.
Whats wrong with that?
34 35
he monetary system is a wonderful
creation. It allows for individual
choice while giving government access to
resources needed to allow it work for us to
achieve a just society.
Te monetary system spurs entrepreneurial
initiative. It nances, organizes, and
distributes much of the nations output.
It is one of the primary mechanisms used
by government to accomplish the public
Tere could be a better way to organize
production and distribution. Tere could be
a better way to allocate resources between
public and private. Tere could be a better
way to induce the private to serve not only
its own interest but also the public interest.
But if so, we have not yet seen itat least
not since the end of tribal society, and Im
not sure I want to go back there.
Until that better system comes along, we
need a progressive meme for the monetary
system weve got. Progressives have been in
retreat for the past three or four decades.
Yes, theyve won some battlesmostly in
the social sphere. Teyve lost almost all
economic battles, however. At least some
of those losses are due to adoption of the
wrong meme for money.
We need to recognize that the monetary
system is important. It is not merelyor
even mainlyused to lubricate exchange
of goods and services. From its origins, the
monetary system has played an important
role in pursuit of the public interest. It also
is used in pursuit of the private interest.
And it isespecially in recent yearsused
by a rapacious elite of Wall Street insiders
in their own selsh interests.
To be sure, the monetary system cannot
and should not do everything. While
capitalism tends to extend the monetary
sphere into an ever larger proportion of
our social provisioning processes (the
economy) that can be carried much too
far. Tere are areas that need to be kept o-
limits, including many functions within the
purview of government.
We pay our judges and lawyers but we do
not want them to sell judgments to the
highest bidder.
We let our candidates for higher oce
accept campaign funds but we do not want
them to sell themselves to contributors.
As we push this progressive meme we
acknowledge that we deserve a better
government than what weve gotand
what weve had even when at its best.
Many of those in government serve private
interests, not the public interest. Teyve
been bought and paid for.
Te monetary system provides the power
to do good, and the power to do bad is the
other side of the coin. Still, even a largely
bought and incompetent government
(remember Heckuva Job, Browniein
charge of President Bushs rescue of New
Orleans after Katrina?) is better than no
Even the highly suspect bail-out of Wall
Street in the aftermath of the Global
Financial Crisis was better than no policy
response at all.
A better government can serve us better
(compare the Obama administrations
handling of Sandy to Bushs handling of
Katrina). Perfection is hard to achieve, but
not necessary to attain some success.
Good is not the enemy of perfection.
We have a better chance of getting a better
government if we choose a better framing.
We need better memes for our economics.
As Robert Heilbroner told me (while
declining to write a blurb for my 1998
book): money is the scariest topic there is,
and your book is going to scare the hell out
of the reader. He was right. We need to
stop scaring their readers.
I know from nearly a quarter century of
experience that the framing and memes
used by those of us who have developed
MMT on the shoulders of giants (mostly,
Post Keynesians and Institutionalists) that
we need better framing.
It isnt enough to be right.
More generally, progressives need to
drop the conservative framing; they need
immunization against the conservative
meme viruses.
Tey need a new meme for money. I dont
pretend to have found the right one(s). But
I hope to have contributed to the initiation
of a discussion.
8 Conclusion
36 37
eorge Lako had a new piece on
Michigans right to work law. I
wont go into that issue, but obviously the
framing involved in the naming of a law
that is diametrically opposed to right to
work is worth examining. Instead I just
want to quote a couple of particularly
insightful (incite-ful?) paragraphs.
Progressives and conservatives have
opposing views of democracy. For
progressives, democracy is based on
citizens caring about each other and
acting responsibly on that care, with
both individual and social responsibility,
to provide through the government
protection and empowerment for all.
Government thus becomes a means by
which citizens pay for public provisions
to benet all: public infrastructure (roads,
bridges, hospitals, public buildings),
public education, public health and safety
(clean air, clean water, safe food, disease
protection), a patent oce to protection
innovations, a justice system, and
networks for energy, communication, and
transportation. Without all these public
provisions, we are not free: Business
cannot thrive (if it can operate at all)
and we cannot live decent, civilized
private lives. It is a deep truth about our
democracy: our freedom depends on such
public provisions and the private depends
on the public. Unions both defend these
freedoms and add to them the worker
rights unions have created.
Conservatives dont accept this truth, if
they perceive it at all. Tey tend to see
democracy as providing liberty the
liberty to pursue ones own interests and
well-being through personal responsibility,
without being responsible for the interests
or well-being of others and without others
being responsible for them.
From this conservative perspective,
businessmen should have the liberty to run
their businesses as they please to maximize
their prot, and workers should rely on
only their personal responsibility to get
and keep a job. Unions, for conservatives,
thus violate (1) the liberty of business
owners to oer workers what is most
protable for the business, (2) the personal
responsibility of workers, and (3) the
liberty conservatives think workers should
have to work without paying union dues.
From the progressive perspective, the new
Michigan law is a corporate servitude law,
while from the conservative perspective,
the law is a right to work law.
Again, I do not want to debate the new
law or the role of unions (full disclosure, I
agree with Lako). Instead, what I want
to do is to emphasize Lakos take on
the progressive view of democracy and
government. As I said in the closing blog
on the alternative meme for money, all of
us, everywhere, deserve better government.
But I cannot see a better alternative to
democracy. And the conservative view
that wed all be better with lessor no
government is, as Keynes would put it,
crazily improbable. It has no evidence to
support it. It is ideologyor morality
with nothing to support it.
Conservatives, including so far as I
can determine most commentators in
the blog-o-sphere, take the view that
government reduces freedom, dened
as the ability to do whatever one wants.
Progressives emphasize the positive role
for government: government helps us to
care for ourselves and others, which vastly
increases our freedom. Note I said role for
government; we are not navewe do not
imagine that government is only positive,
it is governments role but government
doesnt necessarily perform its role.
Democracy is the best way we know to try
to encourage government to do good. We
are not always successful. It is not natural
it results only from our will.
For the conservative, however, this is all
silly. Government is run by individuals,
each of whom is out to protect his own
interest and screw everyone else. Tere is
no such thing as citizens caring about
each other and acting responsibly on
that care, with both individual and social
responsibility, to provide through the
government protection and empowerment
for all. For the conservative that is not
only impossible, but also undesirable. Te
Hobbesian ideal is dog eat dog, dog eat
man, man eat dog, and ultimately man eat
Tere were several hundred comments to
this series on the meme for money. A large
proportion pushed the conservative meme.
Not surprising. Across every blog site Ive
written for, conservative commentary tends
to dominate. For these readers, the entire
purpose of this series was anathema. As
I made clear, I was providing advice to
progressives: how to frame discussion of
money to further the progressive agenda.
Obviously, conservatives would oppose
that. Many simply register their objections
openly, others try the why cant we all
just get along defence. Well, because if
progressives adopt conservative framing
they will lose policy debates.
9 Coda
38 39
Yes, I understand (and agree with) the
claim that MMT has something for
everyone (remember, I wrote that MMT
is for Austrians, too!). No matter how
conservative you are, you need to touch
base with reality now and then, and so
a truthful description of the monetary
system can be useful. If youve only got
angels on pinheads you dont have much
for policymakers. So conservatives can
learn a lot from MMT, and can use their
conservative framing to ensure their
own policy implications from MMT are
consistent with conservative morality. Tat
is ne. You dont need my advice. And you
wont get it.
Tere were also various objections
to modern money theory, itself, as a
description. Tese comments were just
dredging up dead issues, things covered
many times by advocates of MMT.
Others disagreed with progressive policy
recommendations. But neither of these
topics were the subject of the series. As
I said, I was taking MMT as well as a
progressive policy stance for granted, with
a view to discussing the proper framing for
progressives (and especially for those who
know and accept MMT but who have not
been successful in framing the issues).
Tere were also a number of comments
complaining that this particular series
was not aimed at the man in the street
level. Of course it was notit was aimed
at progressives who understand the theory
and the issues. Weve been trying to aim
the theory at the general audience for
years, not always successfully. In my view
that is in part due to framing. We need to
back up and get the framing right.
So, again, most of these comments were
Tere were, however, a few relevant and
good comments. I think we all need to
step back and take some time to digest
some of the proposed memes contained in
those comments. In case you missed it, I
think this particular comment, by AJ was
particularly insightful:
I too struggled for a while wondering
if MMT is just a load of bullocks. You
would think something this important
would be subscribed to by more people. At
that point I tried to nd as many articles
and posts I could nd on why MMT was
not true, and I could not nd one article
or post that could logically point out any
faults. Te argument against MMT
usually starts o by someone just at out
saying something like, you cant just
create money out of thin air. Tis point
MMT easily proves false, and you can
get most people to concede this point fairly
easily. Te next hurdle is ination, which
usually gets expressed as the argument,
but, but but, ZOMG inations!!111!,
Zimbabwe, Weimer Germany!1!1!!
Tis argument can be countered by
explaining how increasing demand when
an economy is under capacity increases
supply. Tat price only goes up (ination)
when supply cant keep up with demand.
Tis explanation is more dicult to
get across, because the person must be
somewhat familiar with econ 101 supply
and demand. Most people who value
intellectual honesty will now concede
both of these points to you. Now you are
up against ideology: We have to impose
all these rules to limit federal spending,
because if we didnt the Congresscritters
will just spend money all willy-nilly on
whatever projects they want. It is this
conservative mistrust of giving congress
too much power that prevents us from
giving them enough power to do what
should be done. Tis is why Randy is
looking for an alternative framework: to
help win the moral argument.
Tere are several reasons this is not more
mainstream. First and foremost it requires
a lot more economics knowledge than
most people have. Your average Joe could
care less about reading Randys MMT
Primer or understanding exactly how
the Fed and Treasury conduct monetary
operations. Te reason that you dont see
more academics jump on the bandwagon
is that mainstream economics has a vested
interest in maintaining its status quo.
As Steve Keen frequently points out,
mainstream economics completely ignores
the private banking sector. As incredulous
as that sounds to a non-academic, it is
completely true. For example take Paul
Krugmans comment Now, Im all for
including the banking sector in stories
where its relevant; but why is it so crucial
to a story about debt and leverage? If
you dont know why Krugman is wrong,
go to Keens website and watch a few of
his lectures. Economics is still a relatively
young discipline, it is hard to set up
experiments to conrm or hypotheses and
real world scenarios play out over decades
or centuries, not days or months. Tere
is really only 1 other depression with
which to compare the current one, and an
experiment with 2 observations doesnt
really lend itself to developing hard and
fast theories. What Randy and the rest of
the MMTers at UMKC and elsewhere
have done is resurrect theories that were
discarded during the great moderation
and update and expand on them.
Expect to see more people accept MMT
over the course of the next few years.
Especially if we start double-dipping in
Yep. Tats all on the right track, so far as
I see it. Lets take a long vacation from
the theory and even from the policy. Lets
come back in 2013 with better framing.
While it would be nice if we could distil
MMT down to a single nice catchphrase,
I do not think that is possible. Money is
hard stu. It is contentious. It is layered
under tons of misunderstanding and
misinformation. We have to peel back
those layers. We need to get to the core, or
rather cores (there are certainly many).
And we need to rene the progressive
memes. Indeed, we probably need to
9 Coda 9 Coda
40 41
identify what is progressive. Tis is
toughfar more dicult than uncovering
how money actually works.
Getting the right framing requires
understanding how the mind works
likely more complex than how our
monetary system works. I can accurately
and (relatively) simply explain how
the government spends. But I cannot
understand, much less explain, how
individuals react to that explanation. I
am perplexed beyond comprehension
how a simple description of monetary
operations triggers the Weimar response
in a large part of the population
importantly a population so young that
even their grandparents and great-
grandparents could have had no signicant
personal experience with hyperination.
How is the virulent Weimar virus
propagated from brain to brain over so
many generations? I do not know. Are
there anti-bodies to the virus? I do not
know. Why are a few immune to the
deadly disease? Is it education? I doubt it.
Upbringing? Perhaps. Genes? I hope not.
And so on for all the other conservative
viruses aicting thought.
Lako argues that language has a lot
to do with the propagation of the virus.
Once infected, the brain thinks through
the metaphor. Hes identied many of the
metaphors often invoked:
Te simplest, is the metaphor named
MoreIsUp, which is a neural circuit
linking two distinct brain regions, one for
verticality and one for quantity. It is a
high-level general metaphor widespread
throughout the world, and occurs in a vast
number of sentences like turn the radio
up, the temperature fell, and so on
Why is economic activity conceptualized
as motion? Because a common conceptual
metaphor is being used: ActivityIsMotion,
as in sentences like Te project is moving
along smoothly,Te common metaphor
TeFutureIsAhead accounts for why the
motion is forward.In a diagram of
changes over time in a stock market or the
GDP, the metaphor used is TePastIsLeft
and TeFutureIsRight
I realize this goes against the grain. We
all like to think of ourselves as rational,
logical. But weve known at least since
the time of Sigmund Freud that that is
not true at all. Te mind takes on a life
of its own, so to speak. It is mostly out of
control. Our control, that is. Te viruses
got it.
In discussing the scal cli metaphor and
all the discussion about the need to get the
nations scal house in order, Lako goes
Te Austerity Frame is about
self-denial. As used in Europe, it
assumes two conceptual metaphors,
TeNationalBudgetIsAFamilyBudget and
Both are terribly misleading. Great
Britain is richer than it has ever been,
just as America is, if you count the total
wealth of their corporations and citizens.
Te nations are far from broke, but the
requisite money is not in the governments
coers. A family budget is nothing like a
national budget, because the nation has
vastly more resources and possibilities
than any typical family. Tese are the
austerity metaphors.Austerity implies a
long-term responsible form of self-denial
that makes your situation better.
Can you kill the austerity virus with cold,
hard facts? Of course not. You see facts
through the fog of viruses that infected
your brain. Keystrokes? Zimbabwe!
You need a better meme. And weve got to
start from the ground up. Focusing on the
description of money will fail. Even if we
focus on the desired policy outcome, we
will fail. We have to start with morals. I
still think Springsteen has got the starting
point: We take care of our own. We is all of
us. Our own is all of us. We are all of us in
this together.

We take care of our own.
9 Coda 9 Coda