Jan 14, 2021
Welcome to episode 63 of Activist #MMT. Today is part six of what was originally supposed to be a five-part conversation with one of MMT's original developers, Mat Forstater. Mat first resolves the unexpected cliffhanger from the end of episode five, regarding the purpose of MMT and how it is sometimes misunderstood.
As Mat told me at the start of today's episode, "The purpose of MMT is not to be a complete theory of capitalism, but rather to correct some crucially-important mistakes that have very important and practical policy implications." Specifically, MMT is an accurate description of the financial system at the heart of modern capitalist economies. It has three (and only three) policy prescriptions as implied by that description: a floating exchange rate, a federal jobs guarantee, and a permanently, near-zero central bank target rate. In other words, MMT is deliberately limited in its scope which is sometimes twisted to portray MMT as not enough.
What MMT actually says is that many things desperately needed by millions can be safely provided right now and, in fact, can always have been provided. There is no need for the issuer to "obtain the money" from anyone or anything in advance in order to do so. This is because the issuer has no choice but to spend by issuing new money.
This reality is misinterpreted, for example, in some popular Marxist critiques, as if MMT enables or even promotes terrible things like imperialism and inequality. MMT shows that we don't need to reduce the belligerent military or reduce inequality in advance of doing these things. What these critics miss is that reducing the military and inequality is a good thing to do for its own sake – not because we need their money in order to pay for those things. The military must be made less belligerent because we reject belligerence as a moral stance. We must reduce inequality (partially by taxing the rich), because we reject inequality as a moral stance and also because that money is being used to kill our society and the long-term existence of our species – at least as far as most of us here in the 99% are concerned.
Conversely, the limited scope of MMT is positive in the sense that it allows those things it leaves unaddressed up to interpretation – without compromising its core findings. For example, MMT allows for Islamic economics (as discussed in episodes 56 and 57 with Asad Zaman). It allows for the Marxist worker revolution (as discussed an episode 58 and 59 with Jim Kavanagh). As Mat and I discuss in today's episode, MMT allows, encourages, and even requires personal feelings, instinct, intuition, and even imagination and dreams. To quote Mat, "MMT builds bridges between economics and other interdisciplinary fields." Mainstream allows for none of these things, and in fact, discriminates viciously against anyone who dares even consider them. This is the only way it can preserve its dominance since clearly it can't win on the arguments.
In the second half of today's episode, Mat and I discuss the connection between economics and the second law of thermodynamics. The first law of thermodynamics states that the total energy in an isolated, or closed system, such as the universe, is constant or fixed. Energy can transition from one form to another, but it can't be created or destroyed.
The second law states that any utilization of matter and energy permanently decreases the amount available and accessible to that same system. This is called, or leads towards, entropy. To bring this back to economics, the idea that the so-called "free market," which is another example of a closed system, can survive without injections of new money from the currency issuer, is just as nonsensical (if perhaps in different time scales) as the idea that a television can continue to function when its no longer plugged in. It might last for a few seconds, but soon enough, it no longer functions.
Major corporations needing federal ballots bailouts every decade or so is all the evidence needed to prove this. They don't just require periodic bailouts, they require outsized influence over our media and educational institutions, and all three branches of our government. Without the ability to push all real and financial costs onto their workers and society in general, they would need much more than a massive bailout every decade or so, in order to survive.
Most importantly, regarding the economy (and as I understand it), the second law of thermodynamics seems to fully hold from the point of view of the non-government sector. However, from the point of view of the currency issuer, it does not hold. The first law states that the amount of energy is fixed. But energy and matter are physical things and therefore subject to the laws of... physics. From the issuer's point of view, money is not physical; it's merely numbers in accounting ledgers. In other words, they're essentially tally marks. Tally marks are a concept, not a physical thing. As long as humans exist, their capacity to create (and destroy!) their own money is limited not by physics but their imaginations. Therefore, to not provide the money desperately needed by millions, and to provide it to those who need it the least (or use it to hurt others), is not for a lack of finance but imagination and morals.
Resources, from Mat:
The first law of thermodynamics is better put: "matter/energy can neither be created nor destroyed, but can only change in form." And the second law, aka entropy law: "any utilization of matter/energy decreases the total available matter/energy." What’s with the "matter/energy"? Matter is energy ( E=mc2 ).
You can see how degrowth could follow from the entropy law, or zero growth. On creative discovery, see
- Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (book)
- Herman Daly, Beyond Growth (book)
- Herman Daly and John Cobb, For the Common Good (book)
- Herman Daly, The economic thought of Frederick Soddy in the Winter 1980 edition of the journal History of Political Economy