Jul 16, 2020
Welcome to episode 37 of Activist #MMT. Today I talk with Dan Sullivan, an experienced Monetary Reformer and member of the American Monetary Institute (or AMI), about the core differences between Monetary Reform and Modern Monetary Theory (MMT). Monetary Reform is the idea that private commercial banks have more influence over our economy then does the central government. This is because, according to Dan, banks create loans pro-cyclically with the currency issued by the central government (which I’m going to call “the government"). In other words, roughly speaking, for every dollar created by the government, banks issue at least a dollar in loans, since they believe the recipients will be more able to pay them back. Conversely, when less is created by the government, banks reduce the number of loans, since there is a greater chance of default.
This is counter to my own understanding, and counterintuitive, in my opinion. As I understand it, loan creation is countercyclical, meaning banks increase their lending when government creation is decreased. This is because, when people are provided with less via public money (noting, importantly, that, after taxes, public money does not need to be paid back) those people must instead take out private loans for day-to-day survival. This includes credit cards, payday loans, home equity loans, and student loans – all of which must be paid back, with interest. (Being needlessly deprived by the government also increases the likeliness of bad decisions, such as crime and unhealthy lifestyles, and all the individual and societal consequences that come with it.)
The primary focus of MMT is on real world consequences, not financial positions. This is because money and financial positions are human created concepts, of which humans are in total control. (This concept is alternatively called real versus paper problems by Sam Levey, and functional versus sound finance by Abba Lerner.) If environmental damage and human suffering is minimized, then the position of the federal budget, whether in deficit, balanced, or surplus, is exactly what needs to be. The same is true with the size of money supply and the amount of money created by the government. According to Dan, however, “inflation is always caused by creating too much money…" In order to help people, he believes the top priority must be to strictly regulate the amount of money created by the central government, especially because of the pro-cyclical nature of loan creation.
Monetary Reform and MMT agree that the banking system is in serious need of reform. The reform proposed by MMT founder Warren Mosler would require, among other things, that banks keep loans on their books for the entire life of the loan, and that financial instruments not be used as collateral. This reform would shrink the banking system by approximately 90%. Monetary Reform, however, believes the primary solution to be to impose full reserve, or “narrow" banking. This is the idea that no loan may be created unless the bank has at least that amount in reserves in their account at the Federal Reserve. This means that, within the amount of reserves they have on hand, banks are free to decide how much to loan, and to whom and for what. The government, however, would be in control of the total amount of reserves each bank has, and has the ability to change that amount at any time and as conditions warrant.
I was surprised to learn that Dan agrees that:
- loans create deposits,
- who owns or does not own the Federal Reserve does not change any of the above, and that
- mostly speaking, federal spending is indeed money creation and the collection of federal revenue is money destruction.
Finally, note that this interview was recorded in January of 2019. You’ll hear me make a few important mistakes, especially as it relates to bonds and the national debt. I now understand that the outstanding bonds are by definition the national debt. Setting this aside, and also setting aside Dan’s obvious large disagreements with MMT, I think you’ll find several important insights regarding how Monetary Reform views the world, and its prescriptions for making it better.
This interview with Dan, plus my previous interview with Joe Firestone on the same subject (in episodes 19 and 20), resulted in an article where I describe the core differences between MMT and monetary reform. [A link can be found in the show notes.]
This is part one of a two-part episode. Enjoy.
Resources
Here is the conversation that started my journey into researching a MMT and Monetary Reform.
Dan spoke at the 2017 13th Annual AMI Monetary Reform Conference, which was hosted by the American Monetary Institute. AMI is the American organization advocating for Monetary Reform. Here is Dan's full bio from the conference (http://archive.is/PPzZG):
Dan Sullivan is the president of the Council of Georgist Organizations and the director of Saving Communities. He has been instrumental in winning shifts from property taxes and wage taxes to land value tax in some of the Pennsylvania cities that levy that tax. His leadership is primarily responsible for three quarters of a billion dollars in tax shifts.Dan’s presentation on Land and Money Monopolies examines the parallels and differences of the land question and the money question and makes the case that these two issues are the most fundamental issues before us today. Dan will also discuss The Limits of Local Currency examines the strength and weaknesses of how local currencies have been designed, shows how well designed local currencies can benefit the localities where they are issued, and shows how they fail to address the underlying problems of debt currency.
#LearnMMT
For an overview of Modern Monetary Theory (MMT) with many reliable sources to learn more, here is a good place to start:
- On the web: My layperson intro with many expert sources listed at the bottom.
- On Twitter: My massive pinned tweet with expert sources and layperson tutorials.
- On Facebook: Follow this podcast :) The pinned post contains the above web-article. Also, the pinned post on Modern Monetary for Real Progressives contains a wealth of information.
Please become a monthly patron of Activist #MMT
We shouldn't have to beg,
but we do have to beg.
So it's not *that* we beg,
but *who* we beg.
I am choosing to beg you, my listeners, to financially support this show. $1 patrons get exclusive access to episodes (generally) four days before they are released to the public, and exclusive patron only content, updates, and opportunities, and for some episodes much earlier access to episodes – sometimes weeks, or even months in advance.
To be clear, all episodes of Activist #MMT are free for all, forever. Patrons only get the opportunity to hear them before the public.
Take a listen. If you like what you hear, thank you for considering becoming a patron of Activist #MMT (here: https://www.patreon.com/activistmmt).
✌️, ❤️, and #MMT 🦉