A Coherent Monetary Theory is a Threat to the Capitalist State

Marxian political economists often criticise Modern Monetary Theory (MMT) for its lack of class analysis. While these critiques are right to point out that MMT has often been presented as the saviour of capitalism and growth, its insights are also of use to those who wish to see an end to capitalism and growth. While many proponents of MMT are not interested in a world beyond capitalism, the theory itself could offer useful tools in this struggle. Indeed, at its heart, MMT formulates the coherent monetary analysis needed by anyone who believes in using State power as a means of dismantling capitalism.

The capitalist State is beholden to the private sector in several interlocking ways. It relies on businesses turning a profit in order to function for two primary reasons. First, it delegates job creation to businesses. Second, it views taxation as a prerequisite for public spending. Without profits, capitalists do not carry out the investments necessary for creating sufficient jobs and government revenues fall. For these reasons, any reforms that jeopardise private profits, such as social and environmental protections, are opposed on the basis that they present a threat to the economy, and thereby the State and society as a whole.

Governments are thus under constant pressure to foster a good climate for business. Should their laws pose too much of a burden on companies, it is increasingly easy, in our globalised economy, for firms to uproot and move somewhere else. These moves devastate the communities who relied on their employment: this is the spectre of capital flight. Corporations that generate high profits exert outsized and undemocratic political influence. On the one hand, they can fund lobbyists and political campaigns friendly to their agendas; and on the other, they can threaten to relocate overseas should the State not meet their demands.

The monetary theory put forward by advocates of MMT highlights the inconsistencies inherent to this neoclassical view. MMT recognises that the State creates money every time it pays a public school teacher or signs a contract with a company to build a bridge. Governments do not rely on taxation to fund their expenditure, but rather to reduce aggregate demand, thereby limiting inflation. Here lies the real limit to public spending: the productive capacity of the economy, which, importantly, can be modified to suit the ecological limits and social demands of society. Inflationary pressures are generated if demand for a good or service rises beyond the social and ecological limits of production. If a State decides to double the number of nurses it employs without a corresponding programme to train more nurses, it would have to hire those already working in the private sector. Competing with the wages paid by private hospitals means higher wages for nurses in the public sector, and creates inflationary pressure. Given how underpaid nurses are, higher wages are needed, but should come into effect as part of a broader Job Guarantee, to which we will now turn. Through public spending and investment, the State has the ability both to increase the salaries of nurses and, over time, train more of them—regardless of the size of the budget.

A State with high economic agency need not rely on companies either to create enough jobs, nor to fund its spending. It could pass a public Job Guarantee so as to offer everyone a good job paid at a living wage in low-carbon work to prepare our societies for the challenges before us. A Job Guarantee could chart a course towards social-ecological transition by revitalising sectors like renewable energy, nature conservation, public transport, care, affordable housing, health and education. For example, the current energy crisis provides a great opportunity for States to shift societies away from car dependency by investing in public transportation. States could fund good jobs in the transportation sector, including the work of electrifying the public transit fleet. Simultaneously, a shift away from cars could be encouraged by making public transportation free at the point of use. The 9-euro ticket with which Germany experimented over the summer proved an extraordinary success for both people and planet, with 52 million tickets sold in a country of 83 million people, at least 1.8 million tons of CO₂ saved, and roughly one car trip in ten replaced with public transit. States with high economic agency need not wait for private investment to fund transformations like these, but instead can crowd it in by leading the way.

Moreover, a Job Guarantee has the potential for a major power shift from capital to workers. The policy would create a de-facto minimum wage with which the private sector would have to compete. The Job Guarantee would also remove the reserve army of labour—the group of unemployed and underemployed workers in society that capital depends upon to discipline workers into accepting exploitative working conditions. While the policy would be funded by State spending, the jobs on offer and the conditions under which they are performed could be decided from the bottom up, thus serving to democratise the work sphere and to reduce the alienation of workers. Combined, these features of the Job Guarantee represent huge shifts in bargaining power from capital to labour. In this way, the policy constitutes a revolutionary reform which opens up space for further struggle.

The insights offered by MMT are fully compatible with Marxian political economy. Indeed, they have the potential to liberate fiscal policy from the tyranny of M-C-M’. Understanding where money comes from and the limits to its creation constitutes a major blow to the justification for the use of State power to protect capital. MMT offers tools to left-wing governments for enacting a social-ecological transformation without capital flight putting paid to their plans. If nothing else, MMT provides us with a powerful argument against the absurdity of neoliberal policies. In this way, MMT can help to rebuild class consciousness against the elites who promulgate these policies. It is time for the Left to have the guts to use this cudgel to put an end to the age of austerity and chart a path towards eco-socialist degrowth.

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