The Flamboyant Absurdity Of ‘Modern Monetary Theory’
“Money does not pay for anything, never has, never will. It is an economic axiom as old as the hills that goods and services can be paid for only with good and services.” – Albert Jay Nock
In a very real sense so-called “Modern Monetary Theory” (MMT) was inevitable. It was inevitable given the old-as-civilization belief that “money” can be manipulated to alter reality. MMT may be new, but it’s as old as “money” is. This most absurd theory of money can be found in the fantasy that is currency devaluation; devaluation a cruel notion that began when money did, and that still excites the minds of simplistic thinkers today.
Some in and out the Trump administration claim that devalued currency is the path to prosperity, and they promote such fiction in some of the U.S.’s most prestigious editorial pages. In their defense, the left believe much the same. Just last week in the Washington Post, Fareed Zakaria laughably asserted that one of the problems with a uniform currency like the euro is that it limits the ability of governments to devalue the currency in times of slow economic growth. With money, the fallacies are endless.
Indeed, let’s think for a minute about the accepted wisdom concerning devaluation. Your country is in recession, so the plan should be to shrink the exchangeable value of the money that the citizenry earns? But wait the fallacy-blinded say, the cheaper currency will make businesses more competitive globally….Except that the measure of their competitiveness is the currency they earn, and government is devaluing what they earn.
To which the monetarily confused remind us that corporations need to sell goods globally, and money that’s not being debased makes their products more expensive. Never asked is why they don’t lower their prices, thus sparing the rest of us the theft of our wealth. Money unearths the stupid like nothing else.
Money is a veil. Devaluation of it can’t change the real price of anything, particularly in a globalized world in which every good produced is the final effect of inputs from around the world. If you devalue the currency, you logically increase the cost of production, thus erasing any presumed competitive benefits.
Worse is that devaluation is an investment deterrent. Investment is what drives prices down simply because investment is what facilitates the production of more and more with fewer and fewer costly inputs. Crucial here is that investors, when they put money to work, are buying future currency income streams. So if there’s devaluation there’s logically less of the investment without which prices cannot fall.
Which brings us to “Modern Monetary Theory.” To be fair, it can’t be stressed enough that it’s not a new thing. It’s an old thing with a new name. MMT, like devaluation before it, is an old trick with a new name whereby the proponents aim to get something for less than something.
Monetarism, or “market monetarism,” is yet another variant of MMT. Monetarists believe that a planned rate of growth of so-called “money supply” overseen by presumably wise economists will result in prosperity as far as the eye can see. And what if the growth rate doesn’t measure up? Don’t worry, monetarists tell us the central planners can just increase the supply of currency even more the next year in order to make up for the growth shortfall. Not enough prosperity, just add dollars….You can’t make this up!
Back to reality, money is an effect of production as opposed to a driver of it. If you’re productive in ways that others value (call “others” the market), money will find you. Evidence supporting this claim comes care of supposed “enemy of the U.S.” countries like Cuba, Iran and Venezuela. Amid the slow growth and suffering that is the norm in each, there are pockets of productivity. Crucial here is that U.S. dollars liquefy the trade of that productivity (much of it in the “black market”) despite unhappy relations between the U.S. and said countries. Finance has always been lucrative. Since it is and always will be, money necessary to facilitate the exchange of goods and services for goods and services will always be abundant where there’s production.
It’s all a long way of saying that if every dollar in the world were eviscerated today, the U.S. would still be the richest country in the world tomorrow. Weare the wealth. We are the producers of the goods and services that constitute wealth. Money is merely an agreement about value that measures what we produce, and facilitates the exchange of what we produce. Trade is always about products for products, and money is the measure facilitating the trade. If the dollar were to disappear, exchangeable measures of wealth that we call “money” would re-appear in the U.S. as quickly as the dollar vanished. Finance is once again lucrative, and as there’s lots of money to be made facilitating the exchange of copious production stateside, the U.S. doesn’t and will never have a “money shortage.”
Indeed, there’s no such thing as a “money shortage.” Where production is abundant, so is money. Where it’s scarce, so is money scarce. Money can’t stimulate or instigate as so many so naively believe, rather money finds its way to where individuals are already stimulated and relentlessly instigating.
MMT proponents act as though the above isn’t true. As they see it, monetary authorities should simply print the dollars necessary to pay for universal healthcare, universal education, armaments, welfare, you name it. Implicit there is that the creation of money is what conjures up real resources. Such a view brings new meaning to putting the cart before the horse. Based on the MMT fantasy, the reason the Soviet Union failed and the real reason Haiti struggles today is because Soviet leaders didn’t and Haiti’s rulers don’t realize the power of the printing press. If they had just printed “money,” resources necessary to continue the Cold War against the U.S. and feed the people would have arrived in abundance.
More reasonably, reality always intrudes when economic fabulists try to craft ways to get something for nothing. And rest assured, MMT is all about getting something for nothing. You see, the creation of dollars for just the sake of creation would have nothing to do with actual production. Money isn’t abundant in the U.S. thanks to the genius of the U.S. mint, Treasury or Fed, rather it’s abundant because Americans already produce in abundance. If Americans weren’t productive, there would be very little money circulating. Why would what only exists to facilitate exchange and investment circulate where there’s very little production and entrepreneurialism? Implicit in what is absurd is that East St. Louis has a money shortage problem as opposed to a problem of scant production. Money is only circulated insofar as there are actual goods and services being created. Think about it.
Ok, enough about what’s ridiculous. Fallacies stalk money like nothing else. MMT is a new/old form of economic trickery that logically appeals to some precisely because it’s based on what appeals to all too many: getting lots of goods and services without doing anything for those goods and services. The good news is that actual markets defined by real prices aren’t nearly as stupid as economists, politicians and pundits plainly are.
John Tamny is a Forbes contributor, Director of the Center for Economic Freedom at FreedomWorks, editor of RealClearMarkets, and a senior economic adviser to Toreador Research & Trading. He’s the author of “Who Needs the Fed?” (Encounter 2016), along with “Popular Economics” (Regnery, 2015).