Modern Monetary Theory will not offer us the full-blooded attack on capitalist economic organisation that we need, argues Susan Newman

Modern Monetary Theory (MMT) has both been promoted by the left as an alternative to austerity and quantitative easing and subject to heavy criticism on grounds of practicality and limited application to the specificities of the British Economy and ‘complex problems of political power’ (see recent article against MMT by James Meadway in Tribune). According to MMT governments can and should sustain large fiscal deficits to fund infrastructure, education, welfare and job guarantee programmes with the aim of achieving full employment.

A sovereign government, so the theory goes, cannot run out of its own currency and that currency is worth something to the extent that government can use it to pay for goods and services. Unlike Quantitative Easing that creates liquidity for the private sector and leaves it up to the latter to employ this in productive activities, MMT prescribes fiscal policy, namely public investment financed by state money creation. The state thereby takes on the risk of inflation and is able to temper inflationary pressures through taxation that removes money from the private sector. The value/purchasing-power of the currency will depend on the ability of the state to tax the private sector; any breakdown in the tax system would quickly erode the value of the currency and the state’s ability to fund social and economic expenditures. History tells us that that state expenditure is a political choice rather than one constrained by budget; as the familiar anti-war message goes, “we can’t feed the poor but we can fund a war”. 

Proponents see MMT inspired macroeconomic policy as challenging prevailing unequal power relations in society by affording the state a central role in economic governance and doing away with the scarcity of money. Unequal power relations under capitalism do not derive from the scarcity of money but the structuring of class society according to the ability of a few to exploit the majority for private profit as elucidated by Marx.

While states can create money, they cannot determine its value; this comes about from the labour of workers and the way in which work and production is organised in society. MMT inspired policies alone would not challenge power relations without the appropriation of the financial sector, which currently acts to expropriate from the many and enrich the few. Unless there are complementary policies aimed towards radical restructuring of production towards socialised ownership and democratic organisation to sustainably meet the needs of society, policies inspired by MMT amount to what Michael Roberts has referred to as a ‘backstop to capitalism’. MMT policies might temporarily reverse the impact of a decade of austerity but it will keep the prevailing power relations between capital and labour intact and leave the economy vulnerable to future capitalist crises and bailouts financed by austerity, taxation of the poor.