A new project will promote the idea that it is the government - not the private sector - that creates money. In doing so, it could demolish the arguments for austerity...
Last Friday saw the launch of a project which could change how we think about the monetary system.
The Gower Initiative for Modern Money Studies (GIMMS) aims to spread the insights offered by an alternative way of thinking about money.
Modern Monetary Theory (MMT) is a lens through which to view the monetary system in countries with sovereign currencies, like the UK. MMT states that monetarily sovereign governments create all money through spending, and governments can purchase anything denominated in its currency.
A different perspective
MMT separates taxing and spending. In fact, it reverses their order – central governments have to spend in order for the non-government sector to have the income to pay their taxes. Spending creates pounds, whilst taxing removes them. ‘Taxpayers money’ per se, does not pay for services. MMT’s insights are descriptive, but most people who get involved with MMT are economically progressive.
The jewel in MMT’s policy crown is the Job Guarantee, a transformative idea which would mobilise currencies to buy all available labour, creating public purpose jobs and raising living standards.
MMT acknowledges that government deficits must have corresponding surpluses, i.e. the money circulating in the private sector. Reduce the deficit, and you reduce the surplus (the incomes of normal people). The limit to government spending therefore is not an arbitrarily budget limit, but inflation and real resources.
As these insights have radically empowering implications, it’s important to not interpret them simplistically. MMT does not suggest that governments can spend limitlessly, nor that taxes aren’t essential. It posits that the real limiting factor to government spending is inflation (and political will).
Officials already acknowledge this when referring to the ‘fiscal space’, into which governments can spend before undesirable inflation manifests. The issue is inflation, not insolvency. The current fiscal space in the UK, beset by wage stagnation, underemployment and staggering consumer debt, surely offers room for additional government spending without inflationary consequences.
Having long boasted a diverse online activist community, MMT is starting to gain traction in mainstream media outlets, and there are excellent podcasts, videos and websites to kick-start a sociological re-evaluation of money. MMT Twitter pop culture is alive and very informative.
Crucially, the GIMMS launch felt welcoming and made clear that wielding economics as a tool for progressive policies requires no formal economics background. Indeed, leading MMT proponent Professor Bill Mitchell implies that this is a distinct advantage.
GIMMS are one of a several civil society outfits democratising knowledge about the monetary process. Banking reform group Positive Money produce explainers on debt and explode the widely-held myth that banks dispense savings when they make loans. In reality they create the credit, which the Bank of England freely admits.
The New Economics Foundation (NEF) provides a welcome riff on the dishonest ‘government = household’ analogy which has persisted since the 1970s. NEF economist Alfie Stirling equates the government’s fiscal powers to a central heating system, which must be turned on to get the economy going in chilly times.
As Ann Pettifor, an economist who predicted the 2008 crash, has written:
“Contractionary austerity policies shrink public investment just as the private sector is over-indebted and weak. Cutting public investment curtails not just public sector activities but private sector activities, profits, wages, incomes and tax revenues.”
These organisations and people, though not MMT proponents, demolish the neoliberal notion that money is derived exclusively from the private sector and that people are hostages to private capital. Fiscal policy will be integral to achieving progressive policy goals, such as solving our social care crisis, and therefore must be sustainably embraced.
In the face of Brexit upheaval, sharp distinctions should be drawn between resource-based problems (NHS staffing or access to medicines) and monetary cuts to existing services. Improving public services and resisting lethal austerity is at the heart of GIMMS’ mission.
As Professor Mitchell said at the launch: “Countries can use their sovereign currencies to utilise the resources they have most effectively.” Domestic public spending decisions are more within the gift of government than politicians would admit.
No party should get away with contractionary economic policy as a response to private sector uncertainty. Politicians must balance the needs of the whole economy, and stop treating the health of the finance sector as synonymous with inclusive growth.
Suggesting that monetary public service cuts are an inevitable result of any particular strain of Brexit is a dangerously misleading approach for progressives to take. Meanwhile, proceeding with savage cuts to local councils, who will be on Brexit’s front line, the Conservatives are making a catastrophic error.
GIMMS’ potential is exciting, and its ideas will spread through activists holding workshops on monetary systems back in their local party branches.
GIMMS website manager Claire Jackson-Prior spoke of the urgency of broadening this debate:
“Our planet is gasping for us to re-examine how we define GDP, work and growth. The urgency of the Job Guarantee to our environment and communities cannot be overstated.”
Whether one becomes an explicit proponent of MMT or not, it is more important than ever that austerity be challenged on its economic and theoretical failings – and GIMMS will play a part in that.
Will Carter is a charity worker and writer. Follow him on Twitter.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.