MMT Goes Hollywood

A Viewer's Guide to _Finding The Money_

We’ve Never Needed to Find the Money First

Anyone who considers money-theory a dry, boring, merely academic topic might be surprised to learn of the new film that dropped earlier this month. A slickly produced, 95-minute documentary that follows the recent formula of, in essence, “documenting” an academic or political argument or policy position, Finding the Money follows Stephanie Kelton as she tries to get audiences across the US to “open their other eye” and upend the entire paradigm of money and the national debt.

The movie marks the next stage in rising popularity and potential influence of modern monetary theory (MMT).¹ Kelton had already become MMT’s most famous spokesperson when she served as a key economic advisor to Bernie Sanders’ 2016 presidential campaign, and this documentary centers her as the academic star who will right the wrongs of the orthodox economic view of money and deficits, and broaden our political horizons. To establish both the gravity of the issue and the authority of Kelton, the film opens with a brilliantly edited and produced pre-title sequence, almost 5 minutes in length, that repeatedly cuts back and forth from (1) state of the union speeches where US presidents bemoan the national debt, and (2) Kelton soberly and succinctly explaining why the debt is a boon, not a burden, and why the government has no need to “find the money” before (or even after) they spend it.

An Old Argument

This is not a review of the movie. If forced to write a review, I would feel compelled to produce a critique, and it’s not clear to me that such is warranted. Let me explain.

The movie’s goal, revealed quite clearly in its third act, is to open viewers’ minds to a whole new space of democratic political possibility. Yes, it says to its presumed left-leaning (and presumably American) audience: we can start a green new deal, enact national health insurance legislation, and even consider something like a federal job guarantee. All of this is possible, MMT tells us, because “how are you going to pay for that” turns out to be absolutely the wrong question.

Despite the fancy overlayed charts and graphs, and the professional light and sound, there is really nothing new about this basic argument from political economy. The basic thrust of the MMT reply manifestly echoes Keynes from just over 80 years ago.

In 1942, the BBC ran a series of addresses devoted to the topic of post-war planning for Great Britain. Keynes's contribution came under the title “How Much Does Finance Matter?” He opened as follows:

For some weeks at this hour you have enjoyed the day-dreams of planning. But what about the nightmare of finance? I am sure there have been many listeners who have been muttering: 'That's all very well, but how is it to be paid for?'

Let me begin by telling you how I tried to answer an eminent architect who pushed on one side all the grandiose plans to rebuild London with the phrase: 'Where's the money to come from?' 'The money?' I said. 'But surely, Sir John, you don't build houses with money? Do you mean that there won't be enough bricks and mortar and steel and cement?'

'Oh no', he replied, 'of course there will be plenty of all that'.

'Do you mean', I went on, 'that there won't be enough labour? For what will the builders be doing if they are not building houses?'

'Oh no, that's all right', he agreed.

'Then there is only one conclusion. You must be meaning, Sir John, that there won't be enough architects'. But there I was trespassing on the boundaries of politeness. So I hurried to add: 'Well, if there are bricks and mortar and steel and concrete and labour and architects, why not assemble all this good material into houses?'

But he was, I fear, quite unconvinced. 'What I want to know', he repeated, 'is where the money is coming from'.

Why Keynes Was Not an MMTer

Kelton and MMT want to confront the question “where is the money coming from” precisely by demolishing the question itself. Thus they might at first appear to be repeating Keynes. Crucially, however, in his radio address, Keynes actually gives two answers, while MMT only takes up his second response – the one that has taken on canonical status and been repeated over and over since 2008.

But before we get to that famous quote from Keynes, we should also look at the first answer Keynes provides to his radio listeners. He starts by pointing out that Sir John is making the same mistake everyone makes on this topic – “the very usual confusion between the problem of finance for an individual and the problem for the community as a whole.” Heterodox economists of many stripes have been pointing out, and then trying to avoid, this conflation for almost 100 years now.²

But Keynes continues:

Apart from this, no doubt there is a technical problem, a problem which we have sometimes bungled in the past, but one which today we understand much more thoroughly (emphasis added).

…

It would be out of place to try to explain it in a few minutes on the air, just as it would be to explain the technical details of bridge-building or the internal combustion engine or the surgery of the thyroid gland. As a technician in these matters I can only affirm that the technical problem of where the money for reconstruction is to come from can be solved, and therefore should be solved.

Clearly, Keynes does not dismiss the question “how will we pay for it?” He surely redescribes it as a technical problem – one just as complicated as thyroid surgery – but in so doing he also affirms it as a continuing relevant issue. We can extend Keynes’s metaphor. If your doctor says you need thyroid surgery and informs you that he’s an expert surgeon, it’s quite true that you don’t ask him to teach you how to do the surgery (or prove that he knows how); you just trust that it can be done and that he’s the one to do it.³ But this does not mean you ever doubt the central importance of the question “how to operate” – it’s just not your job to answer it.

Keynes never argues that the government does not need to pay for the things it does. He argues that the way the government pays looks nothing like the way individual households or even capitalist firms pay, and that the process proves far too complicated for him to explain it on the radio. I’ll come back to this.

But first I need to repeat Keynes’s much more famous answer to the question, “how will we pay for it?”

Anything we can actually do we can afford.

MMT’s MO: Building a Theory to Justify a Policy Position

And this is precisely where MMT starts, where it is born: in a heterodox economics proposal for an “employer of last resort” policy, in which the government stands ready to offer waged labor to any worker who cannot be, or does not want to be, employed in the private sector. MMT’s primary goal was always the ELR policy, and the new approach to thinking about money and monetary policy only developed secondarily, as defense and justification of policy.⁴

We can provide a necessarily reductive sketch of MMT’s developments over the last 25 years with two broad brush strokes:

1. MMT policies changed and multiplied: ELR is more commonly referred to now under the rubric of a “federal jobs guarantee”; the keystone policy is now more likely to be “The Green New Deal”; and the overall goal often mixes together full employment (and low inflation) with the fight against climate change.

2. The theory of money shifted from an abstract and heuristic model that worked mostly from first principles, into a more sharply delineated and much more simplified model of how the (US) national budget and economy actually works.

Finding the Money aims to provide a unified worldview in which a whole new understanding of money (number 2) underwrites a hopeful and progressive political position (number 1). In a way, then, the movie serves to reverse the temporal and logical order: in actual historical development, MMT began first with a policy proposal (ELR) and then turned to think about the nature of money and budgets as a response to the “how will you pay for it” question. In contrast, Finding the Money focuses intently on the theory of money and national budgets. The goal is to make the new paradigm of money so powerfully convincing that viewers will see the policy goals as something like natural deductions from the money theory. If we can pay for anything we can do, then obviously we should do things like provide green jobs and national health care.

In Lieu of a Review

Why, then, is this not a review of the movie?

Because I’m not a policy person. I don’t write the Money/Power newsletter either to directly generate new public policies or to advocate existing ones. To paraphrase Jacques Rancière: I think there are plenty of great public policies out there (and a far larger number of horrible ones) and no one needs me to generate new ones or tell them why they ought to support the ones I like. My goal is to understand stuff that I myself find really hard to understand, and then, once I think I’ve figured it out, to come here and attempt to make sense of it in the clearest manner of which I’m capable.

If I succeed, then readers will understand some stuff that they didn’t understand beforehand, or see in a new light stuff that they did understand. But what they do with that understanding is not up to me, and not something I would arrogantly purport to control. To paraphrase Rancière a second time, what they do with it is…maybe nothing. And because I’m not a policy person, I am not going to engage in a policy debate with Kelton and others over the Green New Deal or the Federal Jobs Guarantee.⁵

But I am writing this thing-that-is-not-a-review precisely because the MMT account of money and debt as it has developed over the years, and especially as it has been refined and polished for presentation in this movie is…bad?

Let there be no doubt, the orthodox account of money (money as commodity, banks as intermediaries between savers and borrowers) is not “bad”; it’s absolutely horrible. The MMT vision of money must therefore be understood as a great improvement, and as I’ve argued before, MMT gets a lot of rhetorical leverage for its argument by continually contrasting its account of money with the horrible traditional account. But there can be lots and lots of wrong/bad theories of money. Only on Twitter does pointing out someone else’s wrong make you right (and as the movie itself is somewhat eager to emphasize, Kelton spends a lot of time on Twitter). Outside of the logic of social media, lots of people can be wrong – they are just wrong in different ways.

Rather than write the critical review that stultifyingly explains to all of you why MMT and its chartalist roots are wrong,⁶ here I want to provide a viewers’ guide to the film – a set of tools you can use, and things to look for as you watch the movie.

Currency

You’ll hear the words “currency” and “dollars” a lot in the film, and you might not even notice, because these seem like basic words that everyone already understands well. But these are trick terms and this is something of a shell game. To be clear, I’m not saying that Kelton, the other MMT advocates, or the movie’s director and producer are intentionally trying to trick you. Rather, I think “currency” is itself a bit of a ruse that easily fools almost everyone.

Here are all the things in the world that “currency” might point to:

1. Commercial bank banknotes

2. Bank deposits

3. Central bank banknotes

4. Central bank reserves

5. Money of account, or denomination

These things are all quite different. (1) seems irrelevant to modern life, since commercial banks no longer issue their own bank notes, but I place it top of the list because this is where the term originates. Notes issued by banks that then circulated became “currency.” (2) and (3) are what matter most to us today, but they are also quite different: (2) is our claim on a commercial bank, represented by numbers on a computer spreadsheet; (3) is our claim on the central bank, represented by a piece of paper (e.g, a £10 note). In Finding the Money you will encounter literally hundreds of images of (3): the movie really wants you to think that’s what money is. But on my list above, (2) and (4) are massively more important. (2) – that is, bank deposits registered as digits on a spreadsheet, is far and away the most signifidant form that almost all money takes today, and it depends fundamentally on (4). (4) plays a pivotal role in modern money, but Finding the Money rarely shows it to you.

Finally, most importantly, we have (5), which hardly seems to fit with all the rest – it’s a totally different type of entity. It is an abstract concept, the idea of “dollars” or dollarness. We have to include (5) because this concept proves fundamental to “currency” as a quasi-concept⁷: currency combines the concrete idea of a specific money token with the broader notion of money of account. Interviewees in the movie will frequently talk about dollars as currency, but in reality:

• Currency is not really a thing: numbers 1 through 4 on the list of items above are all actual, specific tokens of credit/debt, but it’s not clear what productive work is done by calling them “currency.”

• The dollar is not really a thing at all. We can certainly talk about dollar-denominated money-credits, but at a deeper level it’s fundamentally false to say there are dollars out there. I know we do it all the time, but as Innes famously puts it, “The eye has never seen, nor the hand touched a dollar.” In an important early moment in the film Randall Wray will tell you that every dollar is issued by the federal government. Nothing could be further from the truth. Innes put it this way: “Everybody who incurs a debt issues his own dollar, which may or may not be identical with the dollar of any one else’s money.”

Cash

In the standard empirical framework used by economists today, including the federal reserve system, which provides the best data we have on things like the debt and the money supply, money is defined as deposit accounts, savings accounts, money market funds, and the coins and notes of the central bank. Bonds, derivatives, and stocks are therefore not money.

For what it’s worth, my own conceptual framework is more expansive: I contend that any denominated claim on a debtor is a money-claim, and thus bonds and derivatives are money. And I can defend this claim at great length on the basis of its conceptual coherence and explanatory power: what makes my bank deposit money also makes sovereign bond I hold money. These are very different kinds of money – of course they are. But that’s part of the point: there is not money, there are various moneys, and a good theory of money must be able to account for this fact. Any theory of money in the singular is a lousy theory of money.

Still, when I call bonds “money” it tends to freak some people out. I think I know why: for any particular person or institution operating within a specific location within the complex money system, what tends to matter most on a day to day basis is not what counts as money in conceptual terms but what counts as cash in very practical terms. That’s a long-winded way of saying that I think many definitions of money prove overly narrow because they actually aim to define cash, not money. When a struggling and indebted working person says, “I need money to pay the electric bill,” they mean that they need some liquid money-credits that they can use right now to prevent their utility company from turning off the power. They need cash, a check that won’t bounce, or a credit card with available credit. When Elon Musk needs money ($44 billion) to buy Twitter, it means he needs to sell some of his Tesla stock, borrow personally against some more of his Tesla stock, sell equity in the future private twitter, and convince some banks to throw in $13 billion⁸ as well. The general point looks like this: what counts as cash depends on where you are along the money hierarchy and what you are trying to do.

Nonetheless, the relative and varying status of “cash” should not be used to determine the nature of money. A bond remains a money-credit, even if I can’t use it to buy coffee. Constraining our conceptual account of money within the parameters of cash is a legacy of the neoclassical model’s privileging of medium of exchange as the key function of money. To be clear, I’m not deprecating the importance of cash. Quite the contrary: I think we need a better conceptualization of cash, but we get there by distinguishing cash from money, not by eliding their differences. Cash is the form of money that you can use right now to easily settle debts.

The point of this digression is to call your attention to the constant slippage in the movie between an account of money, an account of debt, and an account of cash. The MMT move is to equate all three by way of a temporal sequence that makes the government the sole creator of money, a benevolent act done for the benefit of citizens. Hence MMT advances this equation: Debt = Money = Cash. That is, the government is a “money issuer”; it issues debt (in the form of “currency”) for the benefit of “money users,” who use the currency as their cash (for buying things). This equation explains the quasi-ledger you will see over and over again in the film: currency issuer on the left (–$10) and currency user on the right (+$10), symbolized with green circles to connote the cash.

And that ledger illustration then gets reconfigured and amplified to become the magic chart of MMT, in which public savings is always the mirrored reflection of public debt.⁹ This chart strongly implies (though no one every says it explicitly) that fundamentally the annual governmental deficit is nothing more than money creation for “currency users,” and therefore government surpluses would take money from households. In both of these charts, the government (and government debt) are reconfigured as services to the nation, the creation of cash for people to use in their daily economic lives. But all of this places the government itself somehow outside, above, and before economic society. And money, in this vision, is not really a constitutive part of a capitalist social order: it’s an enabling condition provided by the government.

Where are the banks?!

There are a dozen ways in which this vision proves myopic, but I want to call your attention to the most important one, and along the way create a really lousy drinking game for you. As you watch the movie, look for discussion of commercial banks and bank money. Fair warning: you will have to wait a very long time.¹⁰ The movie is almost over before banks actually show up. And even here, they are not really included in the vision of money or political economy. They are not a real part of the story that MMT tells.

But to tell the story of money without telling the story of banks is like explaining the game of baseball to someone without ever mentioning the ball. And I’ll try to make more sense out of that simile when I take up the nature of banks in a future post. For now, enjoy the movie.

1. Warren Mosler started MMT, but perhaps because he’s not an academic, perhaps because his main work was self-published, he probably doesn’t get enough credit. Wray published the first major academic book on MMT, and he has called it “modern money theory,” which seems more parsimonious to me. But the choice of the extra two syllables of “monetary” now seems to have stuck, so here I follow now standard usage.

2. Mark Blyth has been particularly articulate in explaining why a household budget is utterly unlike a government budget.

3. Here we see Keynes’ elitist egalitarianism fully illuminated.

4. We witness this in the first major MMT book, Randall Wray’s Understanding Modern Money: The Key to Full Employment and Stability. It says it right there in the title: we need to think money differently so as to defend the ELR policy.

5. If anyone cares: I kind of like those policies. In particular, I think a jobs guarantee has a huge political advantage over guaranteed basic income. The latter is much easier to co-opt for libertarian ends (create a UBI and then eliminate all government services), and the former would have, I think, a much bigger structural impact on contemporary capitalism (because with an ELR, there really would be something like a labor “market” rather that just a reserve army of un- or under-employed). But just to be clear, regardless of what policies MMT advocates, what policies I prefer, and what policies you, dear reader, prefer, please know that MMT’s theory of money is untenable – as I am about to try to sketch out in the main text above.

6. For readers interested in that critique, there’s no better place to start than with Mehrling’s short review, “Modern Money: Fiat or Credit?” of Wray’s first book. Mehrling closes with a pithy yet powerful summary: if you want to understand modern money, “view the chartalist token not as fiat money but as a promise to pay.” And for anyone who wants to continue reading, one can reconstruct the central critical thread against MMT in my book.

7. What Patrick Murray and Jeanne Schuler would call a “pseudo-concept.”

8. I will elaborate on this specific case in an upcoming newsletter titled “We Need to Talk About Banks.”

9. This graph, and this overall approach to representing deficits, is based on Wynne Godley’s sector balance approach. I won’t claim to be an expert on sectoral balances, but I will claim that Finding The Money uses this approach to convey something it’s not intended to convey. The reflection chart suggests something like a chartalist money-supply model. But that’s not the point of the sectoral balance work, and it’s not a tenable account of money. Sectoral balance work is based on a set of accounting identities that try to capture something about the natures of stocks and flows and thus make possible informed projections about where the economy is going. If household debt is moving dramatically in one direction with current accounts (trade surpluses or deficits) moving in some other direction, then we can think about government budgets in relation to that. It’s fine I guess. But to use that crude accounting identity as if it tells you about money creation and destruction and supply…no, that won’t work.

10. The “story of banks” appears 68 minutes into the movie, but its telling is confined to rejecting (rightly!) the banks-as-intermediaries model. It’s a very clean, tidy, and accurate graphical representation of the elementary fact that loans create deposits. But the whole section is sealed off from the rest of the movie’s vision of money, with the immediate segue being to the GFC. The tacit message is that banks are at fault for the crisis (they made too much money when they shouldn’t have). In any case, it never seems to occur to the editors or producers (or MMTers) that this account of how banks create money through a swap of IOUs is in fact how all money is created. It undermines the simplistic story or “the government” as a “currency issuer.” And of course there is no real mention of the fact that the US central bank (the Federal Reserve system) is a bank.