I had already queued this post up for delivery as part of my ongoing series responding to reader questions (see below), but then Stephanie Kelton weighed in on Musk’s “magic money computers” quote.
I'm finding this excursus very odd, given that Kelton and Wray each repeatedly and frequently say that the state's money is its debt. In "Finding the Money," they make the point emphatically by pointing out that prior to central banking, sovereigns would literally burn the tax revenues they collected *because this is how paid-off debts are retired.* They also clearly explain government bonds as a vehicle for storing currency reserves (interest being the only actual state fiscal obligation). Hence we see that interest rates have historically declined as "government debt" has skyrocketed (because that debt is just a record of previous transactions, not a sum of money owed). Finally, Tcherneva's work focuses specifically on the money/power nexus, in which it is sovereign authority that depends on the viability of the money system it creates, rather than (as you say) the other way around. So I guess I don't grasp exactly what you think MMT misunderstands.
Thanks for the comment, Michael. First thing to say is that obviously Kelton and Wray are smart, thoughtful, and rigorous scholars, and they both know that money is debt. I am constantly praising MMT for all the things they get right, so my goal here isn’t to dismiss these thinkers or accuse them of missing something obvious.
But when Kelton says that money is like points issued by a scorekeeper, when she agrees with Musk that it is the *government* that just creates money out of nothing, and when (as you summarize in your comment) MMT suggests that government bonds are only a “vehicle for storing currency reserves” I think they miss something really important about how capitalist money arose, how today’s massive money markets actually operate, and what the political possibilities are. If you look at the two quotes that I give in the MMT section of this post: those are the points I think are wrong – when the central bank buys bonds that does not make the government debt go away. You don’t erase or retire debt when your debtor (a commercial bank) sells that debt to someone else (the central bank). That’s madness!
Put too simply, I think government debt really is money owed, not just a “record of previous transactions.” I think that when you combine the Fed and the Treasury balance sheets (for convenience or parsimony) you actually obscure how money works. In other words, MMT authors will, in many places, say money is debt, but at other places they will frequently operate as if money is a just an issued currency that has positive value – they frequently drop the correlative of credit/debt. Points do not have two sides: they are just points. But money always has two sides: one agent’s credit is always someone else’s debt, and what it means to have money is to have someone owe you. So it’s really not quite right to say “money is debt” or “money is credit”; rather, money is a relation of credit/debt. If you are interested, I engage with MMT much more carefully and closely in the late chapters of my book. I start with a critique of Wray, tracing back to Knapp, and then engage briefly with Kelton.
I'm finding this excursus very odd, given that Kelton and Wray each repeatedly and frequently say that the state's money is its debt. In "Finding the Money," they make the point emphatically by pointing out that prior to central banking, sovereigns would literally burn the tax revenues they collected *because this is how paid-off debts are retired.* They also clearly explain government bonds as a vehicle for storing currency reserves (interest being the only actual state fiscal obligation). Hence we see that interest rates have historically declined as "government debt" has skyrocketed (because that debt is just a record of previous transactions, not a sum of money owed). Finally, Tcherneva's work focuses specifically on the money/power nexus, in which it is sovereign authority that depends on the viability of the money system it creates, rather than (as you say) the other way around. So I guess I don't grasp exactly what you think MMT misunderstands.
Thanks for the comment, Michael. First thing to say is that obviously Kelton and Wray are smart, thoughtful, and rigorous scholars, and they both know that money is debt. I am constantly praising MMT for all the things they get right, so my goal here isn’t to dismiss these thinkers or accuse them of missing something obvious.
But when Kelton says that money is like points issued by a scorekeeper, when she agrees with Musk that it is the *government* that just creates money out of nothing, and when (as you summarize in your comment) MMT suggests that government bonds are only a “vehicle for storing currency reserves” I think they miss something really important about how capitalist money arose, how today’s massive money markets actually operate, and what the political possibilities are. If you look at the two quotes that I give in the MMT section of this post: those are the points I think are wrong – when the central bank buys bonds that does not make the government debt go away. You don’t erase or retire debt when your debtor (a commercial bank) sells that debt to someone else (the central bank). That’s madness!
Put too simply, I think government debt really is money owed, not just a “record of previous transactions.” I think that when you combine the Fed and the Treasury balance sheets (for convenience or parsimony) you actually obscure how money works. In other words, MMT authors will, in many places, say money is debt, but at other places they will frequently operate as if money is a just an issued currency that has positive value – they frequently drop the correlative of credit/debt. Points do not have two sides: they are just points. But money always has two sides: one agent’s credit is always someone else’s debt, and what it means to have money is to have someone owe you. So it’s really not quite right to say “money is debt” or “money is credit”; rather, money is a relation of credit/debt. If you are interested, I engage with MMT much more carefully and closely in the late chapters of my book. I start with a critique of Wray, tracing back to Knapp, and then engage briefly with Kelton.