At the beginning there, you heard our guest this week, author and Forbes contributor, Professor John T Harvey and we’re going to be talking to him in a moment about his work on Contending Perspectives in Economics, which also happens to be the title of one of his books.
Now, I don’t remember where or when, but I once heard that economics is a bit like cough medicine, in that nobody consumes it for fun, so people tend to choose a flavour they can tolerate.
And because it’s quite hard to present a theory of how we distribute things in the world as something that’s separate from ideology and morality, it seems to me that economists over the years have worked extra hard to give their theories the flavour of science.
In 1776, Adam Smith told us that humans had a natural propensity to truck, barter, and exchange and we didn’t really have the technology back then to isolate the truck, barter and exchange genes, so we just ran with that story, right up to the present moment, and even now most economics textbooks work with the idea that our modern economies (even with their complex financial instruments) are basically still barter economies - and money’s just something that sprung up spontaneously to solve the inconvenience of having to wait for someone to come along and offer you 20 chickens for your cow. Is that a good deal? Only the market knows!
But there’s an often overlooked passage in Adam Smith’s Wealth of Nations that goes like this: “A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money…”
So here, Adam Smith is describing the mechanics of fiat currency, or modern money as we’ve come to understand it. In our time and place, the nation state has taken the place of the prince, but the principle is the same.
An overarching authority, in our case, a national government, decides what will be the national currency by choosing a unique token that it alone is allowed to issue and that becomes the universally-accepted unit of exchange by everybody under its authority because the government demands taxes be paid in this unique token. Here in the UK this token is called the pound.
So we have currency users (you, me, households, firms and municipalities) and a currency issuer (the central government). Because the government is the monopoly issuer of the currency you use, it has to spend it into existence first before any tax revenue can be collected. As many MMT advocates like to put it: tax revenue does not fund central government spending, rather taxation is the vital mechanism that gets you to need the government’s currency, allowing them to spend it, but government spending is never revenue-constrained. This is true for all monetarily sovereign governments like the UK, the US, Japan, Canada, Australia and New Zealand, to name a few.
This is the MMT lens. This is why many MMT advocates get quite animated when their governments let people suffer and die due to a lack of public services based on the fallacy that a currency-issuing government can run out of its own money. Unfortunately, we are now seeing what happens when you run health services along a just-in-time production model instead of building up capacity. It might work for a sandwich shop, but it’s not up to the job of dealing with our urgent health and environmental crises.
Of course, not everybody shares the same worldview - people choose different flavours of cough medicine - so we thought we’d catch up with the perfect economic diplomat, Professor John T Harvey, to help us understand some of these other viewpoints, and we’ve linked to where you can get Professor Harvey’s book Contending Perspectives In Economics in the show notes.
Also in the show notes, there’s a link to where you can support our podcast. If you can’t find the link you can go to Patreon dot com slash MMT Podcast, - support starts at a dollar a month (80 British pence at the time of recording) and you get early access to all our episodes and other patron-only content, including episodes where me and Patricia answer your MMT questions. Your financial support is so appreciated and necessary at this time, and we’re really grateful for it.
So thanks, as ever, for listening and sharing and helping get the word out about MMT. This is part one of a two-part interview, and part two will be out next week.
Thanks again, let’s dive in!