What is Modern Monetary Theory? by Richard J Murphy

So what is Modern Monetary Theory and does Richard Murphy agree with it?

Recorded at Spotted in Studios

[sugarfree]

The notion of taxation as a counterweight to spending through creation of money is very interesting. If things are as expansive as MMT might suggest, in terms of creative approaches with taxation, for example, it makes the current neo-feudalism of fear, instability and scarcity all the more sad.

[andersutterstrom]

Finally a short and concise explanation of MMT. Cheers!

[michaelhurley]

I knew someone who worked for a Federal Reserve bank. He says for the government to create money all they have to do is make an entry in a computer. Taxes has nothing to do with it.

[pamelamorrison]

Thanks so much, Richard - appreciate you taking the time to educate!

[davidmcculloch]

A great, and concise, explanation of MMT. I'm also an advocate after reading Reclaiming the State by Mitchell and fazi. It's a pity that none of our political parties are brave enough to explode the myth on tax and spend. That said, the Tories won't because the class war of austerity is in their DNA.

[BertWald-wppz]

Great channel. This is the first time I managed to understand MMT. Not certain I am ‘sold’ on it but interesting to ponder as we see how economic activities play out in time. I find Richard extremely easy to follow which shows that a good explanation need not be complicated.

[nthperson]

When I was a young person still in high school, the locker room of our gymnasium had the following message on a sign at the entrance: "Good, better, best; may we never rest until our 'good' is 'better' and our 'better' 'best'. As a college student working on master degree, I chose to write on the history of monetary systems and monetary reforms as my final paper. History and my contemporary observations convinced me the existing system of monetary creation and management was a fundamental cause of market and governmental instabilities. Only one brief period during the last four centuries did a model of monetary honesty exist. This occurred with the establishment in 1609 of the Bank of Amsterdam as a deposit bank, taking in gold and silver coinage and issuing receipts to depositors for their money. To the extent the bank earned fees for its services, the bank could also make loans. The Bank of Amsterdam's directors succumbed to the practice of issuance bank notes in amounts far exceeding the bank's actual coinage assets. From this point on every bank did likewise. This was and is not "fractional reserve" banking; it was and is criminal fraud. Any hope for a monetary system that results in a gradual reduction in the price of goods as an outcome of production efficiencies ended. Other externalities had to come into play before broad improvements in the quality of life for most people would occur.

Absent honest monetary creation, we in the United States have since 1913 authorized the Federal Reserve Banks to print (or create in digital form) Federal Reserve Notes in whatever quantity they decide. These bank notes are the primary form of legal tender used to make purchases, pay for services and pay taxes. The U.S. Treasury gains access by exchanging government securities for the bank notes. In this process, our government incurs debt that must be serviced and, if not retired, refunded again and again. The Federal Reserve could solve the debt problem by purchasing maturing securities from private holders and cancelling the debt. This solution meets the 'good' test. The path to 'better', I believe, is to gradually retire all Federal Reserve Notes and replace them with debt-free currency issued by the U.S. Treasury and spent into the economy either directly or by means of grants to state governments. As the Bank of England is a public-owned bank, perhaps the authority already exists to eliminate debt money in the United Kingdom?

[diversity]

Really inspiring. Keep up the good work.

[georgeloizou]

Superb! Highly informative whilst short, sharp and to the point. Thank you

[alanhowie]

Richard The MMT creation of money is fine so long as other countries believe in Sterling.

[andrewwalsh]

The more money you create... the more money is competing for domestic products... so the price goes up... (supply and demand)...

The less your money buys domestically, the lower it's exchange rate becomes internationally...

Things you import, like oil, which is priced in $, becomes more expensive in £'s...

Since oil is needed for domestic production, inflation enters the domestic market, with predictable results...

So... MMT is a' loan' to oil the wheels of the economy, to create wealth... When you pay the loan back, the remaining surplus is profit... and the system works...

If you don't pay the 'loan' back... and you keep getting more 'loans'... eventually, your £'s are worthless to exchange for imports in $...

... and your import driven economy collapses...

... but your country isn't bankrupt... No, it just can't afford to import the oil, to make the plastic film, to make the banknotes! (or import food etc)...

Even Douglas Adams understood that... re: use leaves as currency, and everybody is a millionaire... until the trees die!... 🎄😅

[djmarti]

So why did a tory party under Osborne create austerity, is it just to keep wages down and profits up or is there another reason...anyone plz

[SnackieB]

Key messages: there are constraints (finite limits of employable people and natural resources) on a currency issuing government, but not the monetary constraints that politicians, the media and mainstream economists would have us believe. So, how is the government to pay is a nonsense question. So much, so good, but:
‘Governments operating their own currencies create all money (or banks under government licence). That’s a very important or, and you miss the distinction. The central bank increases financial assets of private entities with no set timescale for a matching liability to be repaid, whereas banks create a financial asset and liability with set term.
‘the government has spent £500 billion it hasn’t got right now.’ You mean, it didn’t have a record of it on the central bank computer until the moment it created it. And it didn’t fund it through QE. It didn't fund it full stop. How can you still not understand QE?
MMT doesn’t say, even in principle, that there is no need to tax. Tax is always needed and a Government Job Guarantee Scheme is also fundamental as an automatic stabiliser. It does, correctly, identify that so-called government ‘borrowing’ isn’t required and that, as you allude, the term ‘borrowing’ is a misnomer.
Taxation is needed because otherwise ‘Inflation will run out of control’ – this is the, can’t trust the elected politicians’ myth – that for some reason they would keep awarding ever higher wages to public sector workers and contractors.
You are correct that the UK is not in the position of Greece or any other Euro member. The EU and ECB have in fact acted as Osborne and the BofE did, in imposing austerity on Spain and Italy and others as a price for ensuring their financial systems didn’t go into meltdown. Greece was not different from Spain and Italy except being subjected to even worse austerity. The regimes of austerity in the UK, Spain, Italy, Greece have not been to their citizens benefit and were entirely unnecessary. The difference for the UK is in the democratic pressure that politicians and in turn the central bank are subject to, which is why the worst of Osborne’s austerity didn’t last very long. But the EU is set up to ensure that citizens of Euro countries can’t exert such democratic pressure.

[nigelp]

Hi Richard, great videos !

Can you please explain why government uses a third party (the BoE central bank) to create money which then charges interest on that money, instead of (logically, if the State is the CREATOR of money as you say) issuing the money itself and thus not needing to be charged interest on it (as would make more sense to most people). If I am not mistaken, historically, this practice was known as usury and was banned in Christian and Islamic cultures. 


Thanks in advance!

[stuartswanston]

Is it the case that the money collected as HMG’s tax receipts is just “disappeared” rather than redistributed through spending departments because HMG is creating new money every year ?

[jameshillier]

Really enjoying and learning from these videos, thank you. I’m wondering about the implications of MMT, if the UK were to one day rejoin the EU, and therefore, presumably join the Euro. As UK would no longer have monetary sovereignty, would that put us at risk of Greek style default/bankruptcy that you refer to?

[Number_Free]

An excellent video - thank you!

I want the homeless to be housed, and cared for. That will increase demand for property, which is already in short supply. Until that is increased, how does taxation reduce the demand? A tax on rental income may help but I don't get how MMT resolves that very real problem.

I favour UBI + Sales Tax myself, because even the wealthy people have to buy stuff. They can't escape so easily - but they will try, of course.

Will that combination ever be viable?

[brad]

The government is the safest place to save? So those bond holders currently sitting on £millions in unrealised losses and whose financial assets are being eroded away by inflation, do they feel safe?

[m.h.f]

Thats an awesome video! Can you regard some literature, which contains realistic scientific economics. Thank you!

[de]

You can go bust, the money has a value dictated by market forces. This ignores literally the complete other half of the system. The markets.