Modern monetary theory on money, sovereignty, and policy: A marxist critique with reference to the Eurozone and Greece

Abstract

This article compares and contrasts Modern Monetary Theory and Marxist monetary theory focusing on the relationship of money to commodities, the role of state power in monetary processes, and the significance of global hierarchy for world money. Money is a social relation, as MMT claims, but for Marxist theory capitalist money is specifically a relation of class, both domestically and internationally. The room for state policy is correspondingly constrained, not least because the international monetary system is hierarchical. These issues are placed in historical context by analyzing a politically important plan for Eurozone exit during the Greek crisis of the 2010s. It is shown that regaining monetary sovereignty was a demanding technical problem but also, and more fundamentally, a class issue embedded in relations of international subordination.

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No potential conflict of interest was reported by the author(s).

Notes

Notes

1 Furthermore, the imposition of money tribute could lead to profound social and economic change on the dominated (Goodhart, 1998). In Africa the imposition of taxes by European colonisers forced change toward wage work and export-oriented production (Forstater, 2005).

2 The classic account of the origin of money in wergeld was given by the authoritative numismatist Grierson (1977) but has deeper roots in the tradition of the German Historical School.

3 Palley is characteristic of this approach in a series of thoughtful critical assessments of MMT; see for instance, Palley (2015, 2020) focusing on the “meat and potatoes” of fiscal and monetary policy.

4 There is an analytical lacuna in Marx (1976, 221–22, 224) in this connection, since he does not derive this power from the relations of exchange and production, i.e., endogenously. Instead, he merely assumes that the state can buttress the necessary social acceptability of fiat money because of its broader social role.

5 In this regard, theories of the monetary circuit proposed by MMT that present the state as a necessary supplier of money to the private sector are wide of the mark (for instance, Tymoigne and Wray, 2015)

6 MMT also considers the possibility of inflation arising for reasons other than excess demand, for instance, Fullwiler, Grey, and Tankus (2019), but these are not important to the issue at hand.

7 MMT is equally impressed by the power of contemporary central banks over the rate of interest. According to Fullwiler (2016), a monetary sovereign has absolute control of the interest rate applied to its debt.

8 Epstein (2019, ch. 6) has aptly named this feature of MMT “The mystery of the missing Minsky.”

9 Even the physical destruction of money is not something that occurred only in the distant past, or in the American colonies. Until recently, the Bank of England run the central heating of its printing works with unusable returning banknotes. The notes are now simply shredded.

10 The literature is extensive, see, for instance, Marx (1999); Evans (1997); Germer (1997); Itoh and Lapavitsas (1999); Lapavitsas (2017a).

11 On flexible exchange rates, see also Wray (2012, ch. 6)

12 See, for instance, Kelton (2020, pp:84-86).

13 See, for instance, Flassbeck and Lapavitsas (2013).

14 By far the most popular rendition is the memoir of Varoufakis (2017). Note that, in his ministerial and public capacities, Varoufakis enormously exaggerated the difficulties of exit, with the explicit aim of keeping Greece in the EMU. Note also that Galbraith, a leading supporter of MMT, was closely involved with Varoufakis and produced his own account admitting, after the event, that exit would have been the best outcome for Greece (Galbraith 2016).

15 See Lapavitsas, Mariolis, and Gavrielidis (2017).

16 Athanassiou (2009) made this point forcefully in a publication of the ECB.

17 A point that Tymoigne (2020) misses in his careful analysis of sovereignty from the perspective of MMT.

18 See Lapavitsas, Mariolis, and Gavrielidis (2017, p. 49-53).

19 The name of the unit of account was itself a point of contestation but the issue is too complex to discuss at length here. The acceptability of money is a social process relying on symbols, perceptions, and norms. A choice had to be made between a name close to “Euro” to convey links with broader European developments or close to “Drachma” to draw on the history and traditions of the Greek people. The latter prevailed.

20 A pioneering technique of estimation was proposed by Nordvig and Firoozye (2012); see also Nordvig (2014). An equally helpful balance sheet analysis from a Marxist perspective was proposed by Durand and Villemot (2016). For the method and the estimates of the Greek programme, see Lapavitsas (2018a, 2018b).

21 There is a broad debate on TARGET2 initiated largely by Sinn; see Sinn and Wollmershäuser (2012). Sinn claimed (wrongly) that TARGET2 credits were a form of financing provided by Germany to cover current account deficits and capital flight in peripheral Eurozone countries. Note also that Sinn was in favour of Greek exit from the EMU.

22 In his “friendly criticism” of MMT, Lavoie (2013) rightly stresses the institutional importance of TARGET2 clearing, but his analysis does not extend to the point that matters here.

23 For fuller discussion, see Lapavitsas (2018a). See also the decision of the European Central Bank, 24 July 2007, creating TARGET2 (ECB/2007/7), https://www.ecb.europa.eu/ecb/legal/pdf/l_23720070908en00710107.pdf

24 See Mariolis (2008, 2013), Mariolis and Soklis (2018), and Mariolis, Rodousakis and Katsinos (2019).

25 For further analysis, see Lapavitsas (2019).