Below is something I wrote in 2018 for my own reference as I grappled to apply modern monetary theory into my broader thinking and apply it as a lens rather than think of it within an abstract theoretical framework. I hope this might help those that are trying to to the same.
A public purpose is what a society deems desirable for it’s citizens to have access to. A public purpose creates a society that we deem desirable to live in. Citizens negotiate their desires through their agent, The Government and their political representatives. It is up to all of us to determine a ‘collective will’ on what we wish our society to achieve.
Our limits are us and what we are able to produce. It is obscene that in a society that can produce more food than we can consume, people go hungry, in a society that can build more housing than we accommodate, people go homeless, in a society that has overcrowding classrooms, teachers are placed in precarious insecure work conditions.
Stuart Chase in his book ‘A New Deal’ posed the question
‘What is the economic system for?’ Is it primarily to be manipulated for some individuals profit, power or amusement? …..It is to provide a means, without excessive waste and loss, whereby those who live under it may eat. It has a function, and the function is to provide food, shelter, clothing and comforts in as dependable and adequate quantities as natural resources and the state of technical arts permit. 1
Far from critiquing the capitalist system, Elmer Altvater argued that the state must intervene to secure conditions inductive to continuing capitalist accumulation, performing what he called a ‘general maintenance function’ These were:
(i) The provision of general infrastructure; (ii) The capacity to defend militarily a national economic space regulated by the state and to preserve an administrative boundary within which the state is sovereign; (iii) the provision of a legal system that establishes and enforces the right to possession of private property and outlaws practices potentially damaging to the accumulation of capital; (iv) Intervention to ameliorate and/or regulate the class struggle and the inevitable conflict between labour and capital. 2
These ‘general maintenance functions’ were evident during the post war years, often refereed to as the ‘Keynesian- Fordist’ era of economics. The post war era is categorised by Government policy on full employment, Government commitment to a strong social wage and a greater intervention in the economy based on extensive industrial policy with the creation and expansion of a vast array of state owned firms in strategic industries, key infrastructure and natural monopolies. 3
In 1943 Michael Kalecki wrote;
A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports. 4
If The Australian Government and the private sector direct labour resources to mining activities and the burning of fossil fuels, this is the society we will live in. If the Australian Government and the private sector direct labour resources into creating renewable energy, this is the society we will live in.
Similarly, unless we ensure more job vacancies advertised than demanded, we will not have enough work for all those that desire to work. As a society we can not achieve equality, fairness and a public purpose unless that is what we set out to do.
Precarious work conditions exist because we have laws in place that allow such conditions to exist. Students begin their lives with debt because we have placed that burden upon them. Housing is unaffordable because, as a society, we have chosen to have a system that incentivises speculation and does little to regulate how credit is created.
It is often overlooked that a Governments spending is representative of a socio-economic agenda. For as long as a society has the real resources to implement its desired policy objectives, these objectives are achievable.
Let us take the healthcare system as an example. My grandfather needed an operation on his cataracts. He had a choice, he could use the public system, which was free of charge for him, though he would have to wait 6 months, or he could pay $2000 and have the operation done immediately under the private system. This is system where those that have the ability to pay are given preferential treatment over those that do not.
It is not that, as a society, we don’t have the capacity to perform the operation, the capacity to do so is there. It is that we choose to create a two tier system where those that benefit are those that already have. The capacity is there to perform the surgery. Rather than state we have the available resources to perform the operation and do so, we argue on who should pay the bill and those without the means to pay are forced to wait for no reason other than they can not afford to pay.
It is the publics understanding of our monetary system limits their understanding of what is achievable. I do feel that many on the progressive side of politics have a failure to grasp the power a sovereign government that issues its currency by legislative fiat has.
Too often ‘economic’ debate is framed in terms of the Government needing to ‘raise revenue’, or ‘borrow’. The economy is viewed as a separate entity to the social relations citizens embed themselves in. Karl Polyani summed it up in The Great Transformation (1943)
‘The control of the economic system by the market is is of overwhelming consequence to the whole organisation of society: it means no less than the running of society as an adjunct to the market. Instead of the economy being embedded in social relations, social relations are embedded in the economic system’ 5
We run our society in pursuit of government budget goals with the assumption that unless we tax more than we spend, we will riddle the future generation with debt. It seems few people stop and ask, where does currency come from and how can we use it to benefit all of us?
There have been shifts in the way currencies operate throughout history. We have moved on from a gold standard, where Governments pegged the amount of currency on issue to gold supply, to the ‘Bretton Woods System’, a currency pegged system where Governments defended their currencies in relation to the US dollar, which was exchangeable for gold. This required Governments to have foreign currency in order to be able to purchase their own currency to defend an exchange rate.
The system we have today is known as fiat currency. Fiat currency is by decree. Its value is derived from the tax obligation imposed upon citizens. Under a fiat currency a government doesn’t need gold in order to spend and currencies are left to fluctuate against each other, according to trade movements. All spending is appropriated by the Government. 6
What is money?
In 1943 Abba Lerner wrote;
The modern state can make anything it chooses generally acceptable as money and thus establish its value quite apart from any connection, even with the most formal kind, with gold or with backing of any kind. It is true that a simple declaration that such and such is money will not do, even if backed by the most convincing constitutional evidence of the state’s absolute sovereignty. But if the state is willing to accept the proposed money in the payment of taxes and other obligations to itself the trick is done. Everyone who has obligations to the state will be willing to accept the pieces of paper with which he can settle the obligations, and all the other people will be willing to accept these pieces of paper because they know the taxpayers etc., will accept them in turn. 7
The currency issuer places a tax obligation on the currency user, taxation is what gives a currency value. It is nonsense to assume the currency issuer will become insolvent. It is a monopolist of the currency and will always be able to meet payments denominated in its own currency.
Today Governments spend by crediting private bank accounts with an electronic transaction. This spending creates currency, taxation deletes it. It no longer must watch its gold supply, or defend an exchange rate. Spending is a merely an accounting entry that a Government can use to command real resources and achieve a desired public purpose.
Unless the currency issuer spends, currency can not exist for the rest of us to save and spend. The Australian Government is the sole monopolist over the Australian dollar, unlike countries in the Eurozone, who gave up their monetary sovereignty, it does not tax or borrow in order to spend. First it must spend so we can earn. It is under this paradigm one has to think in relation to being able to afford a public purpose.
The Government, as a monopolist of its currency, can ALWAYS meet payment obligations in its own currency. Its limits are the skills the labour force posses and the real resources it controls. The Australian Government can not claim something is unaffordable, unless the physical resources to implement it are not there. As it issues the currency it can always meet payment obligations in Australian dollars, including spending on labour.
This is not say spending has no constraints. It does. That constraint is inflationary and that occurs when spending exceeds the productive capacity of the economy.
The terminology surrounding Government fiscal and monetary operations needs to change to more accurately describe their impacts on the non-government sector.
Just as peoples understanding of money needs to change, peoples understanding of employment also needs to change. A job should not be defined in relation to a businesses ability to turn a profit, this is important to a business, but it is not important to a currency issuer.
Employment to has other benefits, not only income. It is important to an individuals self worth, it aids in defining a sense of character, and your occupation often has social standing within a community. 8
The idea that we must engage in destructive behaviour, such as coal seem gas mining, in pursuit of profit underscores the point we are running society as an adjunct to the economic system rather than embedding social relations within our economic structure.
‘the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions……If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.‘ 9
Keynes was discussing this in relation to spending adding to aggregate demand. He proved unemployment was a result of deficient spending and argued quite correctly a Government needed spending on employment if it wished to create full employment.
Jobs are a social creation and we need to define them according to what we constitute to be socially desirable and what constitutes societal well-being, rather than a job being in pursuit of profit. That is not to say a person can not work for a private employer. They can for as long as socially desirable minimum conditions are met. A job isn’t always about an ability to turn profit there is often a public purpose.
To help set minimum conditions and stimulate demand there is much literature around the Government acting as an employer of last resort. This is described as federally funded, locally administered, job guarantee programme.
These jobs are not there to substitute existing government jobs or private employment but are there to contribute to societal well-being. JG workers can contribute to urban renewal projects, environmental schemes (e.g dune stabilisation, river valley erosion, reforestation), they may constitute music, art and sport. Citizens partaking in a government programme can help organise a local street festival, musicians paid as peripatetic performers, artists can aid in the creation of painting murals on public buildings or performing. Previous community activists role can become paid employment, for example running a community garden. 10
An underemployed surfer may choose to partake in the employment programme and choose to undertake study to achieve their bronze medallion and first aid certificate, with the eventual goal of becoming a surf life saver. As part of the programme they may be required to teach children about surf safety. The possibilities are endless and only limited by imagination.
The programme is their to enhance the communities we live in and avoid the ills unemployment brings. It has the participants working alongside training having them ready for the private market when demand picks up again.
This is just part of some of the notes I kept as I was self studying. Much of it needs tidying and it isn’t anything you can’t find anywhere else. But I might put more up here.
- Chase, S. 1943., A New Deal, Macmillan pp 21-22
- Altvater, E., 1973 ‘Notes on Some Problems of State Interventionism” Kapitaistate, No. 1. pp 97 – 108
- Mitchell, W., Fazi, T., 2017, ‘Chapter 10: The Case of Renationalisation’ ’Reclaiming the State, Monetary Sovereignty: A Primer, Pluto Press, Archway Road, London. pp 248
- Kalecki, M., 1943, ‘Political Aspects of Full Employment’, Political Quarterly. http://gesd.free.fr/kalecki43.pdf
- Polyani, K., 1944, The Great Transformation, Beacon Press; Boston, Massachusetts. pp.60
- Mitchell, W., Fazi, T., 2017, ‘Reclaiming the State, Monetary Sovereignty: A Primer, Pluto Press, Archway Road, London. pp 179 – 192
- Lerner, A., 1947 “Money as a Creature of the State, The American Economic Review, Vol. 37, No. 2, Papers and Proceedings of the Fifty-ninth Annual Meeting of the American Economic Association. pp. 312-317.
- Blustein, D., 2008., The Role of Work in Psychological Health and Well-Being, Boston College.
- Keynes, J.M., 1936, The General Theory of Employment, Interest, and Money., Chapter 10 – VI.
- CofFEE., 2008., Creating Effective Local Labour Markets: A New Framework for Regional Employment Policy. University of Newcastle, NSW.