Robert P. Murphy, “The Follies of the Modern Greenbacker Movement,” The American Conservative, June 27, 2012.The trouble with his article is that Murphy touts it on his blog as some kind of serious critique of MMT (“I ask for a comeuppance by the MMTers in this new piece at The American Conservative,” he says). In fact, the article only really gets to MMT in the last few paragraphs, and does not actually seriously engage with it.
Murphy’s largely anonymous targets appear to be non academic writers and people who advocate “debt free fiat money” – not even academic proponents of MMT.
From a quick search, Murphy’s “Greenbackers” seem to be the following:
(1) Ellen Brown of Webofdebt.com (indeed Murphy refers to her specifically in his post).I am not sure whether Michael Rowbotham and the now largely defunct Social Credit movement might be included in Murphy’s list of “Greenbackers,” but what should be perfectly clear is that his targets are not, as far as I am aware, self-identified supporters of MMT at all.
(2) Stephen Zarlenga of the American Monetary Institute (AMI), and author of the The Lost Science of Money.
(3) other supporters of both Ellen Brown and Stephen Zarlenga’s theories.
Let us now see below how virtually the whole article is a waste of time and essentially mangles what MMTers believe.
Take some of Murphy’s major assertions:
“It’s here where the modern Greenbackers go awry. Recognizing the absurdity of allowing bankers to issue new money, then lend it to the government (taxpayers) at interest, the Greenbackers want to cut out the middleman. They want the government to reclaim control of the printing press—which of course need not even “print” money in this age of electronic financial transactions—and to issue new money whenever its spending exceeds its revenue.”Whatever the “Greenbackers” like Ellen Brown believe is irrelevant to MMT, for such people are not even MMTers at all. In fact, in an MMT system, bonds would still be issued to the private sector, to control interest rates, though there might be some direct purchases by a central bank from the Treasury.
And the system the MMTers propose really isn’t that new: under the ‘tap system’ of issuing government bonds after WWII, a number of Western countries (like Australia) for many years actually had their central banks purchase government bonds directly when such bonds were not all bought by private bondholders. The system is explained by Bill Mitchell of Billyblog:
“[around 1981] the Australian Office of Financial Management was set up as a special part of the Federal Treasury to management federal debt. Previously, bond issues were made using the “tap system”, whereby the government would announce some volume of debt it wanted to issue at a particular rate and then sell whatever was demanded at that yield. Occasionally, given other rates of return in the financial markets the issue would not be fully subscribed – meaning some of the Government’s net spending would be covered in an accounting sense by central bank buying treasury bills (government lending to itself!). The neo-liberals hated this system and regarded it providing no fiscal discipline on government. They knew that by linking deficits $-for-$ with private debt they could more easily mount the debt hysteria and maximize their pressure on government to cut deficits and withdraw from the market.”Murphy then resorts to scaremongering nonsense:
“The fundamental danger is that an unchecked power to issue new money might prove too tempting for political officials, who would seek to curry favor with the public through various spending programs that were “paid for” through a general rise in prices.”Again, whatever “Greenbackers” think is not what MMTers think.
Australia had a type of system not far from MMT in its “tap system” of funding deficit spending, and yet contrary to Murphy’s rhetoric the system wasn’t destroyed by evil “political officials” causing some hyperinflationary disaster with their profligate spending: Australia’s inflation rate from 1940 to 1981 was in line with other countries where bonds were always issued to the private sector.
Murphy next moves to ideas that have never been held in MMT:
“In the limit, one could imagine the Greenbacker program not only abolishing government deficits but also all forms of taxation itself. Every year, the government could decide how much it wanted to spend, and then simply “print” that much new money. The IRS could be shut down, and no one would ever need to fill out a tax form again. Besides the savings in explicit tax payments, individuals and businesses would be spared the expense of hiring CPAs. Furthermore, removal of the tax burden would instill a massive dose of “supply-side” incentives for more work and output.Now I have to say I am not familiar enough with the works of Ellen Brown or Stephen Zarlenga to say whether they really think taxes should be completely abolished, but no MMTer, to my knowledge, has ever proposed abolishing taxation, since, as in Keynesianism, MMT sees taxation as a fundamental way to manage aggregate demand. Hence in an MMT system taxes would never be completely abolished. And, as I have said above, bonds would still be issued to the private sector to control interest rates.
At first blush this sounds like a wonderful proposal.”
Murphy then proceeds from the imagined scenario above to a “debunking” of the “Greenbacker program” by invoking the horrors of hyperinflation and currency collapse.
But it is at this point that Murphy’s article becomes the hogwash that I suspected it would be before reading it: his implied claim to have penned some serious critique of MMT all falls apart when he says:
“To be sure, today there is a sophisticated school of thought—called Modern Monetary Theory or MMT—that is aware of these difficulties. For precisely the reasons I have given, MMTers want to retain the government’s power to tax, in order to “extinguish” money from the system when price inflation is unacceptably high.”In other words, all Murphy’s objections do not apply to MMT, for MMT never in the first place proposed abolishing taxes or completely “monetizing deficits”*.
Finally, MMT says that, even though deficits are not “financially” constrained, they face real constraints in the inflation rate, exchange rate, available resources, capacity utilization, the unemployment level, and external balance.
In short, Murphy’s article does not need to taken seriously: he does not even engage with anything but a straw man version of MMT.
* I know MMTers object to the phrase “monetising a deficit,” so I will place quotations marks around the phrase.