Modern monetary theory (abbreviated as MMT) was first an economic pariah and is now a trend, similar to cryptocurrency. Supported by both Senator Bernie Sanders (whose economic advisor in 2016, Stephanie Kelton, remains a major proponent of MMT) and Representative. Alexandria Ocasio-Cortez, it has become the foundation for how to fund more expansive government programs: everything from the New Green Deal, to a job guarantee for all Americans. It also forms an anti-thesis to the economic rationale of cryptocurrency. MMT is focused on granting the state the permission to exercise its full economic power, while cryptocurrency asserts ways for individuals to have the liberty to pick and choose regulatory regimes and erode some of the awesome power of that same state.
This tension is one that must be reconciled. The foundation for all these ambitious programs is being chipped away slowly by the reach of cryptocurrencies, and those who hold cryptocurrencies may inevitably drift away from unconstrained governments.
There are many beginner guides to the topic of modern monetary theory and its adherents have been very proactive about responding to criticism both from mainstream economists and fellow travellers such as the left-wing Post Keynesians. In a crude summary, MMT adherents believe the following fundamental truths about economics:
- Many MMT believers think that fiscal policy (the powers delegated to a government to tax and spend funds, represented in most countries as a treasury department and taxation department) should supersede monetary policy (the ability for a central bank to dictate consumption and savings patterns in an economy by targeting interest rates, the default for most developed economies) and that the state should essentially combine the functions of both the national treasury and its central bank.
- Government deficits don’t crowd out the private sector’s financial wealth, but actually increase it since deficits create credits to the private banking system.
- Ambitious government programs should be financed since they don’t crowd out private wealth. Done right, these government programs can reduce inequality (as opposed to quantitative easing, which increased it) and aim towards full employment in an economy (the level where everybody who is willing to work is working).
- As a fiscal policy of last resort to ensure full employment, the government should offer a job guarantee to anybody willing to work and essentially create work to ensure full employment.
- Taxes are only useful in order to prevent inflation and to fight economic inequality and not actually to “finance” the government. Taxes serve the function of reinforcing the value of a domestic currency since it’s assumed that anybody who “subscribes” to a particular government’s services will be forced to pay in the domestic currency in question — ensuring that there will be some goods chasing that currency and preventing an erosion in value of the currency itself.
Both cryptocurrency and MMT are a response to what both communities believe are an inherent fault with the world’s economic system since Nixon took the US dollar out of the gold standard. Aside from theoretical frameworks and distribution of powers, there is essentially nothing that prevents a government with a floating currency to print or create “value” out of nothing.
Economics has always been an art of constraints: telling a prince or king that they couldn’t simply create money in the first place because that money would erode in value in time. What MMT accomplishes is a theoretical framework for why many modern-day constraints on government spending (deficit/debt theory) simply don’t matter.
MMT focuses on centralizing economic power for nation-states. Cryptocurrency focuses on distributing economic power and allowing people to resolve conflicts without needing the power of that same state.
Bitcoin is built on the idea of a limit in the number of Bitcoins that can be mined (21 million) along with other imposed constraints. The number limit on Bitcoin was an exogenous constraint, and not one that was technologically imposed but a political choice. The genesis block of bitcoin illustrates this thinking most sharply. The coinbase parameter for it reads “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. The response to the global financial crisis was very much on Satoshi’s mind when he first crafted bitcoin.
Bitcoin is a technological revolution but an actual political retrospective: a harkening back to the norms of the gold standard where a government relied on the amount of gold mined in a certain area to limit its spending powers. Bitcoin allows for the theoretical creation of infinite value, but restrains itself due to its exogenous limit and through a cultural ethic of non-political intervention in governing protocols to create an internal check on inflation and value erosion.
Consider the debate around “Szabo’s Law”, the cultural ethic in cryptocurrency communities that you should not enforce changes to an underlying blockchain unless it is for technical maintenance. This isn’t a theoretical debate: Ethereum Classic and Ethereum largely forked based on objections to a hard fork that returned funds to DAO holders. This was an explicitly political decision where desired outcomes were regarded as inequitable and DAO holders were made whole for reasons that had very little to do with technical maintenance but rather continued support of the community.
There are more nuanced examples too. Bitcoin Cash was forked from Bitcoin based on the block size limit. Was that a political choice, or technical maintenance that allowed for faster performance for all stakeholders? A harder question for sure. But the first principles we use to reason with that measure the political scale of an intervention in the codebase vs. what is required for technical progress.
The principles behind Szabo’s Law, taken to their logical conclusions, are exactly the opposite of MMT. Cryptocurrencies hold no tax agencies. They cannot accrue value or fight inflation by using the threat of force to get people to exchange goods for their domestic tokens. They can neither appeal to ethnic nationalism or patriotism to spur support, nor can they garnish your wages. Cryptocurrency holders are those who are explicitly trying to navigate the different political frameworks they are forced to comply with by birth or by choice and still interact with one another despite a shaky legal regime in one area or a corrupt political class in another.
The political intervention required by MMT, on the other hand, requires faith in a nation-state, its ruling class and at its core, geographic limits and strictly defined taxation limits on individual liberty to prop up the value of what are essentially domestic tokens.
Perhaps this contrast exists because the MMT community largely consists of academics and politicians who are laser-focused on the benefits that can be accorded a physically-defined polity (whether a university or a nation-state), and the cryptocurrency community was largely built by borderless technological enthusiasts, born of an age where it takes seconds for Raj in Canada to purchase a product from Paul in India.
Economists are by definition optimization-seekers working with a limited set of assumptions and datasets that have been recently assembled. To be fair, cryptocurrency rests on an even newer foundation, yet it’s critical to acknowledge that economic critiques are directed to a set of nation-state based assumptions that have only iterated for a couple of centuries at most. MMT theory is simply a continuation of the Keynesian consensus that nation-states are the guarantors of prosperity for all, and that full employment and jobs, as well as the cycle of present consumption, rest as the primary motivation for the state and its citizens to co-exist. Employment is assumed to be an absolute good, but employment in what capacity?
Perhaps the easiest example of how cryptocurrency adherents chip away at MMT, and one which MMT adherents may be most sympathetic for, is the idea of the second-order political consequences of domestic consolidation.
A benevolent government (perhaps represented here in the minds of MMT advocates as a Bernie Sanders administration in the United States or a Jeremy Corbyn parliament in the United Kingdom) may decide to use its new-found powers and employment base to banish poverty, employ everybody willing to work in a consensual fashion and create an equitable, “harmonious” society — where constraints are placed on the state to ensure it is a neutral dispenser of funds.
But a malevolent government (perhaps represented here in the minds of MMT advocates as a Trump administration) might hire incredible amounts of law enforcement, border patrol, and investigative authorities instead.
Or perhaps we’ll be in a middle ground, where a future Works Progress Administration (FDR’s job guarantee during the New Deal) builds great objects of national affection, but also channels funds politically to ensure re-election and conformity from a voter base.
The last case is more dangerous than it seems. As Chinese democracy activist, noted dissident and Nobel Peace Prize winner Liu Xiaobo astutely put it in one of his last interviews before dying in a Chinese jail cell: “If our rice bowls were still in the hands of the Communist Party, as in the 1950s, people like us would have to keep our mouths shut.”
Another consideration is the long-term economic implications of a modern-day job guarantee in a world where the Department of Labour struggles to define skilled aspects of computer programming, STEM fields, and others as they emerge and grow (a computer programmer is regarded as low-skilled mostly because it doesn’t require an accredited degree to enter — this is a self-perpetuating cycle indeed) means that public grandesse will ensure a wage and demand obedience for those who benefit from a job guarantee, in a world where the rat race has become oriented to skills rather than connections. This creates a trap for those employed by the “employer of last resort”, which is a political and economic entity.
A government also may not be inclined nor perhaps the most capable of keeping continual track of how to do skills training for its population. Thus the debate in the United States between public schools and charter schools, and the need to import skilled immigrants to fill in gaps. What may end up happening for those guaranteed a job is skills stagnation and “rice bowls in the hands of the government.”
MMT adherents blast other economists for not fully realizing the scope of the world we have inherited from Nixon’s abandonment of the gold standard. Cryptocurrency adherents might blast them and mainstream economists for not understanding the second-order political consequences of economic theory nor the sweeping changes that have come with a skilled class of nomads that may not particularly need loyalty to one state or another for economic reasons.
However, the centralization required to get MMT theory into practice –getting multiple political figures who are influenced by MMT economists voted in by a majority of a nation-state’s electorate, preferably the nation’s executive, and then getting the legal instruments to change the policy required through both judicial and legislative checks– is a discrete step process rather than the slow (but increasing) trend line of the empirical effects of cryptocurrency and the travels of its users.
Cryptocurrency companies are largely remote. Technology companies have taken over the top rankings for value by market capitalization, and they have a sharply more nomadic workforce than the oil companies of old. Programs are marketed on the idea of traveling to obtain critical education. Remote work has been one of the leading themes of our time. The number of Americansrenouncing their citizenship (one of the most powerful on Earth) has increased every year to higher and higher numbers: to be sure, only 5,000 or so a year — but many more than anybody living under a MMT-friendly government.
Perhaps one day, these two ideas, trending in their different ways, might reconcile into a Hegelian dialectic: a compromise. There may be nation-states that use the MMT framework to wisely invest in infrastructure and science — the positive effects from this can resonate across borders and time periods. They might accrue a population that is wise and healthy, that eliminate the most unpleasant consequences of income inequality and that attract cryptocurrency holders to voluntarily stay within their borders.
But it is also instructive to think of the switch case of a set of dystopian panopticons who employ more law enforcement agents than the increasing number of criminals the state defines — and the economic might to crush any one of their citizens forced to a stapled, “guaranteed” life of domestic currency to ensure obedience and a self-perpetuating cycle of economic and political dependence, one that can only be escaped through cryptocurrencies and interactions with other systems, nation-states, and geographies.
For now, cryptocurrency is steadily chipping away at both the foundational assumptions of MMT and the dystopian switch case. The numbers may be small, but they disguise a larger movement away from geographic and political constraints on individual liberty. Emerson, the iconic linchpin of American intellectualism, once wrote “in dealing with the State, we ought to remember that its institutions are not aboriginal, though they existed before we were born; that they are not superior to the citizen; that every one of them was once the act of a single [person]; every law and usage was a [person]’s expedient to meet a particular case; that they all are imitable, all alterable; we may make as good; we may make better.” He preached the “infinitude of the private [individual]”.
Cryptocurrency adherents are living Emerson’s principles out by “making better” than the states they were born in or nationalized to in how they accord value and exchange it between different economic and national regimes — and slowly chipping away at the assumptions that underpin much of MMT and modern economic theory as a result.