Modern Monetary Theory and an Economy of Human Development — Part I
By Will Szal
With the Regenerative Economy Collaborative
Monetary theory, the study of money, is a key aspect of economics. It enables economists to analyze money and consider its function. As an economic theory, the technical literature on the subject generally concerns itself with traditional economic indicators: jobs, inflation, etc. However, these sometimes fail to adequately address the primary purpose of economics: people.
Modern Monetary Theory (MMT) is a specific branch of monetary theory that evolved as a result of a century-old inquiry into chartalism, functional finance, and the medium-of-exchange nature of money. It is characterized by a view that currency is a public monopoly, and should be managed for the public benefit. Although MMT has been around for generations, it is recently gaining prominence in mainstream economic discourse as a compelling approach for retooling our currently-ailing economic system.
This article is part of a body of larger work being developed by The Regenerative Economy Collaborative to demonstrate the application of the Seven First Principles of Regeneration (as articulated by regenerative paradigm educator Carol Sanford) to the domain of economics. Taken as a whole, this effort is directed toward answering the question, “How can the economy metamorphose into a system that optimizes for human development rather than one that depends upon exploitation of people and nature?” The thesis of this article is that MMT, if reconceptualized within a framework of regenerative principles, is well-suited to helping bring about this transformation.
This piece is structured around three pillars: money (section III), people (section VI), and the emergence of a regenerative economy (section IX). These pillars are linked with interstitial segments expounding on the thesis of this piece: I) grounding our discussion of money within the context of personal and national sovereignty, II) introducing MMT and linking it to human development, IV) considering the spectrum of participatory governance of money, V) interrogating the aims of work and livelihood, VII) dispelling the myth that fiat funds are created through debt, and VIII) interrogating the phase shift between employment and vocation.
What is it to be sovereign? When used to describe a national currency, the descriptor means that a country has independent control over its monetary supply. Countries with a high degree of monetary sovereignty include countries like the United States, the United Kingdom, and Japan. Countries with a low degree of monetary sovereignty include countries like Niger, Venezuela, and Greece. If a country has the ability to “borrow” exclusively with its own currency, and it has the ability to control the supply of that currency, it is sovereign.
Who or what directs this control? What in the nature of money changes in accordance with degree of sovereignty?
On the personal end of the sovereignty spectrum, agency is the key term. Agency refers to the will of an entity to exercise its participation in a larger system. This is relevant because unleashing the creative contributions of every member of society is what activates a regenerative economy. Just as at the national level, increased sovereignty builds the ability for a country to fully participate in the active evolution of society and the planet, so at the individual level, increased agency builds the capacity to engage in dynamic community- and movement-based development.
II. Capacity Development
From a regenerative perspective, economies are a means by which communities and nations become increasingly wealth-generating. In this context, wealth is a dynamic term relating to the ability of living systems to sustain and grow their own vitality, viability, and readiness to evolve. In this way they become able to respond to emergent needs, not only for themselves but for a larger world.
This description of economies will naturally prompt us to ask, “What is money for? Can it serve to actualize society rather than inhibit it?” For insight into these questions, the work of economist Stephanie Kelton is helpful, especially as outlined in her 2020 book, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. She posits that using the dysphemism “national debt” to describe the net balance between federal expenditures and federal taxes confuses economists, policymakers, and the public to busy them with anxiety over irrelevant indicators.
There is another option; that of MMT.
What is money? Unlike the material universe, which operates according to the laws of physics, money is a social construct, and is therefore limitlessly plastic. Money wears an extensive wardrobe of metaphoric cloaks: water, energy, gold. And yet, as with any metaphor, money is not actually any of these things.
Increasingly, money is how we mediate our relationship with each other and the more-than-human world. On an individual level, money pays for most of our food, most of our housing, most of our transportation, and a substantial portion of our education and medical care. Nevertheless, it should be noted that a large chunk of the economy lives outside of the financial economy — we generally don’t get paid to parent, to learn an artform, to clean up a stream, or to run a marathon.
Money isn’t an indicator of meaning. Corporate lawyers may make more money than school teachers, but does that mean they lead more meaningful lives?
Money is traditionally defined as a medium of exchange, unit of account, and store of value. These qualities are in tension with one another; inflation at low levels enhances the medium-of-exchange nature while degrading its utility as a store of value, and vice versa. For example, the Federal Reserve targets an inflation rate of 2%, so that the dollar is used rather than held. Conversely, gold has gone up in value in comparison to dominant currencies, making it a good store of value but a poor medium of exchange.
The value of money is collectively generated. To take an extreme example, if only one person held all of a specific currency, it would be entirely worthless. Conversely, the more people who find use for a currency, the more valuable it becomes.
On a societal scale, budgetary allocations reflect a certain subset of moral priorities. In fiscal year 2020, the federal budget has authorized $636 billion for defense, and $162.5 million for the arts, a roughly 4,000-fold differential. In considering how such large discrepancies in allocations occur, we can now turn our attention to the question of oversight.
What is the process used to allocate funding? In the United States, we’ve vested fiscal authority to Congress and monetary authority to the Federal Reserve. In other words, both entities have the ability to create and destroy money, each in their own way. Congress has the ability to create money through federal spending and destroy money through federal taxes. The Federal Reserve has the ability to issue treasury bonds, set interest rates on these bonds and other reserves, and purchase securities as a form of debt relief.
Within this breakdown, some fiscal programs overseen by Congress are mandatory while others are discretionary. Social Security, Medicare, and student loans are mandatory (issuance has some degree of automation). Defense and bailout packages, on the other hand, are discretionary. One advantage of mandatory spending is that it generally doesn’t require authorization and therefore can be more responsive to emerging needs than discretionary spending, which is frequently held up in lengthy deliberations.
Neither of these institutions could appropriately be described as “democratic,” and would be better classified as plutocracies because they are characterized, on the whole, by the seat of governance being occupied by a wealthy elite. There are other ways of controlling fiscal authority, one example being that of participatory budgeting, where an informed citizenry engages in a facilitated budgetary process together, a method that fosters the development of citizens.
Continue to part two, where we explore the the nature of meaningful work and the social reality of money: