Magic Money Tree? Part One

18 Oct

What good am I then, to others and me,
If I’ve had every chance and yet still fail to see?
If my hands are tied, must I not wonder within,
Who tied them and why, and where must I have been?

Bob Dylan

I’m in a bind and have been for years. Neoliberalism, the political-economic doctrine to which most of the world has for some forty-five years been subjected, is as dysfunctional as it is unfair. Thinking people recognise this, and their apparent impotence in the face of that recognition is but one of many ways of demonstrating that, far from living in democracies, the “free world” is ruled by and for tiny elites. 1

Denial of the existence of these ruling elites, routinely accompanied by philistine jeering, I liken to denial that the earth orbits the sun. Here’s how I’ve expressed the human predicament more than once on this site:

  • Our world is capitalist in its advanced stage of imperialism – the export of monopoly capital from global north to south, and the south to north repatriation of profits.
  • The prime beneficiaries of this world order are rentier elites in the most successful imperialisms: i.e. most of the former colonial powers (including the USA) but also the Antipodes, Canada, Scandinavia and an EU led by Germany.
  • In its initial progressive phase capitalism freed humanity, albeit at terrible cost, from feudal ties and slavery while hugely advancing human productivity. Now its structures (means of wealth creation in ever fewer hands) and laws of motion (prioritising above all else of private profits and insatiable accumulation) demand unsustainable levels of narrowly defined and grossly distorted ‘growth’, condemning the world to:
    • environmental degradation;
    • ceaseless wars, normalised and monetised, and sold to us in tissues of lies;
    • levels of global and national inequality as dysfunctional as they are obscene, and a mortal threat to meaningful democracy.

I’d now tweak the above to add, largely as a result of my readings of Michael Hudson, the key role played by indebtedness in the FIRE dominated Western economies. This critical omission aside, I stand by that assessment. So why do I speak of being “in a bind”?

There are two parts to this answer. The first, also articulated more than once on this site, is that none of the main strands of resistance in the West – whether alone or, where there is sufficient compatibility of worldview, acting in concert – has the capacity to effect change of the nature, scale and timeliness our bleak circumstances require.

Social democracy? As modern monetary theorist Richard Murphy argued just yesterday, the British Labour Party is in thrall to neoliberal orthodoxy, effectively giving veto power over economic decisions to those “masters of the universe” who wreaked havoc in 2008, only to profit further from the misdirected quantitative easing introduced on the back of it. This surrender of agency – to that supreme deity, “The Markets” (invoked in tones so reverent you expect the Keir Starmers of this world to perform the Sign of the Cross) – is duplicated in social democrat economic policy across the Western world.

Trade unionism?  Vital, but crippled not only by decades of statutory restriction but by a worldview stubbornly nationalist (at best) when capital is internationalist. (Witness union objections to nuclear disarmament on the ground of job losses!)

Revolutionary sects?  Apart from being miniscule, these remain oddly silent on the matter of how power can be seized from states armed to the teeth, versed in counterinsurgency skills honed in the world’s hell holes from Aden to Belfast to Gaza, and spying on us with technologies beyond the wildest dreams of 20th century totalitarianisms.

Direct action?  I applaud the imagination and chutzpah  of groups like XR and Occupy, but history shows over and over that such loose alliances of bricklayer and banker’s niece, single mum of Slough and Disgusted of Tunbridge Wells, are easily infiltrated and even more easily split by bourgeois regimes that do divide and rule in their sleep.

I see the only viable challenge to neoliberalism in the rise of China as an economic superpower. Here too I’ve given my reasons more than once on this site. Less than a week ago I wrote:

The rise of China … poses the most significant – indeed, the only significant – alternative to neoliberalism. And it not only challenges Western hegemony in global markets long deemed “ours”. It also offers the global south an alternative to the conditionality – “yes we will lend you money to pay your debts to us but only if you privatise your economies and float them on Wall Street”  – of IMF and World Bank loans. 

Which leads me to the second part of the “bind” I’m in. While I find it easy to argue my corner against those to the right of me, and scarcely less so against ultra-leftist critics of China’s use of capitalism given that …

China’s capitalists (a) have been instrumental in lifting hundreds of millions from what the World Bank calls extreme poverty, (b) are subordinate to state policy – in the West it’s the other way round – and (c) exist precisely because the failure of the West’s Left to make its own revolutions obliged China to adapt to global conditions of entrenched neoliberalism.

… I was more challenged by a comment on this site by bevin, mentioned several times in the despatches this week, that it ill becomes socialists in the West to cry, “we must wait for Uncle China to come to our rescue”.

Well as this site shows, I hadn’t exactly been doing that, and bevin was swift to reassure me that I was not at all in his sights on that score. But questions of my own shortcomings aside, he has a point. If we accept the assessment set out above – and are not content to throw hands in the air and join the SINO Club (socialists in name only) – what is to be done?

After all, Uncle China has problems of his own.

Call me self satisfied, but I do believe one contribution I make is that of challenging to the best of my ability the neoliberal West’s criminally insane warmongering on states disobedient to or haplessly standing in the way of the US Empire and its satellites. All the more so when the said recalcitrant states are themselves nuclear powers.

But what is to be done closer to home? On this front my interest in Modern Monetary Theory is growing. And if the current post has taken an inordinate length of time to get to this point, well, I ask indulgence on the ground I had to set out the steps of reasoning which brought me here.

I’ll start (and finish this first instalment of) my inquiry into whether MMT really does stand for ‘magic money tree’ – or whether that’s just more philistinism from the economically clueless – with an account by the Positive Money crowd. Though there are points of significant difference between PM and MMT, for most purposes there is even more significant shared ground. Here then, with admirable succinctness, is Positive

Politicians often like to point out that there is no “magic money tree”. But that raises the question, where does money actually come from? The answer is more complicated than many people realise.

If you listened to some government ministers, you might assume that there’s a fixed amount of money in the economy, or that the amount is strictly controlled by the Bank of England.

But in fact, money is being created out of thin air all the time. And this process has hugely important implications for issues like housing, inequality and the environment.

Most of the money we use comes in digital form, as the numbers we see on our bank statements. This money is created by private banks like HSBC and Natwest when they make loans. They create it by simply typing numbers into a computer – some might call this magic!

Sound implausible? You don’t have to take our word for it – the Bank of England itself has confirmed that “whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money.”

Unfortunately, banks direct most of their lending towards property and financial speculation, which pushes up house prices and makes financial crises more likely. Banks prefer lending to the ‘financial’ economy than the ‘real’ economy, where most ordinary people would see the benefit. This means they do a bad job of lending to businesses which create jobs and grow the economy in a sustainable way.

And because commercial banks were slow to start lending again after the 2008 crisis, the Bank of England stepped in with its own money creation programme called quantitative easing. It’s chosen to pump this new money into the financial sector, which is pushing up the value of assets like houses, shares, and corporate bonds.

This policy has done very little for ordinary people, but the Bank of England’s own research has shown that quantitative easing made the richest 5% over £128,000 richer.2 So at a time when politicians are using the absence of a “magic money tree” to justify austerity, the Bank of England policies are enriching a wealthy few.

All of this exposes how dysfunctional our money and banking system is. But we know it doesn’t have to be this way. We can reform the system so that it supports a fairer and more sustainable economy.

  • Instead of the Bank of England pumping new money into financial markets through quantitative easing, it should be spent via the government into infrastructure, green technology, or as a cash transfer to help households pay off their debts and improve their finances.

  • And we need to transform our banking system so that banks lend money to support investment and jobs in the real economy. This means having a more diverse range of banks and government policies that encourage lending for productive purposes. 3


The alert will have noted that, while the above goes nowhere near as far as Michael Hudson, the ground it does cover is consistent with the latter’s deeper and far wider analyses of the fix the perilously financialised West is in. The hyper-alert will note too that many PM/MMT pundits display naivety as regards the West’s power structures, and that this is frequently coupled with a seeming indifference to those states – mostly in the global south, with the eurozone a glaring exception  – which, formally or de facto, are not sovereign issuers of fiat currencies.

Or to put it another way, few MMT gurus show awareness of imperialism. Does this render them irrelevant for those of us who recognise the dire straits in which humanity finds itself? I think not and, funnily enough, my starting point for saying so is in the “impossibilism” of Leon Trotsky’s Transitional Program.

But that will have to await Magic Money Tree? Part 2.

* * *

  1. Another way of showing the same is through this syllogism. Democracy implies consent. Consent is meaningless if uninformed. Informed consent implies independent media. That last we do not have when, as Chomsky observed, “media are large corporations selling privileged audiences to other corporations. Now the question is: what pictures of the world would a rational person expect to emerge from this structure?”  See Britain decides!
  2. A friend emailed: surely that £128k cited by Positive Money is a misprint, several decimal points short of the mark? My reading is not of typo but sloppy ambiguity. I read it as the richest 5% getting richer still by an average of £128k per head. Needless to say, that will rise dramatically for the top 1% and even more so for the top 0.1%.
  3. A few hours after posting, an opinion piece by Josh Ryan-Collins – associate professor of economics and finance at the UCL – appeared on the Guardian site. Without explicitly mentioning MMT or PM, that is the professor’s unmistakeable thrust. Is modern monetary theory about to emerge from the margins as an idea that’s found its time? After fifteen years of ‘austerity’, with the most credible – I mean least incredible – contender for a UK prime ministerial coronation promising more to come; as is Keir Starmer’s hollowed out Labour Party, it just might be the political-economic answer a public cheated and insulted in equal measure so badly needs.

21 Replies to “Magic Money Tree? Part One

  1. Just discovered you, and I agree. I had long come to the same conclusion, China is our only chance. Thanks for putting it so clearly. I don’t think MMT has it right though – and not just because they are hopelessly naive about imperialism, politics etc. – the law of value will always reassert itself (as long as we live under the rule of capital). Still, I look forward to your sequel to this post!

    • Hi Abra. On first encountering MMT my objection was also on value grounds. I’m now pretty sure this is a red herring or, to switch metaphors, a comparison of apples and oranges. MMT is concerned with fiscal and monetary policy, and has little to say about underlying value in the real economy other than that governments with fiat currencies don’t tax in order to spend. Rather, they create money as need arises, and tax in order to control inflation. Other than that inflation affects the (ultimately labour embedded) value of money, MMT no more addresses (or defies) value in the economy than do bee keeping or nuclear physics.

      I think. I’m very much finding my way here, Watch this space.

      • Fair enough. I mean we all aren’t we!

        Came across this, a great article explaining the (numerous) causes of the current inflation, which turns into an ineluctable call for Communism in the end.

        A must read.

        Beautifully written, too.

        (Good to see Michael Robert’s posted and discussed in your comments feed.)

        Thank you

        • Thanks Alan. I’ll check it out when I get back from the wild camping trip I undertook immediately after writing this post.

            • Oh sorry, I thought I did.


              I think its good, but having digested it, and some of the conclusions, it is weak on the plan.

              The pot shots taken at the anti-imperialist left at the end are silly…


              “As it has in the past, renewed geopolitical jostling within the imperial hierarchy will again take the form of a righteous struggle by the countries forced to occupy lower positions in the great pyramid of siphoned surplus value. In the name of development, they will utilize allegedly “socialist” methods such as state planning and subsidization of key industries to assert the ascendance of their national ruling classes against the decaying imperium.”

              … And belie a certain naïvety on strategy – communization, perhaps? Probably, its Brooklyn Rail.


              “Communist power is built by breaking down… divides [between the dispossessed… at both the domestic and international scales], refusing to stay sequestered within subsistence struggles or to take sides when a lesser imperial power challenges a greater one, instead constructing subterranean infrastructures that integrate the illegal and legal, the autonomous and the institutional, and connect the “national” proletarian forces on all sides of every warring border under the banner of ever-grander expropriations, thereby superseding all such categories in a broader conception of political power.”

              Still, the rest of the essay is pretty good, I think. Endings are always difficult.

              Welcome your thoughts.

              Enjoy camping!

  2. Here is Michael Roberts-delivered to my mailbox minutes before yours- to add to your analysis.
    “… it is China’s large capitalist sector that threatens China’s future prosperity. The real problem is that in the last ten years (and even before) the Chinese leaders have allowed a massive expansion of unproductive and speculative investment by the capitalist sector of the economy. In the drive to build enough houses and infrastructure for the sharply rising urban population, central and local governments left the job to private developers. Instead of building houses for rent, they opted for the ‘free market’ solution of private developers building for sale. Of course, homes needed to be built, but as President Xi put it belatedly, “homes are for living in, not for speculation.”

    “Beijing wanted houses and local officials wanted revenue. The capitalist housing projects helped deliver both. But the result was a huge rise in house prices in the major cities and a massive expansion of debt. Indeed, the real estate sector has now reached over 20% of China’s GDP. China’s private property sector is now composed of ‘zombie’ companies just like 15-20% of companies in the major capitalist economies. The question now is whether the Chinese authorities are going to allow these firms to go bust. Local governments are now trying to ensure that the homes promised by the likes of Evergrande to 1.8m Chinese will be built by taking over the projects, while many property developers will be liquidated.

    “There is not going to be a financial crash in China. ..”

    At risk of ‘going on’. What China is doing, if it is going to take capitalism back under its control, is setting an example for Russia and the rest of the world, which is looking for alternatives to the IMF, World Bank, The City and Wall St. If China can continue to grow, as capitalism falls deeper into crisis, it will be doing what the Webbs etc thought they were seeing in the 1930s when the Soviet Union maintained full employment and looked like “the future”. The reverse in fact of the sad sight the USSR provided in Cold War years when it made a dramatically less attractive display (at least after the propagandists had got to work) than the “west.’
    Going on even further: there is already, in the rest of the world where the dominant narrative is less dominant, a dramatic difference between the ways in which the power blocs interact with the world. In the west it is with expeditionary forces, colour revolutions, terrorist militias, usurious loans conditioned on attacks in the poor.
    And then there is Cuba with its tens of thousands of medical personnel busy in a thousand villages in Africa and Latin America, saving the eyesight of hundreds of thousands in Venezuela, for example, dealing with pandemics, developing non-profit vaccines and pharmaceuticals etc etc. And now Russia is pledging itself to send grain, at cost, to poor countries, providing cheap energy to the south and otherwise turning the lemons of sanctions into the vitamin rich lemonade of non dollar trade.

    • Thanks bevin. I cant respond as fully as I’d wish (see my response to Alan) but I see the big two potential problems with China’s rise as (a) the empire’s response triggering a very brief WW3, and (b) Beijing proving unable to control the capitalist dragon it has – I say necessarily – unleashed.

      But we’re not exactly spoilt for choice.

  3. China presents a bit of a conundrum since I belong/subscribe to Forest rescue, Tom Engalhardt (TomDispatch) and Bill Bishops Cynocism so have wildly different views. I will not be able to decide which way to go until I have read the full pronouncement (only an abbreviated report so far from XI Jing) on the 20th Congress held I believe on the 19th.
    All contributors speak from their own agendas and all present valid arguments on how any useful headway can be made on either the continued US/EU/UK/Five Eyes plundering exploitation can be curbed or how the Shanghai cooperation Organisation can balance not only the economic issues, but also climate change horrors presently ravaging the world.
    I’m really torn apart and sometimes it is the “lesser of two evils” that must succeed(China and Russia’s economic and global influence expansion being the lesser evil) against the very urgent need to address the savage stresses of countries world wide are placing on an already fragile ecosystem.
    I wonder if parity/balance can be achieved, and yet, as I already know, we cannot have one without the other if we are to break the stranglehold the US has on peoples all over the globe.
    If only the Pacific and Atlantic oceans could shake hands over the north American continent. Unforgiveable I know, but it would solve the earths most immediate problems.

    • “If only the Pacific and Atlantic oceans could shake hands over the north American continent. ”

      Yes. The ongoing reality of Europe’s pauperisation over the crazy EU sanctions on Russia (which are much larger than the sanctions regime installed by the US) might bring Europe both to its knees and its senses. The other thing that has to happen is either a civil war in the US (more or less likely/unlikely depending on who you read) and/or the break up of the USA into a number of smaller units (again, depends on who is doing the forecasting).

      But the USA does seem to have entered a period of instability, with a large part of the ruling class detached from reality, and internal infrastructure and society breaking down. Who knows, if disintegration was good enough for the Roman Empire, it might be good enough for the Empire of Lies.

    • If only the Pacific and Atlantic oceans could shake hands over the north American continent

      Well yes Susan, that might conceivably strike some folk as a shade on the unforgivable side – but it’s a cracking metaphor.

      PS bevin lives in Canada!

  4. Hi Phil you may remember that, prompted by a Jim Kavannah Counterpunch article, I wrote a piece for offGuardian in 2018 exploring how a slightly left of centre Labour Party might fare trying to implement an MMT approach in the UK.

    The piece concluded:

    It seems that MMT has a logic and a coherent rationale that could be made to work, but once you consider the issue of power : who has it, how it is maintained, and how it is used, the difficulties of implementation can seem insurmountable. Nevertheless, the current capitalist iteration in the west is struggling to maintain profit levels for the 1% and to keep the other 99% sufficiently on board to maintain social stability. This provides an opportunity for the Left to promote an alternative way forward, but (as ever) to be successful it has, at a minimum, to gain the support of a significant majority of the 99% and has to engage with the 1%; either to persuade it that ground has to be given, or to force it to accept change (and all that goes with that).

    So there is a Magic Money Tree and (helpfully) it has the same initials as the economic theory that underpins it; Modern Monetary Theory! It is an approach that could help to deliver a more equitable, supportive and inclusive capitalist society ………but…… like all progressive politics, its implementation would be dependent on tackling the power and privilege of the minority who benefit so much from the current state of affairs.

    Perhaps the more modest potential of MMT is to reveal a key set of processes that are central to the current economic system and to help promote an alternative; as Jim says ‘It raises the curtain’. Can the Left use this to debunk a range of self-serving myths pedalled by the elite, further discredit what is becoming an increasingly dysfunctional capitalism and begin to suggest a more equitable and workable alternative?

    Full piece can be found here on my occasional and usually not so serious blog site:

    <a href="” rel=”nofollow ugc”>

    Things have moved on apace since 2018 and Nafeez Ahmed’s tweets on the potential for contagion spell out the implications of the current UK economic debacle for the global economy and us all. Whether MMT can contribute to a more progressive political and economic direction in these circumstances I don’t know – but I think I have seen a few pieces in the MSM at least questioning the current way money and credit is created and managed in The West.

    • Hi Bryan. Yes, I do remember your Off-Guardian piece. More to the point here I agree with the conclusion you drew back then.

      As you know, I find mileage in the challenge put down by MMT and PM, with its whiff of Trotsky’s impossibilist demands. Will explore in Part Two. Right now I’m laboriously tapping this out on my phone, in a cafe in Hathersage after spending the night in that car park between Burbage Brook and Stanage Edge!

  5. Good wild camping Phil. You will have had a beautiful sunny day yesterday but this morning is a little more challenging, windy – but dry.

    Good to see Trotsky back in the frame.

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