Ep. 24 Murphy Dissects His Discussion of MMT With Warren Mosler
By popular demand, Bob goes solo and explains some of the major disagreements he had with the views Warren Mosler expressed back in episode 18. At that time, Bob was just having a friendly discussion, not a debate, but in this episode, Bob explains where he thinks Mosler went wrong.
Mentioned in the Episode and Other Links of Interest:
- Bob’s original interview with Warren Mosler (ep. #18).
- “The Economic Organization of a P.O.W. Camp,” a classic article discussing the birth of cigarette money.
- John Carney wonders whether the Fed would let a Treasury check bounce.
- The Federal Reserve’s official explainer on how Treasury deposits are handled.
- Help support the Bob Murphy Show.
The audio production for this episode was provided by Podsworth Media.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
It’s interesting you mention the tobacco situation in POW camps. I have a buddy whose a hardcore prepped and his first action upon total collapse is to rob a liquor store of all its tobacco and alcohol. He assures me that along with ammunition would become currency.
Instead of planning on robbing people, why not just stock up now on tobacco and alcohol?
A hardcore prepper would learn to grow corn and distill alcohol from it. He’d use his guns to defend his farm and distillery, not to rob liquor stores. I also know some hardcore preppers (in Belize), and the only thing they’re stockpiling for trade after the collapse is hard money (mostly junk silver coins). Bottles of Everclear might be a better bet in the very short run, but if you only expect to survive until the Everclear runs out, you aren’t delaying your post-collapse demise very long.
Should there ever be some kind of “total collapse” those liquor store shelves would be emptier than a Venezuelan supermarket … everyone else would be onto that same idea quite early I suspect.
How about rob a check cashing joint, then use the money to buy alcohol and tobacco, then use those things to trade for ammunition and porn [because the internet might go down, and then no free porn]?
I’ve never heard Mosler say that MMT is a theory of the emergence of money (or even fiat money) historically. David Graeber may defend a state theory of the emergence of money historically, but I’m not even sure that Georg Knapp was making an historical argument when he (in the 19th century when states operated on gold and silver standards) developed chartalism as a theory of the money of his time.
Mosler rather says that MMT describes the monetary system we actually have in the United States and other developed economies today. He repeatedly concedes that different rules apply to earlier systems constrained by a gold standard and similarly fixed exchange rates.
Mosler presumably would not dispute your description of the Treasury’s account at the Fed, but when the Treasury “borrows” (or “sells a bond”), the Fed will either buy the bond (or an equivalent bond) in open market operations depending on its target for the bond’s interest rate. It doesn’t buy the bond if it must pay a price high enough (accept an interest rate low enough) to violate its rate target or corresponding monetary policy involving an inflation target.
So yes, the Fed may not buy the bond, because as Mosler repeatedly asserts, the Fed is a score keeper, and too much inflationary spending by Congress violates rules of the game that Congress itself has established. This fact doesn’t contradict Mosler’s assumptions at all. Nothing about MMT implies that the fiat monetary system must finance a Green New Deal or even “free college” despite the fact that “free college” would cost no more than the DOD increases over the last two years alone, and the fiat money system is financing these increases as a matter of fact.
Of possible interest, back in 2012 I wrote a layman’s critique of the 7DIF story that Mosler posed for MMT, which you can find here: https://johnrussellpalmer.com/blogs/adumbration.php/2012/07/modern-monetary-theory-fraud-1