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Wall Street bubbles—always the same

Inflation & the Politics of Pricing with Nathan Tankus

In this episode, we talk with Nathan Tankus, Research Director of the Modern Money Network, and Research Fellow at the Clarke Business Law Institute at Cornell Law School. Nathan recently co-authored an opinion piece in the Financial Times (“An MMT response on what causes inflation“) with Scott Fullwiler and former MoL guest Rohan Grey about MMT’s position on the causes of inflation.

In the conversation, we ask Nathan to expand upon and deepen his engagement with the inflation question in all its historical, political, and rhetorical complexity. More specifically we discuss the different historical approaches to inflation; how the Post Keynesian MMT perspective diverges from those approaches; the vital contributions of economist Fred Lee to the foundations of Modern Monetary Theory; as well as how we ought to be thinking about issues of inflation and growth as they pertain to the Green New Deal. The conversation is as compelling as it is challenging.


Transcript

The following was transcribed by Richard Farrell and has been lightly edited for clarity. 

Scott Ferguson: We’ve asked you to come talk to us about the question of inflation, and also some of the micro economic thinking surrounding MMT that isn’t always as well advertised as the macroeconomics in MMT. What occasions this discussion is not only some concern in the discourse about MMT regarding inflation, but specifically an article that you cowrote and published along with Scott Fullwiler and Rohan Grey for the Financial Times titled “An MMT response on what causes inflation.” To start, I’ll say that, in my own learning about MMT, I think the very last thing, the last obstacle for me to really get on board, and for MMT to really make sense to me was overcoming what is essentially a kind of sublime terror of the threat of inflation. 

I can tell you that very thoughtful reasonable people who I know, academics or leftists or both, they will sort of be onboard when I’m talking to them about MMT, but at the end of the day they won’t fully commit because they’re terrified by what happens when we start talking about using fiscal policy in supposed excess of what we “normally” use it for. Maybe to get us going, it could be helpful to paint a picture for our audience about what it is that the orthodox discourse assumes when they’re talking about this thing, this process that we call “inflation.” 

Nathan Tankus: I think for me, the key to understanding the orthodox position and really getting inside that mindset is actually to connect it right back up to their conversation and discussion of money. Because if you go back to the beginning, the beginning of those writings in the 19th century, the essential component that makes everything fit together is that there’s these other processes that are determining this aspect of prices called relative prices, which isn’t the actual monetary amount that you will pay for a good or service, but is that price in ratio with another price or even all other monetary prices. And it’s that the ratio is equivalent to the ratios that you would get in barter, in that natural relationship. And that there’s fundamental forces of supply and demand that are the same as bartering that determine these relative prices. So if money can’t determine relative prices, and we’ve “established that,” then there’s a question of what does money do? 

Well then where you get to very quickly is that there’s a price level and it’s not just produced by some government statistical agency. It’s really just this fundamental force in the world that agents inherently understand, and that money determines that price level. This is where money printing causes inflation, M rises and P rises. It has to be that way in this system, barring how frictions and imperfections might get some other mechanisms going. The fundamental basic framework must hold to keep underlying apparatus, the barter or non-monetary production economy framework, what Keynes and Marx, and all these people talk about. And so that is the essential way to understand that money printing has to inherently lead to inflation. 

Whether in the short run or the long run, inflation is just this price level that is asocial, apolitical, just what is out there in the world. When you ignore all that other human crap, this is what the fundamental forces of supply and demand are determining. That’s the key to the framework and why it’s so easy to bring up the inflation boogie man, because they have this whole framework that they’ve built up deductively that abstracts from all the other different processes that are going on and especially the processes that are going on in the modern monetary production economy. 

Scott Ferguson: To paraphrase and clarify, it’s starting with money as a natural barter exchange relationship that has little relationship to government that then essentially renders any government spending in excess of the supposedly natural forces a threat? Or at least a fundamental imbalance? 

Nathan Tankus: Well, it’s even more fundamental. It doesn’t even have to be government spending. [It can be] any sort of creation of money at all that starts flowing through the system. The only thing it can do is increase prices because there’s no other room for it to accomplish anything else that matters in the “perfect system.” Orthodox economists will be very quick to bring up all the auxiliary assumptions to this basic framework. Things like imperfect information and imperfect competition, sticky wages, sticky prices, etc. They may have all these other frictions that  put sand in the wheels and allow money to do something, the term of art is “allow money not to be neutral,” but fundamentally in the long run, all that money can do is create inflation. Maybe it can create other inefficiencies in the system, but it has no productive capacity outside of these edge cases. 

William Saas: Well, given your understanding and reading of the fundamental misconception of money at the center of this fundamental misunderstanding of inflation, could you take us up to NAIRU, the non accelerating inflation rate of unemployment, and say what heterodox economics and specifically MMT does to critique that?

Nathan Tankus: Okay, well, from this [orthodox] point of view, the NAIRU, the non-accelerating inflation rate of unemployment is kind of an index of the frictions in the system. Because, of course, you know, if the system was running perfectly, there would just be true “full employment.” But there are all these factors, whether it’s search frictions [or] if you’re Milton Freeman, whether there’s unions or minimum wage laws or any sort of protections for workers whatsoever, whatever it is there are all these reasons that the “price mechanism” isn’t perfectly allocating resources. And thus at any given time, you have a certain rate of unemployment among the population that is “consistent with inflation,” with inflation not accelerating. And then if you get down to a percentage of too low unemployment, say 4%, say 3.8%, 3.5%, or whatever unemployment rate it is next year, the inflation process is supposed to start taking off and accelerating into the stratosphere. 

Maxximilian Seijo: In the interest of fully sketching out this orthodox view, you mention that neoclassical economists view any sort of money creation in tandem with price level increases. Given that, could outline how they consider endogenous bank lending to tell our listeners how they conceive of the relationship between bank monetary creation and the economy?

Nathan Tankus: Well, one thing I would say is I think there’s always been two different views, broadly speaking here. There is one view that assumes that all of the fundamentally important things are determined without money, and sees money as an intrusion into capitalism, as weird as that is. And so this is where you get things like the Chicago plan, 100% reserve money. The idea that if you just require there to be a dollar of reserves for every dollar of bank liability outstanding, you can neutralize the powerful forces of money in the economy. But also because reserves determine the supply of money, the government is ultimately responsible for anything that goes awry in terms of the private agents in the financial system, but if you take a natural rate of interest point of view, they’re also responsible for everything going on with non-bank financial entities because of keeping interest rates too low. That’s one view. The money as intrusion on their “perfectly operating system” view. 

The second view is that money is this passive thing that’s necessary, but is not productive itself. And thus, as long as you don’t mess with the banking system, the banking system isn’t gonna mess with everything else. So you have this framework where either money is this passive accommodating thing that is merely not disrupting non-monetary forces, or it is money, especially particular actors and their money creation power, that are forcing themselves on the economy and causing disruptions to its perfect functioning. And obviously that reads as in line with a lot of Austrian views about the banking system. You have this struggle between these two poles that I don’t think is really a resolvable one because of the fundamentally non-monetary vision that they have, especially, “over the long run.”

Scott Ferguson: All right. And maybe just one more question about fleshing out the orthodoxy, turning toward critique. Let’s just spell it out, what are the consequences? What are the social, political, historical consequences of this orthodox viewpoint that most people adopt uncritically?

Nathan Tankus: It leads to a sort of fragmented worldview where when you’re talking about budgeting and fiscal policy, the banking system disappears from view. It’s not part of how you think about this whole system of “government money creation,” or how you think about deficit spending. We’re extracted from that, so we don’t need to think about that because we’re thinking about budgeting. And then on the flip side, when you bring up financial stability or the financial crisis or the banking system, the banking system is isolated from all these broader questions of fiscal policy. The big critique of the banking system is that they didn’t get out there and lend money after the financial crisis when they should have. That’s what they were “supposed to do” with the equity purchases that the government made into the too big to fail banks, but because we don’t connect these two conversations, it doesn’t dawn on anyone that the financial crisis and the collapse in lending in the banking system is actually a huge opportunity that essentially, “pays for” what could have been a huge program of government spending because you don’t have the output that is being appropriated by whoever the banking system lends to. You have that output being devoted to the ends sought by private finance, instead of devoting those resources to a public purpose. But this conversation about inflation and money, from the mainstream perspective, has managed to segment it and completely break these two conversations into an impoverished zero sum conversation.

If people could have a connected view where they saw money and finance throughout all of our economic policy discussions, then bankers could never threaten us with a collapse of lending by raising capital requirements. Because if people had a fuller fiscal policy view, they would just go, “oh, what you’re saying is we get to spend even more money without raising taxes or cutting spending elsewhere because banks won’t be lending as much” and the people they’re not lending to will be denied the ability to hire a bunch of people, buy up a bunch of machines, and use up a bunch of oil to go on whatever venture that they’re interested in. I think that one of the underestimated parts of MMT is the connection of these conversations back up with each other. That’s one of the motivations behind the Financial Times Op Ed, to really connect these conversations and make people realize that there are, even from their particular points of views, more positive sum games than are generally realized.

Maxximilian Seijo: I think this point is crucial because it actually informs the historical terrain that this conversation is taking place upon. Coming out of the financial crisis, we see a real paradigm crisis of what an economy is, and how it relates to a banking and governing structure. And so I don’t think it’s a surprise that we see the rise of MMT in popular consciousness and scholarly discourse during this period, which makes the FT article you cowrote and just cited more intensely applicable to this question of inflation, because it’s with the rise in the popularity of MMT that, as Scott mentioned, we see the rise of the inflation bogeyman again. Yet, as you suggest, the interconnectedness argument that you outline seems to fit perfectly as an answer for how to address this boogeyman historically, and for our paradigm crisis. And so, I was wondering if you could actually outline the arguments of what we’re calling the MMT view of inflation for our listeners?

Nathan Tankus: Okay, where I would start with this is that there is this view in the mainstream, associated with new-Keynesian economics which, broadly speaking, attempts to show the efficacy of countercyclical fiscal policy, but within the constraints of these highly mathematized general equilibrium models, that without inserting a bunch of frictions, don’t have any room for countercyclical fiscal policy. It’s a little bit of a schizophrenic view, in the sense that you’re starting with a model that has no room for countercyclical fiscal policy and building in the frictions that give countercyclical fiscal policy some room to breathe. But because the model still must converge to equilibrium, you can’t have these forces go on in the “long run.” 

It’s a view that is… really serving more of a tractable mathematical purpose than a practical purpose. But, the key kernel in it is it starts bringing up the question of the price setting process itself. How do businesses set prices in the new-Keynesian view? They’re supposed to be these adjustments as there are in the perfect model. But because firms have some power, they are able to wait and slowly adjust to “demand shocks”, or “cost shocks” rather than having to respond immediately. But from a post-Keynesian, from a heterodox, but especially from an MMT point of view, there are concrete price setting processes that businesses have institutionalized over many decades and centuries based in accounting frameworks that are socially constructed. These frameworks are designed for reproducing those business enterprises. They’re designed to make sure those businesses exist in the future. When you think from that point of view, from the point of view of what is the best way to reproduce a business, this system, this concept of these constantly oscillating prices responding to supply/demand doesn’t just not fit the facts of how businesses set prices, but it doesn’t make sense for them. Businesses don’t want to be in a position where they are facing prices that don’t cover their costs, [where] they might be forced to—because of a competitor who has better access to finance or has lower costs—set a price that threatens their reproduction. They’re not gonna do it on their own. 

Where you very quickly get to from the MMT heterodox view of the pricing process is that the non-responsiveness of prices to shifts in demand, and the delay or structured process of changes in costs, and only to changes in costs that are persistent, isn’t some flaw in the business enterprise that we can “fix with better policy.” It is a strategy that makes sense for [‘businesses’] reproduction. Once we get to this point of view, what very quickly opens up is the idea that, if businesses are in general not responding to demand when they’re setting prices, and are responding to cost, but only persistent costs, then prices can’t do this job of allocating resources, of clearing markets. They can’t do the job that has been assigned to them by this barter role of establishing ratios between prices and making some hunter gatherer choose to produce one item over another. But instead, if it does this whole other role of reproduction, it means that fiscal policy has a higher capacity for resource creation, to fundamentally transform the system than it does in that other framework. Because now fiscal policy can increase resource utilization over the long run, can drive the creation of new resources over a number of years and can do all these things while accomplishing social goals, as long as we are organized, and can organize around making sure such processes of creation happen. That is a very different view, and view that now more than ever is vital in the context of climate change and in the context of a Green New Deal. Because, while you can make a case for the Green New Deal from an orthodox-with-frictions perspective, from the fundamental methodological and theoretical premises of an MMT heterodox view, the possibilities of a Green New Deal are much more obvious and natural.

Scott Ferguson: I want to get to the Green New Deal and the larger consequences, but a couple things before we get there. One is to have you reflect a little bit more explicitly on what I think you’re implying here. It’s the converse of what we were talking about with the orthodox point of view, which is that money has an active, productive mediating role in the economy and that changes everything. Maybe from there, you can walk us through some of the more detailed argents that you and your coauthors are making in the FT piece, in response to very specific kinds of critiques. 

Nathan Tankus: To draw out the money as having this creative mediating function. What I would say is that in the orthodox view, these prices, and they’re not really monetary prices, but really just ratios between goods and goods, are determining how the production system works. Once you break out of that worldview, money suddenly does have a role for allocating resources. Money decides what quantity of what goods and services are being produced, and now you can have shortages of particular goods and services, but that those shortages are, rather than being some big system failure, they are actually things that can drive the system forward. 

Obviously if there’s systemic shortages of everything, that can cause problems, but when you have a shortage of a particular good or service, the business enterprise figures out a way to make sure that a much more gets produced with the resources that they already have. If they don’t have the capacity to do that, they have the incentive to install more capacity to produce more. This doesn’t necessarily mean, it doesn’t even often mean that less resources go into other places, but that it’s actually pulling in resources. One obvious way is unemployment, but another thing is just literally what Joan Robinson called disguised unemployment. People who were in activities that weren’t very socially useful, but it was easy for some business to hire them to do that because they had no other opportunities. They were sort of just picked from literal idleness and put into what you might say is a figurative idleness, but still enforced idleness the whole time. 

There all of these ways, big and small, in terms of pulling people from different activities, to coming up with new technologies, in the sense that technology is just a different recipe for producing a similar kind of output to get more out of the system. When you look at the only times where we unleashed the productive, creative power of money, wars, you see this very clearly, that this power of production is unleashed, but that must be put in the box of war finance, and you must emphasize all the social disruptions that really come by the speed by which the economy has to adjust to for war, rather than high demand in and of itself. 

What MMT is essentially saying is that the socially productive, creative power of money is something that we can also have in a peacetime economy because it’s fundamental to the nature of our system, and social production itself. The last thing I would say is that another important thing to emphasize about money is it has the power to overcome capitalists’ desire to not engage in those kinds of socially transformative processes. The capitalist’s ideal position is to consistently make profit in the future, never implement a new technology, and if they implemented new technology, be out in front in implementing that new technology and have control over the process of its introduction. 

Whereas, a high pressure economy generated by a fiscal policy no longer puts businesses in the driver’s seat, and also pushes them to unleash the transformative, the creative power of our social labor because it is “in their interest,” but more generally, the incentives of a high pressure economy change, as well as the political ramifications of sabotage in the Veblenian sense of, of disrupting productive power simply because you have the property rights and the authority to do it becomes more challenging than it is in normal times. 

Scott Ferguson: All that’s really helpful. The framework of the article seems to be a response to critiques of MMT on inflation, which seemed to start from the presumption that what MMT is arguing is that ex post taxation, legislated by the federal government, will do all the work of “soaking up” excess in the economy. And it seems like the FT article is taking that on, and really problematizing and offering alternatives to that in terms of very specific kinds of approaches, institutions and mechanisms, agencies, etc. I was wondering if you can just kind of spell that out in a kind of bare bones way?

Nathan Tankus: I think it’s important to motivate what the thinking behind these kinds of claims about MMT, or the thought process behind this view of thinking about fiscal policy in terms of quantities. Because fiscal policy, like the Obama stimulus, is talked in terms of $900 billion, discrete amounts. Where this thinking comes from is this idea of taxing in quantities, meaning that if you have a sort of MMT view of money refluxing throughout the economy, money gets sent in, has all these processes in which it is sucked out or siphoned off, like with savings, and that basically any sort of attempt to have a sort of reflux using fiscal policy doesn’t really work because, as you said, you’re seeing that the economy is overheating and you’re trying to impose more taxes after the fact. 

There are a number of ways to approach that. One of the more basic ways is that we’re approaching this by challenging the current CBO process. The current CBO process already has a process for offsetting whatever spending initiative or tax cuts you want to do with a “pay for.” It’s just that the system isn’t very good. It’s thinking in dollar terms where $1 of taxes pays for $1 spending rather than in demand terms, where you might need a “pay for” that has a much larger dollar size if it’s tax cuts or no dollar size in terms of revenue if it’s some form of regulation, whether financial or otherwise. Fundamentally, this point of view, this quantities view of thinking about what MMT is trying to say, is missing that taxes in the modern era are always in all of these ways, big or small, based on these other forces growing and shrinking the economy. Most obviously, property taxes are based on the appraisal of the monetary value of the property. But also, our income and payroll taxes are based on the income that we are actually receiving in money terms, and to a certain extent corporate taxes as well, and sales taxes, based on the monetary value of the products themselves. When you look at the system from that perspective, we’ve transformed our fiscal apparatus to be able to reflux money based on the state of the economy. 

There is a literature on this in mainstream economics called automatic stabilizers, but automatic stabilizers, are sort of this technical topic. They are not part of the public’s fundamental thinking about fiscal policy. And you can tell, because when tax revenues dropped off and spending increased in 2009, people were talking about the deficit exploding rather than talking about the guard rails on our system that make sure the system functions. Therefore, we don’t necessarily need any discretionary policy at all to have a fiscal policy that adjusts to whatever our new spending programs are. But even on top of that, nonetheless, that is much less necessary than is that commonly conceived, certainly politically conceived because of an underemphasis on automatic stabilizers. We’re still suggesting to have this CBO process, but just to reform it so that you are ex ante, before the fact, deciding on what spending programs you have, estimating how many resources are under utilized, how many new resources can be generated over the next decade, and deciding on your pay fors, your tax increases, but also financial regulation and environmental regulation, and other regulations to reduce resource use and disemploy resources so that they can be reemployed. In no part of that, are we suggesting tax increases after the fact. This has been a narrative invented, “MMT is fundamentally talking about fiscal policy taking the driver’s seat, so it must mean tax increases that happen like interest rate increases.” That isn’t the case from our point of view. 

I’m not saying that it will never ever be necessary to have a tax increase after the fact, but we want to design a system that avoids that as much as possible, as much as everyone else does. It’s just that we see much more possibility in having a better budgeting process, a budgeting process that we also think is more attuned to the kind of economy and society people want. Also, [we want to consider] how to design and strengthen the automatic stabilizers we currently have so that we are in less need of that CBO process.

William Saas: To backtrack just a little bit in talking about firms and price mechanisms, could you talk a bit about the importance of the work of Fred Lee and the MMT micro perspective in those regards? 

Nathan Tankus: Yeah, I think Fred Lee really doesn’t get the attention he deserves. I would say especially from critics, because of course all the MMT economists know his work. There’s this big hiring period in the late nineties at UMKC where Mat Forstater, Stephanie Kelton and L. Randall Wray all get hired at the same time and transform the UMKC department overnight. Well, around the same time, Fred Lee was actually also hired and I don’t think it is saying anything about the others to say that Fred Lee was, in many ways, responsible for the most fundamental transformation of that department. Because if you think about an economics education, where there is macro and there is micro, where macro is treated as half the subject area, having a perspective that is MMT consistent and has something to say about microeconomics, but doesn’t rely on neoclassical microeconomics in any fashion, is first of all rare, but also crucial to having a holistic perspective. 

Many people who came for MMT got deeper into the project of MMT and heterodox economics as a whole through engagement with Fred Lee’s project. He taught at UMKC from that time for 15 years until his untimely death in 2014 from cancer. I think he’s a real critical part of this literature, which deserves more attention. Towards the last decade of his life, he worked hard to more and more integrate MMT into his framework formally, and certainly saw himself as contributing to the neochartalist project. And I think he does have something very foundational to contribute to it. The whole discussion I had around firms setting prices, around these prices being about their reproduction, and that firms have these administrative apparatuses that are designed to determine prices, precisely designed not to respond to short term variations, that is what I learned from Fred Lee. 

That’s what I learned from reading him, first his book Post-Keynesian Price Theory. That’s what I learned talking to him, reading his other papers, and in fact, I was fortunate to listen to his graduate lectures on heterodox microeconomics and then read his textbook Microeconomic Theory: a Heterodox Approach. The MMT economists are grounded in this too and, I’m sure, had many fiery conversations with Lee. For me, this is a fundamental piece of the MMT project and why writing that Op Ed with Scott Fullwiler and Rohan Grey came so naturally. Having that sort of understanding of the micro structure, the institutional structures that lead to individual price setting, which bubble up to these price indexes, and the price system as a whole, is fundamental for designing these kinds of policies and for taking a shot at reforming budgeting processes like the CBO. 

Fred Lee is absolutely fundamental, and when you start attacking the barter theory of money and make claims about a monetary production economy, what you quickly get to, is more fundamental than attacking the ignoring of money, but to attacking the price mechanism. The idea that there’s this law-like functional relationship between price and quantity, that there are these price ratios, these relative prices that determine how the production system works. If you don’t take a fundamental swing at attacking that, you might initially win some blows on the macroeconomics and the orthodox monetary theory that’s around, but it will ultimately survive you if you don’t attack the price mechanism. 

I think we see this very clearly in the inflation discussion. MMT makes these basic claims about how monetary sovereigns work, about government finances, and of course there are many orthodox economists who struggle against these claims, and try to deny them as much as possible. But once you break through all of that, what you get back to is this idea of deficit spending, of excess demand, and aggregate demand, driving prices, the price level and inflation. And it’s that last barrier, when once you reach a certain point, you’re back into the world that the monetarist pointed out so many years ago, and maybe the question of M, of what variables are M, is a little different, but you’re still fundamentally in that world. It still limits the possibility, imagination and capacity to see creation in our economy and in our society. So to me, Fred Lee is absolutely fundamental to the project of building an alternative economics, an alternative political economy to a mainstream liberal orthodoxy.

Maxximilian Seijo: It seems like what you’re calling into question through Lee’s work are really foundational categories of causality and agency in an economy. I was wondering if we could concretize these theoretical questions in the sphere of antitrust policy, and perhaps talk about the ways in which the relationship between governance, law and firms takes on a different orientation when we consider Fred Lee’s understanding of pricing, and how we can integrate those things to really get at an antitrust policy that isn’t a panacea for a whole economy, but a compliment to a broader suite of price management policies. 

Nathan Tankus: The first thing to say is that there is an orthodox conception that the problem with whatever imperfections that exist with large corporations such as they are is the disruption of that fundamental price mechanism. So in the same way that the money cranks look at the money system and see that as a disruption of this process. What I’ve termed in other places, the antitrust cranks see the same thing with corporations. That it’s just sort of this unnatural, interference of law into the functioning of the price mechanism and antitrust policy, through breaking up companies, can get us closer to that framework. Obviously Lee would reject that kind of perspective, but that doesn’t mean he would reject antitrust policy, or more generally, challenges to corporate power from a legal and analytical perspective.  

And I would mention people like Sanjukta Paul and Sandeep Vaheesan, who are carrying these projects forward in a tremendous way. Also, a fundamentally Lee perspective is that the question of corporate power is a question of the agency and the decision making processes of corporations. And it’s not that challenging restructuring corporations, democratizing them or granting price coordination rights to associations of people would get us closer to a price mechanism, but that it would change and challenge the the governing processes that lead to the reproduction of our current inequities and undemocratic structures. 

More concretely, one way is just go around breaking up companies and washing our hands, but still denying pricing power to loose associations, notably, Uber drivers who are classified as independent contractors. Another way is to strengthen those forms of democratic coordination, and restrict/regulate undemocratic coordination, like corporate consolidated decision making, which is hierarchal and makes decisions that are completely against any conception of the public purpose. This reaches its most extreme forms with insulin prices that go up a couple hundred percent. The [best antitrust] restructuring process is about creating a new governance order, and giving different actors, less pathological actors, more agency than the actors that currently have agency rather than trying to squeeze agency out of the system to get back to some imagined, ideal ideal type that makes “perfect or ideal” decisions, or even no decisions at all. 

Scott Ferguson: We’ve talked a lot about the MMT Leesian perspective on inflation, and how it breaks with the various breeds of orthodoxy. But now can we step back a little bit and compare this MMT Leesian approach to agency price coordination inflation with the way that Karl Marx and some Marxists have historically treated some of these same questions. Where are there places that MMT and Marxism converge on these questions, and perhaps where do we need to make distinctions? 

Nathan Tankus: This is a really good question. Where I would point to is, if you have a grounding in volume three of Capital, a big part of that is talking about these prices of production. They’re not very different from what would in earlier periods, say by Smith, be called natural prices. There’s this whole tradition of “classical Marxian economics” that carries forward the study of all these ideas and fundamentally talks the idea that prices gravitate towards these fundamental positions, and that there’s this gravitation process that leads prices to reach their natural prices, or the prices of production. 

Now in some ways, this framework is still a lot better than the neoclassical economics that follows it because those prices of production are fundamentally grounded in costs. Although sometimes it’s unclear whether they’re monetary costs, or some sort of other conception of price adjustment that existed at the time. Still, even though that they are “costs determine prices,” the fact that there isn’t really a description of the actual price setting processes involved, and also that there is no room in these arguments for agency in the markup, I.E, decision making by businessmen, by managers, by capitalists over the markup, makes it different from a Lee, or an emergent MMT heterodox framework. That’s one big place where there’s a divergence. 

The other place I would point to is the social construction of economic categories, which runs throughout many Marxists traditions, both in economics and outside of economics. However, because the discussion of cost accounting is so fundamental to their understanding of the labor theory of value or the socially necessary labor time theory of value, the idea that the only value machinery contributes to production is the value that is embodied in its purchase price, and thus its depreciation is exactly equivalent to its use value of production, which is exactly what Marx denies about labor. Building this system with these fundamental ideas in them makes the concept of the social construction of accounting, and specifically the managerial managerial accounting processes that firms use in their decision making of price setting, their evaluation of other economic opportunities, I.E., investment decision making, challenging to a lot of Marxists perspectives, although I wouldn’t necessarily say all. 

One way of putting this is that Lee really built a framework from the ground up that has social construction all the way down, and there are specific arguments that people are attracted to in Marx and Marxism that aren’t necessarily necessary for what I would say are the most fundamental points of Marx, but nonetheless, they’re attracted them because the process of theory creation you’d have to do to reject these certain aspects is uncomfortable, and is a step toward uncertainty that I think people struggle with, because they grasp onto Marx and Marxism as a way to understand a world that they otherwise feel like they don’t have a grounding to understand, especially, in the place of processes of capitalists decision making. 

Maxximilian Seijo: To elaborate on this point, I think how it’s so crucial to consider inflation, along with all the other pricing mechanisms that you talk about, as socially constructed. What’s really helpful about your answer to the question is that it really highlights the ways in which there is domination at the center of this socially constructed system, specifically the way we consider the relationship between inflation and the racialization of unemployment. I was wondering if you could take apart inflation as a category, perhaps even deconstruct it, in order to get at the question of how we as a society have constructed this racial domination at the heart of the way we consider pricing. 

Nathan Tankus: I think this is really fundamental. The question of prices and pricing in the price level is again a place where there’s a naturalization process that goes on with mainstream economics that you have to look really hard to see, because in their framework, price levels are a theoretical variable that is understood as distinct from the philanthropic or government measurement of prices, and construction of price indices. To the mainstream, price levels exists, and then we approximate them with our index construction processes, which are imperfect, but they get “close enough,” where basically we can treat these price indices as approximating just the prices “out there,” not having a socially constructed purpose themselves, and not being socially constructed themselves. Once you really get deep into a Fred Lee framework, I would say this is a place that Lee connects up with the legacy of chartalism, because someone like Georg Friedrich Knapp, who didn’t go as deeply as Lee, but looked at the price level literature with skepticism, and challenged the idea that price levels we’re basically just the inverse of the value of money, even [challenging] if they measured the value of money in any fundamental sense. 

Once you get to this socially constructed place, where it is a question of politics, of economics, of ideology, then you get to see processes in history that you weren’t able to see otherwise. One way to to tackle this problem is to look back at the 1970s. As much as there’s this talk of stagflation, of high inflation, the inflation that we see when we look at the current measures is lower than the inflation that they saw at the time, and the reason is because they had a different methodology. 

There are a number of places I can point to. For example, in the 1970s price indices, as contemporaries experienced, home prices were part of those indexes, interest rates were part of those indices, which is extraordinarily important because when Volker raised interest rates, it fed into the CPI, the price index that they experienced, that social security is adjusted for and that tax rates are adjusted for now. From their point of view, inflation was much higher [than we would consider it today], and that is a big part of what the discourse of inflation was at the time. It was this constructed process, which was more vulnerable to the fluctuations of what you might call idiosyncratic variables. 

There is one other thing I would point out about this social construction process. If it was a question of distribution, if it was question of, “the inflation rate is high and some people are really losing out,” it would be a political question, but it would not be a political question that was bigger than what was going on with our social safety net writ large. It wouldn’t be a bigger question than what was going on with the minimum wage. It wouldn’t be a bigger question than what was going on with working conditions. In other words, it wouldn’t be a bigger question than the actual social ailments that people are facing. It’s not merely that prices are changing and some people have greater access to the social provisioning process and some people have less. It’s the idea that prices are erratic, that they’re volatile, that they’re going everywhere at once. It’s the metaphor of losing control of a sort of prometheus’s fire. That is what captures people’s imagination and their terror, and what makes inflation such a highly political issue.

There are other ways of measuring prices which emphasize stability and emphasize how the system we have is stable and structured by administrative process, administrative processes that preserve their stability even in an adverse environment. If you look instead at it from the point of view of what is the average or the median frequency of price change, then prices are not changing often, about every three months or so, even in countries that we think of as these high inflation basket cases because we are, we’re so used to thinking about price indices. A country like Brazil, for many years, their median price change was about every two and a half months. That’s a more frequent level of median price change than in the US, which at a retail level, is four months, at a wholesale level, up to about eight months or a year. These sort of measures of price stability, what I’ve called Meansian price stability after Gardiner Means, who did a lot of the groundbreaking work in this area, create a whole different vision of the price system. It’s a whole different way of conceiving of what’s going on in the economy, one that emphasizes the corporate structure of the economy. When prices are fluctuating, it’s easy not to see the power that’s behind those fluctuating prices, meaning the price indices. But when you see endemic stability, you also see these periodic, sustained, even sometimes large price increases, that reveal the corporate power structuring process. 

This is where fundamental question of social construction comes in and shows how this becomes a racialized process. There are a few different elements here. One is simply that by constructing price indices rather than price stability indicators, we generate a “crisis in prices” that doesn’t necessarily exist organically, and are thus able to motivate this conception of uncontrolled money or uncontrolled government processes that disrupt the functioning of the economy. It’s a process  that always hurts the most marginalized, who are disproportionately hit by high unemployment, and less likely to attain raises when employers have the pick of the litter, I.E., the pick of white men. 

The other piece of course is that the narrative of losing control of the price system is connected to losing control of the society as a whole. A riot and inflation become these things that are metaphorically linked together because they are both these uncontrolled processes led by liberals gone amok. The idea that a conservative is a liberal who’s been mugged by reality, well the “mugged by reality” is being mugged by both inflation and a black man. It’s both at once. 

If you read the media of the time aesthetically, film, literature and elsewhere, you see that the uncontrolled process of inflation, of stagflation is tied up with the idea of uncontrolled crime and as an extension, this uncontrollable underclass. In Taxi Driver, when [Travis Bickle] goes to see a politician talk, the politician is talking about stagflation, and then stagflation becomes part of his warped mindset of the society out of control. It becomes another piece of evidence … [that] there’s these uncontrolled animals running amuck and there’s also stagflation that’s doing it, too. Stagflation in a real fundamental sense is this metaphorical mugging Black man wandering the streets of New York City.

The racialization process happens at all these levels, and of course, these narratives of crime and social collapse are connected with unemployment, and from another point of view, also the demand for full employment, a challenge to macroeconomic decision makers’ priorities, between inflation and unemployment and not a focus on how to accomplish full employment and accomplish whatever goals we have in terms of prices, in terms of oil, etc. 

It’s rooted together. For example, mass incarceration becomes a key piece of austerity, and not just about managing this unemployed underclass, but also integral to the process of regaining control over things that have fallen apart. In that way, the Volcker shock and the rise of mass mass incarceration, especially as it took off in the 80s under Reagan, but also among the Democrats who gave up any last vestiges of social democracy… Therefore, to fundamentally attack the mythical monster of race in America, of racialization, you also have to attack the mythical monster of inflation. 

Scott Ferguson: I really appreciate this discussion. Its interdisciplinarity is striking, we’re bringing together macroeconomics, microeconomics, legal studies, governance, but also alongside questions of identity, racialization, and art and cultural production. I think the project that we’re interested in on Money on the Left, and also in our individual scholarly pursuits is to think critically about the history of culture, and the history of aesthetics from this viewpoint, to really make the argument that [this viewpoint] can open up questions, both present and past, in new ways. As you were talking, I was reminded of the work of a historian named Michael O’Malley, who’s written about the greenbacks that the Lincoln administration produced in order to eventually fund the North in its military efforts against the South during the Civil War. It was during that moment when the relationship between pricing, inflation, money, its productivity and race was vividly on display. Let me just read from O’Malley’s Face Value, he says, “critics of Lincoln’s decision claimed that it raised colored soldiers to a level of equality with whites. They argued that blacks lacked the basic qualities of discipline, courage and intelligence necessary for battle. They saw the soldiers as inflated, valueless.” (96) I’m curious if you have any response to that quotation. 

Nathan Tankus: Yeah, I think that is fundamentally true, and something I definitely see in my own work. There’s a paper that I’ve carried with me that’s been part of teaching Rohan Grey and I have done by Shane White called “Freedom’s First Con” about changing bank notes in antebellum New York City. One of the really interesting ways to think about this [note changing] process is that there were all these different paper monies issued by individual banks from different regions, which made [note changing] a very personal, individuated process; giving banknotes value in any given transaction made [note changing] a fundamentally gendered and racialized process. Shane White talks about these vivid incidents of black owned businesses or black individuals dealing with this system and getting threatened by a white patron over not accepting their fraudulent bank note from a distant land. This made the negotiation process at a local store not just about the price of the goods, but also the exchange rate of their monies themselves. In that sense, the greenback was not just vital source of freedom because it was part of the process in which slave persons went on general strike, but also because it had the ability to break or at least loosen the constraints of these very personal forms of exploitation experienced through having what essentially was a non-fungible form of money. 

Abstraction was a source of freedom in the monetary sphere, and in other spheres as well. I think the fundamental ideological struggle carries itself forward in the idea of a constrained money being tied to psychological characteristics that are supposed to exist in white men, that also existed in their sexual behavior. This dichotomy between the “controlled,” the “constrained,” the “inhibited” and the “powerful” white man, compared to, especially black, but also other minorities, I would mention also Jewish in that earlier period at least, groups who were supposedly “uncontrolled,” “venal,” and liable to attack white women at random, and that would dirty the social relations through entering these fungible processes, most notably, “white slavery” or a relationship between black or Jewish or other types of “foreign” men with white women and sex work. There really is a very deep and long standing connection here, which has not been broken, and which needs a frontal assault by the left in order to reach a place of liberation. 

William Saas: Certainly. I think one of the ways I think we would all agree that the most exciting or promising paths to conduct that frontal assault, and to confront this history you’re talking about, and to reclaim, recognize and represent the social construction, the power dynamic, and the creative dynamic of money behind it is the Green New Deal. You just recently participated in an event at Harvard with some others where you were on a panel about managing inflation. Could you talk a little bit about the Green New Deal, your take on it, the inflation question, and then also a little bit about growth and de-growth, and the question of the limits and constraints that we might face moving forward?

Nathan Tankus: First of all, I would just say I’m excited about the Green New Deal. I think the Green New Deal opens up this conversation, this rhetorical space, that hasn’t existed widely in society. That must be the start, the idea of resource creation, of transformation, of the qualitative changes that we need to have a sustainable and just society to be out in the forefront of American politics is incredibly exciting. The measure of how exciting is how crazed the right is in talking about it because they have an innate sense of its power in a way that even most of the Democratic establishment doesn’t really seem to yet. 

What I would say is that as good as it is to have this wide open rhetorical space, I am interested in getting to more specifics, and getting other stakeholders in this process committed to specifics, especially committed to the idea that the Green New Deal is about spending. To the extent that we rely on other tools, it’s more about discouraging resource use that is contrary to the broad goals of the Green New Deal, and not so much doing them through our traditional processes. There are scattered mentions of the Reconstruction Finance Corporation around in discussing the social transformations we need, and I don’t think that President Hoover created vehicle is a good way of running our public policy. Connected to that, is this other background discussion of the Green New Deal being America first policy, which I think, even just Money on the Left is evidence against that. 

But more specifically, I’d like to see a lot more discussion of what we’re going to do with the technologies and knowledge created by the Green New Deal and a green job guarantee. Our colleague Rohan Grey has been a visionary in this respect, of having a longstanding interest in copy left and patent left, meaning structuring whatever intellectual property that comes out of these public processes such that they’re given away at no monetary costs under the condition that any modified forms of intellectual property that come out of them are also given away at no monetary cost. This idea gets new urgency and importance in the context of the Green New Deal where climate change is a global process and the single most positive thing that the United States can do in the world in terms of contributing to the broader global process is giving away de-carbonization technologies for free, especially structured through our “free trade” structure as well, ensuring that other countries also have to let those technologies propagate for free. I’d also liked to see more discussion of how are we’re going to change our budgetary processes, and our administrative agency system to manage the ongoing transformations of the Green New Deal, to make it more of a dialogue between different stakeholders in the Green New Deal conversation rather than just sort of an important, but singular voice coming from MMT scholars, but I’m optimistic that in a lot of ways we’re still early in that conversation and we have a lot more to do. I look forward to those changes and evolutions in the conversation, but more than anything else, I’m just excited about resource creation being on the table.

In terms of questions of growth, obviously the Green New Deal brings these questions to the forefront. I think some people involved with the Green New Deal conversation may kind of believe in a green growth vision, and that there are people who are attacking that view. The question of growth is a little complicated by the lack of clarity of what people mean. I think for the laymen entering this space, growth is literally just about throughput. It’s about just literally the weight, the mass of output. And I think a lot of the people who are attracted to this conversation, who are attracted to rhetoric about the insanity of infinite growth on a finite planet, imagine that these fundamental constructions economists, GDP and pricing indices on top of that, are really about measuring some fundamental mass, and that if they’re conceived of as contributing to living standards, they must also be contributing to environmental devastation by definition, and thus we must attack growth to get to see sustainability. 

From a Fred Lee heterodox or MMT point of view, the fundamental idea that we have this socially constructed process that’s measured in dollars and has all these imputations, which don’t have even a referent in any underlying transactions at all in GDP. As well, we’re smashing on top of that a price index, choosing an unclear base year in which to ground our estimates means that there is no underlying biophysical referent for GDP to be measuring, and that without that, GDP doesn’t really tell us anything at all about what we need to do about living standards, and also doesn’t tell us anything at all about what we need to do in terms of our economy besides maybe some financial considerations where negative nominal GDP growth is associated with financial crisis. From the sense that we’re talking about these two social constructions on top of each other with fluctuating and complicated methodologies means that I’m unwilling to treat GDP as either a measure of “growth” or “de-growth” in that, in the GDP sense that makes me attracted to an a-growth position, being agnostic towards growth. That doesn’t mean that we don’t need to reduce the throughput of our economy, that we don’t need to literally shrink the massive stuff that we produce, and that we don’t need to move towards a care economy and an economy that’s not just caring in the individual sense, in the child care and elderly care sense, but an economy that uses reusable tools where you only or primarily need labor to produce the services that our society fundamentally needs. 

The transformative process that we need doesn’t necessarily have any relationship to any specific path of nominal GDP or real GDP, and thus that shouldn’t be the center of our decision making, but also that it doesn’t necessarily say anything about living standards at all. The processes that we have now that create ecological devastation haven’t brought happiness or good living to most people. Even people who live in suburbs, where they have many rooms and there’s a lot of resource consumption happening don’t necessarily have socially fulfilled lives and feel the pressure of these bills and economic insecurity bearing down on them such I am skeptical and unwilling to join narratives that paint our social questions as one of needing resource austerity to deal with climate change. It’s not necessarily that I don’t think certain processes of suburban sprawl are unsustainable, but it’s that I don’t think that densifying and moving to sustainable economic processes really is going to be some big burden on people in a living standard sense. Although, it might be psychologically disruptive, in terms of people having to rapidly and qualitatively change how they live. 

Scott Ferguson: Well, Nathan, this has hugely illuminating, thanks so much for joining us. 

Nathan Tankus: Thank you for having me. Pleasure to be on Money on the Left, contribute to my own listening, and give me something back to listen to because I’m always looking for more podcast audio to listen to. Money on the Left is one of the best, brightest stars on the horizon in the last year.

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