Analysis Commentary Financial Justice

Tom Clark Responds to “The Dollar as the World’s Reserve Currency”

Responding to Dennis Torigoe’s recent piece on “The Dollar as the World’s Reserve Currency,” Tom Clark argues that Modern Monetary Theory can be a force for progressive internationalism.

| Tom Clark |

In this piece, Tom Clark responds to Dennis Torigoe’s recent article, “The Dollar as the World’s Reserve Currency.”

I’m a big Dennis Torigoe fan.  As I told him at the 40th Anniversary event, having never met him before, I miss his writings from the Worker’s Viewpoint days and am very glad to see him still at it after all these years.  His response about Walden Bello last winter was very useful and enlightening.  And, as I commented on the Voices for New Democracy site, I do appreciate Dennis’ timely information about SWIFT, one of the ways the US exercises its hegemony, and INTREX, a potential remedy. He is still an authority in my view.  I’ve thought that we should invite him to present to our Finance Group on how he thinks about financial and economic issues and what his suggestions are for how we should think about them.

So it is with all due respect that I say that I found Dennis’ explanation of Modern Monetary Theory (MMT) to be vague and unsubstantial, and his conclusion about reserve currencies misplaced.  

In his article, he mentions the name Wynne Godley. What he didn’t mention, and might have, is the substance of what that economist’s work is about.  As laid out in Chapter 2 of The Deficit Myth, Godley demonstrated the principle of ‘sectoral balances.’  Simply put, as author Kelton does, the government’s red ink (the deficit) is the non-government’s black ink (a surplus).  Or, more precisely, there is a ‘penny-to-penny’ relationship between the amount of the government’s ‘debt,’ as we so misleadingly call it, and the amount of the surplus held by the non-government sector (what you, me, the business community, the Chinese etc., hold onto in our wallets, bank accounts, 401(k)s etc.) as assets, and didn’t pay in taxes.  As Godley showed, this accounting is a fact, not a theory, and decisively exposes the myth that the national debt is somehow a burden to our descendants, any more than the massive deficits from WWII were a burden to us.

In fact, there was a recent Twitter exchange where someone asked about exactly what [Signe Waller Foxworth] wrote here and what was in Dennis’ article:  Doesn’t MMT get used to maintain US hegemony over the world financial system?  The answer is that framing it that way is backwards:  The dollar acts as the world’s reserve currency because the US is an imperialist power and has the military and political clout to enforce its culture onto other players.  In other words, the dollar’s status as reserve currency is a result, not a cause, of US imperialism.  Of course they use monetary operations (the accurate description of which is the basis for MMT) to further their domination; it’s what we used to call ‘cultural hegemony,’ and part of the ‘code of capital,’ as we have called it more recently.  But the work of Fahdel KaboubLua Kamal YuilleNdongo Samba Sylla and many others demonstrate how the MMT lens and the concept of monetary sovereignty can be used by progressive/revolutionary movements to improve the lives of their constituents as well as further expose the aggressive, oppressive roles played by the US and their neoliberal allies. 

To say one more thing, since you mention military spending.  As we all know the US military budget is nearly 3 quarters of a trillion dollars per year.  But notice that the Dems infrastructure and rescue proposals are for $6T total over 10 years, in other words about $.6T/year, comparable to the military expense.  What the MMT folk say is that we have enough room to do both, at least for a while. The MMT proposition is that there is no need to ‘pay for’ the Green New Deal, Medicare for All, education, childcare, reparations etc. by cutting the military budget or anything else.  Of course doing both seems wasteful and leaves in place an aggressive, damaging institution that we all hate.  (I say we can work on that problem as we go.)  But isn’t it worth it to get the good stuff that we really have to have and to highlight that possibility to those we work with?  I think so.

The point is that believing that we must first cut things like military spending to ‘pay for’ the social programs we know are so acutely necessary, is to swallow the ‘Deficit Myth,’ to accept that the US government has to ‘find’ the money it spends just like households, businesses and local governments must.  It’s just not so.
So the question is larger than, ‘how do we stop so much military spending?’  It’s ‘how do we get people the things they need?’ The MMT lens says we do that by writing and passing budgets that fund the programs we want, at least initially no matter what happens with the military budget.  Let’s do that and then the democratic will of the people we have established by working with everyone who will — what I think Steve means by ‘dual power’ — can decide later what best to fund for the long term, guns or butter, to use the old phrase.  The issue is getting our (small-d) democratic foot further in the door of this appropriations/spending process, using what ‘dual-power’ we can muster, not slaying old dragons no matter how righteous and right we are about how monstrous they are.   

Agree or disagree, I hope this is useful. Again, thanks for your response to my vids about the ongoing mainstreaming of MMT.

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