#49 Phil Armstrong: Where Does Money Come From (Part 1)
Patricia and Christian talk to PhD scholar Phil Armstrong about learning from and working with MMT founder Warren Mosler, and the revolution in the understanding of money brought about by his insights (Part 1 of the Interview).
Show Notes
Phil and Warren Mosler’s paper.
Bill Mitchell on sectoral balances.
Follow Phil on Twitter.
Info on Christian’s MMT show.
Listen to Part 2 of this interview.
Transcript for Opening Monologue
At the beginning there, you heard our guest this week, Modern Monetary Theorist and PhD scholar Phil Armstrong talking about two very widely-held pieces of what you may think of as common sense but when you think about them, they really don’t sit well together at all.
One is that money is collected by the government in the form of taxes and then spent out again to provision that government – and the other one is that only the government (or its designated agents) can create money – if you or I do it it’s a crime.
So what’s being said here is that the government is the only entity that can create money, but somehow the government needs to collect money before it can spend. How can those two things be true at the same time? And the answer is they’re not. A government that issues its own currency creates new money every time it spends and taxation removes money from circulation to control inflation but primarily to create a demand for the government’s currency and we talk more about how that works in the interview.
If this is your first encounter with MMT, your inner sceptic might be thinking there must be a limit to money – even if you’re the only one allowed to issue it – doesn’t it have something to do with gold? Well once upon a time it did, but those days are long gone. What’s happened to our money system over time is like that thought experiment: if you have a broom and you replace the brush and then later you replace the handle and you do that over and over – is that then the same broom? Except with the money system it’s like we’ve replaced the brush with a pick axe and now we can’t figure out why we keep wrecking the house instead of cleaning it.
And this misunderstanding of how our money system works allows our politicians to get away with defining fiscal responsibility as taking more money out of the system, to save it for a rainy day (money that governments don’t need to save, because they issue it) and they do this as public services crumble and eventually give way under the weight of, say, a global pandemic.
There are political voices out there pushing for more provisioning of public services, but when the UK was presented with that policy option last year, people were alarmed that it came with an offer of free broadband and we’re just not ready for that in the UK, it’s too radical, so here we are trying to give nurses a pay raise by paying them in rounds of applause. And in the US any government spending that’s not a missile or a tax cut is met with a chorus of “how can we (a country that creates its own currency) possibly afford this?”
Politicians talk in these terms because the public understands money in these terms, and that’s what this podcast aims to change. So thanks as ever for listening and supporting us with kind words and by recommending us to other people. If you are able to support us financially, it starts at a dollar a month (which is 80 British pence at time of recording) and it all adds up and helps keep the show going and makes it better. There’s a link to our Patreon page in the show notes.
Before we dive in a few things – we talk about Phil’s paper he wrote with MMT founder Warren Mosler and I’ve linked to where you can find that in the show notes, and that link is also a link to the Gower Institute For Modern Money Studies who work tirelessly at promoting MMT through publishing articles and organising events, so check them out, support them, get on their mailing list.
We also talk about the sectoral balances accounting identity and I’ve linked to a piece by Professor Bill Mitchell which explains that in detail, and finally, at certain points in the conversation, you’ll hear Phil’s dog making contributions, so something for everybody!
This is part one of a two-part interview, and part two will come out next week.
Thanks for listening, let’s dive in!
