Pragmatic Capitalism

Practical Views on Money & Finance


Just passing this comment along from the always excellent blog of Steve Randy Waldman.  He touches on MMT today:

Hi Steve,

Nice overview. I like how you’ve attempted to generate a discussion rather than an attack and defend style approach. It’s much more conducive to productive debate. Anyhow, I’ve covered most of these topics on my site. You might be interested in my treatise on the subject (link below). I approach MMT from a (free) market practitioner’s perspective so it’s much more sympathetic to the austrian school. Although I am not an austrian I do sympathize with many of their beliefs – particularly when it comes to govt overstepping its boundaries. I do, however, recognize that some level of government intervention is not only necessary, but quite useful. So, I think I am straddling more of a middle ground when it comes to the Austrian vs. Keynesian debates that MMT often devolves into….

Anyhow, my initial thoughts:

1. I prefer fiscal policy over monetary policy because of the channels through which they function. Monetary policy is most effective when it benefits the banking system. Our banking system is a system which produces little, but takes much. Yes, it is a vital component, but it is not the engine of economic growth.

The US economy is at an interesting juncture here as 30 years of monetary policy driven focus has resulted in a massively indebted household sector. I don’t have the time to get into the nitty gritty here, but I would argue that the flawed theories of the 70’s are largely to blame. A multitude of factors have resulted in an increased role of the Fed, explosion in the size of the banking sector and a shrinking middle class and imbalance in household balance sheets. The current predicament can be traced back several decades in my opinion. So, it’s not necessarily that fiscal policy is some holy grail (or that monetary policy is useless). It’s that monetary policy can be detrimental when it is relied upon too heavily. Fiscal policy, on the other hand, can be much more focused and precise in its efficiency of distribution – assuming it is applied effectively. The last 24 months certainly prove that fiscal policy can be allocated poorly. So it’s no holy grail…

2. This is a political constraint. Not an operational constraint. The level at which the public rejects the sovereign currency is hyperinflation. That is a very different phenomenon than inflation or even “high inflation” in my opinion. You might be interested in my thoughts on this subject:

3. Yes.

4. The real value of money is in the underlying goods and services that that money can purchase. I like to think of the tax system as “the glue that binds”. Think of it like a partnership between govt and pvt sector. We all agree to use this common currency with the assumption that govt will properly regulate its supply in accordance with its demand. If either party breaks their part of the agreement the other party can reject the currency. I’ll copy and paste from my treatise:

The willingness of the consumers in the economy to use these notes is entirely dependent on the underlying value of the output and/or productivity, the government’s ability to be a good steward of the currency and the ability to enforce its usage….The government cannot force the “value” of its currency on its citizens. The value of these notes is ultimately determined by the goods and services that are produced by the citizens and the value that other citizens are willing to pay for these goods and services. Therefore, government has an incentive to promote productive output. Otherwise, they risk devaluing the currency and possibly threaten the stability of their currency system. Paying its citizens to sit at home doing nothing, buy cars they don’t need or purchase homes they can’t afford are unproductive forms of spending (sound familiar?). If government is corrupt in its spending and becomes an institution that is mismanaged and detracts from the private sector’s potential prosperity then it is only right that the citizens revolt, denounce the sovereign currency and demand change.

5. Again, I think we’re veering towards a hyperinflation discussion. See above.

6. Don’t necessarily disagree.

7. Again, I view the tax system as the glue that binds. A breakdown in the tax system results in hyperinflation and hyperinflation is the result of exogenous forces discussed in the paper above.

8. Yes. If the tax system collapses the gig is up.

Thanks again.



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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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