“The real monetary sovereign today is finance”

Chronic. In modern monetary theory, which is currently very popular, money is the creature of the State: it belongs to it, it creates it and directs it as it pleases to the uses it wishes. But is this the reality of contemporary capitalism? No, the monetary power no longer belongs to the states. The banks and their central bank took it over in the merchant capitalism of yesterday. Do they still have the exclusivity? No, because the financial markets also have it in today’s financialized capitalism. And perhaps the GAFA will arrogate it in the digital capitalism of tomorrow. Unless you put this power back in the service of the common good. It is therefore on the monetary field that the battle for capitalism will be played out.

Popularized by the works of economists Stephanie Kelton, The deficit myth (The links that free, 368 pages, 23.50 euros), and Pavlina Tcherneva, Job Guarantee (La Découverte, 152 pages, 18 euros), modern monetary theory (TMM) sees the State as the monetary sovereign, because it alone designates the name of the official unit of account (the euro, the dollar, etc. ). The State issues the official currency by spending it and the economic agents are obliged to obtain it to pay their taxes, because only the official currency has discharge power in the matter. The State, armed with its monetary arm – the central bank, in no way independent, is presented as its extension by the TMM – has the means to spend without constraint: neither the deficit nor the debt is a problem (it is the thesis by Stephanie Kelton). The public authorities are also able to guarantee employment as a last resort (this is the thesis of Pavlina Tcherneva).

Two-tier architecture

But proponents of modern monetary theory tend to confuse reality with what they want it to be. Because in reality, it is not the state that issues the currency, nor the central bank alone, but the banking sector as a whole. TMM loses sight of the concrete reality of money creation: banks create money by granting loans and buying securities, then refinancing themselves with the central bank, which creates the central money on the occasion of the loans that ‘it makes the banks or purchases of securities that it has made since the financial crisis and that it amplified during the health crisis.

Read Patrick Artus’ column: “The debate around modern monetary theory is fascinating”

The power of money therefore does not belong to the state today, even if the official currency is the one it designates as such. Nor to the American state, even that of the key currency, than to those of the euro zone, who share the same currency without having united politically. It is not even certain that this power still belongs fully to the group formed by the banks and their central bank. Two-level monetary architecture inherited from the 19th centurye century, with the central bank at the first level and at the second level the banks providing liquidity to the economy, is undergoing radical change. And this change is not at all in line with the wishes of the supporters of the TMM, because the mode of issuing the currency meets less and less the economic needs of all, but more and more those of the financial markets and institutions that operate there: the real monetary sovereign today is finance.

You have 43.13% of this article to read. The rest is for subscribers only.