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The aerodynamics of chartalism

J.D. Alt

Critics of MMT often say, “but it’s only ‘chartalism’” as if chartalism, itself, is a discredited explanation of reality that inherently discredits MMT Modern Money Theory. (I think this sleight of hand is reinforced by the fact that the word “chartalism” sounds like “charlatanism” which, in fact, means bearing a false pretense of knowledge.)

Dismissing MMT as mere “chartalism,” however, is like dismissing airplane flight as being merely “aerodynamics” as if there is something fishy about aerodynamics which, in turn, makes it fishy that airplanes fly. The simple fact of the matter is that airplanes do fly, and the explanation of why that is so is “aerodynamics” (which has to do with the difference in pressure exerted on an airfoil moving through a stream of air).

“mmt” by Petra Wessman is licenced by CC BY 2.0 DEED I Attrib 4.0 International

Some may argue there are other forces responsible for flight forces of levitation or anti-gravity molecules and it may be possible to marshal convincing arguments for such explanations. But such arguments cannot negate the observable operations of aerodynamics.

More important is the question: why should the attempt to negate these observable operations even be made? What is the motivation? Do we wish to argue that airplanes should not be flown because we have investments in the greyhound bus system?

Likewise, the simple fact of the matter is that fiat money is given its value by the fact that taxes levied by the sovereign government must be paid with it and that logically, in consequence, the sovereign fiat money must be issued and spent before it can be collected as taxes and that an initial, primary, and perpetual reason why people and businesses are willing to provide real, valuable goods and services in exchange for the fiat money is because of the need to have it to pay their taxes with. The name for this dynamic happens to be “chartalism” coined by a German economist from the Latin “charta” meaning a token, or a ticket (which is what fiat money is). The fact that in the

U.S. all other monies bank-dollars, BitCoins, Berkshares, centennial gold coins, etc. must be converted to U.S. Reserves before they can be used to pay federal taxes, signifies the reality of the chartalism dynamic. Every other form of money has its value because, ultimately, it is a claim (a token, or a ticket) on U.S. Reserves held in one account or another at the Federal Reserve central bank and the Reserves themselves are, in turn, a claim on federal tax credits.

And what is the motivation to discredit this chartalism dynamic and with it the opportunities for collective benefit that chartalism (as explained by Modern Money Theory) makes possible? The only motivation I can discern is to prevent the collective benefits from ever being realized and behind this I can only imagine two reasons: First, to deny the advocates of a collective benefit the political goodwill of voters who will be better off if the collective benefit is established. Second, to gain the political goodwill of narrow (but wealthy) interests who believe they will be harmed if the collective benefit is pursued.

As a quick example, let’s take universal healthcare. If implemented, it would clearly increase the wellbeing and financial security of hundreds of millions of American voters an eventuality that would likely cause those voters to re-elect the politicians who championed and were responsible for providing the healthcare coverage. Another politician who represents, instead of the collective good, the narrow interests of the existing healthcare insurance industry a politician who is paid by that industry (via super-PAC campaign donations) millions of dollars a year will do everything possible to prevent universal healthcare from curtailing the insurance industry’s profits including, above all else, disparaging and discrediting the legitimate monetary operations which will pay for it.

Discrediting chartalism and the Modern Money Theory that derives from it – is an essential component, then, of arguing that the federal government cannot afford to provide universal healthcare – which is, in turn, an essential component of preventing the collective benefit from ever being implemented. For the paid servants of narrow, profit-making, special interests – like the healthcare insurance and fossil fuel industries belittling and disparaging chartalism is, therefore, like the Dutch boy with his finger in the dike: If the reality of chartalism were ever to be acknowledged and with it the fact that universal healthcare is something we can pay ourselves to provide to ourselves, and a green energy infrastructure is something we can pay ourselves to invent, design, and construct it would become difficult to hold back an ever-growing tide of progressive, not-profit-making goods and services conceived and implemented for the collective wellbeing.

Which would put conservative politicians at a considerable disadvantage on election days. Hence, the aerodynamics of chartalism, at all costs, cannot be allowed to fly.


This article first appeared in Real Progressives, and has been reproduced with the permission of the author.

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