Awakening the Investor-in-Whole-Society


There’s a lot of handwringing now about how central banks have no ammunition to fight a recession. The fact that this is apparently true—and, perhaps, uniquely true in modern history—is all the more reason to explore MMT’s premise that central banks are not just instruments of private commerce, but are, as well, instruments of collective, democratic will. The bankers are in a box of their own making, but that box, in fact, is inside another box which, as MMT makes clear, has lots of ammunition not only to fight a recession, but to pursue the betterment of American society whether an economic downturn unfolds or not.

Let’s consider the central bankers’ basic dilemma: If private enterprise begins to slow, they would love to issue more money to get it back up to speed. But inside their box the only way to do that is by encouraging private enterprise to borrow more money. Private enterprise, in turn, decides to borrow more based on production and spending decisions tied to the making of potential profits. The only lever the central bank has to affect these profit calculations is the manipulation of interest rates—lowering rates to make the profitability of enterprise more feasible (hence, encouraging more borrowing and more money creation) or raising rates to do the opposite. So, if interest rates are already close to zero, the central bankers are out of ammunition if private enterprise, on a large scale, decides to slow down operations and lay-off workers.

But why do we insist on imagining that central banks are only established and managed to serve the interests of the American enterprise by issuing money (through the interest-driven banking system) for the exclusive needs of profit-seeking investment? The “American enterprise,” after all, is larger than the summation of its private enterprise: it includes the success and well-being of the whole of American society—not just those aspects which can be addressed by profit-seeking investment. To address the needs private enterprise fails to undertake, it is necessary to understand that central banks are, in fact, capable of servicing another client as well: the Investor-in-Whole-Society.

This set of issues becomes even more crucial when we realize that the whole of society is confronting a multitude of urgent (and even existential) tasks which are NOT profit-making, and so will not be undertaken as investments by private enterprise—regardless of what central bankers do with interest rates. Who will undertake those investments? Private businesses will gladly line up to do the work—for “overhead and profit”—but who will make the investment? Who will pay the “overhead and profit” to private businesses for undertaking the tasks? It can only be the Investor-in-Whole-Society.

The Investor-in-Whole-Society can do this because, uniquely, it does not require a return on its investment other than the accomplishment of the urgent tasks. The Investor-in-Whole-Society can, in fact, “lose” as much of its invested money as necessary to accomplish what needs to be done—and this, I believe, is precisely the philosophical point of MMT.

If the idea of “losing money” sounds like a bad idea to you, consider this: When money is “lost” by the Investor-in-Whole-Society, as suggested above, it is not lost at all—instead, it is earned by America’s private businesses and citizens! There is a double benefit, then, when the Investor-in-Whole-Society awakens and becomes active: 1. Urgent tasks get accomplished, and (2) American citizens and businesses earn money for accomplishing those tasks. This is the first simple, and essential, insight that MMT wants people to understand.

The second insight is equally simple but requires a more difficult shift in perspective: The Investor-in-Whole-Society obtains its investment money—the money it can “lose” as necessary to accomplish urgent tasks—only partially by taxing American citizens and businesses. Nor is there some preferred or “required” portion of its investment funds that must be derived from taxes. Taxes play a different role entirely in the socio-economic system—but their collection does, coincidentally, contribute to the Investor-in-Whole-Society’s investment funds. The remainder (and perhaps the majority) of those funds is derived by an operation supported by—and ultimately implemented by—the central bank. This operation is the issuing of “future dollars” by the U.S. Treasury.

These “future dollars” are typically called “treasury bonds”—but the MMT perspective-shift points out that it is inaccurate to think of these financial instruments as bonds (i.e. pledges to repay borrowed dollars) for three simple reasons:

  1. For U.S. treasuries (future dollars) to be redeemed, the U.S. Treasury (unlike corporations or municipalities) does not have to earn future revenues—and this is because of reason no. two:
  2. The redemption of the future dollars is guaranteed by the U.S. federal government—a guarantee the central bank implements, as necessary, (and as a matter of course) by simply issuing new Reserves. The central bank, alone, has the power and authorization to do this—just as it issues new Reserves, as necessary, to cover the transactions private enterprise has decided it wishes to undertake through the banking system.
  3. Since this will always happen, so long as America maintains its sovereign government, U.S. treasuries are, therefore, literally “future dollars” (unlike corporate or municipal bonds which might well turn out to be unredeemable).

These two MMT insights—(a) spending by the Investor-in-Whole-Society is not “money “lost” but money earned plus tasks accomplished, and (b) U.S. treasuries are future dollars rather than “borrowed” dollars—these insights change the formula that calculates what the Investor-in-Whole-Society can (and arguably should) undertake to accomplish.

That formula now becomes, oddly, completely disconnected from any consideration of “money.” To meet urgent and existential needs of the whole society—needs which profit-seeking private enterprise is unable to address—the Investor-in-Whole-Society can spend, in fact, whatever “money” is necessary. Instead of being concerned with “money,” the formula is now concerned primarily with the availability of the real resources—labor, professional expertise, technology, energy, raw and processed materials, etc.—that the money will need to employ to accomplish a given task. If the necessary resources are not available, the formula makes clear, no amount of money can buy them. If the resources are available, there is no “affordability” constraint to marshalling them to the task.

The question is: how can the Investor-in-Whole-Society be awakened from its stupor? Does it require a charismatic leader? Does it require a national disaster on the scale of war? We know, historically, the Investor-in-Whole-Society can be awakened. Pearl Harbor succeeded in doing that. But why is it necessary to reach such a point of crisis? You would think our currently debated list of urgent tasks would be enough: universal medical care, preschool daycare, the debt burden of education, affordable housing, failing and out-of-date infrastructure, disease control and the need for new antibiotic drugs, the looming inadequacy of social-security—and, of course, the existential challenge staring us in the face: climate-change mitigation and adaptation.

If humankind is to take responsibility for this Earth, which—Mars and Moon-dreams notwithstanding—is its only home and hearth in an infinitely cold universe, the Investor-in-Whole-Society will have to be awakened. We cannot be chopping down and burning! the lungs of our oxygen system with the argument such actions represent economic development and social betterment. What are we thinking? The problem is “we” are not thinking at all: it is precisely that “we” who is the Investor-in-Whole-Society!

Shake as many bedframes as you can find. “WE” have to wake up!

12 responses to “Awakening the Investor-in-Whole-Society

  1. Investor In Whole Society IIWS or IWS? Good ideas but needs a new name.

  2. Now you have the answer!! No more complicated discussions about how bond sales work. I think the WWII analogy is the right one except that you should argue that the challenge facing us is worse than WWII. You could argue, for example, that Hurricane Dorian is worse than Pearl Harbor and is only a sign of what is to come. How many Pearl Harbors can we stomach? Add to the challenge of climate change is the challenge of infrastructure and education and, of course, unemployment. All of which MMT can address.
    Keep up the great work.

  3. Sleepwalking is not a winning life strategy, as you say. If nothing else it makes crossing the living room without tripping over the furniture difficult.

    The question is, what will wake the sleepers? Is gentle talk and polite discussion enough?

    Mark Blythe seems to think an event like Miami running out of drinking water will do the trick.

    “For people to act, too often we must substitute catastrophe for imagination.”–Bernard Hyatt

  4. Robert F. Richter

    I am interested, but it is too much to read in my limited time. A point summary would help.

  5. Ouch! Have we gotten to the point where a 1500 word essay about how we can avert existential disaster is too much for the “interested” to read? What hope is there for reaching the “disinterested”?

  6. Incialmente, Parabéns pelo papper !
    The MMT – Modern Monetary Theory does not need to explain to lay readers and citizens in general, the purposes of the Central Bank as a guarantor of last resort and its two-source functions: “bank of banks” and “bank of government”. It needs to make it thoroughly clear to readers that as a “bank of banks”,
      the guarantor of last resort meets the interests and needs of private commercial banks; How “government bank” meets (or should be meeting) the needs and interests of every society. These three functional purposes of the Central Bank are not sufficiently explained.
    (A MMT – Teoria Monetária Moderna prescinde esclarescer aos leitores leigos e aos cidadãos em geral, as finalidades do Banco Central como garantidor de última instância e suas funções bi-fontes: “banco dos bancos” e “banco do Governo”. Precisa esclarecer exaustivamente aos leitores que como “banco dos bancos”,
    o garantidor de última instância, atende os interesses e necessidades dos bancos comerciais privados; Como “banco do Governo” atende (ou deveria estar atendendo) as necessidades e interesses de toda sociedade. Estas três finalidades funcionais do Banco Central não estão suficientemente explicadas.)

  7. It is best to invest in areas of the economy that respond well to additional money, scaling quickly to additional demand. Unfortunately, healthcare and education do not scale well and are more likely to experience price inflation when targeted with additional monies.

  8. MMT will remain too scary without a credible Red Team challenge. How much MMT money is too much and will devalue the currency? If deficits aren’t financed by Treasury bonds doesn’t that reduce foreign demand for dollars and thwart the Fed’s control of interest rates? How can anyone trust politicians to spend extra money in the public interest instead of giving it to their patrons.

  9. What I think is lost on so many readers is the divide between a soft fiat currency and a hard non-fiat currency.
    The hyper inflation that occurred in Wiemar and Zimbabwe were due to a political treaty that forced the nation to adopt a “gold standard” in former and the lack of real resources in the latter.
    Moreover, The United States doesn’t rely on foreign investors to supply it’s currency as it is the issuer of said token. The arcade shall never run out of tickets, though it may run out of prizes.
    Further, as Mark Blythe would agree, the negative interest rate yield curve in the bond market is due to investor’s demand for a safe fiat instrument in a market that has ballooned through corporate stock by backs. Said demand for these bonds is so high that they needn’t pay interest.
    But I may be wrong. And as the world dies and the atmosphere burns I’ll be so happy that sound fiscal policy was followed and inflation was kept in check.

  10. An argument can be made that producers have little money remaining after they spend money to produce products. Producers find themselves with the need to sell product in order to have money to build more product.

    Modern Monetary Theory (MMT) would argue that central banks can create and distribute money, not waiting until products are sold. There is no doubt that central banks, acting with authority granted by government, can accomplish this.

    Seldom do we find central banks directly distributing money into the economy. Instead, governments spend money that CB’s make available. Governments can spend this money at the whim of those in control of spending decisions.

    Our ” Investor-in-Whole-Society” , whether government or private benefactor, must interact with the existing economy. If our investor has the goal of increasing consumption of an existing product, giving the customer more money in some fashion is one method. Store owners do this by offering coupons to customers, providing customers buy a specific product. Government can do the same thing by giving away money to targeted customers.

    With this background, we can create A Micro-Economic Analogue for MMT

  11. Maybe the third try with html tags will work. Sorry for the poor coding and thanks for your patience.
    A Micro-Economic Analogue for MMT

    The text address is “”.