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In response to Neville Spencer's critique of Modern Monetary Theory (MMT), it's essential to address the concerns raised and present a persuasive case for MMT that highlights its strengths and corrects misconceptions. The history of the cowrie shell from the MMT perspective will also be discussed, as it provides valuable insights into the nature of money and the role of taxation.
First and foremost, MMT challenges the conventional understanding of taxes as a source of funding for government spending. Instead, MMT emphasizes that taxes serve multiple purposes, such as redistributing wealth and resources, shaping incentives and behaviour, and managing inflation. Sovereign governments, which issue their own currency, are not revenue-constrained and can create the currency they need for public spending. In this view, taxes are not a source of funding but rather a tool to manage the economy and maintain the value of the currency.
The history of the cowrie shell, as discussed by Polanyi, offers an interesting example of money from the MMT perspective. Polanyi rejects the traditional treatment of cowrie shells as 'primitive money' and instead views their introduction as an instrument of taxation. This perspective aligns with MMT's view of money as a state creation and emphasizes the role of taxation in shaping the monetary system and managing the economy.
Lovejoy supports this perspective by reporting that taxation in pre-colonial Nigeria was used to generate demand for new currencies, such as cowrie shells. The taxation system effectively ensured that people participated in the market economy and used the currency, a policy similar to how colonial regimes pursued efforts to see their own currencies accepted.
Marx, despite having a commodity theory of money, also emphasized the role of taxation and the state in monetizing economies and accelerating the accumulation of capital. This played a key role in the transformation of all labour into wage labour, much like the African colonial experience.
It's worth noting that the tax-driven approach to money has been acknowledged by various scholars, including Adam Smith, Say, and Mill. They recognized that paper money had value because it was used to discharge public taxation.
Brett Scott takes the analysis of Cowrie Shell as money even further.
Modern Monetary Theory offers a powerful alternative perspective on the role of government spending, taxation, and money creation. It emphasises the potential for sovereign governments to harness their currency-issuing power to address pressing economic and social challenges without relying on taxes as a source of funding. By focusing on real economic constraints, such as inflation and unemployment, rather than arbitrary fiscal targets, MMT provides a compelling framework for building a more equitable and prosperous society.
The cowrie shell example and the acknowledgment of the tax-driven nature of money by various scholars further illustrate the MMT perspective on money and taxation, reinforcing the theory's relevance to understanding and shaping economic policy in the modern world.
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Cowrie shells can just be thought of as an "easy to manufacture, hard to counterfeit" coin. Typically, they were used outside the areas where they were abundant and produced. The cowry shells were primarily sourced in the maldives, but used as currency mostly in either west africa or china, far from where they were abundant. It is not hard to see how it would be easy to monopolize and control cowrie trade, across such distances.
Excellent article! I'd like to point out that I greatly appreciate the treatment of the classical liberals and Marx as it relates to the function of tax-driven money as a particular instrument and facility linked to the state. 10/10 writing!