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Fiat Socialism by Carlos García Hernández – William Mitchell – Modern Monetary Theory

When I was in London recently, I caught up with my good friend Carlos García Hernández, who is a Spanish radical and has a book publishing business – Lola Books – in Berlin, which publishes in English, German, Spanish and Italian. He gave me a copy of his own recently published book (2023) – Fiat Socialism – to read on the way home. It carries the sub-title ‘Achieving the goals of socialism through modern monetary theory’. I promised him that I would write some comments about it once I had taken it all in, even though I had read and sent him comments on earlier drafts. So today that is what I am going to do. At the outset, it is an important book because it addresses many of the misconceptions that Marxists and socialist-leaning people have regularly demonstrated about Modern Monetary Theory (MMT). I am in accord with much of the content but depart critically from his endorsement of nuclear energy as a solution to the climate crisis.

The front cover features the twins!

Here is a video of Carlos presenting the book at a meeting in Berlin on September 11, 2023 and it gives you a good idea of what it is about.

As a result, I don’t intend to give chapter and verse here.

All forms of economic organisation and ownership will require a monetary system

The first important point that you glean from the book is that Carlos clearly understands that a different form of economic organisation and ownership will require a monetary system to function.

I exclude small community economies from this, even though I think one of the answers to the climate crisis is to build more local interactions between production and consumption.

I have regularly been confronted by Marxists, in particular, and progressives in general, who dismiss MMT because they claim it runs counter to their socialist ideals and only serves as a band-aid to maintain Capitalism.

Early on, I was criticised, for example, for advocating a Job Guarantee – apparently they saw it as a palliative – because they claimed it would prolong the system and preclude early revolution.

I used to be amused by these hardcore Marxists sitting in cosy seminar rooms with tenured and well-paid jobs, who had just come from their morning latte break where they were occupied with plotting the revolution.

And Mitchell, how dare he, suggest a policy that might actually help lessen the pain for the most disadvantaged workers and given them some income security.

Of course, until the revolution comes, I prefer workers and their families to have less pain that to become miserable pawns in the quest for revolution – that may never come!

I used to respond by suggesting these characters quit their jobs and join the ranks of the unemployed and start learning to use assault rifles.

With a tongue firmly in the cheek!

The point is that MMT is not peculiar or specific to Capitalism.

Large-scale economies, with complex systems of production and distribution require a coordinated monetary system.

There has to be a currency-issuing authority and some peak (national) fiscal authority that exploits that capacity.

There is scope to define different institutional structures – for example, how do we define the ‘government’ sector?

Will we have a separate central bank or should we (as is the preferred MMT position) just collapse it into the Treasury function?

So, questions like that are worth debating.

But the fact is that even if we socialise the material means of production – pure socialism – then we will have these monetary institutions.

And what MMT clearly tells us that operating under ‘fiat’ is much better than trying to fix exchange rates and tie the currency unit to some commodity like gold.

For better or worse, then, Marxists should get their heads around MMT as being the best framework for understanding how such a monetary system would operate and for understanding the capacities of the currency-issuing government and the consequences of using those capacities in one way or another.

How government is organised is not an MMT question.

How policy is developed – by elected officials, community consensus, worker cooperatives, etc – is not an MMT question.

MMT is about the way a modern fiat monetary system works overall and we can adjust the narrative to take into account the different institutions that might emerge in one nation or another.

What is fiat socialism?

In an Op Ed on the book (October 9, 2023) – The story behind Fiat Socialism – Carlos writes that his motivation for this book came, in part, from one of my blog posts – Stuart Chase – a visionary ahead of his time (June 13, 2017) – where I discussed the work of American economist – Stuart Chase.

His 55-page book published in 1942 – The Road We Are Traveling 1914-1942 – published in 1942, which carried the sub-title “Guide lines to America’s Future”, was the first in this series of six booklets written by Chase.

It is a masterpiece and outlined Chase’s vision for the future – one of full employment, “full and prudent use of material resources”, “guarantee of the five essentials to every citizen”, “social insurance”, and “labor standards”.

Chase also articulated an understanding that the only constraints on progress were the available real resources and utilising those resources fully – he argued that the ‘money’ to make all that happen would come from “the same place that the bombers, tanks and battleships are now coming from – out of the full employment of people.”

So not quite MMT but consistent with the view of many progressive thinkers of the day that if we could make it we could have it (paraphrased from Keynes “Anything We Can Do, We Can Afford”).

Carlos wrote that this resonated deeply with him, but, moreover “became an outcry” – and hence his quest began to define a socialist system that would deliver these goals (see above) within a modern context – that has to include an abiding concern for protecting the natural world.

The book Fiat Socialism recognises that socialism “will take different forms in different places”, which Carlos considers warrants calling his idea “flexible socialism”.

I am not sure he has convinced me of that point – as far as I recall in my reading the flexibility angle is not developed in any rigourous way.

Carlos defines fiat socialism in this way (Source):

Fiat socialism’ is my name for an open and prosperous society ruled by the principles of the modern monetary theory and functional finance. A society without unemployment or poverty, in which everybody has a decent job (either in the private sector, or in the public sector) which allows him to fulfil all his basic needs and coordinate his working and private life because of reasonable time schedules. A society in which public services, education and health access are of the highest quality, and in which the level of prices remains stable.

That is, a society that is diametrically at odds with the way in which late industrial capitalism has evolved.

The dynamics under capitalism have sought to exploit unemployment and poverty to ensure the elite owners of wealth accumulate even greater riches and actively suppresses the living standards of workers, within the obvious tension that they cannot starve everyone otherwise they could not realise the profits through sales.

Traditional socialism is based on “collective or state ownership and administration of the production means and of the distribution means of the goods”.

By way of distinction, fiat socialism applies to monetary systems based on fiat currencies (which have no intrinsic value and are demanded by the non-government sector because they are the only means that is recognised for extinguishing tax liabilities imposed by the state).

Carlos concedes that his vision of society maintains the ownership of the material means of production in the private hands and the tax liability imposed on these owners limits their capacity to accumulate wealth.

I am skeptical.

Carlos thinks that we can have socialism organised as – what we used to call – a mixed economy – where:

… beyond the existence or not of private entrepreneurship and beyond the economic decisions of the private sector, the government must always guarantee the five goals of socialism by means of sufficient public spending.

Somehow we will find the solution to the incompatible goals of society and capital that have shown up in bold over the last 50 years of neoliberalism.

In the post World War 2 period up until sometime in the 1970s, we sort of had such a mixed economy – where Stuart Chase’s ideals were being pursued with some success.

There was a long way to go with respect to gender issues, race issues, environmental issues etc but the state was occupying the position of mediator in the class conflict between labour and capital.

But in the 1960s and into the 1970s, capital used its financial wealth to wrest back control of the social democratic states.

We covered that topic in the book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017).

Capital and the financial elites reconfigured the state to ensure their agendas were pursued through the legislative means of the state.

Remember the Powell Manifesto, which I analysed in this blog post – The right-wing counter attack – 1971 (March 24, 2016).

This marked the beginning of the counterattack on social democracy and the ‘mixed economy’, which manifest in neoliberalism – the dominant ideology over the last 40 or so years.

The question is how we can avoid that while still maintaining private profit as the main motivate for resource allocation and decision-making.

Why will capital tolerate an interfering state?

Further, how much private ownership will there be in fiat socialism?

I went to the index to refresh my memory and remembered there was no index – which I an never enamoured by.

The book offers some advice (p.58):

The size of the public sector will vary from country to country. A country that wants the state to assume many responsibilities in providing goods and services will have a larger public sector than a country where the state does not assume so many responsibilities.

Which only takes us so far.

What mechanism will decide which means of production are in public and which are in private hands?

Later (p.87) we read that:

,.. the Kalecki profit equation explains the origin of corporate profits. This makes it possible to democratically decide the size of the private sector through public sector spending policies … the democratic decision of the size of the private sector is fundamental to fiat socialism. It is the use of the Kalecki profit equation as a rule of government economic policy that allows the citizenry to decide on the size of the private sector.

To understand this point, I refer readers to my blog post – Why fiscal deficits drive private profit (October 21, 2010).

Carlos was motivated by my writing on Kalecki to investigate the role that public deficits play in driving net corporate profits.

Ultimately, once private investment expenditure and capitalist consumption expenditure minus workers’ savings and the net external position are taken into account, it is government fiscal deficits which drive net profits.

Carlos wrote (Source):

Fiat Socialism states practical results as the goals of macroeconomic activities. Public deficits are at the center of it. Fiat Socialism proposes that, beyond the existence or not of private entrepreneurship and beyond the economic decisions of the private sector, the government must always guarantee the five goals of socialism by means of sufficient public spending.

While that provides some clarity, it begs the question of industrial structure and the praxis of determining fiscal policy decisions.

The neoliberal period has been marked by fiscal policy being corrupted to suit the elites.

Too big to fail leads to corporate welfare too weak (politically) to provide adequate social welfare support.

So will there be industry policy?

What form will competition policy take to prevent oligopoly?

What concept of public enterprise will be entertained and how will it be determined?

Will the so-called ‘natural monopolies’ – traditionally transport, utilities, telecommunications, postal, etc – remain public by dictate?

And all these sorts of questions are not dealt with in the vision laid down in the book.

That is not a criticism but an inquiry.

Further, I think back to Oscar Lange and the famous – Socialist calculation debate – which occurred between the two World Wars and pitted the Austrians (Von Mises and Hayek) against the Marxian and Keynesian economists (Oscar Lange, Fred Taylor, Abba Lerner, Maurice Dobb and Henry Dickinson).

The Austrians contended that socialism was unviable because value could not be determined in a non-market economy.

Further, the critique related to the quality of information in a planned economy.

Who would decide what and when to produce?

The critics argued that decentralised markets provided instantaneous information via price signals to producers to allow them to match supply with consumer preference.

A planned economy, they claimed would just produce millions of steel bolts that no one wanted and too few of other things that everyone desired.

I won’t go further into that debate – which occupied hours of my life when I was a student – fascinating hours – but much of the ‘free market’ critique fails in the modern era of networked computers, which would now provide the instantaneous signals to inventory managers and productions schedules of what people were buying and not buying.

The point is that by solving the calculation debate, there is no compelling reason why one should aspire to ‘too much’ private market activity.

State run enterprises could be ‘efficient’ now that computers have solved the information challenge.

Moreover, the more private sector ownership is permitted, the more likely one will encounter economic power to influence market outcomes and divert outcomes to profit enhancement and away from societal well-being.

So, where I question the fiat socialist concept (as opposed to more traditional socialist organisation) is that the pursuit of private profit remains a major factor in influencing motivation and outcomes.

One would need a massive regulative structure to bring a system motivated by profits into line with delivering outcomes that are unambiguously good for all.

Nuclear energy

The book is critical of existing renewable technologies (wind and solar) and advocates, like many progressives, the use of nuclear power to drive electricity supplies – specifically the use of thorium as a fuel.

For now, I will note I am opposed to this suggestion and believe the future is in better battery technologies, which are evolving quickly.

I don’t consider thorium to be the “great green hope’ of clean energy production” (Source).

Given its properties, it must be converted into isotope-uranium-233 which is actually more dangerous than the conventional nuclear reactors using uranium.

At the moment there are no commercially viable examples of thorium-based nuclear energy plants.

I refer readers to this research document – Near-Term and Promising Long-Term Options for the Deployment of Thorium-Based Nuclear Energy.

This article is also interesting – Should Australia consider thorium nuclear power?.

I will have more to say about energy options at a later date.

But I would not be basing a socialist vision on the use of nuclear energy.

Case studies

The book features an extended discussion of Spain and the Eurozone and sensibly advocates a breakup of the common currency and the restoration of national currencies.

They are very interesting and I fully support that conclusion.

As Carlos writes – “euro delendus est, the euro must be destroyed.”


Overall, the book is very interesting and an ambitious attempt by Carlos to change the way progressives think about future options.

His vision is big picture and the fact that the praxis is somewhat ignored is not a failing but a basis for more work (a second volume perhaps).

That is enough for today!

(c) Copyright 2024 William Mitchell. All Rights Reserved.



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