‘Money as credit and the State as Its Issuer’ : Identifying Some Constraints on Monetarily Sovereign States

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Title: ‘Money as credit and the State as Its Issuer’ : Identifying Some Constraints on Monetarily Sovereign States
Author: Pelkonen, Aleksi
Other contributor: Helsingin yliopisto, Valtiotieteellinen tiedekunta
University of Helsinki, Faculty of Social Sciences
Helsingfors universitet, Statsvetenskapliga fakulteten
Publisher: Helsingin yliopisto
Date: 2021
Language: eng
URI: http://urn.fi/URN:NBN:fi:hulib-202104282062
Thesis level: master's thesis
Degree program: Globaalin politiikan ja kommunikaation maisteriohjelma
Master's Programme in Global Politics and Communication
Magisterprogrammet i global politik och kommunikation
Specialisation: Global and Political Economy
Global and Political Economy
Global and Political Economy
Abstract: This thesis assesses the relative performance of different theories of money in the contemporary world economy. This thesis aims to qualify some of the claims of Modern Monetary Theory (hereafter MMT) by assessing how accurate the theory is as a description of money. Furthermore, it seeks to more precisely define ‘the state’ as a political entity in order to more fully qualify some of the constraints a state’s currency may face. Three theories of money are discussed: the commodity theory of money, the positioning theory of money, and the credit theory of money (the last of which is compatible with MMT). Three authors’ work are analyzed that each advocate for one of the three theories. These theories are assessed according to their relative concordance with historical evidence. It also assesses some of the consequences for economic analysis that emerge as a result of these different conceptions of money’s functions. A theory of the state postulated by Bob Jessop is adapted for identifying constraints on states’ currencies under the assumption that the credit theory of money (MMT) is accurate. The performative effects of the commodity theory of money and expectations of appropriate state behavior limit the fiscal policy space of states beyond that which is proposed by MMT. Further limiting the fiscal policy space of states is the global free-trade system, which imposes a structural need for some states to earn foreign currency reserves so that they can produce and procure essential economic goods. The thesis concludes by suggesting two paths forward to resolve these limitations. The first involves reframing public economic discussions by using MMT’s metaphors; the second suggests a return to discussions of managed global trade governance, for example John Maynard Keynes’ “Proposals for an International Clearing Union.”
Subject: MMT
credit theory of money
balance of payments
commodity money
positioning theory of money

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