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‘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(s): Pelkonen, Aleksi
Contributor: University of Helsinki, Faculty of Social Sciences
Degree program: Master's Programme in Global Politics and Communication
Specialisation: Global and Political Economy
Language: English
Acceptance year: 2021
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.”
Keyword(s): MMT money credit theory of money balance of payments commodity money positioning theory of money

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