Yves here. This Richard Murphy recap of Stephanie Kelton’s The Deficit Myth is an opportunity to introduce friends and colleagues to Modern Monetary Theory, or alternatively, to try to put a dent into hysteria about federal deficits. A simple rebuttal to the claim that deficits or the alternative of direct monetization, aka “printing” produces runaway inflation is Japan. So if you get a knee-jerk rejection to this article, please ask them to explain how Japan has the highest debt to GDP ratio of developed economies yet has only recently begun to pull out of deflation. You won’t persuade them but you might throw some sand in the propagation of the “government debt is ever and always bad” myth.
Having said that, perhaps as a result of framing his series around questions posted by important economic thinkers, he skips over why deficit paranoia has been so widely embraced. Again, we urge you to read the seminal 1943 Mikhail Kalecki essay on the barriers to achieving full employment for an answers. The short version is that businessmen want to secure their primacy, and that means undermining the idea that state action can benefit citizens. From Kalecki:
If the government undertakes public investment (e.g. builds schools, hospitals, and highways) or subsidizes mass consumption (by family allowances, reduction of indirect taxation, or subsidies to keep down the prices of necessities), and if, moreover, this expenditure is financed by borrowing and not by taxation (which could affect adversely private investment and consumption), the effective demand for goods and services may be increased up to a point where full employment is achieved. Such government expenditure increases employment, be it noted, not only directly but indirectly as well, since the higher incomes caused by it result in a secondary increase in demand for consumer and investment goods….
We shall deal first with the reluctance of the ‘captains of industry’ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence.
Kalecki’s argument is complex and nuanced, but the extract above will hopefully entice you to read (or re-read) his essay.
By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future
Stephanie Kelton has done something very rare in modern economic debate: she has taken a basic accounting fact, that sovereign governments create the currency they spend, and shown how its denial has warped our politics, our public services, and our imagination. In The Deficit Myth, she does not offer ideology but clarity: governments that issue their own currency are not like households; public deficits are someone else’s income; and the true limits to public spending are not financial, but real.
Kelton’s argument is as simple as it is destabilising. If the government cannot “run out of money,” then the entire narrative of scarcity that has justified austerity, privatisation, wage suppression, and the abandonment of public purpose begins to collapse. The question she poses is therefore profound, not technical.
Hence, the Stephanie Kelton Question: If a monetarily sovereign government can always afford to mobilise the resources it actually has, why do we continue to run societies around the fiction that public spending is financially constrained?
The household analogy that never belonged
Kelton begins by dismantling the most powerful and misleading story in modern political economy: that of the household analogy. Governments, we are told, must “live within their means,” “tighten belts,” and “balance the books”, just like families must do. It is a comforting metaphor, but entirely false. Households use the currency; governments issue it. Households must earn before they spend; governments spend before anyone can earn.
This misunderstanding is not accidental. It has been cultivated because it limits public ambition. If the state is imagined as a large household, it must behave timidly. It must fear deficits. It must view public investment as a threat. Kelton’s point is that this metaphor has done immense political harm, shrinking our sense of what collective action can achieve.
Money creation as a public instrument
Kelton’s core insight is not that governments should spend without limit, but that they can. The true limit to spending is the availability of real resources — skilled labour, energy, technology, materials — not the availability of money. Currency-issuing governments create money as a matter of routine when they spend. They delete, or cancel, money when they tax.
Money, in this framework, is a tool for mobilising productive capacity, not a scarce commodity. Once we understand this, the supposed trade-off between public purpose and public finance evaporates. The question becomes: what do we want to achieve, and do we have the resources to do it?
If the answer is yes, financing is never the barrier.
The politics of fear and the manufacture of scarcity
Kelton shows that the deficit narrative is not neutral. It is ideological. By insisting that “we can’t afford” healthcare, housing, green investment, social care, education, or infrastructure, governments transfer responsibility away from political choice and onto imaginary financial constraints. Austerity becomes a necessity rather than a preference. Poverty becomes a natural condition rather than a policy outcome.
In this sense, deficits are not economic tools but political weapons — used to discipline governments, suppress wages, and justify the erosion of public goods. Kelton exposes this as a political project masquerading as prudence.
Inflation, not insolvency, is the real constraint
Critics accuse Kelton of ignoring inflation. She does nothing of the kind. Her point is that inflation — the only meaningful limit to public spending — must be managed by understanding real constraints, not by restricting public investment through arbitrary accounting rules. The dangers of inflation arise when governments spend beyond the economy’s productive capacity, not when they spend “too much money” in the abstract.
For Kelton, inflation management requires planning, resource mapping, anti-monopoly measures, and coordinated fiscal-monetary strategy — not blanket austerity. She reframes the issue: inflation is a signal of resource strain, not a reason to fear public purpose.
Deficits as records of public contribution
Kelton restores an older understanding: public deficits are not signs of irresponsibility but records of private saving. When governments run deficits, they inject financial assets into the private sector. Public balance sheets and private balance sheets move together. The obsession with “reducing the debt” does, therefore, mean reducing private wealth.
Kelton insists that the moral significance of deficits depends entirely on what the spending achieves. A deficit that builds green infrastructure, improves care, houses people, or expands education is not a burden but a legacy.
The deflated imagination of modern politics
Kelton’s argument highlights something deeper than accounting: how profoundly we have shrunk our sense of political possibility. When governments claim they “cannot afford” basic public goods, the public begins to accept deprivation as natural. The collapse of social housing, the decay of healthcare, the underfunding of education, and the abandonment of climate goals — all are rationalised by a narrative that pretends money is scarce.
Kelton asks us instead to face the real question: if we have the people, the skills, the technology and the materials to meet human need, what does it say about us that we choose not to?
Her work is not technocratic. It is moral.
What answering the Stephanie Kelton Question would require
To accept Stephanie Kelton’s insights would mean dismantling some of the deepest fictions in modern political economy. That would require:
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Reframing public finance, recognising that government spending is constrained by real resources, not by revenue.
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Planning for inflation through real-capacity management, not through voluntary impoverishment.
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Ending austerity politics, acknowledging that austerity damages capabilities, undermines growth, and is never a financial necessity.
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Designing public investment around public purpose, whether that be housing, care, climate, education, health, all guided by need, and not by spreadsheets.
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Democratising economic imagination, making clear that fiscal choices are political decisions, not inevitable sacrifices.
These changes transform economic debate from bookkeeping to statecraft.
Inference
The Stephanie Kelton Question asks us to confront the fiction at the heart of contemporary politics: that money is scarce but human need is limitless. Stephanie Kelton reverses this. Human need is real; money is not. Money is a tool we create to organise resources. When governments claim its scarcity, they are not confessing helplessness; they are abandoning responsibility.
Kelton’s work exposes this abandonment and insists that a society rich in capacity has no excuse for failing to meet basic human needs. The task she sets is not simply to understand public finance more clearly, but to reclaim public purpose more boldly.
If a sovereign government can always afford to mobilise what it truly has, then the real deficit we face is not financial but moral: we face a deficit of ambition, courage, and care.
MMT gets to the core of economics, which is that wealth and goods are based on available resources (in the widest sense), not on the physical existence of money. The ‘wealth’ of a country is not its GNP measure, it’s its productivity/output averaged per person. As such, it cuts through so much of the synthetic obstacles created by conventional economics to any sort of an efficient and fair society. What it doesn’t address directly is how the resources are shared sectionally within a society (and this includes private debts, although it does open up some possibilities to clearing out some types of debt in a crisis).
One weakness of MMT though is that like much economics, it assumes a degree of autarky. As an economics lecturer of mine used to say after a particularly boring presentation of standard theory ‘the astute among you will have noticed that none of this can apply to a small open economy like ours’. He never did get around to explaining what did apply. The smaller and more open an economy, the tougher any sort of MMT policy becomes to apply in reality, especially if for reasons a country must maintain some type of currency peg (small countries often don’t have much wriggle room in this). So while MMT points the way to the US or other very large self contained countries, it’s much harder to see how it can be applied to smaller countries, either developed or not. In those cases, it provides more clarity to how economic problems can be addressed, but it’s not a complete answer.
“…it’s much harder to see how it can be applied to smaller countries, either developed or not.”
The always-interesting-to-listen-to MMT proponent and economist Fadhel Kaboub gives his take on how MMT might be applied to countries in the Global South, and Africa, specifically, in conversation with Tony Chamas of the podcast 1Dime Radio (just under 2 hours 15 minutes long).
Thanks for the link, looks very interesting.
My pleasure! Fadhel Kaboub is very engaging. (And I happen to like Tony Chamas, too—he’s pretty thoughtful about the left side of the political spectrum and is also a strong proponent of MMT. He has Ben Studebaker on the podcast pretty often, in fact.)
I have bought, but still not read, Entropy Economics by Galbraith & Chen which, I hope, brings Economics to planet Earth and the physical, chemical, and biological limitations we all face. The question is that with money affairs, being money a fully arbitrary construct (read later and very much as MMT realises), doesn’t need to “know” anything about real life. In the past, when money was represented by coins, it wasn’t that arbitrary, it was still rooted in the existence of metals and people minting coins and it was physically limited. Nowadays, most of it isn’t even printed and totally detached from gold reserves. Money is a virtual thing, an annotation stored in memory disks. Money mustn’t be limiting in any way or form. Moreover, now you can move to the next arbitrary layer, crypto-money, which is arbitrariness squared. Only bound to reality indirectly through exchange with “real money”. In the financial world there are now too many financial tools which show how arbitrary money is. These days, my Presearch engine for web search (the same sh$t as any other engine) shows me an add for a service which would allow me to “invest” (play with) 10000$ in crypto with only 100$ from my bank account.
I use here arbitrariness not in the sense of “using unlimited personal power without considering other people’s rights or wishes” (per Cambridge), but when applied to things, as “something that entirely depends on the will or whim of someone without necessarily complying with the law or reason” (per the Spanish dictionary).
So, the question here is who has the power and will to arbitrarily decide what to do with money, in the geographic space where that money is accepted without reservations. So, a small country which depends on others for many things doesn’t have the same level of power and will as the biggie ones though it might have some, or even a lot of room for manoeuvre internally. I even believe that if some country is not the sovereign issuer of a currency it still has, if it wishes, the power and will to arbitrarily decide what to do with money. How? By creating its own financial tools very much like any financial institution does.
In the Neoliberal framework, private financial institutions as a group are given a lot of leeway or freedom
to do whatever they wish with money (arbitrarily of course) while states are subject to limitations which in some cases have been forced into their Constitutions (Euro-Vonderlandia as Polar Socialist says heh, heh) because they have given up money sovereignty.
Then, there is the question of dollar financial dominance worldwide…
I haven’t read that book either (another one on my long to-read list), but of course the overall idea is correct. Talking about the economy without discussing the natural limits the world places on us is irrelevant. That said, MMT is not the free pass many thing it is – all economies are naturally constrained, MMT does not magic up resources that don’t exist.
The issue with MMT of course is that while its associated with left/Green oriented thinkers, it is really a value-free description of the world as it exists, and could just as well be applied by a neo-liberal or fascist or centralist government as a green/left one. While they can’t be described as MMT, I think a lot of traditional autocratic leaders, especially in Asia, have had a more instinctive grasp of the real nature of money in the economy than more conventional leaders.
Chiang Kai-Shek in Taiwan and Park Chung-Hee in ROK I think had an instinctive grasp of the power a domestic currency can give a leader – their refusal to indulge in conventional economic thinking (especially when it came to funding government and their refusal to overborrow in foreign currencies) undoubtedly helped those countries achieve remarkable economic growth. Its disappointing sometimes how conventional the economic thinking is of otherwise ‘radical’ leaders over the past century or so.
In my opinion, what MMT achieves is to make us rethink our monetary model and this is sorely needed. I think we should go well beyond that. Going back to how things work our current financial system (here as a whole world system no matter government political systems) has too many flaws and blind spots. Not being expert in the financial world what i see is that it has been established as a system that favours a functioning which is not sustainable in anyway or form and creating in a systematic way imbalances and inequality (these a feature, not a bug). So, for instance, the system, if at least theoretically subject to “financial rules”, has it’s own tools to avoid those rules when necessary. You name it, shadow banking, fiscal havens, cryptos, etc. The system is not flawed, it is rotten to the core.
The last financial tool I have been learning about is called “tokenization”, a mixture of Venture Capital and Crowdfunding which is now surging for PV projects (industrial and utility scale) precisely to hide debt in the books? And This, in many cases makes a lot of sense for both borrowers and lenders as long as the company has a sound economic approach but this new complexity (here each contract will establish the rules) is another step to chaos.
A good place to begin before reading Galbraith and Chen (on my list, too) might be Beyond Growth by Herman Daly (I saw a ‘free pdf’ link but I never click on those). Thirty years old and still fresh. For one thing he writes about his “argument” with Larry Summers of the Epstein Sphere about whether the Economy is a subset of Earth. Summers told him, “That’s not the way to look at it.” Summers is mistaken. I know, that is a shock!
Entropy and Economics by Nicholas Georgescu-Roegen is heavy going but also very good.
No surprise that both have been ignored for the most part.
And prior to Goergescu-Rogan there was Wealth, Virtual Wealth and Debt by Frederick Soddy. Then earlier again look to the writings of Erasmus Peshine Smith as foundational to ecological economics.
From my reading of didactic MMT writings (principally Randall Wray’s “MMT Primer”, autarky is not assumed. It is acknowledged that autarky simplifies and widens the policy options (because, IIRC, it is not necessary to obtain foreign currency in order to purchase resources unavailable from domestic sources; this relaxes the foreign exchange rate constraint [through inflation, for example] on domestic policy). US is a special case since, while not an autarky, it has little difficulty purchasing non-domestic output since other nations want to sell to it to obtain $.
I think that the “assumption of autarky in MMT” is appearance rather than fundamental to the theory. It’s a plausible appearance because small, open economies have less fiscal policy space and, because of that, MMT-oriented writers don’t spend a lot of time advocating for policy changes in these economies.
I suppose the West can consider itself lucky that MMT hasn’t percolated deeply into the political class of the Russian Federation, which does approximate an autarky.
It is precisely from reading Wray and other primers of MMT that I’ve been convinced that MMT is of much more limited utility to SOE’s than larger countries. All economists, MMT economists included, insist that their simplified models have wide real world applicability at different national and regional scales, and they are almost always wrong.
MMT has utility for small economies, in particular in the message that they can generate something close to full employment and free themselves (to a degree) from the bond markets (although fiscal space for SOEs is always more constrained if your main trading partners are not doing well). But all small economies need foreign currency for fuel, plant, technology, and just ordinary day to day running – this can’t be avoided – even North Korea devotes an enormous amount of its resources to obtaining foreign currency to keep the country afloat. In reality, maintaining a fiat currency is very difficult for small countries (unless they are fortunate in sitting on oil wells) – the fiscal/monetary constraints are far tighter, so the room for manoeuvre is far more restricted. This does not in any way mean that MMT theory is incorrect. Its just that the smaller and more open an economy is, the less real world applicability to the problems of growth it has.
The prime lesson MMT has for smaller countries is that borrowing in foreign currencies is usually a terrible idea, and that maintaining a tight control over its own currency (and any foreign currency reserves it possesses) is absolutely vital both for political room for manoeuvre, and to invest in real domestic needs. But this is something development economists and economic historians (the good ones) have always known.
I think the lesson that applies even for smaller countries is that debt is not good or bad simply because it puts the government in surplus or deficit. Government debt is an investment. Spend it on fixing the country’s problems or on anything with a positive societal return, like a functioning health care system, and in the long run the money will all come back with interest. Spend it in ways that exacerbate the problems, like handouts to the rich or subsidizing landlords during a property crisis, and you’ll end up poorer. Both of these things are true even if the government is in deficit in the former example and in surplus in the latter.
That’s not uniquely an MMT insight (it should really be obvious) but MMT does help to make the case.
> The prime lesson MMT has for smaller countries is that borrowing in foreign currencies is usually a terrible idea
And sadly because of “original sin” (via Wikipedia), most don’t really have a choice.
I’ve suggested before that a non-convertible, trans-national, external-sector currency agreed up by a group of net-exporters and net-importers would be a nice experiment of sorts to float as a trial balloon for future multi-polar efforts.
This is precisely the constraint. Governments can create money for domestic spending. But the U.S. Government cannot create foreign-currency money. When it runs a balance-of-payments deficit — for many decades entirely accounted for by overseas military spending — it had to settle this in commodity-money (gold) until 1971. Since that time, the balance of payments deficit did become the savings vehicle for the world’s central banks under what I’ve called the Treasury-bill standard. But now that is ending — and for the time being, foreign countries are reverting to gold to hold their BoP surpluses.
The US Gov’t does not “borrow” from foreign central banks when they hold US securities rather, the US offers them a “safe” vehicle on which to hold the excess dollars thrown off by foreign military spending and investment outflows. That vehicle no longer is safe, since the West grabbed Russia’s deposits in Euroclear.
From Wikipedia:
“In February 1965 President Charles de Gaulle announced his intention that France exchange its U.S. dollar reserves for gold at the official exchange rate. He sent the French Navy across the Atlantic to pick up the French reserve of gold and was followed by several countries. As it resulted in considerably reducing U.S. gold stock and U.S. economic influence, it led U.S. President Richard Nixon to end the convertibility of the dollar to gold on August 15, 1971 (the “Nixon Shock”). This was meant to be a temporary measure but the dollar became permanently a floating fiat money and in October 1976, the U.S. government officially changed the definition of the dollar; references to gold were removed from statutes.”
When Europe and the USA seized the Euro reserves of Russia, which represent payment for goods/energy received from Russia in the past, politicians must have recognized the signal given to all nations running a trade surplus with USA/Europe.
The USA may convince a paranoid elite of trade surplus nations that the USA will protect THEIR status, for resources to be swapped for dollars.
But I don’t imagine this will work for Russian and Chinese elite, at least not anymore.
UK is not a smaller country , in any case the size of the country is unimportant if they have their own currency , having their own currency is the important factor along with organized and effective taxation .Use government spending to finance essential services and use taxation to prevent inflation.
What you describe is a legacy of colonialism where the colony’s economy was deliberately formed to export raw materials (from the periphery) and import finished goods (from the core). There is more than one instance where a colonialist destroyed the economic potential of a colony to be self-sufficient, as England destroyed India’s textile industry. As a thought experiment, imagine a remote indigenous people cut off from the developed world yet able to supply all their own needs, trading locally as desired.
There is a difference between tax and spend when compared to create money and spend when a government is paying for goods and services. Tax and spend means taking a portion of the goods and services produced in an economy through taxes and fees and applying those to goods and services the government uses. Using newly-created sovereign government money means issuing IOUs – debt – for those goods and services, because the economic actors that receive the funds now have a claim on the country for the money they hold. Economic actors are then free to apply the funds any way they see fit. In a country, like the US which runs a perennial trade deficit, some of that money flows into imports. It also flows into assets like real estate, stocks and debt instruments. When a trade deficit is mostly made up of consumer goods, it forms a drag on economic growth and it leads to governments pumping more money into the economy – this is especially true for the US which has annual fiscal deficits of 4 – 7% of GDP. I know – deficits are a myth – but they still exist in accounts and they are still a liability. The US is just lucky that economic actors still want to finance its debts.
We often look at scale and forget about principle. When a business person signs a promissory note to pay an amount on a certain future date, that actor has just created money and debt. When a government creates money and spends it, the new money is a claim on the assets of the country – the government has created money and debt. The main trick is that future date is uncertain. The ability for a government to create debt does mean an economy is healthy, economic health would only improve if investments in productive capacity increase. If the debt just goes towards paying current operating expense, it just keeps accumulating.
Yves, thank you for linking back to Kalecki’s essay. It’s been a long time since I last read it and I’m struck at how simple, direct, bracing, and clear it reads to me now. And wandering through the style and substance of the comments from 13 years ago…. that was certainly a trip down memory lane. Things do indeed change.
The present article is pretty fair, I’d say. It’s taken them long enough, but MMTers may be finally rounding the bend on actually articulating their key insights in simple, straightforward language that describes what actually at stake.
I think some basic factors are being overlooked.
For one thing, money is a contract, not a commodity.
As such, it is a networking mechanism, not a thing in and of itself.
Which goes to our basic understanding of reality. While Western culture is very object oriented, from atoms to individuals, reality is that feedback between nodes and networks, organisms and ecosystems, individuals and society.
The essence of the node is synchronization. Everything on the same wavelength, functioning as one.
The essence of the network is harmonization. All the energies traded around, creating overall equilibrium.
As these multicellular organisms, our nervous system coordinates all the cells and organs into one fairly coherent entity. While the circulation system sustains harmony across this ecosystem of cells and organs.
In that states function as social super organisms, government is the nervous system, while money and banking serve as blood and the circulation system.
We have evolved enough to understand that as government has to serve the entire society and not just those at the top, that it is the quintessential public utility. We have not yet come to see the same principle applies to banking.
When the medium enabling markets is a player in those markets and not a utility the rest are tenant farmers to the banks. Including the politicians.
That’s why we no longer have actual statesmen, just flunkies to the oligarchs.
The beginning quote, “this expenditure is financed by borrowing and not by taxation” reveals a problem with the current financial system of how government spends. The only reason that governments borrow to cover deficits is old habitual practices, left over from before the age of fiat money. The MMT guys explain how silly this is in Britain and how it only serves the interests of the bond traders. Governments, as Stephanie Kelton points out and Milton Friedman corroborates, can directly “create all the money it needs”, restrained only by available resources.
As to infrastructure spending, Michael Hudson points out how this was direct government policy in the 19th century to expand American manufacturing by establishing transportation, education, et al that improve industrial efficiency. German industrial capitalists did the same, which is why they ate Britain’s finance capitalism’s lunch at the beginning of WWI.
“The real money is in bonds.”
The secret sauce of capitalism is public debt backing private wealth.
To store the asset side of the ledger requires a debt on the other side.
To a market economy, money is the medium. To a capitalist economy, money is the message.
One is a tool, the other is a god.
Kalecki’s essay is a fascinating relic of his time. First, he gives the impression that the American economics mainstream was thoroughly Keynesian, and any neoclassicals (now called neoliberals) in the room were basically bought and paid for industry shills. Which they are, of course, but now they run the Economics departments, while the few remaining post-Keynesians are banging their drums in the wilderness somewhere.
Second, a lot of his economic prescriptions – indeed, one might argue all of Keynesianism, and all of the New Deal – can be boiled down to, how can we do socialism without doing socialism. In other words, how can we triangulate between supply, demand and prices (of goods, services and labor) to achieve, in this case, full employment, while still running some sort of a privatized (market-based) economy. It’s like – I do not want to use the lift to get to the 15th floor of a building, nor do I wish to take the stairs; might I not prevail on some window washers to take me to the exact window I need.
Parenthetically, quite literally the first right in the “Rights and responsibilities of citizens” section of the Stalin Constitution of 1936 is “the right to employment”, i.e. a universal jobs guarantee. I discovered this a couple of years ago, to my great surprise, but it certainly makes sense from a class consciousness standpoint. Not to mention an economic one.
Third, as others have already pointed out, this is obviously very US-centric. Imagine a country that is a small island, and literally has to import every single good and commodity it uses (not ironically, this is literally my first Europa Universalis V playthrough, still ongoing). Domestic spending to subsidize domestic consumption is well and good, but now you need a separate monetary system, and a separate set of monetary relationships, to interact with the countries around you. Which, incidentally, is exactly what the Soviet Union ended up doing, in fact they had three (!!) monetary systems – “consumer” money, “producer” money (domestic intra-firm trade), and “foreign” money (imports and exports). And that’s while having a metric megaton of their own resources to play with.
Finally, as the Soviet Union found out by around 1980, constantly triangulating between supply, demand and prices – via both physical controls and directed investment – is politically difficult, even under socialism. E.g. one of the main problems of the Soviet economy at that time (relying mainly on Safronov here) is that the central planners lacked the political power to control what the various industry-specific ministries did (i.e. trim their investment budgets), which led to massive over-investment and a whole slew of issues. Under Stalin – no problem, anyone who does not follow the central authority is arrested. Under late-era Brezhnev, the ministries even refused to provide the planners with required economic data (so that their budgets would not be cut), and suffered no ill consequences. Meanwhile, on the consumer side, after the 1962 protests there was sustained government fear in raising prices on staple goods to square the supply-demand circle, which, after 20 years of equally sustained wage growth across the economy, led to “goods” inflation without actual “price” inflation. All easily fixable in economic theory, not so much in real-world politics.
Anyhow.
A lot of mischaracterizations here.
Kalecki and Kenynes were working on parallel tracks. Kalecki wrote a paper in 1933 that had most of the ideas in Keynes’ General Theory (1936) but was in Polish. Even Wikipedia points out that Kalecki had prior publication.
Kalecki was a Marxist.
I don’t see how you can depict his view as US centric since he had never worked in the US as of the time of this essay, and did so later and only for a few years, at the UN. He was run out of the US by the McCarthy crowd.
Please tell me who else in the 20th century predicted negative interst rates.
Elaborating the policy freedoms of a government that is monetarily sovereign also highlights the differences with one that is not, e.g. the difference between UK and Ireland. For example, the headlines about the impossible job Rachel Reeves faces are usually misleading since they assume the household accounting model(*). However, if the Irish government wants to build some schools and bridges and so fourth it must obtain Euros from somewhere in order to spend them: taxes, loans from foreign banks, EU grants.
So there is no such thing as apolitical money. Why then did so many nations choose to join the Euro? Remaining monetarily sovereign has its own issues but the difference between that and needing to borrow from foreign banks is huge. Why did the leaders of countries like Portugal and Italy go for it? It’s a bit of a mystery to me. Varoufakis wrote in one of his older books that at the time the Eurocrats and pols pushing the Euro knew that monetary union without political union would not be stable. He said they expected that some crisis down the road would force political union. Maybe that is what they expected, idk, but it isn’t a reason for a state with its own money to get rid of it.
(*) Thatcher’s speeches about the Euro show she understood the implications of handing over Sterling to a foreign technocratic central bank; she compared it to borrowing from the IMF. And yet she did so much to explain to the British people the household accounting model, I think even using the example of her father’s grocery business, and using that to justify austerity. I hadn’t noticed this particular contradiction before.
This is one of those ideas that Rousseau might have come up with during one of his walks in the woods. It assumes the perfectibilty of human nature. It will end up running out of control like the French Revolution. Well a different system will be needed when US paper or more really data entries are no longer tradeable.
Perhaps when we finally obey the machines it will work, but it is a pity he never finished his Reveries of a Solitary Walker so we could see how the story finished.
Anne Pettifor has haer own take on the issue:
https://annpettifor.substack.com/p/central-banks-and-government-budgets
Where she introduces a new book: https://press.princeton.edu/books/hardcover/9780691244433/our-money
Thankful for Kelton, Wray, Tcherneva, Mitchell (the Aussie!), Mosler, and the entire cast of characters in the MMT architect space; and by extension, thankful to this family blog for being a long time proponent of MMT!
Kalecki, (Joan) Robinson, Keynes all had it right … the tension in fundamental approaches to macro was never so difficult that it needed a NAIRU. It was always a fight between Capital & Labour. You can add Abba Lerner to the list of those who got it with his economic steering wheel metaphor, and MMT draws from his “Functional Finance” framework as well.
This is why many say of MMT – correctly – that it isn’t positing anything new but drawing on a wealth of understanding of how money actually works and how public policy should use a state currency monopoly to advance the public good.
I still think the best way to weaken current power structures is to create a parallel “B” economy predicated on public good and labour strength.
Rome was not built in a day, though … :)