Currency Economics

Modern Monetary Theory is no panacea for the problems of our broken economic system

Last week I wrote a column for The National newspaper which was critical of Modern Monetary Theory (MMT) and it caused a bit of a stooshie.  There was the usual internet troll nonsense but the key complaint was that I was misrepresenting what MMT really was when I stated that: “The premise of MMT is that a sovereign government with its own free-floating currency and a central bank can never go bust as it can produce new money and spend as it likes.”

It’s an appealing concept and I understand why it’s catching on but it’s severely limited as an practical economic theory.  Every single MMT fan I have spoken to has explained their epiphany of realising that sovereign governments can produce new money, end austerity and that deficits are not a problem because we can spend as much as we like.  Well, austerity is fundamentally stupid and has cut off the lifeblood of the economy just when it needed more public spending. Deficits are not a problem, they are a good thing as Government spending is essential in stimulating new economic growth. However, Governments can’t spend as they like because – wait for it – a Government with a sovereign currency can indeed go bust especially if it introduces too much new money in the economy.

The comments came thick and fast; “Gordon needs to do more research’, “he clearly doesn’t understand MMT”, “he should listen to Stephanie Kelton”, “he thinks we need deficits and is a standard neo-liberal economist.” Wait, what? Me a neo-liberal – I don’t know whether to laugh or cry.

I have indeed read up on MMT and Stephanie Kelton, Professor of Economics & Public Policy Stony Brook University (New York) and Chief Economist for the Democrats on the U.S. Senate Budget Committee. She is one of the key and highly respected people behind the MMT movement so let’s see if she defines MMT any differently to me?

When introduced by no less than Mariana Mazzucato at a UCL Institute for Innovation and Public Purpose talk to showcase MMT, Kelton introduces her presentation thus:

“When it comes to the British Government money is no object”.

“Rather than looking for money to pay for Government spending the approach we should take to budgeting is to ask:
– What is it we would like to do?
– What type of economy would we like to build?
– What are the missions you are trying to achieve with the economy?
– What is the budget you need to carry out those missions, you can just fit the budget you need to fit those goals?”

No object means: “The availability of money is not taken into account and therefore presents no obstacle to spending.”

She then goes on to make the entirely correct points that Governments like the UK can create new money, spend it and deficits can be a good thing. She also correctly says things such as Government budgets don’t work the same way as household budgets.  The video, which you can watch here, is over an hour long but unfortunately the questions at the end are unspecific and disappointing for a talk at such a revered institute.

Not that its the source of all knowledge but Wikipedia is a starting piont for a lot of people and it has a decent MMT page where it states:

“The key assertion of MMT is that sovereign governments that are the sole supplier of national currency can issue currency of any denomination, and in physical or non-physical forms. Consequently, these governments have an unlimited financial ability to pay for the things they wish to purchase and to fulfil promised future payments.”

“The real limits to a currency-issuing government’s spending are the availability of natural resources, goods, assets, workers and services in the real world”  (I will deal with those very real limits later in this article).

Wikipedia also says: “MMT claims that these governments also have an unlimited ability to provide funds to other sectors and that because of this, it is not possible for a government that issues its own currency to be bankrupt.”

And there it is again the core belief at the centre of MMT is falsehood when they say: “it is not possible for a government that issues its own currency to be bankrupt.”

This is at odds with the truth at the core of MMT thinking which is an accurate observation of how money works, that any serious economist has been aware of since the end of the gold standard: the creation of free-floating currencies.  That truth is that Governments with a sovereign currency such as the UK’s have massively more monetary policy flexibility that most economists believe.  Indeed here is an article I wrote over three years ago making that very point. I am in favour of using money creation to increase spending in certain ways but it’s mainly the idea that MMT can be used in the extreme to fund socialist spending wish lists, which is what is being presented to me by Scottish MMT fans, that I want to address.

First, though this might surprise you – the political right already know how to use the creation of new money to fund their agenda. The bank bailout was a case in point: they bailed out the banks and then created £375 billion in new money and effectively used it to make the rich richer whilst introducing austerity for everyone else.

The biggest problem for anyone who thinks MMT stands for magic-money-tree is that there are many real-life practical restrictions on spending and significant negative side effects with its use.

All economic activity comes with an environmental cost and I would argue that our addiction to economic growth is killing the planet, so if every capable country  increased spending significantly that would further deplete the planets finite natural resources, driving us to the CO2 tipping point disastrously quickly.

But would they? Well, politicians throughout history have been shown to be deeply flawed when it comes to understanding complex cause and effect systems. So, what is to stop bad leaders spending trillions on white elephant projects just to get elected, triggering huge environmental costs? Trump could build a wall, Prime Minister Johnson or Reese-Mogg could decide they need to double the Trident fleet, make the UK a great military power again. One blogger said my point was moot as we would just not elect idiots – wow why didn’t I think of that? Half of America doesn’t even know it has alreday elected one!

Right-wing populist leaders  observing that the public sector has unlimited ability to fund the government’s agenda, might not bother taxing business at all.  This is a common theme I hear in conversation with right-wing lobbyists and economists – they say tax workers earnings, not businesses.

It is my observation that UK’s Conservative government has been trying to gradually lower overall taxation whilst simultaneously transferring the balance of taxation from business onto the individual for years.  It’s a small step for those inclined to that way of thinking to say let’s stop taxing businesses and cover the reduced revenues with an increased supply of money if they thought they could get away with it.  Likewise, a socialist populist could cut income tax but maintain business taxes. No problem there some would say but if the economy failed under either of these scenarios, then the electoral swings from left to right would become massively polarising in policy terms.

Thirdly, MMT taken to the extreme (and it would be) could be seen to offer no limit on military spending and effectively guarantees a new global arms race. The fact that nuclear weapons are expensive to develop is one of the key reasons we are still breathing, making them affordable for all could have disastrous consequences. Any government with a large military complex must eventually use that military might if the global economy collapses, as it must do if competition for natural resources intensifies and when the planet overheats.

Fourthly, if a nation were to overuse MMT the value of its currency would sink like a stone. Brexit has demonstrated how dependent the UK is on imports of food, medicines and industrial components. The value of the pound is key to setting the cost of those imports.

If the supply of money becomes volumous enough to dilute the value of currencies held by individuals, corporations and countries they will disinvest: the pound will rapidly lose value and purchase less than it did before. “No problem, we just print more money,” said one MMT evangelist to me recently. Yes, but then you end up paying a thousand pounds for a loaf of bread, it’s called hyperinflation. The UK Government’s QE exercise didn’t cause inflation because the money created didn’t reach the real economy. They did it in a way that increased the assets of the wealthy and the money didn’t trickle down – go figure.

Fifthly, in the case of the pound, a significant fall in value due to looser monetary policy would mean it would likely lose its international reserve currency status, whereby nations all over the world hold stocks of Sterling to settle international debts because it has traditionally been a strong and stable currency.

Finally, MMT removes all discipline in the economy – from individuals, corporations and politicians, which would impact negatively on inflation, the environment and the supply of labour. An economic bubble would inflate – and this would be the bubble not just to end all bubbles but possibly to end all civilisation when it crashes.

There are six reasons why MMT is a nice theory but a bad economic mantra and it’s certainly not the panacea for an independent Scotland once it launches its own currency.

Richard Murphy, a well-known accountant and economic commentator, published a kneejerk reaction piece that led the charge on the accusation that I was misrepresenting what advocates of MMT believed.  He invited me to comment on his blog and when I did so he refused to answer my questions and basically spat-the-dummy.  This is not how a credible economic commentator should behave. Sure, in the short term, he will gain fans from the MMT supporters club.  However, what is quite ironic is that he is not a full-blown MMT advocate and admits some take it too far and draw conclusions that the theory does not require.  Indeed I believe his approach to utilising sovereign money creation is closer to mine than to the most vocal champions of the MMT movement.

For many years I have been in favour of controlled quantitative easing (new money creation) for:

  • Special infrastructure projects where there is a market failure (within sustainability limits)
  • Creating a Citizen’s Bank to maintain banking services to rural areas,
  • Upgrading broadband and communications infrastructure
  • Debt forgiveness” for the people” who were damaged by the banking crisis and austerity because it wasn’t fair to just bail out the rich
  • Launching a new currency is also a key place to use money creation – you just issue enough extra to cover the costs
  • Working in unison with the rest of the world and in a controlled way, we could boost carbon reduction in time to save the planet with a massive cash injection that didn’t take from other spending areas but that would require a coordinated effert and global politcal will

So, in rejecting MMT as a replacement overarching economic theory, we must still accept that at its core  is an idea we can utilise as an ingredient in the new economic mix required to replace neoliberalism. What MMT offers us is not an approach to money creation that solves the world’s problems but rather support for an observation that I have made many times in my columns over the years: that there is far more monetary policy flexibility available than politicians and economists have traditionally believed.

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.


  • I think to have less of an emotional reaction, you should have started with the last part – “For many years I have been in favour of controlled quantitative easing (new money creation) for:”

    Your list would probably reduce unemployment and poverty which could reduce the resulting pathology, and resources (health, justice, social work…) directed at the pathology.

    I have seen some very fine economists say there is little difference between MMT and Sovereign Money, though I think the latter is better. Either group would permit a bit more triage with our resources. We need to direct more resources to more essential services like tuition, public transit, daycare, housing, dental care, pharmacare, … . And we need to direct more resources to address global warming. Both approaches would reduce the use of resources produce less essential goods, just as a war effort does.

  • I don’t have time to do a point by point rebuttal of the points made here or on other peoples blogs etc. However, a few issues of interest have arisen first who gets to define what MMT is? If you point out flaws or limitations in MMT it’s changes and people say that’s not what it is but many of the leading champions of the theory are saying things different to the commenters. So I can’t be misrepresenting something that isn’t properly defined and represented in the first place.

    Capitalism and Communism are both good theories both have experienced significant problems in implementation because of the same flaw in the theories that human being have to implement them.

    Some of the comments are just laughable, such as that I have used the term “printing money” therefore I don’t know how money works is just nonsense – I write about economics with an informal and everyman style of language so that more and more people can understand it. Thats one of the reasons this blog about the economics of Scotland has generated over 2m unique readers. Printing money tells most people what they need to know and in the article, there is a link to a piece I wrote critisiing the UK Government’s use of guilts to create new money, which might provide a clue to the writer if they were more interested in research than trolling.

    On the subject of research, there are suggestions that I haven’t done enough before commenting on MMT and that I haven’t read this academic or that one. For the record on this blog and others and on social media, not one person has posted a site I had not previously visited nor an academic whose writing I had not researched. So how have I come to a diffrent conclusion to other people? Well I have 20 years experience of studying economics and working in economics related jobs, wrote my first economics articles for a national newspaper 16 years ago and lead a five-person full time economics research team that has recently been asked to produce evidence for the Scottish and UK Parliaments, the House of Lords and the OECD as well as offering commercial economic consulting services. Maybe others can post the life experiences that lead them to form different conslcusions?

    Richard Murphy and George Kerevan who also have a lot of experience either state that they are not advocates of full blown MMT or piont out that the theory has flaws. Both seem to have a not dissimilar level of support for new money creation as a tool in an independent Scotland as I do.

    Why have a stushie now? Well, better now than when the SNP publish the economic prospectus for independence and there is no MMT in it and a whole load of people who think MMT is the answer suddenly start throwing toys out of the pram. Let me be clear there is a 0.0% chance that the next independence campaign will be based on or even include MMT as part of its economic strategy. To do so would lose the referendum for the independence side. The switchers the independence side needs are conservative in nature and will baulk at the suggestion of a magic money tree and the independence movement would lose all economic credibility in their eyes.

    I am trying to champion sovereign money, as soon as practicable in an independent Scotland with greater use of monitory flexibility in areas where there are fewer resource restrictions and negative impacts. When people whose opinions matter, laugh out loud and roll their eyes when I suggest this and ask if I am one of those MMT nuts, I admit I get angry at the MMT movements inability to properly define the limitations and potential negative consequences before going all evangelistic and giving an incorrect and irresponsible impression that money creation (you know printing more cash:-) is the only answer we need when MMT just serves to undermine the truth that a targetted and cautious but more flexible approach to money creation can be a useful tool.

  • Modern Monetary Theory has been a constantly developing prism since the growth of Keynesian economics (although do not mistake this for Monetarism in the Friedman perspective) and is not a theory in layman’s terms. MMT is a well substantiated explanation based of observable data and evidence.

    So now that we know MMT is a prism at looking at the macro economy we now also know it’s wrong for you, Gordon, to say MMT promises to end austerity and pay for any social policy. MMT is not a political party and therefore does not make promises. It is the tools we need to better analyse our macro position and allows us to reach a better conclusion. To argue MMT is “too good to be true” is a rather lazy argument and not something that can simply be dismissed in one article.

    What MMT explains is that if we have the real resources available (labour, skills, physical capital, technology and natural resources) which can be purchased with our own currency then there is no immediate fiscal constraint. When a state is the monopoly supplier of their own currency then they have much more fiscal flexibility. For example if we wanted to build a giant statue of Mary Seacole in Dundee then as long as there is labour and resources available for purchase then money can be created with keystrokes. The opposite is true if we do not have real resources, which is why MMT advocates propose ideas on how the state can expand productivity.

    Monetary sovereign governments face economic limits in the real economy, not financial.

    In your first article you made a point about “deficit cancellation”, so let’s clear a few things up. When it comes to the domestic macro economy there are two main sectors: the private sector and the public sector. What MMT shows us is the government (public sector) can bear the deficit, especially if it’s in our own currency, whilst the private sector (that’s us within households and businesses) should generally be in a surplus. Both mirror each other.

    Advocates of MMT do not want to cancel the deficit in the public sector. MMT is not a political party and therefore makes no promises to increase or cancel any deficit. Instead the government should attempt to balance the economy (not the budget) by meeting the requirements for a healthy economy at full employment. If there is full employment and too much currency in the economy then the government will have to decrease the deficit. If there is room to increase employment and utilise resources then the government can increase the deficit.

    We must remember that someone’s liability is another person’s asset. So the national debt is an account of all the currency/gilts/bonds/treasuries that has been issued by the government which has not yet taxed back or will be paid back at a later date. Most of it is our net money supply into the private domestic economy. It is our savings. It is our pensions. It is our financial assets.

    So with that understanding why would we want a government deficit cancellation? We want to see the private economy out of a deficit. If the private economy goes into a deficit then people have less disposable income and therefore spend less. This pushes the private sector to cut into their savings, sell their assets or take out loans on credit. This increases private debt, increases unemployment and eventually we hit a recession. You go on to repeat again:

    “a sovereign government with its own free-floating currency and central bank can never go bust as it can produce new money and spend as it likes.”

    This is only half true. It is true that a sovereign government with a floating currency and own central bank can never go bankrupt. But that is only true with regards to the currency it is the monopoly supplier of. If we had a massive foreign debt then we can still go bankrupt. Advocates of MMT point out a sovereign government must avoid as best as possible to borrow in a foreign currency where it is unlikely to make major returns.

    MMT does not argue government “spend as it likes” as I have made clear above. There is nothing stopping a monetary sovereign government from creating money with simple keystrokes, but constraints on spending come from the real economy. If we do not have real resources to purchase then the government cannot spend without causing serious inflation.

    You also raise the issue of CO2 emissions. This is a very odd argument because MMT supporters are massive advocates for sustainable green energy and lowering carbon emissions. Our colleagues in the US, being academically lead by MMT economist and Democrats advisor Stephanie Kelton, are pushing ahead for a New Green Deal. It is seeing increasing support in Congress. The deal includes a Job Guarantee scheme (which I’m currently writing a paper on with Craig Berry for an independent Scotland) for all Americans to reshape the economy. This includes creating more solar panels, retrofitting coastal infrastructure and producing more electric cars. It is MMT advocates that are uniting the left in the US to create a radical and realistic strategy to tackle climate change. Why have you missed this if you claim to have done the relevant research?

    If you’re worried about leaders recklessly spending on projects which will do no harm then do not elect them. Yes, we have a responsibility to inform voters, but that alone cannot be pinned onto MMT. You know this yet continue to spread misinformation.

    MMT does not argue we should ditch taxes on businesses. Taxes can be used as a tool to help control inflation. We want to stop concentrating wealth to the top 1%, so tax is also a tool for redistribution. By not taxing the wealthy businesses and individuals we allow them to buy shares, stocks and real estate with their already massive disposable income. This inflates prices and locks out millions of consumers. Tax also allows us to deter bad behaviour such as smoking or drinking. Just because MMT recognises taxes do not fund government spending does not mean we want to magically ditch tax. Taxes drain money from the economy providing fiscal space for new government spending. To suggest otherwise only shows a real lack of understanding when it comes to MMT.

    Why would weapons of mass destruction suddenly become cheaper? The weapons manufacturer the UK government currently purchases from will still maintain the same price or revalue it to whatever the government is willing to pay (so long as they make a profit and can retire with a nice cheque). Previous Westminster governments have interfered in foreign affairs with a small degree of worry for the cost. Who remembers Tony Blair cancelling his illegal wars because he did not have the money? Who remembers David Cameron keeping away from Syria because they were skint? Who remembers the UK government ditching weapons of mass destruction because they realise they are utterly useless and will kill us all?

    When there is an agenda for neoliberals to invade another country the cost does not matter. They are driven for ideological reasons. Only when it comes to elections is there a sudden faux outrage with spending. Westminster can hardly fund police officers, fire fighters, nurses, teachers…but illegally invading another country? Pfft, no problem!

    It is true that the value of our currency is set by capital markets massive movements of currency in and out of a country. It’s fine that the UK is a net importer. As long as countries are willing to accept our currency in exchange for goods, we get the goods and they get our money. If there is concern with our currency due to movements then we can apply capital controls (which raises further debate/discussion around EU membership or the EEA, which I will also be doing a paper on). If there is a sudden depreciation in our currency then it is in the interests of industries in the exporting country to encourage their government to support their market. Government’s can only go so far but there are tools at our disposal to help counter these potential threats.

    if you use the term “printing money” you do not understand how MMT works (which has been clear throughout Gordon’s article). The term suggests that the government circulates real currency and fake printed currency, which is not true. For a more detailed description of why “printing money” is an amateur phrase you can read more from Ellis Winningham (see here:

    When the government purchases goods from the domestic private sector they merely credit the correct bank account. That’s it. There is no printing of any money. Numbers denote the size of the transaction electrically. People who use the term “printing money” do so intentionally against MMT advocates because of the negative connotations it carries.

    I don’t know who Gordon was talking to. Perhaps in the future he should read the work of academics instead of random people. Hyperinflation generally occurs during disaster or major, uncommon events. The Cato Institute looked at every single case of hyperinflation in recorded history and found that none could be attributed to policies seeking full employment. It largely came down to war, government corruption and natural disasters. For further analysis on the misunderstandings of hyperinflation you can read the work of Professor Bill Mitchell (see here:

  • 2.

    “The real limits to a currency-issuing government’s spending are the availability of natural resources, goods, assets, workers and services in the real world”

    Do you accept that this is an essential element of the MMT model?

    Do you believe that any of the six examples you provide represent behaviour that obeys this restriction which is inherent to MMT thinking?

    I concur that all of your examples represent stupid and irresponsible actions.

    I have yet to see any serious academic proponent of MMT say anything to suggest that MMT recommends that governments could or should behave in the ways you suggest.

    I’m happy to concede to any evidence you can supply to the contrary.

    I’m sure there are plenty of folks out there in the ‘chinese whispers’ land of social media that spout such nonsense along with the guys complaining about whisky exports…

    Those guys are NOT MMT and I think it is unhelpful of you to characterise them as such. They are classic ‘invisible men’ in this context and it isn’t a surprise that those that understand MMT, and would describe all of your examples as stupid ideas that they would not recommend, feel that you are attacking a ‘straw man’ version of MMT and you are unfairly reframing their ideas in the public eye.


    How exactly does a government that only borrows in a free-floating fiat currency that it is the monopoly issuer of become technically bankrupt?


    Why is having a stooshie about this now a good idea?

    Clearly you, Richard and realMMT folks are not a million miles apart in how the new Scottish economy ought to be run.

    Why is having this complex and technical debate in public right now going to persuade undecided voters that were unsure about the economics of indy the last time that they should vote Yes this time?

    Seems to me that it might be better to identify the policy areas where you all agree, which would appear to be all of them btw, and agree to have this difficult discussion about your microscopic areas of technical disagreement after a Yes vote.

    See everything Alexandria Occasio-Cortez says in the press when asked how she will pay for it…

  • We need a proper civilised debate between yourself and Richard Murphy so that us economics dummies can get a proper handle on what to think. They say you’re misrepresenting MMT, you say not without directly answering their points. It seems like this could be vital for Scotland

    • Hi Ronnie thanks for the comment but I am afraid I do not agree. MMT is not vital for Scotland, it’s a side show, a distraction and won’t be part of the economic prosectus for indpedendece that the SNP will publish, and helping to influence that is my priority. And I belive I have directly answered the main issue over what MMT realy is, most of the other stuff was just straw man arguments and very few people picked up on how I would use QE or money creation flexibilty in a way that wouldnt have the negative effects and practicle and resource limitations.

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