This is one of a series of posts that will ask what the most pertinent question raised by a prominent influencer of political economy might have been, and what the relevance of that question might be today. There is a list of all posts in the series at the end of each entry. The origin of this series is noted here.
After the first two posts in this series, the topics have been chosen by me, and this is one of those. This series has been produced using what I describe as directed AI searches to establish positions with which I agree, followed by final editing before publication.
This is the second post in a sub-series here, where I acknowledge notable economists who have influenced me and who also happen to be friends. This time, the subject is Stephanie Kelton, the world's most prominent proponent of modern monetary theory.
Stephanie and I have met a few times. We have corresponded rather more often, often in exchanges about emerging economic situations worldwide. I was flattered to be asked to write a comment for the back cover of the UK edition of her most important book, The Deficit Myth.
In a world in need of new economic narratives, Stephanie Kelton's significance is hard to overstate.
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.
Previous posts in this series
- The economic questions
- Economic questions: The Henry Ford Question
- Economic questions: The Mark Carney Question
- Economics questions: The Keynes question
- Economics questions: The Karl Marx question
- Economics questions: the Milton Friedman question
- Economic questions: The Hayek question
- Economic questions: The James Buchanan question
- Economic questions: The J K Galbraith question
- Economic questions: the Hyman Minsky question
- Economic questions: the Joseph Schumpeter question
- Economic questions: The E F Schumacher question
- Economics questions: the John Rawls question
- Economic questions: the Thomas Piketty question
- Economic questions: the Gary Becker question
- Economics questions: The Greg Mankiw question
- Economic questions: The Paul Krugman
- Economic question: the Tony Judt question
- Economic questions: The Nancy MacLean question
- Economic questions: The David Graeber question
- The economic questions: the Amartya Sen question
- Economic questions: the Jesus of Nazareth question
- Economic questions: the Adam Smith question
- Economic questions: (one of) the Steve Keen question(s)
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The chief problem in the world is monetary illiteracy. Few understand that for human beings to use money in a stable way there has to be one agency that has the discretionary power to create money without liability, that is without owing anybody else. This is important in three main ways.
Firstly, if as a country you’re relying on private sector banks to create your medium of exchange through the creation of debt in the forms of loans there’s always the risk of bad loans and over-extension of loans because it affects the payment system. Governments in the Great Financial Crisis of 2008 had to step in to provide liquidity which was liability free. It did this by simply creating it from nothing via its central bank. From an historical perspective this is why the United States set up its central bank the Federal Reserve – breakdown of the private sector banking system.
Secondly, if private sector investment is facing profit uncertainty it will not invest and government has a role to play again by using its ability to create liability free investment to meet the needs the market will not or cannot.
Thirdly, in a world of increased global trade human beings cannot afford to allow cheating by some countries. The main form of cheating is by suppressing government discretionary power to create liability free investment to meet the full range of a country’s needs. An additional form is for a government to control foreign exchange and to tithe it using the proceeds to invest in other countries often by buying the safe government debt of other countries which also has the effect of pushing the exchange rate value of that other country. That safe government debt is of course under-written by government’s ability to use its discretionary power to create liability free money!
“Kelton’s core insight is not that governments should spend without limit, but that they can.”
It’s more than that governments must have the “discretionary” power to create liability free money to allow economies to flourish.
Hat tip to the Australian economist Peter Cooper for prompting my post:-
https://heteconomist.com/a-currency-issuing-government-must-spend-before-non-government-can-meet-its-net-financial-liabilities/
The answer to the 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?“ is surely that neoliberalism does not like public spending on public services for its own ideological reasons. It is a class ideology that sees a ruling class dictating to the masses. It is fundamentally undemocratic.
Neoliberalism is an attack on the social advances gained since the beginning of the 20th century. It is an attempt to reinstate patrician politics.
[…] 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 […]
I have read and recently re-read The Deficit Myth, which is accessible to all rational people and whose argument should be understood by all progressives.
As a proponent of Modern Monetary Theory, Stephanie Kelton also debates at length the argument for a state jobs guarantee, administered locally.
She does not support a Universal Basic Income, which is not discussed in her book.
I know of no author who supports MMT who also argues for UBI but several support a jobs guarantee.
There is support for UBI in the Green Party (GPEW) and Zack Polanski favours it. But this support may be waning, as it appeared in the Green Party Manifesto 2019 with a specific weekly figure mentioned but in the 2024 Manifesto UBI is mentioned only as a long-term commitment with no figure attached.
A subsistence UBI, as envisaged by the Green Party payable to forty million non-pensioner adults would have a gross annual cost of circa £700 billion. Under a progressive tax regime there could be substantial claw back from higher taxpayers and savings on the means-tested benefits bill but still leaving a net cost of subsistence UBI of circa £300 (or 400) billion £s. That extreme net cost would itself produce excess annual inflation – above the 2 percent target deemed acceptable.
UBI is a universal solution to a non-universal problem, because modern working life is not precarious for everyone in the UK. For the rich, who are well-connected, working life is not precarious in the sense that they can lose jobs and face long-term unemployment as people not well-connected can. And people based in the south of England can probably find work more easily than those in the north.
Moreover, there is a solution to the precarity of working life for those who experience it: an automatic Basic Income as of right to all people registered as unemployed. That would be somewhat less than the minimum wage for say a 37.5 hour week and could be paid pro-rata to part time employees, so it would not be a subsistence income but it would be an improvement on the present dispensation.
There could be weighting allowances to both the Minimum Wage and to the Basic Income as described to account for the differential cost of living in the various regions of the UK.
I have been planning a video on UBI for while – but it it taking time to get the ideas right and clear.
While I support welfare/benefits for those in need, I prefer a job guarantee (JG) over a universal basic income, as a JG has several benefits
1 Communities get what they need (i.e. a JG can be productive)
2 People are valued and improve self-esteem
3 Workers pay taxes
4 Workers improve their skills
An overview of the JG can be found here: https://gimms.org.uk/job-guarantee/
My problem with the JG is the word guarantee: it is just not deliverable and it would be a very foolish government that suggested it was.
Aim for it.
Call it something else.
But to offer a guartantee that could never be delivered on all occasions would be madness.
So my understanding is that job availability is guaranteed, not that people must take the job (so we can’t guarantee full employment).
Of course, we don’t have to worry about “paying for” the jobs because “Anything We Can Do, We Can Afford”.
In her book, The Case for a Job Guarantee (2020) (Amazon: https://amzn.eu/d/4hK2ZxK Youtube: https://www.youtube.com/watch?v=5EmlviHQT7M ) Pavlina R Tcherneva answers the question “how could we ensure that there are enough jobs for all jobseekers?”, which (with the help of AI) I have summarised below:
1. Care for the People
✅Elder Care & Companionship: Providing non-medical support for the elderly, such as spending time with isolated seniors to reduce loneliness or assisting veterans.
✅Education Support: Working as teacher’s aides, hallway monitors, or after-school program staff. This includes literacy and math tutoring for children or assisting students with special needs.
✅Public Health Support: Helping with safety monitoring in public spaces or acting as assistants in clinics (non-medical tasks).
2. Care for the Community
✅ Neighbourhood Renewal: Cleaning up vacant lots, restoring playgrounds, and revitalising abandoned properties.
Housing Restoration: Engaging in “Habitat for Humanity” style projects to refurbish low-income housing or assist with weatherization to lower energy costs for residents.
✅Community Safety: Employing crossing guards, subway station monitors, or safety guides for public parks.
✅Arts and Culture: Creating public art (murals, theatre), archiving local oral histories, or organising community cultural events.
3. Care for the Environment (Green Jobs)
✅Disaster Prevention & Recovery: Fire detection, flood control preparation, and emergency relief support.
✅Pollution Control: Testing water quality, removing invasive species, and remediating soil (e.g., lead abatement).
✅Urban Greening: Planting trees, maintaining community gardens, and managing urban farms to address food deserts.
Richard Murphy would claim that the UK economy does not operate at full employment, where everyone willing to work can find a job and he would also claim that the economy puts too much emphasis on the production and consumption of goods and services by the private sector and not enough emphasis on public sector goods.
A state jobs guarantee is a policy that aims to fix that, as part of a package of measures to do so. It could be called state jobs support if the word “guarantee” is deemed problematic.
It would be fully financed by the state but with a mandatory duty on local government to administer the programs in line with their local needs.
And it would be voluntary with no compulsion to work – a misconception of Zack Polanski.
It could operate consistent with a Basic Income payable as of right to all registered as unemployed.
It may not work perfectly but if implemented in earnest – which is always the qualification, as it would be for example with public ownership and its requirement for increased investment – then it may make a positive impact. And that’s all it needs to do to be worthwhile.
Policies do not need to be perfect to be worthwhile.
UBI is not consistent with MMT because a subsistence UBI is bound to produce excessive inflation. With a net cost of circa £300-400 billion a year, with no extra economic output the annual inflation rate would be approaching 10 percent.
When did I go into the third person?
And you are right, I do not agree with UBI
I believe in what is possible, and not what is not. Hence why I would never call anything a JG.
Another tremendous effort but I am perturbed by this:
‘Her work is not technocratic. It is moral.’.
For me at least, Kelton’s assertion of sovereignty over money was a technocratic point, within the order of political control, political order. Someone has to be in charge even better if they are accountable? It was the sovereignty that put iron into Kelton’s glove so to speak. And within the context of hyper-individualisation – more trenchant?
However, it could be me – my ongoing pilgrimage towards the truth of the matter was not so rich in my formative years as it is now.
I felt it was fair: it highlights that the work is all about choice, and that is always moral.
Stephanie Kelton’s work is both technocratic and moral. For example, would it have been moral to let economies crash in 2008 when you know that governments don’t operate on a credit card they have the discretion to create and use money that isn’t owed to anybody. Isn’t it moral for Stephanie to point this out with her technocratic knowledge?
Aaah, “Morality”!
The co-belligerent coalition of atheists, agnostics, and believers that we have assembled here, could have a lengthy discussion about “morality”, and to what extent our views on whether something is a “moral” issue, neatly align with, or erratically intersect across our views on a deity/creator/supreme being/organising principle behind our universe – and even more revealing, how that relates to our personal journeys, WHY do we have a particular view on “morality”?
I know that in my case, it’s much more complicated than just my views about a deity.
Another for the “question” list?
“The morality question”?
Is it off-topic? Or important for progressive coalition-building/coalition-preserving, in the uphill struggle ahead?
But maybe not today…
Not one for the series, I think…
It’s a good point that RobertJ makes about morality.
But in order to be ‘moral’ you have to have an idea – a reference point – from which to work.
At the moment we seem to have lost the ability to do that about lots of matters, but key to it all I feel is the lack of morality about acquiring money (I cannot use the word ‘making money’ these days).
We seem to have blinded ourselves to human bad behaviour around money, and acquiring money has become a morality free zone – questions of morality being (mis-applied) to those who do not have enough though is OK, apparently.
From this realisation, I get a real sense of the danger we are in………………………………….
Let me muse on this; I feel a blog coming on.
WHY do we have a particular view on “morality”
Because caring for others is a back-up system to trying to survive on our own. Built-in caring for other means we cooperate with each. Evolution changed our hormone systems to achieve this:-
https://www.researchgate.net/publication/247759661_Evolution_of_Parental_Caregiving
But also note:-
https://ankara.lti.cs.cmu.edu/11780/sites/default/files/BacterialLinguisticsandSocialIntelligence.pdf
I know its boring but if Keynes ‘anything we can actually do we can afford ‘ were more widely quoted it might help to reverse the starting point of most public discussion from ‘what can we afford?’ to ‘what do we want to do, what resources do we have, and how can we mobilise them’.
So the disastrous Streeting/Reeves demolition of the NHS
https://www.theguardian.com/politics/2025/nov/15/wes-streeting-accused-of-chaotic-and-incoherent-approach-to-nhs-reform?CMP=Share_iOSApp_Other
stems from the ‘we cant afford’ mantra – to employ the unemployed doctors, GP’s, or provide proper training places and career paths for future consultants . Those are resources and we can employ them and arrange the finances to do that.
I agree, I think Keynes’ aphorism is a very powerful, clear and concise expression of economic reality. It should be widely known by everyone.
Soon after the election, Starmer said (I’m not sure where) “we can’t do what we can’t afford”. I don’t know if this was a deliberately cynical inversion of Keynes, or just revealed his lack of understanding. Statements like that which prolong the fiction need to challenged, but of course no-one did.
That was Reeves, in the USA.
It was very cynial. And wrong.
Any solution has to “cut off at the pass” any attempt by politicians and pundits to deliberately conflate “money” with “resources” and carry on using the householder analogy.
When Rachel from accounts says, “We haven’t got the resources” she means something totally different to when Steph Kelton, Keynes or Richard say it.
Because they will seize at any opportunity to confuse the public.
The problem with getting the truth about the reality of money creation accepted is the same as Galileo faced when his book challenging orthodoxy ended up with him facing the Inquisition.
The modern day Inquisition is the combination of economists, main stream media, political cowardice, and the Internet which pumps out the orthodoxy.
Realistically getting the reality out to people is everyone promoting the same message as Stephanie/Richard in simple language that Freda on the Clapham bus gets.
Take the household budget example gently twist it around pointing out that it’s not what happens because the the UK government is the bank and prints the money it spends unlike you and me.
Whereas we can go bust the UK government has always paid its debts.
People get this.
Well AI doesn’t for sure! Apparently licenced banks create their own reserves! AI is over-hyped!
I put the following question to Google AI:-
“Is it an absurd nonsense to believe a government can both regulate a country’s payment system and economic demand without being able to create money without liability?”
It is not absurd nonsense to believe that a government can regulate a country’s payment system and influence economic demand without the ability to create money without liability. This belief aligns with mainstream economic principles and the design of modern financial systems.
Governments and central banks operate within established frameworks where new money creation is typically linked to a corresponding liability:
Central Bank Money Creation: When a central bank creates new money (e.g., through quantitative easing or lending to commercial banks), it appears on its balance sheet as a liability, owed to the entities (like commercial banks) that deposited reserves with it.
Government Borrowing: When a government wants to spend more than it collects in taxes, it issues government bonds (debt securities). The purchase of these bonds by central banks or private entities results in the creation of money for the government to spend, but it simultaneously creates a liability for the government—the obligation to repay the bondholders with interest.
The government’s ability to regulate the payment system and economic demand stems from other tools:
Regulation: Governments set rules for financial institutions, ensuring the stability and integrity of the payment systems.
Fiscal Policy: Governments influence economic demand through spending and taxation policies.
Monetary Policy: Central banks manage interest rates and the money supply to control inflation and stimulate growth.
These mechanisms allow significant government control and influence over the economy while maintaining the principle that nearly all money in existence represents someone else’s asset and someone else’s liability
This is gibberish:
Central Bank Money Creation: When a central bank creates new money (e.g., through quantitative easing or lending to commercial banks), it appears on its balance sheet as a liability, owed to the entities (like commercial banks) that deposited reserves with it.
Commerrcial banks did not deposit funds in QE. The claim is wrong.
Agree with much of this, but I’ve three main problems with MMT.
1. How does the govt know what the resource limit of spending is?
2. The language of money creation/deletion for govt spending/taxation is very jarring for anybody who thinks in terms of double entry accounting. I understand why it’s used by MMTers – it’s because they want to emphasise the sequence of taxation following spending – but still …
3. The problem with a Job Guarantee is more the “Job” part. It can’t be properly “productive” work, because otherwise you’re competing against existing employment. So it’s basically paid voluntary (non-productive) work (litter picking, etc.) which I don’t think amounts to what MMTers crack it up to be.
1. That is why we have data and why we use it to measure economic capacity now.
2. If you understood double entry you have no choice by believe in MMT. Nothing else is possible. Very few economists understand double entry. Do you?
3. Why can’t the government compete against excisting employment? If the market is providing shit jobs why can’t it do better? Please explain.