Why is the left still terrified of the state's power to create money?
In this video, I set out a straightforward truth, which is that modern governments create money every single day. That is the foundation of public authority in the UK and every other country with its own currency. The government spends money into existence — and then uses taxation, not to fund that spending, but to manage inflation, redistribute wealth, and steer the economy.
And yet much of the political left denies this reality. From Labour's fiscal rules to tax justice organisations and NGOs obsessed with “fully funded” pledges, left-leaning politicians cling to the false belief that the state must:
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Tax before it spends
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Borrow from the markets to “afford” investment
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Balance budgets like a household
These ideas are myths — inherited from neoliberal economics and reinforced by the power of the City of London. And they severely restrict what democratic politics can achieve.
When the left refuses to use the state's power to create money, the consequences are enormous. It means:
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Unemployment becomes a choice
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Austerity becomes a choice
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Poverty becomes a choice
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Failing public services become a choice
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Climate breakdown by inaction becomes a choice
Because the truth is: money isn't scarce. Political courage is.
In that case, what this video explains is why the left fears being held responsible for the results of power, and why that fear must end. If democracy already has the tools to transform society, why aren't we using them?
This is the audio version:
This is the transcript:
Why is it that the left are so scared of the power of the state to create money?
There are days when I genuinely wonder what most of the left-wing in politics think the state is for. You would think that they would want to claim the power of the state for themselves to deliver what it is that they say they want, which is a better lived experience for the working people of the country in which they're fighting their political cause, and yet almost all of them deny that the state has the power to create the money that is required to achieve that goal. There is no indication on their part that they understand that the tool that they require to transform our society exists and is already available to them, and is simply the power of the state to create money at will and on its own command.
Why is it then that the left is so terrified of doing this? And we need to talk about that because this is really important for the future of politics, not just in the UK, where I'm making this video, but in other countries as well.
The power of the state to create money is the whole basis of the authority of modern governments.
Some people claim that the power of government is based upon its ability to defend a territory from attack. But let's be honest, attacks on territory don't happen very often, thankfully, these days.
Other people claim that the power of the state is dependent upon its ability to impose tax and then imprison people if they don't comply, and to some degree, I would agree with that. But nobody needs to tax unless the government has already created the money that is in use in the economy, which is being governed, and then demand that payment be made in that currency for the tax that is owing, which they deliberately put in place to cancel the money that they have already created.
Therefore, the whole power of the state, in a practical sense, and in the way in which lived experience now reveals it, comes down to the fact that a modern government has the power to both declare a currency to be legal tender in their jurisdiction and to enforce that fact by forcing it into circulation, by requiring that tax be paid in it, always recognising that they must create the money in question before anybody can use it, let alone pay tax in it.
If the government does have this power to create money, it follows that it can fund health, education, care, the energy transition, infrastructure, and anything else that is necessary to deliver the well-being of people in the country in question if it so wishes, and if it wishes to use that power in association with taxation to mobilise the necessary resources to do so.
In other words, the whole foundation of democratic economic choice is based upon this ability of the state to create money, in association with its ability to impose tax to recover the money in question from the economy to prevent inflation, but also, for example, to redistribute income and wealth.
The left denies this; they seemingly want to deny themselves access to the most powerful tool that is available to them to deliver their social goals, and in the process, they appear to want to deny democracy itself.
They actually sign up to all the prescriptions of the right.
They claim that the government must tax before it spends.
They claim that the government must borrow from the City of London or whatever the equivalent institution is in other countries, before they can actually balance their budgets, which they think to be fundamental because they don't understand that money is a government creation and not something that the private sector creates and lends back to the government.
They cling to these myths, all of which are designed to constrain democracy in the state, and as a consequence, they actually undermine every single one of their own arguments about the power of the state to deliver on behalf of people.
So why do they do that? I'd suggest a number of reasons.
One is that they have quite simply internalised neoliberal thought. Most younger people, and most of the people who I hear talking about these things are younger, have been to universities and studied their subjects like politics, philosophy, and economics, and all of those teach pure neoliberalism these days. In other words, they say, "A government must live within its means. Markets decide what is possible, and public purpose must bend to private confidence. We must", in other words, "bow down to the power of the City."
And that is as much the left's worldview now as it is that of the economic right, as far as I can see. After all, what else explains Rachel Reeves and why she spends so much of her time trying to create and comply with fiscal rules that are utterly meaningless, and full funding rules, which are constraining everything that her government can do, totally unnecessarily?
But the same issue also exists for the further left, and they, in a sense, are constrained by my second reason for the left constraining themselves with regard to the power to create money, which is that they wish to reduce all their politics to class struggle.
They say power is all that matters.
They reject arguments about money.
They reject arguments about technocratic, as they describe them solutions to problems because they simply want to undertake class struggle.
The irony is that by refusing to understand money, they grant power to finance and take no steps to challenge it. It could not be more absurd than that.
There's a third reason why the left will not subscribe to the idea that the state makes money, and that is that scarcity suits their politics. They want to look like heroes, and if there is scarcity, they can claim themselves to be heroes for defending what little there is available to those who are on limited means.
If there were abundance, their heroic role would disappear. They wouldn't appear to be saviours; they would appear to be decision makers.
They would not appear to be heroes; they would just be competent administrators, and that doesn't suit their personal agendas.
If the government can always afford to meet needs, and technically, in a government that recognises that it can create money, that is always possible if the right decisions on the allocation of resources to those in need are taken, then they must actually always deliver.
The idea that there is an obligation to deliver if they understand that the money to deliver is available really terrifies most politicians on the left, and there's a good reason for that. This would require that they would have to decide. It would demand that they do act, and they would have to say what they will do, and what their priorities are. They would, in other words, have to make up their minds, and for the left, that appears to be something that is amazingly difficult. They like the idea of being heroes and undertaking the brave struggle, but actually talking about what they're going to achieve, that's not on their agendas.
Instead, reason four, for their failure to embrace the idea that the state can create all the money that it needs, is critical. These people are petrified.
They're petrified of being mocked by everyone from the Treasury through to the media, and the NGOs that they work for, for not being credible, by claiming that the money that is available to deliver the policies that they talk about is actually within the capability of the state to create. They would rather manage decline respectably than actually advocate a truth that is in existence, but which requires them to disrupt the thinking of other people and to force themselves out of their comfort zones.
They fear responsibility more than failure. They wish to look credible, and they don't believe that it's credible to claim that the government can create money even though it does every day, day in and day out.
What all of these reasons reveal is one common thread, and that is fear.
The left is frightened of responsibility.
It's fearful of using power.
It's afraid of being held accountable for real change.
And they don't want to recognise, as a result, that the ability of the government to create money at will makes their excuses impossible.
The reality is that if the government can create money when it spends, then unemployment is a choice.
Austerity is a choice.
Poverty is a choice.
Failing public services are a choice.
Climate breakdown by inaction is a choice.
This is the reality, but the left would choose instead to treat the state as a household with a flag.
They think it must beg from markets.
It must prioritise private wealth over public well-being.
And it must deliver balanced budgets even if lives are broken as a result.
The left chooses to become the administrator of scarcity as a consequence, and that is capitulation dressed up as prudence.
What would change if the left actually came to terms with the reality that the state can and always does create money? My answer is just about everything.
It would be possible to invest in the energy transition at scale.
It would be possible to provide care, whether that be social care or medical care.
We could provide for people who need mental health support.
We could educate people to their full potential.
We could guarantee full employment by design.
We could direct the economy to meet need, and not feed rentiers.
We could, in other words, build a state that cares, and that's a fact. Money is not scarce after all. The only thing that is scarce are real resources. Things like people skills, energy, technology, and materials; they are scarce, and that's why decisions have to be made. And that's what modern monetary theory, or just modern money, if you wish to call it that, makes clear.
What it makes clear is that decisions have to be made about what money will be spent on, and who will be taxed to create the social outcomes that a government wants on behalf of the society that it represents.
The role of a government is to steward resources wisely whilst managing inflation, the tool for which is taxation.
What MMT asks of the left, then, is nothing new. All it's asking it to do is not be frightened of what actually exists.
The left fantasise about change and not real-world delivery, and that's what MMT asks it to change.
It says the left should simply acknowledge the reality of the world we actually live in because the tools that we need to constrain capitalism, to keep finance in its box, and to deliver well-being for people, all exist, if only we accept the reality that the government is already in charge of money creation and then taxation, and these are always going to be the tools that are available to it to determine how resources are allocated within society.
Democracy already has the power to deliver what the left wants.
It is the process of deciding how to use that power that is critical.
So it is time that the left stopped denying state power. It's time that they used it, because the greatest constraint we face is not money, it is fear.
The left needs to stop being frightened of the City, of finance, of technocracy, and of the real power that money creation delivers. They actually need to stand up and embrace this power because if they did, then they would be able to transform society on behalf of the people that they claim they want to represent, but right now are miserably failing.
I am willing to take that risk to stand up to those who say I'm talking nonsense because I know I'm not.
I am willing to say to the left, "Get on with this job of addressing the problems that we know we have."
I am willing to demand real change.
I just wish most of the left would come along with me because if they did, we could have a better tomorrow.
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The attacks by the likes of so called Marxists Grace Blakeley, James Meadway, and Paul Mason on MMT and those who support it is to put it mildly a load of stinking kippers. To put it more strongly not understanding how money is created makes you a working-class traitor! (Yes I know you can quibble about the definition of “working class” but I mean the mass of people who don’t own and direct the use of large sums of capital.) Why would I say this? The following article by James K. Galbraith pretty much sums up the arguments. In particularly the following extracts or snippets:-
“Bankers don’t like budget deficits because they compete with bank loans as a source of growth.”
“Social Security and Medicare also replace private insurance with cheap and efficient public administration. This is another reason these programs are the hated targets, decade after decade, of the worst predators on Wall Street.” (Which translated into UK terms means social benefits, and public health and social care. For Wall Street think ‘The City’ in London)
“To put things crudely, there are two ways to get the increase in total spending that we call ‘economic growth.’ One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is. Governments and banks are the two entities with the power to create something from nothing.”
https://www.researchgate.net/publication/265071141_In_Defense_of_Deficits
Galbraith’s term “something from nothing” is reinforced by Richard Werner (an economist working in the UK) in a practical experiment to determine the actual process of creating money as a medium of exchange in this case by a licenced bank, the process is simply one of digitally marking up on a computer and equally applicable to a sovereign state:-
https://www.sciencedirect.com/science/article/pii/S1057521915001477?ref=pdf_download&fr=RR-2&rr=7f18f7e14d8cdd17
I hope Zack Polanski gets to read and understand what is being said here with your post and any further amplification of it by readers!
Thanks
Perhaps the left has a fear of reality – & prefers what it knows, because what it knows it thinks it can control.
Also, perhaps “the left” is so used to losing it prefers to lose rather than win (strewth we’d have to do summat),
I see exactly the same pathology at work in my area of energy. A refusal to see “the forest”, but rather just individual trees. Closed minds?
I have been coming here for +10 years – it has given me a new tool with which to view the world (& I am an old fart).
I wonder why (younger) others with more flexible minds have such difficulty. Sad.
Much to agree with.
The left has a massive fear of actually being asked for solutions when, as is painfully apparent, most have none; hence the focus on “the campaign” but never the outcome.
I see this all over the tax justice movement, for example where there has been no innovation for more than a decade now.
Thanks to all for a probing article.
Might part of the “Left’s” difficulty in exploring, let alone using, newer, heterodox thinking, be connected with the type of thinking which gains credibility, status and power in the “Left’s” social circles and structures?
Might they be “locked” into “crystallized thinking” through education, conversation with crystallized thinkers, their social and political structures, and, possibly, personality,and so minimalise/ avoid “fluid thinking”?
“Fluid thinking is the ability to reason and solve new problems and opportunities independently of acquired knowledge while crystallized thinking is the ability to use already learned skills, knowledge and experience.” (From AI Overview)
[…] But, whatever happens, true socialists demand that the working class must not be told there is a solution to all this. […]
There are in my opinion a number of scenarios as to why the Left behaves as it does:
1. They believe in pure opposition, permanent struggle, permanent critiquing with no end (because of course they are ideological not practical – or should we say ‘technocractic’ – they have no skills, experience, training or knowledge (SKET) to rule except ideology which they think is knowledge). They are an evolutionary dead end. Orwell saw this.
2. They are puritanical about money – money is the great evil and must not be touched. They don’t want to sully their hands with it – it is ideologically unhygienic, and part of the practical reality system they cannot understand.
3. Like the Neo-liberals, they turn men into perfect Gods and think that class is some sort of virtue (whereas Neo-libs see wealth as a virtue), that leads to ‘better human beings’. This religiosity ignores human frailties such as greed as well as being unable to comprehend that societal structures also need to change, because people will adapt to systems, and that systems tend to dictate human behaviours. Bad systems are bad systems. Better people are not enough. To change systems you need SKET to act not just perpetually analyse like they do.
I’m not disagreeing with anything you’ve written nor think that I know more – this is some of my reflection, that’s all.
Thanks
I think Your point 2 hits the nail on the head PSR. Money is equated with capitalism so is anathema to socialism. The lessons from Cambodia haven’t been recognised never mind learned. The Khmer Rouge abolished money and started at their so called “Year Zero”. So since there was no money which the people needed to earn by working for the state and then pay their taxes they were forced at the point of a gun to undertake the work demanded by the state. Violence substituted for a monetary system. The prioritisation the KR gave to restoring food production after US bombing and the war destroyed the economy was strategically correct but without money people were forced out of the cities to work in the countryside. It was a human and economic tragedy.
Appropriately noted
Your mention of the lack of courage on the left echoes the argument of Rutger Bregman in this years Reith Lectures. The right is shamelessly corrupt and then left is paralysed by cowardice and infighting.
https://www.bbc.co.uk/programmes/m002mmrv
I must listen. It is on my list of things to do.
I suspect that the Marxist left fear MMT because they anticipate that it might enable full employment to be won and held compatibly with a market economy and the private ownership of the means of production.
Although I subscribe to MMT, my fear is that the energy constraint would bar the way to full employment. The UK has the highest energy prices for industry in the OECD, so it’s likely that we’d have to abandon Net Zero in order to afford full employment.
When China and India are building a coal fired power station every week, while laughing at us as we tackle the one per cent of total emissions the UK is responsible for, abandoning Net Zero might just make sense.
The situation in China is somewhat more complex than you state. While they do continue to build new coal fired power, and have many more planned, they are almost certain to end up consuming less coal in the future. There are several reasons for this – overbuilding coal in reaction to the power shortages of the early 2020s, misidentifying grid issues and problems with hydro power. The utilisation rate of coal in China has been following steadily over the past 15 years, as has the share of coal in overall power generation.
As for the UK, power prices here would be substantially lower if the current structure of the energy market was reformed. At present prices balance on the marginal cost supply – natural gas – over 95% of the time. This is the highest cost source of power generation, and far higher than renewables (which now produce over 50% of the UK’s electricity). Unfortunately, it means we pay for electricity as consumers as if all of it is produced by natural gas. It’s a completely broken market system.
Nationalising the industry is one way we could dramatically lower our costs and still easily meet green targets. It’s really not difficult, and in fact the rising efficiency and falling costs of renewable energy is a tremendous boon for us that has been completely obscured by a crazy market system imposed on us by neoliberal evangelists.
Thanks, Simon.
The challenge of the green transition has to grapple with some issues like these. The predictive power of climate models is severely limited by the intervention of cloud cover, water vapour being a much more powerful greenhouse gas than CO2. Another is the importance of baseload power, illustrated by the blackout that brought Spain to a halt earlier this year. Renewables cannot provide this.
Then there is the sheer engineering and logistical challenge of mobilising the materials, energy and skilled labour force that is needed to build the green transition. There is a serious question mark over whether this can be done without rationing within a comprehensive command economy.
The Left, much like the Far Right, is mired in ideology. This is why they will always lose to the Right. You hit the nail on the head that they want to be class heroes when they are nothing more than another group of elites competing for a seat at the table. They are a product of inequality and elite overproduction, and the real scarcity they are fighting against is the scarcity of positions at the top. Like Farage and his ilk, they are fighting to topple those in power and replace them, as there is no room left at the table. Like the Right, the Left would likely come apart in victory, as all the different ideologies that brought them there would fracture. Look at Trump’s administration, a spectrum of beliefs ranging from the oligarchic power of the elite to Christian fundamentalism and onto the fantasies of far-right Traditionalist beliefs and rejection of modernity. The Left is equally fractured and is trying to pull together a movement based on class warfare. They are perpetuating the myth that the money needs to be reclaimed from the wealthy before we can have it, thus making them the enemy. It’s their influence that needs breaking, yes, but their wealth is not required.
An interim goal for MMT could be to have Richard give The Reith Lecture?
That would be fun.
And I really cannot see it happening.
All of this should not be worth the time or energy.
We’re essentially talking about the self-styled ‘revolutionary left’ which was born out of the Trotskyist 4th International of 1938 (a cult consisting of about 30 people) who went off with the mission to start national branches of the Trotskyist International revolutionary party. Doing that takes money which involves recruiting members who can be persuaded to pay large membership fees, and finding rich patrons, usually from the arts, who’s sense of guilt can be manipulated and turned into large donations. Doing this involves the creation of full-time and unpaid part-time organisers mainly from academia. Hence the creation of central cult members dependent on the maintenance of the cult for their ‘life-style’.
Of course it didn’t take long for this international cult, especially with the assassination of Trotsky, to split into an number of sects, each locked in competition with the others who were attempting to lead ‘the working class’ down some heretical path or other and thus robbing the true revolutionaries of the money they needed. Thus there is no hatred like the hatred of one Trotskyist sect for another.
Lower down the hate-scale are the reformist organisations of the left who, together with single issue campaign groups are the main recruiting grounds for their foot-soldiers and thus new sources of membership revenue.
Capitalism can only be overthrown by violent revolutionary mass action undertaken by the working class under the leadership of ‘its’ vanguard political party, which has to be built so that it’s ready to provide that leadership when the opportunity arises. Anything else is a counter-revolutionary diversion. The revolution can only be made by the working class who will forge the organisation and policies that will lead to utopia in the course of that revolution. Anything else is elitist reformist clap-trap. Reformists should be supported only as a rope supports a hanged man – to paraphrase Lenin.
75 years or so of this has, at most, resulted in a combined membership across the various sects of c.10,000 members. Sadly Your Party is now its prime recruiting ground.
Much to agree with
Maybe trauma from the 80s / Corbyn years / the damage Blair did to the soft left with a doctrine of infinite finance sector-funded growth + appeasing the markets? Many I know have an incredible fear of being seen as the loony left, spending money that the government doesn’t have, just wanting more power for the government, etc.
Richard – I note that you and Steve Keen will be making presentations to the Scottish Economics Festival in March, and I reckon this vlog would be an ideal starter and challenging to attendees!
Thanks
And yes – I am heading for Leith
Your Party had a session at lunchtime at conference with Stephanie Kelton and other MMT explainers.
In my local your party what’s app there is a section on economics full of MMT advocates.
Zarah has mentioned on questiontime that gov budget is not like a household one.
Zack has mentioned MMT although rather obliquely.
I think these parties left of Labour have a good chance of embracing MMT
The problem here right from the off is the presumption of what the ‘left’s means. It’s worth noting that at least one poster shows what this assumption means by comparing the ‘left’s with the far right.
This is nonsense.
Just as the right and centre are broad churches, so is the left. If Richard had said, the far left, I’d be nodding in agreement vigorously. I find the far left, dogma driven, impractical and inflexible. Sloganising is their thing, along with cliched outbursts about the ‘proletariat getting ready to fight the fascist Labour party’ and ‘sweeping away the far right system’.
In reality we couldn’t be further away from either. Reform, hardly a ‘working class’ party are set to sweep them away supported by a mix of bitter middle class believers in the great replacement, and working class Tories still holding to the idea that immigrants are to blame for everything.
If we mean the govt, there isn’t a left wing MP among them. Starmer and co are conservatives by nature and Conservatives by policy. As such fiscal policy us no more, and no less, a repeat of the last forty years of neoliberal nonsense.
As for the left of centre, despite being lumped in with the far left, they have no presence in govt, and tbh would doubtless agree with Richard’s assessment of why the far left is incapable of putting forward a sensible alternative to endless short termism.
You need to distinguish between the different parts of the left, all of which have, and as anyone who’s read the wonderful stories of the debates held in the Webb household, always have had, very different views on economic policy.
OK
But as I often say, Labur is LINO – Labour in name only and neoliberal to its core.
And the far left – like Blakeley, Meadway and Mason, have lost all touch with reality with their games of political fantasy.
So, where is the centre left? We need it.
Good question Richard.
I think it’s in total disarray. Labour have abandoned it, ‘Your Party’ while is a mess and was always going to be while it had no established leadership.
That leaves the Greens under Polanski as the best alternative. However, it’s not so easy to dump your political home, in particular as for many like myself, Labour was that home for forty years.
Until the centre Left has fully abandoned Labour, has decided where it’s long term future lies, it will remain divided. As such few powerful left of centre, and centre left voices will be heard, leaving our right wing friends to dominate, as they do, the political landscape.
As I posted to another article, “left” and “right” are metaphors, metaphors are a very powerful, and extremely common, way of communicating ideas, but it also has severe limitations, especially if the comparing is taken too far. Also, political metaphors are often highly personal, few people consider themselves extreme so someone whose view they perceive as being a long way from theirs must be the extreme one.
Also, the “right” rarely describes themselves as the “right”, most describe themselves as “centre” or “moderate” or perhaps, most often, describing their view as “It’s just commonsense”.
The most misused terms in this respect are “centre” and “far-right”. “Far-right” because it’s almost invariably applied to any group who are extremely nationalistic with no regard to the rest of their policies and “centre” because it doesn’t exist, there is no ideology of the “centre”, within a “left-right” frame, the “centre” can only ever be some (often random) mix of “left” and “right” notions.
I agree. The terms makes no sense now.
I believe the real problem why the Left is frightened of MMT is due to collective amnesia. What I mean is that after WW2 everyone saw not only how the state could organise society to fight a war but also how the state could with the right competence organise society in peacetime.The left has forgotten this and either tries to out perform the Tories when it comes to economics or bleats on about how only we can deliver public services without actually knowing how to gain the resources to achieve this.