The Richard J Murphy YouTube Channel
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My View on …
Richard J Murphy
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This post is part of an ongoing series in which I set out my views on significant issues in economics, political economy, politics, taxation, and accounting. It should be read in that context. It provides an overview of a position that I have developed over many years of writing and analysis, rather than a comprehensive treatment of the subject. If you would like to explore these ideas in more detail, the reading list at the end of this post provides a good place to start.
The whole View On series is available here.
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How money works
Modern monetary theory is not a manifesto, and it is not a set of political demands. It is an explanation of how money is created and used in a country that issues its own currency, has its own central bank and can borrow in that currency without restriction. The United Kingdom fits that description precisely. When I set out my view on this subject, I am not arguing for something new. I am describing something that already happens every single day. What follows sets out how that process works, why the comparison between government and household finances fails, and what limits spending once that comparison is abandoned.
The starting point is simple, even though it overturns almost everything most people were taught at school. Government spending comes first. When the Treasury wants to pay a nurse, fund a school or settle a contract, it instructs the Bank of England to make that payment. The Bank does so by marking up the government's account, and in doing so it creates new money. Taxation follows later. It does not fund what has already been spent, because the money used to pay tax could not exist in the first place unless government had put it into circulation. Spending creates the money. Taxation removes some of it again.
This single reversal, spending before taxation rather than taxation before spending, changes the whole basis on which we should think about public finance. Governments like ours are not constrained by a shortage of pounds in the way that a household or a business is constrained by a shortage of money in its account. A currency-issuing government can always settle its obligations in its own currency. That is a fact about how our monetary system operates, not an opinion about how it should be run.
The household analogy and why it fails
The most persistent obstacle to understanding any of this is what I call the household analogy, the endlessly repeated comparison between a national government and a family sitting around the kitchen table working out what it can afford. It is intuitive, it is easy to explain in a soundbite, and it is entirely wrong when applied to a government that issues its own currency.
A household cannot create the money in which its debts are denominated. If a family's income falls, sooner or later its spending must fall too, or it must borrow from someone else who does have money to lend, and eventually that borrowing must be repaid or the household risks losing its home. None of this applies to a government issuing its own currency through its own central bank. It is not a user of money in the way that you and I are. It is the issuer of the money the rest of us use, and issuers do not face the constraints faced by users.
Chancellors nonetheless persist in talking about maxing out the country's credit card, or living within our means, because the analogy is politically convenient. It disciplines expectations without ever requiring an argument about who should bear the cost of restraint. Once the analogy is exposed as false, the argument for austerity has to be made honestly, as a choice about priorities and distribution, rather than dressed up as an unavoidable financial necessity, and that is a far harder argument for its advocates to win.
Why taxation exists, if not to fund spending
If tax does not pay for spending, the obvious question is why we tax at all. I have set out my answer to this many times, because I think it matters enormously to how we talk about politics. There are several distinct reasons, and none of them involves raising revenue to hand to the Treasury so that it can then decide what to spend.
First, tax ratifies the currency. By requiring that liabilities to the state be settled in pounds, government forces the pound into everyday use across the economy, because businesses and individuals need to hold and trade in the currency they will eventually need to pay their tax bills.
Second, tax reclaims some of the money that government has spent into the economy, and in doing so it manages inflation. If government spent without ever taxing anything back, there would eventually be far more money chasing a limited supply of goods and services, and prices would rise. Tax withdraws purchasing power to keep that process under control, and it also creates space within the economy for public services to be supplied without simply adding new spending on top of an already fully used private sector.
Third, tax redistributes income and wealth. Markets concentrate both in the hands of a small number of people over time, and progressive taxation is one of the few tools available to correct that tendency and to fund social security in the process, not because social security needs the specific pounds raised, but because redistribution requires a mechanism, and taxation is that mechanism.
Fourth, tax reprices behaviour. We tax carbon, tobacco, alcohol and speculative gains, among other things, because we want less of the harm that these activities cause, and we exempt or subsidise activities we want to encourage.
Fifth, tax underpins democratic accountability, because a population that pays tax every week and every month has a continuing stake in how government spends and a reason to demand that it does so well.
Sixth, tax lets government reorganise the economy in pursuit of long-term goals, whether that is a green transition, an industrial strategy or the correction of monopoly power.
None of this is a minor technical point. Once the household budget analogy is abandoned, and once it is understood that taxes do not pay for the NHS, education or social security in any literal sense, the question that dominates British politics, namely how will we pay for it, is exposed as the wrong question entirely. The right question is always whether the country has, or can create, the real resources required to deliver what is being proposed.
Sectoral balances and the private sector surplus
Underneath this description of tax and spending lies an accounting framework that I regard as one of the most useful and most neglected tools in economics, developed in large part by the Cambridge economist Wynne Godley. It is called sectoral balances, and it states an identity that must always hold true. The financial balance of government, the financial balance of the private domestic sector and the financial balance of the rest of the world must, taken together, sum to zero.
What this means in practice is that when government runs a deficit, that deficit is, pound for pound, a surplus somewhere else in the economy, most often in the hands of households and businesses who are saving. A government surplus, by contrast, can only be achieved by pushing the private sector, or the overseas sector, into deficit instead. There is no way round this arithmetic. It is not a theory that can be disputed. It is an accounting identity, and it should discipline the whole of the debate about the public finances far more than it currently does.
This is why I regard austerity as almost always economically counterproductive rather than merely unpleasant. Cutting government spending or raising taxes to close a deficit does not make that deficit disappear. It transfers it onto households and firms, who are then forced further into debt to sustain their own spending, or forced to cut back, with all the human costs that follow. Politicians who promise to balance the books while also promising growth are, whether they realise it or not, promising two things that cannot coexist unless the private sector or the overseas sector absorbs the resulting deficit instead.
The national debt reconsidered
Few areas of public debate are more thoroughly misunderstood than the national debt, and I have spent a great deal of time trying to correct that misunderstanding. What is called the national debt is not owed to some external creditor threatening to call in the loan. It is made up of notes and coins in circulation, National Savings and Investments accounts held by ordinary savers, and government bonds, or gilts, bought by pension funds, insurance companies, banks and overseas investors who want a safe place to hold sterling.
Every one of these things is, from the point of view of the person who holds it, an asset rather than a burden. A pound coin in your pocket is part of the national debt. A National Savings certificate is part of the national debt. A pension fund's holding of gilts, upon which millions of retirement incomes ultimately depend, is part of the national debt. None of these things needs to be, or should be, repaid in the sense that a mortgage needs to be repaid, because repaying them would mean destroying the very savings and the very money supply that the economy depends upon in order to function.
Bonds themselves are not evidence that government has been forced to borrow because it has run short of money. Government could, in principle, meet all its spending needs through instructions to the Bank of England without ever issuing a single gilt. It issues bonds instead because pension funds, banks, insurers and overseas holders of sterling need somewhere secure to place very large sums, and because the government, uniquely, can never fail to make good on what it has promised to repay. Bonds are a savings facility provided as a service to the financial system, not a funding mechanism forced upon a government that has run short of cash.
It follows that the idea of bond markets holding government to ransom, disciplining reckless spending through the threat of higher yields, is largely a story told to frighten politicians rather than an accurate account of how power actually operates. The Bank of England sets the base rate, and through its operations it can, and repeatedly has, brought yields back under control when it has chosen to do so. Those who trade gilts are not guardians of fiscal virtue. They are people looking to profit from buying and selling debt, and no more than that.
Inflation and the real limits on spending
None of what I have set out here means that government can spend without consequence, and I want to be entirely clear about that, because critics of modern monetary theory frequently claim otherwise, and some of its less careful advocates have occasionally given them grounds to do so. The genuine constraint on government spending is not the availability of pounds. It is the availability of real resources, meaning labour, skills, energy, materials, productive capacity and the ecological limits within which any economy must operate.
When government spends into an economy that has spare capacity, whether that is unemployed workers, underused factories or idle infrastructure, it puts those resources to work without generating inflation, because output rises to match the new spending. When government spends into an economy that is already working at full capacity, additional money simply bids up prices for a supply of goods and services that cannot expand quickly enough to absorb it. That is inflation, and it is a genuine and serious constraint.
This is why I regard modern monetary theory as being obsessed with inflation rather than indifferent to it, whatever its critics claim. The whole point of understanding how money is created and destroyed is to manage that process well enough to avoid both the deprivation caused by unnecessary austerity and the instability caused by spending beyond what the real economy can sustain. Taxation, targeted at those sectors and individuals with the greatest capacity to absorb it without hardship, remains the primary tool for controlling demand within this framework, rather than the blunt instrument of interest rate increases, which take a long time to act, fall hardest on those with mortgages and debts, and do nothing to address inflation caused by energy shocks, supply disruption or corporate profiteering.
The objections that deserve an answer
Three objections are raised almost every time I make this argument.
The first always refers to the cases of Weimar Germany and Zimbabwe. Both are offered as proof that governments creating money inevitably produce hyperinflation. Neither case does, however, resemble the situation described here. Germany faced reparations payable in a foreign currency that it could not issue. Zimbabwe destroyed much of its own productive economy while also owing debts abroad. In both cases, the real capacity of the economy collapsed. They were not examples of governments spending their own currency into economies with unused resources. The lesson is not that government spending always creates inflation. It is that when real supply collapses, prices rise. That is worth noting, but has nothing to do with most modern economies where the relevance of modern monetary theory is being discussed.
The second objection is that this argument amounts to advocating unlimited money creation. It does not. The limit has never been the number of pounds the government can create. The limit is the availability of real resources, people, skills, technology, energy and raw materials. Spend beyond the economy's capacity to respond, and inflation will follow. That is not a failure of the analysis. It is precisely what the analysis predicts.
The third objection is political. Those making this objection ask, if modern monetary theory does really describe how money works, why do governments still talk about balancing the books and imposing fiscal rules? The answer is straightforward. The fact is that the household budget story is politically useful. It lets politicians say they cannot do things when the reality is that they do not want to do them, which is something quite different, and which they do not wish to justify. That analogy permits restraint, narrows political debate and diverts attention from questions about what governments could choose to do. Whether that story is convenient tells us nothing about whether it is true. Politics does not determine how money works. It merely determines how politicians choose to describe it, which is something quite different.
Austerity as a choice, not a necessity
If the household analogy is false, as I suggest to be the case, it follows that austerity was always a political choice rather than an economic necessity, and I regard this as one of the more important consequences that follows from taking modern monetary theory seriously.
The years after the 2008 financial crisis saw public services, local government and social security cut on the claim that the country could not afford to do otherwise, at the very same time as the government making that claim was creating hundreds of billions of pounds through quantitative easing to support the banking system.
I do not regard this as a phenomenon confined to one political party. The Labour government elected in 2024 inherited both the opportunity to abandon the household analogy and the political consensus built up over more than a decade that made it fearful of doing so, and in my view it has continued a form of austerity while declining to use that word to describe it, preferring instead to speak of fiscal rules, headroom and responsible borrowing, all of which are simply the old constraints dressed in new language. Genuine fiscal responsibility, properly understood, means directing spending towards real resources that are available to be used, not imposing arbitrary limits borrowed from a theory of money that has never accurately described how a sovereign currency-issuing government operates.
Where I part from some of the theory's advocates
I should be honest that my acceptance of modern monetary theory as an accurate description of how money works does not extend to every policy conclusion that some of its proponents draw from it. The clearest example concerns the job guarantee, a proposal associated with several of the theory's American originators, under which the state would offer a publicly funded job at a fixed wage to anyone willing and able to work, acting as an employer of last resort and, in the process, anchoring prices and eliminating involuntary unemployment.
I do not accept that the job guarantee is a necessary or even a particularly good implication of modern monetary theory, and I have said so publicly, including in direct exchanges with economists who consider the scheme close to essential to the theory's coherence. My objections are practical as much as theoretical. Maintaining a standing pool of jobs ready to be offered to anyone who might become unemployed at any moment, in any location, requires continuous design and supervision of work that may often never be taken up, and risks becoming a scandalous waste of effort and administrative capacity rather than a source of genuine value.
There is also a real danger that a job guarantee creates a secondary labour market of lower paid, lower status work, distinct from and subordinate to mainstream employment, institutionalising the very inequality it claims to solve. It rests, too, on an assumption I am not prepared to accept, namely that paid employment through the state is the only legitimate route by which people can meet their obligations to society and secure an income, when pensions, social security and other transfers already demonstrate that this is not the case.
My preferred route to full employment is more direct. Government should use fiscal policy to sustain high levels of genuine, permanent employment by investing in public services, infrastructure, the green transition and care, creating real jobs where they are needed rather than administering a standing buffer of last resort work designed to mop up the consequences of failure elsewhere. Full employment should be the product of a well-managed economy, achieved through ambition, not the by-product of a scheme built around the expectation that the economy will continue to leave people behind.
I make this point at some length because I think it matters that modern monetary theory is understood for what it is, a description of monetary operations, rather than being treated as a single policy programme to which every adherent must subscribe in full. Insisting otherwise risks turning a genuinely useful and evidenced account of how our economy works into an ideological test that puts off far more people than it persuades, at a moment when the argument for abandoning the household budget analogy has never been more urgent.
Conclusions
Modern monetary theory tells us that a government like the United Kingdom's is not a household and cannot run out of the currency it issues.
Spending precedes taxation, not the other way round.
Taxation does not fund public services. It manages inflation, redistributes wealth, ratifies the currency and secures democratic accountability.
The national debt is not a burden pressing down on future generations. It is the accumulated savings of pension funds, savers and the financial system itself, provided at the government's discretion rather than out of necessity.
Deficits are not evidence of mismanagement. They are frequently the mirror image of a private sector that wishes to save, and austerity does not eliminate them, it merely shifts them onto households least able to bear the cost.
None of this means resources are limitless. The genuine constraint on what a government can do is real, and it is measured in labour, skills, energy, materials and the ecological capacity of the planet we depend upon, not in the number of pounds sitting in an account. Understood this way, modern monetary theory does not offer a free lunch. It offers something more valuable, an accurate account of where the true limits to ambition lie, so that political choices can be made honestly, rather than dressed up as financial necessities they have never really been.
I hold this position because I think it is true, and because the household budget myth has done immense damage, justifying austerity, underinvestment and the abandonment of people who had every right to expect better from the country they belong to. Once the mechanics of money are properly understood, the question that has dominated British politics for a generation, namely how will we pay for it, dissolves, and a better and more honest question takes its place, which is what kind of country we choose to build with the capacity we already possess.
Reading list
The following pieces from the Funding the Future blog were consulted in the preparation of this article and provide a starting point for readers wanting more detail on any of the arguments set out above.
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Post |
Date |
What it covers |
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18 April 2023 |
The founding long-form explanation of Murphy's own understanding of MMT, distinguishing it from some MMT founders' claims. |
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19 April 2023 |
A revised second edition of the explanation above, with a summary of MMT's core suggestion that government is constrained by real resources, not money. |
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7 September 2024 |
A full video transcript setting out how spending, taxation and inflation control work under MMT, and Murphy's reservations about the job guarantee. |
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19 August 2025 |
Explains MMT as a description rather than a political programme, applicable to any fiat currency country regardless of political persuasion. |
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2 March 2026 |
Sets out the six reasons government taxes, none of which involve funding spending, and links this to social security and democracy. |
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There are six reasons to tax and none involve funding the government |
5 August 2024 |
An earlier statement of the same six reasons for taxation, with particular emphasis on currency ratification and democratic accountability. |
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25 July 2025 |
Argues that the phrase 'taxpayers' money' is a political myth used to justify austerity, since all money is created by government spending. |
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7 January 2026 |
A technical explanation of the sectoral balances identity developed by Wynne Godley and its implications for austerity and fiscal rules. |
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The sectoral balances show that the government has very little control over the national debt |
15 May 2024 |
Explains why government deficits are largely determined by the saving decisions of households, businesses and the overseas sector. |
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23 April 2026 |
Murphy's fullest published defence of his position that the job guarantee is not intrinsic to MMT, written in response to academic critics. |
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2 September 2025 |
Contrasts Keynesian and MMT understandings of debt, inflation and the household analogy, and argues MMT better fits a post gold standard economy. |
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25 May 2026 |
Argues that government bonds are savings instruments rather than debt, and that bond vigilantes do not constrain a sovereign currency issuer. |
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12 August 2024 |
Explains the historical and present day role of gilts as a savings facility for banks, pension funds and overseas holders of sterling. |
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5 May 2024 |
A direct rebuttal of the claim that MMT permits unlimited spending, setting out full employment and environmental limits as the real constraints. |
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The job guarantee is not an MMT panacea, it's just one policy option |
2 April 2026 |
A detailed reply to a job guarantee advocate, setting out Murphy's practical and ethical objections to treating it as core to MMT. |
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29 March 2026 |
A glossary style summary of the job guarantee proposal and its administrative and social limitations, from a Funding the Future perspective. |
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21 December 2025 |
Answers reader questions on whether MMT requires tax rises to fight inflation and whether it means unlimited spending, with worked examples. |
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11 May 2026 |
A review of a hostile book on MMT, used as an opportunity to correct common misrepresentations of the theory and its treatment of central bank independence. |
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12 June 2020 |
An early and widely shared piece setting out the case that the national debt is properly understood as national cash, savings and bonds rather than debt. |
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22 March 2026 |
A short video explainer arguing that the national debt is the nation's money supply and private sector wealth, not a burden to be repaid. |
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Excellent, Richard.
Not much more to say really though I am sure a number will.
Thank you
EXCELLENT PIECE which fits (almost) completely with my understanding of MMT – a view about money that has changed little since 1987 when I first traded government bonds. Indeed, I could go even earlier and credit my O level economics teacher who would have wholly embraced your first paragraph – a paragraph that might well be valuable published as a stand alone “short” on YouTube.
My point is that MMT is not some new fangled invention it has been true ever since the creation of money…. and yes, that is true even when the gold standard prevailed because to break the link was always within the power of the State.
What interests me is, given the self evident truth of MMT, what is the role of interest rate and FX policy? But that is a long and complex issue to which I don’t have all the answers
I will have to do one on that
And thank you….
Re the Gold Standard. One of the most common dismissals I read is ‘We can’t just ( or just go on ) printing money. In the days of the GS the currency in circulation was governed by the gold reserves. Apart form all money now being created the same way it is now 95 years since we came off the gold standard and 55 years since Breton woods was abandoned. Of course, Telegraph readers and even TV economic experts don’t seem to be aware of it.
🙂
Hi Richard,
Firstly, I agree with almost everything you’ve said here.
However, I am someone who believes that not only does the JG concept complement what we both want (ambitious public investment) and provide structural predistribution but it’s also a natural result of MMT’s money story of how the state monetises production via taxation, creating monetary unemployment in the first place.
You say:
“My preferred route to full employment is more direct. Government should use fiscal policy to sustain high levels of genuine, permanent employment by investing in public services, infrastructure, the green transition and care, creating real jobs where they are needed..”
To me, this implies that you likely recognise the fact that the state is always capable of eliminating involuntary unemployment, but that you think it can sustainably do so via the standard public labour market, hiring people at market wages (competing with firms) to be a part of the permanent public sector.
Is this correct? Do you believe genuine full employment (apart from frictional) can be delivered with public sector expansions without inflation?
What is your thinking on the theoretical critique that predicts inflationary dynamics as a result of this due to wage-wage-price dynamics across the business cycle? As private demand for output increases, firms’ demand for labour increases and they will bid workers from the fully staffed public sector, driving wages and prices up.
Do you believe there needs to be some mechanism to effectively discipline wages to prevent cost-push inflation via labour market? If not, why not?
The JG is the proposed replacement of the inferior orthodox method of achieving that discipline and wage anchor mechanism but without unemployment.
So I guess I’m trying to get to the bottom of your theoretical opposition to the JG proposal in good faith.
The links are all in the post. I am not revisiting this. Nor will you change my mind. Sorry – but the JG would potentially be the biggest waste of government resources ever – creating jobs that could never be done if we actually achieved the real goal, which is full employment. Why do something so absurd?
Thanks Richard, I’ve read some of your other posts on this (including your response to Patricia) but I’m still left wondering what your specific thinking is around maintaining price stability at full employment demand conditions in an extremely tight labour market. You don’t appear to have set out specifically how that system state will be rendered stable and anchored.
Or do you just not believe that very tight labour markets in a high demand economy can be inflationary through the wage-price, price-wage, and wage-wage-price dynamics that are well recognised?
Is the idea to re-invigorate early Keynesian full employment approaches which sought to fine-tune demand at full employment somehow across overlapping sectors all at different stages of overheating? I find that unconvincing.
This is the most important theoretical point in my view for how to stabilise monetary production economies.
I believe there is no automatic stabiliser and it is naive – or even wrong – to think there is.
To pretend that a JG would solve the problem of inflation is crazy – largely because it is so multi-facetted.
What is the mechanism required? Sound judgement, and acceptance that things can go wrong, and that data is never good enough to report exactly what is going on , let alone calibrate it in real time.
MMT informs that process. But let’s not pretend that it replace economic managment. That would be ludicrous.
You are asking the wrong question.
Theory is just that. Economic management is somthing else. To confuse the two is a big mistake. You are making it.
You may feel that the JG is a policy that “naturally follows” from MMT but I think it is important to distinguish between an accurate description on money (MMT) and policy possibilities that MMT illuminates (JG).
Full employment is clearly a good aim. Your argument in favour of a JG seems to rest on government being a flexible user of excess labour on a temporary basis until the private sector demand for labour recovers and (the key point, I think you are making) is that flexibility by government prevents private sector wage inflation in an upswing. Maybe, but that very flexibility means that the jobs created by government have to be low skill and in areas where if the work stops (as workers shift back to the private sector) it is not a problem. Sounds to me like not very interesting or rewarding employment verging on “workfare”. Inded, I still want litter collection to happen whether the private sector is booming or not.
Issues of wage inflation and efficient changing of jobs (whether private to private sector or public to private sector) to reflect a changing world IS a big issue – but not one that the JG solves.
And, in the 50s and 60s was largely achieved without a JG…. so it can be done. What went wrong in the 70s and 80s is open for debate…. but for 25 years it worked and could (I think) work again.
Much to agree with
Sorry for another post. The Guardian has an article by Andrew Becket saying the public want change but those in power always tell them it is not possible. So I posted your post above
2 of the 3 replies
In response to Pethyboy
I) MMT is a total bust. The total downplaying of the incredibly inflationary impact of the policy and the lack of consideration of the economy in the global context (particularly regarding currency) are two huge problems with it.
2) and MMT is grand if you are an autarky, you arent. You depend on imports and foreign countries wont allow you to decide exchange rates.
I nearly added to earlier post that I had heard that objection but try to succinct. I do wonder if they have read it or are just repeating what they’ve heard.
It’s all ill-informed neoliberal drivel.
Don’t fight with pigs.
They enjoy it.
You get muddy.
So clearly the logical next step instead of ecological and social collapse as described below. Very worrying
https://share.google/ocbYAn6J87cUTPKZ6
And yet, politicians totally ignore this.
Quite an interesting essay on ‘post Keynesianism and MMT by ‘Relearning Economics’:<p>
https://x.com/RelearningEcon/status/2074911704249729174<p>
It focuses on the dynamics of the economy – with all the feedbacks over time – investment, hollowing out, exports / imports , foreign takeover of the economy , financialization etc.<p>
It argues that MMT deals with all the static accounting relationships – but needs to be complemented by post-Keynesian ‘system dynamics’ analysis to understand how the economy develops over time. <p>
Maybe Richard would want to do something along these lines – but its very challenging . Just one example this government is trying to encouraging new EV car plants in UK, and new pharmaceuticals manufacturing, but UK facing barriers with the EU single market means these investments will not go to UK but will go within the single market. This obviously affect medium term growth of the economy.<p>
Richard has focussed on the City of London and financialization/ tax haven/ Black Rock/private equity ‘extractive’ investments etc. Will Hutton said after recent US takeover of ITV and EasyJet that UK is becoming a vassal economy.
I am working on these themes, right now…
Communism is like a household economy. Communism works in families. It works fine when deciding where to go on holiday or who should take the bins out. It should be reasonable to believe that a modern capitalist economy is far from being a household. It should be reasonable to believe that mixing these 2 metaphors is only done for ideological reasons. Just like the communist state takes away freedoms in form of patriarchal rule, so do those who wish to continue with this false metaphor.
Maybe….
This is brilliant (I’ve only really a third so far and will read the rest at a later date, as the heat has got to me).
Not wanting to add more to the workload. But with your lengthy text pieces and videos, I can’t help but feel it attracts academic and “intellectually” interested people. Which is all well and good if that’s what you’re targeting, but it sloshes around the same bucket.
I feel people attempt to use the household analogy (and fail) to explain the economy because it what people relate too.
I for one would love to see an animation video or mini documentary on your above post to visualise and make it easily digestible. Maybe through the analogy of plumbing in a house. With water representing the money, and the house as the economy, it fills bathtubs through one mechanism, is drained away through another, it can cause damage if not managed etc etc.
The world’s attention span is shorter, I have too much entering my head on a daily basis to filter and absorb. So an animation would be great.
Just my thoughts, feel free to ignore.
Thank you. I think you’re right that explaining complex ideas visually can make them much more accessible.
The challenge is that almost every analogy breaks down at some point. And I am not a visual thinker.
Whether animation is the right medium, I don’t know. It is certainly resource-intensive. But I do think we need better ways of communicating economic ideas. Too much economics is taught as abstract theory when it should be about helping people understand the world they experience every day.
So thank you for the suggestion. I won’t promise animations, but I do agree that finding simpler ways to explain difficult ideas is one of the most important tasks ahead. I will muse on it.
Thank you for taking the time to read and reply. Just to add to your musings on the matter.
I understand your hesitation with using analogies due to them breaking down at some point. But is there not a happy medium?
There is a danger of aiming for perfection and not getting any traction?
As an example, during schooling, chemistry for example (I only did AS-level), they teach you how the atom is made up, using pictures and diagrams. But since then, having watched documentary’s and read of others experiences in further study, the atom is actually made of energy fields? (goes way over my head of understanding).
I guess what I am trying to say is, there are different “levels of explanation”, and something doesn’t have to be perfect to get the general idea across/your foot in the door.
Just trying to be helpful from my layperson/non-educated perspective trying to understand the world I live in.
For sure, you may well be right.
But this is not my skill set.
Sorry – but I have limits.
Others can try – volunteer offerings are welcome.
There are actually very good reasons why Richard may not be the best person to produce this kind of educational content. In a past life I taught complex technical subjects to grown-ups and attended several other peoples courses as well. Very often I came out thinking that if I didn’t already understand what they were talking about, I wouldn’t understand what they were talking about.
The real experts, with years of experience behind them have often lost the ability to put their minds back into “complete novice” mode and will begin speaking over their audience’s heads right from the start. This is not a criticism, merely an observation of reality. The best practitioners are not automatically the best teachers.
Re animation: Having made one (and only one!!) stop-frame animated film I can confirm that nobody who has ever tried this has the least clue as to how much work is involved. After a forum discussion last week along similar lines I had a brief look at using AI to generate animated scenes for an entertaining and informative video I briefly described in a post (but without breaching Ardman’s copyright). A couple of hours effort confirmed that it is easily possible but prohibitively expensive.
My teaching skill – frequently commented on – is in explaining complex issues to novices. I was the most popular teacher in my department when I was teaching for that reason. It is why our YouTubes have had 50 million views. It is why some broadcasters like me.
Excellent and thank you. Nothing to add except to say that every time you cover MMT you make it clearer and more readable and I think that this is extremely important!
Thanks
Richard I would just like to assure you that I read all your comments and most of the comments. It helps that I am a speed reader
I would like to suggest a competition on what is exactly included in the Government Debt. I think it would be enlightening for everyone and stop the scare mongering and the fetish in that it must be reduced.
Interesting idea?
Richard I would just like to assure you that I read all your comments and most of the comments. It helps that I am a speed reader
I would like to suggest a competition on what is exactly what is included in the Government Debt. I think it would be enlightening for everyone and stop the scare mongering and the fetish in that it must be reduced.
I’m really enjoying your pieces Richard, I am not an economist but these ideas have explicative power, which for me is the ring of truth. The arguments against always contain some unexplained assertion. And they never explain what money is.
Your ideas offer hope for meaningful change, which is attractive. I believe Great Britain has enough productive capacity to fix roads, offer a decent level of universal healthcare, and eliminate the need for food banks. Your explanations seem to show a way to achieve it.
You have pointed out that the household debt analogy is a useful story for our politicians. My question is, why do they use it? Why don’t they want good public services? Is it that they are in fact limited by productive capacity, but can’t be bothered to explain? Or are the thinktanks, institutions and lobbyists that seem to be our politicians’ real bosses better served by the status quo? Or is there another reason? Apologies if I am asking you to speculate.
Can I ask a separate question about the OBR. Its whole mission is to be an independent assessor of how broke the government is got to be. According to your ideas, it is a misconceived absurdity, right?
See a blog post on this, coming in the morning.
Thank you, Richard! I’ve been hoping for a summary like this from you. I’ll be spreading this around.
It never hurts to read all of this again! So thank you. I am nonetheless intrigued as to why so many people can’t accept these truths.
That the government finds it easier to say “we can’t afford it” than accept the freedom and responsibility that flows from acknowledging the truth is plausible. Ditto that many economists and media commentators maybe can’t admit that they’re wrong. Also that certain people would like to reduce the power of the state, and limit democratic control.
I do however suspect that there’s a popular belief that money cannot possibly be made by the government but instead is made by the hard work of companies and ordinary people.
Which brings me to a question. Our modern fiat currency didn’t start entirely from scratch. before that it was underwritten by gold. That gold was indeed physically produced by people. Go way back in time (imagine a neolithic village, if you like) and any agricultural surplus produced by the people would have turned up in a real increase in population (more people surviving!) and accumulated wealth in terms of houses, land cleared for agriculture, tools and stocks of useful raw materials such as timber and flints.
Now all of those things are real wealth – capital – rather than money in the modern sense. But I think maybe the idea that work makes money is very deeply rooted and easier to believe than government makes money? And how is all of the pre-modern money accounted for?
People naturally associate work with money because, for most of us, that is how we obtain it. We work, we are paid, and it appears that work creates money.
At the level of the whole economy, however, that is not what happens. Work creates goods and services – in other words, real wealth. The money used to exchange those goods and services is created through the monetary system, ultimately underwritten by the state in the case of a modern fiat currency.
That distinction is crucial.
Gold did not make money work. Money worked because people accepted it. Gold was one way of creating confidence, but history is full of examples of successful monetary systems that relied far more on trust, law and taxation than on precious metals.
As for pre-modern money, there is no continuous accounting that links today’s pounds to medieval coins or ancient stores of grain. Monetary systems have been reinvented many times through history. Currencies have been replaced, redenominated, devalued and abandoned. What has persisted is not the money itself but society’s ability to organise production and exchange.
So I would separate two ideas.
Work creates wealth.
The monetary system creates the accounting mechanism that allows that wealth to be exchanged.
Confusing those two things is one of the reasons so much economics becomes muddled. We end up treating money as if it were wealth, when in fact it is the means by which wealth is measured and exchanged.
Richard, many thanks for your answer to my question, which I have only just seen (forgot to subscribe to follow-up comments!)
The distinction between work creating wealth, and money as the system of accounting is very helpful. I think it would be worthwhile to include the point whenever you raise the issue of resistance to MMT.
Incidentally, when I first tried to answer the question (for myself) of what money is, and where it comes from, the imaginary neolithic village I referred to in my comment featured extensively. In short, it’s an easy way to imagine a small, closed economic system where debts between villagers are recorded on IOUs created by individual members of the community. It’s then relatively easy to add a government and swapping the local IOUs for freely exchangeable central bank IOUs…
Wonderful clarity in this post. Where framing of MMT gets into difficulty is the observation that as actvities create wealth, the monetary system is soemthing else, it is difficult to have a MMT without the framing of “what do we want to do with the economy”. So much of what passes for good governance pre MMT has been “keeping accounts”.
So MMT needs to be normative in a conditional way. i.e If you want everyone to have a job then you could x,y,z.
If you want the machinery of society to run pollution free, then a,b,c.
This would be more “where you spend the money” the exact technology would be up to…technologists.
If we don’t frame MMT this way we risk MMT ers arguing details of how to get work for all, green technology everywhere or (Gary Stevenson) millionaires from owning everything. This would pull MMT apart.
Really useful piece, as usual. Thank you. I believe you also disagree with the unnecessary and overly simplistic (in my view) MMT “policy implication add-on” from Warren Mosler that “imports are always a benefit”?
I do disagree with that
“My teaching skill – frequently commented on – is in explaining complex issues to novices. I was the most popular teacher in my department when I was teaching for that reason.”
I’m proud to say this also describes me. That part of my working life is the one I look back on with great nostalgia.
I enjoyed teaching.
Marking? Not so much.