{"id":92322,"date":"2026-05-16T07:16:47","date_gmt":"2026-05-16T06:16:47","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=92322"},"modified":"2026-05-16T08:38:10","modified_gmt":"2026-05-16T07:38:10","slug":"richard-murphys-view-on-modern-monetary-theory","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/05\/16\/richard-murphys-view-on-modern-monetary-theory\/","title":{"rendered":"Richard Murphy’s View on Modern Monetary Theory"},"content":{"rendered":"

This is the first in a new series of posts, planned for either this blog or our Substack site<\/a>, that explains my views on key economic issues. The format used in this post is intended to be replicated throughout the series, although it will likely evolve over time. The background to this series is explained in another post this morning, here.<\/a>\u00a0<\/em><\/p>\n

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Richard Murphy\u2019s Views on Modern Monetary Theory<\/span><\/h1>\n

This post is one of an ongoing series explaining Richard Murphy\u2019s views on significant topics in economics, political economy, politics, taxation, and accounting. It should be read as such, as an overview of a position developed across many years of writing and analysis, and not as a comprehensive treatment. Where more detail is required, the reading list at the foot of this post is a good starting point.<\/em><\/p>\n

MMT as description, not prescription<\/span><\/h2>\n

Richard Murphy has written extensively about modern monetary theory over many years, and one of the points he returns to most insistently is the nature of what MMT actually is. It is, he argues, a description of how money works in a modern economy with a sovereign currency, not a political programme or a manifesto for unlimited spending.<\/p>\n

A government that issues its own currency, operates its own central bank, has a functioning tax system, and whose currency is accepted in international exchange can never run out of money in the way that a household or a firm can.<\/p>\n

When such a government spends, it instructs its central bank to create the necessary money.<\/p>\n

When it taxes, it withdraws money from circulation.<\/p>\n

Spending precedes taxation; the government does not collect revenue before it spends, it creates money and then recovers a portion of it through taxation.<\/p>\n

This, Richard insists, is simply an accurate account of what happens, not a theory in the speculative or contested sense of the word.<\/p>\n

The distinction matters because critics frequently characterise MMT as a radical or ideologically driven claim. Richard argues the reverse: it is the conventional household analogy, the idea that a government must earn or borrow before it can spend, that is the ideological imposition, and a demonstrably false one at that. Understanding MMT, on his account, is primarily a matter of recognising facts that the political and financial establishment have every incentive to obscure.<\/p>\n

Why the household analogy is so damaging<\/span><\/h2>\n

Few themes recur more consistently in Richard\u2019s writing than his critique of the household analogy. The claim that governments must live within their means, in the same way that a household balances its income against its outgoings, has been deployed for decades to justify austerity, suppress public investment, and conceal what are in reality political choices behind the appearance of economic necessity. Richard regards this framing as not merely misleading but actively harmful: it has sustained underinvestment in public services, suppressed wages, allowed infrastructure to decay, and eroded public trust, not because resources were genuinely unavailable, but because a false story about financial constraint was used to make those outcomes seem inevitable.<\/p>\n

The key difference between a government and a household is that a government issues the currency its citizens use, while a household merely uses what others have issued. A household that spends more than it earns must borrow from someone else. A currency-issuing government that spends more than it taxes creates additional money; it is not borrowing from the market in any meaningful sense when it issues bonds, since bond issuance is a policy choice, not a financial necessity. The Bank of England cannot refuse to honour a cheque drawn by the Treasury. This is why Richard characterises the \u201cwe can\u2019t afford it\u201d argument, when applied to a sovereign currency-issuing government, as a political tool rather than an economic truth: it ends debate and disguises power, but it does not reflect reality.<\/p>\n

The real constraints: inflation and real resources<\/span><\/h2>\n

Richard is emphatic that recognising the government\u2019s capacity to create money does not mean spending without limit or consequence. The real constraint on government spending is not financial but physical: it is the productive capacity of the economy, including available labour, skills, energy, materials, and ecological limits. When a government spends into an economy that has genuine idle capacity, it puts people and resources to work without generating inflationary pressure. When it spends into an economy that is already at or near full capacity, it creates inflation, because additional money is chasing a supply of goods and services that cannot readily expand.<\/p>\n

This understanding, Richard argues, makes MMT not indifferent to inflation but centrally concerned with it. The primary tool for managing inflation within an MMT framework is not the interest rate, as neoliberal orthodoxy would have it, but fiscal policy, and taxation in particular.<\/p>\n

Taxation is not, on the MMT account, the means by which the government funds its spending; it is the means by which excess money is withdrawn from the economy, demand is managed, and inflationary pressure is contained.<\/p>\n

This reframing is, Richard believes, enormously consequential. It means that decisions about taxation are decisions about economic management and about who bears the cost of controlling demand, not simply decisions about revenue.<\/p>\n

It also means that the use of high interest rates to create unemployment as the primary mechanism for controlling inflation, which is standard practice under neoliberalism, is both economically unnecessary and morally unjustifiable.<\/p>\n

MMT and its relationship to Keynesian economics<\/span><\/h2>\n

A question Richard addresses repeatedly is the relationship between MMT and the Keynesian tradition that has been dominant on the centre-left since the 1930s. He acknowledges that both frameworks reject the neoliberal instruction to leave everything to markets and both assign government an active role in managing aggregate demand. The differences, however, are significant.<\/p>\n

Keynesian economics developed in the era of the gold standard, when governments were genuinely constrained by the need to maintain fixed exchange rates and could not freely create money. It therefore retained the assumption that governments must tax and borrow before they can spend, treating money as inherently scarce.<\/p>\n

MMT, by contrast, describes a world of fiat currency, where that scarcity is not real but institutional, and where the government\u2019s relationship to money is fundamentally different from that of any other actor in the economy.<\/p>\n

Keynesianism also, on Richard\u2019s reading, tends to treat the deficit as a temporary and ultimately undesirable feature of crisis management, to be reduced when conditions allow.<\/p>\n

MMT, by contrast, sees the government deficit as the private sector surplus: when the government runs a deficit, it is, by accounting necessity, adding net financial assets to the non-government sector. This insight, associated with the sectoral balances framework developed by the Cambridge economist Wynne Godley, is central to Richard\u2019s thinking. It means that the pursuit of a balanced government budget, as an end in itself, is not fiscally responsible but potentially destabilising, as it removes the financial assets the private sector needs to sustain saving and investment.<\/p>\n

The political significance of MMT<\/span><\/h2>\n

Beyond its technical content, Richard argues that MMT carries profound political implications. If governments genuinely understand that they are not financially constrained in the way households are, the entire rationale for austerity dissolves. Unemployment is no longer an unfortunate necessity but a policy choice; idle resources are not an irreducible feature of the economic landscape but evidence of a failure of political will. Power shifts away from financial markets and the City of London, which have benefited enormously from the pretence that governments depend on them for funding, and towards democratic institutions, which could use that funding capacity to serve public needs.<\/p>\n

Bond vigilantes, the investors supposedly poised to punish governments that spend too freely, Richard regards as largely mythical, or more precisely as a convenient fiction. When governments have needed to spend, as during the financial crisis of 2008 and again during the COVID pandemic, quantitative easing demonstrated that the central bank could always provide the necessary resources. The bond market\u2019s apparent power rests on governments choosing to behave as if they were financially constrained; it evaporates when they choose otherwise. The real constraint, Richard argues again, is always real resources and inflation, not the willingness of investors to lend.<\/p>\n

The job guarantee debate<\/span><\/h2>\n

One of the more nuanced positions Richard has developed in recent years concerns the job guarantee, a policy proposal closely associated with mainstream MMT thinking. The job guarantee proposes that the government should act as the employer of last resort, offering a publicly funded job at a fixed wage to anyone willing and able to work, thereby eliminating involuntary unemployment and providing a price anchor for the economy.<\/p>\n

Richard is broadly sympathetic to the goal but sceptical of the specific mechanism. He argues that the job guarantee, as typically conceived, is administratively unrealistic, likely to be poorly paid, and capable of undermining the dignity it claims to support.<\/p>\n

More fundamentally, he contends that the state need not create a standing pool of emergency jobs because it already has the capacity, through direct public employment, investment in care, housing, the health service, and the green transition, to deliver full employment by more effective and durable means. The UK state did something functionally equivalent in the postwar decades, not through a formal job guarantee scheme but through a comprehensive programme of public investment and social provision.<\/p>\n

Richard also takes issue with the theoretical grounding sometimes offered for the job guarantee, particularly the claim that it is required by MMT\u2019s own logic because it provides the only means for people to obtain the currency needed to settle tax obligations. He rejects this: MMT makes clear that money is created by government spending and recovered by taxation, and the state already distributes income through pensions, social security, and other transfers. The job guarantee is, in his view, one policy option consistent with MMT, not a necessary or uniquely valid expression of it.<\/p>\n

MMT and the politics of the present<\/span><\/h2>\n

Richard has become increasingly insistent in recent years that MMT is not merely an academic curiosity but the appropriate economic framework for the challenges of the current period. Neoliberalism has, by its own terms, failed: it has delivered financial crises, high inflation, suppressed wages, and underinvestment in every dimension of social and physical infrastructure. The premise that markets, left largely to themselves and disciplined by an independent central bank raising interest rates to maintain a pool of unemployment, will deliver optimal outcomes has been comprehensively tested and found wanting.<\/p>\n

MMT, by contrast, offers a framework in which governments can respond to the actual problems people face: unemployment, inadequate public services, the climate emergency, and the urgent need to invest in a sustainable economy. It does not promise free lunches; it insists that spending must be matched to real capacity and that inflation must be taken seriously. But it does refuse to accept that the limits on what governments can do are financial rather than physical and political. That refusal, Richard argues, is both intellectually honest and practically essential if democratic governments are to regain the capacity to act in the public interest.<\/p>\n

Reading list<\/span><\/h2>\n