Beyond Capitalism vs Communism: Modern Money Theory


Perhaps you, like I, see problems with both cowboy capitalism and creaky communism. But what is the alternative? As Monty Python used to say, “And now for something completely different.”

Modern Money Theory is simply the contention that any nation that has a sovereign currency, that is, ‘prints’ its own money, can never go broke, can never default and can always pay for anything it wants to. The “wants to” is important, because what such a nation actually pays for is a political decision unrestrained by the amount of money available.

In other words, fiscal cliffs, defaults and the deficit are non-issues. Inflation could be an issue, though. Too many dollars floating around can cause prices to rise (inflation) and that is bad. That is when the money supply needs to be reined in through austerity and taxation. In a recession, money needs to be spent-and the size of the deficit is irrelevant. The government deficit equals the private sector surplus.

This is all kind of obvious actually, but the old Gold Standard Mentality dies hard. Governments are nothing like households. Governments are nothing like businesses. Households and businesses are users of the currency. The government is the issuer of the currency. Big difference. If Greece, Spain and Italy had not given up their own currencies, they would not be in the bind they are in now as users, not issuers, of the Euro.

The Modern Money theorists make a good case for two worthy national goals: full employment and low inflation. Unemployed people cannot buy things; income drives sales and sales drive employment. The QE has gone to corporations instead of to the people. Who can blame them for sitting on that money? Until there is a demand for products, they would be fools to “invest” in making them.

We could be doing so much better than we are.

Modern Money and Public Purpose   



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s