Modern Monetary Therapy
When little and not knowing Pig Latin, you always wanted to understand what others kids were saying. Here's what MMTists are saying.
June 7, 2021
Jeffery J. Smith

Fictitious Money Feasible?

Yuval Noah Harari in his Sapiens: A Brief History of Humankind called things like money fictitious. He meant, if people stopped believing a clamshell was money, it’d stop being money, and revert to being what nobody made it—a clamshell—which is what happened to wampum. Sort of a poetic use of the word “fiction”, but OK, he makes his point.

Now, fans of public debt have rechristened profligate government spending, “Modern Monetary Theory” (being academic, they can’t say, “Modern Money Theory”, even if more is less).

MMTists point out, gee, since there is no physical limit on belief, we can (a) have government create and spend all the money it wants, and our collective dreams will come true. They’d (b) tax citizens, taking back the money government had spent, so the vast amount in circulation would not lose value and inflate prices. (c) Government will quit freely spending just before inflation gets out of hand.

That’s if I understand MMTists correctly. Sometimes, when people explain geonomics, they get it wrong, intentionally or not. So if you see me miscasting MMT, please correct this piece. Thanks.

MMT raises questions, political and economic.

Politically Feasible?

Politically, will politicians spend the extra money on anything remotely beneficial? Don’t we Yanks have enough military waste, bridges to nowhere, public housing despised by its inhabitants? If anything, we ought to reduce government spending, saving ourselves trillions of dollars.

Will politicians become responsible and knowledgeable—or willing to accept the wisdom of MMTists—and heed the warning signs? What pops into mind is the word “naive”. In a tiny nation like Iceland (where women rule) maybe, but in America?

Somehow the global track record does not discourage MMTists. Governments already spend and tax. Those governments—generally corrupt and/or operating in small economies—devalued their currency, inflated prices, and impoverished citizens: Venezuela, Sudan, Iran—it’s a long list. In some places, those heavy consequences drove citizens to use non-national currencies. Ecuador, for example, uses US dollars exclusively.

OTOH, governments less corrupt and/or operating in larger economies have spent like there’s no tomorrow and experienced little inflation. Official inflation, that is. US bureaucrats leave out inflation of stock prices and real estate. Yet housing becomes less affordable, gobbling up an ever greater portion of the household budget.

Aren’t politicians already reckless enough? And the state powerful enough, wielding life and death power over people, able to declare war and execute innocents? The maxim of some early bankers (supposedly Dutch, not Rothschild) goes, “let us make the money of the nation and we care not who makes its laws.” A boast, or accurate? Regardless, why grant lawmakers greater license to do what suits them? A spendthrift state is not necessary and inherently risky; why promote it?

Economically Feasible?

While politically, government can issue lots of money, economically, well … They can spend all the money they (or their supporters) want and not wreck the economy—until they do. When they devalue their currency and inflate prices, people stop respecting them in the morning and money’s usefulness evaporates with the rising sun. As if turning Federal bills into Confederate notes, government makes the fictitious nature of money abundantly clear.

Even if government did know exactly when to give their printing press a breather, is more money such a good thing? The amount in circulation now creates the slow inflation we’ve grown accustomed to. Like a low-grade fever, any degree of inflation is unhealthy. Like a fever, inflation occasionally boils over—in the US over 13% in 1979 (to help elect Ronald Reagan?). More money means more inflation means more hidden tax and a wider wealth gap.

MMT does have its appeal. People note the something–for-nothing, overlook the higher taxes, which make a loss for the populace a gain for the government. It’s easy to be in denial about that. Taxpayers see others receiving largesse from government. Why shouldn’t they get state favors, too? Because with huge expenditures comes moral hazard. MMT would reinforce the hierarchy of state over citizen and put government in the role of charity rather than defender of rights.

If not allowed to run the printing presses around the clock, governments might try to spend like there’s no tomorrow by selling bonds. To keep that from getting out of hand, require government to pay off bonds from an increase in land value (geonomics). If potential bond buyers don’t expect any increase, government could not sell those bonds. Taxpayers would not be stuck with another white elephant. Government could still finance true public goods like, say, an amphitheater, as long as potential buyers of bonds expect an uptick in location value.

Let money do what it’s supposed to do—represent sellable goods and services. Then the issuance of new currency will stay in balance with the output of new products. That sound currency would not limit inflation but eliminate inflation. Finally, we'd get the deflation that reveals the constantly falling cost of living due to techno-progress. Then government responsibility becomes contracting the money supply.

Competing Currencies Feasible?

What enables government to spend like a drunken sailor—besides having power or operating in a big economy—is monopoly. If government currency had to compete with, say, a currency of producers—as Swiss businesses have—or with a currency of consumers—which is what local currencies are, the best known was used in Austria (Worgl) during the Great Depression (started by Silvio Gesell, an admirer of Henry George)—then any currency over-issuing would de-value what they issue and lose users.

To avoid that fate—and getting thrown out of office—politicians would try to toe the precise line of matching money supply with economic growth. That they could not do precisely. Like politics, all economics is local. Far easier to measure growth when you can see it in your region than to sense it from stats amalgamated from all regions. Accurate issuance of currency is another reason to permit community currency to enjoy legal tender status.

Deprived of enjoying a monopoly, government’s main role would be to set standards, as it does for weights and measures. Any currency meeting the standards of stability and sufficient users could be accepted as legal tender. Let the best money win.

MMT is none of the above. Not modern; historically governments have inflated the money supply. Not a theory; more like wishful thinking. And it’s not money, not a symbol representing output that finds value in the marketplace (instead of constantly distorting value).

MMT comes out of academia where one lives comfortably in the middle class by living off the middle class. If MMTists had to create value that others would willingly pay for—in the market which everyone else must deal with—would they still promulgate giving politicians a blank check, like giving whiskey and car keys to a sixteen year old boy? Intentionally creating Inflation should be a crime; those bankers and politicians deserve jail time.

MMT is a hoped for easy-way-out, an avoidance of responsibility. We have a social surplus. About 1%-3% of us corral it. If we shared surplus—mostly rent, the annual market value of land and natural resources—who’d need new money more fictitious than old money?

Find Out More.
Inside information on economics, society, nature, and technology.
Jeffery J. Smith

JEFFERY J. SMITH published The Geonomist, which won a California GreenLight Award, has appeared in both the popular press (e.g.,TruthOut) and academic journals (e.g., USC's “Planning and Markets”), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland's mass transit agency), and recruited activists and academics to A member of the International Society for Ecological Economics and of Mensa, he lives in Mexico. Jeffery formerly was Chief Editor at