A political introduction to real-world economics.

This post provides a basic introduction to real-world economics, and its political ramifications.

GO BACK TO ALL MMT RESOURCES

These resources were created by Activist #MMT, the podcast (Twitter, Facebook, web; please consider becoming a monthly patron). This post was last updated January 18, 2021.

Disclaimer: I have studied MMT since February of 2018. I’m not an economist or academic, and I don’t speak for the MMT project. The information in this post is my best understanding, but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.

Before we start:

  • When I say government, unless otherwise stated, I mean national only.
  • Yes, banks also create (a certain kind of!) money and play an important role, but I’m setting that aside for the sake of this post. Everything in this post remains true even when banks are considered.
  • Footnotes can be found at the bottom.

Everything the government purchases1 is paid for2 with newly created money. For example, it uses wages – which are paid for with newly created money – to hire (“purchase”) construction workers, Congress-members, teachers, soldiers, and so on. This results in real-world benefits such as bridges and roads, an educated populace, and security3. The government delegates its purchasing power through transfer payments, such as food stamps, child benefits, COVID relief checks, and pensions for the elderly, retired, and disabled.

It’s impossible for the government to purchase anything except by creating more money.5 Conversely, it’s impossible for money to be returned to4 the government until it‘s first created by the government. This includes taxes, student loan payments5, legal penalties, Congressional bribes – and even so-called “government borrowing”. All money returned to the government is money deletion.6

Unlike the government, you and I must collect money before we can use it to purchase something. The national government is the only entity that must purchase something first, before any of its money can be returned to it.

To say it crudely: You and I7 must collect before we can spend. The national government must spend before it can collect. We use the currency, they issue it.8,9

So where does the government’s money come from? The same place as the writer‘s (and speaker’s) words. The same place as the math student’s numbers. The same place as the scorekeeper’s points. That’s where10. The idea that the issuer of a thing can “run out” of those things, or be “in debt” for trillions of those things, is nonsense11.

Now, let’s start again, but from a different angle:

Money is a manifestation of power. Who it’s created for, is who its creators choose to have power. Who it’s not created for, is who they choose to not have power. Providing all with healthcare, education, and a job, means our money creators want to empower those who benefit from having their basic needs met. By withholding these things, it means they want to empower those who benefit from keeping people unhealthy, uneducated, and unemployed.

Finally, money is the instructions the government uses to communicate who should do what, with what resources, when, and under what conditions. (What compels them to do it is taxation.)

There’s very little the government can do without creating its money as part of the process. So the idea that money creation by the government always and inherently causes prices to rise, is both plainly inaccurate [see one and two] and, essentially, anti-government propaganda. More precisely, it’s anti-poor propaganda, because it can only result in even more suffering for those who already suffer the most.

We clearly have the real-world capacity to provide all with healthcare, education, and a job. So withholding these things is not “unfortunate, but necessary”, it’s a deliberate choice. It’s a choice to prevent real and financial costs for the privileged by pushing them onto the poor. It’s a choice to make it even easier for the poor to be exploited. We can choose differently.

Most unfortunately, the public has been deceived by these myths into thinking this deprivation, this mass exploitation, is indeed “unfortunate, but necessary“. In addition, many of us who are doing okay perpetuate and don’t question these myths, because we falsely believe — desperately fear – that providing for the poor is only possible by taking away from me. Since there are millions of them, it can only mean devastation for me.

Caring for the poor is not just a virtue, it’s critical to saving our species. If we don’t start providing for the poor, then soon enough, the poor will include those currently living comfortably in McMansions. The capitalistic-neoliberal parasite is running out of hosts to exploit.

The question cannot be “How can we save everyone?” The question must be, “How can we not try?” Because otherwise, we must choose who will live and who will die. And we all know who gets to do the choosing, and who gets to be the chosen.


For an introduction to real-world economics, I recommend looking into Modern Money Theory (MMT). The best place to start is the popular bestseller The Deficit Myth, the several layperson-friendly academic papers in this post, and many mainstream-economist-friendly academic papers in this post.

Footnotes:

  1. or buys (with thanks to Neil Wilson for the idea to change “the government spends/funds” with “the government buys”)
  2. or funded by
  3. It can also result in real-world harm, such as a belligerent military used not to protect citizens but as a tool for plunder and profit, leaving many third-world nations colonialized and devastated.
  4. redeemed by
  5. more than ninety percent of all student loans are owned by the US Department of Education.
  6. Economist Stephanie Kelton, in her 1998 paper, Can Taxes and Bond Sales Finance Government Spending?: Page 2-3(emphasis in original): “… newly-created money is revealed as the source of all government finance. It is further argued that the proceeds from taxation and bond sales are not even capable of financing government spending since their collection implies their destruction.”
  7. Plus all companies, local and state governments, and other countries.
  8. To be clear, to use the case of the United States, only entities including Congress, the President, the central bank and the Treasury are involved in creating money, so it’s not purely accurate to say “the national government is a currency issuer”. This is because many national agencies (such as the CIA and the Department of Education), although they are entirely funded by newly-created money, are not involved in the creation process. In addition, individual Congress members are not currency issuers, the institution of Congress, as a whole, is.
  9. Between the time money is created and deleted by the government, all it can do is exchange hands. The unrealistic fear that China may “dump its debt” can at worst only mean that another country takes ownership of it. China can’t change the maturity dates of US Treasuries!
  10. Gold is out of human control, but our choice to link our money to it is a human decision. The numbers we use may come from a textbook or teacher’s recommendation, but it is up to us to choose to use them. If the numbers we create happen have the same digits as those on the page, it doesn’t mean they’re the same numbers. The points may come from the rules of the game, but it’s up to the scorekeeper to follow those rules. Finally, our money is a legal construct but our lawmakers (and enforcers) must choose to abide by those laws. All these things are concepts which cannot exist in physical form.

Footnote 11

In the national context, the concepts of debt and deficit are completely and utterly different than they are in the personal context. The same is true with the very concept of money. A wrong understanding of the history and nature of money is the seed from which all economic myths bloom. (Regarding the deficit, it’s not even possible for our lawmakers to control the level of the deficit, as described in this 2019 written Congressional testimony by L. Randall Wray, and the second half of this interview with Wray.)

The idea that the long-term fiscal sustainability for the government can ever be in question, is based on several false assumptions. As one example, the idea that the interest in the debt, no matter how intergalactic its size, somehow can’t be paid (or would be harmful), is false. The following is from the 1943 paper by Abba Lerner, Functional Finance and the Federal Debt (emphasis added):

This means that the absolute size of the national debt does not matter at all, and that however large the interest payments that have to be made, these do not constitute any burden upon society as a whole. A completely fantastic exaggeration may illustrate the point. Suppose the national debt reaches the stupendous total of ten thousand billion dollars (that is, ten trillion, $10,000,000,000,000), so that the interest on it is 300 billion a year. Suppose the real national income of goods and services which can be produced by the economy when fully employed is 150 billion. The interest alone, therefore, comes to twice the real national income. There is no doubt that a debt of this size would be called “unreasonable#.” But even in this fantastic case the payment of the interest constitutes no burden on society. Although the real income is only 150 billion dollars the money income is 450 billion150 billion in income from the production of goods and services and 300 billion in income from ownership of the government bonds which constitute the national debt. Of this money income of 450 billion, 300 billion has to be collected in taxes by the government for interest payments (if 10 trillion is the legal debt limit), but after payment of these taxes there remains 150 billion dollars in the hands of the taxpayers, and this is enough to pay for all the goods and services that the economy can produce. Indeed it would do the public no good to have any more money left after tax payments, because if it spent more than 150 billion dollars it would merely be raising the prices of the goods bought. It would not be able to obtain more goods to consume than the country is able to produce.