We need to make a better case against Magic Monetary Theory

“I think the first thing that we need to do is kind of break the mistaken idea that taxes pay for 100% of government expenditure.” These words, spoken by Democratic congresswoman Alexandria Ocasio-Cortez in 2019, already feel as if they belong to a previous era of politics.

The statement was one of several occasions on which Ocasio-Cortez voiced her support for the ideas of Modern Monetary Theory (MMT), an economic perspective with which other socialist figures, including US senator Bernie Sanders and UK Green Party leader Zack Polanski, have associated themselves.

The central idea of MMT is that governments which issue their own currencies, such as the UK, needn’t worry about lacking the tax revenue to fund their spending; they can by-definition print as much money as they need to fund whatever policies they desire. In other words, taxation doesn’t need to precede spending. On the contrary, governments must first spend money into existence, otherwise none of us would be able to enjoy the benefits of having currency to use and government bonds to invest in.

It is clear to see why this perspective appeals to those on the left side of the political spectrum. Any objection that a proposed spending splurge would require a tax hike can be dismissed as a failure to understand how modern economies really work. Advocates of MMT aren’t concerned that such deficit spending would raise the national debt, which they see as nothing more sinister than a record of how much money the government has created and not yet destroyed through taxation. 

After having emerged in the 1970s, the ideas of MMT saw a surge of interest during the rise of millennial socialism in the late 2010s. However, in recent years many of MMT’s most prominent advocates have been noticeably less vocal in their support for funding government largesse via the printing press, as the aftermath of the COVID-19 pandemic has made inflation more than a merely abstract concern. Even Zack Polanski, who was making MMT-influenced comments as recently as late 2025, has now shifted his rhetoric away from MMT as the war in Iran has re-emphasised fears of inflation.

All of this might strike opponents of MMT as cause for relief: an absurd and dangerous idea briefly reared its head but was quickly swept away by the facts of reality and good old common sense. All’s well that ends well. 

However, it would be much too self-congratulatory for opponents of MMT to feel that they have conclusively seen off the inflationists. Indeed, the rhetoric of MMT is bound to return as soon as inflation leaves the headlines, by which time its ideas will have become less unfamiliar, and may seem less outrageous. 

When most people first encounter MMT they find it so absurd that they don’t feel the need to make anything other than the most obvious arguments against it. “Just print money to fund whatever policies you want? But that would cause inflation! Haven’t you ever seen those pictures of children playing with wheelbarrows full of cash in Weimar Germany? I rest my case.” 

Advocates of MMT have, of course, foreseen this objection. They argue that the government’s ability to fund policies via the printing press is indeed limited, but only by the extent of the economy’s real resources. In other words, as long as there are idle resources or unemployed people, deficit spending will simply bring those resources into use. Only when there is no slack in the economy does money printing cause prices to rise, in which case the government can raise taxes to soak up the excess money and keep inflation under control.

There are a number of objections which could be made to this point, including questioning whether it’s really true that government spending exclusively brings idle resources into use rather than crowding out private activity, and disputing the idea that the government has more of a right than private individuals to direct an economy’s resources. But most opponents of MMT are distracted by the thunderous sound of themselves patting their own backs for having pointed out that money printing causes inflation, and so fail to respond to the pro-MMT riposte. This allows advocates of MMT to frame their opponents as knee-jerk reactionaries with only the most simplistic of objections, and themselves as the level-headed experts who understand how the economy really works.

Only a handful of opponents of MMT — including Robert P. Murphy in his brilliant little book Understanding Money Mechanics — have been able to offer a more fundamental case against it. One key objection to inflationism of all stripes is that money printing doesn’t merely cause prices to rise but also regressively redistributes purchasing power. Those who receive the newly-created money first, such as the government and big financial institutions, are able to spend it before the effects of inflation set in, while the rest of us see the value of our savings and salaries eroded away.

Inflationism is also the main driver of the business cycle. Expansion of the money supply lowers interest rates, which incentivises investment in long-term and hence interest-rate-sensitive projects whilst also making high-risk investments seem more attractive. Eventually, when rising inflation forces interest rates back up again, many of the projects which had only appeared profitable at the previous, unsustainably low interest rate must now be liquidated; this is the ‘bust’ phase of the boom-bust cycle.

Modern Monetary Theory presents itself as just a series of true statements about how money creation actually works today, which lead to counterintuitive conclusions about how economic policy should be conducted. Its great strength is that those conclusions are so counterintuitive that they lure its opponents into making only the most simplistic arguments against it. If we’re to avoid sliding into a consensus where the printing press is seen as the ideal tool to achieve every socialist’s fantasies, we’ll need stronger arguments against MMT than merely asking “But wouldn’t that cause inflation?”