Two Possibilities for MMT

eliminating unemployment and poverty while placing a limit on the creation of money for that purpose and a mechanism other than taxes for withdrawing money from the economy

Stephen Yearwood
17 min readFeb 23, 2024
Photo by Alexander Mils on Unsplash

[I should not that a Reply from John Vandenberg to an article of mine prompted me to revisit MMT.]

MMT (Modern Monetary Theory) dates back to the 1970’s. It was initially developed by mostly accountants to explain better than economists were doing how the central government and the central bank work together to supply the central government with money — not according to economic theory, but how the process actually worked. Today, MMT is widely accepted, even by many economists, as a valid description of that process.

Along the way, people thinking about MMT came to the realization that a nation with a ‘sovereign’ currency — its own currency, not tied to any other through fixed exchange rates or (other) institutional structures (as in the European Union) — could create any amount of money at all to fund the central government (if it had sufficient economic power to ensure the acceptance of its currency by other nations, anyway). Whatever had been decided upon for the central government to do, the necessary amount of money could be provided.

With that, MMT became potentially, at least, prescriptive. It opened the door to a new way of thinking about national possibilities.

It is important to understand that MMT identified the creation of money as the means by which the central government is funded. In the traditional way of thinking, debt makes up the difference between the obligations for funding undertaken by the central government and the amount of taxes collected by it. MMT obliterated that way of thinking.

In MMT the issuance of ‘debt’ by the central government (assets created to be swapped for money) is a process for monetizing the obligations created for the Treasury in the adopted budget, which by law the central bank must ensure will be accomplished in full. In the end, if deemed appropriate for economic reasons, money in any amount can, yes, be ‘printed’ — ‘created out of thin air’ — to fund those obligations. Accounting methods must still be employed to keep ‘the books’ in proper order, but the ol’ bottom line is that there is essentially no limit on how much money can be created.

In MMT taxes collected by the central government are a means of drawing money out of the economy. For present purposes we can think of taxation/spending by the central government as recirculating that money, lessening the amount of money that has to be obtained through the monetization (one way or another) of financial obligations assigned to the Treasury. Some MMTers would object, saying that money is actually ‘destroyed’, but the effect on the economy is the same either way and, I think, the former is more intuitively accessible for most people.

As noted, MMTers have tied the creation of money to the issuance of assets in the form of debt. Of late, though, some — including the currently most well-known MMTer, Dr. Stephanie Kelton — have made the logical progression to the possibility of creating money without involving debt in any way, not even as merely an accounting procedure.

With that, MMT becomes essentially the same as a paradigm on which this author (with an M.A. in economics) has been laboring — for about as long as MMT has been around, and in vastly greater obscurity. [There is more about that ‘credential’ in “A Solution Exists” here in Medium.] What follows is a sketch of an outline of this author’s paradigm in the context of MMT where money would be created without involving debt. It does not purport to answer all possible questions, but it does purport to provide an answer to (at least) two. [For the record, I have tried in the past to get MMTers to consider this idea, but my understanding is that they are just now getting to the idea of fully divorcing money from debt as an accounting mechanism.]

Like any person, only more so, any nation has unlimited wants. People fear that MMT is an economic Pandora’s box, opening the way for an unholy flood of money into the economy that would make Noah faint. If based only on wants, it could literally be infinite.

That need not be so. There is a way to accomplish the goal of eliminating poverty — and to eliminate unemployment as part of that accomplishment—while putting a strict limit on the amount of money that would be created. (Here, the U.S. is used to illustrate this author’s proposal for doing that, but any nation could adopt it.)

Money could be created as needed to fund a guaranteed minimum income (GMI) for citizens of the nation. This would not be a supplemental amount, but enough that a person could actually live on it, based on the median-to-average personal income at present.

That money would pay the wages and salaries of citizens who worked in ‘minimum-pay positions’ for any employer. An employer could designate any position to be ‘minimum-pay’.

Employers would find themselves competing for employees to fill those minimum-pay positions. To that end they could offer, in addition to general working conditions, (in-kind) benefits such as insurance, education, transportation, housing, clothing, travel, (other) entertainment, or anything else anyone might think of, as long as it did not involve monetary transfers to any employee (or designee) or any financial instrument of any kind. Individuals would decide for themselves whether to work in those positions, based on that pay (the GMI) plus negotiated benefits. The GMI would be the same for everyone being paid it, but benefits would reflect conditions in different labor markets. To be clear, all remuneration for all other positions would come from employers, as at present.

For those alarmed by a windfall of profits for employers, that would be offset to a large degree by increased payouts for benefits. In negotiating benefits, people considering minimum-pay positions would have at least a pretty good idea of how much employers were saving on their wage bill. Besides, what does it matter how much some have if everyone is assured of having enough? (Also, see below, concerning withdrawing money from the economy.)

To that end, government could be an ‘employer of last resort’, creating jobs for people that paid the GMI but included no benefits. So those jobs would essentially cost government nothing. With such jobs available, though, there would be no such thing as unemployment (at any level of total output). People looking for a job with benefits could have one of those jobs in the meantime. Without benefits, people working in those jobs would be motivated to find a job that paid the same and provided any benefits.

To complete the elimination of poverty the GMI would also be paid to all people of retirement age and adults unable to work. That would mean the end of the rationale for, in the U.S., Social Security.

The Social Security Administration would, however, be the most logical choice to be the administrator the GMI. That could also be the central bank or the Treasury Department or a new entity created for that purpose, but sending out regular payments to millions of eligible people is what the SSA already does — very well.

[Though this would have humongous implications for the labor market, it would also be as easy as not to pay that income to one parent (or legal guardian) in a household with at least one (legally recognized ) dependent living there — the same income, regardless of the number of dependents.]

The GMI might eventually be, say, $20/hr.; 800/wk., but to avoid inflation it would have to start at a much lower level, perhaps $10/hr.;$400/wk., and be gradually raised, applying to more and more positions in the economy as it was increased over time. Actually, it could be any amount: the higher its final amount were to be set, the more existing positions would be captured (eventually) by it. [following sentence added 3/10/24] For negotiating benefits, people working in a job that the employer sought to make a minimum-pay position would know exactly what the employer was saving on the wage bill.

The funding of that income would obviously be a huge amount of money, regardless of its amount, but, again, the amount created would be strictly limited by the number of people being paid the GMI.

With that income in place the need to complete the circulation of money— one that in MMT already exists, re. taxation — would obviously be significantly enlarged. The amount that would need to be withdrawn from the economy would be much, much greater.

Really, that part of the process is something MMTers have soft-peddled, if not tried to ignore. While MMT is, descriptively, an economic concept, its acceptance as a prescriptive paradigm is an inherently political matter. Politically, among too many people in the U.S. the idea of increasing taxes for any reason, including ‘being good for the economy, therefore the nation as a whole’, has become equivalent to advocating for cannibalism.

No wonder MMTers often prefer to shun the subject. So why not do away with taxes — and public debt (which requires taxes for its repayment) — while we’re about it? Surely, with the scourge of poverty eliminated everyone would be in favor of that. Surely in the 21st century we can do better than using taxes — a ‘necessary evil’ as old as civilization — to get the funding of government done. Besides, with the amount of money coming into the economy from funding that income any mechanism for withdrawing sufficient money from the economy would surely be up to the task of withdrawing any amount of money from it (see below).

So there could be another stream of money for funding government — all government, from federal to the smallest geopolitical locality — in lieu of taxes/public debt. It would be limited, though, to the per capita rate of total government spending at the time of conversion to this paradigm. From that point on, to determine how much money would be made available for government each year would be a simple matter of multiplying the population of the nation by that rate. Just as the amount of money created for the income would be determined by the number of people being paid it, the amount of money provided for government would be determined by — and strictly limited by — the size of the population.

[Together, those two streams of money would mean that demographics would effectively govern total output, which, along with the absence of unemployment/poverty at any level of total output and decoupling the funding of government from taxes, would be an incidental boon to sustainability. It would put an end to the political imperative that exists to maximize total output in order to maximize employment, total income, and the collection of taxes at whatever rates exist.]

The whole of that amount of money could go to the central government first. Whatever wasn’t spent there would be allocated among the states, based on population. The people in the Congress deciding how much to spend at the federal level would be well aware that the more they spent there, the less there would be to send to the states, where the people who elected them lived. Presumably, the same process would be followed for state and local governments.

So taxes — and public debt — would no longer be any part of any equation for funding government, as long as spending by government anywhere did not exceed its allotted funding. If it did, taxes or a combination of taxes and public debt (with taxes for its repayment) would be used as traditionally understood: straightforwardly used for funding government. This time, though, there would be no ‘lender of last resort’ for the central government, no creation of money to buy its debt. If debt were used for additional funding at any level, that government would sell bonds in the market. The federal government would be doing what state and local governments do at present.

So where does that leave us? It leaves us with a need for some mechanism (other than taxes) to withdraw money from the economy.

Before tackling ‘what’, though, it might behoove us to think a bit about “why’. Why would withdrawing money from the economy be necessary?

The obvious answer that jumps into anyone’s mind is ‘inflation’. After all, everybody ‘knows’ that ’more money chasing the same amount of goods causes inflation’.

Only, that’s not quite correct. There are other factors to consider.

One factor in inflation, going back to that statement of ‘money chasing goods’, is the ‘velocity’ of money. The equation underlying the proposition that more money leads to inflation is PQ = MV, where P is the price level, Q is the quantity of goods and services, M is the supply of money, and V is its velocity, the number of times the supply of money ‘turns over’ in arriving at PQ (which is always greater than M: PQ/M = V > 1). So the total mount of goods and services multiplied by their prices equals the amount of money multiplied by its velocity. If Q and V are not changing but M is increasing, then P must increase.

Obversely, though, M can increase without increasing P (assuming Q is staying constant) if V decreases. In MMT the role of (federal) taxes is, again, to withdraw money from the economy. That reduces both M and V. That also explains why some MMTers prefer to think of taxes as ‘destroying’ money rather than recirculating it: that makes its effect on V more overt. (That also mimics the destruction of money when loans are repaid to banks.)

Of course, increases in Q can also offset increases in M. That equation also illustrates how gradually raising the guaranteed minimum income would allow Q to increase apace to prevent inflation.

Another thing to think about is “inflation” itself. It is a general increase in prices. Even then, though, we can differentiate between prices of assets, prices of luxury goods, and prices of ‘common’ goods.

Among most assets, principally stocks and rare objects, such as art, there is no real downside to inflation in assets so long as it does not get separated from reality (as in irrational ‘bubbles’ that inevitably burst). Real estate, though, is problematic regarding inflation in that it includes housing. On the one hand, it is good that the houses people buy are increasing in value should they ever decide to sell. (It also increases their property taxes, but here we have possibly done away with those.) On the other hand, generally increasing prices for housing makes it less affordable for more people. Moreover, increasing prices for land/buildings for ‘plant’ for businesses drives up the cost of business. In both the residential and businesses sectors, rents follow those prices. So for real estate as an asset, inflation is more bad than good. For that reason, protecting real estate from abject speculation is a good idea (whether this proposal were to be implemented or not).

Luxury goods are another area in which inflation is no big deal. Whether the extra-wealthy have to pay more for exotic cars, clothing, etc. is neither here nor there, and would be all the more irrelevant for a society with our guaranteed (sufficient) minimum income. The line does blur between what is a good and what is an asset in that rarefied financial environment, but that is a matter that need not detain us here.

Finally, there is inflation in the prices of ‘common’ goods. Here we are talking about the necessities of life for ‘the masses’: housing, food, clothing, energy, transportation. The GMI with which we have been concerned would ensure that everyone could afford a sufficiency of all of those at current prices. As noted, starting it low and increasing it gradually would allow supply to be increased along the way. Already, though, there is enough in a purely physical way of all of that stuff for everyone if everyone could afford a sufficiency of all of it at current prices (though housing is skewed by the concentration of demand in particular areas). Even with food, enough gets wasted, including simply a deficiency of demand to consume all of the available supply before it rots, that the guaranteed minimum income (especially if increased gradually) would not precipitate increased prices. Moreover, many people would begin to substitute higher-end foods and eating out for cheaper (but definitely not nutritionally worse) options, such as meat rather than beans cooked at home. Also, people would desire to spend more or less in different areas (housing, transportation, food, clothing), based on tastes and preferences. The point is that there are always more expensive or cheaper options available to people within the realm of ‘common’ goods, such that increased prices in one can be offset by shifts in demand — in economics, the ‘substitution effect’. Last but far from least, the large number of people being paid that income would form a stable platform of demand that would itself regulate the price level of common goods.

That does provide another good reason for setting the GMI higher rather than lower: for stable prices, the more people being paid it, the better. Indeed, it could be the pay of every employee in government or any business — even the most senior executives and officers — with differentiated, unlimited benefits accruing to the various positions in the economy.

For present purposes what is most important is that all of that money in the form of that guaranteed minimum income and spending by government that wasn’t being held in checking accounts would have nowhere to go but to businesses. There are all kinds of routes that money could take, but in the end it would either be in a checking account or go to some business somewhere in the purchase of goods/services. (We’ll leave out imports and exports in this introductory text.)

While with this proposal the amount of money flowing into the economy would increase enormously, the incomes of those businesses would not increase just because there was a constant, huge flow of money into the economy (especially once the GMI had reached its final level). They would still be selling the same amount of goods and services. They would, though, be accumulating more money. Even their (relatively paltry) contribution to (in MMT) the withdrawal of money from the economy as taxes would no longer exist.

Businesses do one of four things with the money they accumulate as profits (revenue - costs). 1: They invest in plant and equipment to expand or improve the enterprise. 2: They increase their remuneration to (at least some) employees. 3: They purchase assets unrelated to the actual operation of the business (including stocks of other businesses but also their own stocks, in ‘buy-backs’). 4: They hold money in the form of cash.

So by purchasing assets businesses can contribute directly to asset inflation (including housing) and, by increasing employees’ pay, can contribute indirectly to inflation in assets, luxury goods, and common goods. Beyond ‘mere’ inflation, though, the ongoing accumulation of money/wealth leads ultimately to a situation where prices become meaningless. If prices are meaningless, the economy is no longer moored to any kind of reality.

To be sure, we already have a situation where an over-abundance of money is accumulating in the ‘investor class’. Even with businesses and ultra-wealthy people paying some taxes, some are inundated with so much money that prices mean nothing to them. To further the accumulation of more and more money/wealth in the hands of businesses and people with so much that prices mean nothing to them is no kind of rationale for rational economic action. Without an effective mechanism for withdrawing money from the economy the constant flood of money entering the economy via the GMI and the funding of government would take us to an economic place as hallucinagenic as Lewis Carroll’s Wonderland.

That brings us all the way to a need for a mechanism (other than taxes) for drawing money out of the economy. In the approach related here people and businesses could retain plentiful pools of money (based on income); unlike a tax, no money would be collected from any person or business before it could be used for purchases/investment.

I propose that people would be allowed to retain in cash a maximum of, say, the annualized amount of (12x) the monthly average of the last 12 mos. of income (so a ‘rolling average’) — with some accommodation for windfalls, such as an inheritance or the sale of property. In addition, they could accumulate in assets some multiple (10x?) of that maximum possible amount of cash (whether it had been reached or not)—based on the amount of money paid for the assets, not any changed value since then. One house as a primary residence could be exempted from being counted against that total of assets.

To give a concrete example, let’s say someone were being paid $5,000/mo.; $60,000 yr. That person could accumulate the amount of that annual salary in cash: $60,000. In addition, that person could acquire — whether that much cash had been accumulated or not — up to $600,000 in assets (in addition to one abode-as-primary-residence). Who making that much money would ever have any money collected by exceeding those ways of storing value? Since those ways of storing value would increase proportionately with increased income, it seems safe to say that precious few people would exceed them.

Anyone who had maxed-out both cash holdings and assets could always make purchases of non-assets (clothes, dining and travel and other entertainment, etc.) to keep from having money collected, if extravagantly throwing it around rather than ‘suffering’ having any of it collected were so important to them — keeping in mind that they would already be enjoying the absence (at least provisionally) of taxes.

In this paradigm the profits of proprietorships (to include partnerships) would be the income of the owners of the businesses. For corporations, all employees, to include the officers/most senior executives, could only receive a regular salary. Neither the amount of it nor benefits would be limited, but bonuses in any form would be verboten.*

Corporations would be allowed to retain in cash, say, a maximum of the annualized amount of (4x) the profits in the most profitable quarter in the company’s history (very possibly including, of course, the most recent one). In addition, they, too could hold some multiple of that amount in assets (also 10x? — again, based on the amount paid for them and including their own stock, valued at the price paid for it in a ‘buy-back’ or, for stock that was never sold, its going price when it was issued). To be clear, those assets would not include investment in plant and equipment in the business itself, which would not be limited.

Unlike people, corporations would not be allowed to throw money around just to keep it from being collected. They would be restricted to legitimate expenses related to the operation of the enterprise.

Any excess of either money or assets — at the end of a month for a person, at the end of a quarter for a business — would be collected to be withdrawn from the economy. (A person or business would have a say in which assets would be sold, with that money collected.) A lag of a month/quarter could be included to make managing matters easier.

Enforcement of collections would fall to, in the U.S., the IRS. We’re not talking about a la-dee-da Utopia here — just something way better than anything in the history of civilization (really, not all that high of a bar).

One consequence of that approach to withdrawing money from the economy is that the amount of it would be a result of decisions made by individuals and businesses, not an amount imposed by some authority. So that, coupled with the size of the two streams of money coming into the economy and their amount being determined by demographics — and nothing else — would incidentally make the economy (the process of producing/acquiring goods/services) self-regulating (provided that approach to funding government were to be undertaken).

So there it is. Creating money as needed within MMT, without involving debt in any way, to fund a guaranteed minimum income (that a person could actually live on) and all government as well as establishing a mechanism other than taxes for withdrawing money from the economy would eliminate unemployment and poverty as well as taxes (at least initially) while systemically increasing sustainability and making the economy self-regulating. All of that would be accomplished without redistributing anything, without imposing any cost on any employer, without imposing any limit on income/wealth, and without requiring people to act any particular way (altruistically or selfishly, competitively or cooperatively, etc.) Otherwise, there is little to recommend this proposal.


*In order to ensure that enough money would be withdrawn from the economy it would behoove us to minimize the ways in which money could flow from corporations to individuals — keeping in mind that (regular) remuneration would not be limited. That is the reason for a ban on bonuses. Bonuses involving stocks are essentially money that has been printed by a corporation: printed pieces of paper that have some monetary value attached to them. Another idea, if somewhat more difficult to enact, would be to create an ‘asset membrane’ via which people could buy assets from any entity, including businesses, but could only sell assets to other people, with only one — closely regulated — exception: land to be used for business purposes. [following sentence added 3/4/24] With both of those limits in place it could be possible to lift the limit on the accumulation of assets by individuals, though personally I would still vote for such a limit.



Stephen Yearwood

unaffiliated, non-ideological, unpaid: M.A. in political economy (where philosophy and economics intersect) with a focus in money/distributive justice