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The Great Enigma of Our Times: MMT and GCE

The Persistence of Poverty Amid Advancing Wealth

“What happens when government abandons its proper role? At the top, we get fraud. Corruption. Gross incompetence. For the rest of us? We get unemployment, inequality, poverty, and inadequate healthcare, retirement, and welfare.”

Economic inequality is high and rising. Real incomes have declined for most of the global population in recent years, and the wealth gap has grown during the COVID-19 pandemic. In the United States today, the top one percent receives over 30% of national income, exceeding the high of about 21% reached before the crash of 1929. [2] The stability of our financial system, corruption in politics, the privatization of public services [3], environmental devastation, and threats to democratic institutions are all matters of intense public debate. 

Progressives call for redistributive taxes and an ambitious expansion of government spending for social programs, climate action, and infrastructure. Conservatives say we can’t afford all that. They warn of the grave dangers of government deficits and insist that high tax rates discourage “job creators.” 

But economist Randall Wray, a leading contributor to modern monetary theory, argues that the U.S. can afford far more public spending than is conventionally believed, even by many on the left. In his latest book, Making Money Work for Us, Wray recommends substantial increases in federal spending for social insurance, public pensions, and a Green New Deal. [4]

“We chose the worst of all possible times to embark on the great neoliberal experiment—downsizing government, privatizing many of its functions, slashing the safety net.” (Wray 91-92) 

Extreme inequality is hardly a new concern. In the 19th century, American journalist Henry George set out to explain “the problem” that economic growth seemed always to be accompanied by deepening poverty alongside accumulating wealth, and to be punctuated by “paroxysms” of boom and bust that further widened the gap between rich and poor.

This association of poverty with progress is the great enigma of our times.

George witnessed the speculative frenzy as the American frontier stretched westward, along with the dizzying rise of urban land values, and the emergence of the “robber barons.” Public clamor for reform led to the 1887 Interstate Commerce Act and the 1890 Sherman Antitrust Act. Yet the concentration of economic power continued. By 1930, just two hundred corporations controlled half of the nation’s corporate assets. [5]

Today, the financial sector is thought to constitute 20 – 25% of the global economy. Oligopolies with vast market power dominate major industries, even as “free market” advocates pretend that markets produce the optimal outcomes predicted by the neoclassical model of perfect competition. Politically powerful fossil fuel companies and their allies have pushed us toward climate catastrophe. [6] 

Money, Inflation, and Financial Stability

MMT rejects the conventional assumption that federal government expenditures are limited by tax revenue, and that taxes must be paid before the government can spend and invest. On the contrary, says Wray, for a government that issues its own sovereign currency, spending precedes taxes. Reserves from the government must enter into the banking system before taxes can be paid. [7]

“The central bank lends government money into existence while the Treasury spends it into existence.” (Wray 33) 

The first purpose of taxes, according to MMT, is to “create a demand for the currency, ensuring willing sellers of goods and services for money.” The Fed makes and receives payments from the Treasury, which taxes and spends. 

“The government issues the currency to move resources to the public sector, purchasing what it needs.” (Wray 60) 

“Understanding how money really works lets us focus on the real barriers—politics, real resources, technical know-how, and inflation.” (Wray 5

The danger of “too much money creation” by the Fed, says Wray, is inflation. Government spending that puts unemployed labor and other resources to work is not inflationary, but spending that draws resources away from private sector employment may push up prices. The solution to inflation is taxation. Taxes curb inflation by driving resources away from the private sector. 

“Once full employment is approached, either taxes need to be raised or government spending needs to be reduced to avoid inflationary pressures.” (Wray 130) 

The danger of “too much money creation” by private banks, however, is a financial crisis.

“The main problem is that much of the money creation is related to financing nonproductive asset purchases, which can fuel asset price bubbles.” (Wray 73) 

Time and again, excessive private borrowing for the leveraged purchase of land and other assets pushes up their prices, setting off a self-perpetuating speculative boom. Eventually a few business failures trigger a drop in asset prices, a sell-off, and an economy-wide debt deflation. 

“Finance is an intermediate good that might in the best of circumstances contribute to production by financing useful activities. But finance largely services itself—ever on the hunt for some new asset class to bubble up.” (Wray 92) 

The crash of 2008 was preceded by bubbles in land and housing, commodities, and dot-com stocks. Afterward, the benefits from the bailouts and other federal remedies mostly found their way to the FIRE sector (finance, insurance, and real estate), not to productive investment or to needy families. 

“The problem in recent years has been that our governments wrongly think they’re financially constrained, while our private financial system has directed much of its efforts to self-enrichment through speculation rather than to capital development. We will need to reorient our economy so that it serves us well and promotes the public purpose. To move forward we need to dispel the dual myths that government has run out of money, and that the unfettered invisible hand of private finance will promote the public interest.” (Wray 57)

Randall Wray: How MMT Can Save America

Wray has much to say about fiscal as well as monetary policy. Fiscal policy (taxes and spending) and regulatory agencies are the province of the legislative and executive branches. 

“Three policies … are fundamental to the MMT approach: the job guarantee to anchor the domestic value of the currency; interest rate targeting as the main tool for monetary policy; and a floating exchange rate to support domestic policy space.” (Wray 6) 

A federal job guarantee would offer anyone public or nonprofit employment at a fixed hourly wage with benefits. Proponents argue that a JG would be countercyclical, stabilizing employment, output, and prices. [8] 

“MMT does prioritize jobs: involuntary unemployment is extremely costly, both for the individuals who are unemployed and also for society as a whole.” (Wray 110) 

Other policies associated with MMT include enhanced social insurance and retirement support, Medicare-for-All, a Universal Basic Income, and environmental protections. 

“The sovereign government can always afford socially desirable programs. A government that issues its own currency can never run out of keystrokes.” (Wray 125) 

MMT emphasizes that financial imbalances are global, especially in and among countries that have adopted—or been exploited by—the neoliberal policies of the past forty-plus years. Wray details several options for reform, including international debt cancellations to restore balance among nations. 

“All over the Western world the public sector is too small; we’ve privatized too many essential public sector functions—our arts, culture, prisons and punishment, military …, increasingly our education and healthcare, even our motor vehicle departments.” (Wray 91) 

Wray explains several important functions of federal taxes. While the first purpose of taxation is to create a demand for the currency, he says, taxes (and subsidies) can also alter the distribution of income and help to align private incentives with public goals. Taxes “are used to reduce socially undesirable behavior,” and “tax credits are used to reward good behavior.” “Sin” taxes might include pollution charges, a carbon tax, or severance fees for extractive resources. 

Some taxes can “prevent accumulation of excessive wealth over generations.” Wray suggests progressive taxes on inheritances, wealth, income, capital gains, and conspicuous consumption. (He does not endorse the corporate income tax.)

Importantly, “we raise taxes when speculative excess threatens the value of our currency.” Wray recommends financial sector reforms as well as taxes on the wealthy. 

“We increase taxes on the rich when their spending threatens our currency with inflation. Or if their riches threaten our democracy—which is the greatest threat…. We need progressive income and inheritance taxes to protect our currency from antisocial behavior by the rich.” (Wray 129)

MMT's Remarkable Reception

MMT is considered to be a “fringe” heterodox school of thought, yet it has caught the attention of economists, politicians, think tanks, policy analysts, and bloggers. It has garnered both devoted adherents and resolute detractors. Wray’s co-authored textbook, Macroeconomics (2019) [9]and his earlier works are widely cited. 

Criticism comes from heterodox allies, such as Institutionalists and post-Keynesians, as well as from mainstream economists. Paul Krugman, Treasury Secretary Janet Yellen, and Fed chair Jerome Powell have rejected at least parts of MMT. In the U.S. Congress, Senator Sanders and Representative Ocasio-Cortez have shown favor toward the MMT approach, which gives support to their calls for a Green New Deal and Medicare-for-All, while Senator Purdue and Representative Hern have drawn up resolutions denouncing it. Purdue wants to make MMT “unlawful.” Hern calls it a “misguided academic gimmick.” 

Some criticism is based on misunderstandings of the theory, such as the oft-repeated claim that MMT implies that a sovereign government can spend without limit, ignoring real resource constraints and opportunity costs. In fact, MMT recognizes that real resources supplies are limited. Government spending moves resources from the private sector to the public sector. 

Wray emphasizes, however, that when there is significant unemployment—the usual case—there is little opportunity cost to employing idle labor. 

Other arguments—theoretical, empirical, historical, methodological, and political, include: [10]

  • MMT will inevitably lead to inflation, even hyperinflation.
  • MMT’s proposed spending programs require resources that would far exceed productive capacity and would push the economy far beyond full employment. [11]
  • Empirical evidence contradicts MMT predictions (e.g., Japan’s slow growth despite very low interest rates).
  • MMT misinterprets the “S” (saving) variable in the Basic Macroeconomic Identity. [12]
  • There is no assurance that Congress and the “independent” Fed will always coordinate to undertake monetary and fiscal policies.
  • MMT is an invitation to profligate spending by Congress.
  • MMT will be attractive, not only to progressives, but also to others who would use monetary freedom to pursue a different policy agenda.
  • MMT lacks a robust theory of international financial relationships.
  • MMT does not apply to developing countries.
  • MMT applies only to the US, which holds the world’s reserve currency.
  • MMT is not a falsifiable scientific theory but “a political and moral statement.” [13]

A number of critiques pertain specifically to the proposed federal Job Guarantee:

  • It is not correct that a Job Guarantee is theoretically integral to MMT.
  • The JG will cause private sector job loss, push up wages, and create inflation.
  • Job training would be required for many of the jobs in the JG labor pool.
  • Government would always need to maintain a large inventory of available jobs doing productive work for nonprofits or the public sector.
  • JG jobs would be temporary, their volume fluctuating countercyclically; this may create problems for those served (e.g., persons reliant on home health care). 

Wray replies to these arguments in his many publications and interviews. Experts will undoubtedly continue to debate them. We turn to the question: How does the MMT solution to the problem of economic inequality compare to George’s analysis?

Henry George on Monetary and Fiscal Policy

It is the business of government to issue money.

Consistent with MMT, Henry George argued that the money supply was properly a government monopoly, and that the value of the currency is assured by the public’s need for money to pay taxes and fees. He rejected both commodity money and “free banking.” According to Henry George Jr., he believed that the U.S. should “issue from its own treasury a paper currency based upon its credit and interchangeable with its bonds.” [14] 

A century before the explosive growth of the financial sector got underway, George wrote that the amplitude of macroeconomic cycles was multiplied by the unregulated private banking system, which extends credit during a speculative boom and withdraws credit in a recession. Here too, George’s understanding of the role of credit and debt is consonant with MMT and related approaches.

The curse of credit as a flux of exchanges is that it expands when there is a tendency to speculation, and sharply contracts just when most needed to assure confidence and prevent industrial waste.

As to fiscal policy, Henry George famously advocated land value taxation, intended to prevent maldistribution from the ground up. His other favored policies include regulation of big business, free education, and public ownership of natural monopolies such as transportation, communications, and urban distribution systems for gas, water, and electricity. [15]

The primary purpose and end of government being to secure the natural rights and equal liberty of each, all businesses that involve monopoly are within the necessary province of governmental regulation, and businesses that are in their nature complete monopolies become properly functions of the state.

Society, George warned, would need always to guard against the propensity of rent-takers and monopolists to exploit opportunities for enrichment and to leverage their economic power with political power. Governments must address all forms of monopoly—starting with the monopoly of land sites and mineral resources, and including the money monopoly. 

It is the job of government to manage common resources for the public good, said George. Sharing the commons is a matter of justice as well as economic efficiency.

In justice is the highest and truest expediency.


MMT applies only to nations that issue their own sovereign currency, so it has little direct bearing on fiscal policy for U.S. states or cities, which rely on taxes to finance their expenditures. MMT prioritizes the full employment of labor, while George emphasized land. And MMT pertains firstly to macroeconomics and monetary policy, whereas George focused on fiscal policy, largely from a microeconomic perspective. 

Moreover, as Wray explains, monetary theory implies nothing about the forms that fiscal policy must take, apart from the three “fundamental” policies noted above. Congress might prioritize education, poverty relief, climate change, urban water systems, or a border wall. 

“MMT, by itself, doesn’t lead to any particular position on these policies—it just makes clear that we can financially afford them.” (Wray 111) 

Nonetheless, and despite differences as to tax policy, we can find substantial consistency between the fiscal policies endorsed by MMT advocates and those of the older heterodox tradition of geoclassical economics (GCE) inspired by Henry George. Both would devote public resources to programs with widely shared benefits. Both would prioritize environmental sustainability and would use tax and regulatory policy to control the monopoly problem. [16]

GCE calls for the state, as trustee for the people, to use rent revenue to provide public goods and services and perhaps to distribute a universal basic income. Rent capture is considered the direct path to reversing inequality, deterring speculative excesses, and promoting sustainable use of planetary resources. 

A land value tax is “capitalized” into lower land prices, converting a large one-time payment into an annual flow of rent payments. This reduces the disadvantage of prospective buyers who pay high rates to finance a purchase, relative to buyers with cash or easy access to credit. 

GCE entails environmental charges to limit pollution and extraction fees to control the depletion of natural resources. For example, a carbon tax paired with a citizens’ dividend could be part of a Green New Deal. The tax rate would gradually be raised until emissions targets are met. [17]

GCE emphasizes that vacant land and abandoned buildings erode the benefits of urban density while motivating suburban sprawl. A land tax promotes full utilization of central land, reducing land costs for homes and businesses, raising the demand for labor, and preserving ecosystem services. 

Can the government afford ambitious infrastructure projects? MMT says yes, if the real resources are available and if the projects increase net social welfare: government creates and spends money to draw resources into the public sphere. GCE says yes for another reason: rent charges can make infrastructure self-financing, because transportation networks and other infrastructure improvements raise land values in the areas served. [18]

Moreover, unlike most taxes, a site value tax creates no deadweight loss, because landowners cannot reduce their assessments by any change in behavior (and land cannot evade taxes by fleeing to low-tax states or offshore tax havens).

Saving America

The steeply progressive wealth and income taxes advocated by Wray may indeed tap mostly rent and monopoly profits, albeit with some deadweight losses and few of the specific advantages of taxing land. [19]

GCE suggests that direct rent capture, alongside recovery of privatized public functions, better antitrust enforcement, patent law reform, restructuring of corporate charters, and a UBI should prevent much of the wealth accumulation that such taxes target. 

Wray argues that the public sector today is too small. MMT refutes arguments for austerity programs such as those imposed in Europe after the Crash of 2008. A sovereign government can safely spend more than it receives in revenue, monetize the deficit, and tax the wealthy to control inflation. 

Henry George believed that with the advance of technology, specialization, urbanization, and trade, the public sector should grow relative to the private sector as people became more interdependent. He predicted that land values and tax receipts would grow commensurately. Given the state of the world today, we might guess that George would support the expansive social spending programs that Wray advocates, as well as policies to address the many sources of market power and privilege that have evolved since his time. 

The Job Guarantee is a central feature of MMT, evidently for two primary reasons. First, the JG “anchors” the currency: 

“If you need to work an hour to obtain $15, that establishes the value: one hour equals $15.” (Wray 154) 

Second, chronic unemployment is assumed to be normal in a capitalist economy: 

“Under capitalism, … capitalists hire workers only if they think they can profit from the employment. This always leaves a substantial part of the potential labor force unemployed.” (Wray 153-154) 

Leaving aside the puzzle of whether only a JG can serve to establish the value of the currency in an MMT world, we can surely agree that it would be better if a JG program were needed to employ, say, one percent of the workforce rather than twenty or forty percent. GCE argues that cyclical and chronic unemployment are not necessary features of a market-based economy, but the result of policy choices. 

Our American democracy was formed by and for (white, male) landowners. We have declared personal equality and extended voting rights, but we have also vastly extended corporate privileges and property rights. Today we protect giant firms from competition, using our economic and military power to serve the neoliberal Washington Consensus. 

GCE looks for a different consensus: equity, ecology, and economy are best served by sharing resources that none of us individually produced. Land values arise from natural features, government actions, and spatial externalities created by society. A Land Guarantee that provided for equitable sharing of land rents would be highly progressive, and unemployed persons who needed time to extend their job searches or develop their skills would not be forced to accept minimum-wage jobs. 

George wrote that civilization cannot survive when inequality grows excessive:

Thus association in equality is the law of progress. Association frees mental power for expenditure in improvement, and equality (or justice, or freedom—for the terms here signify the same thing, the recognition of the moral law) prevents the dissipation of this power in fruitless struggles.

It seems that the policy goals presented by Wray, if not always the policy tools, correspond closely with those of GCE. The JG and other MMT proposals aim to slash inequality and ensure that the most disadvantaged populations have access to needed resources. 

Wray’s exposition provokes further questions, starting with this: 

The stock of physical capital goods is composed of, and powered by, materials drawn from the earth. [20] So to what extent do flows of rent from land and natural resources underlie the colossal pyramid of interlocking claims in the financial sector—stocks and bonds, mortgage-backed securities, and countless derivatives and insurance arrangements? 

The question is an empirical one for which data is hard to find and interpret. If GCE is correct that a large proportion of asset values derives from land, then geoclassical policy would go far toward stabilizing the macroeconomy, even as it raises the demand for labor and reduces the need for a job guarantee. 

Whatever the answer may be, I recommend Randall Wray’s latest book as an easily accessible, beautifully written, frequently humorous, and concise introduction to MMT and its intriguing policy implications. Apart from the detailed monetary analysis that Wray contributes, he shares with GCE a commitment to tackle the persistent “enigma of our times.”

Footnotes and Additional References

  1. L. Randall Wray, Making Money Work for Us: How MMT Can Save America. Polity Press (2022), p. 91. Full disclosure: Randy is a former colleague from Bard College. 
  2. World Economic Forum, “Oxfam: This Is What Inequality Looks Like in 2022 – And 6 Ways to Solve It”: This is the state of inequality in 2022, according to Oxfam | World Economic Forum ( Also see Thomas Piketty, A Brief History of Equality. Harvard University Press (2021). 
  3. Cohen, Donald, & Allen Mikaelian, The Privatization of Everything: How the Plunder of Public Goods Transformed America and How We Can Fight Back. The New Press (2021). 
  4. L. Randall Wray, “Can We Afford the Green New Deal?” Levy Institute of Bard College, Public Policy Brief No. 148, January 2020. 
  5. PBS News Hour, “The Rise and Fall of the U.S. Corporation.” Column: The rise and fall of the U.S. corporation | PBS NewsHour.
  6. See Senator Sheldon Whitehouse, Captured: The Corporate Infiltration of American Democracy.” The New Press (2017). 
  7. An exception to the rule that “the central bank lends” occurs when the government sells Treasury bonds. The purpose of open market sales, Wray explains, is not to cover a budget deficit but to add to private wealth. If the government runs a deficit without borrowing from the private sector (selling bonds), then interest rates are pushed down, not up. A larger deficit means higher private savings (note 12). Wray suggests that bond issues should be limited to those supporting institutions that serve the public interest. 
  8. See Tcherneva, Pavlina, The Case for a Job Guarantee. Polity Press (2020). 
  9. Mitchell, William; L. Randall Wray; and Martin Watts, Macroeconomics. Bloomsbury Academic (2019). 
  10. See, for example Fullbrook, Edward, and Jamie Morgan, eds., Modern Monetary Theory and its Critics. WEA (2020). 
  11. Thomas Palley estimates that Medicare for-All, free college tuition, and the Green New Deal would together cost roughly 17% of GDP, exceed resource limits, and cause inflation. “Macroeconomics vs. Modern Monetary Theory: Some Unpleasant Keynesian Arithmetic and Monetary Dynamics,” in Fullbrook and Morgan (2020). 
  12. First-year economics students will recall the basic macroeconomic identity: Sources of income = C + I + G + X – M; Uses of income = C + S + T; So government deficit is (S – I) plus current account deficit: (G – T) = (S – I) + ( M – X) 
  1. Drumetz, Francoise, and Christian Pfister, “Modern Monetary Theory: A Wrong Compass for Decision-Making.” Intereconomics (2021). 
  2. Quoted in Stephen Zarlenga, Henry George’s Concept of Money and Its Implications For 21st Century Reform. American Monetary Institute, 2001. 
  3. See Zarlenga (2001). 
  4. See Senator Amy Klobuchar, Antitrust. Knopf (2021). 
  5. See “Economists’ Statement On Carbon Dividends.” Note that Janet Yellen was among the original co-signatories. 
  6. This phenomenon is formally addressed by variations of the Henry George Theorem, which derive conditions under which spending on a public good raises rent by just the amount of the subsidy required to provide the efficient quantity of it. 
  7. If citizens’ incomes were fully earned, then an inheritance tax is less attractive. We might take a hint from J.S. Mill: limit the total inheritance allowed to any individual, requiring wealthy donors to spread bequests around.
  8. So too, of course, are the bodies of human workers; we treat labor as a distinct factor of production because economics is a social science, a study of human behavior.

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