Eta, hala ere, lehendabizi Estatuak gastatzen du…

And yet, the State spends first…

(https://mmt-france.org/2025/05/06/and-yet-the-state-spends-first/)

Robert Cauneau

6 May 2025

The Inconvenient Truth of Modern Monetary Theory (MMT)

Introduction

In the French public debate, public debt is the totem around which all political forces dance. Sometimes invoked to justify austerity, sometimes presented as the result of a virtuous stimulus policy, its very nature is never truly questioned, particularly since the end of the gold standard in 1971. However, certain monetary approaches, such as Modern Monetary Theory (MMT), are disrupting this apparent order. It does not propose a simple technical adjustment, but a veritable Copernican revolution in the way we think about the state, money under a floating exchange rate regime, and the deficit. But if this theory struggles to gain traction, it is not for lack of solid descriptive arguments, but because it is politically, symbolically, and epistemologically unacceptable to many. Like Galileo in his time, it articulates a truth that destabilizes the established order.

This article does not seek to close the debate, but to raise awareness. Whether adopted or challenged, MMT questions mechanisms often misunderstood by both the general public and specialists. To divert it from the scope of the debate is to neglect a fruitful framework for interpretation, precisely where certainties waver.

1. Galileo, Keynes, and MMT: Forbidden Revolutions?

When Galileo asserted that the Earth revolves around the Sun, he not only contradicted ancient cosmology: he jeopardized the world order on which religious and political authority relied. The Church could not tolerate this truth, not because it was false, but because it destabilized a power based on the symbolic world order. Similarly, later, in the 1930s, John Maynard Keynes proposed state intervention to bolster demand, an idea deemed heretical before World War II and its massive deficits proved its validity.

MMT makes a similar move. It does not simply assert that the state could spend more: it describes how, in a system of fiat currency1 and a floating exchange rate (the norm since 1971), the state already spends before even collecting taxes or issuing securities2. It reverses the seemingly obvious sequence of budgetary facts, showing that it is not taxes that finance public spending, but public spending that injects the money necessary, among other things, to pay taxes, which serves to withdraw this money. Similarly, the public deficit is not an anomaly to be corrected at all costs: it is the necessary accounting counterpart of the net savings desired by the private sector (households and businesses). 3

What MMT says is difficult to understand, not because it is inherently complex, but because it undermines the foundations of a public economy conceived as the management of a household budget. Admitting that the State, which creates its own money, does not need to « find » money before spending amounts to delegitimizing systematic austerity policies, the sacrifices imposed in the name of « restoring » the accounts, and the internalization of debt as a collective moral failing. Admitting that the state, when it controls its currency,4 does not necessarily need to issue debt securities to finance its expenditures not only clashes with conventional economic thinking but also crucially threatens the interests of rentiers, who depend on these financial instruments. Moreover, by positing that the basic risk-free interest rate is a policy choice that should default to zero,5 MMT directly attacks the passive income of rentiers, echoing Keynes’s radical perspective on their « euthanasia. » These two aspects partly explain the indifference and virulence of the reactions: MMT not only offers an alternative analysis, it strikes at the very foundations of accumulated financial wealth.

2. A Politically Inadmissible Truth

There is no doubt that the immediate political cost for a leader openly defending MMT remains high: they would certainly face almost systematic accusations of frivolity, inconsistency, and even demagogic populism. For if the deficit is not intrinsically bad, but a potentially useful tool or a simple accounting result, if the state can spend in its own currency without having to first « find » it on the markets (it creates money by spending6), then a significant part of the moral and political system of « fiscal responsibility, » as it is promoted, collapses. All that would remain would be to debate what is relevant to finance (which societal objectives, which real resources to mobilize) and the associated risks, rather than constantly asking whether one can « afford » it financially. This is tantamount to heresy in a political landscape governed by the narrative of scarcity and external financial constraint.

This is why even opponents of austerity, particularly on the left, often end up reasoning backwards. They denounce the current debt while remaining trapped in the logic of « who will pay? », instead of challenging the conceptual framework, which is itself flawed. They implicitly accept the postulate that the state operates like a household or a business, even though MMT offers a completely different description of operational reality. The state is the creator of its own currency. Private sector agents are its users.

3. An epistemic and psychological shock for economists

But an equally profound obstacle may lie elsewhere: in the academic world and among experts. Because, by placing monetary accounting and the operational nature of fiat money at the center of macroeconomic understanding, MMT undermines decades of intellectual training and established models. Whether one is a neoclassical, traditional Keynesian, or even post-Keynesian, the challenge is harsh. The principle that taxes precede and finance spending, or that borrowing is an absolute necessity in the event of a government deficit, is so deeply rooted in teaching, publications, and models that to contradict it is to admit that one has been mistaken about the most fundamental mechanics of modern public economics, or at least that one is still implicitly reasoning within a monetary framework, such as the gold standard or fixed exchange rates, which has been irrelevant since 1971.

As Thomas Kuhn points out in his The Structure of Scientific Revolutions, dominant paradigms resist change, not only through intellectual inertia, but also because they structure careers, funding, and institutional recognition. For many economists, adhering to MMT would require thinking against oneself, and thus imply cognitive dissonance: recognizing that past policy advice or teachings were based on potentially false premises. Added to this is the fear of intellectual isolation: deviating from the consensus exposes one to marginalization, publication difficulties, and a loss of credibility. It then becomes more comfortable to be wrong collectively than right alone. 7 In this respect, MMT provokes a narcissistic wound comparable to that inflicted by Galileo: it is not enough to integrate new data; one must deconstruct an entire system of evidence and confront social peer pressure. Hence the irritation, even contempt, it sometimes arouses.

4. A revolution still discreet, but based on reality

Like all Copernican revolutions, that of MMT began on the margins, in heterodox circles, activist collectives, and precise accounting analyses. But it benefits from an advantage that dogmas do not: it is consistent with the operational reality of fiat monetary systems with floating rates. 8

MMT fundamentally renews our understanding of fiscal and monetary mechanisms. It establishes that, for a state using a fiat currency, public spending always precedes taxes and the issuance of securities: the state creates the currency it uses. It shows that taxes do not serve to finance spending, but to create demand for the national currency. Government securities, for their part, stabilize interest rates,9 set politically by the central bank, as well as provide a risk-free asset. In this framework, the public deficit becomes the accounting condition for the private sector’s net financial savings. These principles provide a better understanding of why a country like Japan, issuing in its own currency, can easily support very high public debt. They also shed light on the ineffectiveness of quantitative easing in revitalizing the real economy. MMT thus invites us to rethink the role of fiscal policy, not as accounting management, but as a tool serving full employment and economic stability. These are observable facts, not mere abstract theories. MMT offers a coherent framework for interpreting these phenomena, which often confound standard models. And in the long run, facts die harder than fiction, even if, as with Keynes, it sometimes takes a major crisis or a long period of time for a new paradigm to prevail. History proved Galileo right, long after his conviction. MMT will undoubtedly end up restoring fiat money to its true operational meaning, and fiscal policy to its true room for maneuver, limited not by finance, but by the real resources available.

Conclusion

« And yet it turns, » Galileo is said to have murmured. « And yet it spends first, » one might say today of the State that controls its own currency. The refusal to heed this functional description is less due to its intrinsic incoherence than to what it requires us to abandon: a morally flawed representation of the fiscal order (the household analogy), a hierarchy of economic knowledge resistant to change, and a way of governing through the fear of self-inflicted monetary scarcity.

In this respect, MMT is not just an economic theory: it is a political and cognitive rupture. It is a truth that is still unbearable for many, because it exposes the futility of decades of sterile debates on financial « sustainability » and opens the door to a much more fundamental discussion on the real objectives of economic policy (full employment, ecological transition, public services). Recognizing this truth requires a certain intellectual audacity, a courage to move beyond the comfort of consensus, in the service of a much better use of the potential of modern states, in the sense of the general interest.

To go further…

• Mosler, Warren (1995), Soft Currency Economics, Valance Co., rééd. 2020. The founding text of MMT, in which Mosler lays the foundations for a functional understanding of money, government spending, and monetary issuance in sovereign currency economies.
• Mosler, Warren (2010), https://moslereconomics.com/wp-content/uploads/2020/11/Seven-Deadly-Innocent-Frauds-of-Warren-Mosler.pdf Tahin Party. An educational, provocative and stimulating summary that dismantles preconceived ideas about the public deficit, debt and taxation.
• Wray, L. Randall (2015), Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, 2e éd., Palgrave Macmillan. A systematic and educational exposition of the theoretical foundations of MMT, often considered the academic reference work.
• Tcherneva, Pavlina R. (2020), The Case for a Job Guarantee, Polity Press. A plea for a job guarantee policy, at the heart of the MMT project: eradicating involuntary unemployment by mobilizing the power of the monetary state.
• Kelton, Stephanie (2020), The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, PublicAffairs. A clear and powerful introduction to MMT, by one of its leading advocates.
• Kuhn, Thomas S. (1962), The Structure of Scientific Revolutions, University of Chicago Press. A classic on the dynamics of paradigms in science. Useful for understanding why some ideas, even rigorous and well-founded ones, struggle to gain traction as long as the dominant framework remains intact.

Notes

1. Fiat currency is a government-issued currency convertible only into itself, as opposed to a fixed-rate national currency such as a gold standard or other currency with convertibility into any other commodity or national currency fixed by the issuing state (such as currency boards, pegged national currencies, or currency unions). The United States, Japan, and most of the world’s industrial economies are examples of such monetary systems, including the Eurozone.
2. This fundamental point is presented in this article : https://mmt-france.org/2021/11/01/soft-currency-economics-3-la-monnaie-fiat-le-mythe-du-multiplicateur-monetaire/
3. See this article on sectoral financial balances : https://mmt-france.org/2020/12/07/les-soldes-finaciers-sectoriels/
4. The reader will rightly consider that the Eurozone member states are in a special situation. Indeed, this means that, for MMT, the relevant analysis cannot be done at the level of each member state taken in isolation, but only at that of the Eurozone as a whole, as is the case for countries with a monopoly on their currency (United States, Canada, Australia, etc.). Indeed, when we observe the accounting transactions between the various players in the monetary system of these countries, we realize that they are in all respects identical to those of the Eurozone. Each public expenditure is the operation that creates euros, which flow into the private sector. And when a tax in euros is collected, these euros leave the private sector, as is the case for any other currency. : https://mmt-france.org/2020/09/21/mmt-et-leurozone/
5. This point is developed in this article : https://mmt-france.org/2019/04/23/le-taux-dinteret-naturel-est-zero-2/
6. See this article : https://mmt-france.org/2024/11/29/de-la-veritable-nature-du-deficit-et-de-la-dette-publics/
7. Read this article : https://mmt-france.org/2025/01/28/il-vaut-mieux-avoir-tort-collectivement-que-raison-seul/
8. Warren Mosler’s description of the monetary system in his seminal 1993 MMT book, « Soft Currency Economics » (https://moslereconomics.com/wp-content/uploads/2018/04/Soft-Curency-Economics-paper.pdf) was endorsed by Fed officials.
9. It should be noted that this role disappears when the central bank remunerates excess reserves, which is the case for the Fed and the ECB.
10. MMT proposes a Job Guarantee as a central instrument to ensure full employment while stabilizing prices and economic activity. This is a scheme whereby the state offers anyone willing to work a paid transitional job in socially useful activities that do not compete with the private sector while they find employment in other sectors. This program acts as an automatic, reinforced, and structural stabilizer. See Tcherneva, Pavlina R. (2020), The Case for a Job Guarantee, Polity Press.

oooooo

Geure herriari, Euskal Herriari dagokionez, hona hemen gure apustu bakarra:

We Basques do need a real Basque independent State in the Western Pyrenees, just a democratic lay or secular state, with all the formal characteristics of any independent State: Central Bank, Treasury, proper currency¹, out of the European Distopia and faraway from NATO, maybe being a BRICS partner…

Ikus Euskal Herriaren independentzia eta Mikel Torka

oooooo

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