Modern Monetary Theory: a vehicle to/for change?

by Tim Linaberry and Jon Ward.


Our addiction to fossil fuels threatens to transport us to a landscape inhospitable to humans as well as most other species. The literature on climate change is clear on the course corrections needed to slow our roll. Degrowth envisions a throughway to a world where industrial activity and energy use do not exceed the ecological limits of our planet, but combines it with an understanding that the financial system we have built continues to stifle progress towards such a lane change. Financialization has super-charged the pre-existing dynamic of capitalism, which seeks to commodify everything by forever expanding the range of things that can be accumulated with money. Private control of the monetary system and the growing influence of finance catalyses this process and increasingly directs capital into activities that are actively damaging the planet¹. Our relentless, high-speed pursuit of economic growth that risks sending us past the guard rails and over the proverbial cliff begs the question: is there another route?


Policy based on modern monetary theory (MMT) would see private banks, corporate bonds and stock markets still maintaining a role in the provision of investment capital, but with the state ensuring that money was always available to fund the provision of healthcare, education and necessary public services. Shocking as it may appear, a government committed to always making money available to fund a minimum level of public services would effectively curtail the ability of private institutions to drive up costs and consumption, as well as their ability to collect interest. Avoiding hyperinflation, by taxing money out of circulation, becomes the primary concern of a government’s finances-not balancing its check book. This counters current neo-liberal instruction manuals which seek to lower taxes on high earners as a way to ignite growth. MMT however, reassures that as long as inflation is kept in check, there will always be gas in the tank to fuel us on our journeys.


Today, the banking sector and wider financial system effectively lends money into existence, a process that John Kenneth Galbraith thought to be “so simple the mind is repelled”². Private banks fund speculation that drives up housing costs, record-level household debt, and other societal ills. Governments also lend money into existence by auctioning off government securities or bonds. The private banks who buy these bonds are exchanging their non-interest-bearing reserves for securities with an interest rate that varies according to the creditworthiness of the country. If for any reason private banks chose not to buy these bonds and instead kept their reserves in non-interest-bearing accounts, this capital would still be in accounts at the central bank, the same place money paid to the government for securities would end up anyway³. Currency-issuing states are thus not dependent on the private sector in their money-creation and the policy of issuing bonds is merely a holdover from the era of the gold standard⁴.


We are several decades into a campaign to measure and (theoretically) reduce emissions, with the 2015 Paris Agreement representing the most significant global environmental agreement the world has ever seen. Yet despite the existence of decarbonisation targets, capital continues to flow into extractive projects that render such targets impossible to meet; companies are too often left with no credible means to operate in a sustainable economic manner. It’s apparent that even clearly defined goals from states and the democratic systems that support them can be easily undermined by the capitalist system.  Our society is fuelled by a monetary system that allocates capital according to where it will generate the highest returns-regardless of the social and ecological externalities. Even hedge fund billionaire George Soros has acknowledged that capital liberalisation “has reinforced the tendency for democratic decision-making to become subordinated to the demands of financial markets”⁵.


What is particularly insidious about the current system is that it has secured its own future and popular support by financialising retirement, making even average-earners dependent on the performance of market-based pension systems. A degrowth economy would certainly reduce the value of such financial assets⁶ as we attempt to safely steer away from the road paved by blood and oil. As a result, governments would have to instead guarantee social services to retirees, creating the money necessary to do so and at the same time making pension superannuation unnecessary. Such a social security guarantee would be easy to implement by a state that prioritised degrowth principles and utilised monetary policy to deliver such social safety nets. But until then, both governments and citizens are inextricably strapped-in to the growth-oriented capitalist system.


The state’s role in ensuring capital is available for socially beneficial activities could extend to private industry too, with cheaper capital made available to those companies deemed to play a necessary role on the path to a decarbonised economy. MMT could provide a significant competitive disadvantage to those companies in extractive industries subject to the same taxation and regulation by creating roadblocks to equally competitive rates of capital⁷.


In addition, the state would not need to confine itself just to the roles of money-creator for public services and taxation authority to keep inflation in check. With multiple long-term infrastructure projects and other investments already funded by patient capital from pension funds and similar sources⁸, the state could easily leverage its reputation as currency-issuer to accept such capital to fund major (but sustainable) projects in return for only modest interest payments. Capital flight is a genuine risk for any state enacting monetary policy that could theoretically lead to devaluation. Such state-backed loans could keep capital within the domestic economy instead of fleeing offshore in pursuit of higher returns, ensuring it was available for commercial activities that are truly sustainable in the long term. Attracting funding away from unsustainable industries by making their operational costs higher is an avenue worthy of deeper exploration.


While existing free trade arrangements may be jeopardised by the need for capital controls to prevent currency speculation against a government that dared to reject the international monetary order⁹, it is worth remembering that only 5% of the currency that crosses international borders does so for trade or the funding of physical investment, while the remaining 95% is purely speculative¹⁰. A rejection of neoliberalism’s route to financial globalization may invite attack, but MMT counters that a currency-issuing government is neither dependent on running a trade deficit nor borrowing in a foreign currency; the state retains sovereign power to create the money necessary to provide essential services to its citizens, and to tax enough money out of supply to avoid inflation spikes¹¹.


Even where successful campaigns have driven institutional capital out of the fossil fuel sector, such divestment has been immediately replaced by other sources such as private equity or bank finance¹². Increased control by the state over its monetary system could make such investments unattractive for all capital. A socially-beneficial monetary system such as MMT could assist governments in their struggle to regulate the private sector by ensuring that carbon reductions are not only met but achieved without impacting on the poorest in society. Reclaiming monetary policy as a byway to bring the planet back within safe operating boundaries through decoupling and degrowing the fossil fuel economy is an avenue worth driving down. After all: where we’re going, we don’t need those roads anymore¹³.



Tim Linaberry is a US citizen based in Baltimore, Maryland with a background in hospitality who spends his time: studying degrowth, advocating for progressive movements, writing about his visions/ideas for building a better world, and performing music in a protest rock band. The goal of his writing is to make horizontal connections to foster a bottom-up movement that smashes the vertical hierarchy of life that capitalism reinforces hegemonically.

Jon Ward is a London-based Irish citizen, a member of Degrowth London and currently finishing a Masters in Economics and Ecology of Degrowth at the Universitat Autònoma de Barcelona. He works in corporate sustainability, mostly focusing on climate change, but has increasingly come to realise that neither corporate ESG nor the political establishment are capable or motivated to enact the systemic changes we urgently need to avoid an ecological crisis.

The opinions expressed in the text do not necessarily reflect those of R&D, but are those of the authors.



¹The 2008 crash made famous the financialisaton of speculative property purchases (albeit in a sector that was deeply financialised already) but earlier this century financialisaton has opened “new enclosures” through successful commodification of healthcare, life insurance and even humanitarian aid. Storm, S. (2018). Financialization and economic development: a debate on the social efficiency of modern finance. Development and Change, 49(2), p 303.

²Galbraith, J. (1975) Money: Whence it Came, Where it Went. Harmondsworth: Penguin.

³Mosler, M. W. (2013). Soft Currency Economics II: The Origin of Modern Monetary Theory. CreateSpace Independent Publishing Platform.

⁴Wray, L. R. (2015). Modern money theory: A primer on macroeconomics for sovereign monetary systems. Springer. pp 3-5.

⁵Wall, D., & Bollier, D. (2015). Economics after capitalism. University of Chicago Press Economics Books. p 62.

⁶Analysis by Cahen-Fourot et al found that of all productive sectors, fossil industries exhibited the strongest potential to create capital stranding in other sectors and should their status in the market diminish, it would negatively affect many other sectors. Cahen-Fourot, L., Campiglio, E., Godin, A., Kemp-Benedict, E., & Trsek, S. (2021). Capital stranding cascades: The impact of decarbonisation on productive asset utilization. AFD Research Papers, (204), pp 1-32.

⁷Cahen-Fourot et al elaborate on such a “public taxonomy” where preferential lending conditions would be offered to investments such as affordable and sustainable housing, care-sites, sustainable local food production, worker-owned companies and public transit infrastructure.” Cahen-Fourot et al. (2022) Chapter 18: Money and finance – An overview of strategies for social-ecological transformation in the field of money and finance and the case of the Austrian Cooperative for the Common Good in Barlow et al. (Eds) (2022). Degrowth & Strategy: How to bring about social-ecological transformation. Mayfly Books.

⁸Unlike the now-dominant defined contribution schemes which take a fixed percentage of the worker’s salary and invest it along with the employer contribution, promising no set return at retirement, defined benefit schemes committed to paying a certain percentage of the employee’s final salary upon retirement, taking a negotiated amount of the employee’s salary to fund this, and investing it in a way that prioritised slow steady growth rather than risky speculation. Any required growth that significantly exceeded the rate of inflation would still incentivise economic growth within investments however and an ideal solution would see public services provided by the state with saving for retirement being simply for supplemental income.

⁹Countries labelled currency manipulators already face trade penalties even though there is no accepted means to quantify a devaluation and, in some cases, their offence is simply to enact capital controls that do not allow the free exchange of their currency on global markets. The Trump regime sought to inject a currency provision into a renegotiation of Nafta in 2019 and were such provisions to become a feature of trade deals they would constrain the ability of countries to use capital controls to restrict capital flows out of their countries. Politi, J. (2019). US proposes punishment for countries that manipulate currencies. The FT. 24/05/2019

¹⁰Wall, D., & Bollier, D. (2015). Economics after capitalism. University of Chicago Press Economics Books. p 25.

¹¹Kelton, S. (2020). The deficit myth. PublicAffairs. Ch. 3.

¹²More than $150bn was invested in fossil fuel assets by private equity between 2010 and 2020 as listed companies reduced their holdings in the wake of growing pressure from shareholders and investors. Fitch. (2021). Shifting Ownership Patterns of Fossil Fuel Assets and Decarbonisation. Fitch Group.

¹³Cahen-Fourot et al. (2022) Chapter 18: Money and finance – An overview of strategies for social-ecological transformation in the field of money and finance and the case of the Austrian Cooperative for the Common Good in Barlow et al. (Eds) (2022). Degrowth & Strategy: How to bring about social-ecological transformation. Mayfly Books.