Suggested requirements for a properly functioning Monetary system based on MMT in the UK

It is interesting that Fadhel Kaboub, Associate Professor of Economics at Denison University, and president of the Global Institute for Sustainable Prosperity, who is a great Modern Monetary Theory ‘MMT’ (Charles Adams’ summary here) and Job Guarantee Advocate, seems to be rather opposed to the Warren Mosler and Bill Mitchell idea that exports are like a household: such that what you export is going to make you poorer, simply because they used to be your resources.

To me this idea not only jarred because sovereign monetary systems are not like a household, but also because I’ve always thought that this was a rather simplistic point of view.

Fadhel Kaboub says in his article:

[Can] developing countries regain monetary policy and their ability to spend on domestic priorities? The goal is to reduce imports, secure a favourable trade balance and pay off their debts, so countries would focus on the root causes of trade deficits: invest in sustainable agricultural practices …. to restore food sovereignty; build renewable energy …. to secure energy sovereignty; and invest in education and research and development to increase productivity and gain the ability to manufacture more valuable products. Such development would also increase the real productive capacity of the economy, meaning that governments would have more room to spend before inflation.

I think this is a way more sensible course.

I draw attention to this because, while I agree with the money creation theory of MMT, Britain, unlike the USA, is a small country, and England is already the second most densely populated country in Europe after (the rather diminuitive) Malta, so England certainly, and to a more limited extent, Britain has a pretty restrained ability to produce all of its food.

Therefore I consider his recipe for developing countries entirely appropriate for our own (allegedly…) developed country.

We have to:

1. Invest in sustainable agricultural practices to endeavour to restore food sovereignty

2. Secure energy sovereignty

3. Invest in education and research

4. Increase productivity and gain the ability to manufacture more valuable products

As a developed country the UK also has the great plus – unfortunately not mentioned in the piece – and to which also any developing country should also vitally aspire – which is the Rule of Law.

So, leaving the argument for an effective Job Guarantee or even Universal Income or Basic Capital to one side for the moment, I am drawn to the hope that this might summarise the complete additional requirements – in the UK at least, for a proper UK ‘MMT’?



  1. Sean Danaher -

    thanks. I am also very uncomfortable with the Bill Mitchell idea that exports are a cost rather than a benefit. As I’ve mentioned before the post GFC Irish recovery was almost entirely driven by export trade balance.

    The consumer (C) term of GDP (GDP=C+I+G+X) of the UK economy is in my view far too high. This can help as post the Brexit referendum consumer confidence remained high the feelgood factor amongst “leavers” mas a major factor in the UK not going into recession.

    Regarding his four points,

    1) the UK has not been “food sovereign” for many years and imports about 40% of its food currently. This is seasonal and most food is imported during the “hunger gap” – March April time something like 60-70%.

    2) Energy fine but Green and renewables not fracking and reopening coal mines.

    3) Absolutely agree with better education and research.

    4) Productivity is dire in the UK – better jobs are urgently needed.

  2. Peter May -

    Agree with all those riders.
    Food security is going to be much more challenging if/when we Brexit and leaving with no deal would be right in the middle of the ‘hungry gap’.
    If anyone had thought about it, triggering Article 50 for 29 March was another self inflicted wound…

  3. Charles Adams -

    Yes, you make some important points here. It is all about investing in what you have.

    Exports are not a loss they are an asset swap.

    Money is simply a unit of account, it is real resources that matter. A country with no resources (no food, no energy, no knowledge, i.e. nothing to live on and nothing to exchange) will have to go begging to others.

    But every country has something or can create something, e.g. firstly by investing in the knowledge base of its people.

    1. Peter May -

      Like the idea of exports as an asset swap. That basically means that foreigners have got to have confidence in your country including probably your money. Which largely comes down to the usually economically disregarded rule of law…

  4. Money Monopolist -

    Bill has covered it in great detail here.

    Reading the article and comparing what Bill thinks there isn’t any difference.

    Also Real Terms of trade is what Matters.

    Think of it as your pile of stuff. That’s your real wealth. Goods and services. Everything from potato chips to healthcare. Goods and services. That’s your real wealth. So your real wealth is everything you can produce when everybody’s working. That’s how you get the most real wealth. Plus whatever you import adds to your pile of stuff. Whatever you export subtracts from your pile of real stuff. Now I did not say that exports don’t help the exporters. Yeah, it helps those people. But it is a subtraction of real wealth from the entire economy. The exports are your cost of imports.

    Back in the old days we called that ‘real terms of trade’. So to optimise your prosperity, you make everything you can with everybody working, and then you add to that with imports, what people export to you. Then whatever you must export, you try and get as many imports as you can.

    If you can export one Ferrari and get four Mercedes, that’s good. If you can export one Ferrari and get five Mercedes, that’s better. Real terms of trade, that’s the important thing.

    1. Peter May -

      I’ve read this article by Bill Mitchell, but unfortunately it doesn’t seem to have relevance to a country that needs to import roughly half its food.
      That is the substance of the UK problem.

    1. Peter May -

      I agree – this is interesting way of looking at it.

  5. Money Monopolist -

    I see no difference between what the article suggests above and what any MMT economist would suggest.

    If a MMT economist was asked to look at the UK there wouldn’t be much difference as the articles are generalised and not country specific.

    You either import food at zero tariffs and let other countries use their skills and resources to provide us with the food and all they get in return are blips on the BOE balance sheet.


    You come up with an import subsitution strategy that makes it more sustainable.

    The beauty of the Job guarentee and ZIRP and deficit spending allows you to do that. That’s why over the last 25 years MMT economists adopted all 3 proposals.

    The UK would be able to keep the population fully employed and sustain a 0 policy rate all of which would promote low inflation, a stable currency, and real gdp growth all with a higher standard of living.

    I’ve been saying for a while now everything is going to come full circle and that countries are going to become more protectionist as real resources start to diminish.

    If you ask any MMT economist what they would do in the UK and make it UK specific you will see what has been written in this article.

    Along with the most important thing a just transistion framework to make it all happen. Countries that have full employment attract FDI that also helps to keep the currency strong.

    Keep up the good work. I love reading your articles

    1. Peter May -

      The danger of this argument is though that food is not a job but a life essential – or you starve.
      The UK, situated on a rocky offshore island, is always going to find it difficult to substitute food imports and certainly the diet would be changed significantly. Probably, too, much of the Eastern side of the UK would need to be covered, Dutch style, in greenhouses.
      In short Britain needs to engender sufficient confidence that those blips on the BoE balance sheet will be sufficient compensation for supplying us with one of life’s essentials.
      In short food imports are different from all others – they are neither a cost or a benefit.
      Unless the UK sells goods or services abroad we might find that food exporters have found another market that pays more or in a preferred currency.
      As I imagine most are happy with the food offer in the UK in order to keep it we cannot simply consider, even if it were ever true, that imports are a benefit and exports a cost.
      Food is much more important than that.

      And in facilitating some measure of food security, exports make us not poorer but richer.

  6. Money Monopolist -

    If Scotland became indpendent the food story is interesting.

    Anyone travelling around Scotland compares 1980 to now the difference in food on offer is amazing. Yet, we still give a lot of our food away. The Spanish and French can’t get anough of our seafood.

    So the way I look at it is you forget about the numbers they are irrelevant. You look at what skills you have and what real resources you have and then you decide what you are going to do with them.

    Then you look at what’s the best way to do that. Sound finance or functional finance.

    For me it is a no brainer functional finance ( MMT proposals) is the best way to do that. So in my view MMT economists have provided the best tool to allow countries to do what needs to be done.

    Unfortunately, What you are going to do with your skills and real resources are always a political choice and MMT can’t do anything about that.

    This often gets missed from all sides when discussing MMT.

  7. Pingback: There is no internal MMT rift on trade or development | Bill Mitchell – Modern Monetary Theory
  8. MigT -

    People with the precarious service sector ‘jobs’ (for want of a better expression) which tend to replace domestic production, probably don’t feel as if they have any more “real wealth”.

  9. Pingback: DTM: merkataritza eta garapena – Heterodoxia
  10. Pingback: Why Bill Mitchell is simply wrong on modern monetary theory and imports and exports
  11. Mike Parr -

    I’ll address this point:
    2. Secure energy sovereignty
    The UK has the largest off-shore wind resouce in Europe – estimates range from around 600GW through to 1200GW. The lower figure was an estimate made on what could be economically developed back in 2015. Things have changed since then and 1000GW through to 1200GW is more likely. This si +/- enough to power most of Western Europe. Furthermore, the price of the electricity will be competitive with that from fossil sources. The UK is thus sitting on a resource (wind) which will last more or less – forever. It is a resource which is can use internally and export.

    The logic deploeyd be Bill Mitchell suggests that the export of elec from UK to mainland Europe – even if it was done profitably would carry a cost. I’m puzzled – I just see benefits in terms of skilled jobs @ both the construction and O&M stages plus benefits – almost for ever through the sale of elec. Note also other countries would struggle to compete because their wind resouce is not as good as that in the UK i.e. they would struggle to produce at a price that was competitive with that of the UK.

    1. Charles Adams -

      Excellent example! Everyday, I ask myself and everyone I meet, why are we not making the most of our own rich resources?

      For years I have been finding myself sitting next to energy experts from other countries and they keep telling me that we have some of the best wind resources in the world and asking, why are you not making the most of it? A lack of vision and the blinkered ideology of our political class is the only answer I can come up.

  12. Peter May -

    Agreed entirely. Have since discovered that the exports a cost idea all seems to be down to a paper on free trade here: that suggested in economies with full employment and floating exchange rates, exports were a cost – presumably because your citizens were working to provide goods to a foreign country and the foreigners were getting all the benefit of that work! But it is still a very strange idea…

    1. Charles Adams -

      The point is that the foreigners do not get all the benefit or we would not bother in the first place (assuming we are not slaves).

      Not always, but mostly, exports arise because you can produce a surplus beyond the demand of the domestic market. Mike’s offshore wind is an excellent example – why are we not doing this, I ask everyday?

      If my vineyard produces 12 bottles, I will consume them myself, but if my vineyards produces 1000 bottles, I could supply the local restaurants, but if there is no demand there I will sell them to whoever pays the best price regardless of where on the planet they live, and with the cash I might buy something I need or want, i.e. not more wine!

    2. Paul Fagan -

      The paper was written by Stephanie Bell and John Henry. Stephanie wrote under her maiden name. Her married name is Kelton and is better known today ad Stephanie Kelton. Steve Keen had expressed simular concerns and and rejects the exports=costs and imports=benefits as a starting point. Opportunity costs only apply when the economy is fully employed, i.e., on the production possibilities frontier. With unemoloyed resources at points inside the frontier the above exports/costs imports/benefits does not hold. Steve Keen has a detailed paper on this subject on his twitter account. I recommend it.

Comments are closed.