By Friday, 3 October 2025, 3:52 Pm Opinion: Keith Rankin

Copyright scoop

week I looked at how, for modern day purposes, monetary
policy started around 1750. It began with the departure from
the presumption that money is wealth to the idea that money
is a veil and that therefore wealth is something else. That
was, in a sense, the beginning of political economy as a
branch of philosophy, morphing into economics as a social
science. In the then new (now ‘classical’) utilitarian view,
wealth came to be seen as useful ‘product’ and money as a

The liberal view arose that the best monetary
policy was no-policy; that is, no policy beyond the steady
coin production of each sovereign’s Royal Mint. While no
longer the definition of wealth, across the capitalist
world, money was understood as central (as a lubricant or a
catalyst) to the workings of a self-regulating productive
super-machine. Money came to be understood (correctly) as a
technology – a flow technology – rather than as wealth
itself. The mercantilist idea of money as wealth –
and of gold or silver as money ‘to be made’ – never
disappeared, however.

With that view of money as a
lubricant in mind, we today can understand that a shortage
of money is always going to be a bigger problem than a
surfeit of money. (A car with an oil leak will eventually
grind to a halt. A car with an overfilled sump, on the other
hand, will still function; it will function
near-to-perfectly if there is a place within the car to park
the excess oil.)

This new laissez-faire view of
monetary policy changed once it was realised that the
mechanism didn’t work in practice as it did in theory. While
it didn’t work for multiple reasons, there was a
continuation of the pretence that it did work. In order to
maintain that pretence, senior bankers and political leaders
– the emerging ‘lords of finance’ – turned to
interest-rate manipulation within the context of the ‘gold

Ultimately, what societies’ elites wanted
was to have a form of ‘liquid’ wealth that they could store
over time, and which would maintain (or even increase,
through the ‘magic’ of compound interest) its purchasing
power across time. The merchant capitalist mindset came to
prevail over the realisations of progressive bankers and
economists. The elite-classes still wanted a monetary policy
which would operate as if mercantilism was

The elite-classes wanted money to come at a
cost, so that they could be sure money would remain scarce.
Gold and silver mining (and latterly crypto-currency mining)
have been the primordial costs of commodity money. Interest
rates would have to serve as the entry costs of modern ‘as

Modern Monetary Theory

known and substantially correct story in academia – albeit
‘heterodox’ academia – about money, monetary policy, and
the relationship between public finance (fiscal policy) and
money. It’s called Modern
Monetary Theory or MMT. The conceptual relationship
between OMT (orthodox monetary theory, though a better name
might be PMT ‘prevalent monetary theory’, or even better LMN
‘liberal-mercantilist monetary narrative’) and MMT is akin
to the relationship in the 1850s between miasma-theory
and germ-theory
in epidemiology. (Many people died of cholera in Europe and
the Americas because the scientific establishment clung onto
the miasma theory, despite the overwhelming and increasing
weight of evidence to the contrary.) MMT dispenses with the
requirement that money must enter into circulation at a
cost; and disposes of the argument that the public and
private sectors are each-other’s rivals.

fortunate to meet Randall
Wray at an economics’ conference in Sydney in 2011, and
found that he and his academic collaborators already had a
well-developed theoretical framework which matched some
statistical work I was doing at the time. I had been exposed
to the work of Japanese/Taiwanese macroeconomist Richard
Koo, and his studies of the Japanese structural
recession of the 1990s and Japan’s recovery from that event.
Of importance was Koo’s concept of a balance-sheet

The central idea is that core money is
public debt; a set of promises spent into circulation
and backed by sovereign governments. A simple example of
this is traditional coin money, made from bronze or silver
or gold. In MMT, what gives the coin its value as a token of
circulation is the depiction of the sovereign’s head, and
not the amount of precious metal in the coin. A second
example lies in the history of central banking, whereby the
original three central banks (in Stockholm, Amsterdam,
London – all in the seventeenth century) pioneered central
banking through their roles as bankers to their governments;
in particular, they managed their governments’ historical
war debts. Those debts became private assets; and the core
assets on these banks’ balance sheets.

These banks
evolved to become bankers to the other banks as well as
bankers to the state. Almost all the world’s central banks
– ie Reserve Banks – are now publicly owned; they are
very much part of the apparatus of the state. While
governments sub-contract monetary policy to semi-independent
central banks, MMT suggests that monetary policy is in
reality undertaken by nations’ Treasuries. As a result of
Treasuries’ monetary misunderstandings, modern capitalism
risks becoming like an under-lubricated car with

Public debt(s) are private assets, just as a
bar of gold is an asset. The world’s effectual money supply
is the ‘liquid’ – ie flowing or circulating – component
of (or derivative of) any monetizable asset; the core
monetizable asset being public debt. This
chart (from my Governments
run financial deficits; it’s their role to do so,
Evening Report, 17 October 2023) shows that, this
century, public debt – the monetary base – increased
each year from 2008 to 2022 by an average of about four
percent of global GDP. That’s about how it should be, and
with significantly larger injections of money required
whenever a financial or economic crisis threatens to
undermine the circulation of money in the real
economy, as occurred in 2008 and 2020.

economy is the purchases of goods and services. The ‘unreal
economy’, into which much money leaks, is the ‘casino
economy’ whereby money is spent on financial assets;
non-money circulating promises such as shares, bonds, and
property titles. The ‘upstairs’ casino economy acts as a
dynamic treasure hoard, fuelled by leaks from the real
economy, with players buying and selling assets at mostly
increasing prices.

While according to MMT, public debt
(not gold or silver) is the foundation rather than the
pariah of capitalism, that is not to say that more public
debt is always better than less public debt; just as, in the
classical schema, more gold is not necessarily better than
less gold. Though in 2025 Aotearoa New Zealand, more public
debt would certainly be better than the present constricted
amount. The growth of public debt is always limited by tax
revenue arising from the circulation of money; as they say,
nothing is more certain than taxes. One efficient way to
increase public debt – and thereby enhance the liquidity
of the economic machine – is through ‘negative income
taxes’; for example, universal tax credits (which should act
like the credits received in the game Monopoly
whenever a player passes ‘Go’).

The prices of

There are three important prices associated
with money: the internal price (which wavers with pure
inflation and pure deflation, and does reflect the idea of
money ‘as if’ it’s a commodity like silver); the external
price (the exchange rate between one form of money and
another, eg $NZ vis-à-vis £UK); and the interest rate
which is best understood as the price of ‘inter-temporal
trade’ (although OMT treats it as the ‘necessary cost of

Inter-temporal trade simply means
exchanges when, unlike direct barter, selling and buying do
not occur simultaneously. Wage workers effectively sell
their labour on pay-day, and buy stuff (say at the
supermarket) on another day. When they ‘save’, then it may
be months or years before they spend that saved money; that
is, months or years before they use it to buy stuff.
Alternatively, workers may spend some of their wages in
advance; for example, with a payday loan or a credit card.
Interest rates are a market-clearing price which – if
correctly set in the money market – ensures the balancing
of income spent late with income spent early.

who tend to spend their money before payday are usually net
payers of interest. Likewise, people who spend most of their
money after payday are net receivers of interest. Thus,
interest rates should be high when few people want to spend
late and many want to spend early; and low when many people
want to save and few want to borrow. There is no reason why
interest rates cannot be very low; that is,

Negative real interest rates are
indeed commonplace; they occur when the rate of inflation is
higher than the interest rate. For example, if the internal
price of money is falling by five percent a year (ie annual
inflation is five percent) and the interest rate is three
percent, then the real interest rate is minus two
percent. Under such conditions, interest effectively
flows from savers to borrowers; rewarding early spenders
over late spenders.

(For a while in the late 2010s,
Switzerland had a published interest rate of minus
three-quarters of a percent and inflation at minus
one-and-a-quarter percent, meaning that the real rate of
interest was plus half a percent. Everything worked
fine; interest effectively flowed from borrowers to
savers. Switzerland then needed negative interest rates in
order to limit the appreciation of its currency the Swiss
Franc; otherwise, the external price of Swiss money would
have been rising too much. In that episode, all three prices
of money came into play.)

Looking at the three prices
of money dispassionately, we see that they all play a role
in free market capitalism, and that the inflation rate is
itself a part of the price mechanism. This indeed has been
grudgingly accepted by the mainstream, with today’s monetary
policy proposing the optimum annual inflation rate as two
percent rather than zero; and there are advocates today for
higher inflation targets. The internal price of money should
fall, policymakers agree, albeit in a predictable manner.
Australia indeed has a higher inflation target than New

(If inflation is 2.1% every year for 100
years, two $20 notes put under the mattress today should buy
one loaf of bread in the year 2125; $40 would become
equivalent to today’s $5.)

One important benefit of
inflation is that it encourages the circulation rather than
the hoarding of money. The biggest danger arising from large
caches of non-circulating money is that such money may
reactivate at short notice, creating substantial
‘excess-demand’. Just as we are used to seeing money
regularly leaking into the casino, money in the casino can
be injected into the real economy at short

Bimetallism as a way of favouring Inflation
over Deflation

An early attempt at monetary reform
during the gold-standard period was the advocacy of bimetallism.

United States election of 1896 was fought, in effect, on the
issue of inflation versus deflation. At that time, due to
gold scarcity, the gold to silver exchange rate was high
(16:1) and rising. There was a substantial world depression
in the early 1890s; an event that hit Australia very hard,
causing New Zealand to resist overtures to join the
incipient Australian federation.

In the world of the
gold standard, prices were at an all-time-low and many small
businesses had become distressed; especially farmers who
were selling their produce at prices which were falling even
faster. In the United States the free
silver movement was prominent, and the Democrat Party
chose a candidate – William
Jennings Bryan – who favoured that political position.
He failed to get elected because there was an effective
party split, with many urban voters in opposition to the
policy to shift from the gold standard. (As a result of the
Democrat split, many Gold
Democrats aka Bourbon
Democrats voted Republican. The new Republican president
was the recently hyped imperialist William McKinley. The
gold-silver exchange-rate issue largely dissipated following
the 1897 Alaska gold rush.)

The anticipated effect of
a switch to a silver or bimetallic standard was that prices
and wages would go up, and the highly indebted small
businesses would be able to service their debts in an
environment of inflation rather than deflation. City workers
in 1896 tended to favour deflation; many were unable to make
the connection between their future standard of living and
the retention of a thriving small-business sector.

we have seen, this position of favouring inflation over
deflation is now mandatory in most capitalist jurisdictions.
The largely successful monetary policy attempts in the 2010s
to ward-off deflation ensured that there was no general
depression in that decade. The policy, strictly, was largely
unsuccessful in achieving its inflation target. That’s
because of one of the fundamental flaws in orthodox monetary
policy; low interest rates generate lower rather than higher
costs, and therefore low rates of
CPI-inflation.

Examples of ineffective and effective
monetary policy from (mainly) New Zealand

There were antecedents of MMT (and other
pragmatic initiatives) in New Zealand and elsewhere during
the recovery from the Great Depression which peaked in the
early 1930s.

In the 1920s New Zealand had no Reserve
Bank. New Zealand’s (mainly Australian-owned) banks did
their banking in London, the world’s pre-eminent financial
sector. From 1926 until 1928, New Zealand’s Minister of
Finance was William
Downie Stewart, an economic liberal and a monetary
conservative. Gordon
Coates – more of a pragmatist, but largely untested
– had been endorsed as Prime Minister in the 1925 election
months after the death of William Massey.

disaster year for New Zealand, exacerbated by Stewart’s
unresponsiveness in his role. Australia had its economic
meltdown a year after New Zealand, reversing the
trans-Tasman migration flow. This made the government even
less popular, as unemployment in 1928 was blamed on
immigrants. Coates’ Reform Party – the principal precursor
of today’s National Party – went from 48% of the vote in
1925 to 35% in 1928, losing power as a result. In 1929 there
was a United minority government, initially facilitated by
Labour. The winning policy of United – the former Liberal
Party – was increased government borrowing. The result was
20 months, in 1929 and 1930, of relatively good times
despite the unfolding international crisis.

went into the December
1931 election as junior partner in a United-Reform
Coalition (a formal coalition which formed that September).
While gaining many more votes and seats that election than
United, Reform remained the junior partner. Stewart was
restored to Minister of Finance at the worst possible time;
going into 1932, the most difficult year of the Great
Depression. Labour’s doctrinaire socialism was unappealing
to voters, despite the growing unpopularity of the United
government in the months following the retirement and death
of Prime Minister and Finance Minister Joseph

As a ‘sound-money’ man, Stewart had been a
stickler for the revised gold-standard rules. However,
before the 1931 election, Britain’s government collapsed due
to the financial crisis. Britain had to suddenly withdraw
from the Gold Standard. The ensuing rapid depreciation of
the British pound (largely reversing deflation in that
country) kick-started the British economy, and also brought
the New Zealand economy out of its 1931 ‘free-fall’. But New
Zealand, being an agricultural commodity economy facing
severe terms-of-trade issues, needed an even bigger (and
longer-lasting) currency reset. Eventually, in January 1933,
Stewart did the right thing and resigned on a matter of
monetary principle. Coates – Stewart’s replacement – now
pragmatic and worldly-wise, immediately devalued the New
Zealand pound against the British pound, in line with the
recommendations of the young generation of
economists.

New Zealand’s recovery remained slow, but
at least it was under way. The management of New Zealand’s
financial reserves in London remained too conservative.
Nevertheless, many subsequently iconic new businesses began
their lives in 1934 and 1935 (for example Wattie’s, Fisher
and Paykel, Sleepyhead).

Coates did two more things of
great importance. First, he established a reform-minded Brains
Trust made up of three young economists – Campbell,

– who would argue for monetary pragmatism. And Coates
established the Reserve Bank of New Zealand in 1934. Though
created with conservative monetary principles in mind, the
means had become available to introduce heterodox monetary
policy in the event of a future government willing to flirt
with an alternative narrative.

Another important
development was the rise in the United Kingdom in the 1920s

Credit, then known as Douglas
Credit, a ‘lay’ movement (counter to the political economy
traditions of Marshall

reminiscent of the previously-mentioned American ‘free
silver’ movement. Social Credit largely antagonised academic
economists, by making anti-orthodoxy generalisations which
were simplistic and too broad. Nevertheless, Social Credit
gained a substantial political influence, not least in New
Zealand; and it did have policy prescriptions helpful for
extracting economies from a state of structural recession
and inequality.

In the Labour Government elected in
1935, there was a substantial Social Credit faction; and
there were a range of other monetary reformers with varying
degrees of sympathy towards Social Credit. Social Credit’s
central argument was that the orthodox monetary system had a
permanent and structural deflationary bias, and that a
public institution – such as an appropriately modified
central bank – would be required to offset this bias. In
effect, Social Credit argued for quantitative
easing, and a national dividend (and food price
subsidies, called ‘compensated prices’) as means to inject
new money into circulation while addressing monetary poverty
and inequality. (See A
National Dividend vs. a Basic Income – Similarities and
Differences, by Oliver Heydorn, 2016.)

quasi-Marxian form of socialism advocated by New Zealand
Labour from the 1910s until 1933, the party under the
leadership of Michael Joseph Savage became infused with
monetary radicalism and a desire to unite rather than divide
diverse economic interests.

A commitment to monetary
reform within Labour in 1935 led many rural voters to vote
Labour for the first time ever (including voting for my
great-aunt’s husband in Kaiapoi). Those voters remained
loyal to Labour in 1938, in light of Labour’s subsequent
monetary achievements. Particularly effective was the State
Housing programme, politically managed by John A
Lee, a working-class monetary reformer. Labour made full
use of the new Reserve Bank to create-through-spending the
money required. Economic growth boomed (about 25% in two
years) while inflation remained low; a big recovery from a
big depression.

In New Zealand, Social Credit split
from Labour in the 1940s, and formed its own political
party. While often polling highly, it could not break the
two-party system, and was eventually broken as a political

1984 losing two-thirds of its 1981 vote – after having
been lampooned by Bob Jones. Jones was leader of the
one-election-wonder New
Zealand Party; an ‘unsuccessful’ party which
successfully acted as a political catalyst for the return of
economic liberalism and the floating-currency version of
classical monetary orthodoxy.

While much of what
Social Credit claimed as chronic weaknesses of the orthodox
monetary narrative has turned out to be true, the successful
albeit piecemeal monetary reforms which took place in the
middle-third of the twentieth century eventually undermined
Social Credit’s critique of monetary orthodoxy. Social
Credit had indeed contributed to its own seeming redundancy
as an economic force in New Zealand. (There was a Royal
Commission on Money in 1954, in which Social Credit had a
chance to make a substantial case. Although there had been a
near-recession around 1953, after the Korean War, and Social
Credit gained 10% of the vote in 1954, there was little
evidence then of structurally unsound monetary
arrangements.)

A third important development was the
publication in 1936 of The
General Theory of Employment, Interest and Money by John
Maynard Keynes, an already famous British economist. This
was a largely technical book which extended and reconsidered
Keynes’ earlier views on money and monetary policy (1930 A
Treatise on Money), while emphasising the critical roles
of public debt and government spending in getting a country
out of structural recession. Keynes also recognised in 1933
that import protection through tariffs would help with
national economic recoveries, and that national economic
recoveries would enable the restoration of the international
capitalist economy. Keynes criticised international
capitalism in order to save it.

Keynesian analysis led
to the pushing
a string critique of monetary policy.

Keynesian critique which created the post-war international
expansion; underpinned by an emphasis on government spending
as a curative for the kinds of unemployment which widely
prevailed in the 1930s. But Keynes believed that the problem
of the 1930s was more cyclical than structural; hence he
argued – in contrast to the MMT argument – that
governments should run budget surpluses during periods of
full-employment.

Keynes was the architect for the
post-war monetary system that might have been. But
the alternative American-led version won out, with politics
prevailing over good argument, and with Keynes’ premature

Keynesian and other insights from the Great
Depression of the 1930s informed monetary policy during the
global decolonisation period from 1946 to 1976. Newly
independent countries emerged, all with central banks.
Central banks became, more explicitly than before, an arm of
government. In New Zealand, with its substantial historical
national debt (a result of imports exceeding exports for
around 100 years) the development of import-substituting and
export industries became central to economic policy.
Interest rates remained below the rate of inflation through
sufficient costless money creation. Organisations close to
government – especially the producer boards such as the
Dairy Board, forerunner of Fonterra; also, the State
Advances Corporation which funded mortgages – gained
direct lines to practically costless money through their
Reserve Bank accounts.

While those monetary reforms
worked in their time, future fiscal-monetary policies will
need to be more about sustainability and private-choice than
through a single-focus on selling more goods in a stormy
world marketplace.

Unfortunately, monetary policy from
the 1980s regressed into the spirit of 1920s’ economic
liberalism and monetary conservatism. The result has been
the nonsense of simultaneous economic growth and
deteriorating living standards through stagnant wages,
overwork, unaffordable housing, and weak environmental
stewardship; the inequality norm of the neoliberal era
matches that of the early twentieth century.

inherently public. Unfortunately, there is a ‘groupthink’ in
the economics profession; the profession which describes
economies with a very limited vision of capitalism’s public
sphere. Modern monetary theory straddles capitalism’s
public-private interface.

Financial Mercantilism and
Labour Mercantilism

In the neoliberal
counter-revolution of the 1980s, the Reserve Bank of New
Zealand was mandated to use interest rates as a weapon to
suppress inflation by creating a recession. Although
government debt was costless to create, governments were
obliged to pay high ‘market’ rates to borrow. A new
‘expensive-money’ era of neoliberal-mercantilism was born,
in which money was required to have innate scarcity value.
Money reverted to its former status as a commodity to be
made and stored.

The neoliberal era is best
characterised as a new period of financial mercantilism; an
era in which money is king, and the objective of economic
life is – through capital or through toil – to ‘make

This neoliberalisation took an unusual path in
New Zealand, in that the figure after whom these changes
were identified – called ‘Rogernomics’, after Labour
Minister of Finance, Roger Douglas – had a deeply set
philosophy which can best be described as ‘labour
mercantilism’. The philosophy dates to conservative
working-class practices in the Victorian era, the Fabian
era, and which gave a nod to Marxian class consciousness. In
that era of working-class self-help, worker welfare came
through worker-funded contributory societies in which all
contributors had an equal stake and expected equal benefits,
though spread out over time. To be a beneficiary, you had to
be a contributor to the fund from which you and your family
expected to benefit. Money earned in one period would be
paid out much later. Pension-fund benefits, for example,
paid out of saved money, needed to purchase new goods and
services. While this idea presumes economic growth through
the accumulation of physical capital, the initial withdrawal
of money from circulation could inhibit such

This funding idea forms the basis of
‘savings-funded’ pension schemes, as distinct from
‘pay-as-you-go’ taxation-based schemes. The savings-funded
schemes create huge financial liabilities which must be
liquidated in an inherently uncertain future; the fiction is
that wealth is stored in the past to be consumed in the
future. The current-tax-funded schemes, on the other hand
operate entirely in the present tense; a person’s pension is
determined by today’s economic conditions, not yesterday’s
conditions.

Financial mercantilism is a
‘store-money-today’, spend it decades later perspective.
Labour mercantilism is the variation applied to the savings
of wage and salary earners.

In the late-1930s’ Labour
Government there were three factions, which Michael Joseph
Savage (Prime Minister) had to manage. There were the
monetary radicals – the radical centre – which included
Social Credit. There were the left-wing redistributors, who
wanted to ‘tax the rich’ and ‘pay pensions and tax
concessions’ to workers. And there were the
‘right-of-the-party’ labour mercantilists who wanted to
withdraw money today to build sovereign wealth funds from
which future retirement and other benefits would be paid to
workers’ families. These last two groups squabbled
intensively behind the scenes. (A very useful source is the
1980 book, The Politics of Social Security, by
Elizabeth Hanson; another is A Civilised Community,
1998, by Margaret McClure).

That first Labour caucus
included Bill
Anderton, Roger Douglas’s maternal grandfather (MP for
Eden and then Auckland Central from 1935 to 1960; no
relation to Jim
Anderton, whose father’s surname was Byrne and mother’s
birth-surname was Savage, though no relation to Michael
Joseph Savage). From 1960 to 1975, Norman Douglas succeeded
his father-in-law Bill Anderton as MP for Auckland Central.
Norman and Roger Douglas were in Parliament together from
1969 to 1975.

In 1937 there was a push from Labour’s
right to abandon the 1935 policy pledge of universal
pensions (and other benefits) in favour of an actuarial
scheme – what we would today call a sovereign wealth fund
– that was conceived-of as a kind of ‘magic money tree’
based on the ‘principal of compound interest’. Minister of
Finance Walter Nash, returning from the United Kingdom in
1937, was accompanied by accomplished British actuary George
Henry Maddex. Much time was spent with Maddex – some would
say wasted – trying to supplant the promised
‘pay-as-you-go’ universal pension with this scheme which
promised some people – mainly men – with large benefits
in the distant twilights of their lives. Further, because
the people who financially contributed the most would get
the most, the scheme in essence promised an avalanche of
future-spending by people other than those with the most
needs. In the end the left and right factions cancelled out,
resulting in a universal welfare state funded for current
beneficiaries with current money.

Compound interest
only works if interest is less than inflation over the
medium-long term. In practice such ‘pension funds’ play
about for decades in the casino economy, trying to replicate
the promise of compound interest. Further, they represent
capitalism’s greatest financial risk; the possibility that
financial assets, dynamically-parked in the casino of
capital gains, will sometime in the future return at scale
and at short notice to the real economy. Flooding the future
economy with excess demand. Or eventually providing deferred
benefits which would buy much less than promised.

forward to 1974, Roger Douglas devised and established such
a sovereign wealth fund, which commenced operation in 1975,
and was cancelled months later. In the midst of high
inflation and a global economic crisis, the greater monetary
priority was addressing the issues of that time, not
stashing away stocks of money for the never-never. The
National Party under Robert Muldoon fully exploited that
misplaced priority.

When in power again in 1985,
Douglas turned to the redistributive face of Labour,
means-testing the ‘universal superannuation’ which had
existed in one form or other since 1940.

Nevertheless,
still alive and well at 88 – and long-after he established
New Zealand’s most right-wing party, ACT – Roger Douglas
is still pushing for the same sovereign wealth fund that his
grandfather wanted in 1937 and that briefly operated fifty
years ago. This time he has University of Auckland
Economics’ Professor Robert MacCulloch at his side, claiming
this pension fund as a magic bullet solution to New
Zealand’s present stagnation (refer GDP
drop sparks calls for Willis to step aside, RNZ,
19 Sep 2025). One-again, withdrawals from the ‘circular-flow
of money’ will not rejuvenate an economy which desperately
needs injections of
‘money-in-circulation’.

Kwasi-nomics

interesting recent episode was the Fall 2022 rise and fall
of Liz Truss
as United Kingdom Prime Minister, and her hapless Chancellor
of the Exchequer Kwasi
Kwarteng. Truss and Kwarteng were right-wing monetary
mavericks, willing to expand the United Kingdom’s public
debt through ‘unfunded’ tax cuts. Yet the structure of those
tax cuts was principally to allow the already rich to become
richer, rather than to inject the money into where it was
most needed. Subsequent to her effective dismissal, she went
on to laud Argentina’s hatchet (aka chainsaw) President Javier
Milei whose modus operandi is to drain money from those
sections of Argentine society which most need it. Kwarteng
and Truss were co-authors of Britannia
Unchained, which argued
‘for a radical shrinking of the welfare state in order “to
return it to the contributory principle … that you get
benefits in return for contributions”. That’s the same
quasi-economic principle which underpins labour
mercantilism.

Ricardian Equivalence

Equivalence is an idea gleaned from classical
macroeconomics which became fashionable within
neoconservative economics in the 1980s. It claims that
fiscal policy is futile; that increases in government
spending are ‘internalised’ in such a way that private
spenders adjust by spending less. It has been widely used as
an argument for the futility (rather than the centrality) of
government spending as an engine to establish a healthy
full-employment market economy.

Neoconservatives push
the liberal-mercantilist monetary narrative as the only
valid macroeconomic policy programme. Ricardian Equivalence,
much-touted by economic liberals to justify fiscal
conservatism, puts all their policy eggs into monetary
policy. Meaning the monetary policy, based on innate money
scarcity, of using interest rates to recreate the primordial
costs previously associated with gold and silver

Ricardian Equivalence is a ‘straw man’
argument. In as much as the data supports it, that
conservative characterisation of government spending does
not apply to economies stuck in depressions or structural
recessions. Only programmes of active government spending
– or waiting for too long – can resolve a structural

And the monetary system always requires
enough public debt to act as the banking-system’s ‘modern

Modern Monetary Theory is a
valid description of money as it actually is (and was), and
a policy recipe for economic growth. There are important
twenty-first century stories which require money to be
something more; in particular, a means to generate higher
living standards and productivity without requiring economic
growth. This is partly an issue of work-life balance, better
enabling those who wish to choose more leisure and less
work. And a prosperous future without economic expansion
will be a requirement of a future of demographic
contraction, as is forecast for the end of this

To achieve these ends, we have to go beyond
public-debt-induced peoples’ money to achieve ways in which
ordinary people – households of people who consume goods
and services among other things – can choose their own
balances between consumption and other facets of good

It can be done. Public equity dividends –
dividends arising from public domain capital, equal and
unconditional, complementing private incomes – can enable
the overworked to work less and the underworked to work
more. That could be the future direction of modern

Keith Rankin (keith at rankin dot nz),
trained as an economic historian, is a retired lecturer in
Economics and Statistics. He lives in Auckland, New

© Scoop Media