MMT and the Deficit Myth: The New Architecture of State Accountability

Fundacja Dobre Państwo • January 18, 2026 • 🇵🇱 Polski

Introduction: A New Architecture of State Responsibility

Modern Monetary Theory (MMT) represents a Copernican revolution in economics, rejecting the view of money as a scarce resource. Instead of treating the state like a household, MMT portrays it as a sovereign currency issuer whose constraints are real, not accounting-based. This article analyzes how Stephanie Kelton revises myths about debt and deficits, proposing a model of functional finance. You will learn why, in an era of climate and social crises, it is crucial to shift from counting pennies to actively managing a nation's productive potential.

A Copernican Revolution: From Taxes to Spending

The foundation of MMT is the distinction between the currency issuer and the currency user. A state that holds a monopoly on creating its own money does not need to "collect" it through taxes before it can spend. In a fiat money system, public spending precedes taxation. Taxes do not fund the budget; rather, they serve a regulatory function: they create demand for the currency and allow for the management of economic capacity, preventing the economy from overheating.

From this perspective, inflation—not the deficit—is the real limit on budgetary spending. It signals the moment when nominal demand exceeds physical productive capacity (labor, energy, raw materials). MMT exposes fiscal orthodoxy as a form of moral blackmail and sharply criticizes the concept of NAIRU. Using unemployment as an "inflation anchor" is considered a costly waste and a categorical error that harms the most vulnerable.

The Job Guarantee and a New Institutional Symbiosis

In place of an "unemployment buffer," MMT proposes a job guarantee. This is an automatic stabilizer that provides work to anyone willing to work at a fixed base wage, stabilizing the business cycle and anchoring prices. In this view, public debt is essentially a record of private sector savings (so-called "yellow dollars"), not a burden on future generations. The Treasury and the Central Bank should work in symbiosis, financing public goals instead of fetishizing a balanced budget.

The main lines of criticism against MMT in business and academia concern inflation risks and institutional stability. However, Kelton responds that social deficits—shortages in infrastructure, education, or healthcare—are the real threats to national stability. Institutional challenges require building an apparatus capable of precise resource mapping, which would avoid political arbitrariness and effectively bridge developmental gaps.

Resource Management Over Budgetary Bookkeeping

Monetary sovereignty is the foundation of the dignity of work and state agency. MMT calls for a shift in focus from bookkeeping to resource management—mapping the real productive capacity of the country. The 2020 pandemic served as a test for these proposals, proving that the state can act as a guarantor of last resort, creating liquidity where the market contracts. This experience debunked the myth that there could be a "lack of money" for important social goals.

The state, as an organizer of productive capacity, must identify economic bottlenecks and direct investment where it will yield productivity growth. MMT exposes traditional austerity policies as an ideological choice rather than an economic necessity. In a world of structural uncertainty, monetary sovereignty allows for a bold energy transition and the building of national resilience, provided the process is based on real resource planning.

Conclusion: Beyond the Deficit Myth

Can a state, freed from the shackles of moralizing budgetary metaphors, shoulder the responsibility for resource allocation while avoiding the temptation of political infantilism? MMT rejects the ascetic morality of saving in favor of functional finance, which evaluates policy based on its real impact on prosperity and price stability. Will we dare to trust a state that does not pretend to be a household, but instead becomes a conscious architect of prosperity—even if that prosperity is debt-financed? Or is it safer to remain in the grip of old fears, condemning ourselves to the administration of scarcity?

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Summary

This article provides an in-depth analysis of the assumptions of Modern Monetary Theory (MMT), drawing on the work of Stephanie Kelton. The author deconstructs the "deficit myth" ingrained in public debate, demonstrating that a state, as a sovereign issuer of currency, cannot default on the units it creates. The text shifts the focus from accounting debt to the availability of real economic resources, such as labor, raw materials, and technology. A key element of the argument is a redefinition of the role of taxes and the proposal to introduce a job guarantee as an automatic economic stabilizer, constituting an alternative to the NAIRU model. The analysis sheds new light on the architecture of state accountability, suggesting that the budget should serve social goals and the full utilization of productive potential, not merely the balancing of numbers. This is an invitation to an intellectual "Copernican shift" in the understanding of public finance.

Frequently Asked Questions

What is the difference between a currency issuer and its user in the MMT theory?

The issuer, i.e., the sovereign state, creates money through spending, while the user, such as a household or a company, must first acquire the funds before it can be spent.

According to MMT, is a budget deficit a negative phenomenon?

No, MMT views public deficits as accounting reflections of private sector surpluses and savings, as long as they do not lead to real resource constraints being breached.

What is the real limit on government spending?

The real constraint is not money, but the availability of real resources such as labor, raw materials and technology, the excessive strain of which results in inflation.

What role do taxes play in a sovereign currency system?

Taxes do not finance government spending, but give value to the currency by forcing demand for it and serve as a tool to regulate inflation and demand.

What is the 'employee buffer' proposed by Kelton?

It is a system of employment guarantees that replaces unemployment with work in the public sector, stabilizing the economy without the need to socially exclude people.