Fiat Money is Logically Prior to Capital

A recurring theme of the blog concerns the enhanced social possibilities opened up by ‘sovereign currency’ – also called ‘modern money’ – by which is meant fiat money issued by sovereign government. The social possibilities opened up by sovereign currency follow from an understanding of Modern Monetary Theory (MMT), which makes clear that a currency-issuing government, especially one that permits the exchange rate to float, faces no revenue constraint. The constraints on such a government fall into two broad categories: real resource constraints and political constraints.

Kalecki’s skepticism regarding the maintenance of full employment under capitalism is one example of how political factors are sometimes argued to narrow social possibilities. In this connection, though, it is worth highlighting that Kalecki’s skepticism did not relate to the maintenance of full employment per se, but more specifically to full employment under capitalism. Even if Kalecki’s assessment could be proved correct, this would not preclude the pursuit of ongoing full employment. It would mean, rather, that the achievement of this goal would require a transcending of capitalism.

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