Monetary policy is ultimately based on a theory of money: A Marxist critique of MMT

By Costas Lapavitsas and Nicolás Aguila

During the last two decades, Modern Monetary Theory (henceforth MMT) has won wide academic recognition and public influence. Its most prominent achievements include shifting the public debate on the conduct of economic policy and reviving interest in the theory of money. The former tends to attract most of the attention of both advocates and critics of MMT, but this is unjustified. MMT policy conclusions result from its underlying understanding of money, as some of the more illuminating MMT thinkers make abundantly clear (Bell, 2001; Tcherneva, 2006; Wray, 2010, 2014). A far richer assessment of MMT economic policy proposals would result by first considering the foundations of its theory of money, that is, neo-Chartalism.

In a recent article, we contrasted MMT with the Marxist theory of money. We showed that there were four important points of disagreement between these two schools of thought, namely on: (i) the ontology of money, (ii) the state and money, (iii) state economic policy, and (iv) world money and monetary sovereignty. We supported our argument with historical examples that we omit here for reasons of space.

Theories of money

Regarding the ontology of money, for neo-Chartalists, money is a unit of account legally determined by public authorities to measure mutual debt obligations within a community (Tcherneva, 2016). Following Keynes’ famous remark, MMT understands “modern money” as essentially the same “…for some four thousand years at least.” (Keynes 1930:4, quoted in Wray, 2014:15). For us, this approach erases the historical specificity of money, and therefore of capitalism.

In contrast, Marxists consider that the full development of money occurs only under capitalist conditions. Marx (1976) certainly acknowledged the fact that money emerged in pre-capitalist societies. But money did so at the point of mercantile contact between societies, as an external imposition and not as an internal result of the social relationships proper to those societies. Unlike capitalism, these internal relations were organized on the basis of direct personal dependence bonds (Marx, 1986). The products of labor did not take the form of commodities systematically and regularly, while social reproduction did not depend on generalized mercantile exchange, and thus on money.

Conceptualizing the mutual obligations that existed in these societies (including “non-economic” ones such as wergild, dowry, bride-price, and blood money) as forms of credit requires imposing upon them a mercantile character that they did not originally possess. To be sure, these societies required some sort of unit account and even some recording device for obligations (a tally, for example) but that cannot be properly considered as money.

The specificity of capitalism is crucial to understanding money. Capitalism is an economic formation in which general social relations are no longer direct but are mediated by the products of work that take the form of commodities. Even the ability to work becomes a commodity in the labor market. Thus, capitalism requires the emergence and constant presence of money as the universal equivalent allowing commodities to express their values and exchange with one another (Lapavitsas, 2005). Money is a commodity that emerges spontaneously and proceeds to act as the organizer of the total social labor, when production is dominated by private, autonomous, and independent units. For Marxist theory, money is not the creation of the state or any other authority external to markets. On the contrary, money is endogenously and constantly created through the characteristic interactions of capitalist markets. Capitalism extrudes money from every pore.

What is the role of the state?

Regarding the role of the state in the functioning of money, MMT argues that the unit of account is arbitrarily imposed by the state. In particular, modern nation-states impose a liability in the form of a tax obligation and name the “thing” they will accept in payment (Tcherneva, 2006). Since agents must possess it to pay taxes, the “thing” becomes the general means of exchange and payment, and thus money. From this standpoint, money is an institutionalized social relationship based on state authority, which has the monopoly to issue and can choose anything to be money irrespective of material (Wray, 2010). The state can also define money’s value by unilaterally determining the terms on which it is offered, for example through a Job Guarantee (Tcherneva, 2016).

For Marxist political economy, similarly to MMT, the state is able to determine the unit of account and the central bank can issue money that functions as legal tender (Lapavitsas, 2017). However, the state operates within parameters set by the endogenous creation of money and money’s character as the universal equivalent. The functioning of the unit of account is part of the broader functioning of money as measure of value, which is certainly not within the power of the state. Money is a creature of commodities and not of the state.

When it comes to state economic policy, MMT follows the approach of Functional Finance, including the idea that the state can issue money to command resources up to the limit given by the inflationary constraint (Lerner, 1943). The true limit to state power is not a financial constraint on the public budget, but rather the availability of real resources. In this way, the state can seemingly alter the distribution of income without taking income from anyone: it has the power to simply create money to buy output from some people to give to others. It could, for example, provide a job guarantee at a living wage for everyone who wants to work and direct those jobs toward socially useful activities, such as the green transition or providing care (Wray et al., 2018).

How does Marxist policy analysis differ?

While the goals of full employment, green transition, and the universal provision of care are shared by Marxists, the conception of how to achieve them is significantly different, and the theory of money is an important part of it. Marxist economic theory postulates the unity of social relations of production and distribution. Printing money, while operationally feasible, is a small part of tackling inequality, the climate and care crisis, and the other evils of contemporary capitalism. There is no real hope of achieving these aims without a radical shift in the economic formation of society that involves income and wealth redistribution.

For Marxists, taxation and income transfers are a legitimate part of government policy even when real resources are lying underutilized. Moreover, a systemic response to the social problems created by capitalism would require a profound transformation going far beyond monetary policy, or a Job Guarantee. It would involve property rights, above all, expropriating capitalists and rentiers and creating a democratically planned society with radically different ways of producing and distributing. Socialism is necessary, not just a version of capitalism with better distribution and employment.

Monetary sovereignty and World Money

Finally, on the issue of monetary sovereignty, MMT advocates generally treat the lack or limitation of such sovereignty as a self-imposed ordinance by several nation-states (Tcherneva, 2016; Tymoigne, 2020). According to Wray (2019), monetary sovereignty comprises of: i) the national government choosing a unit of account; ii) the national government imposing obligations denominated in that unit of account; iii) the national government issuing currency in that unit of account and accepting it in payment; iv) the national government issuing other obligations denominated and payable in national currency; and v) a flexible exchange rate.

For Marxist political economy, monetary sovereignty depends on the relationship between capitalist accumulation in a nation-state and the ability to acquire world money, which in turn reflects a country’s place in the world market. The need for world money becomes clear once we consider capitalism as a global system, as it is needed for commodity transactions, the transfer of value, and the settlement of obligations among different parts of the world. The passage from the national to the international realm is a major problem for neo-Chartalist theory as there is no supranational state choosing units of account or having the power to tax at the international level.

The capacity to acquire world money necessary for participation in the world market differs dramatically among nation-states, and thus the global monetary system is hierarchically structured. In contemporary capitalism, one country, the U.S.A., issues quasi-world money, subject to competition by others. The lack of monetary sovereignty for other countries, far from being a policy choice, results from their subordinated position in the international hierarchy. This is particularly relevant for analysing economic policy in developing countries, where MMT prescriptions lose much of their appeal (Bonizzi et al., 2019; Prates, 2020; Vernengo & Caldentey, 2019).

Recapping and despite making several critical points, we would like to stress that MMT has made important contributions to the critique of mainstream Economics, while offering penetrating insights into the mechanics of spending, taxing, and borrowing. But there are limits to what MMT can contribute to the radical critique of capitalism, which derive ultimately from its problematic conceptualization of money. These limits have significant consequences for left politics. Marxism remains an indispensable guide in this respect.


Bell, S. (2001). The role of the state and the hierarchy of money. Cambridge Journal of Economics, 25(2), 149–163.

Bonizzi, B., Kaltenbrunner, A., & Michell, J. (2019). Monetary sovereignty is a spectrum: modern monetary theory and developing countries. Real-World Economics Review, 89, 46–61.

Lapavitsas, C. (2005). The Emergence of Money in Commodity Exchange, or Money as Monopolist of the Ability to Buy. Review of Political Economy, 17(4), 549–569.

Lapavitsas, C. (2017). The Theory of Credit Money: A Structural Analysis. In Marxist Monetary Theory. Collected Papers of Costas Lapavitsas (pp. 23–50). Brill.

Lerner, A. (1943). Functional finance and the federal debt. Social Research, 10(1), 38–51.

Marx, K. (1976). Capital. A critique of political economy. Volume I. Penguin.

Marx, K. (1986). Collected Works. Volume 28. International Publishers.

Prates, D. (2020). Beyond Modern Money Theory: a Post-Keynesian approach to the currency hierarchy, monetary sovereignty, and policy space. Review of Keynesian Economics, 8(4), 494–511.

Tcherneva, P. (2006). Chartalism and the tax-driven approach to money. In P. Arestis (Ed.), A Handbook of Alternative Monetary Economics (pp. 69–86).

Tcherneva, P. (2016). Money, Power, and Monetary Regimes. The Levy Economics Institute Working Paper, 861.

Tymoigne, E. (2020). Monetary Sovereignty: Nature, Implementation, and Implications. Public Budgeting and Finance, 40(3), 49–71.

Vernengo, M., & Caldentey, E. P. (2019). Modern Money Theory (MMT) in the Tropics: Functional Finance in Developing Countries. Challenge, 0(495), 1–17.

Wray, R. (2010). Alternative Approaches to Money. Theoretical Inquiries in Law, 11(1), 29–49.

Wray, R. (2014). From the State Theory of Money to Modern Money Theory: An Alternative to Economic Orthodoxy. The Levy Economics Institute Working Paper, 792.

Wray, R. (2019). Alternative paths to modern money theory. Real-World Economics Review, 89, 5–22.

Wray, R., Dantas, F., Fullwiler, S., Tcherneva, P., & Kelton, S. (2018). Public Service Employment: a Path To Full Employment. The Levy Economics Institute Policy Note, 2.

Costas Lapavitsas is a professor of economics at the School of Oriental and African Studies, University of London. He tweets at @C_Lapavitsas.

Nicolás Aguila is a researcher at Centro Interdisciplinario para el Estudio de Políticas Públicas (CIEPP). He tweets at @nicolasaaguila.

Photo by Keegan Houser/Unsplash.

5 thoughts on “Monetary policy is ultimately based on a theory of money: A Marxist critique of MMT

  1. Ingham’s ontology of money as a social relation of credit/debit constituted by evolving forms of authority allows for a symbiosis with this Marxist conceptualization.


Leave a Reply to Marx, marxistentzat – Heterodoxia Cancel reply


You are commenting using your account. Log Out /  Change )

Twitter picture


Facebook photo


Connecting to %s