Unleash the government and shaking the money tree

By Brendan Maton

Photo by Pepi Stojanovski on Unsplash

At the Conservative Party Conference in 1983, then UK Prime Minister Margaret Thatcher reassured her audience and the nation that she would never waste taxpayers’ money. Thatcher didn’t quote any figures or try to explain how the tax-take related to government spending in numbers. She instead made a quite stark assertion that every pound note spent by the British government came from taxpayers:

“There is no such thing as public money. There is only taxpayers’ money.”

This kind of statement gives a pleasing sense of power to many voters in a democracy. It makes them feel in charge. The government works for us because its money comes exclusively from us. Taxes are like the leash on a dog: beg if you want some slack (but all the while expect to be back on a tight leash pretty soon).

You can still hear leaders wringing their hands when it comes to any big expenditure. When she was challenged on multi-year pay freezes in the NHS, Theresa May responded:

“There isn’t a magic money tree that we can suddenly shake that provides for everything people want.”

Stephanie Kelton, Professor of Economics and Public Policy at Stony Brook University and economics advisor to Bernie Sanders during his presidential campaign of 2016, pours scorn on the Money Creation myth outlined above. Her first point of attack is that while it makes explaining the economy easier if you liken a government budget to a household budget, the truth is that they are fundamentally different.

If a household runs up big debts and then runs out of money to stay current on its bills, it has to cut its budget or start looking at precious things (the house, the car, any family jewels) to hock or sell. Other alternatives are to get a better-paid job or get more of the household into employment.

Most governments, on the other hand, have the power to create money, a unique kind of monopoly which allows them to avoid bankruptcy. The government can use the money it creates to pay down existing debt or fund new hospitals or co-create a new technology park. So government does not have to balance its books in the same way as a household.

But ever since the era of Thatcher in the UK and Ronald Reagan in the US, governments on both sides of the Atlantic have boasted that they don’t want to spend more than they receive. Bill Clinton’s US administration ran surpluses. Former UK Prime Minister Gordon Brown devised measures to prove he was “fiscally prudent”. The European Union says Member States must not run deficits more than 3% of their GDP. We are told Central Banks rather than government control vital elements of monetary policy.

Kelton argues such policies, fixated on the short term, obscure the State’s vital role as a co-driver of economic growth. Along with other pioneers of Modern Monetary Theory (MMT), Kelton encourages politicians to use their unique status as originators of their own currency to spend what is required to maintain a full-employment economy. Think about guaranteeing work for all able adults or making university education in the US free (Sanders and then Hillary Clinton adopted the latter policy in their Presidential bids).

…the government should use its budget to deliver a balanced economy — one that works for everyone and not just those at the top

This is big government, the kind that created the NHS. Kelton argues that when the government supports people via free education or guaranteed work, these people in turn will buy more goods and services, growing the economy. This approach to fiscal policy is the antithesis of what has passed for public policy over the last forty years, which demands government balance its books and leave job creation to the private sector — those taxpayers Thatcher was so keen to leave unencumbered. If Kelton’s views can be summarised in a single bit of policy advice, it is this: instead of using austerity to force the economy to balance the budget, the government should use its budget to deliver a balanced economy — one that works for everyone and not just those at the top.


Stephanie Kelton is a UCL Institute for Innovation and Public Purpose (IIPP) Advisory Board member and recently presented a lecture as part of of our Rethinking Capitalism undergraduate module on “Rethinking fiscal policy”. These lectures will be released weekly to the public. Follow us on YouTube for more or check this page weekly.

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UCL IIPP Blog

The official blog of the UCL Institute for Innovation and Public Purpose | Rethinking how public value is created, nurtured and evaluated | Director @MazzucatoM | https://www.ucl.ac.uk/bartlett/public-purpose/

UCL Institute for Innovation and Public Purpose

Written by

Changing how public value is imagined, practiced and evaluated to tackle societal challenges | Director: Mariana Mazzucato | Deputy Director: Rainer Kattel

UCL IIPP Blog

The official blog of the UCL Institute for Innovation and Public Purpose | Rethinking how public value is created, nurtured and evaluated | Director @MazzucatoM | https://www.ucl.ac.uk/bartlett/public-purpose/

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