Degrowth, Decolonization, and Modern Monetary Theory

Winne van Woerden, Chris van de Ploeg
Depiction of Pedro Álvares Cabral landing in Porto Seguro in 1500, ushering in more than 300 years of Portuguese rule of Colonial Brazil. By Oscar Pereira da Silva – Own work, Public Domain,

July 27, 2022

Up until recently, the degrowth movement has given little attention to macroeconomic theory. Yet, contributions on the macroeconomics of a degrowth transformation in the global North and South are increasing. In this essay, we will discuss a novel macroeconomic theory in relation to engendering a decolonial degrowth transformation, i.e. Modern Monetary Theory (also known as MMT). We hereby tap into a broader ongoing discussion on how to pay for a social ecological transformation wen rich nations aren’t able to grow anymore.

The MMT proposition

MMT has praisefully been described as a ‘macroeconomic theory profound enough in its implications to usher in a new societal paradigm’ and ‘macroeconomics done properly’. MMT theorists begin with separating nations into those that are monetary sovereign and those that are not. In order for a nation to be monetary sovereign, it needs a) to issue its own currency, b) collect taxes in the same currency c) only issue bonds denominated in that same currency with no significant government borrowing/debt in foreign currencies d) not have a forcibly fixed exchange rate,. Monetary sovereignty matters since whoever controls a currency gets to decide how labor and resources are used. MMT theorists point out that governments that control their own currencies are not like households. They do not, contrary to what is argued by neoclassical economists, have to “balance their budgets”, and do not have to tax, issue government bonds or sell assets before they can spend. In essence, a state that controls its own currency creates new money whenever it spends.

From the perspective of MMT, governmental spending is not limited by public debt but rather by inflation. Indeed, the topic of inflation is often brought up by MMT critics, who claim that printing money will inevitably cause inflation because ‘more money is chasing the same goods and services’. Nevertheless, mainstream neoliberal institutions, including the European Central Bank, have been notoriously bad at predicting inflation rates. The US federal reserve recently admitted quite frankly that it does not actually understand what drives inflation. MMT offers a more comprehensive and empirically convincing theory of inflation.

According to MMT, inflation is caused by a situation where excess demand surpasses a country’s real resource base (i.e. its productive capacity). From an MMT perspective, issuing currency will increase demand (since there is more money circling around in the economy) which indeed creates a risk of inflation. However, if the newly printed money is spent in a way that enhances or better utilizes the productive capacity of the country (creating solar panels, improving the health care system, insulated public housing etc.) inflation can be prevented. In other words, there is more money chasing more (meaningful) goods and services.

Furthermore, if the productive capacity of the country does actually reach its limits, inflation can be controlled by taxation. From an MMT perspective, the purpose of taxation is not to fund government spending, but rather to reduce excess demand.

This brings us to the second driver of inflation besides the level of productive capacity: concentrated economic power. There is substantial empirical evidence showing that inflation is driven by cartels and monopoly capital that disproportionately drive up their prices to increase their profits, therefore appropriating a larger share of income away from the common people. MMTers emphasize that income is in essence the obverse of prices. Therefore, there will always by definition be enough income to purchase all commodified goods and services and there will never be a deficit of purchasing power in the economy. What matters is distribution. More specifically, an equitable distribution of purchasing power. Such a view reveals the class dynamics of inflation: without additional social arrangements put in place, inflation will lead to a situation where the rich have more to spend, increasing their command over resources, leading to a cost-of-living crisis for ordinary people. In essence, inflation becomes a crisis of distribution, not of income.

A second prescription of progressive MMT scholars to control inflation is therefore to break up with forms of elite economic power that can arbitrarily raise prices by taxing or regulating it away – either as a desirable policy in its own right, or to simultaneously alleviate excess demand from the economy.

Combining these two insights, MMT shows that the government can spend how much it wants on desirable sectors of the economy (healthcare, education, green energy) and tax away any excess demand from undesirable sectors of the economy (luxury consumption, fossil industries, capital monopolies, military industries). In essence, what MMT says is that what matters for government expenditure is balancing the economy instead of balancing the budget. The real limitations of an economy become physical, not fiscal.

MMT and degrowth in the Global North

It goes without saying that degrowth requires addressing common perceptions  that uphold our current economic growth dependency. Many of such beliefs are in fact related to national government debt and a state’s budget balances. The MMT perspective reveals that if countries are monetary sovereign, these concerns are ungrounded.

Rather, when acknowledging national governments’ massive power (in a situation of monetary sovereignty) to shape and control their economies using the levers of monetary and fiscal policy, ushering in a just degrowth transition becomes way more achievable than currently thought. Any monetary sovereign government could by tomorrow establish generous, high-quality universal basic services, a public job guarantee and a rapid roll out of renewable energy infrastructures while regenerating ecosystems. MMT shows us that it can never say it does not have the money to set up such policies.

Moreover, understanding inflation as a crisis of distribution that increases the cost of living for the majority of the population, reveals that key degrowth policies like strengthening the commons and introducing universal basic services would in fact have a deflationary effect since they reduce the cost of living. MMT’s perspective on income as the obverse of prices, shows that when we agree on which sectors of the economy we want to scale down and which goods and services we need to meet everyone’s needs, there will always be enough income to purchase everything that remains commodified.

MMT and decolonization of the global South

Besides strengthening the call for degrowth in the global North, MMT can serve as a powerful tool to achieve full decolonization of the global South. We know that at present, Southern labor and resources are organized around the economic interests of the imperialist world, representing a drain since the 1960s worth 152 trillion dollars. We also know that most Global South countries currently rely heavily on external finance through their debt to foreign creditors in currencies they do not control themselves. In other words, they are captive to the demands of international capital and are all but monetarily sovereign.

Applying an MMT perspective to break free from this imperial arrangement first of all means seeing inflation in the South as mostly being ‘imported’ from currency exchange rates and trade imbalances. In turn, these trade imbalances are caused by colonial relations leading to: 1) colonized countries to mainly export raw materials while importing processed or high-technology goods at a much higher price and 2) to currency depreciation. While colonized countries lack food and energy sovereignty, they are forced to import increasingly expensive vital life-lines from abroad. Since such a reliance on foreign currency and imports increases the risk of inflation, reducing this dependency decreases it.

MMT shows that governmental spending could be directly used to invest in energy and food sovereignty that would overcome foreign dependency. However, the debts owed in foreign currencies force formerly colonized countries to produce short-term export-oriented raw materials instead.  MMT scholars therefore call for a debt default by the Global South, something long overdue considering the massive colonialneo-colonial and
climate debts that the Global North owes the South.. In the initial phase, especially in the case of a unilateral default, imposing capital controls to maintain finance within a country becomes crucial. The potential fallout from Western sanctions and capital flight could be managed by investments in the import-sectors we want to replace in the first place as well as south-south cooperation, where terms of trade are much more equal and where relevant goods are increasingly available. In the words of MMT economist Fadhel Kaboub: ‘you can’t decarbonize what has not been decolonized’. A Green New Deal in the Global North without an anti-imperialist framework would set up the majority of the world as a green sacrifice zone.

A decolonial degrowth transformation needs a macroeconomic theory based in social and biophysical reality rather than myth. It seems to us that MMT offers us exactly that: an important insight in the monetary system that opens up tremendous possibilities: for a universal basic income, public job guarantees, agro-ecological food sovereignty, renewable energy independence, labor-intensive Cuban-style healthcare, and much more. The only limit is our capacity to organize and put the rightful arrangements in place in the physical world. Let’s never make a banker believe us otherwise.


Teaser photo credit: Depiction of Pedro Álvares Cabral landing in Porto Seguro in 1500, ushering in more than 300 years of Portuguese rule of Colonial Brazil. By Oscar Pereira da Silva – Own work, Public Domain,