by
Robert Cauneau
8 May 2025
Is Money Magic, or Just Misunderstood?
Introduction
« There is no magic money. » With this phrase, hurled at a nurse in 2018, President Emmanuel Macron joined the long political tradition of dismissing any social demands or alternative thinking on public finances with a pseudo-realistic statement. Before him, Margaret Thatcher already repeated that « the State has no money: it only has the taxpayers’ money. » As for Elon Musk, he recently spoke of « magic money computers, » emphasizing their ability to create money « out of thin air. » In any case, the message is clear: anyone who challenges budgetary orthodoxy believes in unicorns and wants to print money. This rhetoric is not insignificant: it serves as a justification for austerity policies with often serious social and economic consequences.
The specter of « magic money » is often raised to ridicule Modern Monetary Theory (MMT). But is this criticism based on an honest understanding of what this monetary approach actually says, or on a caricature that is as convenient as it is misleading? This is what this article aims to analyze.
Far from ignoring economic constraints, MMT is instead based on a rigorous interpretation of the real capabilities of modern monetary states and the operational nature of money. This article will first explain what exactly the caricature of « magic money » covers, then what MMT actually says. Finally, it will show how this criticism is not only unfounded, but often serves to legitimize austerity policy choices.
1. « Magic Money »: A Simplistic Caricature
What critics of MMT call « magic money » is the idea that a state could « print money » at will to finance any expenditure, without limits or consequences. This cliché is generally compounded by the fear of hyperinflation, fueled by recurring references to Zimbabwe or the Weimar Republic. 4 As if asserting that the state can create money automatically provokes an uncontrollable inflationary spiral.
This vision is not only caricatured, it is also anachronistic. The image of the « printing machine » evokes a bygone world where monetary creation is physical, mechanical, and fundamentally suspect. But in a modern economy, money is essentially digital, and its creation is a simple accounting exercise, an operational reality that MMT only describes, and which is already at work when, for example, the central bank purchases government securities or credits the Treasury account.
Another common criticism is based on the notion that public deficits are inflationary. However, MMT demonstrates that public deficits do not directly cause inflation, because they do not automatically lead to an increase in interest rates. On the contrary, by increasing bank reserves, they exert downward pressure on rates, unless the central bank intervenes to adjust liquidity. This perspective challenges the traditional idea that government deficits are inherently inflationary. And, as Eric Tymoigne describes empirically, « A simple examination of the data for the United States shows that the automatic association of budget deficits with inflation is not justified. »5
Figure 1 – Fiscal Policy and Inflation in the United States, from Q1 1913 to Q1 2021
This leaves the implicit accusation: MMT denies the laws of economics, claims to solve all social and ecological problems with a wave of a monetary wand, and disregards the need to produce real wealth. This is an interpretation that deliberately ignores the safeguards and risk analyses at the very heart of MMT.
2. What MMT really says: no magic, but different rules
Money control with a floating exchange rate : The heart of MMT is based on an accounting observation: a state that creates its own currency, does not borrow predominantly in foreign currency, and allows its exchange rate to float cannot default in its own currency. 6 It can still make its payments, because it is the creator of the unit of account used to issue its securities.
Money as a fiscal construct : Money is not a neutral or natural object: it is a claim on the state. 7 What gives a currency its value is that the government requires its use to pay taxes. This fiscal obligation is the basis of the demand for money. Therefore, the government’s budget cycle is not one of taxing to spend (like a household), but rather of spending first (injecting money), then taxing (withdrawing money). Public spending injects money into the economy; taxes allow it to be withdrawn.
The real limit: full employment, not financing : Contrary to the orthodox view, MMT places the limits of public spending not in the government’s financing capacity, but in the economy’s actual production capacity. Inflation is not a limit in itself, but a signal indicating that demand exceeds the supply of available goods and services. The crucial question is therefore not whether the government can finance itself, but whether the economy can produce enough to meet the demand induced by its spending. The constraints are therefore real: availability of skilled labor, access to raw materials, technological progress, and infrastructure capacity. As long as resources remain underutilized—unemployment, untapped industrial capacity—the state has the ability, and even the duty, to mobilize them through public spending, unhindered by nominal financing considerations. Monetary creation, in this context, allows these resources to be harnessed to achieve economic and social objectives, but it cannot resolve structural problems such as resource shortages or technological bottlenecks.
Another role for taxes and government securities : From the perspective of MMT, taxes and government securities play roles quite distinct from financing public spending. Taxes are not used to finance the state, but rather to manage the demand for money, establish the legitimacy of the national currency, redistribute wealth and influence economic behavior by changing incentives (for example, a carbon tax to promote the energy transition). As for government securities, they are not necessary to finance the sovereign state; their main role is to provide a safe investment for the private sector and to help regulate interest rates.
3. The Criticism of « Magic Money »: An Ideological Weapon
Therefore, the critique of « magic money » is not so much aimed at correcting an economic error as at imposing a neoliberal or austerity ideological vision. By conflated MMT with fiscal irresponsibility, it allows the question of the role of public spending in full employment, the ecological transition, or economic recovery to be dismissed without discussion.
A Misrepresentation of Intent : MMT considers inflation an important signal indicating a potential overheating of the economy, but emphasizes that the fundamental limit to public spending is the full employment of resources, including labor, capital, and raw materials. To manage demand and prevent excessive inflation, MMT proposes regulatory tools such as a flexible fiscal policy aimed at adjusting the demand for money, and a job guarantee to absorb available labor and act as a buffer against inflationary pressures. The job guarantee aims to maintain a balance between labor demand and supply, contributing to greater price stability.
The household analogy : a dangerous misunderstanding: Comparing a government budget to that of a household ignores a fundamental distinction: a household is a user of money; the government is its creator. A household must first earn money before spending it. The government creates money by spending. Equating the two fosters confusion, justifies unjustified restrictions, and ultimately forgoes the full use of public policy levers for the common good.
4. What MMT really invites debate
Rather than dismissing MMT with simplistic slogans, it would be much more useful to address the real questions it raises. The first, and arguably the most delicate, concerns the assessment of an economy’s true capacity. How can we measure, with a minimum of rigor, the extent to which available resources can be mobilized without triggering excessive inflation? Can we anticipate productive bottlenecks without falling into arbitrariness or timidity? MMT, which sets full employment as the real limit and not an accounting deficit threshold, pushes us to rethink our sustainability indicators.
It also questions the role of institutions in the conduct of monetary and fiscal policy. If monetary creation is a tool of sovereignty, then its governance cannot be left to an independent technocracy. The question then becomes: how can we ensure democratic, transparent, and responsible management of these levers, without falling into electoral short-termism or capture by private interests? Contrary to fantasies about a currency « in the hands of populists, » MMT calls for collective, informed, and deliberative management of economic policy.
It also places a fundamental question back at the center of the debate: what should public spending be used for? Rather than asking whether we « can » finance the ecological transition, public services, or the reduction of inequalities, MMT leads us to question the real priorities of a society with monetary autonomy. Who decides the allocation of resources? Based on what criteria? Through which institutions?
Finally, MMT forces us to confront the structural limitations of states that do not control their currencies, particularly in the Global South, where many states are dependent on foreign currencies and external creditors, which makes their room for maneuver even narrower. It is therefore an invitation to consider a monetary and financial architecture more consistent with the democratic and social needs of their people.
Conclusion: A Criticism That Avoids the Point
The « magic money » formula is convenient: it disqualifies without having to answer. But it precisely avoids the central question posed by MMT: what can a state that controls its currency do with the resources at its disposal, and for what purposes? This theory denies neither economic constraints nor political responsibilities. It simply reminds us that money is a powerful tool, not a scarce resource for its creator, and that fiscal austerity is not an economic inevitability but a political choice with real and often painful consequences.
It is therefore urgent to move beyond slogans and seriously debate ways to act for the common good, based on a clear understanding of monetary mechanisms.
Notes
- Margaret Thatcher, speech of May 14, 1983 in Cheltenham : « There is no such thing as public money; there is only taxpayers’ money. »
- Watch this video : https://www.youtube.com/watch?v=Xb-SbBJe_Iw
- In an April 2025 podcast, Elon Musk called the US Treasury systems “magic money computers,” emphasizing their ability to create money “out of thin air.” While he was expressing concern about the lack of democratic oversight, this remark unintentionally confirms a central MMT observation: that money is indeed created ex nihilo by simple accounting entries.
- On MMT’s analysis of Weimar hyperinflation, see this article : https://moslereconomics.com/wp-content/uploads/2020/11/Weimar-Republic-Hyperinflation-through-a-Modern-Monetary-Theory-Lens.pdf
- See this article : https://tools.bard.edu/wwwmedia/resources/files/1001/WP%2004%20Tymoigne%20Modern%20Money%20Theory%20on%20Fiscal%20and%20Monetary%20Policies-%20Empirics,%20Theory%20and%20Policymaking.pdf
- See by Warren Mosler : https://moslereconomics.com/wp-content/uploads/2018/04/Soft-Curency-Economics-paper.pdf
- This thesis, called « chartalism, » was developed in 1905 by Georg Friedrich Knapp in The State Theory of Money. It is the foundation of MMT.
- It should be noted that this role disappears when the central bank remunerates excess reserves, which is the case for the Fed and the ECB..
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