MMT Removes The Limits On Government, And That Should Worry Us

MMT doesn't only propose a different way of managing money. It proposes removing a set of limits that, however imperfect, have forced governments to answer for their spending.

Photo by Mackenzie Marco on Unsplash

That Modern Monetary Theory (MMT) confuses money with wealth, causes inflation, distorts prices and interest rates and investment are valid economic objections to it. Even if one could somehow solve these problems, I would ask a further question: what happens to the incentives facing the state itself, once the ordinary fiscal constraints are removed?

Taxing later assumes a self-control governments rarely show

MMT’s answer to inflation is to raise taxes to pull money back out of the economy. The theory treats this as a technical adjustment, as easy as changing a setting on a machine.

SA’s recent VAT history provides a useful test of that idea. Raising VAT by a single percentage point, from 14% to 15% in 2018 met fierce opposition, though it did go through. A later attempt in 2025 was first proposed at two points, cut back to a phased one-point rise, and then withdrawn entirely after coalition partners pushed back. Treasury said the withdrawal would leave a medium-term revenue shortfall of about R75 billion. So even a modest tax increase, with the whole case for it laid out, was hard to sustain.

Now imagine a government that has already spent heavily on, say, a wider NHI rollout or a large public employment scheme, paid for on the promise that taxes would rise if needed. The spending is popular, and the projects have produced visible jobs and clinics. Reversing course with a tax increase to cool inflation would ask elected officials to impose a visible, costly pain on voters who enjoyed a gain that has already been spent and spread thin. The 2025 episode suggests that sequence would not go smoothly. The more likely outcome is that the spending continues, the tax increase is delayed or weakened, and the gap is closed by letting inflation do the work instead. The point is that the incentives of democratic politics make “spend now, tax later” tend to become “spend now, and let inflation collect the tax instead,” and that this has nothing to do with politicians being especially dishonest.

Governments are not neutral referees

Another objection is about how MMT views the state. Much MMT writing treats government spending as though a disinterested planner were matching idle resources to public needs as efficiently as possible. I find this view incredibly naive. The state isn’t a neutral calculator standing above everyone else. It is an institution shaped by interest groups, patronage networks and the need to win elections.

South Africans hardly need convincing after the Zondo Commission’s findings on state capture, when public procurement - supposedly a way of delivering roads, hospitals and power stations - became a channel for moving resources to politically connected people and companies. Now consider giving that same state a doctrine saying it faces no financing limit at all, only a vague limit on real resources. Removing the basic requirement to tax or to borrow from willing lenders doesn’t make the state more careful with resources. It removes one of the few outside checks that sometimes forced a closer look at spending decisions. If state capture taught us that weak oversight combined with easy access to money invites abuse, then a monetary doctrine that loosens the link between spending and financing should make anyone who lived through that period deeply uneasy.

The limit is a safeguard, not a flaw

The requirement that government pay its way, either through visible and politically costly taxes or through borrowing from lenders who might refuse to buy its debt, is not an inefficiency waiting to be engineered away. It is one of the main protections for individual liberty and property against an ever-growing state.

Think about what it means in practice for the South African government to face a real market test when it sells bonds. Investors - whether local pension funds or foreign asset managers - look at the country’s fiscal path and demand extra compensation if they doubt it can last, as the credit rating downgrades from Moody’s and S&P over the past decade show. That signal is uncomfortable and sometimes embarrassing, but it’s a real check, based on honest assessments of whether the country can pay its debts and keep growing. MMT’s claim that a government issuing its own currency “cannot run out of money,” and so need not worry about market discipline in the same way, removes exactly this check. Once government spending no longer must convince taxpayers or lenders that it is worthwhile, the natural tendency of state power to grow loses one of the few forces that has historically pushed back against it.

Why this matters beyond economics

These objections point to the same worry. MMT doesn’t only propose a different way of managing money. It proposes removing a set of limits that, however imperfect and however often ignored, have at least sometimes forced South African governments to answer for their spending. Combined with the narrower economic objections, this is why I see MMT as a threat not only to stable prices but also to the accountable, disciplined government that stable prices are meant to support.

Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.