Econ Bro | Associate | Free Market Foundation | mail me |
Some months ago, I exchanged views with Buddy Wells, one of South Africa’s more vocal supporters of Modern Monetary Theory (MMT).
In our debate, he argued a familiar point. According to him, governments can print money to employ the jobless without causing inflation, as long as those being hired are not already doing anything useful.
His example? Teachers. If they are unemployed, he claims they are “idle”. Therefore, print some money, hire them and there you have it – more education, no inflation. It sounds simple, but only because it ignores how real economies function. More troublingly, it is built on a false assumption.
Why “idle” doesn’t mean useless
The idea that “idle” resources can be employed without cost is not new. John Maynard Keynes promoted this notion in the 1930s. However, his view did not go unchallenged. One of his fiercest critics, W.H. Hutt, published a book in 1939 titled The Theory of Idle Resources. In that work, Hutt dismantled the lazy assumptions at the core of Keynesian thinking.
Hutt’s main insight is straightforward. Just because something is not being used does not mean it is being wasted. For example, workers might reject low-paying jobs while waiting for better opportunities. Businesses might hold off using machines until they receive clearer signals before investing. Individuals may choose to hoard cash because they do not trust the future. These actions are not failures; they are deliberate and calculated.
Consider Charlize, an unemployed teacher. She might be retraining, relocating or simply refusing to accept a salary that undervalues her skills. Is that irrational? Not at all. It forms part of a broader process of adaptation and self-preservation. Her labour is not idle due to laziness or neglect. It is idle because, under current market conditions – including wages, regulations and alternatives – that is the most rational choice available to her.
The dangerous simplicity of MMT
Suppose the government follows Buddy’s advice and prints Rands to hire teachers. What happens next?
A teacher does not work in isolation. She requires a classroom, a desk, books, electricity, administrative support, transportation and maintenance. In today’s digital era, she may also need access to an online platform. All of these come from other parts of the economy.
These sectors are already active and employing people, machinery and resources. Therefore, the new money does not fund labour that was passively waiting. Instead, it flows into parts of the economy that are already productive. It competes for inputs that were not idle. As a result, prices begin to rise.
This inflation may not be immediately visible in the teacher’s salary. However, it appears in construction materials, electricity, paper, administrative costs and other support services. That is inflation.
As government spending increases through freshly created currency, these inflationary pressures escalate. This effect is not a mere trickle. It behaves more like a ripple. At times, it becomes a wave.
Legal shackles and market distortions
There is another important issue. In many cases, what appears to be unused labour is not the market’s fault. It is the result of laws.
Minimum wage rules might prevent people from accepting the wages they are willing to work for. Hiring regulations, union conditions and licensing requirements can all keep able and willing people out of work.
Printing money to pay these individuals does not fix the root cause. It only conceals the real problem and sustains an illusion. This tactic gives the appearance that the government is taking action, while the actual causes of unemployment, such as poor regulation, flawed policies and skewed incentives, remain in place.
Savings, not printing, builds economies.
Austrian Economics, the school of thought that inspired many of Hutt’s ideas, emphasises something that MMT theorists consistently overlook.
Real production and economic growth come from real savings. That means someone, somewhere, delayed consumption today to allow capital formation and enable future wealth creation. You cannot bypass this process with a printing press or a keyboard.
When money appears without the backing of real goods and services, the result is either price inflation or a drop in quality. In either case, value is destroyed.
Inflation acts as a silent thief of purchasing power. It may stay hidden for a while behind rising productivity or global deflationary forces, but it eventually emerges. MMT, however, presents this theft as a legitimate policy tool.
The dangerous simplicity of MMT – the unseen cost of easy money
MMT advocates often cite periods when central banks printed vast amounts of money without triggering hyperinflation. Yet they fail to consider what might have occurred without that printing.
Prices might have decreased. Standards of living might have improved. Investment could have shifted to more sustainable uses. Just because an economic system did not collapse does not mean it remained healthy.
There is always a cost. It simply hides behind the headlines.
In conclusion
Buddy Wells, along with the MMT camp he supports, treats money as if it were magical. Unemployed workers? Just print money and hire them. Low demand? Print and spend. But reality is not so accommodating.
Resources are not idle because the market failed. They are idle because people make choices. Often, those choices are rational. When governments intervene using printed money, they distort those choices and blur the signals that help guide them.
An economy cannot be healed by flooding it with paper and hoping it corrects itself.
