In conversation with…Dr Phil Armstrong

Phil Armstrong, Photo credit MARK EPSTEIN

In the second of my In conversation with … series I talk with Dr Phil Armstrong, arguably the UK’s leading scholar on MMT, modern monetary theory.

Phil is a graduate of the universities of Leeds, Hull and Southampton Solent, the author of Can Heterodox Economics Make a Difference? Conversations with Key Thinkers, (Edward Elgar Publishing, 2020) Can Heterodox Economics Make a Difference? ( amongst other publications and is currently working on what may be the definitive biography of economist and theorist Warren Mosler, one of the leading figures, if not the leading figure in the MMT world. Phil is also a regular podcaster and guest speaker. In addition, he also teaches at York College.

I’ve known Phil and the Armstrong family for a long time, and they’ve played a big role in my life. The roots of that friendship lie way back in my school days. Back then Phil used to teach at my secondary school, The Joseph Rowntree School, York. That educational establishment was founded by the Joseph Rowntree Trust in 1942, and drew on its namesake’s Quaker principles, namely that to make a lasting difference it is imperative to address the root cause of a social or economic problem. Their core values include prizing equality, sustainability, integrity and justice. http://The Joseph Rowntree Charitable Trust – Information for journalists ( Phil never got to teach me during my time there – that role went to his wife Alison, who taught me German, inspired me and laid the foundations for my subsequent career, as well as later teaching students that I would go on to teach at the universities of Leeds and Newcastle. The Joseph Rowntree days are behind us all. Yet, the principles of equality, sustainability, integrity and justice, addressing the root causes of social and economic problems to effect lasting change that underpinned Rowntree’s ethos, remain and influence us all in the work we do today.

You might be wondering where I’m going with all of this – economics isn’t usually what I write about, nor indeed a subject I’ve any expertise in, but Phil explains key ideas in such a way that I find the subject at once more accessible, which is precisely what I need for a current project that is at the heart of what I and others have been working on for a while now. Over at the UCML ECA SIG that I co-chair (University Council of Modern Languages Early Career Academic Special Interest Group http://Early Career Academics – University Council of Modern Languages ( we’ve been working on a Code of Practice for UK universities. It proposes a set of measure to improve the lives and working conditions of early career academics in the field of languages, as per our remit. We’re really close to making it a reality. Yet, I’m also aware that as we take the Code of Practice forward it will be met with objections, particularly economic ones. So, I’ve turned to Phil to talk about all things universities and how MMT can offer a different perspective on how universities could be.

Hi Phil, thanks for talking with me today. Now, we’ve talked about MMT before, round your dinner table in fact, and I’ve listened to some of your podcasts, but I’m aware that my readers may have never heard of modern monetary theory before. My first question then is, can you briefly describe MMT for a lay audience?

MMT (modern monetary theory) stands in opposition to the false analogy that governments (in countries with their own currencies, e. g., US and UK) are like households and must act as currency-users which must fund themselves by taxes and borrowing. Instead, MMT argues the government is a currency-issuer and can never be financially constrained.

The private sector can’t create state money -that’s counterfeiting! The state has to spend first BEFORE it can tax.

Taxes don’t fund govt spending, Govt spending funds taxes.

The purpose of taxes is to allow the government to provision itself by spending its own debt. The existence of a tax liability gives value to the state money.

The government first levies a tax liability, then spends by issuing money which can be used to satisfy the tax debt, it then taxes back sufficient to maintain price stability (from excess spending) but not enough to generate unemployment by restricted spending.

MMT argues the government is not constrained by tax revenue but by available real resources.

The government’s budget position per se is of no consequence, only outcomes such as output, employment and price stability matter. Since the state issues the money, the rules constraining currency-users do not apply. You can read more about it here: http://Where does the Magic Money Tree Grow? – The Gower Initiative for Modern Money Studies (

Thanks for that explanation. It takes a while to get your head around, I must admit. When I’ve listened to MMT podcasts I’ve heard the term, the real economy but I’m not sure what that means. Can you explain that term?

Sure. The real economy refers to the levels of output and employment, which are not measured in money terms. ‘Real’ can be contrasted with ‘nominal’ which considers variables measured in money terms.

Ah thanks, that makes things clearer for me. Now let me turn to universities. As you know from my own experiences, getting a permanent university post is very difficult and academics can bounce from one short-term contract to another, often for years. This is particularly the case in the field of languages, not least because of the decline in language learning in the UK, the multiple implications of Brexit for languages and language learning, and a marketisation policy that ironically doesn’t always value languages or rather language departments despite industry warning of the economic implications of the UK’s languages gap. From the universities’ financial perspective it is easy to see how short-term commitments to individuals look good on the balance sheet, yet in reality short term contracts are not good for the staff on them, their permanently employed colleagues or the students that they teach. My question then is how could MMT offer a different perspective?

MMT emphasises that it is Parliament that decides how much it will spend on any aspect of public purpose. This decision should not be based upon future tax ‘funding’ but upon available real resources. An attempt to justify a decision to reduce spending on ‘revenue grounds’ is without foundation. If there were 1000 available trained university lecturers looking for work, the state could simply provide the necessary funding by data entry (as all spending is financed) and employ them at going wage rates with no inflationary pressure. A decision not to do so would be purely political.

The government decides on its budgets and these budgets are then devolved down to various institutions, such as universities. Universities may be required to generate funds from students (via loans) but this is entirely a political decision since the state issues the currency. There is no economic reason why the government could not fully fund university education directly, allow students to attend free of charge purely on merit, and provide sufficient funds for HE to employ well – trained staff on permanent contracts.

If there were insufficiently trained labour to fill the HE jobs, then the government would face real constraints and would be unable to facilitate the above. It would need to embark on funding the required HE teacher training.

The only reasons for raising tax are to manage demand or alter the pattern of spending – never government funding or solvency. A student loan is functionally a graduate tax, i.e., when a graduate earns more than a set figure, she/he repays the loan as a deduction from earnings. It merely reduces private sector income in the same way as income tax. Thus, student loan repayments will reduce private sector spending power in the future.

You might argue that such a tax may be useful as a constraint on inflationary pressure in the future, but surely taxing education is the wrong target. It would be better to tax damaging activity such as carbon-based production rather than a merit good such as education.

Thus, if universities need full time staff, and students would benefit from securely employed lecturers, the necessary funds can easily be provided by the currency issuer, that is Her Majesty’s Treasury. A decision not to do so would be based upon a failure to understand the nature of the constraints facing the government and/or a political decision to downsize HE relative to other sectors.

As noted, the government issues the currency. It can never be ‘short of money’ or suffer from solvency problems. Only lack of available resources constrains its activity.  

That is certainly insightful. One of the arguments against making staff permanent is that it changes the baseline so the head of school for example will have to balance any decision to make someone permanent with the prediction of how many students they’ll get and whether they can commit to that person. How can MMT challenge this thinking? Or to put it another way, if you were trying to argue to keep me in post, and you were told, sorry we can’t predict how many students we’ll have in the future so we can’t make that commitment at the present time, what would your approach be to that question, using MMT?

That argument from HOS is based purely on budgetary structures. If the university faces budgetary constraints, it may reasonably feel that its ability to employ staff on permanent contracts is limited by its inability to predict future student numbers. However, if the state uses its power to issue currency it can fully fund universities, irrespective of shortfalls in student numbers, allowing all staff who merit permanent appointment to be given a position. This would add to stability for students and staff alike and undeniably improve HE quality. Any decision to limit HE budgets by central government is again purely political. There is no valid economic reason to force universities to self-fund or operate on the tight budgets which prevent employing staff on permanent contracts. The state could eliminate this problem easily – given the correct understanding of monetary operations and the political will.

I often think that the short-termism is a false economy. Take my experiences as an example – I’ve worked at 4 UK universities in the past 7 years since gaining my PhD. I gained experience and developed my expertise at all of them. In addition, at three of those institutions, I was also given an annual budget towards scholarship – ranging from £700-£1,000 per annum. Some of that money went towards the costs of publishing my monograph, some towards conferences and so on.  Three of the four universities directly spent money on developing my career in terms of qualifications and training – two also covered the costs of undertaking teaching accreditations, taking me up to the level of a Senior Fellowship of the Higher Education Academy. Only months after gaining that senior accreditation I’m no longer in an academic post, arguably I’ve become too expensive to employ on a short-term basis. In spite of all that investment I am now working in another strand of education – taking my expertise elsewhere.  How can that make good economic sense? 

You are absolutely right! The greatest asset a nation has is the skills and motivation of its working population. The state’s job should be to pursue public purpose and ensure nobody ready, willing and able to contribute to human flourishing in society is deprived of that opportunity.

In your case, you are a talented and hard-working HE teacher and researcher with wide knowledge and experience and depriving you of the opportunity to contribute represents a failure to understands the nature of the system on the part of government.

The state could supply the necessary funding. As long as spare capacity exists (and it certainly does) the extra spending which might occur from more lecturers in secure employment will generate no inflationary pressure.

Let’s take this beyond the campus – if universities were to invest in staff on longer term or permanent contracts, how would that benefit the university sector and also the economy more widely? 

Permanent contracts would provide more stability for depts and students and bring out the best in staff. They would lead to enhanced staff wellbeing; lecturers would be able to put down roots. Staff will necessarily become more productive. Having a more secure job helps build a strong research base and enhances the chances of building partnerships with local industry and other agencies. From an individual university perspective, offering permanent contracts helps attract the best staff which, in turn, leads to better student reviews, a superior research profile and a ‘virtuous circle’ of higher external support and funding, leading to further enhancement of the university’s position.  

Students surely benefit when taught by settled staff who are not constantly having to look for new positions. More broadly, a better-quality education leads to a more productive workforce both locally and nationally.

Finally, if you were trying to persuade university VCs to make staff permanent, get them to abandon the reliance on short-termism, how would you convince them? 

Ideally, you would need to open their eyes to the nature of the monetary system and get them on board to lobby government collectively in order that the funding model of HE is changed. The changes would need to reflect an understanding of the currency-issuer status of the state rather than the incorrect household analogy and the unnecessary and regressive nature of student loans.

VC’s should be demanding (as a collective body) a generous funding direct from the state and the ending of the current funding model. Given the key role of education in our future education and health should be given top priority alongside dealing with climate change and inequality.

Thanks Phil, this has been a really useful. I really hope others will take your points on board. Anyway, it’s been a delight talking with you. Hope to see you soon.

Likewise, Hilary. See you soon.

If you want to learn more about MMT you can follow the MMT podcast to which Phil contributes regularly, click here: The MMT Podcast with Patricia Pino & Christian Reilly (, or you can read all about it at the Gower Initiative for Modern Money Studies website, click here: Navigating Our Site – The Gower Initiative for Modern Money Studies ( and you can follow Phil on Twitter @PhilArmstrong58

Photo credit: Mark Epstein Photography MARK EPSTEIN


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