The rise of modern monetary theory (MMT) has sparked debate among economists concerning whether governments empowered by money-financed fiscal policy can be relied upon to manage inflation and public finances responsibly given political pressures. While MMT economists stress MMT simply illustrates the fact all expenditure by currency issuers is already money-financed rather than proposing some new ‘money printing policy’, and the price-stabilising functions of the Employment Buffer Stock or Job Guarantee proposal (Employer of Last Resort), and the importance of maximising automatic stabilisers and reducing reliance on discretionary fiscal policy, improvements to the policy functions and role of the semi-independent central bank have received relatively little attention, with MMT economists regarding conventional and unconventional monetary policy alike as largely impotent.

This paper explores a new potential counterinflationary policy mechanism for central banks, based on Australia’s present compulsory superannuation—or retirement savings—system, and the literature on the use of savings and deferred consumption in wartime inflation management, particularly John Maynard Keynes’ How to Pay for the War. The paper finds that with discretionary fiscal tightening on both the revenue and expenditure sides politically difficult, and conventional monetary policy inefficient, ineffective and inequitable, empowering central banks with an adjustable mandatory savings rate could prove an effective and politically feasible potential complement to the automatic stabiliser and sector-specific inflation management approach favoured by MMT economists.

Keywords: Superannuation, monetary policy, monetary economics, monetary theory, Modern Monetary Theory, central banks, saving, inflation.

Most policy makers, and many of the economists who advise them, are aware of only one of these approaches, often referred to as orthodox, mainstream or neoclassical macroeconomics.

Although this prevailing orthodoxy is not the central concern of the book, it cannot simply be ignored. The lack of realism at its core makes it unsuitable and misleading as a frame for the study of modern capitalism. It incorporates unrealistic axioms about how people can and do make sense of the world, make decisions, and develop feelings of well-being; and also about the ways key economic institutions work and about the stability of the economy as a whole. It is neither the study of people as they are, nor of the economic system as it actually exists.

The limitations of orthodox macroeconomics are illustrated in chapter one with reference to a series of recent statements by economists and policy makers about economic policy and financial markets which are demonstrably incorrect, but are a consequence of thinking within the frame of the orthodox model.

A number of leading academic and policy economists have admitted that orthodox macroeconomics is in trouble, but they have been remarkably resistant to any serious consideration of the alternative approach, usually described as Post-Keynesian economics, even though not all heterodox economists are Post-Keynesians.

A central concern of this book is a discussion and evaluation of a development which emerged out of Post-Keynesian economics during the 1990s, called modern monetary theory (MMT), and its role, alongside insights derived from modern behavioural economics, in the construction of a future offering everyone ‘a decent quality of life with dignity and the opportunity to be a member of an inclusive, participatory and just society’.

Ronald Coase said, in 2012, that ‘knowledge will only come if economics can be reoriented to the study of man as he is and the economic system as it actually exists’. Modern monetary theory describes our monetary economy as it actually exists. Behavioural economics describes people as they are. We need them both, as foundations of a new macroeconomic framework for sustainable prosperity.