Matt has written a wonderful book, “I Want To Break Free” outlining the journey a region or country would need to take to become a fully-fledged independent state. Of course, no two budding new states are the same. Matt’s advice to Tuvalu (population 12,000 and now using its own currency) would be very different to what he would whisper in the ear of a new Catalan Government (population 7.5 million and using the Euro). Matt’s book is, therefore, not a template for a new state. 

Matt couldn’t write a book on how to start a new country without covering its economy, and his new book dedicates a chapter called “shake your money maker” to the economy of a new country. Matt is not an economist, but I am sure he would argue that he would be unable to operate at the higher levels of government if he wasn’t well aware of economic theory. Certainly, in our interview on SCOTONOMICS, Matt danced confidently and comfortably on economic matters. But how does his economic argument stand up under more scrutiny than we were able to muster during the episode? (I hadn’t read his book yet) 

Here’s the chapter review I promised Matt at the end of our interview. It is a heterodox economic perspective through a Modern Monetary Theory lens, and it highlights several issues with Matt’s analysis:

  • Significantly underplays the importance of a new country being a currency issuer. Matt does not distinguish between a country as a user or an issuer of a currency. 
  • Misunderstands the role of money in a modern economy.
  • Considers government expenditure in terms of costs and not investment.
  • Too often mentions costs without considering the benefits.
  • Misunderstands government debt. 

As someone referencing, quoting, citing and reading neoclassical economic theory, the list is a nice summary of the general problems with an orthodox view of macroeconomics. Many of Matt’s conclusions are almost by design, pre-set by the analysis he uses.  

Matt has a wonderful writing style. Unlike many chapters or whole books on the economy, he covered a lot of ground with ease and a familiarity that made it enjoyable. Incidentally, I was covering the ground between Glasgow and Edinburgh on the bus as I read the chapter: the trip flew by. His chapter was easy to read; that alone would lead me to recommend it to you. But only if you read this post first.

So let’s take that alternative view, addressing the points as Matt tackles them in his chapter. Unfortunately, this will ensure that my prose will not be as free-flowing as the Professor’s. 

Review of the final chapter of “I want to break free”

Logically, for most people, Matt starts by looking at the financial cost. Matt says:

“Fundamentally, becoming an independent country costs money”

And who would argue with that? I would because, more correctly, becoming a truly monetarily sovereign independent state uses money rather than costs money. And here, we first meet the importance of distinguishing between a country as a currency user and a currency issuer.

Any new state that is not issuing its own currency will face restrictive financial constraints that mean the country will struggle to pay for things that cost a lot of someone else’s currency. If a new state, for example, pays for things in US dollars, it will need to earn those currency units. It can’t create them. This is the restrictive financial constraint. However, if you issue your currency to pay for resources priced in your currency, then the internal restrictions are real resources: not costs. You, of course, still have to pay for stuff in other currencies – your imports – but you do not need to do that in your domestic market. So important is this distinction that you could say it costs nothing to issue and spend your own currency.

To clarify, there are constraints when you issue your own currency, the main one being demand-side inflation, but they are not purely financial. As Keynes said: “anything we can do, we can afford” (1)

At this very early stage of the chapter, Matt has taken the step that all classical economists take: that a monetarily sovereign government acts in the same manner as one that uses someone else’s currency. It is hard to row back from this when discussing the economic options for a new state. If you are stuck at the “what does it cost” stage, you have already cut off many avenues to success. 

The separation of states is not the same as a civil divorce

Matt uses the well-worn metaphor of a breakup when discussing economics, focusing on the financial element of a divorce. Everyone in the independence movement is well aware of this metaphor: in fact, Matt told me that “breaking up is hard to do” was the original title of his book. This “break-up” metaphor is common because it is simple and relatable. Still, in purely economic terms, it is as correct as the hugely damaging use of the metaphor of the UK government as a household. A “bitter divorce can be costly”, writes Matt, and it normally is, but the metaphor is not helpful. Independence is not like a divorce. It is something entirely different.

However, through this metaphor, Matt highlights the problem and solution for independent countries: they need money. But once again, Matt’s sources take him solely down the neoclassical path. If money is needed, then it must be someone else’s money that should be used. Otherwise what is to stop countries from just rolling the printing press? The implication is that a new state can not deficit spend; instead, it must borrow money. It can’t be trusted to print its own money, but it can be trusted to pay back someone’s else.

There is no conversation about how monetarily sovereign governments use their currency within their own country. Success, we are told, will be likely only if you have friends in the international community willing to come to your aid by injecting their currency into your economy. 

At this point, I take inspiration from Matt and will do what he does so well. I will tell you a story. It takes us back to the 1970s when scores of newly independent nations with international friends (namely international banks) offered them currency in the form of petrodollars.

By the mid-1970s, middle eastern petro states had more foreign currency (oil is priced in US dollars) than their economies could cope with. Spending those dollars or exchanging them for their own currency would have led to runaway inflation as there weren’t the resources in those small states to eat up all that money. So they needed a home for those dollars, and western banks were only too happy to find customers. And where better to go than newly independent states? Western banks and institutions like the World Bank encouraged these independent states to borrow US dollars rather than run large fiscal deficits by spending their own currency in their economies. In 1976 these new, mostly developing nations had to pay around 9% interest on the dollar (paying around 400 base points above the federal funds rate).

interest rate on dollars 1970s

Of course, when you borrow US dollars, you have to pay back MORE US dollars, and the US dollar is not the currency you create. So to earn US dollars, countries had to shift their fledgling economies to become export-driven economies. When these countries needed currency to lubricate their internal markets, they were encouraged to specialise and export. This was the global mantra at the time. Rather than concentrate on improving conditions at home and building capacities like schools and hospitals or building sovereignty in food or energy, they focused on exporting commodities. The extractive “post-colonial” nature of their economics continued. This was not by choice. Many of these small states lacked any other option as they had been left in a right post-colonial state. Centuries of colonial plunder had left them with exceptionally poor infrastructure and weak extractive institutions. No nation-state building had taken place at home, so the chance of building a sizeable internal market was low, but still possible if supported by the international community. But where was the profit in that?

So by the late 1970s, these dollars were slushing around the global economy, and funds poured into newly developing independent states enabling these countries to punch above their weight. Perhaps the best example is Zaire, a poor country that somehow managed to attract the “rumble in the jungle”, the biggest boxing match of a generation. The government was happy to spend the dollars flowing into the country on frivolous international grandstanding. So far, so bad for the majority of the citizens of these newly independent nations. But it was about to get worse. 

By 1981 the interest rate on those borrowed US dollars had risen to over 20%. Those friendly bankers didn’t seem to be so friendly now. Relying so heavily on their “international friends” to provide money to lubricate their economy rather than using their currency to nation-build led to a lost decade of development. With friends like those eh? The IMF, the lender you never really want to see, says proudly: 

“1979–89 is when the Fund truly came of age as a participant in the international financial system” (2)

This is a story of a poison chalice. Developing countries needed money to pump oxygen around the economy and were persuaded to accept someone else’s currency. 

Like many interesting examples in Matt’s book, this cautionary tale only has a passing relevance to an independent Scotland. However, it does give a different perspective of why many of the independent states in the 1960s and 70s faired so badly decades after independence. It wasn’t the lack of money: it was too much of it from the wrong sources. Many states had friends that were just a little bit too friendly.

Matt highlights the importance of money and resources for a newly independent country to become successful. However, he doesn’t outline the full list of options on where that money could come from and how much of a fundamental difference the source of that money would make to the creation of a new state. 

Matt (indirectly) demonstrates the importance of Scotland, or any new country, being able to issue its currency. The importance of issuing your currency is why most countries, including newly independent ones, tend to create their own currency (3). 

Matt says people need to know the facts when they create a new country. When discussing money and its importance to any state, the last place we should look for facts is in the theories and models of neoclassical economics, which remove money from their economic models (4). Unfortunately, this is where Matt has decided to look for his evidence

Size matters

Matt then takes us into the economic theory to discuss the economy of independent states, and I agree with much of it. Size in resource terms is economically very important. Big economies can produce things more efficiently than smaller ones. But entry into a single market nullifies many of these size issues. Buying external resources does have a financial cost. However, despite our agreement, we find our next misunderstanding of the economy when Matt considers small countries’ tax base:

“The per capita expense of public goods with large, fixed costs, are lower in large nations, as the taxes to support infrastructure like roads, schools etc and spread across a bigger population”

Norway and the Netherlands, much smaller nations, have larger infrastructure investments than the UK, Italy and France. Anyone that has visited America – with the largestest global tax base – will return with stories of unbelievably poor rail and road infrastructure. Size, including the tax base, plays a minimum role in supporting infrastructure. It is more the desire and the ability of governments to spend that impact how much is invested in infrastructure. 

ons investment in select countries including UK

ONS investment in select countries, including the UK


In any sovereign monetary government, taxes do not “support infrastructure” or, as Matt implies, pay for infrastructure (5). Governments spend and then tax and borrow: S(tab). Users of a currency have to tax and then spend or borrow to pay for any spending: T(sab). 

Matt is, therefore, not wrong; he is, however, referring to two very different ways of creating and running an economy and considering them to be the same. That’s no surprise, as neoclassical economists see them in the same light. But the differences could not be more marked. 

Is Government money spent or invested?

Perhaps the biggest difference between Matt’s reading of the literature and a heterodox economic perspective is the idea that governments are spending rather than investing:

“Most of the scholars who have looked at this have come to the same conclusion. This is not to say that independence is impossible, but it costs money”

Every independent nation needs the government to spend, and this has to be seen as an investment, not a cost. Spending by a new nation is not bad or nice to have; it is fundamentally important to its success. Success is likely stifled if countries become independent and follow the neoclassical doctrine of trying to balance their fiscal budget. When a country becomes independent with its own currency, it MUST spend that currency into existence. If the government isn’t spending money, citizens do not have the currency in enough quantity to pay taxes. This turns Matt’s economic paradigm upside down. 

At this point, we arrive at perhaps the most crucial aspect of Matt’s macroeconomic overview in relation to Scotland. Matt details that In 2014 Scotland needed (according to a set of experts) 200 million to create Scottish versions of UK institutions. This is surely an underestimate. But let’s go with that in 2023. There are two very important points that I will make here. 

The first is partly covered above; Scotland, once it becomes independent needs one thing more than anything else: it needs the government to spend money. This is not a cost but an investment, making a small dent in the decades of lack of investment. 200 million or more injected into the private sector by the government would bring some currently underemployed resources online. Let’s say one new Government department is created in Dundee. Out-of-work builders are now involved in doing up the new office at the bottom of the Hilltown. The city gets a new shiny building. A few hundred people work a few days a week at the office. Their salaries are spread out across the city. The sandwich shop that closed a few years ago opens up again. So does a shoe shop. A new bus route is added. Dundee starts to see the benefits of government spending for the first time in decades. Should we measure this 200 million as a cost? If we do, we greatly misunderstand the role of government money.

The second is the power of institutions and the difference they can make to an economy and a society. Let’s say that one of those institutions is a new Energy Regulator. The first thing they do is mandate energy companies supplying electricity to limit the price they can charge based on a set profit level: not as the UK currently does, the cost of wholesale gas. This new regulatory approach greatly benefits every household in the country. This 200 million invested by the government seems like the bargain of the century as electricity bills across the country fall. 

All too often, neoclassical economists look at the costs and only the costs. They see expenditure by a government as a cost, not the creation of wealth in the private sector. That 200 million spent looks very different when you play out the whole story. 

Matt sees it like this thought. 

“The total one-off cost for Scotland was estimated to be in the region of 2 per cent of the country’s GDP”  

I would reframe it like this:

“The total one-off investment for Scotland was estimated to be in the region of 2 per cent of the country’s GDP. Just imagine the underemployed resource brought back into production and the positive impact of 4 billion pounds of spending in the Scottish economy. Shouldn’t we, therefore, hope that it “costs” a lot more?”

Hopefully, we have highlighted that costs aren’t always what they seem on paper. 

Matt next covers debt. Does a small secessionist state need to take on the debt of the nation it is leaving? His answer is a categorical no. Matt’s opinion is built on the historical legal president. However, from an economic perspective, Matt needs to better understand government debt. 

The gross UK government debt is the total amount of money in the economy that hasn’t yet been taxed. Matt says debt. I say money. So what did John Maynard Keynes say in his General Theory (1936):

“We can draw the line between money and debts at whatever point is most convenient for handling a particular problem”

A US Federal Reserve Report (2020) put it this way: 

“It seems more accurate to view the national debt less as a form of debt and more as a form of money creation”

The UK debt is the score of currency units created by the state and is now in the hands of the private and other parts of the public sector. As can be seen from the chart below, the non-bank sector holds around 40% of all government bonds; pension funds hold almost 30% of UK “Government’s debt”. On top of that, around 40% is held by the UK Government via the Bank of England.

who owns uk govt debt

Government debt is effectively currency units created by the Government and then transferred to the private sector to enable the private sector to release resources and provide a safe form of savings.

If Scotland took on any of that government liability, it would have to earn pounds to clear that liability. A keystroke at the Bank of England could wipe out the remainder of the UK Government debt once Scotland had taken a chunk. But, of course, that would make no economic sense at all. What assets would private sector pensions have if the UK paid off its debt? It is total nonsense when you understand what government debt is.  

Exactly why a successionist state should be expected to take on a percentage of this amount is a mystery to me. It is not a debt of the type you and I experience in our lives. As the Federal Reserve Bank explained, it is more like money. 

In the end, Matt and I get to the same place. At least we agree on something!

Next, Matt addresses currency under the title ”monetary policy for a newly independent country”

Matt takes us through the pre-2014 referendum debate and discussion around currency that proved damaging to the independence movement. In summary, Scotland wanted a currency union with England, which might or might not have happened after a YES vote. But that is a pointless path to retread. His conclusion is what is worth focusing on (again, a point not specifically about Scotland). Wouldn’t a currency union allow the larger state to act out its vengeance on the smaller nation? Matt considers this unlikely:

“The ones who are in charge of interest rates and the like tend to be bank governors, and not politicians, so in this matter, it is not a major concern”

Two points here. Firstly, ask Matt specifically about this Conservative government and Scotland; he might have a different opinion. Secondly is Matt’s general point that having central bank governors deciding interest rates is “not of a major concern”. 

I could spend another 10,000 words on why having bank governors in charge of interest rates and pursuing a monetarist approach to economic management is a major concern. But I won’t. I will say that control of monetary policy is not just setting interest rates; it includes the creation and spending of the currency by the central government. It spreads into the fiscal control of a country. 

If any country were in a monetary union, it would not have monetary or fiscal control. There is scarcely a more important point to make in the economic analysis of a new country like Scotland, and it is not mentioned at all in Matt’s economic analysis. 

Matt then outlines some options for an independent nation (and remember this is not exclusively about Scotland, so he has to cover all of the options) but none of them, including shadowing the US dollar or using Bitcoin stand up to any kind of scrutiny, for a nation like Scotland. 

Matt again turns to the “prohibitively high” costs of setting up a central bank. I think we’ve dealt with part of that above (the money needs to be spent, and the new institution’s impact must be taken into account). Still, some of the country’s resources would need to go into gaining foreign currency, so there is a financial cost but huge financial benefits too.

Matt ends with this paragraph:

“I hope I have been clear about one thing, namely, that it is beyond dispute (my emphasis) that independence would impose financial costs on your new country”

Those costs can be seen as investments. For most independent nations, the lack of investment is one of the reasons why they seek independence.

Finally, Matt parrots a phrase from every neoliberal, monetarist handbook; he puts it like this: 

“Maybe a period of relative austerity is worth the pain, especially if you feel oppressed or bullied by your former partner”  

Here we are offered the only future: pain is inevitable; take it now. But that pain may be worth it. 

It doesn’t need to be this way. A clearer understanding of money and debt, of the difference between a currency issuer and a currency user, takes us someway down the line, where a prospective nation-state like Scotland can say: the cost of the status quo is too high. 

The investment we need will come only from an independent Scotland with its own currency.