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This paper interrogates a central paradox of contemporary political economy: sovereign governments that issue their own fiat currency possess unlimited technical capacity to mobilize resources, yet persistently act as though constrained by balanced budgets, bond markets, and fiscal “responsibility.” Drawing on Modern Monetary Theory (MMT) and critical political economy, the paper re-theorizes monetary sovereignty as fractured across three dimensions: formal authority, functional constraints, and ideological hegemony.
At the formal level, states retain the legal authority to issue and tax in their own currency, guaranteeing final settlement. At the functional level, however, private banks and supranational institutions wield shadow sovereignty, shaping access to credit and disciplining governments through capital flows and fiscal conditionalities. At the ideological level, austerity narratives and household-budget analogies normalize constraint and foreclose democratic imagination. By bringing these dimensions together, the analysis resolves the paradox: governments behave as if constrained because sovereignty is distributed, contested, and captured across institutional and cultural terrains.
The paper integrates MMT scholarship (Kelton, Wray, Tcherneva, Mosler), critical theory (Gramsci, McMurtry, Polanyi, Schmitt, Strange), and empirical analyses of finance (Henwood, Hudson, Tooze, Mattei, Murau & van ’t Klooster) to offer a multidimensional account of sovereignty. Policy proposals such as the Job Guarantee and the Green New Deal are reframed as attempts to reclaim democratic sovereignty across all three registers: asserting public authority, restructuring financial institutions, and dismantling austerity ideology.
The conclusion is both diagnostic and aspirational. Diagnostically, it explains why technical capacity alone does not guarantee sovereign practice: formal power is undermined by functional constraints and ideological capture. Aspirationally, it calls for a democratic project to reorient money toward life-serving purposes, embedding sovereignty in institutions and narratives that prioritize social and ecological flourishing. In an era of overlapping economic, political, and ecological crises, reclaiming fractured sovereignty is not merely a matter of financial reform but of democratic survival.
