Constraint-Driven Macroeconomics

Monetarily sovereign governments, as explained by Modern Monetary Theory (MMT), do not face financial constraints in their own currency; they face real constraints: labour, en- ergy, materials, logistics, technology, and time. Eliyahu Goldratt’s Theory of Constraints (ToC) offers a disciplined method to identify and elevate bottlenecks in complex systems. Constraint-Driven Macroeconomics (CDM) fuses MMT’s operational clarity about money with ToC’s practical method for throughput management. The result is a replicable, data-driven policy framework that (1) identifies economy-limiting constraints, (2) aligns fis- cal, regulatory, and credit tools to exploit and elevate those constraints, and (3) uses inflation as the macro signal of capacity stress. We set out concepts, metrics, an institutional design, and an implementation roadmap for the UK, with transferable lessons for other sovereign issuers. In doing so, this paper makes five specific contributions: (1) it integrates Modern Mone- tary Theory with the Theory of Constraints into a unified macro-fiscal framework; (2) it defines a Constraint Index (CI) and Inflation Risk Index (IRI) for identifying and ranking bottlenecks; (3) it presents an operational inflation decomposition linked to real constraints; (4) it specifies institutional and governance arrangements for a National Constraint Board and associated dashboards; and (5) it outlines an implementable allocation algorithm and roadmap suitable for empirical testing and policy adoption.