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Modern Monetary Theory: Understanding the Controversial Economic Framework
Modern Monetary Theory (MMT) has exploded into public discourse, sparking heated debates among economists and policymakers alike. This isn't just another academic theory; it's a framework that challenges deeply held beliefs about government spending, debt, and inflation. This comprehensive guide will dissect the core tenets of MMT, explore its strengths and weaknesses, and help you understand why it’s generating such intense discussion. We'll explore its implications for fiscal policy, monetary policy, and the very nature of sovereign currency. Prepare to challenge your assumptions about how money works.
What is Modern Monetary Theory (MMT)?
MMT is a macroeconomic framework that emphasizes the unique characteristics of a country that issues its own currency. Unlike countries that use a foreign currency or are pegged to another currency, sovereign currency-issuing nations have a fundamentally different relationship with their money supply. At its heart, MMT argues that a government that issues its own currency cannot become insolvent in its own currency. This is because it can always create more money to meet its obligations. However, this doesn't mean there are no constraints on government spending; rather, the constraints are primarily real resource constraints (labor, materials, etc.) and inflation. When the economy is operating at full capacity, increased government spending can lead to inflationary pressures. MMT proponents argue that fiscal policy should be the primary tool for managing the economy, with monetary policy playing a supporting role.
Key Tenets of Modern Monetary Theory
Several core tenets underpin MMT:
#### 1. The Currency Issuer's Power:
A government that issues its own currency can always pay its debts denominated in that currency. Default is technically impossible, as it can simply create the necessary funds. This doesn't imply reckless spending; rather, it highlights the unique position of a sovereign currency issuer.
#### 2. Job Guarantee Programs:
MMT often advocates for a government-guaranteed job program as a tool to ensure full employment. This program wouldn't compete with the private sector but would act as a buffer, absorbing unemployed workers and providing a stable income floor.
#### 3. Fiscal Policy Dominance:
MMT prioritizes fiscal policy (government spending and taxation) over monetary policy (interest rates and money supply) as the primary tool for managing the economy. It suggests that interest rate manipulation is a less effective and sometimes harmful tool compared to strategic government spending.
#### 4. Inflation as the Key Constraint:
While a government can always create more money, doing so without sufficient productive capacity leads to inflation. Therefore, the primary constraint on government spending in MMT isn't the ability to create money, but the risk of exceeding the economy's capacity to produce goods and services.
Criticisms of Modern Monetary Theory
MMT hasn't been without its critics. Several arguments challenge the core principles of MMT:
#### 1. Inflationary Risks:
Critics argue that MMT’s emphasis on fiscal dominance ignores the potential for runaway inflation. They warn that unrestricted government spending could lead to excessive money creation, devaluing the currency and causing significant price increases.
#### 2. Political Risks:
Some argue that the potential for unchecked government spending inherent in MMT poses significant political risks. Without robust checks and balances, it could lead to unsustainable deficits and irresponsible fiscal management.
#### 3. Misunderstanding of Money Creation:
Critics argue that MMT oversimplifies the process of money creation and fails to account for the complexities of financial markets and the impact of government debt on interest rates.
#### 4. Neglect of Exchange Rates:
The potential impact of MMT on exchange rates is also a point of contention. Critics argue that excessive money creation could lead to currency devaluation, impacting trade balances and competitiveness.
The Ongoing Debate and Future Implications
The debate surrounding MMT is far from settled. Its proponents argue that it offers a more realistic and effective framework for managing the economy, especially in times of crisis. Critics, however, remain concerned about the potential for inflation, unsustainable debt, and political manipulation. The ongoing discussion highlights the need for a nuanced understanding of macroeconomic policy and the complexities of managing a modern economy. The practical application of MMT's principles will continue to be a key area of discussion and research for years to come, especially as governments grapple with persistent economic challenges. The potential benefits and risks of adopting MMT elements remain a focal point for economic debate and policy decisions globally.
Conclusion
Modern Monetary Theory presents a radical departure from traditional macroeconomic thinking. While it offers potentially powerful tools for managing economies, especially in dealing with unemployment, it also carries significant risks. A thorough understanding of its core tenets, strengths, and weaknesses is crucial for navigating the complexities of modern economic policy. The ongoing debate highlights the need for critical thinking and a willingness to challenge established economic paradigms.
FAQs
1. Is MMT a magic bullet for economic problems? No, MMT doesn't offer a simple solution to all economic problems. It provides a different framework for thinking about fiscal policy, but it's not a panacea for all economic ills.
2. Does MMT advocate for unlimited government spending? No, MMT advocates for responsible government spending, constrained primarily by the risk of inflation and resource limitations, not by the availability of currency.
3. What is the role of central banks in MMT? Central banks still play a role, primarily in managing inflation and ensuring the smooth functioning of the financial system. However, their role is secondary to fiscal policy in MMT.
4. How does MMT differ from Keynesian economics? While both emphasize government intervention, MMT differs in its focus on the unique characteristics of sovereign currency issuers and its prioritization of fiscal policy over monetary policy.
5. Is MMT widely accepted by mainstream economists? No, MMT is a controversial theory and is not widely accepted among mainstream economists. However, its influence is growing and its core principles are becoming part of the broader economic discussion.
| modern monetary theory: The Deficit Myth Stephanie Kelton, 2020-06-09 A New York Times Bestseller The leading thinker and most visible public advocate of modern monetary theory -- the freshest and most important idea about economics in decades -- delivers a radically different, bold, new understanding for how to build a just and prosperous society. Stephanie Kelton's brilliant exploration of modern monetary theory (MMT) dramatically changes our understanding of how we can best deal with crucial issues ranging from poverty and inequality to creating jobs, expanding health care coverage, climate change, and building resilient infrastructure. Any ambitious proposal, however, inevitably runs into the buzz saw of how to find the money to pay for it, rooted in myths about deficits that are hobbling us as a country. Kelton busts through the myths that prevent us from taking action: that the federal government should budget like a household, that deficits will harm the next generation, crowd out private investment, and undermine long-term growth, and that entitlements are propelling us toward a grave fiscal crisis. MMT, as Kelton shows, shifts the terrain from narrow budgetary questions to one of broader economic and social benefits. With its important new ways of understanding money, taxes, and the critical role of deficit spending, MMT redefines how to responsibly use our resources so that we can maximize our potential as a society. MMT gives us the power to imagine a new politics and a new economy and move from a narrative of scarcity to one of opportunity. |
| modern monetary theory: Modern Money Theory L. Randall Wray, 2015-09-22 This second edition explores how money 'works' in the modern economy and synthesises the key principles of Modern Money Theory, exploring macro accounting, currency regimes and exchange rates in both the USA and developing nations. |
| modern monetary theory: Modern Monetary Theory and European Macroeconomics Dirk H. Ehnts, 2016-10-14 This book provides a new methodological approach to money and macroeconomics. Realizing that the abstract equilibrium models lacked descriptions of fundamental issues of a modern monetary economy, the focus of this book lies on the (stylized) balance sheets of the main actors. Money, after all, is born on the balance sheets of the central bank or commercial bank. While households and firms hold accounts at banks with deposits, banks hold an account at the central bank where deposits are called reserves. The book aims to explain how the two monetary circuits – central bank deposits and bank deposits – are intertwined. It is also shown how government spending injects money into the economy. Modern Monetary Theory and European Macroeconomics covers both the general case and then the Eurozone specifically. A very simple macroeconomic model follows which explains the major accounting identities of macroeconomics. Using this new methodology, the Eurozone crisis is examined from a fresh perspective. It turns out that not government debt but the stagnation of private sector debt was the major economic problem and that cuts in government spending worsened the economic situation. The concluding chapters discuss what a solution to the current problems of the Eurozone must look like, with scenarios that examine a future with and without a euro. This book provides a detailed balance sheet view of monetary and fiscal operations, with a focus on the Eurozone economy. Students, policy-makers and financial market actors will learn to assess the institutional processes that underpin a modern monetary economy, in times of boom and in times of bust. |
| modern monetary theory: Soft Currency Economics II Warren Mosler, 2013-03-11 Soft Currency Economics is the little book that could logically, in both real and nominal terms, legitimately challenge many of the core held beliefs of the mainstream classical and neo-classical schools of economics. It is a corner stone publication for the new, widely popular fresh approach to economics that has come to be called Modern Monetary Theory (MMT). It explains with actual facts, not theory, and with non-technical language, the true operational realities of our monetary system (central banks and private banks). The author, a 40 year 'insider' in monetary operations, and a very successful fixed income hedge fund manager, wrote this book in 1993 after witnessing the markets drastically discount sovereign debt on the errant belief that market forces could force nations into default on debt payable in their own currency, and that austerity was the only solution. This was contrary to the author's understanding of what are called fiat currencies, where governments always have the ability to meet all obligations in a timely manner. As a result of this experience, the author took up the task of educating government officials on how the monetary system operated with the hope that with this understanding they would be free to ensure that the government acted for the public purpose and achieved their stated goals of full employment and price stability. Initially published in 1993, this book will utterly convince many readers that what they thought they knew about monetary policy is wrong. The book describes: what is money; why debt monetization and the money multiplier are myths; how fiscal and monetary policy can be used effectuate full employment; deficits do not cause countries to default on their debt unless that is the decision. |
| modern monetary theory: Modern Monetary Theory and Practice: an Introductory Text W. Mitchell, 2016-03-10 Modern Monetary Theory and Practice: An Introductory Text is an introductory textbook for university-level macroeconomics students. It is based on the principles of Modern Monetary Theory (MMT) and includes the following detailed chapters:Chapter 1: IntroductionChapter 2: How to Think and Do MacroeconomicsChapter 3: A Brief Overview of the Economic History and the Rise of CapitalismChapter 4: The System of National Income and Product AccountsChapter 5: Sectoral Accounting and the Flow of FundsChapter 6: Introduction to Sovereign Currency: The Government and its MoneyChapter 7: The Real Expenditure ModelChapter 8: Introduction to Aggregate SupplyChapter 9: Labour Market Concepts and MeasurementChapter 10: Money and BankingChapter 11: Unemployment and InflationChapter 12: Full Employment PolicyChapter 13: Introduction to Monetary and Fiscal Policy OperationsChapter 14: Fiscal Policy in Sovereign nationsChapter 15: Monetary Policy in Sovereign NationsIt is intended as an introductory course in macroeconomics and the narrative is accessible to students of all backgrounds. All mathematical and advanced material appears in separate Appendices. |
| modern monetary theory: Debating Modern Monetary Theory Kōstas Lapabitsas, Robert Rowthorn, 2024-01-29 This book considers the theoretical and empirical claims of Modern Monetary Theory (MMT) in developed and developing countries. It is structured as a debate between leading MMT theorists and MMT critics. MMT threw down a challenge to mainstream economics and forced it to respond, above all in the USA. This is a rare occurrence, almost unknown, for heterodox economics during the last few decades. It is not surprising, therefore, that MMT has attracted strong attention from a broad swathe of researchers. It is even less surprising that it has become the theoretical vehicle of choice for political activists opposing austerity. Its influence is remarkable and has gradually spread to other social disciplines, including even cultural theory. Furthermore, the policy responses to coronavirus by several governments, particularly the extraordinary expansion of central bank balance sheets in 2020, appears to support MMT in practice. This volume takes into account the rising popularity of MMT and considers its theoretical claims in depth, since popularity does not necessarily equate to being right in theory. It also considers MMT claims regarding fiscal and monetary policy in view of the implications of the pandemic crisis for public spending and public debt. It is not accidental that the strongest support for MMT, in both theory and policy, is to be found in the USA, since MMT conclusions rely heavily on close institutional analysis of US government financing mechanisms. The chapters in this book were originally published as a special issue of The Japanese Political Economy. |
| modern monetary theory: Seven Deadly Innocent Frauds of Economic Policy Warren Mosler, 2010 Here, Warren Mosler identifies and debunks seven entrenched ideas keeping the economy in a downward trajectory. In this ... book, he exposes commonly-held beliefs, such as 'deficits leave the debt burden to our children' and 'Social Security is broken,' to be economic myths. In addition to correcting these mindsets, Mosler promotes the restoration of the American economy with practical and feasible proposals. Along the way, he explains the operational realities of the monetary system in clear, down-to-earth language--Book jacket. |
| modern monetary theory: What's Wrong with Modern Money Theory? Gerald A. Epstein, 2019-08-09 This Palgrave Pivot assesses the validity of Modern Money Theory’s approach to macroeconomic policy, specifically monetary and fiscal policy. Whereas other papers have focused primarily on theoretical and doctrinal issues, this book focuses primarily on an analysis of MMT’s policy approach. Though drawing on academic literature, this book’s approach is empirical and policy-based, making it accessible to scholars and the public alike. It addresses a burning question in the policy and politics of the US and elsewhere where MMT is gaining a policy foothold, especially among progressive activists and politicians: Is MMT, in fact, a good guide for progressive macroeconomic policy? The main focus of this book is to explain why the answer to this question is no. |
| modern monetary theory: The Elgar Companion to Modern Money Theory Yeva Nersisyan, L. R. Wray, 2024-08-06 This Companion is a comprehensive introduction to Modern Money Theory (MMT), covering a wide variety of topics from the nature and origins of money, to the fundamentals of government spending and taxation, to the application of MMT in developed and developing countries. |
| modern monetary theory: Monetary Theory and Policy Carl E. Walsh, 2003 An overview of recent theoretical and policy-related developments in monetary economics. |
| modern monetary theory: Macroeconomic Responses to the COVID-19 Pandemic Neven Vidaković, Ivan Lovrinović, 2021-07-17 This book examines economic policies utilized within Southeast Europe in response to the COVID-19 pandemic. Covering countries both within and outside the European Union, the human and economic cost of the pandemic is calculated using macroeconomic models from a short and longer term perspective. The economic policies used during the pandemic are analyzed, alongside crisis management approaches, to highlight the effectiveness of monetary policy, fiscal policies and potential future economic solutions for the post COVID-19 period. This book aims to provide policy recommendations based on findings from Southeast Europe. It is relevant to researchers and policymakers involved in economic policy and the political economy, as well as anyone interested in the responses to the COVID-19 pandemic. |
| modern monetary theory: Understanding Modern Money L. Randall Wray, 1998 By showing that the basic assumptions if mainstream macroeconomics were and are flawed, the author aims to convince the reader that full employment and price stability are fully compatible goals in the modern world. |
| modern monetary theory: The Job Guarantee and Modern Money Theory Michael J. Murray, Mathew Forstater, 2017-01-25 The contributors to this edited collection argue that a flexible Job Guarantee program able to react to an economy’s fluctuating need for work would stabilize the labor standard, the value of employment in relation to money. During economic downturns, the program would expand to provide more public sector jobs in response to private sector layoffs. It would then contract when economic growth offered private sector employment opportunities. This flexible full employment program would create a balanced, perpetually active labor force, providing the macroeconomic stability necessary to define a functioning labor standard. Just as the gold standard measured the worth of money against gold reserves, John Maynard Keynes argued, so a labor standard ought to measure the value of money in terms of its labor equivalent. However, he failed to account for the fact that, unlike a gold standard, a labor standard does not have any kind of surety that money will continue to match its value in paid work over time. Together, the contributors argue that full employment would provide this missing security and allow authorities to define the value equivalencies of money and labor, the way that money once represented its exact equivalent in gold. |
| modern monetary theory: Contending Perspectives in Economics John T. Harvey, 2020-08-28 Now in its second edition, John Harvey’s rigorous textbook provides an accessible and engaging introduction to various competing schools of thought in economics. This revised and extended edition will continue to open readers’ minds, leading them towards new and productive directions. Chapters study numerous schools of thought including Neoclassical, Marxist, Austrian, Post Keynesian, Institutionalist, New Institutionalist, Feminist and Ecological. Unique features and criticisms of each approach are highlighted through discussions of methodology, world views, popular themes, and current activities. |
| modern monetary theory: Modern Monetary Theory William Mitchell, Warren Mosler, 2024-07-17 In this book, William Mitchell and Warren Mosler, original proponents of what's come to be known as Modern Monetary Theory (MMT), discuss their perspectives about how MMT has evolved over the last 30 years. In delightful, entertaining, and informative way, Bill and Warren reminisce about how, from vastly different backgrounds, they came together to develop MMT. They consider the history and personalities of the MMT community, including anecdotal discussions of various academics who took up MMT and who have gone off in their own directions that depart from MMT's core logic. A very much needed book that provides the reader with a fundamental understanding of the original logic behind 'The MMT Money Story' including the role of coercive taxation, the source of unemployment, the source of the price level, and the imperative of the Job Guarantee as the essence of a progressive society – the essence of Bill and Warren's excellent adventure. The introduction is written by British academic Phil Armstrong. |
| modern monetary theory: Modern Monetary Theory M.L. Burstein, 1986-01-28 Innovations in financial markets and in financial management, together with dramatic innovations in the substance and technique of monetary theory, have made it necessary to restate the theory of money and the theory of monetary policy. In order to provide a new monetary theory, the author treats fully the following material: choice of currency and the theory of convertibility; interest on money; speculation and rational expectations; implications of electronic-transfer settlement procedures for monetary theory, as well as other matters. The theories of Tobin are developed and exposited in detail, as is the work of Friedman. |
| modern monetary theory: Macroeconomics William Mitchell, L. Randall Wray, Martin Watts, 2019-02-08 This groundbreaking new core textbook encourages students to take a more critical approach to the prevalent assumptions around the subject of macroeconomics, by comparing and contrasting heterodox and orthodox approaches to theory and policy. The first such textbook to develop a heterodox model from the ground up, it is based on the principles of Modern Monetary Theory (MMT) as derived from the theories of Keynes, Kalecki, Veblen, Marx, and Minsky, amongst others. The internationally-respected author team offer appropriate fiscal and monetary policy recommendations, explaining how the poor economic performance of most of the wealthy capitalist countries over recent decades could have been avoided, and delivering a well-reasoned practical and philosophical argument for the heterodox MMT approach being advocated. The book is suitable for both introductory and intermediate courses, offering a thorough overview of the basics and valuable historical context, while covering everything needed for more advanced courses. Issues are explained conceptually, with the more technical, mathematical material in chapter appendices, offering greater flexibility of use. |
| modern monetary theory: Sustainability and the New Economics Stephen J. Williams, Rod Taylor, 2021-12-09 This multidisciplinary book provides new insights and hope for sustainable prosperity given recent developments in economics – but only if swift and strong actions consistent with Earth’s biophysical limits and principles of justice are universally taken. It is one thing to put limits on resource throughput and waste generation to conform with the ecosphere’s biocapacity. It is another thing to efficiently allocate a sustainable rate of resource throughput and ensure it is equitably distributed in the form of final goods and services. While the separate but interdependent decisions regarding throughput, distribution, and allocation are the essence of ecological economics, dealing with them in a world that needs to cure its growth addiction requires a realistic understanding of macroeconomics and the fiscal capacity of currency-issuing central governments. Sustainable prosperity demands that we harness this understanding to carefully regulate the rate of resource throughput and manipulate macroeconomic outcomes to facilitate human flourishing. The book begins by outlining humanity’s current predicament of gross ecological overshoot and laments the half-century of missed opportunities since The Limits to Growth (1972). What was once economic growth has become, in many high-income countries, uneconomic growth (additional costs exceeding additional benefits), which is no longer advancing wellbeing. Meanwhile, low-income nations need a dose of efficient and equitable growth to escape poverty while protecting their environments and the global commons. The book argues for a synthesis of our increasing knowledge of the ecosphere’s limited carrying capacity and the power of governments to harness, transform, and distribute resources for the common good. Central to this synthesis must be a correct understanding of the difference between financial constraints and real resource constraints. While the latter apply to everyone, the former do not apply to currency-issuing central governments, which have much more capacity for corrective action than mainstream thinking perceives. The book joins the growing chorus of authoritative voices calling for a complete overhaul of the dominant economic system. We conclude with policy recommendations based on a new economics that, if implemented, would come close to guaranteeing a sustainable and prosperous future. Upon reading this book, at least one thing should be crystal clear: business as usual is not a viable option. |
| modern monetary theory: Debating Modern Monetary Theory Costas Lapavitsas, Robert Rowthorn, 2022-04-27 This book considers the theoretical and empirical claims of Modern Monetary Theory (MMT) in developed and developing countries. It is structured as a debate between leading MMT theorists and MMT critics. MMT threw down a challenge to mainstream economics and forced it to respond, above all in the USA. This is a rare occurrence, almost unknown, for heterodox economics during the last few decades. It is not surprising, therefore, that MMT has attracted strong attention from a broad swathe of researchers. It is even less surprising that it has become the theoretical vehicle of choice for political activists opposing austerity. Its influence is remarkable and has gradually spread to other social disciplines, including even cultural theory. Furthermore, the policy responses to coronavirus by several governments, particularly the extraordinary expansion of central bank balance sheets in 2020, appears to support MMT in practice. This volume takes into account the rising popularity of MMT and considers its theoretical claims in depth, since popularity does not necessarily equate to being right in theory. It also considers MMT claims regarding fiscal and monetary policy in view of the implications of the pandemic crisis for public spending and public debt. It is not accidental that the strongest support for MMT, in both theory and policy, is to be found in the USA, since MMT conclusions rely heavily on close institutional analysis of US government financing mechanisms. The chapters in this book were originally published as a special issue of The Japanese Political Economy. |
| modern monetary theory: Money: Theory and Practice Jin Cao, Gerhard Illing, 2019-12-07 This textbook provides an introduction to modern monetary economics for advanced undergraduates, highlighting the lessons learned from the recent financial crisis. The book presents both the core New Keynesian model and recent advances, taking into account financial frictions, and discusses recent research on an intuitive level based on simple static and two-period models, but also prepares readers for an extension to a truly dynamic analysis. Further, it offers a systematic perspective on monetary policy, covering a wide range of models to help readers gain a better understanding of controversial issues. Part I examines the long-run perspective, addressing classical monetary policy issues such as determination of the price level and interaction between monetary and fiscal policy. Part II introduces the core New Keynesian model, characterizing optimal monetary policy to stabilize short-term shocks. It discusses rules vs. discretion and the challenges arising from control errors, imperfect information and robustness issues. It also analyzes optimal control in the presence of an effective lower bound. Part III focuses on modelling financial frictions. It identifies the transmission mechanisms of monetary policy via banking and introduces models with incomplete markets, principal-agent problems, maturity mismatch and leverage cycles, to show why investors’ and intermediaries’ own stakes play a key role in lending with pro-cyclical features. In addition, it presents a tractable model for handling liquidity management and demonstrates that the need to sell assets in crisis amplifies the volatility of the real economy. Lastly, the book discusses the relation between monetary policy and financial stability, addressing systemic risk and the role of macro-prudential regulation. |
| modern monetary theory: Why Nations Fail Daron Acemoglu, James A. Robinson, 2013-09-17 Brilliant and engagingly written, Why Nations Fail answers the question that has stumped the experts for centuries: Why are some nations rich and others poor, divided by wealth and poverty, health and sickness, food and famine? Is it culture, the weather, geography? Perhaps ignorance of what the right policies are? Simply, no. None of these factors is either definitive or destiny. Otherwise, how to explain why Botswana has become one of the fastest growing countries in the world, while other African nations, such as Zimbabwe, the Congo, and Sierra Leone, are mired in poverty and violence? Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or lack of it). Korea, to take just one of their fascinating examples, is a remarkably homogeneous nation, yet the people of North Korea are among the poorest on earth while their brothers and sisters in South Korea are among the richest. The south forged a society that created incentives, rewarded innovation, and allowed everyone to participate in economic opportunities. The economic success thus spurred was sustained because the government became accountable and responsive to citizens and the great mass of people. Sadly, the people of the north have endured decades of famine, political repression, and very different economic institutions—with no end in sight. The differences between the Koreas is due to the politics that created these completely different institutional trajectories. Based on fifteen years of original research Acemoglu and Robinson marshall extraordinary historical evidence from the Roman Empire, the Mayan city-states, medieval Venice, the Soviet Union, Latin America, England, Europe, the United States, and Africa to build a new theory of political economy with great relevance for the big questions of today, including: - China has built an authoritarian growth machine. Will it continue to grow at such high speed and overwhelm the West? - Are America’s best days behind it? Are we moving from a virtuous circle in which efforts by elites to aggrandize power are resisted to a vicious one that enriches and empowers a small minority? - What is the most effective way to help move billions of people from the rut of poverty to prosperity? More philanthropy from the wealthy nations of the West? Or learning the hard-won lessons of Acemoglu and Robinson’s breakthrough ideas on the interplay between inclusive political and economic institutions? Why Nations Fail will change the way you look at—and understand—the world. |
| modern monetary theory: Manipulating the World Economy Martin A. Armstrong, 2021-06-28 The economic theories that dominated the field during the 20th century have failed us and empowered government to believe they can manipulate the business cycle. Every economic theory presented post-Marxism has assumed that the complexity of the business cycle can be reduced to a single cause and effect. To date, no attempt to manipulate the cycle has prevented a recession or financial crisis. We now face a truly monumental crisis. Central banks around the world are trapped. Their attempt to stimulate the economy through Quantitative Easing and rate manipulation has disastrously failed. The central banks have primarily purchased government debt, effectively keeping governments on life support by allowing them to issue new debt at substantially lower rates. In addition to catastrophic Quantitative Easing policies, political fiscal spending on various programs and agencies has burdened governments with a debt that they can never repay. The future crisis is one created by government. This time, we are not likely to fix the problem without major political reform, which all governments will resist. These policies have led many to assume that government can freely create money without inflation. After creating trillions of dollars to buy government debt with no appreciable inflation, many conclude that everything has changed. They are calling this the Modern Monetary Theory. If they are correct, then why bother to have taxes or borrow money continuously with no intention of paying off national debts? Governments, in modern theory, can simply create an endless supply of money to create a new modern version of Utopia. Can we throw away all economic history for an experiment that could unravel civilization if the theory proves to be wrong? What are the risks? Can it really be that easy? Are there any examples from the past that we can look to for answers? |
| modern monetary theory: Pragmatic Capitalism Cullen Roche, 2014-07-08 Being successful in the modern world of finance requires a more in-depth understanding of our global economies on a macro level. What does a shifting demographic cycle mean? How does the explosive growth of emerging markets matter? Why does the world's population affect my portfolio? Does the global monetary system impact my results this year? How does government intervention in markets impact my strategy? In Pragmatic Capitalism, Cullen Roche explores how our global economy works and why it is more important now than ever for investors to understand macroeconomics. Cullen Roche combines his expertise in global macro portfolio management, quantitative risk management, behavioral finance, and monetary theory to explain to readers how macroeconomics works, and provides insights and suggestions for getting the most out of their investment strategies. This book will uncover market myths and explain the rise of macroeconomics and why it impacts the readers' portfolio construction. Pragmatic Capitalism is a must for any sophisticated investor who wants to make the most of their portfolio. |
| modern monetary theory: Modern Monetary Theory L. R. Wray, Phil Armstrong, Sara Holland, Claire Jackson-Prior, Prue Plumridge, Neil Wilson, 2023-01-10 Providing an up-to-date account of Modern Monetary Theory with contributions from the world’s leading experts, each chapter offers new insights on the topic, building upon MMT’s established body of work. This innovative book analyses key economic issues from a wide set of regions including the UK, Europe and the Global South, addressing previous concerns that MMT is too US-focused. |
| modern monetary theory: Soft Currency Economics Warren Mosler, 1995 |
| modern monetary theory: Modern Monetary Theory and the Recovery Brian Romanchuk, 2021-03-15 This book discusses the causes of slow growth in the developed world after the early 1990s from a Modern Monetary Theory perspective. Policy proposals from MMT proponents that aim to rejuvenate the labour market without causing a resurgence of inflation will be examined.Modern Monetary Theory is an outgrowth of the heterodox post-Keynesian school of economics, and the overall scope of the theory is often obscured, or mangled, in popular discussions. This text outlines its key concepts with the objective of reducing confusion.Given the reality that MMT arguments are hotly debated, this book concludes with a chapter of criticisms of MMT. |
| modern monetary theory: Why Minsky Matters L Randall Wray, 2017-10-17 Perhaps no economist was more vindicated by the global financial crisis than Hyman P. Minsky (1919–96). Although a handful of economists raised alarms as early as 2000, Minsky's warnings began a half-century earlier, with writings that set out a compelling theory of financial instability. Yet even today he remains largely outside mainstream economics; few people have a good grasp of his writings, and fewer still understand their full importance. Why Minsky Matters makes the maverick economist’s critically valuable insights accessible to general readers for the first time. L. Randall Wray shows that by understanding Minsky we will not only see the next crisis coming but we might be able to act quickly enough to prevent it. As Wray explains, Minsky’s most important idea is that stability is destabilizing: to the degree that the economy achieves what looks to be robust and stable growth, it is setting up the conditions in which a crash becomes ever more likely. Before the financial crisis, mainstream economists pointed to much evidence that the economy was more stable, but their predictions were completely wrong because they disregarded Minsky’s insight. Wray also introduces Minsky’s significant work on money and banking, poverty and unemployment, and the evolution of capitalism, as well as his proposals for reforming the financial system and promoting economic stability. A much-needed introduction to an economist whose ideas are more relevant than ever, Why Minsky Matters is essential reading for anyone who wants to understand why economic crises are becoming more frequent and severe—and what we can do about it. |
| modern monetary theory: German Monetary Theory, 1905-1933 Howard Sylvester Ellis, 1937 Awarded the David A. Wells prize for the year 1929-30 and published from the income of the David A. Wells fund. Bibliography: p. [435]-452 |
| modern monetary theory: Modern Monetary Theory Meyer Louis Burstein, 1986 |
| modern monetary theory: The Money Illusion Scott Sumner, 2023-05-06 The first book-length work on market monetarism, written by its leading scholar. Is it possible that the consensus around what caused the 2008 Great Recession is almost entirely wrong? It’s happened before. Just as Milton Friedman and Anna Schwartz led the economics community in the 1960s to reevaluate its view of what caused the Great Depression, the same may be happening now to our understanding of the first economic crisis of the 21st century. Foregoing the usual relitigating of problems such as housing markets and banking crises, renowned monetary economist Scott Sumner argues that the Great Recession came down to one thing: nominal GDP, the sum of all nominal spending in the economy, which the Federal Reserve erred in allowing to plummet. The Money Illusion is an end-to-end case for this school of thought, known as market monetarism, written by its leading voice in economics. Based almost entirely on standard macroeconomic concepts, this highly accessible text lays the groundwork for a simple yet fundamentally radical understanding of how monetary policy can work best: providing a stable environment for a market economy to flourish. |
| modern monetary theory: Declarations of Dependence Scott Ferguson, 2018-07-01 Critique after modern monetary theory -- Transcending the aesthetic -- Declarations of dependence -- Medium congruentissimum -- Allegories of the aesthetic -- Becoming second nature |
| modern monetary theory: Interest and Prices Michael Woodford, 2011-12-12 With the collapse of the Bretton Woods system, any pretense of a connection of the world's currencies to any real commodity has been abandoned. Yet since the 1980s, most central banks have abandoned money-growth targets as practical guidelines for monetary policy as well. How then can pure fiat currencies be managed so as to create confidence in the stability of national units of account? Interest and Prices seeks to provide theoretical foundations for a rule-based approach to monetary policy suitable for a world of instant communications and ever more efficient financial markets. In such a world, effective monetary policy requires that central banks construct a conscious and articulate account of what they are doing. Michael Woodford reexamines the foundations of monetary economics, and shows how interest-rate policy can be used to achieve an inflation target in the absence of either commodity backing or control of a monetary aggregate. The book further shows how the tools of modern macroeconomic theory can be used to design an optimal inflation-targeting regime--one that balances stabilization goals with the pursuit of price stability in a way that is grounded in an explicit welfare analysis, and that takes account of the New Classical critique of traditional policy evaluation exercises. It thus argues that rule-based policymaking need not mean adherence to a rigid framework unrelated to stabilization objectives for the sake of credibility, while at the same time showing the advantages of rule-based over purely discretionary policymaking. |
| modern monetary theory: Understanding Money Mechanics Robert Murphy, 2021-12-14 Understanding Money Mechanics provides the intelligent layperson with a concise yet comprehensive overview of the theory, history, and practice of money and banking, with a focus on the United States. Although the author considers himself an Austrian school economist, most of the material in this book is a neutral presentation of historical facts and an objective description of the mechanics of money creation in today's world. This book is intended to be a reference for all readers, whether Austrian or not, and to bridge the gap by providing a crash course in the necessary theory and history while keeping the discussion tethered to current events. Understanding Money Mechanics covers numerous topics, including the classical gold standard, the Fed's open market operations, changes in central bank policy since the coronavirus, the economics of Bitcoin, and a critique of Modern Monetary Theory (MMT). |
| modern monetary theory: Winning the Green New Deal Varshini Prakash, Guido Girgenti, 2020-08-25 An urgent and definitive collection of essays from leaders and experts championing the Green New Deal—and a detailed playbook for how we can win it—including contributions by leading activists and progressive writers like Varshini Prakash, Rhiana Gunn-Wright, Bill McKibben, Rev William Barber II, and more. In October 2018, scientists warned that we have less than 12 years left to transform our economy away from fossil fuels, or face catastrophic climate change. At that moment, there was no plan in the US to decarbonize our economy that fast. Less than two years later, every major Democratic presidential candidate has embraced the vision of the Green New Deal—a rapid, vast transformation of our economy to avert climate catastrophe while securing economic and racial justice for all. What happened? A new generation of leaders confronted the political establishment in Washington DC with a simple message: the climate crisis is here, and the Green New Deal is our last, best hope for a livable future. Now comes the hard part: turning that vision into the law of the land. In Winning a Green New Deal, leading youth activists, journalists, and policymakers explain why we need a transformative agenda to avert climate catastrophe, and how our movement can organize to win. Featuring essays by Varshini Prakash, cofounder of Sunrise Movement; Rhiana Gunn-Wright, Green New Deal policy architect; Joseph Stiglitz, Nobel Prize–winning economist; Bill McKibben, internationally renowned environmentalist; Mary Kay Henry, the President of the Service Employees International Union, and others we’ll learn why the climate crisis cannot be solved unless we also confront inequality and racism, how movements can redefine what’s politically possible and overcome the opposition of fossil fuel billionaires, and how a Green New Deal will build a just and thriving economy for all of us. For anyone looking to understand the movement for a Green New Deal, and join the fight for a livable future, there is no resource as clear and practical as Winning the Green New Deal. |
| modern monetary theory: The Case for a Job Guarantee Pavlina R. Tcherneva, 2020-06-05 One of the most enduring ideas in economics is that unemployment is both unavoidable and necessary for the smooth functioning of the economy. This assumption has provided cover for the devastating social and economic costs of job insecurity. It is also false. In this book, leading expert Pavlina R. Tcherneva challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent, living-wage work can find it - guaranteed. This is the aim of the Job Guarantee proposal: to provide a voluntary employment opportunity in public service to anyone who needs it. Tcherneva enumerates the many advantages of the Job Guarantee over the status quo and proposes a blueprint for its implementation within the wider context of the need for a Green New Deal. This compact primer is the ultimate guide to the benefits of one of the most transformative public policies being discussed today. It is essential reading for all citizens and activists who are passionate about social justice and building a fairer economy. |
| modern monetary theory: How Resilient is the Modern Monetary Theory? A Scientific Confrontation against Selected Fundamental Statements of Macroeconomic Theories Benedikt Hausmann, 2021-10-11 Master's Thesis from the year 2021 in the subject Economics - Innovation economics, grade: 1,7, University of Applied Sciences Ludwigshafen, language: English, abstract: This thesis aims to provide an answer to the question how resilient Modern Monetary Theory is when being critically examined with regards to specific macroeconomic variables. Within each respective variable, MMT ́s standpoints and proposals are then compared with fundamental statements of mainstream economic theory representing the contemporary standard. Due to the fact that most literature dealing with MMT takes perspective from an American point of view, the findings of this thesis will generally apply to the scope of the United States and its economy. In recent years, a small group of like-minded economists who oppose most of the positions conventional economics have established as the contemporary standard has gained a lot of popularity and relevance within the public discourse, especially since the outbreak of the COVID-19 pandemic. They advocate the so called Modern Monetary Theory which contests the thought that governments which issue their own currency need to worry about taking on too much debt when undertaking fiscal policy measures because they can always create all the funds they require for clearing their debt by themselves. Within the MMT framework, the accumulation of additional government debt is a permanent feature and government expenditures are not limited by any budgetary constraints but only by the consideration of increasing inflation as a consequence of the excessive fiscal policy the theory recommends. Modern monetarists see an implementation of their theory and its proposals perfectly fit not only for overcoming crises such as the COVID-19 pandemic but also for the initiation of a paradigm shift away from economic theory focused on austerity towards a more human centered approach bringing broad and shared prosperity across all social classes. As this proclaimed paradigm shift is a very ambitious goal and MMT ́s proposals bear some powerful promises, a close investigation of the theory and its most fundamental features is required in order to make an assessment on the credibility of these claims. |
| modern monetary theory: Modern Monetary Theory Herschel Visser, 1991 In the aftermath of the debates between Keynesians and monetarists, this book provides an overview of the most recent developments in monetary theory. Professor Visser provides an up-to-date survey including major issues such as crowding out, the new classical macroeconomics, the breakdown of the stable money demand function, buffer stocks and currency substitution. |
| modern monetary theory: Full Employment Abandoned William Mitchell, J. Muysken, 2008-01-01 This book by William Mitchell and Joan Muysken is both important and timely. It deals with the issue of the abandonment of full employment as an objective of economic policy in the OECD countries. It argues persuasively that macroeconomic policy has been restrictive over the recent, and not so recent past, and has produced substantial open and disguised unemployment. But the authors show how a job guarantee policy can enable workers, who would otherwise be unemployed, to earn a wage and not depend on welfare support. If such a policy is fully supported by appropriate fiscal and monetary programmes, it can create full employment with price stability, which the authors label as a Non-Accelerating-Inflation-Buffer Employment Ratio (NAIBER). This book is essential reading for any one wishing to understand how we can return to full employment as the normal state of affairs. Philip Arestis, University of Cambridge, UK This book dismantles the arguments used by policy makers to justify the abandonment of full employment as a valid goal of national governments. Bill Mitchell and Joan Muysken trace the theoretical analysis of the nature and causes of unemployment over the last 150 years and argue that the shift from involuntary to natural rate conceptions of unemployment since the 1960s has driven an ideological backlash against Keynesian policy interventions. The authors contend that neo-liberal governments now consider unemployment to be an individual problem rather than a reflection of systemic policy failure and that they are content to use unemployment as a policy instrument to control inflation and coerce the unemployed with work tests and compliance programmes rather than provide sufficient employment. They present a comprehensive theoretical and empirical critique of this policy approach, with a refreshing new framework for understanding modern monetary economies. The authors show that the reinstatement of full employment with price stability is a viable policy goal that can be achieved by activist fiscal policy through the introduction of a Job Guarantee. Full Employment Abandoned will appeal to graduate and postgraduate students and researchers of economics and politics with an interest in macroeconomic policy and the labour market, particularly unemployment and neo-liberal policy frameworks. |
| modern monetary theory: Black Pulp Brooks E. Hefner, 2021-12-21 A deep dive into mid-century African American newspapers, exploring how Black pulp fiction reassembled genre formulas in the service of racial justice In recent years, Jordan Peele’s Get Out, Marvel’s Black Panther, and HBO’s Watchmen have been lauded for the innovative ways they repurpose genre conventions to criticize white supremacy, celebrate Black resistance, and imagine a more racially just world—important progressive messages widely spread precisely because they are packaged in popular genres. But it turns out, such generic retooling for antiracist purposes is nothing new. As Brooks E. Hefner’s Black Pulp shows, this tradition of antiracist genre revision begins even earlier than recent studies of Black superhero comics of the 1960s have revealed. Hefner traces it back to a phenomenon that began in the 1920s, to serialized (and sometimes syndicated) genre stories written by Black authors in Black newspapers with large circulations among middle- and working-class Black readers. From the pages of the Pittsburgh Courier and the Baltimore Afro-American, Hefner recovers a rich archive of African American genre fiction from the 1920s through the mid-1950s—spanning everything from romance, hero-adventure, and crime stories to westerns and science fiction. Reading these stories, Hefner explores how their authors deployed, critiqued, and reassembled genre formulas—and the pleasures they offer to readers—in the service of racial justice: to criticize Jim Crow segregation, racial capitalism, and the sexual exploitation of Black women; to imagine successful interracial romance and collective sociopolitical progress; and to cheer Black agency, even retributive violence in the face of white supremacy. These popular stories differ significantly from contemporaneous, now-canonized African American protest novels that tend to represent Jim Crow America as a deterministic machine and its Black inhabitants as doomed victims. Widely consumed but since forgotten, these genre stories—and Hefner’s incisive analysis of them—offer a more vibrant understanding of African American literary history. |
| modern monetary theory: Sovereign Debt S. Ali Abbas, Alex Pienkowski, Kenneth Rogoff, 2019-10-21 The last time global sovereign debt reached the level seen today was at the end of the Second World War, and this shaped a generation of economic policymaking. International institutions were transformed, country policies were often draconian and distortive, and many crises ensued. By the early 1970s, when debt fell back to pre-war levels, the world was radically different. It is likely that changes of a similar magnitude -for better and for worse - will play out over coming decades. Sovereign Debt: A Guide for Economists and Practitioners is an attempt to build some structure around the issues of sovereign debt to help guide economists, practitioners and policymakers through this complicated, but not intractable, subject. Sovereign Debt brings together some of the world's leading researchers and specialists in sovereign debt to cover a range of sub-disciplines within this vast topic. It explores debt management with debt sustainability; debt reduction policies with crisis prevention policies; and the history with the conjuncture. It is a foundation text for all those interested in sovereign debt, with a particular focus real world examples and issues. |
Modern monetary theory - Wikipedia
Learn about the heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence of overly restricting the supply of money. Explore the history, principles, and criticisms of MMT and its proponents.
Modern Monetary Theory (MMT): Definition, History, and Principles
Jun 30, 2024 · Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries—such as the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a...
A Skeptic’s Guide to Modern Monetary Theory - Scholars at …
Dec 12, 2019 · N. Gregory Mankiw, a Harvard professor of economics, critiques the main tenets of MMT, a new approach to macroeconomics that claims that a currency-issuing government faces no financial constraints. He argues that MMT overlooks the costs and risks of money creation, inflation, and default.
What Is Modern Monetary Theory (MMT) - U.S. News
Jan 8, 2021 · What Is Modern Monetary Theory? Modern Monetary Theory was pioneered by American economist and theorist Warren Mosler in 1992, along with Bill Mitchell, a university professor based in...
Modern monetary theory (MMT) explained - Economics Help
Mar 19, 2020 · MMT is a heterodox economic theory that argues governments should not worry about debt and can create money to achieve full employment. Learn the main features, policy implications and criticisms of MMT, and how it differs from …
Explainer: what is modern monetary theory? - The Conversation
Jan 31, 2017 · Modern monetary theory is an approach to economic management developed since the 1990s by Professor Bill Mitchell, alongside American academics like Professor Randall Wray, Stephanie...
A Primer on Modern Monetary Theory - Fraser Institute
A critical analysis of MMT, a policy model for funding government spending by borrowing from the central bank. The author examines the pros and cons of MMT, its implementation, and its implications for inflation and fiscal sustainability.
What you need to know about modern monetary theory - Financial Times
Apr 28, 2019 · Modern monetary theory (MMT), and its intellectual predecessors, have been somewhat obscure and unconventional branches of economics for many decades, but they have recently gained much more...
Modern Money Theory - SpringerLink
Nov 29, 2016 · Modern Money Theory (MMT) is a relatively new approach to macroeconomics that focuses on building an understanding of the operation of sovereign currency systems and on developing a policy framework based on that understanding.
Modern Monetary Theory, explained | Vox
Apr 16, 2019 · MMT is a left economic idea that argues countries that issue their own currencies can never run out of money. Learn how MMT challenges mainstream economics, what it means for deficits,...
Modern monetary theory - Wikipedia
Learn about the heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence of overly restricting the supply of money. Explore the history, principles, and criticisms of MMT and its proponents.
Modern Monetary Theory (MMT): Definition, History, and Principles
Jun 30, 2024 · Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries—such as the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a...
A Skeptic’s Guide to Modern Monetary Theory - Scholars at …
Dec 12, 2019 · N. Gregory Mankiw, a Harvard professor of economics, critiques the main tenets of MMT, a new approach to macroeconomics that claims that a currency-issuing government faces no financial constraints. He argues that MMT overlooks the costs and risks of money creation, inflation, and default.
What Is Modern Monetary Theory (MMT) - U.S. News
Jan 8, 2021 · What Is Modern Monetary Theory? Modern Monetary Theory was pioneered by American economist and theorist Warren Mosler in 1992, along with Bill Mitchell, a university professor based in...
Modern monetary theory (MMT) explained - Economics Help
Mar 19, 2020 · MMT is a heterodox economic theory that argues governments should not worry about debt and can create money to achieve full employment. Learn the main features, policy implications and criticisms of MMT, and how it differs from …
Explainer: what is modern monetary theory? - The Conversation
Jan 31, 2017 · Modern monetary theory is an approach to economic management developed since the 1990s by Professor Bill Mitchell, alongside American academics like Professor Randall Wray, Stephanie...
A Primer on Modern Monetary Theory - Fraser Institute
A critical analysis of MMT, a policy model for funding government spending by borrowing from the central bank. The author examines the pros and cons of MMT, its implementation, and its implications for inflation and fiscal sustainability.
What you need to know about modern monetary theory - Financial Times
Apr 28, 2019 · Modern monetary theory (MMT), and its intellectual predecessors, have been somewhat obscure and unconventional branches of economics for many decades, but they have recently gained much more...
Modern Money Theory - SpringerLink
Nov 29, 2016 · Modern Money Theory (MMT) is a relatively new approach to macroeconomics that focuses on building an understanding of the operation of sovereign currency systems and on developing a policy framework based on that understanding.
Modern Monetary Theory, explained | Vox
Apr 16, 2019 · MMT is a left economic idea that argues countries that issue their own currencies can never run out of money. Learn how MMT challenges mainstream economics, what it means for deficits,...
