On Modern Money Theory
Modern Money Theory Revisited
In 2013, an extended criticism of modern money theory (MMT) was among the first entries on this website (see further below). In the meanwhile, quite a few politicians feel uneasy about the overall financial situation but have no remedy at hand. Some of them are giving an ear to MMT, seduced by MMT's message not to worry about imbalances, deficits and debt.
Here are two papers of partly similar content, the first focusing on the differences between MMT and the sovereign money theory advocated on this website, the second discussing MMT in some more detail.
• Sovereign Money Theory and Modern Money Theory – in the same boat? >
(5 pages) or print out as a PDF >
• Modern Money Theory Revisited - still the same false promise >
(15 pages) or print out as a PDF >
Here is an eye-opening powerpoint by Sue Peters, member of both the U.S. Green Party and the Alliance for Just Money, on how MMTers wanted to rewrite the Green Party’s national platform but were prevented from doing so by a vast majority of the platform committee.
Here is an abbreviated version of my extended paper
Modern Money Theory and New Currency Theory. A comparative discussion, including an assessment of their relevance to monetary reform
published in Real-World Economics Review, no.66, 13 January 2014.
Also Positive Money, London, has developed an in-depth discussion of MMT. It comes in several parts:
1 Intellectual Roots and Focus by Rob Macquarie
2 Money and Debt by Rob Macquarie
3 Money and Debt continued by Rob Macquarie
4 Shadow Banking by Spencer Veale
During MMT’s issue attention cycle from about January to May 2019, many experts and other commentators have offered their opinion on MMT, such as for example:
• Doug Henwood, MMT isn’t helping, Jacobin, Feb 21, 2019.
• Ben Hunt, Modern Monetary Theory or: How I Learned to Stop Worrying and Love the National Debt, Epsilon Theory, Jan 17, 2019.
Others were less critical:
• Modern Money Theory, The Money Question (blog sponsored by Positive Money, London (no author names, no date).
• Robert Hockett, Modern Money, Dollars & Sense, March/April 2018.
Modern Money Theory (MMT) has developed since the mid-1990s. Some monetary reformers hope for support from MMT. Sovereign Money Reformers and MMT indeed share a number of analytical views. It nonetheless turns out that MMT - in spite of its claim to stand for chartalism and a sovereign-currency system - is closer to representing new banking doctrine rather than currency teaching.
Modern Money and Sovereign Currency
Book manuscript. 100 pages. Book contents can be called up subchapter-wise below.
Book page numbers are indicated as /x/.
You may also > download the manuscript as a PDF.
0. Introduction. Modern Money Theory (MMT) and New Currency Theory (NCT) ... 3
2. Analysis of the present money system
2.1 Money in the two-tier banking system. Defining money. Money as currency ... 17
2.2 Credit and deposits, investment and savings. Primary and secondary credit ... 19
2.3 Multiplier model. Credit creation is led by the banks rather than the central bank ... 21
2.4 Credit creation through purchase of assets. Genuine and interest-borne seigniorage ... 24
2.5 Does interest-rate policy compensate for ineffective quantity policy? ... 28
2.6 Do we have a currency or a banking regime? ... 32
2.7 Dysfunctions of fractional reserve banking ... 35
3. Chartalism
3.1 State theory versus market theory of money ... 40
3.2 Intrinsic versus induced value of money (metallism vs nominalism) ... 45
3.3 The relation of money to credit and debt ... 49
3.4 Trade and bank credit. Dysfunctional identity of money and credit ... 58
3.5 Monetary sovereignty and sovereign currency. Defining the monetary prerogative ... 62
3.6 What would a sovereign money system look like? ... 67
3.7 Excursus: Does the euro qualify as a sovereign currency? ... 70
3.8 Is government creditor or debtor? ... 73
4. Sector balances
4.1 Public, private and foreign sector – accurate or simplistic? ... 81
4.2 Government debt, sound finances and 'dysfunctional finance' ... 84
4.3 Foreign-account deficit as a hegemonic privilege ... 89
5. Conclusion ... 93
6. Literature ... 96
© Joseph Huber 2014
More papers on MMT (critical for the most part)
• Ellen Brown > The Secret to Funding a Green New Deal, truthdig website, March 19, 2019.
• Robert Hockett > Modern Money. A primer on MMT, Dollars & Sense, March/April 2018.
• Keith Rodgers > Will Modern Monetary Theory (MMT) gain actual passage of a plan, or just create enough confusion to prevent a timely debt solution? Policy Winners, July 2014.
• Cullen Roche has made a comprehensive > Critique of Modern Money Theory in 2011 from his Monetary Realism point of view. This converges and overlaps in quite many aspects with the analysis given here.
• Marc Lavoie > The monetary and fiscal nexus of neo-chartalism: A friendly critical look into MMT (2011), University of Ottawa, Department of Economics
• Eladio Febrero > Three Difficulties with Neo-chartalism, Journal of Post Keynesian Economics, 31/3 (2009): 523-541.
• Brett Fiebiger > Modern Money Theory and the 'Real-World' Accounting of 1 - 1 < 0, PERI, University of Massachussets Amherst, Working Paper Series No. 279, Jan 2012.
On Modern Money Theory from the angle of advanced monetary system analysis