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Modern Money Theory: A Reply to Palley


  • Eric Tymoigne
  • L. Randall Wray


Modern Money Theory (MMT) has explained why monetarily sovereign governments have a very flexible policy space that is unconstrained by hard financial limits. It has provided institutional and theoretical insights about the workings of economies with monetarily sovereign and non-sovereign governments. It has also provided policy insights with respect to financial stability, price stability and full employment. Yet there have been many critics of MMT, including Palley (2014). Critiques of MMT can be grouped into five categories: views about the origins of money and the role of taxes in the acceptance of government currency, views about fiscal policy, views about monetary policy, the relevance of MMT conclusions for developing economies, and the validity of the policy recommendations of MMT. This paper addresses Palley's criticism of MMT using the circuit approach and national accounting identities, and by progressively adding additional economic sectors.

Suggested Citation

  • Eric Tymoigne & L. Randall Wray, 2015. "Modern Money Theory: A Reply to Palley," Review of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 24-44, January.
  • Handle: RePEc:taf:revpoe:v:27:y:2015:i:1:p:24-44
    DOI: 10.1080/09538259.2014.957471

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    References listed on IDEAS

    1. Eric Tymoigne, 2014. "Modern Money Theory, and Interrelations Between the Treasury and Central Bank: The Case of the United States," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(3), pages 641-662.
    2. Eric Tymoigne & L. Randall Wray, 2013. "Modern Money Theory 101: A Reply to Critics," Economics Working Paper Archive wp_778, Levy Economics Institute.
    3. Eric Tymoigne, 2014. "Modern Money Theory and Interrelations between the Treasury and the Central Bank: The Case of the United States," Economics Working Paper Archive wp_788, Levy Economics Institute.
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    Cited by:

    1. repec:taf:revpoe:v:28:y:2016:i:4:p:590-608 is not listed on IDEAS
    2. Thomas Palley, 2018. "Government Spending and the Income-Expenditure Model: The Multiplier, Spending Composition, and Job Guarantee Programs," FMM Working Paper 30-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Thomas I. Palley, 2015. "The Critics of Modern Money Theory (MMT) are Right," Review of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 45-61, January.
    4. repec:mes:postke:v:41:y:2018:i:2:p:316-338 is not listed on IDEAS
    5. repec:taf:revpoe:v:28:y:2016:i:1:p:79-89 is not listed on IDEAS
    6. Eckhard Hein, 2018. "Autonomous government expenditure growth, deficits, debt, and distribution in a neo-Kaleckian growth model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(2), pages 316-338, April.

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