Modern Money Theory 101: A Reply to Critics
One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unencumbered by hard financial constraints. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of many nations, MMT has provided institutional and theoretical insights about the inner workings of economies with monetarily sovereign and nonsovereign governments. MMT has also provided policy insights with respect to financial stability, price stability, and full employment. As one may expect, several authors have been quite critical of MMT. 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 the critiques raised using the circuit approach and national accounting identities, and by progressively adding additional economic sectors.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Louis-Philippe Rochon & Matias Vernengo & Louis-Philippe Rochon & Matias Vernengo, 2003. "State money and the real world: or chartalism and its discontents," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 26(1), pages 57-67, October.
- Stephanie Bell & L. Randall Wray, 2002. "Fiscal effects on reserves and the independence of the Fed," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 25(2), pages 263-271, December.
- Alain Parguez, 1999. "The Expected Failure of the European Economic and Monetary Union: A False Money against the Real Economy," Eastern Economic Journal, Eastern Economic Association, vol. 25(1), pages 63-76, Winter.
- Marc Lavoie, 2013. "The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 47(1), pages 1-32, March.
- Claude Gnos & Louis-Philippe Rochon, 2002. "Money Creation and the State : A Critical Assessment of Chartalism," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 32(3), pages 41-57, October.
- Marco Bassetto & Todd Messer, 2013.
"Fiscal consequences of paying interest on reserves,"
Working Paper Series
WP-2013-04, Federal Reserve Bank of Chicago.
- Marco Bassetto & Todd Messer, 2013. "Fiscal Consequences of Paying Interest on Reserves," Fiscal Studies, Institute for Fiscal Studies, vol. 34, pages 413-436, December.
- Scott T. Fullwiler, 2006. "Setting interest rates in the modern money era," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(3), pages 496-525, April.
- Ann-Marie Meulendyke, 1998. "U.S. monetary policy and financial markets," Monograph, Federal Reserve Bank of New York, number 1998mpaf.
- William Mitchell & Joan Muysken, 2010. "Full employment abandoned: shifting sands and policy failures," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 5(4), pages 295-313.
- Thomas I. Palley, 2015.
"Money, Fiscal Policy, and Interest Rates: A Critique of Modern Monetary Theory,"
Review of Political Economy,
Taylor & Francis Journals, vol. 27(1), pages 1-23, January.
- Thomas I. Palley, 2013. "Money, fiscal policy, and interest rates: A critique of Modern Monetary Theory," IMK Working Paper 109-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- Hassan Bougrine & Mario Seccareccia, 2002. "Money, Taxes, Public Spending, and the State Within a Circuitist Perspective," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 32(3), pages 58-79, October.
- Milton Marquis, 2002. "Setting the interest rate," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct11.
When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_778. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards)
If references are entirely missing, you can add them using this form.