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From the State Theory of Money to Modern Money Theory: An Alternative to Economic Orthodoxy

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  • L. Randall Wray

Abstract

This paper explores the intellectual history of the state, or chartalist, approach to money, from the early developers (Georg Friedrich Knapp and A. Mitchell Innes) through Joseph Schumpeter, John Maynard Keynes, and Abba Lerner, and on to modern exponents Hyman Minsky, Charles Goodhart, and Geoffrey Ingham. This literature became the foundation for Modern Money Theory (MMT). In the MMT approach, the state (or any other authority able to impose an obligation) imposes a liability in the form of a generalized, social, legal unit of account--a money--used for measuring the obligation. This approach does not require the preexistence of markets; indeed, it almost certainly predates them. Once the authorities can levy such obligations, they can name what fulfills any obligation by denominating those things that can be delivered; in other words, by pricing them. MMT thus links obligatory payments like taxes to the money of account as well as the currency. This leads to a revised view of money and sovereign finance. The paper concludes with an analysis of the policy options available to a modern government that issues its own currency.

Suggested Citation

  • L. Randall Wray, 2014. "From the State Theory of Money to Modern Money Theory: An Alternative to Economic Orthodoxy," Economics Working Paper Archive wp_792, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_792
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    File URL: http://www.levyinstitute.org/pubs/wp_792.pdf
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    References listed on IDEAS

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    1. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar Publishing, number 474, September.
    2. Charles Goodhart, 1989. "Money, Information and Uncertainty: 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262071223, January.
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    Cited by:

    1. repec:eee:rujoec:v:1:y:2015:i:4:p:419-438 is not listed on IDEAS
    2. Lakomski-Laguerre, Odile & Desmedt, Ludovic, 2015. "L’alternative monétaire Bitcoin : une perspective institutionnaliste," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 18.

    More about this item

    Keywords

    Modern Money Theory; Chartalism; State Money; Knapp; Innes; Schumpeter; Keynes; Minsky; Goodhart; Ingham; Sovereign Currency;

    JEL classification:

    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
    • B15 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Historical; Institutional; Evolutionary
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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