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The "Kansas City" Approach to Modern Money Theory

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  • L. Randall Wray

Abstract

Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp's state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and nonsovereign issues of liabilities, and hence integrates a credit theory of money (or, "endogenous money theory," as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the "Kansas City" approach to MMT at the University of Missouri-Kansas City (UMKC) and the Levy Economics Institute of Bard College.

Suggested Citation

  • L. Randall Wray, 2020. "The "Kansas City" Approach to Modern Money Theory," Economics Working Paper Archive wp_961, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_961
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    References listed on IDEAS

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    1. L. Randall Wray (ed.), 2004. "Credit and State Theories of Money," Books, Edward Elgar Publishing, number 3204.
    2. Stephanie Bell & L. Randall Wray, "undated". "The War on Poverty After 40 Years: A Minskyan Assessment," Economics Public Policy Brief Archive ppb_78, Levy Economics Institute.
    3. Wynne Godley & L. Randall Wray, "undated". "Can Goldilocks Survive?," Economics Policy Note Archive 99-4, Levy Economics Institute.
    4. Dudley Dillard, 1980. "A Monetary Theory of Production: Keynes and the Institutionalists," Journal of Economic Issues, Taylor & Francis Journals, vol. 14(2), pages 255-273, June.
    5. Brett Fiebiger & Scott Fullwiler & Stephanie Kelton & L. Randall Wray, 2012. "Modern Monetary Theory: A Debate," Working Papers wp279, Political Economy Research Institute, University of Massachusetts at Amherst.
    6. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115.
    7. Yeva Nersisyan & Flavia Dantas, 2017. "Rethinking liquidity creation: Banks, shadow banks and the elasticity of finance," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(3), pages 279-299, July.
    8. Mathew Forstater, 1999. "Introduction to Symposium on the European Economic and Monetary Union," Eastern Economic Journal, Eastern Economic Association, vol. 25(1), pages 31-34, Winter.
    9. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar Publishing, number 474.
    10. Felipe de Rezende, 2009. "The Nature of Government Finance in Brazil," International Journal of Political Economy, Taylor & Francis Journals, vol. 38(1), pages 81-104.
    11. Knapp, Georg Friedrich, 1924. "The State Theory of Money," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number knapp1924.
    12. Zdravka Todorova, 2009. "Money and Households in a Capitalist Economy," Books, Edward Elgar Publishing, number 13178.
    13. Eric Tymoigne, 2012. "Financial fragility," Chapters, in: Jan Toporowski & Jo Michell (ed.), Handbook of Critical Issues in Finance, chapter 14, pages i-ii, Edward Elgar Publishing.
    14. Stephanie Bell, 2000. "Do Taxes and Bonds Finance Government Spending?," Journal of Economic Issues, Taylor & Francis Journals, vol. 34(3), pages 603-620, September.
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    Cited by:

    1. Lachlan McCall, 2021. "The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy," The Economic Record, The Economic Society of Australia, vol. 97(317), pages 321-325, June.
    2. Summa, Ricardo de Figueiredo, 2022. "Alternative uses of functional finance: Lerner, MMT and the Sraffiansh," IPE Working Papers 175/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Françoise Drumetz & Christian Pfister, 2021. "The Meaning of MMT," Working papers 833, Banque de France.

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    More about this item

    Keywords

    Modern Money Theory (MMT); Functional Finance; Chartalism; State Theory of Money; Sectoral Balances; Kansas City Approach; Job Guarantee; Sovereign Currency;
    All these keywords.

    JEL classification:

    • B1 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925
    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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