Modern Monetary Theory

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= MMT is a description of the monetary system within a nation operating a fiat currency which involves an autonomous monetary system, monopoly supply of currency and floating exchange rates. MMT describes how a government creates, destroys and utilizes its monetary unit and also how the private sector utilizes the state’s monetary unit for its own benefit. [1]


"Modern Monetary Theory (MMT) is based on the following principles:

  • The Federal government is the monopoly supplier of currency.
  • The modern floating exchange rate system helps to maintain equilibrium and flexibility in the global economy.
  • The currency unit created by the state via deficit spending can only be extinguished by payment of taxes. Therefore, a modern monetary system can best be thought of as a system of debits and credits where government deficit spending credits the private sector and payment of taxes debits the private sector."


See also: Functional Finance



* Article: Understanding Modern Monetary Theory. Tadit Anderson.

URL = ;

Based upon a review by Tadit Anderson of Understanding Modern Money by L. Randal Wray

Part 1

Tadit Anderson:

"The purpose for this set of two flyers is to describe what can be done when a sovereign nation restores its ability to issue fiat debt free money. A very important point to remember here is that the US already has a fiat based currency. "Fiat," as a word means "by declaration." The odd pieces are that although the U.S. has had a fiat currency since 1971 and the banking management practices reflects that fact, the conduct of fiscal policies continues to assume that we are still operating with a gold based currency and that we have to borrow our money into existence.

Monetary reform is an important agenda for ethical, economic, and political reasons and to undo the privatized franchise by which our economy has been based upon a debt based currency. Ending the enormous unearned profits acquired by the means of the privatization of our sovereign currency is important The resistance to monetary and fiscal reform is based upon the fear of established interests of losing both the private control that the monetary franchise allows and the enormous profits that result from that private control. The primary policy conclusion that comes out of this analysis is perhaps shocking, but it can be stated simply: It is possible to have truly full employment without causing inflation."

A number of concepts that are important in the current economic debate. When these ideas are looked at from the perspective of modern monetary theory and functional finance, they take on implications different from the privatized and gold era perspective. The list of concepts includes government deficits, the value of the currency, monetary policy, government bond sales, employment policy, exogenous pricing versus endogenous pricing, the tax liability validation of fiat currency, and using employer of last resort labor as a valuation buffer. This process further presents a series of definitions including "state money," "commodity money," "fiat money," "bank money," "the monetary unit of account," and "full employment."

The nature of the of money that circulates within a sovereign economy makes a major difference in how monetary and fiscal policies are structured. The conventional concept of money includes the assumption that money is based upon the value of precious metals and thereby there is an intrinsic scarcity. Because the need for currency often surpasses the availability of that currency, on a one for one basis, there are certain ways that the apparent amount of money in circulation can exceed the actual amount precious metal available. The actual value of modern money is determined by that which is accepted in the payment of taxes by the sovereign government. The second characteristic of money is under a fiat system which is useful is that it is used as a unit of accounting.

Under the specie convention and different regulatory standards specie based currency can be leveraged. The k through 12 version will allow nine dollars of debt based money to issued for every one dollar held on deposit. The amount of money or specie held in reserve is described as the reserves for whatever type of money or bond are issued Under certain extreme and even questionable situations the leveraging ratio can be as much as 1 "real" Dollar to 70 dollars or more of leveraged, ie fictional money.

Under the specie era model it is assumed that the rate of debt being created is more that the amount of funds being deposited and then used as reserves. Under the same specie era model the institutions of central governance are assumed to operate similar to how an ordinary household would sustain. Funding of programs and projects are then believed to happen by a process of either collecting taxes and/or borrowing money from privately held banks. before programs and projects are funded. Under the simple version of this specie model when an individual or a government borrows money from a bank the amount that is paid back over time is actually the principle and the interest. The principle was fictional debt based money that was leveraged into service. The interest percentage, however it is calculated, only represents a small portion of the short term profit for the bank. As a loan's interest is compounded over time, the original principle will dwindle as the interest rate adds to the running principle.

A related piece is that mortgages do not represent loans from banks or mortgage companies. It is your signature on the mortgage contract which makes a mortgage contract valuable. Under a fiat and debt based currency, money is put into circulation largely by making a ledger entry into a loanee's account. This is partly possible because a majority of our "currency" in circulation is actually neither paper currency or coinage. Under a fiat system currency cannot not be directly converted into precious metal anymore than buying it at the current market value which as a commodity it value is determined by supply and demand.

Another detail is that the banking reserve process does not operate according to the fractional reserve principles as defined that was used while specie and debt monetary model operated. The scarcity of gold has in a sense been replaced by a scarcity of loan applications that are judged to be a profitable risk. What actually happens under a privately controlled monetary system is that a loan application is reviewed based upon whether it represented an good opportunity for a banking investment on some basis. and then after approving the loan the bank borrows funds from the central bank, in the case of the US it is the US Federal Reserve, to cover the reserve requirements. Because the US Federal Reserve is now operating under a zero interest rate policy (ZIRP). this money is being put into circulation on a even higher net leverage ratio. The ZIRP is a significant side issue in this context, because the central bank has no requirement.

Given that the US congress voted in 1913 to both set up the US Federal Reserve and turn over the issuance and management of the economy in large part to the privately owned corporation the US Federal Reserve, this decision could in principle be reversed as being un-Constitutional, which it is. The problem is that these finance sector corporations by having the power to create fiat money on their own authority their corporate "free speech" is potentially endless as contributions to the political campaign funds, and thereby their influence upon politicians will always be greater than the free speech of natural citizens, until this franchise is removed.

Taxation at the federal level within the principles of fiat sovereign currency is largely a method of controlling the excess accumulation of wealth. When taxes are collected by the U.S. I.R.S. those amounts are simply deleted from the tax payer's accounts. Again, under the specie based currency, those taxes were held and then disbursed for Federal government programs and projects. And again, to remind you, we do not currently have a specie based currency, so it ends up being fairly ignorant to continue imagine that the current fiat currency serves in the same way a specie based currency. So the deficit terrorism threatening austerity and even deeper privatization is based upon a specie era monetary model, and is thereby false and clearly a fear tactic based upon disinformation.

Because we could be operating under a sovereignty based version of fiat currency, we could have the government act in a counter cyclical way to increase the demand for goods and economic exchanges by putting currency into circulation through the funding of projects and programs directly. Part of the problems of debt based money is the enormous profits being made off of a social institution to facilitate exchange. Another is that the expansion of currency in circulation is that debt based money is erased from people's accounts once the loans are either paid off or defaulted on. Debt based currency is not designed to serve in a relatively permanent fashion to maintain the illusion of scarcity.

Based on understanding how sovereign fiat money actually is used would allow the Federal government to extend funding to states on a per capita basis for the construction of roads, mass transit, bridges and other "hard" infrastructure to put people back to work which would increase demand for products. This same process can be applied to social infrastructure such as national health care, education, and pensions. Further, an employer of last resort (ELR) process could be established, whereby individuals who wanted to work could be provided a living wage for advancing any number of needed projects toward building communities. This would remove the expense of funding most unemployment benefits and most social welfare. This would also support the cultivation of a work ethic and of being involved in some sort of productive process. This could also be used to incubate new industries until that establish a virtuous process of productivity and trade.

The ELR process would also have other benefits. At the level of economic models labor would no longer be treated as a commodity without any connection to the consumer demand represented by labor as participants in an economic process. As productive industry is able to re-establish itself, the need for ELR labor will diminish greatly, and people can be hired into expanding productive activities.

Banking would be largely reduced to a social utility, where it could actually participate in the development of productive industries, rather than basing its profits on the degree to which wealth could be extracted from a community.

When we align the nature of our economics and the capacities of modern money with the policies of governance as a socializing agenda significant changes will be possible. This change will require reform and education on several levels. In effect the precious metal era economics tends to be structured to serve concentrations of private interests, particularly as in the cynical version of the "golden rule," which is "those who have the gold make the rules." One of the major contradictions of conventional economics is that the actual banking and monetary processes operate much closer to a chartalist view of money than to precious metal centered assumptions. This includes the leveraging allowed by way of the legitimization of the fractional reserve process which in other contexts would be described as a fraud." (

Part 2

Tadit Anderson:

"Decisive in the process is that the state also defines the currency accepted by the state as payment in which taxation levies must be paid. The exchanges between private individuals is less important though significant in the taxation of those transactions, and as legal tender. This establishes a ranking of convertibility that places the currency in which payment of taxation is accepted as the highest form. Knapp's concept of money is what the sovereign concept of money evolved toward nearly seventy five years after the publication of Knapp's theory. Knapp also recognized the probable difficulties of trade between sovereign nations.

It is the state that determines what thing or token will be accepted in the payment of taxes or as currency. State money is identified as taking three forms, commodity(usually specie based), fiat money, and managed money, the last two also combine as representative money. Depending upon the state enfranchisement of centralized and member banks, state money, bonds, and securities would be used as the basis for held reserves. "In summary, with the rise of the modern state, the money of account is chosen by the state, which is free to choose that which will qualify as money ('the thing' that answers to the description). This supersedes legal tender laws -- which establish what can legally discharge contracts -- to define that which the state accepts in payment for taxes at its pay 'offices.'

The state is free to choose a system based upon commodity money, fiat money, or managed money. Even if it chooses a strict commodity system, the value of the money does not derive from the commodity accepted as money. '[f]or Chartalism begins when the state designates the objective standard which shall correspond to the money of account.' ... '[M]oney is the measure of value, but to regard it as having value itself is a relic of the view that that the value of money is regulated by the value of the substance of which ut is made, and is like confusing a theater ticket with the performance' (from John Maynard Keynes )

The endogenous approach to money supply is characterized by two elements, first, that the supply of money expands to meet the demand for money, and second that the central bank exercises no direct or discretionary control over the quantity of money. It is only in the twentieth century that the majority of economists came to accept the "exogenous" view of money creation and that the central bank can directly control the quantity of money and can be assumed to be fixed so that it does not respond to demand.

Hyman Minsky presents a successive nesting process of bank monies which rely on the primacy of state money. The emphasis of both Minsky and then Lerner are presented as focusing on how in a normally, well-working economy money is actually exchanged and tied to their acceptability by the state. The emphasis here is upon the functional nature of money, monetary policy, fiscal policy, taxation, and banking.

An interesting piece of actual history is a comparison of the opposing monetary and fiscal policies of the Union as compared to the Conferation of southern states during the US Civil war. This comes by way of an analysis done by Abba Lerner. In short the results of that conflict seemed to have been more determined by the functional versus dysfunctional natures of the widely different monetary and fiscal policies than even the military strategies resulting in massive casualties. This bit of history establishes the validity of fiat currency, the "Greenback," by the Union both during the US Civil war, then upto 1869, and then from 1884 forward.

It is necessary to compare "conventional" wisdom regarding these issues to the examination of these utilities as they are used which turns conventional wisdom upside down. Abba Lerner approached these processes according to their actual effects, and it makes for a startling different view of the general processes. He does make a distinction between "fiat money" and "bank money." Fiat money as only being issued through spending by the government. Bank money as being issued by banks as a product of a contract of indebtedness to a bank. This is generally described elsewhere as debt based money. Fiat money in this context would be debt free money issued by a sovereign government.

Being that bank money is created upon the prospect of profitability, and then any necessary reserves are acquired after the fact. This clearly establishes an unstable process relative to the amount of which money is in circulation. To the extent that fiat money is spent into circulation to greater or lesser effect relative to the scarcity of currency within a community. To the extent that the leverage process would be abused both to put bank money into circulation and remove both it and the interest upon payment. It seems that the influence of Hyman Minsky's observations of the destabilization of an economy enters out of the innovation of unregulated financial instruments and from the deregulation of familiar instruments. In this context there should be a question regarding limiting the creation of bank money both by using fiat money to establish a general lack of currency scarcity and by regulation of the banking leverage ratios. The mechanism by which the amount of private savings that might be held, also effects the availability of credit. It seems that the deregulation of banking industry generally has favored the profitability of bank money over fiat money at the expense of the general population.

Much of what Lerner demonstrated came out of the financing and pricing of commodities and labor by the US government during World War II, and those economic lessons were soon dismissed. Another portion came from the interrelating of the financial spread sheets of the US Treasury and the US Federal Reserve. All this was supplemented by Lerner's study of the fiscal and monetary policies of both the Union and Confederate governments during the US Civil War. I think that generally it has been amply demonstrated that Minsky was entirely correct that economic stability cultivates economic instability. By extension it is probable that Lerner was also right about the capacities under the insights of functional finance.

Economic illiteracy by multiple sources and the profitability of bank money obstruct change to a more functional basis. The obstructions to functional fiscal and monetary policies relative the benefits to the general population are primarily political. A similar analysis can demonstrate the inadequacy of monetary policies and how the banking actually operates as an institution.

The logic of the employer of last resort processes as proposed by both Minsky and Lerner. In this context there is a huge positive potential in stabilizing both retail prices and wages in a down cycle period and to avoid the multiple negative effects of using unemployment as a weapon against unionization and the expectation of higher wages according to productivity. The core suggestions are revolutionary, in the sense of the over-turning of long held assumptions. I have difficulty believing that these "conventions" were sustained solely out of ignorance, but more likely as a form of oligarchic dysfunctional finance.

The premise that labor should be a participant within an economy both as a producer and as a consumer, shifts the processes of economy from being privatized to being a fully public process. Counter cyclical employer of last resort paid on the basis of a living wage not based upon the errant piece of usury referred to as the Federal minimum wage. Because the nominal Federal minimum wage is substantially below the actual cost of a living wage, it represents a form of subsidy by the work force. The idea that in a down cycle period people might be productive in service to the community, rather than sustaining both a culture of idleness and idle profit is also revolutionary. Further, using the living wage as a basis of valuation of the currency is another major innovation and a humanization of economic processes.

Reserve requirements might be treated as an additional option for control. He doe not explore this possibility with any sense of completeness. Given that the established privatization of debt based currency and the lack of an integrated control over the creation of debt based bank money, the current system permits multiple drivers. The use of reserves to leverage the production of debt based money needs to be integrated as part of a fully coherent set of macro-economic policies in service of the public interest. A full reserve structure for all bank lending is the necessary solution. Under the condition of an adequate distribution of sovereign fiat money, debt based money would be not be necessary. Lerner's single driver metaphor can also be taken in the opposite direction toward the corporate takeover of the process of governance. This choice also offers a "single" driver for the most part, but it is exactly what we have now in the control of governance by corporations and particularly by the "finance" sector. This option is obviously hazardous because this particular driver is blind to every issue other than its own return on investment. It is also an extremely unproductive use of capital relative to the entire economy. It serves a fictional function other than acting as a wealth extraction process. Relying on a privatized central banking process to control hazardous driving by the application of monetary policy changes has been inadequate to limit primitive accumulation. Perhaps we can recognize this pattern by its current enactment in real time on a global scale.

Most of the changes necessary to making the economic processes functional require no specific reform, just changes in the way policy makers understand the capacity of the system they already have. The one large piece that is missing is an advocacy for the restoration of monetary sovereignty that was yielded in the establishment of the US Federal Reserve specifically to greatly eliminate the private franchise to create debt based money and to bring the control of central banking under the authority of the U.S. Treasury. The US Government must restore its ability to issue fiat and debt free money before Functional Finance can be made operational. In addition the deregulation banking and speculation must be restored and improved upon. Using Lerner's wisdom, going for a macro-economic drive requires that a coherent set of public policies be established to take control of the steering wheel and accompanied by knowing how the mechanism actually works and interacts with its environment. We will not have a coherent public agenda controlling the economy until the power to issue fiat and debt free money is restored to serve the public interest." (


See: MMT Fiscal Principles



"MMT is based on the state theory of money which says that modern fiat money is always a “creature of the state”. The theory was first introduced by GF Knapp as “Chartalism”. This is derived from the Latin word “charta” which means token. This is used to describe the reality of modern fiat currencies as nothing more than a state issued token with no linkage to commodity based money. We do not reside in a system in which currencies have any linkage to metals therefore, such thinking is not applicable to a modern fiat monetary system, although such thinking has persisted and still clouds much economic thinking to this day.

Significant contributions to Chartalism were made by Alfred Mitchell-Innes and Abba Lerner. The gold standard, however, rendered much of their work incomplete as governments were still constrained in their ability to issue currency. This changed in 1971 when Nixon closed the gold window. Since then, Chartalism has undergone a significant revival although much of the economic thinking based on the gold standard continues to this day. The work of Hyman Minsky, Wynne Godley, Warren Mosler and Randall Wray have been particularly central to this revival that has come to be known as “Neo-Chartalism” or Modern Monetary Theory (MMT)." ( link title


Dylan Matthews:

“Modern Monetary Theory” was coined by Bill Mitchell, an Australian economist and prominent proponent, but its roots are much older. The term is a reference to John Maynard Keynes, the founder of modern macroeconomics. In “A Treatise on Money,” Keynes asserted that “all modern States” have had the ability to decide what is money and what is not for at least 4,000 years.

This claim, that money is a “creature of the state,” is central to the theory. In a “fiat money” system like the one in place in the United States, all money is ultimately created by the government, which prints it and puts it into circulation. Consequently, the thinking goes, the government can never run out of money. It can always make more.

This doesn’t mean that taxes are unnecessary. Taxes, in fact, are key to making the whole system work. The need to pay taxes compels people to use the currency printed by the government. Taxes are also sometimes necessary to prevent the economy from overheating. If consumer demand outpaces the supply of available goods, prices will jump, resulting in inflation (where prices rise even as buying power falls). In this case, taxes can tamp down spending and keep prices low.

But if the theory is correct, there is no reason the amount of money the government takes in needs to match up with the amount it spends. Indeed, its followers call for massive tax cuts and deficit spending during recessions. Warren Mosler — a hedge fund manager, sports car company owner and frequent gadfly political candidate (he earned a little less than 1 percent of the vote as an independent in Connecticut’s 2010 Senate race) — is among the movement’s more prolific authors. He says that to combat the current downturn he supports suspending the payroll tax that finances the Social Security trust fund, and providing an $8 an hour government job to anyone who wants one.

The theory’s followers come mainly from a couple of institutions: the University of Missouri-Kansas City’s economics department and the Levy Economics Institute of Bard College, both of which have received money from Mosler. But the movement is gaining followers quickly, largely through an explosion of economics blogs. Naked Capitalism, an irreverent and passionately written blog on finance and economics with nearly a million monthly readers, features proponents such as Kelton, fellow Missouri professor L. Randall Wray and Wartberg College professor Scott Fullwiler. So does New Deal 2.0, a wonky economics blog based at the liberal Roosevelt Institute think tank." (


MMT on Monetary Policies as a Managed Commons

Tadit Anderson:

"In a "translation" of an essay by Dan Kervick that was entitled "Occupy the Fiscal Debate" I have been substantially editing it to be used as a set of my trifolds. The value of the article is that it is a fairly compact description of how sovereign fiat currencies operate on a managed commons basis. The appended version of "functionality" by way of "functional finance" is directed to serving the common purpose, and it is intended as an integral concern of MMT/FF. It generally does not address other aspects or levels of the Commons, which I will be adding as policy options on a sub sovereign basis, such as regional, state/province, or municipal basis for policy options congruent with the commons concept in fiscal debates. I am am inserting to extend the commons basis to integrating "subsidies" and "depletion allowances" as net negative contributions to the sovereign or national net contribution. Thereafter annexing water, mineral resources, the atmosphere, and other more typical commons elements is a short step. There is a difference between taxing the use of commons resources as a principle and defining a more specific value to the use of commons domains in quantifying net negative consumption of various commons domains.

I hope that this responds to your question. In short, in principle I believe that the concern about the commons is already implied though not yet explicitly addressed within the MMT/FF framing. To the level of peer to peer applications of the commons principle it seems like short step into embedding the commons principle into legal language for contracts and regulator functions. This is currently not the case as per the patenting of genomes and similar capturing of what is essentially a commons domain." (email, December 2012)

Can MMT save Europe from Austerity?

The Economy doesn't Need to suffer Neoliberal Austerity!

By Michael Hudson [2]

"I have just returned from Rimini, Italy, where I experienced one of the most amazing spectacles of my academic life. Four of us associated with the University of Missouri at Kansas City (UMKC) were invited to lecture for three days on Modern Monetary Theory (MMT) and explain why Europe is in such monetary trouble today -- and to show that there is an alternative, that the enforced austerity for the 99% and vast wealth grab by the 1% is not a force of nature.

Stephanie Kelton (incoming UMKC Economics Dept. chair and editor of its economic blog, New Economic Perspectives [3]), criminologist and law professor Bill Black, investment banker Marshall Auerback and myself (along with a French economist, Alain Parquez) stepped into the basketball auditorium on Friday night. We walked down, and down, and further down the central aisle, past a packed audience reported as over 2,100. It was like entering the Oscars as People called out our first names. Some told us they had read all of our economics blogs. Stephanie joked that now she knew how The Beatles felt. There was prolonged applause -- all for an intellectual rather than a physical sporting event.

With one difference, of course: Our adversaries were not there. There was much press, but the prevailing Euro-technocrats (the bank lobbyists who determine European economic policy) hoped that the less discussion of possible alternatives to austerity, the easier it would be to force their brutal financial grab through.

All the audience members had contributed to raise the funds to fly us over from the United States (and from France for Alain), and treat us to Federico Fellini's Grand Hotel on the Rimini beach. The conference was organized by reporter Paolo Barnard, who had studied MMT with Randall Wray and realized that there was plenty of demand in Italian mass culture for a discussion of what actually was determining the living conditions of Europe -- and the emerging financial elite that hopes to use this crisis as an opportunity to become the new financial lords carving out fiefdoms by privatizing the public domain being sold off by governments that have no central bank to finance their deficits, and are tragically beholden to bondholders and to Eurocrats drawn from the neoliberal camp.

Paolo and his enormous support staff of translators and interns provided an opportunity to hear an approach to monetary and tax theory and policy that until recently was almost unheard of in the United States. Just one week earlier the Washington Post published a review of MMT [4], followed by a long discussion in the Financial Times [5].

But the theory remains grounded primarily at the UMKC's economics department and the Levy Institute at Bard College, with which most of us are associated.

The basic thrust of our argument is that just as commercial banks create credit electronically on their computer keyboards (creating a bank account credit for borrowers in exchange for their signing an IOU at interest), governments can create money. There is no need to borrow from banks, as computer keyboards provide nearly free credit creation to finance spending.

The difference, of course, is that governments spend money (at least in principle) to promote long-term growth and employment, to invest in public infrastructure, research and development, provide health care and other basic economic functions. Banks have a more short-term time frame. They lend credit against collateral in place. Some 80% of bank loans are mortgages against real estate. Other loans are made to finance leveraged buyouts and corporate takeovers. But most new fixed capital investment by corporations is financed out of retained earnings.

Unfortunately, the flow of earnings is now being diverted increasingly to the financial sector -- not only to pay interest and penalties to banks, but for stock buybacks intended to support stock prices and hence the value of stock options that managers of today's financialized companies give themselves. As for the stock market -- which textbook diagrams still depict as raising money for new capital investment -- it has been turned into a vehicle to buy out companies on credit (e.g., with high interest junk bonds) and replace equity with debt. Inasmuch as interest payments are tax-deductible, as if they were a necessary cost of doing business, corporate income-tax payments lowered. And what the tax collector relinquishes is available to be paid out to the bankers and bondholders who get rich by loading the economy down with debt.

Welcome to the post-industrial economy, financialized style. Industrial capitalism has passed into a series of stages of finance capitalism, from the Bubble Economy to the Negative Equity stage, foreclosure time, debt deflation, austerity -- and what looks like debt peonage in Europe, above all for the PIIGS: Portugal, Ireland, Italy, Greece and Spain. (The Baltic countries of Latvia, Estonia and Lithuania already have been plunged so deeply into debt that their populations are emigrating to find work and flee debt-burdened real estate. The same has plagued Iceland since its bank rip-offs collapsed in 2008.)

Why aren't economists describing this phenomenon? The answer is a combination of political ideology and analytic blinders. As soon as the Rimini conference ended on Sunday evening, for instance, Paul Krugman's Monday, February 27 New York Times column, What Ails Europe? <> blamed the euro's problems simply on the inability of countries to devalue their currencies. He rightly criticized the Republican party line that blames European welfare spending for the Eurozone's problems, and also criticizing putting the blame on budget deficits.

But he left out of account the straitjacket of the European Central Bank (ECB) unable to monetize the deficits, as a result of junk economics written into the EU constitution.

- "If the peripheral nations still had their own currencies, they could and would use devaluation to quickly restore competitiveness. But they don't, which means that they are in for a long period of mass unemployment and slow, grinding deflation. Their debt crises are mainly a byproduct of this sad prospect, because depressed economies lead to budget deficits and deflation magnifies the burden of debt."

Depreciation would lower the price of labor while raising the price of imports. The burden of debts denominated in foreign currencies would increase in keeping with the devaluation, thereby creating problems unless the government passed a law re-denominating all debts in domestic currency. This would satisfy the Prime Directive of international financing: always denominated debts in your own currency, as the United States does.

In 1933, Franklin Roosevelt nullified the Gold Clause in U.S. loan contracts, enabling banks and other creditors to be paid in the equivalent gold value.

But in his usual neoclassical fashion, Mr. Krugman ignores the debt issue:

- "The afflicted nations, in particular, have nothing but bad choices: either they suffer the pains of deflation or they take the drastic step of leaving the euro, which won't be politically feasible until or unless all else fails (a point Greece seems to be approaching). Germany could help by reversing its own austerity policies and accepting higher inflation, but it won't."

But leaving the euro is not sufficient to avert austerity, foreclosure and debt deflation if the nation that withdraws retains the neoliberal policy that plagues the euro. Suppose the post-euro economy has a central bank that still refuses to finance public budget deficits, forcing the government to borrow from commercial banks and bondholders? Suppose the government believes that it should balance the budget rather than provide the economy with spending power to increase its growth?'

Suppose the government slashes public welfare spending, or bails out banks for their losses, or takes losing bank gambles onto the public balance sheet, as Ireland has done? Or for that matter, what if the governments do not write down real estate mortgages and other debts to the debtors' ability to pay, as Iceland has failed to do? The result will still be debt deflation, forfeiture of property, unemployment -- and a rising tide of emigration as the domestic economy and employment opportunities shrink.

So what then is the key? It is to have a central bank that does what central banks were founded to do: monetize government budget deficits so as to spend money into the economy, in a way best intended to promote economic growth and full employment.

This was the MMT message that the five of us were invited to explain to the audience in Rimini. Some attendees came up and explained that they had come all the way from Spain, others from France and cities across Italy. And although we did many press, radio and TV interviews, we were told that the major media were directed to ignore us as not politically correct.

Such is the censorial spirit of neoliberal monetary austerity. Its motto is TINA: There Is No Alternative, and it wants to keep matters this way. As long as it can suppress discussion of how many better alternatives there are, the hope is that the public will remain acquiescent as their living standards shrink and wealth is sucked up to the top of the economic pyramid to the 1%.

The audience requested above all more theory from Stephanie Kelton, who gave the clearest lecture on economics I had ever heard -- a Euclidean presentation of MMT logic. For a visual of the magnitude, see Stephanie here. <>

The size of the audience filling the sports stadium to hear our economic explanation of how a real central bank should operate to avoid austerity and promote rather than discourage employment showed that the government's attempt to brainwash the population was not working. It was not working any better than Harvard's Economics 101 class, from which students walked out in protest against the unrealistic parallel universe thinking whose only appeal is to highly intelligent but ungrounded individuals (not yet post-autistic). They are selected as useful idiots and trained to draw pictures of the economy that exclude analysis of the debt overhead, rentier free lunches and financial parasitism. One needs to be very clever, after all, to imagine a system that "saves the appearances" of an unrealistic Ptolemaic system."

Overview of Critiques

Robert Searle:

"The following could be listed in connection with MMT.

1. Mainstream economists would regard the idea that new non-repayable money could be created by governments (ie MMT)thereby replacing tax would be seen as being "too inflationary."

Tadit: this is essentially a red herring. The problem with sovereign economies is exactly because of of the assumptions that define neo-classical economics. Based upon this fact being concerned about supposed criticisms neo-classical economists seems like a non-issue. Main stream economists should be more concerned about the unsustainability of neo-classical economics, than attempting to discredit an economic discourse which is based upon actual practices, ie MMT/FF

2. The concept from the US point of view that governments should create their own money sans taxation (except for controlling inflationary pressures where, and when necessary) would be seen as giving elected representatives "too much power!"

Tadit: this statement is more about dysfunction economics and the political interests that the neo-classical model serves. MMT/FF is reality based and at best neo-classical economics is faith based and little more. Actually any casual reader who looks into where those representatives advocates receive their funding, their actual loyalties should be clear and not supportive of governance as an element of the political commons.It will be very clear that allowing private banking interests to issue money as debt and as digital entries has demonstrated that the privatized franchise to create "money" results in their control of who gets loans and capitalization, who does not receive capitalization, and which politicians are bribed and those whose priorities are primarily aligned with private banking interests, and those corporations which they serve have the far greater influence upon policy issuance and thereby political power of blood and flesh citizens.

3. The most obvious obstacle to MMT is of course the Global Bond Market which would resist any attempt to reduce, or irradicate its power." (p2p-f mailing list, October 2011)

Tadit: this is patently silly, the global bond market traders if they are even modestly educated will understand that money is the means by which wealth is transferred. Certainly the finance centered banks with object the application of MMT/FF because any monetary reform which result in less profit going to those banking interests will be resisted at great effort. Those investor would speculate in currency futures generally already understand how monetary economics works. Those that hold the privatized franchaise to issue sovereign currency will never willingly give up that privilege willingly. This no reason at to surrender the need for massive reform to that process in favor of the sovereign economic commons with the expectation that the currency process be managed in the interest of democratic outcomes and effects..

If you still believe that neo-classical economics is the only legitimate economic model and you are not a private sector banker, then you need to do a considerable amount of homework before maybe you will eventually realize that your education has been seriously deficient. If you are modestly intelligent, and are interested in learning about an economic model and the monetary reform which is reality based, then MMT/FF likely to be a useful alternative. For those who have degrees in economics and are committed to neo-classical economics, then perhaps you need to think about demanding a return on your tuition payments.

Difference with Functional Finance

Tadit Anderson:

"The difference is more a matter of history and focus, because generally speaking they are integrated. MMT is derived from J. M. Keynes's later work related to money as an institution and as related to his advocacy of macro-economics. Functional Finance is based upon work of Abba Lerner (the New School for Social research through the 1960s and 1970s plus) others. It is based upon the experience with deficit based government spending during the "Great Depression/FDR's New Deal and into the transition after US Pres Nixon "closed" the Gold "window" on the redemption of US Dollars into gold in 1971. It is functional in the sense of how monetary and fiscal policy works relative to its outcomes. MMT includes substantial historical research into the history of the origin and issuance of money. Functional finance is more about the effects of the macroeconomics of Keynes and related people."

Linkages between MMT and Marxism

Contextual Citation:

"Marxism attributes the greatest degree of being to immediate material relations and imagines monetary abstraction as a necessary diminishment and volatilization of said relations. By contrast, MMT treats remote obligations to a centralized currency issuer as ontologically prior to any decentered association and sees monetary abstraction as a means to at once socialize and enlarge relations of production and distribution. Hence Marxism assumes that money is a private, alienating, and crisis-ridden exchange relationship that ought to be overcome. Yet MMT holds money to be a boundless public utility that, while by no means untroubled, is well-equipped to actualize radical collectivist ends."

- Scott Ferguson [6]

He furthers explains that:

"Viewed from afar, Modern Monetary Theory (MMT) and Marxism appear opposed. Contemporary Marxists such as Anwar Shaikh reject MMT and, typically, MMT is disassociated from Marxism when presented to the public. In truth, however, MMT and Marxism share an entangled history that thwarts neat distinctions and oppositions.

For one, Karl Marx’s intervention stands at the origin of critical political economy. Insisting that the modern money systems that mainstream economics deem natural and self-correcting are in truth politically constructed and destabilizing, Marxism functions as a philosophical torchbearer for the heterodox post-Keynesian tradition from which MMT arises. What is more, post-Keynesianism itself comprises a kaleidoscopic conflagration of Keynesian and Marxist impulses, which cannot be sharply dis-articulated.

In terms of direct influence, MMT owes many specific insights to the history of Marxist thought. MMT relies heavily on post-Keynesian theories of effective demand and stock-flow consistency, both of which are traceable to the second and third volumes of Marx’s Capital. Moreover, MMTers such as Bill Mitchell, Mathew Forstater, and Peter Cooper regularly draw upon Marxist concepts and arguments in their writings, paying express heed to Marxism’s ongoing relevance for MMT.

Meanwhile, post-Keynesian circuitist theory has increasingly prioritized state credit money in their analyses of the monetary circuit (M-C-M’) outlined in the first volume of Capital. Especially interesting in this regard are European Marxist circuitists like Riccardo Bellofiore who overtly mobilize MMT’s insights. Forging novel connections between Marxism, post-Keynesianism, and MMT, Bellofiore and his followers continue to uncover important genealogical and theoretical linkages among these projects." (

More Information


  • The Use and Abuse of Modern Monetary Theory (MMT) By Prof Michael Hudson, Dirk Bezemer, and et al. Global Research, April 28, 2020



  • Essay: Modern Money Theory and New Currency Theory A comparative discussion, including an assessment of their relevance to monetary reform. Joseph Huber

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This paper discusses Modern Money Theory (MMT) from the perspective of a New Currency Theory (NCT) as represented by proponents of monetary reform. In the paradigmatic framework of currency teachings versus banking teachings, MMT, in contrast to its self-image as a chartal theory of money, represents banking theory much more than currency teaching. Its understanding of fractional reserve banking and monetary sovereignty is misleadingly incomplete. Thus, NCT’s analyses appear to be a more adequate foundation for modern sovereign money.