Modern Monetary Theory Research Articles

Indie economics: social purpose, lay expertise and the unusual rise of modern monetary theory

ABSTRACT We argue that the IPE literature on economic expertise has been characterised by ‘methodological elitism’ that makes it ill equipped to account for the influence of heterodox and grassroots forms of expertise. To remedy this, we posit a theoretical framework that emphasises the tensions between two forms of professional legitimacy. One is internal legitimacy and it is rooted in appeals to scientific objectivity, political neutrality and high professional barriers of entry. However, internal legitimacy may clash with external legitimacy, which is a function of a clear articulation of social purpose. Taking the surprising rise of Modern Monetary Theory as a case study, the paper makes two claims. First, its ideas did not coalesce into a distinctive heterodox brand of economics through traditional mechanisms like academic peer-review and citation networks, but through intense online activity. Second, the messaging that spurred MMT consistently combined constitutive claims with explicit declarations of social purpose. The result was an open project with a broad normative appeal, which successfully enrolled a large group of passionate followers and co-creators. To date, IPE scholars have been blind to such alternative forms of knowledge production.

Bitcoin: an alternative to fiat money? A post-Keynesian perspective

Motivation: This paper addresses the ongoing debate surrounding Bitcoin’s potential to function as an alternative to state-issued fiat currencies. With the advent of Bitcoin and its increasing global prominence, it is essential to explore its viability, particularly in light of its formal adoption in El Salvador as legal tender. The limited supply and decentralized nature of Bitcoin present a significant departure from traditional monetary systems, which raises questions regarding its capacity to fulfill the roles of money under Modern Monetary Theory (MMT).Aim: The primary goal of this paper is to critically examine whether Bitcoin can serve as a functional replacement for fiat money. Using a post-Keynesian analytical framework, this study investigates Bitcoin’s ability to meet the requirements of sovereign money, particularly within the theoretical framework of MMT. The analysis focuses on Bitcoin’s decentralized issuance, limited supply, and its role in fiscal policy and credit creation.Materials and methods: This research employs a critical literature review and a case study analysis, using the framework of MMT and post-Keynesian endogenous money theory to assess Bitcoin’s economic implications and its real-world application in El Salvador’s Bitcoin Law. The study analyzes Bitcoin’s economic implications based on the endogenous money supply model and evaluates its impact on government fiscal policy, credit markets, and economic stability in both theoretical and practical contexts, with a special focus on El Salvador’s Bitcoin Law.Results: The analysis reveals significant limitations in Bitcoin’s ability to function as a fiat currency. Its rigid supply and speculative nature hinder its capacity to serve as a medium of exchange, store of value, and unit of account, as envisaged by MMT. The study concludes that Bitcoin’s decentralized nature and deflationary design pose challenges for its broader adoption as state money, particularly in managing aggregate demand and economic crises.

On the limits of economic activity: bridging degrowth and modern monetary theory for socio-ecological sustainability and justice

This paper advances recent work exploring synergies and tensions between two schools of political-economic thought—degrowth and modern monetary theory (MMT)—and posits that this synergy warrants closer attention from International Political Economy and Environment (IPEE) scholars. Thus far, degrowth policies have largely been proposed upon the assumption that governments are limited in budgetary terms. MMT theorists have offered an alternative perspective on fiscal policy space but generally provide insufficient ecological considerations. This paper asks how each school’s underlying assumptions about the limits of economic activity might inform the other’s framework of action. We find that while there are tensions between the two schools’ economic philosophies, there are possibilities for cross-fertilization, which ought to interest IPEE scholars. MMT could engage degrowth’s perspective of ecological limits and global socio-ecological justice in its discussions about what economies can ‘afford’, whereas degrowth could use MMT insights to shift from a ‘pay for’ to a ‘resource’ frame, while centering abundance before limits. Meanwhile, IPEE can provide insights to an MMT-informed degrowth transition by grounding this debate in material analyses of class and power. Our findings suggest that degrowth and MMT could provide a normative direction for IPEE research centered around meeting material needs within planetary boundaries.

Georg Friedrich Knapp's Legacy to Modern Monetary Theory: A Reconsideration

This article is a reassessment of the relation between Georg Friedrich Knapp and Modern Monetary Theory, a contemporary strand of economics that, under the term chartalism coined by Knapp, is presented by its proponents as a continuation of his 1905 State Theory of Money. It shows that, contrary to Modern Monetary Theory, which proposes a policy-oriented monetary view of public deficit, Knapp's scientific aim is restricted to finding a generally valid concept of means of payments. Different meanings of the terms chartalism and money also separate the two theories. However, both share an understanding of the use of money as driven by taxes and a general concept of means of payment as a situational counterclaim over a central issuer, be it private or public. In their view, private money always holds subordinate rank inside public monetary systems because of imposed convertibility into state currency. Despite such theoretical convergence, the article shows that Knapp's chartalist theory was not rediscovered from oblivion in the mid-1990s when Modern Monetary Theory made its appearance, in which it arguably played no decisive role.

Monetary sovereignty and the ‘Invisible Leviathan’: the politics of Marx’s theory of money

A debate has recently emerged in Heterodox Economics and Political Economy on the nature of monetary sovereignty, and whether it can be democratised and wielded to address the social and environmental catastrophes of our age. While Modern Monetary Theory understands monetary sovereignty to be relatively unconstrained, post-Keynesian, Structuralist and Critical Macro-Finance approaches point to various external limits on states’ abilities to govern money – from the international currency hierarchy to the offshore nature of money creation. This article evaluates this debate in light of Marx’s monetary theory. Under capitalism, money constitutes the social adhesive of a world of privatised production and mass dispossession, which conjures an anonymous, competitive logic that Marx terms the ‘law of value’. To function in this way, money must be underpinned by an historically novel form of state sovereignty. The state must both back money with its coercive powers and insulate monetary governance from popular forces, or else risk losing the confidence of the profit-driven private actors upon which money relies. Yet in exercising its sovereign capacity to govern domestic and international money relations, the state inadvertently reproduces the law of value on a global scale – an ‘Invisible Leviathan’ that subordinates states to its dictates. Contra the Heterodox literature, then, monetary sovereignty is not a vehicle for radical democracy or social/environmental justice, nor is it simply constrained by external limits. Instead, monetary sovereignty is innately a practice of depoliticisation that unwittingly produces a global logic of economic domination that binds states’ hands.

Modern Monetary Theory and Energy Conservation: An Institutionalist Approach to Fiscal Policy and Energy Conservation

Abstract: This paper will set out to develop a policy proposal that is couched in the Modern Monetary Theory (MMT) framework of fiscal policy analysis. MMT teaches us that a sovereign government that issues a free-floating currency is not bound by the tenets of what can be termed “sound finance.” Sound finance suggests that all government spending is preceded by the taxing or borrowing of the currency being spent. According to MMT, since the currency is issued by the sovereign nation during the process of spending, then this spending must take place before any taxing or borrowing is done. A federal deficit is not something to be eliminated but is the normal situation, with inflation being the only real measure of spending exceeding economic capacity. Sovereign governments are currency issuers, and the money has value if the government is willing to accept it in payment to itself. This creates policy space for spending programs that are socially and ecologically beneficial. Similarly on the tax side, there is policy space to structure the tax system in a politically determined way. The tax system is one way in which the citizens of a nation engage economically with the government. The tax obligation serves as a value anchor for the fiat currency. The tax system can be designed to incentivize behavior in line with a more ecologically sustainable future. This paper will suggest that by taxing living space in a progressive manner, multiple social and economic goals can be accomplished as the economy is transitioning toward a more environmentally sustainable future.

Functional Finance and the Sustainability of Universal Basic Income

Abstract “Functional finance” is an economic theory within the Post Keynesian school of thought. Especially in the form of Modern Monetary Theory (MMT), it has begun to have two big but opposite effects on the debate over Universal Basic Income (UBI). Some people state MMT in an exaggerated way that implies the government can spend all it wants on UBI or anything else without ever raising taxes or borrowing money as if government spending had no limits of any kind. Other people refer to MMT while arguing that any effort to maintain a livable level of UBI is unsustainable. This article discusses the functional finance implications for the cost and sustainability of UBI, arguing that neither of those exaggerated implications are correct. MMT doesn’t free us for the concern for how to support UBI with taxes, but neither does it give reason to believe UBI is any less sustainable.

Education and full employment in the Capitalocene: Political possibilities, ecological imperatives

Imagine what education would look like if upon completion every graduate was guaranteed a job paying a living wage, democratically created, doing meaningful work… This is a political possibility in most countries in the world today: Modern Monetary Theory (MMT) demonstrates that, provided a country has sovereignty over its currency, which most now do, it faces no nominal constraints on spending and can always choose to guarantee jobs and maintain full employment. Yet a pervasive feature of the neoliberal phase of the Capitalocene has been precisely the opposite: high and rising rates of un- and underemployment. This article examines the reasons for this trend and argues that its impact on education has been both unnecessary and detrimental. Finally, it suggests a strategy for educators to reverse this trend and the associated policy of economic growth, and, with reference to history, imagines what the effects such a reversal might have.

An MMT Informed Fiscal Reform for China

Employing the Modern Monetary Theory (MMT), this paper examines the current Chinese fiscal system and highlights its three characteristics. First, fiscal revenues are centralized at the central government while expenditures are decentralized at the local governments; second, fiscal spending focuses on public investment but is insufficient in providing social safety net and public services; and third, indirect tax accounts for a great majority of tax revenues, leading to limited progressivity of the tax system. These limitations have constrained the effectiveness of China’s fiscal policies and generated many perverse impacts. With the understanding that the central government has the monetary sovereignty and does not face financing constrained and that taxes are not to raise revenues for fiscal spending but to serve other purposes, the paper calls for fiscal reforms that realign fiscal resources and spending responsibilities between the central and local governments, increase fiscal spending on social security and public services, as well as broaden personal income tax to improve the distributive effect of taxation.

Semyon Falkner and the Modern Monetary Theory: Contributions to the Russian Tradition in the Theory of Money

This paper investigates the monetary theory of Semyon Falkner (1890–1938), initially recognized in the early Bolshevik era as the Theory of the Emission Economy (Teoriya emissionnogo khozyaystva). Remarkably, Falkner’s theory can be viewed as an early precursor to the Modern Monetary Theory (MMT), which gained popularity in recent decades. The paper begins by presenting Falkner’s perspectives, delving into the controversies surrounding his theory, including reactions from Lenin, and examining the dynamics of inflation and monetary reform. A comparative analysis of the Theory of Emission Economy and MMT follows, revealing that Falkner articulated the fundamental tenets of MMT a century ago. The paper concludes by addressing the modifications to Falkner’s theory during the years of the planned socialist economy, illustrating the prevalence of the nominalist tradition in the Russian theory of money.

The Advancement of Medical Biotechnology in Developing Countries: Economic Opportunities and Challenges

Starting from decades ago, medical biotechnology has revolutionized the healthcare industry by offering new hopes for previously untreatable diseases and improving overall health outcomes. To explore the advancements in medical biotechnology, this research essay begins by introducing several examples of medical biotechnologies that are currently in progress of advancement, including CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats), Recombinant DNA technology, and Stem Cell Research. Then, it delves into the developments of medical biotechnology in developing countries and examines the opportunities and challenges faced during its progress. The medical biotechnology industry in most developing countries is relatively immature, so new opportunities appear as improving health outcomes and driving economic growth. Nevertheless, the development and adoption of medical biotechnology in developing countries are under different levels of financial burdens, so supports and collaborations on research and development from the healthcare leaders are essential. Finally, this research essay offers some suggestions to the cost reduction strategies of medical biotechnology in developing countries by promoting the hypothetical combination of value-based healthcare and modern monetary theory.

Assessing Modern Monetary Theory’s Peculiar Ontology of Money

Macroeconomic traditions disagree on the policies needed for the economy to properly function and how to assess them. In this paper, we contend that these disagreements originate from the social ontological commitments of a theory. The ontology of money underlines these disagreements between Modern Monetary Theory (MMT) and mainstream economics. First, we assess MMT’s ontology of money. Next, we identify MMT’s normative commitments and classify MMT’s ontology as a taxonomic definition with thick concepts. Finally, we offer reasons why MMT's ontology of money leads to rivalries with other economic traditions. We argue disagreements on policy are expected, given the ontological differences elaborated.

A Mathematical Analysis of a MMT Type Coordinated Fiscal and Monetary Stabilization Policy in a Dynamic Keynesian Model

We study the dynamic properties of the coordinated fiscal and monetary stabilization policy in a modern monetary theory (MMT) type macrodynamic model in detail using advanced mathematical techniques and numerical simulations. The dynamic stability, instability of equilibrium points, and questions of qualitative changes at bifurcation points are investigated both mathematically and numerically. Finally, the economic implications of the analysis of this MMT type dynamic model are discussed in contrast to the more orthodox type of Keynesian stabilization policy mix model.

Reinterpreting Modern Monetary Theory Through an Islamic Lens: Insights from Indonesia's Economic Thought

Modern Monetary Theory (MMT) has gained attention, particularly following the crisis caused by COVID-19, which led every country to experience a significant decline in economic growth. This concept proposes the idea that a central bank can create money to finance real sector activities without having to borrow from specific parties, which is then believed to solve various economic problems. This theory has sparked various disagreements within conventional economics. Therefore, in countries that adopt dual economic systems, they certainly have their own perspectives when considering this monetary theory. This research utilizes library documentation or collected reading sources as data sources. The research findings suggest that the concept of MMT is not in conflict with Islamic Sharia, as the MMT concept aligns with the functions of money described by Al Ghazali and Ibn Khaldun. Hence, the MMT concept is not expected to lead to excessive inflation, as it conforms to the Islamic theory of the function of money, where money serves as a medium of exchange rather than a tradable commodity. With this concept, the quantity of goods in a country will be accompanied by the Money Supply. However, the application of economic theories like MMT must be adapted to the conditions and economic concepts of a given country. Despite MMT's compatibility with Islamic monetary concepts, Indonesia is not yet ready to fully implement MMT, which is why the predicted level of moral hazard risk is higher.

On New Mechanisms for Providing Economic Growth in the Context of Sanctions

First the pandemic and then geopolitical tensions in the world created new conditions and posed new challenges for the economies. Among the mechanisms, needed to finance increased government spending, many countries have begun to apply the approaches of the so-called Modern Monetary Theory. It seems that the use of its elements could also be expedient in Russia to finance the necessary transformation of the economy.

How to pay for saving the world: Modern Monetary Theory for a degrowth transition

Degrowth lacks a theory of how the state can finance ambitious social-ecological policies and public provisioning systems while maintaining macroeconomic stability during a reduction of economic activity. Addressing this question, we present a synthesis of degrowth scholarship and Modern Monetary Theory (MMT) rooted in their shared understanding of money as a public good and their common opposition to artificial scarcity. We present two arguments. First, we draw on MMT to argue that states with sufficient monetary sovereignty face no obstacle to funding the policies necessary for a just and sustainable degrowth transition. Increased public spending neither requires nor implies GDP growth. Second, we draw on degrowth research to bring MMT in line with ecological reality. MMT posits that fiscal spending is limited only by inflation, and thus the productive capacity of the economy. We argue that efforts to deal with this constraint must also pay attention to social and ecological limits. Based on this synthesis we propose a set of monetary and fiscal policies suitable for a stable degrowth transition, including a stronger regulation of private finance, tax reforms, price controls, public provisioning systems and an emancipatory job guarantee. This approach can support broad democratic mobilization for a degrowth transition.

The Great Hypocrisy: Neoliberalism’s Critique of Modern Monetary Theory

There is something disingenuous, something hypocritical in the vociferous critiques of Modern Monetary Theory (MMT). The hypocrisy among neoliberal economists reveals itself in tacitly accepting quantitative easing (QE) while criticizing MMT. QE involves creating money to purchase treasury bonds and mortgage-backed securities, benefiting primarily asset holders. MMT involves creating money to employ people, attaining full employment. Neoliberalism rejects Keynesian interventionism, instead advocating using government to channel market forces in ways that benefit corporations and the affluent. The dynamic stochastic general equilibrium (DSGE) model incorporates the neoliberal vision in showing the irrelevance of fiscal policy in achieving full employment. Problems with the DSGE model revealed themselves in its inability to explain the great financial crisis. Nevertheless, neoliberal economists seek to retain the DSGE model while rejecting MMT. The article further contrasts QE with MMT, showing the similarities and difference between the Fed purchasing assets and the government engaged in functional finance. Governments throughout the world are resorting to creating money to increase employment and sustain their economies, policies advocated by MMT.

The economics of the wellbeing economy: Understanding heterodox economics for health-in-all-policies and co-benefits.

The "wellbeing economy" represents a significant departure from the orthodox, neoclassical economic model of rational, utility-maximising individuals embedded in a growth economy. Emerging approaches to the wellbeing economy draw heavily upon insights from a range of heterodox schools of economic thought; these schools differ in many respects, but all share the central common insight that the economy is best conceived as a social provisioning system for humanity's needs. This narrative review introduces and summarises key dimensions of a number of these heterodox economic approaches, all of which have had or are likely to have significant implications for wellbeing economics. Their relationship with wellbeing and their resulting approaches to public policy and the Health-in-All Policies (HiAP) approach is described and explored. The schools of heterodox economic thought which have had the most impact on the development of approaches to the "wellbeing economy" include ecological economics (including both post-growth and degrowth economics), feminist economics, and modern monetary theory. Recent developments in the economics of inequality and institutional economics have also been of significance. Yet HiAP approaches represent an attempt to incorporate consideration of health consequences within public policy processes inside the neoclassical economics paradigm, reflecting the reality that social and economic forces are typically the most important determinants of health. WHO's new Health For All approach draws much more directly on the heterodox economics that underpins wellbeing economy thinking. Wellbeing economics offers many attractive features for HiAP-but may not achieve its full potential within conventional economic policy paradigms. Calls to replace cost-benefit analysis with "co-benefit" analysis are attractive, but face strong practical obstacles. Meanwhile, strong countervailing forces and interests might still thwart achieving the broader goals of wellbeing economics. SO WHAT?: Operationalising "wellbeing economy" thinking requires a clear understanding of heterodox economics, and how they can be incorporated into more formal economic analysis. It remains to be seen if HiAP is the right tool by which to implement the new Health For All approach.

AD-AS Analysis from the Perspective of Functional Finance Theory and MMT

Abstract Research background In the past few years, MMT (Modern Money Theory or Modern Monetary Theory) has been increasingly discussed in Japan as well as in the U.S. However, both in the U.S. and Japan, analysis using mathematics is lacking and analysis using IS-LM and AD-AS analysis methods in macroeconomics is almost non-existent. Purpose We present an AD-AS analysis from the perspective of Functional Finance Theory and MMT (Modern Monetary Theory). Research methodology Graphical analyses with some mathematical analyses. Mathematical analyses include graphic analysis using AD and AS curves and calculations to derive equations representing them based on models of consumer and firm behavior. Results Using an overlapping generations model under monopolistic competition we show the following results by calculations and graphical analyses. 1. The budget deficit (including interest payments on government bonds) equals an increase in the savings of consumers from period to period. This result means that the debt-GDP ratio would not diverge to infinity, but would remain at a finite value whether the interest rate of government bonds is larger or smaller than the growth rate. 2. We need a budget deficit (including interest payments) to maintain full employment without inflation under economic growth. However, if the interest rate of government bonds is larger than the growth rate, we need a budget surplus (excluding interest payments) to maintain full employment without inflation. 3. A return to full employment from a recession can be achieved by implementing the appropriate fiscal policies through increased government spending or tax cuts. 4. Excessive government expenditure or an insufficient tax under full employment induces inflation. Novelty This is probably the first AD-AS analysis done from the standpoint of Functional Finance Theory and MMT.

Some Kaleckian remarks on modern monetary theory in light of a paper by Drumetz/Pfister

This paper provides remarks on modern monetary theory (MMT) from a Kaleckian perspective in response to a paper by Drumetz/Pfister. The distinction between initial financing and final financing is drawn up to argue for clear separation of how expenditure is financed and funded, and pointing to the confusions that have arisen. Some issues of crowding in and crowding out are raised. Some aspects of inflation and hyper-inflation are then discussed. The conditions for the establishment of full employment are elaborated. While MMT has focused on financing of government expenditure and aggregate demand, Kaleckians and post-Keynesians have analyses and theories on the operations of the whole economy which differ sharply from those of mainstream economists.