Modern Monetary Theory Research Articles

#buildbanksbetter: Central Bank Digital Currencies (CBDCs), Public Banks and Money’s Potential as a Non-Scarce Medium of Communication and a Source of Local Self-Determination

This paper argues that public banking at the local and community level is the most effective monetary technology for restoring the powers of finance to the people. Public banking is not a new idea and it’s enjoying newfound popularity alongside the rise of modern monetary theory (MMT) and the emergence of a new generation of financially aware and digitally enabled researchers, “conspiracy theorists” and activists. So while these days cryptocurrencies are trumpeted as the cutting edge of alternative monetary technologies, I suggest that public banking is the money technology best able to respond to the democratic desires of today’s citizens. I conclude with a discussion of the development of Central Bank Digital Currencies (CBDCs) and the ways they are being used to undermine local, community-led self-determination by further centralizing monetary control in the centrally controlled system of central banks whose mandate is to serve private interests.

Evaluation of Modern Monetary Theory and Helicopter Money Approach in The Framework of The Covid-19 Pandemic

Ülkeler Covid-19 pandemisinin yol açtığı ekonomik krizin etkilerini yumuşatmak için çeşitli önlemler almaktadırlar. Bunlardan biri de açıklanan mali teşvik paketleridir. Özellikle gelişmiş ülkelerin uygulamaya koydukları mali teşvik önlemlerinin önemli bir kısmı Modern Para Teorisi’nin bir uygulaması olarak kabul edilen “helikopter para” uygulaması şeklindedir. Helikopter para uygulamasının temel hedefi kriz döneminde azalan toplam talebi canlandırarak ekonominin derin bir resesyona girmesini önlemektir. Bu yüzden helikopter paranın öncelikle hane halkı tüketimini artırıp tasarruf oranlarını düşürmesi beklenmektedir. Bu beklentinin gerçekleşmesi enflasyon oranlarının artması ile sonuçlanabilir. Bu çalışmanın amacı, 2008 küresel ekonomik krizi ile birlikte popüler olan Modern Para Teorisi ve bunun bir uygulaması olan helikopter para tüketim, tasarruf ve enflasyon üzerindeki etkilerini Covid-19 süreci çerçevesinde değerlendirmektir. Gelişmiş ülkelerdeki devasa mali teşvik önlemlerine rağmen tüketim harcamalarının düştüğü, tasarrufların ise arttığı görülmektedir. Bu durum enflasyon oranlarının düşmesine neden olsa da, aşılama düzeyinin yeterli bir seviyeye ulaşması ve kısıtlamaların gevşetilmesi ile birlikte ertelenen talep ve artan tasarrufların enflasyon oranlarını istenmeyen bir noktaya yükselteceği değerlendirilmektedir. Bu yüzden toplam talebi artırmak ve enflasyonda ani artışları önlemek için mali teşviklerin yanında ekonomik güven ortamını sağlayan ve belirsizlikleri ortadan kaldıran önlemlerin alınması gerekmektedir.

Funding of the Energy Transition by Monetary Sovereign Countries

If global energy consumption returns to its pre-pandemic growth rate, it will be almost impossible to transition to a zero-emission or net-zero-emission energy system by 2050 in the absence of large-scale CO2 removal. Since relying on unproven technologies for CO2 removal is speculative and risky, this paper considers an energy descent scenario for reaching zero greenhouse gas emissions from energy by 2050. To drive the rapid transition from fossil fuels to carbon-free energy sources and ensure demand reduction, funding is needed urgently in order to implement four strategies: (i) technology change, i.e., implementing the growth of zero-carbon energy production, end-use energy efficiency and ‘green’ energy carriers, together with ongoing R&D on CO2 removal; (ii) reducing climate impacts; (iii) reducing energy consumption by social and behavioural changes; and (iv) improving human wellbeing while increasing social justice. Modern monetary theory explains how monetary sovereign governments, with their own fiat currencies, can create the necessary funding without financial constraints, although constraints do result from the productive capacities of their economies. The energy transition could be part-funded by a significant transfer of resources from monetary sovereign countries of the global North to the global South, financed by currency issuance.

A monetary Keynesian view of modern monetary theory

Both monetary Keynesian theory and modern monetary theory (MMT) place money at the center of the analysis and highlight the important economic role of the state in a monetary market economy in which full employment is neither the norm nor the center of gravity. Whereas monetary Keynesian theory implies that economic policy is considerably constrained by market forces, MMT considers economic policy to be all-powerful and able to ensure full employment. Polarizing MMT policy conclusions such as the proposition that modern states have no budget constraint result from MMT-ers’ neglect of crucial elements of the Keynesian framework. As Hajo Riese tirelessly argued, monetary financing of budget deficits has limits even in the presence of unemployment because the stability of a monetary market economy hinges on the scarcity of its money.

Public Goals and Government Expenditures: Are the Solutions of the “Modern Monetary Theory” Realistic?

The relevance is determined by the presence of discussions among economists and political scientists about the state regulation role, especially during crises when governments are expected to provide an economic miracle solution or new measures that are not thought about during periods of growth. The subject of the study is government expenditures, which should be fairly distributed by governments in crisis times with a clear vision and understanding of public goals, for the achievement of which it is necessary to undertake economic changes. Therefore, the purpose of the study is to generalize the results of the discussion about the possibility of changing the economic “mainstream” to the “modern monetary theory” (MMT) and its prospects in public finance management. The research methods include systematic, critical, comparative and cross-country analysis and verification of the realism of the MMT’s proposals. The results of the study made it possible to analyze the economic solutions of the new theory based on the political subtext of the theory itself: is it possible to entrust governments with an unlimited budget filled with the issue of national currency; has there been a need to update public goals; what are the prospects for full employment with government funding of jobs; is it possible for society to subject taxes to increase or is there enough transparency and collection; is inflation dangerous in the current situation and in the future; is the MMT really an economic recipe for politicians focused on achieving public goals, including ecology and inequality. It is concluded that all-round criticism and all-round approval are equally unacceptable in relation to the new theory from the standpoint of practical state regulation. Some elements of the MMT have already been implemented in various countries, both successfully and with negative consequences. Therefore, when considering the MMT in unity with public goals, the criterion of choice should not be the quality of economic decisions, not their elegance and validity, but enforceability in accordance with urgent and strategic tasks that need to be solved by politicians.

MMT, Sovereign Currencies and the Eurozone

ABSTRACT This paper is an answer to the question: What is new, what is good and what is relevant for Eurozone countries in Modern Monetary Theory (MMT)? The answer is organized under six questions: (1) What is MMT? (2) What is the definition of a sovereign currency — an important concept for MMT authors? (3) Does the institutional setup play any role in assessing monetary sovereignty? (4) Is the euro a foreign currency for eurozone countries, that is, are eurozone countries currency users or currency issuers? (5) Why could there be a eurozone financial crisis and was it a balance-of-payment crisis, as a number of authors have claimed? (6) And as a conclusion, what is the future of the Eurozone? It is argued that MMT is part of the Institutionalist branch of post-Keynesian economics; that the current definition of a sovereign currency is insufficient; that the Eurozone crisis arose from the combination of Maastricht-like rules and the convention that the European Central Bank would not act as a purchaser of last resort; and that this crisis can only be taken to be a balance-of-payment crisis when considering that bond investors thought some countries would leave the Eurozone and face currency depreciation.

Analysis of Debt to GDP Ratio with Microeconomic Foundations: Theoretical Basis for MMT Arguments

This paper examines the relationship among budget deficit, inflation rate and debt to GDP ratio from the perspective of Functional Finance Theory and MMT (Modern Monetary Theory). Using an overlapping generations model under monopolistic competition with bequest motive of consumers, mainly we will show the following results. • Under full employment with constant prices or inflation the debt to GDP ratio does not change from a period to the next period • The interest rate on government bonds should equal the nominal growth rate to achieve full employment with constant prices or inflation under balanced budget excluding interest payments on government bonds. • The inflation rate we need to maintain full employment under balanced budget excluding interest payments on government bonds is determined by the interest rate

Debt to GDP Ratio and inflation from the perspective of Functional Finance Theory and MMT

This paper will examine the relationship between budget deficit, inflation rate and debt to GDP ratio from the perspective of Functional Finance Theory and MMT (Modern Monetary Theory). Using a basic macroeconomic model in which the interest rate of government bonds is endogenously determined, with overlapping generations model in mind, mainly, we show the following results.1. If the proportion of the savings consumed is smaller than one, the larger the budget deficit is, the larger the inflation rate is.2. If the proportion of the savings consumed is smaller than one, the larger the inflation rate is, the smaller the debt to GDP ratio is. Therefore, excessive budget deficits cause inflation, which results in a smaller debt to GDP ratio. A large budget deficit is not associated with a high debt to GDP ratio.3. The larger the budget deficit is, the weaker the condition on the proportion of savings that is consumed in order for the debt to GDP ratio not to diverge is.

Humanization as Money: Modern Monetary Theory and the Critique of Race

In this article, we build on the work of Frantz Fanon and Paulo Freire to develop a relational understanding of dehumanization and humanization through money. We first show that Fanon and Freire share a critical normative vision of humanization, which they conceptualize as that which occurs when people reject dehumanizing practices that deny their agency, begin to grasp their world-in-common, and emerge as historical agents who remake it. In a second step, we advance Fanon’s and Freire’s vision by identifying the constitutive and dehumanizing role of money in liberalism’s ontological commitments, and develop a humanizing monetary ontology. We show how John Locke’s theory of “monetary individualism” is also a monetary theory of race that constitutes the liberal ontology and propose an approach to humanization grounded in Modern Monetary Theory (MMT).

Historical retrospective of modern monetary theory

Historical retrospective of modern monetary theory

Europäische Geldpolitik – Auf dem Weg zur Modernen Monetaristischen Theorie

Abstract We show that actual Eurosystem’s monetary policy of purchasing government bonds of the countries of the Eurozone corresponds to the concept of Modern Monetary Theory. Here the state creates and skims off the required money supply for its expenditures himself. The economic policy challenges emerging from the expanded monetary basis in the Eurozone as consequence of the government bond purchases are substantial. We stress that European monetary policy should therefore immediately address the task of reducing the monetary basis and at the same time limiting possible adjustment costs for the European economies. This should take place within an institutionalized monetary management framework.

On Accumulation of the Budget Deficit: Spirit of MMT Through Mathematical Analysis

It is said that public finance must be balanced at least in the long run. According to the so-called MMT (Modern Money Theory or Modern Monetary Theory) approach, however, this is not true. It is often pointed out that MMT lacks the mathematical analysis used in ordinary economic discussions. The purpose of this paper is to present a brief theoretical and mathematical basis to the backbone of the MMT argument, while maintaining the basics of the neoclassical microeconomic framework, such as maximizing consumer utility through utility functions and budget constraints, and equilibrium between demand and supply of goods under perfect competition with constant returns to scale technology. Using a simple overlapping generations (OLG) model that includes economic growth due to technological progress, we present the following results. The budget deficit equals the increase in people's savings, and the accumulated budget deficit equals people's savings. The budget deficit is a cause and the savings is a consequence, not the other way around. Deficits are created by the government, which determines income, which determines savings. Deficits create savings, not savings finance deficits. Reducing the budget deficit will reduce savings, income, and consumption.

MMT or Public Enterprises? A Contribution to Economic Sustainability

According to Modern Monetary Theory (MMT), modern governments finance their spending primarily through the creation of money rather than from the proceeds of taxation and bond sales. This article emphasizes that the government has the responsibility to create economic sustainability and analyzes MMT from the perspective of sustainable finance for economic sustainability. In the policy framework of the European Union (EU), sustainable finance refers to the institutional process of taking environmental, social, and governance (ESG) considerations into account when financial institutions or government authorities make investment decisions to promote sustainability. In principle, public enterprises owned by the government are required to comply with the standards of sustainable finance. During the global transition to achieve the Sustainable Development Goals (SDGs), public enterprises can be employed in a timely manner to complement private companies lacking a sustainable vision or whose promotion of sustainable activities has been delayed. This article points out that the government can not only set sustainable guidelines for private companies, but can also directly initiate the state default, i.e., public enterprises, in the promotion of economic sustainability.

Off Dependence on the Highway to Hell and on to the Stairway to Heaven

As global climate change becomes an increasing problem, so will supply shocks, whether in terms of suppression, mitigation, or adaptation. Economics is largely unprepared to entreat these. Supply shocks are often misunderstood as hyperinflations brought on by increased money creation instead of as a fundamental shortfall in habituated consumption. Entreating supply shocks will be more akin to returning Apollo 13 to Earth than it will be to burying bank notes. Modern Monetary Theory's roots provide a solution. MMT is fundamentally a theory that supposes that capacity is the only constraint upon the abilities of economies. MMT, outside of this, has argued that inflation effectively indicates that capacity is being strained. This paper suggests that current prices are being used as a proxy for capacity by both a congressional budget and an MMT approach. It hopes to develop MMT in terms of its institutionalist roots. This article will point out some of the issues that arise with the use of prices as a proxy for capacity—and inflation as a measure of its limits. The paper's primary concern is to determine how society might fit into a lettuce wrap: a consumption space bounded by universal subsistence and zero-non-renewable resource use.

The Origins and Evolution of Consumer Capitalism: The Paradoxes Posed by Continuous Mass Production

Continuous-mass production technology, widely adopted in the late nineteenth, early twentieth centuries, enabled businesses to vastly increase output. Thorstein Veblen was among the first to observe the business response: how to prevent production from exceeding what the market could profitably absorb? How to prevent losses? How to increase profits? Continuous-mass production introduced consumer capitalism, applying the technology to consumer goods, creating the necessity of increasing consumer demand, making imperative adopting the corporate form of business enterprise. Continuous-mass production has accentuated a number of paradoxes, some of which were addressed by Veblen, Polanyi, and Keynes. Those paradoxes include the prospect of depression, the rise of dynastic ambitions channeling the increased output into militarism, financial innovations involving identifying and liquefying consumer assets to provide credit and expand demand, laying the foundation for the financialization of the economy. Financialization culminated in the Great Financial Crisis (GFC), requiring massive government intervention. The GFC gave rise to Modern Monetary theory, overcoming the limits of the market economy. And the environmental crisis resulting from the commodification of everything, accentuated by applying continuous mass production to the extraction and burning of fossil fuels, combined with a belief in infinite growth.

Modern Monetary Theory: The Right Compass for Decision-Making

In the November/December 2021 issue of Intereconomics, Françoise Drumetz and Christian Pfister examine Modern Monetary Theory (MMT) and approach it from the policy consequences that would follow. This paper is a reply to Drumetz and Pfister. It restates the core of MMT and offers some suggestions for central banks. Theories are explanations of what we see, and MMT describes money creation and destruction. Hence, MMT cannot be and is not a political manifesto. In contrast to most other theories of money, MMT is falsifiable in its core statements, which are based on a balance sheet approach to macroeconomics. Since many central banks already educate the public about the creation of modern money through bank lending, it would be most welcome if they would do the same for the creation of modern money through government spending. Here, MMT and central bankers can find common ground to move forward and leave the theory of loanable funds and that of the money multiplier behind.

The Neoliberal Utopianism of Bitcoin and Modern Monetary Theory

ABSTRACT Advocates of Bitcoin and Modern Monetary Theory present their ideas as radical utopian alternatives to the neoliberal dominant, but these claims neglect the utopian strain in neoliberal monetary theory itself. This strain manifests in that theory’s faith in the capacity of markets to perfect human society. Bitcoin and Modern Monetary Theory express this same faith. After a brief survey of the older, more radical money utopias of More and Proudhon, this article traces the origins of Bitcoin and MMT in the more conventional monetary theories of metallism and chartalism and then analyzes the utopian discourse of both movements, revealing that Bitcoin sees state intervention as the only obstacle to properly functioning markets, while MMT blames disfunction on an inadequate mobilization of labor, proposing state intervention as the remedy. In both cases, their policies only seek to enable the utopian potential of the market, falling in line with neoliberal orthodoxy. The conclusion offers some speculation about what the emergence of these two theories might tell us about the future of neoliberalism.

Involuntary Unemployment Due to Instability of the Economy and Fiscal Policy for Full-Employment

The existence of involuntary unemployment, proposed by J. M. Keynes, is a very important issue in modern economic theory. Using a three-generation overlapping generations (OLG) model, we show that the existence of involuntary unemployment can be attributed to economic instability. Economic instability is the instability of the difference equation for equilibrium prices around the full employment equilibrium, which means that the presence of involuntary unemployment will further reduce employment when the nominal wage rate declines. This instability is due to the negative real balance effect that occurs when consumers' net savings (the difference between savings and pensions) are smaller than their liabilities, which are calculated by multiplying childhood consumption by the marginal propensity to consume. The paper also presents arguments for fiscal spending and tax cuts by seigniorage, rather than public debt, as a fiscal policy to achieve full employment. This paper presents the theoretical and mathematical foundations of Functional Finance Theory (Lerner (1943), (1944)) and MMT (Modern Monetary Theory, Mitchell, Wray and Watts (2019), Kelton (2020)). It may be an attempt to present the theoretical and mathematical foundations of MMT (Modern Monetary Theory, Mitchell, Wray and Watts (2019), Kelton (2020)).

A modern monetary theory advocate’s response to ‘modern monetary theory on money, sovereignty, and policy: A marxist critique with reference to the Eurozone and Greece’ by Costas Lapavitsas and Nicolás Aguila (2020)

The purpose of this paper is to provide a robust defence of Modern Monetary Theory’s (MMT’s) approach to money. It is argued here that, when compared to the commodity variant of the Marxist theory of money, the insights of MMT provide a superior basis from which to develop economic knowledge. In contrast to Lapavitsas and Aguila, the paper provides arguments in support of MMT’s approach which is both theoretically sound and provides satisfying explanations which are in accord with the evidence. This article also highlights the significant mischaracterisation of MMT’s approach in Lapavitsas and Aguila and shows how the authors’ failure to present an accurate picture of the MMT argument results in their critique missing the mark. Effectively, their criticism applies only to an MMT of their own creation. When Lapavitsas and Aguila turn their attention to Greece, they fail to appreciate the value of the insights provided by MMT and their lack of a detailed understanding of monetary operations in the Eurosystem leads them to make several notable errors.

Modern monetary theory for the post-pandemic NHS: why budget deficits do not matter

NHS clinical directors are responsible for balancing departmental budgets, which can encompass staffing, equipment and operating theatres. As trust income is generally fixed, expenditure reduction is often attempted via recurrent cost improvement plans. In orthodox monetary theory, a departmental deficit contributes first to the hospital, then to the NHS, then to the national deficit. In the orthodox view, governments in deficit need to increase taxes and/or borrow money by issuing bonds (akin to mortgage loans), the interest on which is paid off for generations. Modern monetary theory offers a different perspective: government deficits do not matter as much as orthodox theory claims, if at all. This is because governments have the monopoly right to create the money in which the deficit is denominated (so do not ever need to borrow something that they can create). Therefore governments cannot default on debt in their own currency. Furthermore, government deficits equate to private surplus. This new perspective should influence microeconomic budget management at the clinical director level: the new emphasis being to deliver value and not just implement local savings to eliminate departmental deficits. This approach will become increasingly important in managing the huge surgical waiting lists that have accumulated during the COVID-19 pandemic.