Modern Monetary Theory Research Articles

An Elementary Mathematical Model for MMT (Modern Monetary Theory)

In recent years, a school of economics called MMT (Modern Monetary Theory) has been attracting attention, but it has not been analyzed theoretically or mathematically. This study aims to provide a theoretical basis for the skeleton of the MMT argument, while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers by means of utility functions and budget constraint, profit maximization of firms in monopolistic competition, and equilibrium of supply and demand of goods. Using a simple static model that includes economic growth due to technological progress, we will argue that: 1) a continuous budget deficit is necessary to maintain full employment when the economy is growing, and that this deficit does not have to be covered by future surpluses; 2) Inflation is caused when the actual budget deficit exceeds the level necessary and sufficient to maintain full employment. In order to avoid further inflation, it is necessary to maintain a certain level of budget deficit; 3) A shortfall in the budget deficit leads to recession and involuntary unemployment. To recover from this, a budget deficit that exceeds the level necessary to maintain full employment is required. However, since a continuous budget deficit is necessary after full employment is restored, the deficit created to overcome the recession does not need to be covered by future budget surpluses, nor should it be.

Very Simple Mathematical Model of MMT (Modern Monetary Theory)

The purpose of this paper is to provide a concise theoretical and mathematical foundation for the major parts of the debate in the recently discussed school of economics called Modern Monetary Theory (MMT), while maintaining the basics of the neoclassical microeconomic framework, such as utility maximization of consumers using budget constraints and utility functions, and equilibrium of demand and supply of goods under perfect competition with constant returns to scale technology. By a two-periods overlapping generations (OLG) model in which the economy grows by technological progress, we will show that: 1) We need a budget deficit to achieve full employment with constant price when the economy grows by technological progress. This budget deficit should not be offset by future surplus; 2) A budget deficit that exceeds the level necessary to maintain full employment in a growing economy with constant price will cause inflation. A stable budget deficit is required to prevent further inflation; 3) A budget deficit that is insufficient to maintain full employment will cause a recession with involuntary unemployment. A budget deficit larger than the one necessary and sufficient to maintain full employment without a recession can overcome a recession caused by insufficient budget deficit and restore full employment. The deficit created to overcome the recession should not be offset by subsequent surpluses, since full employment can then be maintained through constant budget deficits.

The Dow Doesn’t Serve Society

It has recently been shown that American GDP causes several human imperatives and is itself caused by globalization (Bechtel, 2021). This note reports a surprising exception to this finding; namely, in contrast to other human imperatives, the Dow doesn’t cause any good, nor is it caused by any good. The findings here will inform the conceptual collision between Federal Reserve theory and modern monetary theory (Kelton, 2021) vis-à-vis the global isolation of the Dow. Hopefully, this information will also prevent young holders, who can’t afford the long-term Dow strategy advocated by media pundits, from getting hurt.

Anti-recessionary aspects of the modern monetary theory

The paper considers the modern monetary economic theory (MMT) from the point of view of the approaches to overcome the current economic crisis by recourse to fiscal and monetary tools. It is shown that its proposals are aimed at overcoming the crisis of the U.S. economy through an additional inflow of investment resources from other states with a simultaneous increase in social stability within the country with the support of a quantitative easing race. It also concludes that the level of taxation in developed states reaches the limit beyond which the economic activity is discouraged. The negative consequences for economic subjects of reducing the possibility of maneuvering between national jurisdictions for tax optimization, and the importance of this process for the preservation of U.S. leadership are demonstrated.

MMT’s policy prescriptions in Small and Open Economies: Addressing some Controversies

According to Modern Monetary Theory, a country that issues its own floating currency -and has no foreign exchange denominated debt- can simultaneously achieve both full employment and price stability through an Employer of Last Resort. The ELR is a policy option in which the government offers a job to anyone willing and able to work at the program's wage. Along with a zero interest rate policy, these prescriptions constitute MMT’s base case for analysis. Unfortunately, they are seldom considered as a whole by critics. Most criticisms of MMT emphasize the inflationary consequences of full employment policy. The author argues that, ultimately, it is the definition of full employment that seems to be the key when discussing the feasibility and desirability of an ELR program. Implementing an ELR program could result in an increase of the price level as measured by some index. Arguing that, as a consequence, full employment should not be pursued is tantamount to keep using unemployment to control the price level.

Anticap: An Appreciation

David Ruccio’s blog, Occasional Links & Commentary, having grown out of postings created for his students at the University of Notre Dame, continues to focus on teaching its audience, putting information and trends into the context of a self-consciously Marxian understanding built from the concepts of class and surplus, understood not as a taxonomy but as process. From revealing the pretensions of neoclassical economics by examining the ongoing economic impacts of events, such as the Second Great Depression, to addressing theoretical controversies and misrepresentations, such as with Modern Monetary Theory, the blog not only examines policy choices and encourages readers to criticize and press for changes but also prods readers to consider more than the usual form of policy choices, beyond governments as actors and citizens as consumers of the consequences.

Neo-chartalist or Marxist Vision of the Modern Money? Critical Comparison

ABSTRACT The set of neo-chartalist views on the functioning of money in the economic circulation advertised as Modern Monetary Theory is becoming increasingly popular on the left. Marxist economists usually dispose of this theory as another incarnation of Keynesian reformism. However, because of its growing popularity, confronting this theory with the Marxist theory of money seems to have considerable political significance. A comparison of the two in the descriptive area indicates that there are some similarities between the two theories, but they are very general. On the other hand, my analysis shows that Marxist theory of money is not only compatible with the assumptions of Modern Monetary Theory concerning the functioning of modern money, but also gives a much more complete picture of its significance in the historically limited specificity of capitalism. Therefore, this comparison shows that it is worth promoting the Marxist theory of money as a true, actual theory of modern money, which is in its essence much more practical than alleged pragmatism of the Modern Monetary Theory.

Evolution of The Functions of Money in The Context of The Approaches of Various Schools of Economic Thought

The purpose of this paper is the identification of the functions of money and characteristic of their evolution through change of the used types of money. Research methods are a brief overview and comparative analysis of economic-theoretical approaches to the definition of the functions of money. A comparative analysis of the classifications of the functions of money, made by physiocracy, classical political economy, Marxist political economy, Austrian school of economic theory, German historical school of economics, neoclassical economic theory, Keynesianism, monetarism, institutionalism, modern monetary theory, is carried out. It is shown that various economic schools have different approaches to the definition of the functions of money. Some scientific schools separate money functions for basic and secondary, but other schools consider that all the functions are equally significant. It is concluded that modern changes in the types of money used lead to the fact that different functions of money (in particular, the functions of medium of exchange, measure of value, reserve of value, means of payment) are most effectively implemented by different types of money. Scientific novelty consists in the reconstruction and comparison of lists of functions of money identified by the most important schools of economic theory. The conclusions of the research can be used in scientific and pedagogical activities in the study of the essence and functions of money.

Money on the Left

Money on the Left Kate Siegfried Money on the Left podcast. Hosted by William Saas, Maxximilian Seijo, and Scott Ferguson. Podcast audio, 2018–2021, https://moneyontheleft.org/podcast/. The Money on the Left podcast explores money as a key tool in the fight for a more just world. Hosted by Scott Ferguson, William Saas, and Maxximilian Seijo, Money on the Left features discussions with humanities scholars, economists, activists, and legal experts to explore topics including debt, money, monetary imperialism, the relationship between art, labor, and money, gender and labor, predatory finance, race and money, and contemporary political struggles. Through such discussions, Money on the Left aims to “reclaim money’s public powers for imaginative intersectional politics.”1 Although discussions hosted by Money on the Left explore a wide range of topics, the primary theoretical framework engaged is modern monetary theory (MMT). As an economic framework that positions money as a public good, MMT offers innovative resources for solving pressing social, political, and economic issues from a perspective rooted in social justice. Given Money on the Left’s robust and dynamic engagement with money, the podcast performs a key tenant animating MMT: that money is an object that requires sustained cultural, economic, and political engagement to understand its role in society as it exists, as well as its potential role in the becoming of a new world. This approach is a departure from that generally taken in neoclassical economics in which money is understood as a neutral technology that merely operates at the beckoning call of other economic forces. From this perspective, money is not understood as an object worthy of focused attention on its own terms because it has nothing unique to reveal about the operation of finance. Rather than taking money for granted as a finite and private resource, those engaged in MMT approach money from a neochartalist perspective in which money is [End Page 131] understood as a tool for public power without any inherent limit.2 In essence, rather than asking if we can afford public goods such as universal health care, a jobs guarantee, universal child care, or a Green New Deal, MMT assumes that affordability is not at issue (and in fact, that to use affordability as the primary rhetorical framework through which to argue over potential implementation is immoral).3 Instead, this shifts the argumentative framework to questions surrounding implementation and how to best address existing public needs. Indeed, in the first episode, the hosts describe MMT as a framework that demonstrates “that money is always and everywhere a boundless public utility, as well as a deliberate cultural, political, and ecological project,” rather than figuring “money as a politically neutral commodity invented a long time ago.”4 It is important to note that such an approach not only demonstrates the social function of money, but also opens new doors for exploring the utility of money in resolving the specific ways austerity and scarcity presently animate public life.5 By positioning money as a public utility, Money on the Left and MMT more broadly raises the fundamental question of who the public is, a conversation that rhetoricians should unboundedly engage as this is also a fundamental line of disciplinary inquiry. As MMT debunks financial assumptions regarding the affordability of public services, the primary questions at hand become who are these services for and how will they be implemented. For example, if universal health care were implemented, would it only be available to citizens of the United States, or would it be available to all people living within the confines of the country? Questions such as this are brought to the foreground as MMT opens new rhetorical frameworks by shifting the argumentative structure from affordability to implementation. As demonstrated by the conversations hosted on Money on the Left, questions of policy implementation, as made possible through the use of money as a public utility, are political at heart and cut to the essence of who counts in a just society. For example, one episode of Money on the Left features a discussion about the music industry with Alex Williams, who is an economist, musician, and the producer of Money on the Left.6 The discussion hinges...

Modern monetary theory: Why real estate is fundamental to economic growth

Individuals and businesses across the world continue to look to government for economic support through the turmoil created by the COVID-19 pandemic. Without the flow of money into the economy we would be in a far worse state than we are now. The only reason that this is possible has been because governments and central banks have been able, in many major economies, to print increasing amounts of money. They have recognised that the way government debt and corporate debt or individual debt operate are quite different. In essence, there is no such thing as government debt (in a country that controls its own supply of currency). Governments do not collect taxes in order to spend, they collect taxes to replenish the coffers once they have spent. This forward-looking approach is called modern monetary theory and the time to embrace this is now.

The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by StephanieKelton (Public Affairs Books, 2020)

The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by StephanieKelton (Public Affairs Books, 2020)

Modern Monetary Theory: A Solid Theoretical Foundation of Economic Policy?

This paper shows that so-called modern monetary theory (MMT) lacks a sound economic foundation for its far-reaching policy recommendations. This paper’s main contribution to the literature concerns the theoretical foundation of MMT. A simple macroeconomic model shows that MMT is indistinguishable from the Keynesian cross model, as well as a neoclassical macroeconomic model, even when taking account of money in the sense of MMT. This result is in stark contrast to the claims of MMT proponents. Accordingly, it is asserted that MMT is a fundamentally new theory of money and monetary economics. However, MMT is admittedly based on the functional finance concept of the 1940s and money is modelled as an accounting identity. In addition, the fundamental connection between government expenditures for goods and services and the steady state equilibrium value of the national income, the so-called fiscal stance, is a well-known result that is not only consistent with MMT. The interpretation of the fiscal stance, in combination with the accounting identity for money, is a major issue because an equilibrium condition should have a certain causal direction of effects. Based on this reading of the equilibrium condition, policy recommendations encompass the fiscal dominance of monetary policy via monetization of public debt, a job guarantee by the state, along with a so-called Green New Deal. According to the results of this paper, these policy recommendations cannot be justified with MMT.

China’s Economic Growth in 2010–2017: Analysis from the Perspective of the Input-Output Model and Modern Monetary Theory

The article aims to analyze the external and internal growth factors of the People’s Republic of China in 2010–2017. The authors use methods such as input-output modeling, statistical methods, content analysis of scientific publications. The study explores different perspectives on China’s rapid economic growth in recent decades. In particular, the authors consider neoclassical models that investigate and explain the dynamics of the Chinese economy due to the accumulation and development of factors of domestic production. Some studies are analyzed, which consider economic growth as a result of the final demand, both internal and external, on the basis of the input-output approach. The article examines the views that interpret the monetary policy as one of the most important factors in stimulating economic growth. The authors, based on the economic growth decomposition method, determine the components due to domestic demand and the components due to exports, both for the entire Chinese economy and for particular industries. Сalculations based on the data of input-output balances for 2010–2017 allowed the authors to draw a conclusion about the significant contribution of domestic demand to the economic growth of China in the context of active monetary stimulus. Thus, the novelty of the study is ensured by the fact that Thirlwall’s law does not apply to modern China –– stimulating the economy in China does not lead to a decrease in the trade surplus due to the monetary and financial sovereignty, industrial competitiveness, and the innovative economic development. The search for tools for adapting China’s monetary policy to the realities of Russia and the Republic of Belarus opens up opportunities for future research on the topic.

Budget deficit for full-employment under growth and inflation by excessive deficit: A theoretical basis for functional finance theory and MMT

Japanese Abstract: 最近MMT（Modern Monetary Theory，現代貨幣理論）と呼ばれる学派の主張が注目を集めているが，これまであまり理論的，あるいは数学的な分析がなされることはなかった。本稿では技術進歩による経済成長を含む世代重複モデルを用いてMMTの主張が理論的に成り立つのかどうかを検討し，それに概ね肯定的な評価を与える。基本となるのは経済が成長している場合に完全雇用を維持して行くためには継続的な財政赤字が必要であるということと，不況から回復させるためにはそれを超える財政赤字が求められ，その赤字は将来の財政黒字によって埋め合わされる必要はないということである。本稿のモデルは田中(2021)の3世代モデルを単純化したものであるが，経済成長を取り上げたり，規模に関する収穫逓増・逓減を仮定したり，インフレーションの分析をしたりなど，分析については拡張している。 English Abstract: Although the claims of the school of thought known as Modern Monetary Theory (MMT) have recently received much attention, they have not been subjected to much theoretical or mathematical analysis. This paper examines the theoretical validity of the MMT argument using an overlapping generations model that includes economic growth due to technological progress, and gives a generally positive evaluation of MMT claims. The basic idea is that sustaining full employment in a growing economy requires sustained budget deficits, while recovering from a recession requires budget deficits in excess of that. These budget deficits need not be offset by future budget surpluses. The model in this paper is a simplified version of the three-generation model of Tanaka (2021), but it has been extended to include economic growth, the assumption of decreasing or increasing returns to scale, and an analysis of inflation.

The Pedagogy of the Job Guarantee

In this article, we offer a pedagogical framework that explores possibilities for the democratic control over socio-economic life via a Job Guarantee (JG), the legally guaranteed and publicly financed right to productive work with benefits wherever one lives, or wants to live. In the first part of the JG project, students interview local leaders and residents to gauge what people can do for each other. Through these interviews, students and community members identify untapped possibilities and think about matching local needs with local skills in a collaborative process. The interviews and other class activities are designed to familiarize students with the JG framing that sees unemployed people as an asset not a burden. This framework challenges the dehumanizing idea that people can be superfluous, useless, a threat, or a burden. We also situate the JG as part of Modern Monetary Theory (MMT) and discuss money as a governance mechanism that enables people to organize, and potentially democratize, socio-economic life.

Sovereign currency and long-term interest rates

ABSTRACT This paper investigates the effects of government debt and deficits on long-term interest rates in 17 advanced economies over the period 1973–2016 from the perspective of currency sovereignty. The empirical findings of this paper suggest the market penalizes non-sovereign nations for the same amount of fiscal deficit with higher interest rates than sovereigns. In addition, non-sovereign countries face accelerating interest rates for an increase in the debt-to-GDP ratio beyond a certain threshold (49% to GDP) while such a pattern is not obvious among sovereign nations. Overall, the results support Modern Monetary Theory (MMT) view that a monetarily sovereign government, as a monopoly issuer of currency, can influence the prices of their liabilities to a significant extent, somewhat independent of existing public debt and market sentiment.

The Policy Response to COVID-19: The Implementation of Modern Monetary Theory

: The COVID-19 induced recession are forcing central banks to adopt tools advocated by Modern Monetary Theory, financing their efforts to stabilize their economies with keystrokes. The keystrokes create claims, enabling governments to purchase assets and finance deficits in their attempts to stabilize their economies. COVID-19 reminds us that markets are not alert to threats: foreign, domestic, or microbial. Creating the rules and policies to provide people with needed goods and services falls to government, a role that government has only partly fulfilled. The tepid response also reflects a misapprehension of the possibilities of monetary and fiscal policies. There are two dimensions of the market economy, both related, both highlighted by the current pandemic. The first is the institutional basis of the market economy revealed in the promises we make to each other in the form of financial assets. The second is the dependence of people on employment for their livelihood. The inability to earn an income creates insecurity. It also impairs the ability of people to keep their promises. The move to fiat currency in 1971 ended the dollar’s link to gold, expanding the possibilities of both monetary and fiscal policy to mitigate the effects of the pandemic.

A Cosmopolitan Reading of Modern Monetary Theory

ABSTRACT The increasingly influential neochartalist Modern Monetary Theory (MMT) comes with a nation-state-centric framing of politics. The neochartalists argue that many alleged globalisation-related constraints on national economic policy are illusory or seriously overstated. In their view, monetarily sovereign states enjoy substantial autonomy over their fiscal and monetary policy decisions. The neochartalist diagnosis thus seems to undermine cosmopolitan calls for supranational forms of macroeconomic governance. However, this paper argues that if we pay serious attention to a range of subtler obstacles and strategic incentives that apply especially to small currency-issuing states, cosmopolitan aspirations remain well-motivated. Accordingly, the political implications of MMT are reexamined and a case for supranational exercise of monetary sovereignty is made. The paper goes on to demonstrate how the standard state-centric approach to currency privileges can prove counterproductive from the perspective of democratic governance. It is concluded that neochartalism and cosmopolitanism can fruitfully both correct and enrich each other.

Modern Monetary Theory: Methods of analysis used and paradoxical conclusions

The paper analyzes the main contradictions and consequences of Modern Monetary Theory. The consequences of budgetary deficit using as the main instrument of economic policy are estimated. The influence of this policy upon inflation expectations and currency rate dynamics are examined. The specifics of balance method using in the studies of systems with high intensity of the elements interactions is revealed. The necessity of testing mathematical and balance methods conclusions upon the preservation of the economic meaning is underlined.

Economic Insanity

AbstractRichard Giles, a leading Australian Georgist political economist, suggests that criticisms of mainstream economics can be reduced to three: neglect of the Physiocrats, rejection of Georgist political economy, and the attempted revival of Georgist land economics with faulty variants of those principles. Yet, in defending Georgism, Giles fails to show it can resolve the legacies of chattel slavery, colonialism, and neocolonialism. Despite that limitation, Giles shows that the renewal of land economics is essential to achieving economic justice. Along the way, Giles provides original insights about the limitations of modern monetary theory, the Malthusian economics of global migration, and the rise of global nationalism.