Modern Money Theory 101: A Reply to Critics

Eric Tymoigne and L. Randall Wray

Economics Working Paper Archive from Levy Economics Institute

Abstract: One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unencumbered by hard financial constraints. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of many nations, MMT has provided institutional and theoretical insights about the inner workings of economies with monetarily sovereign and nonsovereign governments. MMT has also provided policy insights with respect to financial stability, price stability, and full employment. As one may expect, several authors have been quite critical of MMT. Critiques of MMT can be grouped into five categories: views about the origins of money and the role of taxes in the acceptance of government currency, views about fiscal policy, views about monetary policy, the relevance of MMT conclusions for developing economies, and the validity of the policy recommendations of MMT. This paper addresses the critiques raised using the circuit approach and national accounting identities, and by progressively adding additional economic sectors.

Keywords: Modern Money Theory; Price Stability; Full Employment; Financial Stability; Money (search for similar items in EconPapers)
JEL-codes: B5 E10 E11 E12 E31 E42 E58 E6 F41 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mac, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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