Modern Money Theory 101: A Reply to Critics

Levy Economics Institute, Working Papers Series No. 778

58 Pages Posted: 2 Nov 2013 Last revised: 5 Dec 2013

See all articles by Eric Tymoigne

Eric Tymoigne

Lewis & Clark College

L. Randall Wray

University of Missouri at Kansas City; Bard College - The Levy Economics Institute

Date Written: November 1, 2013

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

JEL Classification: B5, E10, E11, E12, E31, E42, E58, E6, F41

Suggested Citation

Tymoigne, Eric and Wray, L. Randall, Modern Money Theory 101: A Reply to Critics (November 1, 2013). Levy Economics Institute, Working Papers Series No. 778. Available at SSRN: https://ssrn.com/abstract=2348704 or http://dx.doi.org/10.2139/ssrn.2348704

Eric Tymoigne (Contact Author)

Lewis & Clark College ( email )

0615 SW Palatine Hill Road
Portland, OR 97204
United States

L. Randall Wray

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

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