MMT: NOT MODERN, NOT MONETARY, NOT A THEORY
MMT: NOT MODERN, NOT MONETARY, NOT A THEORY by Jeff Deist for Mises
Modern monetary theory (MMT) has a new champion, and a new bible. Stephanie Kelton, economics professor at SUNY Stony Brook, is the author of The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. Professor Kelton was an advisor to the Bernie Sanders presidential campaigns, and her ideas increasingly find purchase with left progressives. It is certainly possible that she has a future either in a Biden administration or even on the Federal Reserve Board, which is a testament to how quickly our political and cultural landscape has shifted toward left progressivism. And left progressivism requires a “New Economics” to provide intellectual cover for what is essentially a political argument for painless free stuff from government.
Kelton’s essential argument, first advanced by MMT guru Warren Mosler in the 1990s, is quite simple: federal spending is unconstrained by revenue. Taxes function only to regulate demand and hence inflation; federal borrowing functions only to regulate interest rates. Sovereign government treasuries can create and spend as much money as they like to stimulate growth, especially when the economy is underperforming. If inflation spikes, taxes can be imposed to take money out of the economy.
Thus the only constraints on unlimited government spending are political. Unleashing ourselves from these “self-imposed” constraints, as Mosler puts it, is purely a matter of political will. Revenue is irrelevant to how you fund a government, so why not use government to fund the economy as a whole?
I direct readers to Dr. Bob Murphy’s recent substantive review of Kelton’s book here, as Bob does a thorough and effective job of debunking MMT and providing Austrian rebuttals to her claims regarding money, debt, and deficits. But I would make three quick points of my own:
- MMT is not modern. Kings have used seigniorage and currency debasement for centuries to fund their endeavors, always at the expense of their subjects.
- MMT is not monetary. It is primarily a fiscal approach to state finance, focused on tax policy as the economic accelerator and brake. Its roots predate the US Federal Reserve Bank, and in fact predate the present notion of “monetary policy.” MMT finds origins in early twentieth-century chartalism, whose proponents opposed gold in favor of paper money issued by government and mandated as legal tender. It is also a genealogical heir to the Greenbackers of the late 1800s, who believed Congress should direct the issuance of unbacked paper currency.
- MMT is not a theory. It is accounting. In fact, it relies on an accounting subterfuge which bizarrely claims government deficits represent private (societal) surpluses. Because government is the font from which currency springs, all financial assets (denominated in that currency of issue) exist thanks to government! Thus, under “national accounting,” the more government spends, the richer we the people get. When tax revenue is $100 but government spends $120, Americans are richer by $20. And so on. This is not a theory; this is accounting gimmickry almost purposefully designed to obscure what’s really going on.
In the relentlessly circular world of MMT, government is the source of all finance and in effect all wealth. Taxpayers don’t fund government, because after all government first provides the “tokens” (currency) taxpayers need to pay their IRS bills! Government funds taxpayers, which is broadly speaking what the American left really believes. It’s a version of Obama’s “You didn’t build that” rewritten into policy.