Five (5) Things to Read Before You Comment on Modern Monetary Theory (MMT)

There is much to do in the media from business and economic commentators about Modern Monetary Theory. Everyone from Adam Triggs to John Quiggin to Michael Pascoe and Richard Holden and even Andrew Leigh seem to have something to say.

Anyone that wishes to comment on Modern Monetary Theory is best to go to a primary source of the Modern Money developers. These include Australia’s own Bill Mitchell and Martin Watts, as well as many scholars from the University of Missouri-Kansas City and Bard College in New York and other institutions. The full list has grown to be quite long and could never do a comprehensive list justice but those that should be viewed as a primary source include Warren Mosler, Randall Wray, Stephanie Kelton, Pavlina Tcherneva, Mat Forstater, Scott Fullwiler, Fadhel Kaboub, Rohan Grey, Raul Carrillo and Nathan Tankus.

A number of simple articles or social media threads are out there to clear up some perceived confusions about Modern Money. None of the commentary below is intended to replace over 25 years of academic work that can be found at the scholarly institutions.

The first is 20 Simple Points to Understand Modern Monetary Theory by Warren Mosler. Mosler has a couple books out explaining these further in mostly simple terms but grasping the full intent of these points is essential to understanding how today’s Modern Money works.

Next Scott Fullwiler elaborates on the differences between currency creation and the expenditure of currency. This nuance is frequently overlooked in discussions of Modern Money. Fullwiler continues into how this affects central banks and interest rates determined by central banks.

Thirdly there is a number of Frequently Asked Questions researched by myself as they are commonly asked questions to those discovering Modern Monetary Theory for the first time. These include links to the Modern Money scholars accessible works and links to financial commentary in the media for further reading on any particular question that anyone may desire to delve.

Rohan Grey continues this list with mischaracterizations and misconceptions of Modern Monetary Theory. Grey delves into how Modern Monetary Theory is applicable to ALL countries, its relationship to the role of institutions and how they affect economic behaviour and its relationship to the law.

Fifth and finally Raul Carrillo addresses some other typical criticisms of Modern Monetary Theory. Carrillo demonstrates that Modern Monetary Theory is rooted in legal, sociological, anthropological, historical, and cultural foundations. Modern Money can offer insights into what we generally deem to be beyond monetary & fiscal policy. Ideas about labour, banking, crisis, development, ecology, inequality, trade & payments have consistently been part of Modern Money thought.

These simple references are to allay any source of confusion with what media commentators are calling Modern Monetary Theory. It is a comprehensive body of knowledge that is a synthesis on chartalism, credit money, Godley’s stock-flow consistency, functional finance, endogenous money, Minsky’s financial instability hypothesis and the work of Marx, Keynes, Kalecki, Veblen and Post-Keynesian and Institutional thought.

The textbook Macroeconomics by Mitchell, Watts and Wray is for those who would like a more scholarly introduction. It is the textbook of the future.

Scott Morrison: Look Over There!!

On the 12th September Ben Eltham writing for New Matilda says:

 There’s no sugar-coating it: Australia’s economy is in trouble. Last week’s national accounts figures showed gross domestic product grew  just 1.4 per cent in the past year. Unemployment is trending up. Consumers have stopped spending. Wages are stagnant, living standards are flatlining, while business confidence is falling. Interest rate cuts and the government’s much-vaunted tax cuts haven’t worked.

Growth of just 1.5 per cent a year is the slowest growth since the global financial crisis. With Australia’s population growing at around 1.6 per cent annually, the economy is actually shrinking in per capita terms.

Household consumption is anaemic, also at its lowest point since the GFC. Consumer sentiment is flat; retail spending and business confidence are both falling.

With Queensland on fire and the economy clinging on for dear life, you’d think the government would have all hands on deck.

But no. Consider the items on the government’s policy agenda at the moment: drug-testing welfare recipientsexpanding the cashless welfare card across the country, and legislating to stop animal rights activists trespassing on farms.

Not the most important of issues!  It’s a look over there moment, a distraction.

Is Modern Money (MMT) Just One Big Idea?

This post is by Raul Carrillo, a founder and co-organiser of the Modern Money Network (MMN) that was originally an educational tweetstorm.

Over the years, I’ve heard both friends & critics dismiss Modern Money (#MMT) as a “one-trick pony.” I have some thoughts on that.


First of all, I get it. Having once held similar reservations myself, I extra get it. But it couldn’t be further from the truth. We’re talking money here. This thing we swim in, this thing we’re forced to breathe, whether we like it or not

A body of thought that adopts money itself as a fundamental unit of analysis is bound to say something about nearly everything. #MMT

MMT is not a utopian project. We don’t pretend to offer silver bullets for all society’s monsters.  But whether you’re a lefty fighting capital & empire, or a liberal concerned with the feasibility of reforms you’d ideally like to see…we got you. We’re here. We’re involved. We’d truly love to hash out criticisms and collaborate.

Isaiah Berlin (whom I otherwise dislike) popularized a crude, yet useful distinction between TWO kinds of thinkers: “hedgehogs” & “foxes.” Loosely speaking, “hedgehogs” see the world through one, ultimate, systematic idea whereas “foxes” draw from a diverse variety of experiences and traditions to form a more contingent worldview.

“The fox knows many things, but the hedgehog knows one big thing.”

As @rohangrey often notes, if your only interaction with MMT is online fights about fiat currency and federal budget constraints, it’s understandable you’d think MMTers are hedgehogs rather than foxes. This is a mistake, though.

When you include the legal (and sociological, and anthropological, and historical, and cultural) dimensions of MMT we are looking at an incredibly powerful, useful prism for social and political analysis.

Trust: there are a million things we could all do — and are trying to do — to broaden our message & push beyond the core catechism. “MMTers” advocates have consistently drawn on, interpreted, transformed, & otherwise engaged with ideas beyond our own paradigm. We’ve done interdisciplinary work that hasn’t drawn enough attention. Some individuals may be hedgehogs, but as a group, we’re foxes.

Even strictly as a body of economic thought, MMT offers deep arguments beyond what we generally deem to be monetary & fiscal policy. Ideas about labor, banking, crisis, development, ecology, inequality, trade & payments, for ex., have consistently been part of MMT. When you include the legal (and sociological, and anthropological, and historical, and cultural) dimensions of MMT we are looking at an incredibly powerful, useful prism for social and political analysis.

Over the years, Modern Money has offered insights into the nature of fraud, corruption, surveillance, and social control as well as the meanings of justice, work, value, participation, and democracy.

The Modern Money Network is especially focused on building bridges between MMT & the chief political and social justice issues of our time. We’re out here. And we’re ready to work together to build a better world.

Editor’s Note: In my opinion MMT is just foundational knowledge, a basic understanding of how things work – that’s a hedgehog – but what we do with that knowledge, what we build from sociological, anthropological, cultural and consequently legal perspective is what counts – that’s a fox.

Misconceptions about MMT – Part III

This post concludes our three-part series (I, II, III) by Rohan Grey that was originally an educational tweetstorm.  Rohan Grey is a Modern Money scholar, founder of the Modern Money Network (MMN) and Lawyer.

CLAIM 3 (Claim 1, Claim 2)

MMT has only a partial view of law that ignores private law

Finally, moving to the idea idea that MMT ‘has only a partial view of law that ignores private law’. First, from the outset MMT has understood the chartalist point that ‘taxes drive money’ to include things beyond traditional, centrally administered taxes, to include things like Wergild, which functions more like a form of criminal law centered around fees and fines for private behavior in pre-state tribal societies.

See, for example, Randy Wray’s treatment of wergild and comparison to more ‘public’ forms of taxation, here:

Click to access wp_792.pdf

We founded MMN in 2014 specifically to promote greater dialogue between MMT and lawyers – a project that almost no other (if any) heterodox school of economic thought can claim to have done as seriously:

The Cost Of Justice

I and other lawyers in MMN, in recent years, have extended the MMT chartalist analysis to consider ways in which private law obligations (contract, tort, etc), imposed and enforced by courts, could also anchor the value of currency. See, e.g., here:

And my colleague Raul Carrillo has extended this in the context of consumer finance and private debts:

Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt

as well as those incurred through criminal law, here:

What Modern Monetary Theory Can Teach Us about Criminal Justice

While Hockett has developed a MMT-consistent story of monetary value centered primarily around the legal dynamics
underpinning the enforcement of private contracts, i.e. here:

And Scott Ferguson, who has challenged the public-private dichotomy of law itself:

MMN has also organized a number of events bringing together leading private law scholars to discuss these issues, including Katharina Pistor, such as this event:

And this one:

And Randy Wray has collaborated with and published in legal spaces whose other authors go into significant detail on these topics as well, such as:

MMTers, including us at MMN, also regularly cite to and draw on the work of Annalise Riles, exploring the legal construction of collateral, and the rise of private arbitration as a source of international private law – I personally, for example, am developing on this topic in the context of a new framework for digital fiat currency for the second chapter of my dissertation, and have discussed her work in numerous public talks, ie:

And of course, this is before we even get to the prodigious output of MMT lawyer-criminologist and financial regulatory Bill Black, who developed the concept of accounting control fraud and has published extensively on regulation of private finance, accounting, and white collar criminal enforcement:

I hope this list shows there is far more to MMT’s body of work than may be implied by a 2012 primer written by a single MMT author, designed for lay audiences. Which is why the appropriate thing to do is conduct a proper literature review, and/or reach out to MMTers to ask about these things before making public claims that such literature does not in fact exist.

As Mark Twain said, falsehood flies, and the truth comes limping after it.

The original tweetstorm thread.

Misconceptions about MMT – Part II

This post continues our three-part (I, II, III) series by Rohan Grey that was originally an educational tweetstorm.  Rohan Grey is a Modern Money scholar, founder of the Modern Money Network (MMN)  and Lawyer.

CLAIM 2 (Claim 1)

MMT ignores the actual practical workings of institutions…institutions are presupposed, & even if they are taken into account it’s presuppose they are the same everywhere, & institutional quality is not looked at

Moving to the second claim, that MMT ignores the actual practical workings of institutions and institutional quality. First, MMT has emphasized from the very beginning the importance of a detailed institutional analysis of monetary operations (arguably more than other PKers), including intra-governmental agency dynamics, such as Stephanie’s article exploring how taxes and bond sales work in the context of fiscal deficits here:

Or Fullwiler’s article tracing the inter-institutional operational steps involved in fiscal spending in the US context here:

Or it’s detailed understanding of primary dealer markets, such as Eric Tymoigne’s piece here:

Click to access wp_788.pdf

Indeed, many MMT scholars consider themselves working in the tradition of Hyman Minsky, who always and everywhere emphasized understanding the institutional arrangements and innovations that emerge endogenously from financial systems.

Hence, MMT scholars such as Randy Wray and Yeva Nersisyan highlighting the importance of the shift towards a shadow bank-centric world, here:

And designing proposals that go into detail in terms of proposing new institutional arrangements for the financial system, such as here:

Click to access ppb_115.pdf

Or understanding corporate taxation and other possible ways of curbing corporate power, such as Nathan and my work here:

In addition to work looking at the potential for local and complementary currency systems to be integrated with food systems, such as Ben Wilson’s work here:

Or Mat Forstater and Josefina Li’s work here:

And @RaulACarrillo ’s work tracing out the legal-institutional structures constraining individual freedom here, connecting MMT directly with Hale:

Keeping It Real: Law, Coercion, & The Frontiers of Public Finance

And Pavlina’s research into the evolution of state-legal institutions as a vehicle for power:

As well as Mat Forstater’s work on the chartalism in a colonialist context:

Click to access RiPE%20Forstater.pdf

And possibilities for confederalist governance models of a JG, here:

In addition, MMTers were some of the first to highlight the potential for the coin seigniorage to overcome specific institutional constraints in the context of the US debt ceiling debate, as evidenced here:

Coin Seignorage and Inflation

And more broadly have engaged with the legal and political science literature around central bank independence, such as here (Randy):

And me:

I personally have written a lot on the unique institutional dynamics of financial systems in developing countries with mobile money systems, such as here:

As well as consulted directly with companies and the UN on new digital currency technologies and considerations for countries around the world to implement, as seen here:

Click to access TheMacroeconomicImplicationsOfDigitalFiatCurrencyEVersion.pdf

Click to access DFC-O-006_Report%20on%20Regulatory%20Challenges%20and%20Risks%20for%20Central%20Bank%20Digital%20Currency.pdf

And my advisor Bob Hockett, a MMT ‘fellow traveler’ that has regularly collaborated with MMTers, has written extensively on the legal historical foundations of endogenous money with Saule Omarova:

As well as the corporate law form and its relationship to the modern banking charter:

And this is before we get to the historical research that MMT scholars have undertaken on the origins of money and monetary dynamics in pre-modern societies, which obviously implies different institutional relationships:

Click to access hudson.pdf

Click to access wp_832.pdf

including a broader understanding of ‘the state’ that includes religious authorities:

Click to access SemenovaOriMonEva.pdf

I’m also conducting research specifically on the privacy implications of monetary system design, specifically in the context of emerging digital currency technologies:

So the idea that MMT has some ‘one-sized fits all’ understanding of institutions, and ignores actual practical workings of specific state systems, is simply false.