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Modern Monetary Theory 101

Apr 10, 2019
by Caroline Miller
A Beginner's Guide to MMT, Federal Reserve Bank, fiat money, Modern Monetary Theory, Peter Coy, Richard Nixon, taxes and inflation, the gold standard, unlimited government spending
2 Comments

Courtesy of vice.com

In a February blog, I mentioned an economic idea beloved by the far left called Modern Monetary Theory. (MMT)  It posits that  a  country with its own currency needn’t worry about accumulating debt because it can print money to pay off its interest.  Sounding too good to be true, I promised to look into it, as the notion it is likely to surface in the 2020 elections.  I don’t propose to be an expert on finance.  My credentials are from other fields.  Nonetheless, citizens should have an inkling about why they pay their taxes and what they are getting in exchange.  Humbly, I propose to lay out some of the basic tenets of MMT. Sharper minds are free to correct what I’ve written below.

Tenet 1:  As long as inflation is kept in check, meaning that as long as there are enough workers and equipment to meet demands, the government can spend what it likes to achieve its goals.  That might include medical coverage for all, free higher education, guaranteed employment and low-cost housing.  Surprisingly, that can be done without taxing the rich because deficits don’t matter as long as inflation is kept in check.  When Richard Nixon took the country off the gold standard  in 1971, he freed the government from the restraint of needing gold to cover its debts.  Now it can print what it needs.

Tenet 2: Those who believe in MMT oppose the country’s current strategy of maintaining its economic health by lowering and raising interest rates, an issue the Federal Reserve Bank considers at its meetings.  Those who support MMT argue the rate for fiat money should be set a 0% and that not to do so rewards the investor class.

They also argue tweaking interest rates is ineffectual because businesses seek to borrow money on prospects for growth rather than the rate.

Bottom line: MMTers want the Federal Reserve Bank to be under the control of the government and argue that deficits do not increase interest rates.  To the contrary.  “When the government spends more, the private sector gets money, and puts it into the banking system.  With more money in the system and no increase in demand for it, interest rates will tend to fall, not rise…” (A Beginner’s Guide to MMT,” by Peter Coy et al, Bloomberg Businessweek, March 25, 2019, pg. 30.)

Tenet 3: Taxes don’t go away under MMT.  They become a tool for pulling money out of the system to keep inflation in control.

Tenet 4:  Inflation isn’t the result of rapid growth but of rapid greed.  In response, MMT followers would break up monopolies and prevent banks from making too many loans.

Of course, the arguments against MMT are many, but entropy may be its biggest obstacle to overcome.  Implementing a wide, sweeping policy like MMT would tip financial institutions on their heads and threaten those who benefit from the current system.  Making this theory clear to most of us may also prove to be a challenge. To help, I’ve provided two clips.  The first is a two-minute video.   The second extends to six.

After doing some reading and watching the films, I have reached one firm conclusion about MMT.  We voters have some homework to do.

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2 Comments
  1. Virginia Hammon April 10, 2019 at 8:09 am Reply
    MMT is misnamed. It is not a monetary theory; it is about macroeconomics – how money moves around in an economy. It accepts the existing money system, in which the private commercial banks create the money supply, and goes further to insist that this system IS the definition of money. MMT redefines money creation by insisting that the US government 'creates' money when it authorizes and guarantees the money created by our private banking system. Notice: our money is a "Federal Reserve Note" and the Fed is owned by the private bank members. Our existing debt-credit money is not the definition of money; it is one kind of money system. Money can also be created as an asset by a democratic government. The Alliance for Just Money ( monetaryalliance.org ) is working towards actually changing the money system, which would give us a sustainable way to use our money for the public good. MMT insists that government does create money, because it can borrow all it wants. That's a twist in the meaning of words (issue, create, borrow, authorize, guarantee). Coins, which represent about 2 percent of the money supply are the only money our government currently creates. The rest is created by the private banking sector. It is very seductive to say that government can go into as much debt as it wants, and then just create more money to pay interest to the bankers (or maybe, cut the interest rate for government to zero), and spend whatever it needs. However, MMT leaves the power to create the bulk of the money supply firmly in the hands of the private sector, and this is unsustainable. Our current privately created debt-credit money demands exponential growth to keep the economy sound, and by its nature shifts wealth from the many to the few. It's worth noting that one of its strongest proponents is a hedge fund manager (Mosler). For a solid rebuttal, here's a friend, Sue Peters, PPT rebuttal, when MMT tried to take over the money platform of the Green Party. https://www.dropbox.com/s/ys0q6kgoat4i1ov/Sue%27s%20ppt%20what%20MMTers%20wanted%20to%20remove%20from%20Green%20party%20platform%20and%20insert%20instead.pptx?dl=0 And, here is a scholarly paper, by Economist Joseph Huber, https://www.dropbox.com/s/gmctxz7rj9n9otq/Modern%20Money%20Theory%20and%20New%20Currency%20Theory%20RWER%2066-2014.pdf
    • Caroline Miller April 10, 2019 at 8:46 am Reply
      Thank you for adding to our knowledge. A complicated subject.

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Contact Caroline at

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Portland, Oregon author Caroline Miller had distinguished careers as an educator, union president, elected official and artist/advocate.

Her play, Woman on the Scarlet Beast, was performed at the Post5 Theatre, Portland, OR, January/February 2015

Caroline published a serialized novelette, Marie Eau-Claire, on the website, The Colored Lens.  She also published the story Gustav Pavel,  a parable about ordinary lives, choice and alternate potential, on the website Fixional.co.

Caroline has published four novels

  • Ballet Noir
  • Trompe l’Oeil
  • Gothic Spring
  • Heart Land

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