What is Modern Monetary Theory, or “MMT”?

By Dale Pierce


Modern Monetary Theory is a way of doing economics that incorporates a clear understanding of the way our present-day monetary system actually works – it emphasizes the frequently misunderstood dynamics of our so-called “fiat-money” economy. Most people are unnerved by the thought that money isn’t “backed” by anything anymore – backed by gold, for example. They’re afraid that this makes money a less reliable store of value. And, of course, it is perfectly true that a poorly managed monetary system, or one which is experiencing something like an oil-price shock, can also experience inflation. But people today simply don’t realize how much bigger a problem the opposite condition can be. Under the gold standard, and largely because of the gold standard, the capitalist world endured eight different deflationary slumps severe enough to be called “depressions.” Since the gold standard was abolished, there have been none – and, as we shall see, this is anything but coincidental.

The great virtue of modern, fiat money is that it can be managed flexibly enough to prevent *both* deflation and also any truly damaging level of inflation – that is, a situation where prices are rising faster than wages, or where both are rising so fast they distort a country’s internal or external markets. Without going into the details prematurely, there are technical reasons why a little bit of inflation is useful and normal. It discourages people from hoarding money and encourages healthy levels of consumption and investment. It promotes growth – provided that a country’s fiscal and monetary authorities manage it properly.

The trick is for the government to spend enough to ensure full employment, but not so much, or in such a way, as to cause shortages or bottlenecks in the real economy. These shortages and bottlenecks are the actual cause of most episodes of excessive inflation. If the mere existence of fiat monetary systems caused runaway inflation, the low, stable rates of consumer-price inflation we have seen over the past thirty-plus years would be pretty difficult to explain.

The essential insight of Modern Monetary Theory (or “MMT”) is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn’t mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances – no matter what that state happens to be.

Virtually all economic commentary and punditry today, whether in America, Europe or most other places, is based on ideas about the monetary system which are not merely confused – they are starkly and comprehensively counter-factual. This has led to a public discourse about things like budget deficits and Treasury debt which has become, without exaggeration, utterly detached from reality. Time and time again, these pundits declaim that hyperinflation is imminent, that interest rates are on the verge of an uncontrollable upward spike, and that the jig will be up for sure just as soon as the next T-bond auction fails. But even though, time after time, it is the pundits’ prognostications which fail, no one seems to take any notice. This must change. A reality-based economics is needed to make these things make sense again, and Modern Monetary Theory is here to put everyone on notice that a quite different jig is the one that’s really up.

The gold standard was finally and completely abolished over the course of a two-year period which started in 1971, when Richard Nixon ended the convertibility of the dollar for gold and devalued U.S. currency for the first time since the end of World War II. In 1973, the U.S. stopped trying to peg the dollar to any currency or commodity, instead allowing its value to be set on a freely-floating international currency market. The monetary system we inaugurated then is the one we still have now.

It is not the same as the one which has been adopted by most of Europe – and this very prominent source of confusion about the role of money in the world today will receive close scrutiny at the proper point. But first, we need to carefully unpack the implications of taking both gold and any sort of “peg” out of the monetary equation in the first place. In 1971, gold-linked money became fiat-money – not for the first time, of course, but for the first time in a long time. And it wasn’t just any currency. It was, by far, the world’s most important currency, economically. It was also the world’s reserve currency – the good-as-gold and backed-by-gold currency which the entire non-communist world used to settle transactions between various countries’ central banks. And yet, what everyone, and especially every American was told at the time was that it really wouldn’t make much difference. 

The political emphasis, at the time, was entirely on the importance of making sure that no one panicked. The officials of the Nixon administration acted like cops who had just roped off a fresh crime scene: “Just move right along, folks,” they kept intoning. “Nuthin’ to see here. Nuthin’, to see.” All of the experts and pundits said essentially the same thing – this was just a necessary technical adjustment that was only about complicated international banking rules. It wouldn’t affect domestic-economy transactions at all, or matter to anyone’s individual economic life. And so it didn’t – at least, not right away or in any way that got linked back to the event in later years. The world moved on, and Nixon’s action was mainly just remembered as a typical, high-handed Nixonian move – one which at least carried along with it the virtue of having pissed off the French.

But what had really happened was epoch-making and paradigm-shattering. It was also, for the rest of the 1970s, polymorphously destabilizing. Because no one had a plan for, or knew, what all of this was going to mean for the reserve currency status of the U.S. dollar. Certainly not Richard Nixon, who was by then embroiled in the early stages of the Watergate scandal. But no one else was in charge of this either. In the moment, other countries and their central banks followed Washington’s line. They wanted to forestall any kind of panic too. But, inevitably, as the real consequences of the new monetary regime kicked in, and as unforeseen and unintended knock-on effects began to be felt, this changed.

The world had a choice to make after the closing of the gold window, but even though it was a very important choice, with very high-stakes outcomes attached to it, there was no international mechanism for making it – it just had to emerge from the chaos. Either the U.S. dollar was going to  continue to be the world’s reserve currency or it wasn’t. If it wasn’t, the related but separate question of what to use instead would come to the fore. But, as things unfolded, no other choice could be imposed on the only economic powerhouse-nation, so all the other little nations eventually just had to work out ways to adjust to the new status quo.

Even after Euro-dollar chaos, oil market chaos, inflationary chaos, a ferocious multi-national property crash and a severe, double-dip American recession, the dollar continued to be the reserve currency. And it still wasn’t going to be either backed by gold or exchangeable at any fixed rate for anything else. But while the implications of this were enormous, almost no one understood them at the time, or ever, subsequently, figured them out. For the 1970s was the period during which Keynesianism was decertified as the reigning economic philosophy of the capitalist world – replaced by something which, at least initially, purported to have internalized and improved upon it. This too was a choice that wasn’t so much made as stumbled into. The chaotic, crisis-wracked world we now live in is the one which subsequent versions of this then-new economic perspective have helped to create.

Conventional, so-called “neo-classical” economics pays little or no attention to monetary dynamics, treating money as just a “veil” over the activity of utility-maximizing individual “agents”. And, as hard as this is for non-economists to believe, the models which these ‘mainstream’ economists make do not even try to account for money, banking or debt. This is one big reason why virtually all members of the economics profession failed to see the housing bubble and were then blind-sided by both the 2008 financial collapse and the grinding, on-going Eurozone crisis which has followed in its wake. And the current group-think among ‘mainstream’ economists is yet another case where failure is no obstacle to continued funding – or continued failure. The absence of any sort of professional, intellectual or academic accountability will be a theme here.

The public policy reversal that began with Margaret Thatcher and Ronald Reagan promised that the deregulation of capitalism would lead to greater shared prosperity for everyone. Today, even though the falsehood of this claim is brutally obvious, the same economic nostrums and stupidities that were used to justify it in the first place continue to be trotted out and paid homage to by a class of financial-media personalities who equate making a lot of money with understanding money. It does not seem to occur to them that financial criminals and practitioners of bank-fraud can get rich through sociopathy alone.

What needs to be said is this: Keynesian economics worked before, and the improved version – now generally called “post-Keynesian” – will work again, to deliver what the market-fundamentalism of the past three decades has patently and persistently failed to deliver *anywhere in the world*. Namely – a prosperity which is shared by everyone. The principal purpose of Modern Monetary Theory is to explain, in detail, why this this worked in the past and how it can be made to work again.

Here’s how: start with a 100% payroll tax cut for both workers and employers – one that will only expire (if it does at all) when we have achieved full employment. This will not de-fund Social Security. And yes, we’ll come back to this point and cover it in great detail in due course. But first, stop and think back on the effect which federal revenue-sharing had on the economy in 2009 and 2010. If you’re thinking there were fewer teachers, nurses, policemen and fire-fighters getting laid off, you are correct. If you’re thinking that more roads, dams, bridges and sewer systems were getting repaired, you’re right again. But if you think that adding 800 million dollars to the deficit over two years is a guaranteed way to generate hyper-inflation, double-digit interest rates and bond-auction failures, leading ultimately to a frenzied worldwide rush to dump dollar-denominated financial assets, well, now would be a good time to ask yourself why you believe this.

One more point – one more plank in this three-point program to restore fiscal and monetary sanity: let’s give everyone who wants to work and is able to work some *work to do*. A currency-issuing government can purchase anything that is for sale in its own currency, including the labor of every last unemployed person who is still looking for a job. So, a key policy recommendation of Modern Monetary Theory is the idea of a “Job Guarantee”. The federal government should take the initiative and organize a transitional-job program for people who just can’t find work in the private sector – as it currently exists in real-world America today. Because the smug one-liner that starts and ends with: “Government can’t create jobs – only the private sector can create jobs!” is about the un-funniest joke on the planet right now.

The government creates millions of jobs already. Isn’t soldiering a job? Isn’t flying the President around in Air Force One a job? What about all the doctors and nurses down at the V.A. hospital, and the day-care workers on military bases? They certainly all appear to be employed. When you go into a convenience store to buy some – uh – local-and-organic Brussels sprouts, say, how closely does the clerk examine the bills and coins you tender? Did any clerk or cashier ever squint or turn your five-dollar bill sideways and back and ask, “Hmm.. are you sure this money came from work that was performed in the private sector?” No. They didn’t. Because the money governments pay to public employees is exactly the same money everyone else gets paid in.

A guaranteed transition-job would need to be different from the familiar examples cited above in certain ways. It would be important to make sure that such a program always hired “from the bottom”, not from the top. That’s an important way of making sure that such programs don’t create real-resource bottlenecks by competing with the private sector for highly skilled or specialized labor. Hence, a transition-program job would more closely resemble an entry-level job at a defense plant. Such a job only exists because of Pentagon orders for fighter planes or helmets or dog food for the K-9 units. There is no sort of ambiguity about where the stuff is going or how it is being paid for. And when the people who mow the lawn or sweep the parking lot get paid, they know, without having to think about it, that their wages will spend exactly the same way down at the grocery store as everyone else’s.

Defence spending is actually quite a good analog to the idea of a transitional-job program – one that would provide work to any and every person who wanted it. The only time the American economy ever achieved an extended, years-long period with zero unemployment, low, well-controlled inflation rates and with no significant financial aftershock at the end was the World War II era – broadly defined to include the Lend-Lease buildup of 1940 and 1941. This solution to the problem of mass unemployment worked in the 1940s and it would work today. In the 1940s, of course,the jobs were almost all war-related. But, economically, this makes no difference.

The connection between war and economic prosperity has been noticed before. It led some 19th Century thinkers (and also Jimmy Carter) to wonder whether there could be a “moral equivalent of war”. Well, there can be – by way of the Job Guarantee. The biggest pre-condition has been met, because one result of most wars has been that they forced the combatant countries off the gold standard. Now, all countries have left it. What matters next is whether there are enough real resources available to produce goods and services that are equal in value to the government’s job-guarantee spending. If these resources are available – if they are not already being used to produce something else – then the increased demand that results from the payment of job-guarantee wages will not be inflationary, regardless of what they go to produce.  

Money is 100% fungible.  Whether the job-guarantee program makes fighter planes or wind turbines makes no economic difference – the workers employed by it will spend their wages on the same things other workers buy. What matters, economically, is whether there are sufficient real resources and labor available to produce these goods and services in line with the increased demand for them. If there are, no additional government intervention is necessary in order to mobilize them. The same private-profit motivation which induces a company to produce one widget can be relied upon to induce the production of another one.

Most popular misconceptions about job-guarantee work as inefficient “make-work” ignore these private-sector dynamics. It is simply assumed that if the publicly-funded workers don’t personally contribute to making shoes or soap, their wages will result in “more money chasing the same goods” – and that this will automatically cause inflation. This is an obvious fallacy which has been empirically falsified many, many times, but most people continue to treat it as an article of economic faith. So, one of MMT’s most pressing tasks today is to make the case that we can, indeed, end mass unemployment without undermining price stability.

There are many other economic problems and challenges in the world today. Modern Monetary Theory is not a panacea for them. Even if its insights and policy recommendations become widely known, and even if they are someday fully implemented, societies will still face challenges such as inequality, regulatory capture and predatory financial behavior, including the kind of predatory mortgage lending that led to the worldwide crash in 2008. In order to understand these additional economic problems and dangers, we need to look at economics in a larger context, and correctly situate Modern Monetary Theory within this wider frame.

Modern Monetary Theory is based on earlier work which also focused on the relationship between the state and its money – ideas which come under the generic designation of “Chartalism”. MMT also remains firmly within the Keynesian tradition of macroeconomnic theorizing, and recognizes an extensive interconnectedness with other economists whose work is categorized as “post-Keynesian”. Some of MMT’s other notable academic progenitors include Hyman Minsky, Abba Lerner and, more recently, the English economist Wynne Godley, whose emphasis on achieving consistency in the analysis of economic stocks and flows presaged the emphasis which MMT-orbit economists put on it today.

The label “Modern Monetary Theory” is not particularly apt. It became attached to its advocates through the informal agency of Internet comment-threading, not because anyone considered it either very useful or very descriptive. In other words, it “just stuck”. In fact, the identity of the first person to use the “MMT” label is lost to online history. So, to be clear, MMT is only modern in the broad sense in which virtually everything that got started in the Western world in the 19th Century is called “modern”. It is not exclusively monetary either – it has quite a bit to say about fiscal policy as well. And it was not, initially, theoretical – it started as a body of quite empirical observations about the dynamics of the monetary system and the many ways they are being misunderstood these days. For MMT has a dual pedigree which is itself quite remarkable.

On the one hand, it represents the patient, decades-long academic work of a cadre of perhaps eight or ten working economists (originally there were three or four, plus their students). But MMT was independently co-discovered by a single person. A person who had no specific training or academic background in economics at all – the American businessman and auto-racing enthusiast Warren Mosler. How he came to initially suspect and, ultimately, clearly understand that the spending of sovereign governments had become operationally independent of their taxing and borrowing is recounted in his 2010 book, “The Seven Deadly Innocent Frauds of Economic Policy.”  The 1996 publication of an earlier book of his, “Soft-Currency Economics,” launched MMT as a social, intellectual and online movement. And while the academic side of MMT was completely unknown to him at first, it was not long before the two camps discovered each other, and this has led to a very extensive collaboration in the years since.

Today, MMT is being discovered by a rapidly-growing worldwide Internet audience. And the public’s growing interest in MMT is evident in other ways as well. One of the movement’s leading spokespersons, Dr. Stephanie Kelton of the University of Missouri at Kansas City, has been a repeat guest on an MSNBC weekend show. She, and other MMT economists, are frequent guests on a number of popular, mostly-progressive radio programs as well – both in the U.S. and in English-speaking countries around the world. And Warren Mosler’s seminal 2010 book was recently published in Italian.

(For obvious reasons, the stressed and austerity-damaged countries of the Eurozone’s southern tier are places where people are becoming more open to fresh economic ideas. At a 3-day conference in Rimini, Italy in 2012, a panel of four MMT/post-Keynesian speakers lectured to a crowd of over 2,000 people in a packed sports arena. Many in the audience crossed multiple international borders to attend.) 

MMT has been mentioned, though not yet accurately described, in several of Paul Krugman’s columns for the New York Times. And certain aspects of it have been noticed even more widely in the media – for MMT is the theoretical basis of the “trillion-dollar coin” approach to fiscal cliffs. (The idea was first proposed and debated on Warren Mosler’s website.) In short, MMT is getting harder and harder to ignore. And since it really does have answers to some of the world’s most urgent and otherwise perplexing questions, it seems likely that MMT will soon become quite impossible to ignore. What follows is written to try to hasten that day.

This will be an intentionally simplified, non-technical exposition of the principal tenets of Modern Monetary Theory. The no-algebra version, in other words. It is intended as a guide for non-economists and other lay people who may have heard the phrase or seen a video clip about MMT and who wish to learn more. It is not a substitute for more complete and, necessarily, much more technical treatments that are available elsewhere, including the MMT Primer here at NEP.

Confining myself to examples and cases so widely known that no one will wonder where they came from accounts for the absence of footnotes in this. And since I make no claim to have learned knowledge of anything, I will just say, up front, that everything I know was thought of first by someone else. But rather than interrupt the narrative or complicate the process by trying to establish who said any particular thing first, I hope it is sufficient for me to just thank the MMT community at large for any material that I have borrowed or re-purposed along the way.

I also depart, here, from MMT’s mostly-neutral stance on contested political and ideological questions. For while MMT principles apply equally, irrespective of things like the size of government or the conceptions and misconceptions of people running governments, it has a policy bias no one can really miss.  I choose to emphasize rather than de-emphasize this bias – and I will sometimes even put it front-and-center. I hope no one will mistake this for any sort of rebuke toward those who choose not to do this. We have simply reached a point where practical applications need to be put on an equal footing with their theoretical underpinnings.

For somewhere – maybe somewhere in Italy – and on a day which may not be all that far off now, Modern Monetary Theory is going to start changing the world.


109 responses to “What is Modern Monetary Theory, or “MMT”?

  1. “Most people are unnerved by the thought that money isn’t “backed” by anything anymore – backed by gold, for example.”

    “Most” people? Like, more than 50%?


    Nixon decoupled the gold thingy way back, and it seems like life just went on.

    Money is ultimately and simply backed by interpersonal and societal “trust.”

  2. Personal opinion

    MMT is PK Plus.
    Unless Mosler, Wray and Mitchell, COLLECTIVELY decide it is something different

  3. A wonderful introduction.
    One typo?… In the fourteenth paragraph you write $800 million when I believe you mean $800 billion?

  4. Interesting primer to MMT, but you, and the founders of MMT, whom I’ve all had communications with (except Kelton) individually, have failed to explain certain things about MMT v. Greenbacking:
    1. Why produce debt-money at all when gov’t can simply produce money, debt-free, as Lincoln did with the U.S. Note, continuing 14 series into 1971 (when Nixon also took us off the gold standard, as you said), but still in active circulation until 1996. The Treasury specifically excluded U.S. Notes from the debt in its debt report (along with Kennedy’s Silver Certificates), and in fact it is not allowed to pay off the national debt. This is a plus, since this money could be used for public works programs and other gov’t expenses like those you describe. One advantage is…
    2. we don’t have to keep paying interest on debt to idle rent-seekers. Then they would have to get real jobs. Whatever you think of the infinite capacity of a sovereign gov’t to produce money endlessly (which most people don’t agree with, no matter how many times MMT says it), we DO have to pay interest on our borrowed money, and we ought not to do that.
    3. Greenbacking would inject money directly into Main Street, not Wall Street via the banks. MMT could do that too, but there’s no mechanism or historical tradition for it, like there is for Greenbacks, going back to the Civil War (OK, we have better uses than for war now).

    • And as usual we await a profound reply!

    • “Whatever you think of the infinite capacity of a sovereign gov’t to produce money endlessly (which most people don’t agree with, no matter how many times MMT says it)…”

      Nice to hear someone else singing off-key here. Kudos.

      • “Tweeder | March 11, 2013 at 5:27 pm

        “Whatever you think of the infinite capacity of a sovereign gov’t to produce money endlessly (which most people don’t agree with, no matter how many times MMT says it)…”

        Nice to hear someone else singing off-key here. Kudos.”

        That’s because most people including most political parties around the world, except the Chinese Communist Party, make the assumption that the domestic private sector taken as a whole, or in aggregate, automatically creates its own surplus. It does not. Attention to the principles of balance sheet accounting reveals that by automatic default it’s always in deficit and always requiring a net money contribution from either the government or foreign sector or a combination of the two to achieve an optimal surplus. The obvious “Godleyian” implication of this is that government’s net contribution will be a variable!



        • I get that the government’s deficit is the private sector’s surplus (at least for their businesses), but if we changed the double-entry accounting rule – which is NOT a natural law, BTW – we could just issue money directly, when the supply ran too low due to credit withdrawal (as now). The Fed tries to do this (I’m being charitable here) by QE, but that just winds up in the banks, building reserves, and doesn’t trickle down to Main Street. Greenbacking would create money through direct issuance from Treasury, debt-free, to directly employ people – ALSO good for businesses, but without paying debt to bondholders and other rent-seekers. Why is this not a better approach?
          I wrote a recent article about this here:
          including the contents of a hand-delivered letter to Rep. Jerry Nadler’s office after meeting him the night before and talking about Greenbacking (he backed the Platinum Coin idea, so I tried to convince him that Greenbacking was even better).

          • Greenbacking, or giving the Treasury to create money, is better than platinum coin seigniorage. But, It’s perfectly consistent with MMT principles and with MMT views about fiat money, and, I think, the preferred policy of most MMTers is that the Federal Reserve be placed under the Treasury Department, which would then create money in the act of deficit spending.

            Here’s a post from Bill Mitchell outlining the MMT position that the Treasury and the Central Banks are best viewed as the consolidated Government. Its clear implication is that if MMT had its institutional “druthers”, the Central Bank would be within Treasury which would then create money as it deficit spends.

            • “[…] the Central Bank would be within Treasury which would then create money in the act of deficit spending.”

              So, Joe, under current arrangements, deficit spending is not creating money? Is that what you are saying?

              Did you just violate the Lerner’s law or what?

              • Don’t think so. First, when Treasury deficit spends, it first issues debt. It doesn’t have to because it can use PCS, but it does. This drains reserves. Then when the Treasury does the deficit spending the reserves go back into the private sector. So the net new money created at that point in time is zero. However, the Net Financial Assets created isn’t zero. It’s the amount of the deficit spending. So, in the first analysis, Treasury deficit spending doesn’t create new money; unless you consider the debt instruments “money.”

                See Stephanie’s account in this post.

                • Joe, yes, I think I’ve come to consider debt instruments as money. Frank here won’t let anyone forget the basic truth that “no debt = no money.”

            • I know the MMT founders say the Fed is part of the government. It is not. Not legally. Not fiscally – they make their own decisions. Only the board is PARTLY controlled by nominations from the government, but in reality even that is from a very small and tightly controlled pool of bankers.
              I know the Fed is paying back excess to Treasury (at least that’s what they say; I know of at least one writer who says they haven’t done that since 2010, but I need verification on that too). But, the Fed is paying interest on reserves deposited with it. They don’t own most Treasuries, and plan to sell more to other parties as soon as it is convenient, meaning we will be paying interest to outside parties as soon as the Fed decides to raise interest rates again, which, despite MMT protestations, history argues it will….someday. Given the level of our debt, that would mean gargantuan interest payments, enough to knock the economy back into recession.
              All of this is unnecessary. The constitution allows Congress to “coin Money” exactly as Lincoln did, and was done for 14 series until 1971, in circulation until 1996.
              The constitution say NOTHING about a central bank. It says NOTHING about banking at all, in fact. Hamilton and the other Federalists, plus influencers from Europe, caused that.
              We need to take back our ability to create our own money, not outsource it and pretend we’re not because the Fed has co-opted the Treasury and the rest of government.
              We need to take back our sovereignty. For real.

            • I continue to be confounded that no one within the MMT fold seems to understand that the issuance of money by the U.S. Treasury as debt is not some form of natural law. It is, in fact, a suicidal law passed by Congress which provides runtier rewards to Wall Street for performing no service whatsoever. Because it is law, however, the interest on the debt must be paid and that is where the Platinum Coin concept comes to the fore. The simpler, and more logical, process would be for Congress to repeal the stupidly conceived requirement that money be issued as debt through Primary Dealers on Wall Street.

              Yes, this would take an enormous amount of political muscle given the financial industry’s ownership of Congress and the executive branch of government; but if more effort was given toward educating the voting public about this perhaps there could be a strong grassroots effort to push the correct political buttons. Initially, it would be like pushing string, but once people begin to realize that their impoverishment is the result of their lost income going to financial gangsters who have done nothing to deserve it, they might just decide to bring out the pitchforks for a change.

              When the country was young, it perhaps made sense that the government needed to “borrow” its money from wealthy individuals to get started. But those days are long past and there is absolutely no need or reason for this practice to continue — particularly since there is no borrowing from rich individuals anymore. Now we are simply paying interest to Wall Street bond brokers to allow them to pass our own money from the Treasury to the Fed and back to the Treasury while they rake-off a share for themselves. No work, no cost (to them) just unearned profit. If this isn’t the definition of insanity within the realm of government I can’t think what else could be.

              • Yes, double-entry accounting, an accountant friend tells me, is not natural law or an inviolable law at all! We can issue money, debt-free, as just, well, m-o-n-e-y. In fact we’ve done this with coins since the original coinage act of 1792 (before Hamilton and his banker buddies could mess that up too). And no one thinks the Post Office incurs a debt every time it sells a stamp. U.S. Notes are of course, the best known example of debt-free money.
                Margrit Kennedy documents how 30-40% of everything we buy, not just loans, but EVERYTHING, goes to pay interest:
                It’s worth going through her presentation and then imagining how much cheaper everything could be without interest payments.

          • Robert Bostick


            I agree with you completely. The fundamental resistance to Greenbacking can be found in the legions of bond vigilantes. As you well know, sizable, if not all of the income of bond vigilantes comes from public debt issuance. Very few elected officials, MSMers academics, etc are willing to forsake their bribes as a source of campaign funding. We know the public debt bond market to be the “Crucible of Corruption” and the font of unearned wealth.

            What we may need is wide distribution of Stephen Zarlenga’s history of the Greenback, from his “Lost Science of Money.” It could be edited to focus more on its relevance to modern monetary policy.

            But, clearly, if the Federal Government can issue a zero rate bond or a debt free coin it can issue a debt free bill. It’s so obvious that a debt free currency, properly managed as were the Greenbacks, is the “perfect money.”

          • It is a debt in terms of double-entry accounting.
            This is all anyone means when they say “All money is debt”.

            Scott Baker:
            “but if we changed the double-entry accounting rule – which is NOT a natural law, BTW – we could just issue money directly, when the supply ran too low due to credit withdrawal (as now). ”
            Of course it’s not a natural law.
            Issuing money directly by spending does NOT change how it is viewed from an accounting perspective.

    • Greenbacks are no longer issued. There is a $300 million limit on the amount outstanding at any time. Not too useful when we spend in the trillions by keystrokes. Better way would be to issue platinum coins to fund the government.

      • “Greenbacks are no longer issued. There is a $300 million limit on the amount outstanding at any time. Not too useful when we spend in the trillions by keystrokes. Better way would be to issue platinum coins to fund the government.”
        Greenbacks were the subject of two House bills: Ray LaHood’s bill HR1452 (1999) to issue $350 Billion for transportation infrastructure, issued again in 2004, and Dennis Kucinich’s bill HR2990 (2012) to replace ALL money with U.S. Notes.
        So, obviously, laws can be changed (and it’s $351M, not $300M, not that it matters).
        Platinum coins pay down the debt.
        United States Notes pay People to do work.
        I’d rather do the second option, and so would most out-of-work people.

          • Yes, P CS is without a doubt issuance of money but that alone does not correct the present problem,perhaps the “flaw” of Administration of Modern Money Supply that is “An entity other than the sovereign government being allowed to issue the sovereign currency and we can add to that an entity that is allowed to TAX that issuance, a tax called interest.”
            One simple question. Does a Monetary Sovereignty lose its ability to remain a monetary sovereignty when it allows an entity to issue its currency when it can not control the quantity and quality of the issuance? And it can not control that entity be able to set its rate of taxation on that currency.?
            Why do we allow PFPB to tax us as well as issue our own money? Something that only THE CENTRAL BANK while working for the people should be allowed to do.
            The solution is simple. Private for profit banks must be 100% capitalized in all financial transactions, thereby being solvent being able to pay their loses and reap their gains.
            The Central Bank may lend the PFPB money but it must be at a compound interest rate with a set time period so that the money is controlled as to its quality and quantity (an unintended? consequence a/k/a taxation).

    • “we don’t have to keep paying interest on debt to idle rent-seekers”

      Hey, thats how the rich become richer. They don’t do anything constructive beyond extracting interest payments from everyone else. How many Nobel prize winners are billionaires ?

      In our current system, all money is created as debt

      No debts = no money

      In order for someone to be a financial billionaire, other people have to owe him this money, directly or indirectly. Little do the proles realize this is basic reality. They actually revere the person and think that he is a philanthropist, when he socks his money into “charitable ” trust, when in fact it is a means of tax evasion.

    • How would greenbacking get rid of rentiers, Scott? I’m all for having the government relax its current fiscal rules so that Treasury spending is not always matched dollar-for-dollar by taxes and government borrowing. Then the Treasury can run what I once called a “pure deficit”, that spends money into existence. Fiscal policy would become an extension of monetary policy.

      But I would imagine that even if that happens, credit markets will not be substantially altered and will still be a huge part of our economy. If you want to regulate credit, then you have to regulate. You can’t do it all through the monetary system.

      • @Dan Kervik

        Depends how you define rentier. Some think that it means property owners, who rent out their buildings. Others see them as people who live off their investments, which pay dividends. In fact what it really boils down to are the embedded interest payments on loans that create the currency. Rentier and bourgeoisie you will notice, are both French words. And we know how they solved the problem. Is this why the US government is becoming more authoritarian and our civil liberties continually eroded ?

        • I still don’t see what any of that has to do with greenbacking Frank. Rentier incomes flow from from financial assets, which are the debts of other people and firms. I don’t see how most of that would be impacted. For one thing, bank loans are only one portion of finance. And even with 100% reserves, banks would still make loans at interest.

          • If enough greenbacks flooded the markets, there’d presumably be less private sector demand for bank loans, hence less oxygen for rentiers. This indirect effect is the only explanation I could come up with. Otherwise, the notion that there is a class of people extracting rent (easy profit beyond inflation) off of investments in government treasuries doesn’t hold water imo.

            • You caught me. Well, actually, I didn’t set out to solve the rentier problem in the last post. But yes, de-monopolizing the money creation power by providing a public option for money (as Max Keiser dubbed when he interviewed me a couple of years ago), would at least limit the banks’ power, and anything that can do that would be a BIG help.
              To de-monopolize actual natural resources, you need a resources value tax, and on locations. this would prevent hoarding by taxing away th incentive. By UNtaxing productive activities, you would also get more of those. This Georgist idea goes back to before Henry George, though he probably articulated it best in his 1879 opus, “Progress and Poverty.”
              If you tax Land (meaning all of nature’s resources, under classical economics), you’ll get more efficient use of Land. If you tax productive activity – labor, sales, capital investments, you’ll get less of those, not what we want!
              Also, pollution – the right to pollute the air/water/land – should be taxed too, to discourage that sort of thing.
              Tax all the economic rent and that’s 1/3 of GDP say most Georgist economists, more than enough to run a reasonably sized government.

          • Under our current banking system, the banks create money as debt, which can be 14 times their deposits. lets say they charge 5% on the loan. This is a return of 14*5=70% on their asset base. Not bad, eh?

            If the US government created all money interest free and loaned it to worthy banks at interest, who would then be acting as a wholesaler and then lend this same money out at a markup, what would their return on assets be ? It would be the government who would decide the base interest rate and we the people would benefit.

            • That is not how it works. There is no “money multiplier”. Paul Grignon gets basic loan process right in money as debt II. Exchange of promises, that is also consistant with MMT. Altough government operations are completely missing in his documentary.

              • Thanks for the info. The video can be seen here:

                It actually demonstrates that what I am claiming is correct. The multiplier effect is an fact even greater !

                • Frank,

                  Initially the narrator says that the banks are not dependent on deposits to make loans, that banks create the money out of thin air. So far so good; consistent with MMT. But then just a few minutes later the narrator tells the story of the money multiplier -> if I deposit $100 in a bank, it can then lend out $90, and so on. How does this jive the bank creating money out of thin air and not needing new deposits to make new loans?

                  It doesn’t. The multiplier is wrong. The writer/narrator/script of this film is confused. It’s a mish mash of some truth and some not truth.

                  • Well, yeah. Frank gave us link to wrong video because I said money as debt 2 has the right explanation, not money as debt 1. Grignon seems to have shanged his views along the way because M as debt 1 gives us money multiplier explanation, while on M as debt 2 explanation is basically that “loans create deposits”.

                    Money As Debt II – Promises Unleashed:

                    Well anyways, it is not the case that banks get “a return of 14*5=70% on their asset base.” Banks has as much assets as liabilities. They make money on interest rate differential what they pay on their liabilities vs. what they receive from assets. It is a legitime business, and usually serves us well. Very basis of our economy. Problems arise at the time when there is asset price bubble, like housing bubble. But those times are exceptions, and could be prevented with effective regulation. I don’t get why some people are so upset with our banking system.

            • OMG, OMG, IF ONLY…….”If the US government created all money interest free and loaned it to worthy banks at interest, who would then be acting as a wholesaler and then lend this same money out at a markup, what would their return on assets be ? It would be the government who would decide the base interest rate and we the people would benefit.”
              And who among you could disprove this statement ?
              If the government were to lend $200 trillion to the PFPB (Private for profit banks) they would (A) all become 100% solvent, thereby never again be TBTF since 100% capitalization would be required and possible. (B) If these loans were made at 2% compound interest w/ a term of 36 years, is it correct that $11 trillion a year would be given to the US Treasury for 36 years. (C) This income (revenue) has to be spent in order to prevent DEFLATION. OMG, why can’t anyone prove this is not true? It has to be “too good to be true” for surely we are not that stupid to allow the PFPB to make that kind of income as profits will we work for at least $8 per hour?, are we?

              • joe bongiovanni

                WADR to you, JALF.
                I question the role of the government in lending to banks.
                Not that it can’t happen,…. IF NECESSARY.
                Of course, it can.
                But if the government creates the money and does so by lending it to banks, then all money is still debt-based. And that is still a problem.
                Admittedly, it is not a problem for MMT.
                But it is a problem for monetary mathematics.

                RATHER, the government merely creates all the new money needed, and issues that money by directly SPENDING it, without debt, into the economy.
                On that date, all the new money is private capital – to be spent or saved by preference.
                If it is saved, it can be lent to the banks via a savings or investment account.
                THERE, the banks pay interest not to the government, but to their depositors in the private sector.
                The role of government is therefore money creation, issuance and regulation.
                The role of bankers is financial intermediation between savers and borrowers.
                It’s like people think they do now.
                Most importantly, the role of the money system, being democratically operated among the free parties, is to distribute the wealth being created throughout the economy, RATHER than to concentrate the wealth being created into the hands of the private debt-purveyors as it is now.
                Just saying.
                For the Money system Common.

    • “e DO have to pay interest on our borrowed money, and we ought not to do that.”

      Who are we borrowing from, Scott?

      • “Who are we borrowing from, Scott?”

        Ultimately the banks, who create the money as a multiple of 14 times their deposits/assets.

        • Recent article which I will look up and post states:”97% of money is now money created by banks”
          Perhaps one can get to understand why TBTF could be because of “systemic failure”.
          What does it mean when banks pass a stress test with flying colors when they are at a 11.1% capitalization?
          Good Grief, does that mean 88% of all that money is ‘horizontal’ temporary’ and when paid back it is paid double. That means the banks will suck out of the economy 1/2 of that gigantic amount as profit for their PFPB.
          Maybe von Mises got it right,”now or later …a total collapse”

      • Besides the Fed, about 19% of our Treasury sales, last time I looked, foreign and domestic buyers of Treasuries, all of whom did nothing to deserve interest on money that we could, did, and do (to a vanishingly small degree), produce ourselves, from Government. The Treasury market ought not to exist. Let those buyers get real jobs.
        Surprisingly, MMT co-founder agrees with me, in an email to me, despite making his living, in part from trading gov’t bonds.

    • What reason banks would have to accept payments made in reserves if they could not exchange those reserves for interest-earning assets, or they could not earn interest on reserves as they do now?

  5. “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

    Thomas Jefferson

    Thomas Jefferson was an American Founding Father, the principal author of the Declaration of Independence and the third President of the United States.
    Born: April 13, 1743, Shadwell
    Died: July 4, 1826, Charlottesville
    Education: College of William and Mary (1760 – 1762)
    Presidential term: March 4, 1801 – March 4, 1809

  6. Why does MMT ignore Frederick Soddy who stated in “The Role Of Money”(1926,1933) perhaps what may be the very basic principle Of MMT : “Money now is the NOTHING you get for Something before you can get Anything”
    Isn’t this a basic truism for MMT, and an explanation of what a fiat currency is?
    And how do you propose acceptance of MMT when there is an admission, “There are many other economic problems and challenges in the world today. Modern Monetary Theory is not a panacea for them. Even if its insights and policy recommendations become widely known, and even if they are someday fully implemented, societies will still face challenges such as inequality, regulatory capture and predatory financial behavior, including the kind of predatory mortgage lending that led to the worldwide crash in 2008. In order to understand these additional economic problems and dangers, we need to look at economics in a larger context, and correctly situate Modern Monetary Theory within this wider frame.”?
    And as for “For somewhere – maybe somewhere in Italy – and on a day which may not be all that far off now, Modern Monetary Theory is going to start changing the world.”Read what a Fool has written :“As Grillo points out, it is not the cost of government but the cost of money itself that has bankrupted Italy.(READ: ANY SOVEREIGNTY). If the country wishes to free itself from the shackles of debt and restore the prosperity it once had, it will need to take back its monetary sovereignty and issue its own money, either directly or through its own nationalized central bank.(READ: The SOLUTION).
    For any nation to be a Monetary Sovereignty….
    .. it must be the sole creator of its sovereign currency.
    …it must have the ways and means to control its sovereign currency for quality and quantity.
    …it must under modern money systems be fiat since it money is transferable “thru thin air”.
    …it must understand that it is the guardian of the value of the currency , if it wishes to be capitalistic; otherwise that nation will be totalitarian.
    …it must use that currency knowing that it must also return it back to the community (the rightful owners).
    …all transactions using sovereign currency must be “REAL”, meaning backed by 100% of issued sovereign currency.
    WHAT IF….. The new Italian government were to declare,”Italy as a sovereign nation declares the ‘New Lira’ as its national currency and after due consideration declares that the Central Bank of Italy (CBI) has on deposit 5 TRILLION NEW LIRA that sum being the present value of the entire sovereignty at this time.
    The CBI shall purchase all residential and commercial real estate loans at fair market value and modify these assumable loans at 2% for 36 years.Payment is to be an equal exchange of “New Lira” for Euro. Personal income taxes will be reduced 50% across the board immediately and after 365 days again reduced so as to be zero.
    There will also be 1 trillion New Lira available as loans for any private for profit bank at 2% for 36 years since as of this date all monetary transactions must be 100% capitalized by ‘New Lira’ and banks must be solvent or go into receivership.
    Re: Student loans, they are to be purchased at market value as well, however they are modified at 1% for 72 years with a payment condition of annual payments are to be 5% of income until paid off.
    *All banks charted as Italian must record their balances in “New Lira” and transfer in “New Lira”, which shall carry an equal denominated value as the present Euro.
    *All bonds that are listed in Euro shall be deemed in an equal denomination as “New Lira”, and shall NO LONGER pay interest, and shall be paid out to zero in 72 equal monthly payments by the CBI.

    READ MORE: http://bit.ly/MlQWNs
    Based upon an opinion of the concepts of Frederick Soddy, “The Role Of Money” (1926,1933)
    *****The Switch Game;
    *WHAT IF THE …The Fed Reserve were to become the CENTRAL BANK WORKING FOR THE PEOPLE (CBWFTP) instead of working for the Private For Profit Banks (PFPB) .
    The government can not win against ‘compound interest’ on debt for that can be infinite in amount. IF ‘compound interest were eliminated then there would be no “systemic failure”. Or better yet; take that most powerful weapon, use it for the people .
    Let’s try this game: Substitute the words “Central Bank Working For The People” (CBWFTP) where ever” Private For Profit Banks” (PFPB) appears.

    ****PFPB (read CBWFTP) have $100 trillion in assets as mortgages on residential and commercial real property (RE) loans. The average compound interest rate is 4% for a term of 36 years. The PFPB (read CBWFTP) would have created that $100 trillion ‘out of thin air’ (Horizontal Money)(read Vertical Money) which would have an attachment that would require $400 trillion to be paid to the PFPB (read CBWFTP). YES, take away the smoke and mirrors, this is a fact-the Rule of 72. Now we must replace (reduce to zero ) the Horizontal Money by subtracting $100 trillion leaving a profit,income,taxation from ‘somewhere else’ of $300 trillion. This amount goes as profits to the PFPB.(read CBWFTP) Revenue they may use for their own selfish purposes. That’s not the bad news-what the bad news is :That $300 trillion is real money, real currency, sucked up by the PFPB, (CBWFTP) yes Vertical Money !!
    Why would you not want prosperity for yourselves and your children? Why would you not want $400 trillion THAT MUST BE PLACED BACK INTO THE ECONOMY IN ORDER TO PREVENT DEFLATION !

    Maybe,just perhaps you might read and improve : “Justaluckyfool”
    Try to disprove that ” PFPB profit via taxation on their loans not only double but even quadruple the amount of the loans”

    Amazing that Adair Turner is suggesting Quantitative Easing for the People not for banks.http://t.co/P2o6J8ux9m Copying @ProfSteveKeen?
    Adair Turner recommends Quantitative Easing for the People
    A breakthrough speech on Monetary policy by journalist and financial economist Anatole Kaletsky was published by
    READ “QE 4 The People”
    Read “QE 4 Disaster Relief”
    Discover a path to prosperity.
    Read what a fool has written, challenge it , improve it, perhaps with a good faith dialog MMTers may find the “path to prosperity by improving thru due examination of all ideas. ESPECIALLY those of Noble Laureate Frederick Soddy , what he had to say about banks, Keynes, Minsky,Desoto, about separation of government and banks . Maybe,just maybe you will get to understand ” inequality, regulatory capture and predatory financial behavior, including the kind of predatory mortgage lending that led to the worldwide crash in 2008″ Give support to Steve Keen, help get the “Minsky Project” on line.

  7. Dale Pierce
    “Whether the job-guarantee program makes fighter planes or wind turbines makes no economic difference – the workers employed by it will spend their wages on the same things other workers buy.”

    But on the other hand, the wind turbines produce electricity for the public good. The fighter planes just consume jet fuel and sometimes kill and injure people.

    Essentially defense spending, even though it creates jobs, leaves death and destruction in its wake. The $ 1 trillion off budget cost of the invasion of Iraq, could have been spent more wisely. It represents $3,174.00 for each and every US citizen, enough to provide Medicare for all perhaps.

    • I am mindful that Keynes recommended that bottles be filled with banknotes, placed at the bottom of abandoned mine shafts, the shafts filled with rubbish and individuals paid to dig the bottles out again. Nobody took any notice. Come the Second World War there was full employment because government paid individuals to blow the heads off other individuals. Hardly anybody since has understood the connection between the two.

  8. Would gov. provided jobs remove the need for unemployment benefits?

    How would you prevent the use of these newly gov. provided workers from the likes of corp entities like Walmart? Say a Corporation that would reduce its regular employees hours or wages and use these newly available and cheaper gov. provided workers to replace them?

    • There you go. Maybe Joe Firestone has an answer.

      • Sure, no MMTer has ever suggested that the JG workers would be available to the private profit-making sector. They would be available to States, localities, communities, non-profits, and perhaps Federal projects. The impact of the JG on Walmart, assuming the JG paid living wages and full fringe benefits across the country, is that Walmart would have to provide higher wages and better fringe benefits, if it wanted to keep its labor force. CostCo would have few problems with this; but the impact on Walmart, restaurants, and many other businesses would revolutionary.

    • @Jmarco
      “Would government jobs remove the need for unemployment benefits ?”

      Assuming that people are able to accept such a job within reasonable commuting distance from their home at a living wage, it would certainly drastically reduce the need.

      There are currently around 8 million Americans collecting Social Security disability benefits and presumably they would not be affected.

      I have read, but do not necessarily agree, that the government jobs would necessarily have to be at the lower end of pay scales, so that they do not draw workers needed in the private sector. Alternatively, pay scales could be developed commensurate with qualifications, job skills and experience, much as they are already, in order to qualify for a job in the public sector.

      Would there be an upper age limit for those who are retired, forcibly or voluntarily, for these positions ?

      Would these government workers have the same benefits as current government employees and receive cost of living increases, subsidized health insurance coverage, three weeks paid vacation and a defined pension ? Or will they be second class workers with its associated stigma ?

      Having said all that, if the US changed its monetary system from being debt based to be in line with HR 2990, which proposes that all money be created debt and interest free, this might well ensure that enough money enters the economy, so that the unemployment rate is substantially reduced. Lets not forget that if money creation were debt free and therefore not a burden on taxpayers, the government would be free to commit to needed infrastructure maintenance and development. Contacts could be put out to competitive bid to the private sector, who would then employ skilled workers and also make a profit. Surely engineering companies would agree to that ? Instead of spending money in Iraq, repairing bridges, power stations and water supplies that were destroyed by US bombing, surely we can do this at home?

      Productive work gives meaning to life and self esteem to most people. When it is missing, unemployment not only reduces a person to poverty, but it is very depressing and demoralizing, job skills atrophy and are not developed properly. This can lead to drug addiction out of boredom and anxiety. Prescription drug sales of anti depressants and pain killers are at an all time high, signaling a widespread malaise in American society. Three million Americans are in jail, approximately half of whom were convicted of drug possession. There are also many in patient drug rehabilitation facilities as an alternative to prison.

      In France, every worker is entitled to six months notice if they are dismissed or pay in lieu. They are also entitled to six weeks paid vacation. This alone, if adopted in the US, would reduce unemployment, since more workers would be needed to do the same work. In Australia, the minimum wage is the equivalent of $15 per hour, which if in the unlikely event that it is adopted in the US, would obviate the need for working families to rely on Government provided Medicaid insurance and food stamps, now called SNAP benefits.

    • Right now, if Walmart wants to trade in its employees for new ones, it has a vast pool of needy, unemployed workers from which to draw. That gives Walmart a pretty good bargaining position. If there were a job guarantee, most of these people would already have government jobs with benefits. So Walmart would have to compete for those workers with better employment packages than the government is offering them.

    • “Would gov. provided jobs remove the need for unemployment benefits?

      How would you prevent the use of these newly gov. provided workers from the likes of corp entities like Walmart? Say a Corporation that would reduce its regular employees hours or wages and use these newly available and cheaper gov. provided workers to replace them?”

      Well I gave the clue that hardly anybody would understand the connection between these two surreal activities! Keynes wasn’t using his surreal example to argue for an increase in government jobs he was making the case for government created money (which doesn’t have to be repaid unless abnormal inflation threatens) to be used to kick-start economies out of recession. That creation doesn’t necessarily have to be for further provision of government goods or services it could be a reduction in taxation or tax credits or indeed a combination of all three.

      The failure to recognize the potential role of government remains to this day as we see with the austerity programs destroying economies in Europe and now spread like a virus to the United States. The reason for this failure of perception is the ability to engage in balance sheet accounting or more correctly Sectoral Balance Sheet Accounting where the discovery can be made that the automatic default position of the domestic private sector is a deficit not a surplus and it relies on government and/or government and foreign sectors to net contribute to create the variable optimal surplus this sector wants to run. Indeed taking the position of the United Kingdom and the United States, for example, there is widespread balance sheet accounting failure to understand that in addition to the normal deficit the domestic private sector runs that deficit has been very substantially increased by increased debt much of it imposed by an inadequately regulated private banking that was allowed to blow an inflationary house price bubble that continues to need repayment let alone the knock-on effect of increased prices, not least rented accommodation.

      Given such an increased domestic private sector deficit and a persistent current account deficit for both countries due to an unlevel global trading field the only recourse to bring this sector back up to its optimal surplus requirement we now know is government net contribution. This point about the availability of a government net contribution tool was the one that Keynes was trying to make with his bottles full of bank notes illustration and the Second World War grimly confirmed.

      I’m actually not a big fan of government delivering the provision of goods and services since I prefer the discovery of value through genuine market discovery processes but should push come to shove see no reason to rule them out in extremis. As to the private sector taking advantage of such government hirees this is tackled by government setting a “Living” Minimum Wage to preclude it.

    • How would you prevent the use of these newly gov. provided workers from the likes of corp entities like Walmart? Say a Corporation that would reduce its regular employees hours or wages and use these newly available and cheaper gov. provided workers to replace them?

      The point isn’t to provide government-paid workers for use by private companies. If the private companies wanted to hire them, fine. But it’s not job-welfare for corps.

      The point of the Job Guarantee program is to give anyone who is unemployed and wants to work a job. Employers don’t like to hire unemployed people. They worry that they may not show up to work on time, or they’re on drugs and will be missing a lot of work, etc.

      So the JG program provides a job at $9 or $10/hr with benefits. If the private sector wants to skim these workers off to work at their establishments, then the JG will have done its work. The private sector companies are going to have to offer the same or better wage.

      So your Walmart example of ditching regular employees and employing cheaper Government workers doesn’t cut it, if you get my meaning.

      Warren Mosler suggested this in a 1998 (I think) paper and a grad student from UMKC took the idea to Argentina during its financial crisis in 2000 or so. [I’m writing this from a vague memory, so if my exact facts are wrong, people are encouraged to correct me.] They weren’t expecting that almost 2 million people would take the government up on its offer, in a country of 35 million. The majority of new workers were women and single mothers. It was wildly successful and helped turn the country around economically. So it works.

  9. @Andy

    Sorry for the delayed response. When I google “PK Plus” I get fire alarms and pharmaceuticals. I assume you have something else in mind…

    • joe bongiovanni

      Surprised to see no reply.
      My take is Post-Keynesian Plus.
      Sometimes referred as Post-Post-Keynesian.
      JMO, though.

    • I’m surprised there are 107 comments here and no one has asked who Dale Pierce is? When I see something interesting the first thing I do is ask who the author is. It’s not even clear if Dale Pierce is a man or a woman. Dale Pierce is not listed on the About page at NEP as a contributor. I invite you to Google “Dale Pierce” to see if you can find a bio of anyone but dentists and other people who are not writing on the subject of MMT. I can only conclude that Dale Pierce is a ghost writer, or a gimmick created by NEP to get some attention. If so, it’s also a way to lose credibility. Maybe I’m just missing something here. If so, enlighten me by letting me know where I can find a bio on this guy that I’m supposed to take seriously.

  10. @Brent

    Correct – just a typo, but the point is still valid, I think. We were *promised* national bankruptcy and a Chinese takeover by now…

  11. @Schofield and @Frank

    The point about the “lend-lease buildup of 1940 and 1941” is that this *was already* a full-on Keynesian employment program before the U.S. ever actually got into WWII. We got to full employment just by arming everyone else. Of course, I hope that my saying there is no economic difference between waging war and, say, reversing global warming isn’t taken as meaning that I don’t have a preference for the latter. I do.

    • reversing global warming isn’t taken as meaning that I don’t have a preference for the latter. I do.

      Well, then you should be heartened that the situation isn’t as dire as you might presume.

      According to the leaked (December, 2012) Second Order Draft of the upcoming IPCC AR5 due out at the end of this year or in 2014, the IPCC has determined that observable data shows no significant global warming for the last 16 years. Let me repeat, observable data, not model projections, which was what the previous assessment reports used (as the graph shows).
      Page 39, Chapter 1

      This is the legend for the IPCC chart on page 39
      FAR = First Assessment Report prediction (1990)
      SAR = Second Assessment Report prediction (1995)
      TAR = Third Assessment Report prediction (2001?)
      AR4 = 4th Assessment Report Prediction (2007)
      • = Actual observations with error bars (2013 or 2104)

  12. @Everybody else

    If you don’t like my peaches, don’t shake my tree.

    JUST kidding. I will do my best to read through and comprehend everything that folks have been kind enough to post here. My sincere thanks to one and all.


  13. @Scott Baker

    Your point about greenbacks and U.S. notes vs. “debt money” is a very prominent component of the entire online discussion and I will address it as fully as I am able to in the body of this essay. (What’s here is just a general introduction). My initial response is that attributing our problems to flawed institutional arrangements distracts attention from what’s most important. Keynes didn’t like the Bretton Woods arrangements either, but he didn’t say we couldn’t have full or close-to-full employment under them. We did, a lot of the time.

    I know of post-Keynsians who put more emphasis on 100% bank reserve requirements, but I don’t know of any who say that greenbacks or reserve requirements will get us out of recessions or keep us out of depressions when we need bigger deficits and more aggregate demand. More later.

    Again, my thanks to all…


    • There are several flawed assumptions even in your brief response that should be addressed in any broader response you wish to make:
      1. I wasn’t talking about 100% bank reserve requirements. That is a component of Kucinich’s bill HR2990, but is not a part of Greenbacking. It is part of Stephen Zarlenga’s overall reform, which includes direct government issuance of all money (i.e. Greenbacking) as just one of its components.
      2. We don’t need “bigger deficits” we need more government spending. These two things, under a Greenbacking scenario, are not the same thing, or necessarily follow. We have to change the double-entry accounting rules (Zarlenga has a proposal to do that in his plan, on his AMI site), but that is not impossible, just a change in hundreds of years of capitalist book-keeping.
      3. Spending money WILL get us out of a depression, which is due to too little money and economic activity, by definition.
      4. There is always “aggregate demand.” That is, as Henry George said, “demand is insatiable” and exists everywhere and always. You may be happy with some things, but want others. Even if you have everything (an impossibility, since you will need more food, shelter, water, etc. tomorrow, if not today), others still want and need. The real question is is there sufficient “economic demand” – that is, do potential consumers have the means to pay for what they need/want? That is an entirely different question and gets into the area of distribution and equitability. A mother’s hungry children certainly have “demands” but the mother may have no means to pay to meet them. Our value-free economic system ignores them, but that is a fault of neo-classical economics, not a failure of demand.

      • joe bongiovanni

        Thanks for bringing up the ‘Greenback” as a liaison to the MMT construct here.
        Some are apparently unaware that Greenbacks hold the construct of publicly-issued, debt-free at issuance permanent money, and think it NEEDs to have Green ink to function.
        One correction on HR 2990. It is not a full-reserve banking Bill.
        Full-reserves are a monetary-economic outgrowth of modernizing fractional-reserves, and both the Chicago Plan and Irving Fisher proposed advancing economic stability through use of full-reserves as a new monetary paradigm.
        But in moving to ‘electronic Greenbacks’ in HR 2990, we’re talking about replacing debt-based money(bank-credits) with debt-free money. Debt-free money advances the reality that reserves are unnecessary with a truly modern monetary economy.
        This is accomplished through ‘monetization’ of bank-credit money.
        Some consider this a full-reserve banking construct, but in reality it replaces all bank credit money directly with real money in the form of publicly-issued Greenbacks.
        Finally for those who recognize that the truest reforms to our money system must come from the incorporation of social ecology into our monetary advancements, a great dialogue on Soddy’s contribution is available here:


        • But Joe, Stephen Zarlenga, whose AMI reform was the basis (almost exactly) for Kucinich’s HR2990, says it DOES require 100% bank reserves…well, OK, he is really saying 100% of deposits would serve for making loans, because banks would no longer be able to practice fractional reserve banking (i.e. keeping, say, 10% of deposits on “reserve” (here it’s meaning is a bit different form banks’ definition of reserves) when making a loan – enabling the multiplier). this is the part of the bill that makes me uncomfortable, and why I prefer something simpler along Lincoln’s lines of providing a public option for money – the U.S. Note, alongside the FRN.

          • joe bongiovanni

            Sorry I missed this.
            Yes, you have correctly stated here that Zarlenga (AMI) and Kucinich both support the transition from fractional-reserve bank-credit money to a system where all deposits are monetized (my word) into real money. Folks who are trapped in the gpld-era paradigm of reserve-backed currency often call this fully-reserved, but in the Kucinich Bill you will find no mention of reserves for the real money that is created.
            The new IMF Research Paper on the Chicago Plan DOES actually call for full-reserves behind the deposits. I am obviously not claiming they are gold-era aficionados. But perhaps the IMF lets its research authors only so far outside the paradigm.
            But hopefully, those authors will come around to undertand the truth about a non-reserve based currency.
            FYI, again, Kucinich and AMI both also fully transform the currency from federal reserve bank notes to those of United States Money.
            Under (Definitions) see at (6) MONEY- The term ‘money’ refers to United States Money, as established under title I.

  14. This is brilliant, Dale. It deserves a perma-link on the home page. Anyone new to MMT deserves to be able to find this as one of the first things they read.

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  16. Frank Hollenbeck

    I am actually a specialist in monetary theory. I have only read the first paragraph of this article and noticed a massive theoretical error. The gold standard had nothing to do with deflationary slumps (by the way my you tube video “hollenbeck on deflation” blows that stupid concept out of the water). Gold does not disappear, but money can when you have a fractional reserve banking system. It was NOT the gold standard that caused the deflations, but the lack of 100% reserves on gold.

    • Excuse my ignorance as a layman, Frank, and also my inability to watch youtube videos at work. But, it it my understanding that deflations are caused by declines in liquidity. (Thus all of Krugman’s talk concerning a liquidity trap) Abolishing the gold standard and creating the fractional reserve system seem to have served the same purpose. Namely, increasing the liquidity of the then current system. There is only so much gold in the world and having a (relatively) constant supply of money only decreases liquidity further. If lack of money was the problem, I don’t see how having a 100% gold reserve requirement–thereby decreasing liquidity further–could have any possible effect. Perhaps you can enlightenment.

    • I just listened to your video Hollenbeck on the USA.

      Your solution to the current crisis is to “do what we did in 1921.” “Balance the budget, cut expenditures, cut taxes.”
      You also claim that what’s important in a capitalist economy is “relative price,” and that was the problem in 2008 crisis (‘we should have let house prices fall more’). No, it’s not. It’s sales. Sales create jobs. Jobs produce income. Income drives spending. Spending creates sales. When the private sector doesn’t have the money to produce sales (70% of the US economy is Household spending) because it’s saving to pay off debt or it doesn’t have the jobs, then the government sector has to step in to prime the pump by spending more, not less, as you aver.

      I don’t think you understand the monetary system as it has existed since 1971, which is not the gold standard that existed in 1921.

      As for the fractional reserve banking system, that’s a relic of the gold standard days. We don’t have that now. Scott Fullwiler explains it here: http://neweconomicperspectives.org/2009/06/dont-fear-rise-in-feds-reserve-balances.html

      Marriner Eccles gave this speech to the Senate in 1933 before we went off the gold standard domestically. You ought to read it.

    • Really? Gold simply has intrinsic/extrinsic “value” of its own accord? Independently extant out there in The Geist? We, like trial lawyers, have only to ‘discover’ it? Problems solved?

      Nice that you think so highly of yourself. You’re in good company here, though.

      “I am actually a specialist in monetary theory.”

      Really? One who curiously neglects to provide us with a Rap Sheet link confirming his Cred.

      Dunno, y’all. I’m too busy every day trying to help real people solve real problems. These theories are fun (to an extent) whene there’s time to bone up on These Very Important Concepts.

      “Gold does not disappear”

      And, remind us of its sustenance providing caloric value per kilogram.

      Confess; you’re really Ron Paul.

      • Geez, man, this thing is crosslisted at Naked Capitalism which has over 4 times as many comments, last I checked, and you’re complaining about not having the time to read these? Just kidding, as I tend to agree. More heat than light. All this has been hashed and re-hashed. I have to believe if you got the Mosler plan supporters and the Kucinich Bill supporters in a room and said “work something out,” they could do it, right? You’d just have to tie up the gold-oriented “monetary specialists” and throw them down in the vaults where they keep the gold bars and ingots, and maybe they’ll have an epiphany or something.

  17. Gary Goodman

    the MAIN problem in capitalism expressed by big capitalists for the last 100+ years since the dawn of the Industrial Age is not “too much money chasing too few goods”.

    It’s the opposite. Overproduction, insufficient buyers for goods that are produced.

    Capitalists demanded GOVERNMENT ASSISTANCE to sell their goods, either to the Govt or to foreigners, whether foreigners be willing or forced to buy our stuff, meaning wars and counter-insurgency to force them.

    There’s too many goods and services and too little money and motivation to buy them, according to Big Capitalists for a century, and according to current economic outcomes and statistics about unemployment.

    [from a response to a typical Right-wingnut]

    • Yes, this is a big problem, and it blows apart the theory of Free and efficient markets. In fact, it is those with power that DEMAND the market take their SUPPLY (oil, military equipment, banking/financial products, etc), far beyond any true need in society. That’s the corruption of our current system. It’s no accident that the military manufacturers have located in nearly every state. Ditto for the mega banks. The small banks are allowed to fail without a blink. It is this job-bribery, and actual campaign contribution-bribery that creates such favorable growth for these destructive industries.

    • You get a fake thumbs-up to. And cookies. And as many internet points as you want. ^3

    • @garygoodman

      There are in fact trillions of dollars sloshing around the world, so it is not a shortage of money per se that has slowed the economy. The cause of this Great Recession is that this money is not being spent sufficiently on consumer goods and services, since it has been captured by a tiny wealthy elite, who already have everything they could possibly need, but instead are speculating in the stock bond, commodity and bond markets, which does the real economy no good whatsoever. Consider the continual increase in stock market prices.


      In order for the economy to improve for the average person, there must be a more equitable distribution of income and wealth. Until this is addressed nothing will improve, except that the rich will become richer and the rest become poorer. Since all this money is debt based and more money must be created to pay the interest, the debt will increase exponentially, theoretically to infinity and beyond, until the debtors cannot cannot pay.
      What happens then ?

  18. Gary Goodman

    [more response to Right-wingnut]
    What causes inflation is an increase in the money supply without any increase in goods. An increase in government debt is an increase in the money supply.
    Banks increased the money supply, faster and bigger than Govt. 47 times bigger than M0, govt money, by 2007.

    So that ought to startle you to the point of wanting to outlaw banking and credit. Too dangerous. Lets go back to barter. I mean if the MONEY SUPPLY is really a crisis, you MUST outlaw banking, because banking has ALWAYS had the power of money creation by the “fiat” of loan officers, and that power is mostly UNLIMITED, as the serial Bubbles in DotCom and Housing showed.

    Of course barter is NOT capitalism, so calling for outright abolishing banking and credit creation would make you an anti-capitalist.

    (There’s probably a better solution. There is, actually. Some smart people I know are working on it.)

    Actually,”inflation is an increase in the money supply without any increase in goods to purchase”, is the description of what increasing the money supply does in a STATIC ECONOMY.

    Everyone knows or should know that Capitalism is a DYNAMIC economy, not static. Do you know what DYNAMIC means? Capitalism verges on chaotic, far from STATIC.

    So your truism is applicable in an imaginary economic system, not ours.

  19. casino implosion

    I’d like to focus on this one particular quote:

    “…Without going into the details prematurely, there are technical reasons why a little bit of inflation is useful and normal. It discourages people from hoarding money and encourages healthy levels of consumption and investment…”

    Here in a nutshell is the reason that people are resistant to MMT. “Hoarding money” ( a judgemental term) is both a rational response to conditions of uncertainty, a powerful instinct, and a moral imperative, as in the tale of the ants and the grasshoppers.

    At bottom, MMT proves that, like it or not, we’re navigating an economic system controlled politically by men. Their decisions can override or obviate our virtuous economic behavior. MMT rubs our noses in this fact and that angers and repels many citizens.

    • Here in a nutshell is the reason that people are resistant to MMT. “Hoarding money” ( a judgemental term) is both a rational response to conditions of uncertainty, a powerful instinct, and a moral imperative, as in the tale of the ants and the grasshopper

      There are two types of ‘hoarding money’. One is the private sector’s desire to ‘net save’ which comes as societies get richer and more prosperous, and the other is the result of paying off debts, as we have now. The issue is to keep market demand high enough to buy all the output being produced

      As Michael Hudson wrote:

      Paying off a debt is not the same as building up liquid savings in a bank. It reflects something that only a very few economists have worried about over the past century: the prospect of debts rising faster than income, leading to financial crashes that transfer property from debtors to creditors, and indeed polarize society between what the Occupy Wall Street movement calls the 1% and the 99%.

      What also was expected universally fifty years ago – indeed, until about 1980 – was that governments would play an increasingly important economic role, not only as forward planners but as direct investors in infrastructure. To Keynesians, government spending served to pump money into the economy, maintaining demand and employment in cyclical downturns. And for hundreds of years, governments have undertaken basic infrastructure spending so that private owners would not use monopoly privileges to charge economic rent.

      MMT is not some new theory. It is describing the world as it exists today. If that angers and repels many citizens, as you suggest, then the fault is not the description but belief in something that does not exist.

      • Sorry, this should be in italics: Here in a nutshell is the reason that people are resistant to MMT. “Hoarding money” ( a judgemental term) is both a rational response to conditions of uncertainty, a powerful instinct, and a moral imperative, as in the tale of the ants and the grasshopper

      • casino implosion

        MMT promulgators are in a state of denial. They think that constantly asserting that MMT is a true description of reality will somehow overcome the resentment that non-economist people have at the idea of being nudged and manipulated by those who’d “encourage” one type of economic behaviour over another.

    • Auburn Parks

      personally, I think you are inferring WAY too much from the “hoarding money” phrase, but we can talk about it in terms of savings if that phrase is more pleasing and less political for you.

      When society saves money above a certain threshold….this can lead to lower consumer spending.
      Lower consumer spending leads to lower sales for business
      and lower sales=demand leads to less employment needed to service that demand (problem is exacerbated even further by the continued increase in productivity per worker which on balance means a business needs less workers for the same level of sales=demand

      The above paragraph is just a description of how the system works, I have made no judgements or prescriptions.
      Do you think it is immoral for our nation to have 23 million people that are un or under employed?
      If you do….as I do….Then I think we should do something about it and MMT DESCRIBES why the USA has the CAPACITY to significantly cut taxes to prop up consumer spending and invest significant amounts of money on infrastructure that will make the future economy more productive on top of providing jobs to people who want one. MMT doesn’t say that we absolutely have to do anything with our newfound perspective about money etc, if you think its a positive thing to have so many people out of work, you simply have to explain why.

      • casino implosion

        I understand the basics of MMT perfectly well and agree with them. I’m just trying to explain why people are resistant to it. The casual attitude revealed by the word choice of this essay is a hint.

        • CI, hoarding money is not saving for the off season; it is refraining from spending money today for no reason other than believing it’d buy you more product tomorrow. It is a behavior to be expected under conditions of deflation. It is not some moral imperative denied or disparaged in the blog post.

          • My Mom, born 1909, told me that she was saving for a rainy day. When she was made redundant from her job with GEC, when she was 60 years old, it came in quite handy.

  20. Dale, Thanks for a very nice job on this one. And thanks also, for h/t to my new book.

  21. John Merryman

    I think one of the main overlooked issues in discussions about the nature of money is that it is a contract, masquarading as a commodity. Is an IOU for an ounce of gold, or anything else, a commodity, or is it a contract? For the banks it is a commodity, as legal contracts are to lawyers,yet wouldn’t want everyform of trust requiringthe involvementof a lawyer. Banking “manufactures” money by creating demand for it,ie. debt.Since everyone wants as much money as possible, there is an overwheming incentive to create as much as possible. So now the banking system is largely tasked with the job of storing enormous amounts of surplus notional value, rather then their primary function of efficiently alocating resources. Much as government is the central nervous system of society, finance is its circulatory system. We learned, from monarchy,the limits of private government and now we are learning the limits of a private fiancial system. We own our hiuses, car, businesses, etc. but not the roads connecting them and no one cries socialism over that. Money is a conceptually similarpublic medium. In fact, if people understood money as a form of public utility and not private property, they would be far more careful what value they take from the environment and social relations, to convert into notational value. This would serve to strengthen society and the environment, as ways to store real value. It might also result in a more stable monetary system.
    Written on a phone, so excuse errors in grammer.

  22. @Schofield & MRW

    I guess that I am just a pessimist at heart. But the present national discussion level is so focused on deficit reduction rather than building a higher GDP with more people working and contributing to GDP. I am hoping for a recession to begin in 3rd quarter of 2013 to bring some reality to all the people who believe in the austerity approach.

    Any JG program would really need some very creative/flexible approaches to providing job for all levels of governments. A possible attractive feature might be to have jobs that paid $2/hr above state minimun wage level plus health benefits. This might even provide a little job competition with the “Walmart/low paying” corporations.

    How about opening up some of the closed national/state parks with depression-era styled jobs directed at jobless youth? In fact that really should be the main focus at the start. Once you get some success in lowering unemployment for the young then move into creating more JG jobs. Find those areas in governments that need temporary help. I personally know that my local county office where I live has two-month backlog in processing property taxes. Backlogs have become part of their approach to day to day work (its the norm).

  23. I think that J.M.Keynes used the expression “hoarding money” to describe the panic-y, depression-era instinct to react to deflation by hunkering down and waiting for even lower prices – in which case, the whole economy keeps imploding even as people who really can afford things postpone buying them.

    I’m checking…

  24. this person doesn’t know how to write
    The first paragraph has a topic sentance – what MMT is
    and the rest of the paragraph goes off on a tangent !!!
    its like HS sophomore writing fail 101

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  26. The new design for the cover of Mosler’s “Seven Deadly Innocent Frauds” is AWFUL!!

    Sort it out MMT!

  27. Awesome post, Dale. Have been wondering about that last sentence for awhile now, let’s hope you’re right!

  28. I probably should take the time to read all of the commentary before doing my own take, but I just have read a sampling. Of the comments I read, I was amazed to find so much debate of what is not a highly technical paper, but rather, essentially apologetics for MMT. I liked the paper. Fairly thorough and well written, but strictly a rehashing and reorganizing of what gets posted on this site most of the time. For me, it is, perhaps, most disturbing that MMT as a fairly distinct version of Keynsianism, has not gotten its due yet (as the author points out, it’s not a recently arriving theory, just recently redubbed as MMT).

    I deeply believe, having paid strong attention to the debates between traditional Keynsians (such as Krugman), and Neoliberals (eminating from Friedman, et al, the basis of the Thatcher/Reagan revolution, and much of what is presently crippling our financial world order), I now strongly believe that the wealthy elite (who control the debate in the media) are ensuring the continued views that the Friedman/Hayek School wins, but only because they now know the truth, that trickle down is really trickle up, and, so long as they can keep us confused and keep their allies in power well funded, MMT doesn’t stand a chance. And, from my perspective, they are right.

    The real tragedy of this wealth factor, is that, I believe, the wealthy would actually be better off in a world where MMT was given full policy responsibility. There would be very few arguments relating to taxation and spending, except as to the efficacy of proposals to create positive real world non-financial outcomes (i.e. make lives better for any specific program of expenditures). All of this having been said, I am experiencing such terminal frustration as I always experience when the irrational and illogical subsume the rational and logical. It just makes me nuts. Thank God I am 67, and won’t have to put up with human stupidity, ignorance, gullibility, etc. for that much longer. For my soon to be celebrated birthday, I want Treasury to mint a trillion dollar coin, deposit it with the FED, and use it to pay for massive infrastructure repair and revitalization.

  29. Per Fagereng

    Dale Pierce says that what matters is if enough real resources and labor are available to produce the goods and services in line with the increased demand for them. But what if the real resources are NOT available?
    Cheap oil is gone and we are left with the expensive stuff. This is a drag on the economy. With little growth, how do we pay our debts?

    • Resources are always available, it is just a question of price, which arises from the interaction of supply and demand. By contrast, all costs of resources are ultimately labor costs, directly or indirectly.

      • Per Fagereng

        The first oil well in Pennsylvania struck oil at 69 feet. Now we drill miles under the ocean. The oil is available but expensive. As the price rises the economy suffers because less money is available for other goods and services.

        But what the hell, it’s just money. A bigger problem arises when we reckon the energy it takes to retrieve the oil. Fracking, heating the tar sands, driving machinery, building pipelines — they all take energy. If you spend more energy than you get back it’s a net loss. There’s no point in even doing it. The oil in the ground becomes useless.

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