STANDARD MONEY THEORY

By J.D. ALT

The last two and a half months I’ve been at work on a new book. As it evolved, I found I was approaching MMT from a new direction—one which made an explanation of MMT much less counter-intuitive and, perhaps, less controversial. The approach is relatively simple and straight-forward: follow what I began calling “standard money theory” step by step until one reaches a perspective that has, almost seamlessly, become “modern money theory.”

The book first considers why the “standard theory” we insist on applying to the world is incapable of addressing the climate-change crisis. (The exact same arguments could now be applied to confronting and mitigating the pandemic crisis!) Second, it explains how a simple shift in perspective transforms the standard money theory into modern money theory (MMT)—which CAN confront the crisis.

The explanation of MMT is given twice: first in a narrative that explains the Reserve/bank-dollar system that both private and public enterprise use to buy goods and services; the second rendering of the explanation is more concise and is illustrated with diagrams. This diagrammatic explanation is completely different than what was presented a few years ago in the ebook “Diagrams & Dollars.”

This new book, for me, is a definitive “layman’s explanation” of modern money theory—and why it is so important, at this moment in time, for MMT to be widely understood by the general public. The new diagrams lend themselves to seminar presentations, and to that end I will be making them freely available for download on my website www.jdalt.com. It is my hope they’ll be used by knowledgeable laymen to get serious MMT conversations going in local communities around the country. That’s a big hope, I know, but the times call for big hopes.

The book is now available at Amazon.

5 responses to “STANDARD MONEY THEORY

  1. I look forward to a less counter-intuitive explanation of MMT. But I wonder if the new formalism takes into account the works of the great economic thinkers of the 1920’s and 30’s who viewed money from an essential perspective unclouded by the mechanics of a bank-driven money system. In particular, I would assume that any book that deals with the fundamental nature of money as it pertains to addressing the needs of civilization would rely heavily on the concepts put forth by Frederick Soddy. He had the advantage over other thinkers in that, as a Nobel Laureate scientist, he was not a prisoner of the classical economic framing of the day which downplayed the value of the concept of money and elevated the importance of banks. In reality, its the other way around.

  2. Steven Greenberg

    Mihaly Kummer presents a video of Warren Mosler explaining “Loans Create Deposits: Inside vs Outside Money”

    Warren Mosler’s explanation would be much more intuitive if he said that the bank creates a promise to give you high powered money when it makes you a loan. In exchange, you promise to pay it back. So far, no high powered money is involved. If the seller of the house uses the same bank where you got the loan, the bank just moves its promise of high powered money to the account of the seller when you pay for the house. No high powered money is involved., just the promise of that money is involved. If the seller of the house decides to take some of the money out of that bank, th, and only then does the bank have to fulfill its promis of high powered money. As long as the flows of high powered money into the bank and out of the bank are balanced, there is no need for the bank to get some high powered money to fulfill its promises. If there is an imbalance in those flows, and there are no real reserves at the bank because it already has an overdraft at the Fed, then it needs to get some high powered money from somewhere. Isn’t that part of what the repo market is all about. The Federal Reserve Bank also lends money to banks at very low interest rates, zero at the moment.

    I have been told that MMT people don’t like the idea of promises of money. I have yet to hear an MMT authority address this termiinology. Can someone point to an article or vide where an MMT authority disparages the description of “promises of money” It seems to me that when the financial system freezes up, it is often because the banks don’t trust each other over their promises of money.

  3. Steven Greenberg

    My comment referring to Mihaly Kummer was intended for the article “MMT is a Political Problem: Part 2”

    I accidentally put it here when I got confused by my inability to make comments on that other article.

  4. Look forward to reading this new book and very much like the juxtaposition of “standard money theory” and “modern money theory.” But let me confess that I remain bewildered by the characterization of MMT as “counter-intuitive.” By the time that I, with minimal education in economics, had spent an hour or so watching Stephanie Kelton’s “Angry Birds” video, I had gotten the essential thrust of MMT (the axioms) and so did non-economist friends with whom I shared the video. With the power of a currency-sovereign state to spend money into existence, without a gold standard or other self-imposed limit to control the volume of that money, and with sufficient knowledge of inflation to allow for anticipation and avoidance of it, grasping the reality of fiat money and the extraordinary (though not unlimited) scope of governmental agency it offers would seem to border on being no-brainers. The details and nuances of all of this–the intricacies of the operation of a particular economy, the roles of central and private banking, how separate economies and sectors within economies interrelate, how resource constraints might impact a specific federal investment policy, etc.–remain, of course, largely the province of professional MMT economists. But I maintain that the ONLY thing that really stands in the way of easy comprehension by average people of the essentials of MMT is the household budget paradigm relentlessly hammered into our heads. May “Paying Ourselves to Save the Planet” help hammer it out.

  5. The coronavirus crisis has brought out today the essential truth from America’s central bank that the government is able to electronically create unlimited amounts of money via its central bank with the treasury department making hard copies in the shape of bank notes and coins:-

    https://www.cbsnews.com/news/coronavirus-and-economy-best-and-worst-case-scenarios-60-minutes-2020-03-22/