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What is Modern Monetary Theory?

I commend this to samizdata readers, one in a series by Tim Worstall apparently:

Modern Monetary Theory is, in one sense, just reality. In the other and more important discussion MMT is a simple ignorance of the original question being asked.

Hit the link, read the whole thing.

6 comments to What is Modern Monetary Theory?

  • Julie near Chicago

    Kevin Anthoney, 5 days ago as of even date, comments to Mr. Worstall’s column with this, which pretty well expresses my own opinion. (Although it seems to me, from what I read on the Internet, that generally speaking “economists are interested in resource allocation” isn’t entirely accurate. But maybe that’s just uninformed me.)

    First, I put the nub of point in boldface and present it all by its lonesome; followed by the whole comment.


    “[M]oney is only a proxy for the resources available – increasing the amount of money does not increase the amount of labour, capital, etc. that you can call on.”


    MMT is what happens when you let accountants do economics. Accountants are interested in balancing the books and – it’s true – you can keep the books balanced while using MMT. However, economists are interested in resource allocation, and understand that money is only a proxy for the resources available – increasing the amount of money does not increase the amount of labour, capital, etc. that you can call on. Printing money does not mean you can do more than you could before, and so does not work.

  • Julie near Chicago

    On a different aspect of economists’ views, Mr. Worstall in his column writes,

    Utility is always and everywhere a personal valuation….

    Yes, one of (if not the) most important of Prof. von Mises’s points. But I think it’s also important to notice that in any trade, it’s the valuation of each party at the instant of the actual exchange of goods that matters.

    [Marketing decisions, of course, if wise, are based (aside from considerations how much X has cost or will cost to produce and sell) on the marketer’s experience and therefore expectations of how many people are going to trade — pay for — item X, allowing for returns of purchased items if the seller agrees to allow them. Thus the valuations of his product by the seller are less volatile in terms of their duration. I believe this is largely true in the bazaar.]


    I went to the store with my last three $, dedicated to the purchase of 2 cans of hash so that my kids and I could have supper. But on the way to the hash, I noticed a 4-pack of bottled (and nonalcoholic) ginger beer, my absolute favorite, priced at $ 2.97. And I was thirsty! I grabbed it and rushed to the checkout line. Thank the Great Frog, my $ 3 just covered it (there was 3¢ sales tax). After I got home and drank a bottle of the delicious stuff I wasn’t thirsty anymore. What to feed us all for supper?

    Ooops…. 😳

    Another time, I had to replace a beloved, beautifully-running 2000 Camry that mice had set afire. Short form: At the Toy dealer’s, I test-drove a brand-new Prius, which I hated, but I really did need wheels, and at that time (2010) I still had faith in Toyota products; and I considered that this would be the last car I ever purchased, so I wanted longevity in the new wheels. Sigh…after 3 hours of test-driving, talking, arranging the payment, I signed the papers and wrote the check. Then nature dictated, and in the silence of the room, a little voice in my head went, “WHAT did you just do?”

    I left the room, to find myself facing a group of three or four (kidya not) of the salesmen wearing expectant smiles.

    And the words came straight from my heart:

    “I made a bad decision. $ 24,000 is a lot of money to pay for something you don’t want.”

    Three or four faces fell like a collapsed soufflé.

    “But — but I thought the Prius was your dream car!”

    I listed all the things I hated about the Prius.

    I hadn’t expected them to let me off the hook. Why should they? Morally at least, I’d made my bed bad decision. But long story short: In the end they ripped up the check and the paperwork, and I drove home in a $ 10,000 used 2000 Camry with about 5000 more miles on it the the original. Turned out later to be nowhere the quality of the one the g-d arsonist mice had ruined, but it served its purpose right up to the day I had to quit driving.

    (As Jack Webb would have said, “This is a true car story.” The first, though, is fiction.)


    Or we could talk about financial investments made that, as time went on, seemed to us to be less and less valuable for one or more reasons. Or that absolutely wonderful pea-soup green couch that delighted us for 17 1/2 solid years, until the day we went into the living room and, staring at the thing, instantly realized we couldn’t stand it.

    (More fiction. No way would I myself allow such a thing to cross my doorstep!)

    And I believe it’s still true that the credit-card companies allow a cardholder 3 days to allow time for buyer’s remorse. If memory serves, that policy has been law for many years, but I don’t remember whether it originated as an invention of one of the c-c companies or not.


    So, in a trade (whether financial or of some other kind), “value” according to which “each party is better off” is only definable as such in the instant when the trade deal is consummated.

    And I daresay that we’ve all had experiences where we had to decide between urgency of action X and importance of action Y….

  • Tim Worstall

    “one in a series”

    Well, sorta. I was trying out a new tool which claims to get you good positions in Google. As the tool ended up with a page 8 placing for that piece the series might not continue…..

    Would be fun to write a partial dictionary of economics – partial as in biased, not incomplete – but livings must be made too….

  • neonsnake

    I commend this to samizdata readers

    I think this should read “I commend this to NON-samizdata readers, since most samizdata readers will likely regard the article as a truism, even that neonsnake chap who cheerily admits to a sketchy (at best) knowledge of economics.”


    Great, clear, well-written article. Bookmarked for future forwarding to people who don’t understand that printing more money doesn’t increase the amount of available resources.

    Much obliged to Mr Worstall for writing it, and Mr de Havilland for linking to it.

  • Lee Moore

    I read Mr W’s piece and wondered why he kept on granting both the form (explicitly) and substance (by implication) of MMT claims about money.

    Of course government can print any amount of money (form) but it can’t print any value of money. Consequently there is definitely a limit to how much of real resources the government can command with its printing press. 100% of all resources is the maximum even theoretical limit, so if the green nude eel costs more than that, the government is going to have to lump it. But practically the limit is much lower than that.

    Contra Kevin Anthoney quoted by Julie above :

    “[M]oney is only a proxy for the resources available – increasing the amount of money does not increase the amount of labour, capital, etc. that you can call on.”

    money has its own value over and above labour, capital etc, because the facility of an efficient means of exchange has its own real economic value. An economy with money as well as labor, capital, land, knowkedge etc is wealthier for having a means of exchange, than it would be without money.

    It seems to me likely that the practical upper bound on the value of resources that the government can
    commandeer with its printing press is limited to this medium of exchange value of money. Printing more than that gets the government nothing more.

    After all in Germany in 1923 while the amount of money was enormous, its value was very small. The value of the money supply as a percentage of the value of German national income was tiny. That’s why local governments went round issuing their own scrip. There simply wasn’t enough value of money to make the exchanges that people wanted to effect. Despite there being heaps of money (amount) lying around in wheelbarrows.

  • Paul Marks

    “Modern Monetary Theory” is not modern at all – it is a collection of ancient fallacies.

    For example, that producing more money makes people (in general) richer – rather than (as Richard Cantillon showed three centuries ago) some people richer at the expense of other people. And the fallacy that more money can be BENIFCIALLY lent than was ever really saved (i.e. that lending can and should be greater than the sacrifice of consumption) – the fallacy of the “Banking School” of Credit Bubble (“expand credit for the needs-of-trade”) supporters that the “Currency School” refuted two centuries ago – although the Currency School made a great error of their own (namely that bank notes were the only important way that bankers could create Credit Bubbles – in reality bankers have many ways of wreaking the economy, so banning bank notes does not solve the problem).

    “Ah but we are not about expanding credit – we are about the government actually producing more cash money” – that is such a crude fallacy that it to was mocked centuries ago. Producing more cash money (via debasement of the coinage or the printing press) does NOT make the general population richer – although it does make a few people richer, at the expense of everyone else.