Abstract
Modern Money Theory (MMT) is a relatively new approach to macroeconomics that focuses on building an understanding of the operation of sovereign currency systems and on developing a policy framework based on that understanding. This article first summarises the main conclusions of MMT – the most important of which is that a nation that issues its own sovereign currency does not face financial or solvency constraints. We next trace the intellectual antecedents of MMT, which rest ‘on the shoulders of giants’. MMT revives the State Theory of Money (or Chartalism) and integrates it with a variety of heterodox approaches to macroeconomics, including the credit, circuitiste and endogenous approaches to money, the functional finance approach to budgeting, the financial instability hypothesis and the sectoral balances approach. Among those giants, MMT borrows from Knapp, Keynes, Innes, Schumpeter, Lerner, Minsky and Godley. This article shows how their theories have been integrated by MMT to provide a coherent approach to macroeconomic theory and policy. In the final section we summarise the main implications for policy-making.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Bibliography
Bell, S. 2000. Do taxes and bonds finance government spending? Journal of Economic Issues 34: 603–620.
Forstater, M. 1998. Flexible full employment: Structural implications of discretionary public sector employment. Journal of Economic Issues 32(2): 557–563.
Forstater, M. 1999. Full employment and economic flexibility. Economic and Labour Relations Review 11: 69–88.
Forstater, M. 2002. ‘Jobs for all’: Another dream of the Rev. Dr. Martin Luther King, Jr. Forum for Social Economics 31(2): 45–53.
Forstater, M. 2005a. Tax-driven money: Additional evidence from the history of thought, economic history and economic policy. In Complexity, endogenous money, and exogenous interest rates, ed. M. Setterfield, 202–220. Cheltenham: Edward Elgar.
Forstater, M. 2005b. Taxation and primitive accumulation: The case of colonial Africa. Research in Political Economy 22: 51–64.
Forstater, M., and W. Mosler. 2005. The natural rate of interest is zero. Journal of Economic Issues 39(2): 535–542.
Friedman, M. 1948. A monetary and fiscal framework for economic stability. The American Economic Review 38(3): 245–264.
Fullwiler, S. 2011. Treasury debt operations: An analysis integrating social fabric matrix and social accounting matrix methodologies. SSRN. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1825303
Godley, W. 1992. Maastricht and all that. London Review of Books. Available at: http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that
Godley, W. 1996. Money, finance and national income determination: An integrated approach. Levy Economics Institute. Working Paper 167, June. Available at: http://www.levy.org/
Godley, W., and L.R. Wray. 1999. Can Goldilocks survive? Policy Note 1999/4, April, Levy Economics Institute. Availability at: http://www.levyinstitute.org/pubs/pn99_4.pdf
Goodhart, C.A.E. 1998. Two concepts of money: Implications for the analysis of optimal currency areas. European Journal of Political Economy 14: 407–432.
Graziani, A. 1990. The theory of the monetary circuit. Economies et Societes, series no. 7, June.
Grierson, P. 1977. The origins of money. London: Athlone Press.
Harvey, P. 1989. Securing the right to employment: Social welfare policy and the unemployed in the United States. Princeton: Princeton University Press.
Ingham, G. 2004. The nature of money. Cambridge: Polity Press.
Ingham, G., eds. 2005. Concepts of money: Interdisciplinary perspectives from economics, sociology, and political science. Cheltenham: Edward Elgar.
Innes, A.M. 1913. What is money? Banking Law Journal, May, pp. 377–408
Innes, A.M. 1914. The credit theory of money. Banking Law Journal, January, pp. 151–168; Reprinted in Credit and state theories of money, ed. L.R. Wray, pp. 14–49, 2004. Cheltenham/Northampton: Edward Elgar.
Keynes, J.M. 1914. What is money? Economic Journal 24(95): 419–421.
Keynes, J.M. 1930. A treatise on money, Vols. I and II (1976). New York: Harcourt, Brace & Co.
Keynes, J.M. 1983. The collected writings of John Maynard Keynes, ed. D. Moggridge, Vol. XXVIII. London/Basingstoke: Macmillan.
Knapp, G.F. 1924. 1973. The state theory of money. Clifton: Augustus M. Kelley.
Lerner, A.P. 1943. Functional finance and the federal debt. Social Research 10: 38–51.
Lerner, A.P. 1947. Money as a creature of the state. American Economic Review 37: 312–317.
Minsky, H.P. 1965. The role of employment policy. In Poverty in America, ed. M.S. Gordon. San Francisco: Chandler Publishing Company.
Minsky, H.P. 1986. Stabilizing an unstable economy. New Haven/London: Yale University Press.
Mitchell, W. 2015. Eurozone dystopia: Groupthink and Denial on a grand scale. Cheltenham: Edward Elgar.
Mitchell, W., and J. Muysken. 2008. Full employment abandoned: Shifting sands and policy failures. Cheltenham/Northampton: Edward Elgar.
Mitchell, W.F., and L.R. Wray. 2005. In defense of employer of last resort: A response to Malcolm Sawyer. Journal of Economic Issues 39(1): 235–245.
Moore, B.J. 1988. Horizontalists and verticalists: The macroeconomics of credit money. Cambridge: Cambridge University Press.
Mosler, W. 1995. Soft currency economics. 3rd ed. West Palm Beach: III Finance.
Mosler, W. 1997. Full employment and price stability. Journal of Post Keynesian Economics 20(2): 167–182.
Mosler, W. 2010. The seven deadly innocent frauds of economic policy. US Virgin Islands: Valence Co., Inc.
Mosler, W., and M. Forstater. 1999. A general framework for the analysis of currencies and commodities. In Full employment and price stability in the global economy, ed. P. Davidson and J. Kregel, 166–177. Cheltenham: Edward Elgar.
Parguez, A., and M. Seccarrecia. 2000. The credit theory of money: The monetary circuit approach. In What is money? ed. J. Smithin, 101–123. London/New York: Routledge.
Ruml, B. 1946a. Taxes for revenue are obsolete. American Affairs 3(1), 35–39. Available at: http://www.constitution.org/tax/us-ic/cmt/ruml_obsolete.pdf
Ruml, B. 1946b. Tax policies for prosperity. The Journal of Finance 1(1): 81–90.
Samuelson, P. 1973. Economics. 9th ed, 274–276. New York: McGraw-Hill.
Schumpeter, J.A. 1934. The theory of economic development: An inquiry into profits, capital, credit, interest and the business cycle. Cambridge: Harvard University Press.
Sheard, P. 2013. Repeat after me: Banks cannot and do not ‘lend out’ reserves. New York: Standard & Poor’s, Credit Market Services, Global Economics and Research. Available at: https://www.kreditopferhilfe.net/docs/S_and_PRepeat_After_Me_8_14_13.pdf
Simmel, G. 1907 (transl. 1978). The philosophy of money. Routledge Reprint 2011. London: Routledge.
Tcherneva, P. 2006. Chartalism and the tax-driven approach to money. In Handbook of alternative monetary economics, ed. P. Arestis and M. Sawyer, 69–86. Northampton: Edward Elgar.
Tcherneva, P. 2014. Reorienting fiscal policy: a bottom up approach. Journal of Post Keynesian Economics 37(1): 43–66.
Tymoigne, E. 2014a. A financial analysis of monetary systems. In Contributions to economic theory, policy, development and finance, ed. D.P. Papadimitriou, 88–113. New York: Palgrave MacMillan.
Tymoigne, E. 2014b. Modern money theory and the interrelation between the treasury and the central bank: The case of the United States. Journal of Economic Issues 48(3): 641–662.
Wray, L.R. 1990. Money and credit in capitalist economies: The endogenous money approach. Aldershot/Brookfield: Edward Elgar.
Wray, L.R. 1998. Understanding modern money: The key to full employment and price stability. Northampton: Edward Elgar.
Wray, L.R., eds. 2004. Credit and state theories of money: The contributions of A. Mitchell Innes. Cheltenham: Edward Elgar.
Wray, L.R. 2009. The rise and fall of money manager capitalism: A Minskian approach. Cambridge Journal of Economics 33(4): 807–828.
Wray, L.R. 2012. Modern money theory: A primer on macroeconomics for sovereign monetary systems. Basingstoke: Palgrave Macmillan (2nd edition forthcoming 2015).
Wray, L.R., and M. Forstater. 2004. Full employment and economic justice. In The institutionalist tradition in labor economics, ed. D. Champlin and J. Knoedler, 253–272. Armonk: M. E. Sharpe.
Author information
Authors and Affiliations
Editor information
Copyright information
© 2018 Macmillan Publishers Ltd.
About this entry
Cite this entry
Wray, L.R. (2018). Modern Money Theory. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_3007
Download citation
DOI: https://doi.org/10.1057/978-1-349-95189-5_3007
Published:
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-95188-8
Online ISBN: 978-1-349-95189-5
eBook Packages: Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences