Modern Monetary Theory: A Critique

This article reviews Modern Monetary Theory’s approach to describing the process by which money is produced by banks (broad money) and by the central bank (base money). It analyses whether MMT’s characterization of the process reveals new, previously overlooked opportunities for the government to spend more without taxing more. It dissects MMT’s claim that because it can borrow in its own currency it can spend more — by printing more money — without crowding out private sector activity. MMT is an effort to justify more government spending with claims of fiscal space that can be liberated by printing money. Its arguments do not add up. Both the excitement and motivation for MMT seems to reflect the desire to promote a political agenda, without the hard analysis of its pros and cons — its costs and benefits.