Richard Murphy: Zergatik DTM? Warren Mosler-ekiko eztabaida

Why MMT? A discussion with Warren Mosler

A few weeks ago I mentioned on the blog that Warren Mosler had agreed to answer some questions on Modern Monetary Theory (MMT), of which school of thought he is one of the founders. Well over 200 questions came in as a result.

I tried to summarise these and have sent some to Warren now (the delay is all down to me: work has been rather more pressing this year than I anticipated when launching the invitation). This first Q & A is meant to be an overview of MMT. I am playing the role of sceptical enquirer: the questions I ask have to be viewed in that light. Warren has given short answers but has suggested he is open to answering responses.

R: What is MMT?

W: A description of monetary systems.

R: What does MMT say money is?

W: Today’s currencies like the $, yen, euro, etc. are simply tax credits- the thing needed to pay taxes.

R: But it’s now widely though that banks make our money?

W: Bank loans create bank deposits, under charter, regulation, and supervision of the govt.

R: Can we trust them to do that?

W: Only to the extent you trust govt. regulation and supervision.

R: What, then  is the role of central bankers?

W: Setting the policy rates.

R: And what is the role government come to that? And how do we stop there being too much money?

W: Depends on the definition of ‘money’.  I suspect it’s more about too much spending? That can be addressed by cutting govt. spending or cutting private sector spending by various means including govt. spending cuts, tax increases, increased lending standards, etc. etc.

R: If tax is to stop inflation why do we get so worked up about it and what it does?

W: Tax increases will reduce aggregate demand and inflation to the extent the inflation is being caused by excess demand. If that’s not the cause- and it generally isn’t- there are other tools for addressing price increases from those other sources. And it seems people dislike inflation more than they dislike unemployment?

R: It’s widely thought that  interest rates are meant to be used  stop inflation? What does interest do if tax stops inflation? Is there a good rate of inflation?

W: Not that I know of.  There can be a good economy in the context of both low and high rates of inflation.

R: What does full employment really mean?

W: For me the best we can do is offer a transition job to anyone willing and able to work to both promote the transition from unemployment to private  sector employment, and to act as a more effective buffer stock for the price level than unemployment. At that point we are continuously at a form of full employment.

R: What is the Jobs Guarantee?

W: Another name for the above described transition job.

R: Isn’t that the same as `Universal Basic Income?

W: No, with the transition job you have to at least ‘sell your time’ to get paid.

R: But  isn’t that just a money hand out?

W: As above. The value of the currency is a function of what you have  to do to get it from the govt.  It’s a simple case of  monopoly pricing.

R: Surely what you’re really saying is we’re just going to pile debt on debt at cost to future generations?

W: The public debt is the amount spent by the government .that has not yet been used to pay taxes, and remains outstanding until used to pay taxes in the form of cash, reserves, and  securities. Treasury securities are nothing more than time deposits of the currency at the central bank.

R: If we don’t need debt do we need money markets?

W: Not for public debt or interbank lending.

R: But aren’t you ignoring the international dimension here?

W: No.

R: You say we don’t need debt but we need the rest of the world. Won’t they just trash our currency instead?

W: What does that mean? Exports are real costs, imports real benefits. Real wealth is about optimizing  real terms of trade.  Currency fluctuations per se don’t alter real wealth.

R: I’m still not convinced. What about the Weimar Republic, Zimbabwe and even Venezuela. Money printing didn’t work so well there, did it?

W: There problems varied. Weimar was about deficit spending for war reparations of approximately 5% of GDP per month and a massive loss of productive capacity. Zimbabwe lost it’s productive capacity, kept govt. spending as before, and the banking system was an open channel for corruption.

R: And what happens to countries that don’t have their own currencies? What does MMT say about them?

W: They are disadvantaged.

R: what about countries who cannot borrow in their own currencies, as many cannot?

W: Example?

R: Given all this, is MMT just some special case with no real use or does it really change the way we should think about the world of economics?

W: It’s the general case and will change how you think only if you don’t already understand  MMT.

R: Convince me: what would a world where the economy was managed as MMT suggests look like? Could I spot the difference, and how?

W: A form of continuous full employment is the likely outcome of understanding the monetary system.



  1. Jane Ordley says: February 24 2018 at 2:19 pm Would also be informative to have some specificity on the kinds of taxes that would be used to control inflation.
  1. warren mosler says: February 24 2018 at 5:20 pm Hi,
    The currency is a simple public monopoly, as the funds needed to pay taxes (ultimately) come only from the state. Therefore the state is ‘price setter’. Therefore the ‘price level’ is necessarily a function of prices paid by the state when it spends, or collateral demanded when it lends.
    What call ‘inflation’ has come from a variety of sources, such as a foreign monopolist hiking the price of oil, which then gets passed through to most other prices, or currency depreciation- which itself can been due to a variety of factors, including corruption via the banking system- resulting in higher costs of imports and higher prices paid for exports which get passed through to most other prices, etc. In the old days the headline distinction was between those types of ‘cost push inflation’ vs ‘demand pull inflation’. And currently there seems to be a fear that wages are a source of cost push inflation driving the Fed towards higher rates. As a point of logic, however, if the state doesn’t pay the higher prices and doesn’t thereby redefine the value of its currency downward by paying more of it for the same thing, forces come to bear that in general ‘deflate prices’ back what the state is willing to pay.
    The reason for this brings us back to the beginning- the economy needs the states funds to pay its taxes. If the state refuses to pay the higher prices state spending falls leaving the economy without the funds needed to pay taxes, a deflationary condition that can only be reconciled by lowering prices until the state makes its purchases. And I’m not saying this would be ‘good policy’ but only using this example to make the point about the source of the price level.

    Also note that only MMT includes this understanding of the source of the price level.

    This is also written up in my (very short) book- The 7 Deadly Innocent Frauds of Economic Policy which is free online.

    Hope this helps!

Gehigarria: ikus, halaber Warren Mosler-ek Richard Murphy-ri DTMz

Utzi erantzuna

Zure e-posta helbidea ez da argitaratuko. Beharrezko eremuak * markatuta daude