About Modern Monetary Theory

Abstract

In scientific publications on the problems of monetary relations, "modern monetary theory" (MTT) is understood as a system of views formulated in the last two decades by a group of American and Australian economists, mostly university professors. The main stimulus for the development and popularization of the MTT was the need to create a scientific concept for overcoming such problems of the American economy as the accumulation of huge public debt, chronic budget deficits, and high unemployment. The analyzed theory offers a universal solution to these problems. The MTT contains paradoxical conclusions. Nevertheless, it is necessary to study it, in our opinion. The fact is that in the development of the MTT, balance sheet and economic-mathematical methods of analysis were widely used. It was the peculiar interpretation of the results of their application that led the developers of the MTT to extraordinary conclusions. Thus, the emergence of MTT predetermined the need to more accurately interpret the results that researchers can come to when using these methods. Experience shows that it can be useful to discuss doctrines that contradict established ideas. An analysis of one of these theories - the concept of private money by F. von Hayek - led to the conclusion that there is a "taboo" in the economic system. In it, it is impossible to finally repay one's obligations by issuing one's own obligations. The opposite conclusion followed precisely from Hayek's theory. The foundations of SDT were laid in the studies of W. Mosler (Mosier, 2010) and S. Kelton (see: Kelton, 2020) and further developed by a large group of researchers. The views of MMT supporters are not just radical - some of their proposals deny the fundamental foundations of the modern monetary system. The popularity of MTT is rapidly growing in political circles, at universities, among financial analysts. This theory is actively promoted by economists - advisers to the US Congress. The publication of the textbook "Macroeconomics" by its active supporters W. Mitchell, R. Ray and M. Watts (Mitchell et al., 2019) contributed to the popularization of the MTT. In our opinion, the analysis of the theoretical foundations of the MMT, which makes it possible to reveal the features of the modern monetary system, to identify the possibilities and limitations of monetary policy in stimulating economic development, is of scientific interest. A number of publications by domestic economists are devoted to this topic (see: Moiseev, 2019; Andryushin, 2020). The main postulate of the MTT is that the government of an independent country (sovereign), which has the right to issue money, cannot go bankrupt under any circumstances. It is argued that such a sovereign always has the ability to pay its obligations by issuing money. At the same time, the emitted obligations are accepted by them when paying taxes by economic entities. MMTers are aware of this problem. Bill Mitchell says: “when the level of private sector activity is such that wage-price pressures form as the precursor to an inflationary episode, the government can manipulate fiscal and monetary policy settings (preferably fiscal policy) to reduce the level of private sector demand.” In other words, the government will cut spending or raise taxes and/or interest rates in traditional mainstream style. As Randall Wray puts it: “The solution is to avoid spending more once full employment is reached; and to carefully target spending even before full employment to avoid bottlenecks.” If there is inflation domestically that curbs exports for a country, the MMTers propose to float the currency. So no capital controls and interference in currency markets. Randall Wray: “I’d let the dollar float.” That might be ok for the US, where the currency, the dollar, is the international reserve currency and has to be held by foreign states and companies to do business. But that is not the situation for smaller capitalist economies, particularly so-called emerging economies. If inflation takes hold because the government is printing pesos, lira or bolivaros without stopping to try and maintain full employment while capitalist production is collapsing, the result will be hyper-inflation. And if those currencies are floating without any controls, then the value of the currencies will plummet – as in Turkey, Argentina, Venezuela etc. What this shows is that MMT is very much an US/Australia-oriented theory and with policy prescriptions that have no viable application to most economies globally – just like Keynesian theory and policy. The state may control the issuance of its currency but it cannot control its value relative to other currencies or to gold, the world money. If trust in a currency’s value is lost by the holders or potential buyers of that currency, then its value will collapse, heightening inflation. In this way, MMT acts as a backstop to capitalism – the state is the employer of last resort but not the main employer. It aims to compensate (patch up) the failures of capitalist production, not replace it. Keywords: modern monetary theory, chartalism, Marxist theory of money, Keynesian theory, neoclassical theory, mainstream current, fiscal policy, monetary theory, monetary sovereignty of the state, public debt, inflation, guaranteed employment. JEL Codes: E12, E13, E42, E44, E52