{"id":57714,"date":"2022-01-01T20:18:01","date_gmt":"2022-01-02T00:18:01","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=57714"},"modified":"2022-01-09T20:43:59","modified_gmt":"2022-01-10T00:43:59","slug":"modern-monetary-theory-explained","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/","title":{"rendered":"Modern Monetary Theory (MMT)\u2014 Explained"},"content":{"rendered":"\n<p>Are you looking for an explanation of modern monetary theory? What criteria must a nation satisfy to be considered a <a href=\"https:\/\/www.shortform.com\/blog\/monetary-sovereignty\/\">monetary sovereign<\/a>?<\/p>\n\n\n\n<p>The short version of modern monetary theory is that there are some nations (like the United States) that are unconstrained in their power to spend money because their currencies satisfy certain criteria. MMT is controversial and is criticized by economists.<\/p>\n\n\n\n<p>Continue below if you want to learn more about modern monetary theory, explained with analysis.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-modern-monetary-theory\"><strong>What Is Modern Monetary Theory<\/strong>?<\/h2>\n\n\n\n<p>In this article, when we explain modern monetary theory, we will be using the common acronym MMT. MMT is a controversial and iconoclastic economic theory holding that nations like the United States, Canada, the United Kingdom, and Japan (to name just a few) are almost entirely unconstrained in their power to spend\u2014regardless of how much revenue they receive in taxes. This is because these nations are what MMT proponents call monetary sovereigns: They are monetary sovereigns because their currencies satisfy the following criteria:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>They are fiat currencies that are not tied to the value of some finite physical commodity like gold or silver.<\/li><li>They are issued solely by the government\u2019s monetary authority\u2014that is, they are not controlled by some external entity over which the government has no control (as in the case of the euro, which is issued by the European Central Bank, not by the governments that use it), nor are they pegged in a fixed ratio to a foreign currency over which the government has no control (as is the case with Caribbean countries like Aruba, the Bahamas, Barbados, and Bermuda, which stabilize their currencies by maintaining fixed exchange rates with the U.S. dollar).<\/li><\/ul>\n\n\n\n<p>Monetary sovereigns, according to MMT, have the ability to create their own currency and issue it in almost-unlimited quantities. Functionally, this means that they cannot \u201crun out\u201d of money, nor can they ever lack the necessary funds to finance whatever the government wishes to do\u2014whether that\u2019s establishing a universal health care system, a jobs guarantee, or increased <a href=\"https:\/\/www.shortform.com\/blog\/us-defense-spending\/\">military spending<\/a>.&nbsp;<\/p>\n\n\n\n<p>MMT takes this argument a step further, arguing that taxes levied on private individuals and businesses don\u2019t exist to provide \u201crevenue\u201d that \u201cpays for\u201d government spending\u2014instead, all money in private circulation is really just the money that the government chose not to tax. Taxes instead exist to create an <a href=\"https:\/\/www.shortform.com\/blog\/what-is-incentive-meaning-and-definition-economics\/\">incentive<\/a> for the population to demand dollars\u2014and, in the process of earning those dollars, to engage in socially beneficial activities (like <a href=\"https:\/\/www.shortform.com\/blog\/creating-new-jobs\/\">creating jobs<\/a>, providing health care, and educating children).<\/p>\n\n\n\n<p>Intellectual leaders of the MMT school include the economist and hedge fund manager Warren Mosler; economist and academic L. Randall Wray; and economist and activist Bill Mitchell. The theory has been criticized by mainstream economists such as Nobel winner Paul Krugman, who argues that <a href=\"https:\/\/www.nytimes.com\/2019\/02\/25\/opinion\/running-on-mmt-wonkish.html\">MMT overstates the usefulness of fiscal policy<\/a> (government taxing and spending) and ignores the power of monetary policy (managing the money supply through controlling interest rates). In particular, MMT critics argue that when interest rates are above zero (meaning the monetary authority has room to maneuver to bring them lower), full employment can be achieved by lowering interest rates <em>without <\/em>the need for high deficits. They also argue that high deficits will, over time, lead to high interest rates, which will have the effect of damping private sector investment.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Are you looking for an explanation of modern monetary theory? What criteria must a nation satisfy to be considered a monetary sovereign? The short version of modern monetary theory is that there are some nations (like the United States) that are unconstrained in their power to spend money because their currencies satisfy certain criteria. MMT is controversial and is criticized by economists. Continue below if you want to learn more about modern monetary theory, explained with analysis.<\/p>\n","protected":false},"author":8,"featured_media":39262,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[81,31],"tags":[562],"class_list":["post-57714","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-money","tag-the-deficit-myth","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Modern Monetary Theory (MMT)\u2014 Explained - Shortform Books<\/title>\n<meta name=\"description\" content=\"What is modern monetary theory? 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In this article we will explain MMT and why discuss why it is so controversial amongst economists.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/\" \/>\n<meta property=\"og:site_name\" content=\"Shortform Books\" \/>\n<meta property=\"article:published_time\" content=\"2022-01-02T00:18:01+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-01-10T00:43:59+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/s3.amazonaws.com\/wordpress.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/money-american-dollars-finance.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1920\" \/>\n\t<meta property=\"og:image:height\" content=\"1080\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Hannah Aster\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Hannah Aster\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/\"},\"author\":{\"name\":\"Hannah Aster\",\"@id\":\"https:\/\/www.shortform.com\/blog\/#\/schema\/person\/f39f52830e4f7039a16e45d12354542f\"},\"headline\":\"Modern Monetary Theory (MMT)\u2014 Explained\",\"datePublished\":\"2022-01-02T00:18:01+00:00\",\"dateModified\":\"2022-01-10T00:43:59+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/\"},\"wordCount\":563,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/money-american-dollars-finance.jpg\",\"keywords\":[\"The Deficit Myth\"],\"articleSection\":[\"Economics\",\"Money\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/\",\"url\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/\",\"name\":\"Modern Monetary Theory (MMT)\u2014 Explained - Shortform Books\",\"isPartOf\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.shortform.com\/blog\/modern-monetary-theory-explained\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.shortform.com\/blog\/wp-content\/uploads\/2021\/06\/money-american-dollars-finance.jpg\",\"datePublished\":\"2022-01-02T00:18:01+00:00\",\"dateModified\":\"2022-01-10T00:43:59+00:00\",\"description\":\"What is modern monetary theory? 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