23 Apr 2011

MMT Bask

Economics, Federal Reserve, Financial Economics 83 Comments

OK I have decided that this MMT (Modern Monetary Theory) doctrine/worldview needs a thorough refuting, much more than my good friend’s quick thoughts. I have seen our frequent guest “AP Lerner” make numerous claims in the comments of this blog that seem almost self-evidently false to me.

However, I can’t very well write a Mises.org article quoting some guy from the comments of my blog. So, MMT supporters, please point me to canonical expositions, so that you can’t accuse me of attacking a strawman or a weak exposition of it.

Unfortunately, my time is scarce. I can’t devote a weekend to this. So please just send me things that are (a) authoritative but (b) succinct.

In particular, I think it is crazy when people say that if the federal government runs a budget surplus, then by simple accounting the private sector can’t save. So if you can point me to a big gun who says that and gives the logic behind it, I would appreciate it.

83 Responses to “MMT Bask”

  1. Matt says:

    Looking forward to reading it, Bob. I, too, have been baffled by some of the MMT commenters.

  2. Bruce says:

    Wouldn’t this only be true in a closed economy?

    • bobmurphy says:

      Right they allow for net exports. But suppose there is a one-world government. I still claim that even if it runs a budget surplus (perhaps cutting its spending on ID chips and predator drones), the private sector can still save.

  3. Martin says:

    They base themselves on Lerner’s functional finance article. Here: http://www.scribd.com/doc/29435145/Functional-Finance

    Expositions can be found here: http://www.cfeps.org/pubs/ I’d recommend reading this: http://www.cfeps.org/pubs/wp/wp45.htm as it contains a view on money.

    A blog based on those views: http://bilbo.economicoutlook.net/blog/

    This: http://bilbo.economicoutlook.net/blog/?p=14247 gives a good example of the reasoning applied in practice to concrete question with references to other sections in the blog clarifying the views.

    • Martin says:

      If you want to do it quick though, look through the mises archive for Abba Lerner 😉

    • bobmurphy says:


  4. Tom Hickey says:

    MMT got started with Warren Mosler’s paper, “Soft Currency Economics.” See also Mosler and Forstater, “A General Analytical Framework for the Analysis of Currencies and Other Commodities.” Both are available at http://www.moslereconomics.com under “Mandatory Readings.” MMT was developed from there by Mosler and several academicians. notably, L Randall Wray, Willaim F. (Bill) Mitchell, Scott Fullwiler, Mathew Forstater, Pavlina R. Tcherneva, and Stephanie Bell Kelton. Their working papers are available at http://www.levy.org. L. Randall Wray wrote Understanding Modern Money (Elgar, 1998) as an intro to MMT for non-economists. Warren Mosler recently published The Seven Deadly Frauds of Economic Policy. I would recommend beginning with it, since it is short easy read and easily accessible to anyone, even with little background. It sets forth the basic ideas. It’s available for free download at http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    • bobmurphy says:


    • Silas Barta says:

      I read that Mosler stuff … my head was hurting at the end from all the fallacies he makes and the assumptions you need to make for his arguments to work. Just sayin…

      • MamMoTh says:

        Which fallacies? It’s a shame you keep them to yourself. You could even post them at Warren Mosler’s site, he reads and answers to comments.

  5. Andy says:

    I’d also like to know just how fringe this theory is — they do have a good name for it though, better than Austrian economics

  6. Nick Rowe says:

    Robert: “In particular, I think it is crazy when people say that if the federal government runs a budget surplus, then by simple accounting the private sector can’t save.”

    That’s perfectly correct, and standard, once you do the translation. Assume a closed economy (MMTers would change it for an open economy, so there’s no real disagreement there). Define “private saving” as “private saving minus Investment” (which is how MMTers normally use the word “saving”, or sometimes “net saving”. Then it’s just standard National Income Accounting. Y=C+I+G, and S=Y-T-C, therefore S-I=G-T.

    My recent thoughts on MMT:


    • bobmurphy says:

      Dr. (?) Rowe, I’m not being sarcastic when I say that your FF vs. long run budget constraint post is amazingly good and (I think) totally wrong. It’s like when I read a really solid Scott Sumner post. I think it proves that he is totally in command of mainstream macroeconomics, and that mainstream macroeconomics is totally wrong.

    • vimothy says:

      Nick, The economy cannot “nominal save net of investment” without the govt running a deficit, but that’s just an accounting tautology. Now, it’s true that if you redefine “private saving” to mean this, the private sector cannot save without a deficit. But would be absurd thing to do. One shouldn’t take statements that are not only wrong, but actively misleading, redefine a bunch of terms in idiosyncratic ways and call them right.

      When you talk to commenters on MMT blogs (not the leading lights of the movement), you realise that they are totally confused by this, and therefore that the statement is indeed both wrong and harmful of the discourse. Much better to try to engage them and unpick the muddle. Nick, you are very talented at this sort of thing so it could be more helpful in terms of advancing the debate if you did rather than adding to the confusion! Someone ought to introduce them to intertemporal trade and capital goods. I have tried in the past, but, alas, I suck at this sort of thing, so to date, no joy.

      • warren mosler says:

        what I say is that the govt deficit = non govt accumulation of net financial assets denominated in that currency. i’ve also called it savings of net financial assets of that currency. you can call it anything you want.

        and we know that net dollar financial assets for the ‘non govt’ sector, which includes residents and non residents, can only come from the govt’s deficit spending.

        yes, it’s true by identity.

        and yes, the question is why that matters.

        several reasons.

        we know those net financial assets are the financial equity that supports the credit structure, but, again, that doesn’t tell us how that effects anything.

        we also know that a given economy (including residents and non residents) with a given tax liability will allow the govt to spend as many dollars as the economy ‘wants’ to be able to pay its taxes and net save dollar denominated financial assets. It’s another way of saying those net financial assets can only come from govt deficit spending, and that all sales of goods and services for dollars are voluntary.

        if you believe this notion of ‘savings’ is ‘absurd’ you are entitled to your opinion.

        I happen to find it very useful for both understanding what’s happening on an ongoing basis and for understanding the ramifications of the various policy tools at hand.

        It’s also useful for understanding our economic history. the only 6 depressions we had while on the gold standard followed the only 6 periods of budget surpluses, for example. And the last budget surplus while not on the gold standard is doing for us what the same surplus policy did for Japan beginning 10 years earlier.


        • Major_Freedom says:

          And the last budget surplus while not on the gold standard is doing for us what the same surplus policy did for Japan beginning 10 years earlier.

          What surplus? The last time the government ran a surplus was the early 1950s, under Eisenhower. COntrary to popular myth, the government was not running a surplus during the 1990s (into 2001), because Treasury borrowing and spending from the Social Security Trust Fund was not counted as an increase to the deficit, even though it is from the perspective of the government vis a vis the market, which is the perspective of MMT’s context of surplus/deficit.

          Look at the total debt outstanding from 1950-1999 to see that total debt kept increasing during the 1990s:


          It’s also useful for understanding our economic history. the only 6 depressions we had while on the gold standard followed the only 6 periods of budget surpluses, for example.

          It was not the surpluses that caused the depressions, it was the prior inflationary deficits. The inflation changed the real economic structure of the economy away from where it would have been without the inflation.

          The process works as follows:

          Contrary to MMT, if the government is going to print money and create “net savings” in the market, then it cannot just print at a constant rate, or print at a rate that creates a constantly increasing NGDP. In order for inflation to facilitate a seemingly growing economy, inflation has to accelerate. If it doesn’t, then at some point, a given dose of inflation will cease to have any real effect at all, and the economy will readjust, which means recession. If the government does not do anything at this point, then the economy can grow on a foundation of a constant quantity of money.

          More importantly, and contrary to MMT, net savings can still exist if the quantity of money and volume of spending were constant. Net savings can exist because in an economy with a constant quantity of money and volume of spending, aggregate costs can never reach aggregate revenues. This is because there will exist expenditures in the economy that will only add to aggregate revenues, whereas all other expenditures will add to both aggregate costs and aggregate revenues. Dividends, interest payments, draw payments from partnerships and proprietorships, these funds are funds that are simply extracted from business firms, and to the extent that they are not reinvested, they simply add to aggregate revenues. Capital goods, expenses, and other investment type spending, these funds that when spent, add to both aggregate revenues and aggregate costs.

          Since business owners have to eat and live and be happy, there will always be dividends, interest payments, and other investment income that is not reinvested, but consumed. This means that an economy with a constant quantity of money and volume of spending can run a perpetual aggregate profit, and thus saving out of profit, i.e. net savings, can exist.

          The difference between this an an MMT ideal economy is that this economy’s net savings will not be a result of saving out of the additional profit that is created by inflation. MMTers treat net savings as an increase to the total sum of savings over time. But this is only necessary because MMTers are already advocating for inflation. Saving out of net income is required to facilitate a growing inflationary economy, but saving only out of gross revenues is required to facilitate a growing non-inflationary economy.

          In a MMT economy, as the government creates new money, then only one of two things can happen. Either they keep accelerating the creation of new money, and once economic scarcity makes further inflation ineffective, they will eventually break down the currency altogether as “money is created in an economy with full employment, and full utilization of resources,” which is what MMTers call what I like to call inflationary inflation, or they will have to reduce the quantity of new money created away from the required acceleration that facilitates economic growth for any stretch of time.

          In both cases, economic readjustments, i.e. recessions/depressions, are a certainty. It’s just that in the case of the US, the government has always chosen the latter route instead of the former route. Some central banks throughout history have chosen the former route, by accelerating the inflation beyond a critical point, thus collapsing the currency.

          This is why you see, in US history, recessions/depressions following periods of “tightening up.” It’s not the tightening up that causes the depression, it’s the fact that the real structure of the economy has been forever altered by previous inflationary deficits, which REQUIRES fixing, no ifs ands or buts. Once the economy is distorted by inflationary deficits the first time, the government can either accelerate inflation to keep the unsustainable structure going, which is just one more step towards real scarcity making a depression inevitable despite further inflation, or the government can reduce the rate of inflation below the required acceleration, and allow the economy to readjust then and there with the still accepted currency.

          In US history, there was a major episode where the government decided to accelerate up until the point where real scarcity made economic readjustment inevitable. You may remember the US Continentals? Not worth a Continental? That fiat money collapses because the government at the time kept accelerating inflation up until the point where real scarcity made the economy readjust and unable to grow by further inflation. Inflationary inflation took place.

          Historically, the reason why you see so many depressions following periods of monetary tightening up, is because historically, the government would rather cease accelerating the inflation, and allow the economy to readjust through recession/depression, then continue to accelerate inflation beyond the point of “real scarcity” no return and thus collapse the currency. The government and the bankers almost always preferred maintaining their control, and hence maintain market acceptance, of the dollar, rather than pretend like false economic booms are “normal” and continue to accelerate inflation until the currency collapses.

          You MMTers don’t seem to understand how money works in the economic theory sense, because you really don’t understand economic theory. You can only see accounting identities, and you can only see government control over money, and you see recessions/depressions in the past but you can’t understand why they happen. You invoke the extremely naive and irrational post hoc ergo propter hoc logical fallacy, when you claim that because depressions tended to follow surpluses, it must be the surpluses caused the depressions, so it’s better for the government to run deficits forever, which of course I can tell you can’t work unless the inflation accelerates, and that will just lead us back to the two possible outcomes, depression sooner and save the currency, or depression later and collapse the currency.

          It’s too bad that you people are getting any attention at all, because your worldview is almost totally devoid of logical rigor, economic principles, and catallactic reasoning.

  7. bobmurphy says:

    Nick Rowe:

    That’s perfectly correct, and standard, once you do the translation….Define “private saving” as “private saving minus Investment” (which is how MMTers normally use the word “saving”, or sometimes “net saving”.

    Well OK, but if I define “private saving” as “private saving” then my position goes through. And I think my definition is more defensible.

    • Silas Barta says:

      Why would you define “private saving” as “private saving”??? That doesn’t make any sense.

  8. RichardL says:

    I feel so overwelmed at all this econ jargon. I think I’ll go back to reading “The Wealth of Nations”.

  9. The Interest says:

    I saw someone refer to MMT as an Accounting Standard being purported as Economics.

    Edward Harrison (an Austrian) has already started the conversation here: http://www.creditwritedowns.com/2010/11/mmt-for-austrians.html

    Mosler is a good one to go to for MMT. Here is a good place to start: http://moslereconomics.com/mandatory-readings/soft-currency-economics/

    Here’s the math: http://moslereconomics.com/2010/04/30/tea-party-protest-sign/ and the explanation: http://bilbo.economicoutlook.net/blog/?p=9198

    Overall, my opinion is that MMT (and more accurately Monetary Circuit Theory) explains how our government currently operates. To me though it is faulty logic since it cannot be sustained forever and requires a reboot. The Austrians though know more about human interaction and how the natural flow of money works and thus explain how the system will work once the MMT/MCT implodes on itself. Thus, in the short-term think like an MMT/MCT person to make money in the market (“Don’t fight the Fed”), but in the long run understand the Austrian perspective since civilizations end up there eventually.

  10. Bob Roddis says:

    MMTers constantly brag that the state and banking system are unconstrained. Libertarians already know and understand this deeply and we need not be reminded of it daily. The purpose of the inviolate libertarian non-aggression principle (NAP) and the inviolate prohibitions against fraud and theft are to constrain the government completely. The MMT program is nothing but unconstrained violations of the NAP and nothing but perpetual fraud and theft.


    Unconstrained government and banking are the causes of our economic misery. Libertarians and Austrians are dedicated to putting a final end to this type of criminal activity while explaining its true nature to the otherwise distracted masses.

    • Warren Mosler says:

      please read my proposals for the financial sector and see if I don’t constrain govt. far more than most libertarians I’ve read.

      Warren Mosler


      • Bob Roddis says:

        Warren Mosler is explain his “economic theory”::

        If I just keep saying monetary sovereignty over and over again, the Austrians will eventually see how foolish they are.

        Modern Monetary Theory recognizes that certain people need to be empowered to force others into involuntary exchanges. This is an operational reality. [emphasis added]


        Wow. An a priorii theory of involuntary compulsion.

      • Bob Roddis says:

        Taylor Conant of EPJ explains the world to Warren Mosler:

        You treat government finance as if it’s an accounting problem, not an economic problem. I don’t disagree with you on the “operational” aspects of how government finances itself. I don’t disagree because I don’t care. The government could physically extract resources from private citizens, it could establish legal tender laws and then use its monopoly on the ability to increase the money supply to finance itself or it could use any other scheme it could imagine to gain control over resources which do not belong to it– it doesn’t change the fact that those resources were not handed over via voluntary exchange and therefore the economic nature of such an exchange is completely different than what it would be if the exchange occurred voluntarily.

        You treat the problem as if someone like me is concerned the government is about to run out of paper, ink and megabytes of data storage on its hard drives and accounting matrix spreadsheet servers. I am not concerned by this.

        What I am concerned about is the coercive nature of government financing– however it is accomplished!

        The point I seek to address in my entire series of refutations, which you only slowly and somewhat sneakily pay any heed to, is that government controls what economic resources it controls by theft. Because the government is stealing all the resources it utilizes for its various economic programs and schemes, it necessarily means that your entire program for getting the economy going again by policies adopted by the government boils down to the idea that some forms of theft are more noble than others and furthermore that these noble thefts can be of net economic benefit to society.

        In other words, you advocate a system whereby theft is to be the foundation of sustainable economic production.

        This is wrong. Theft redistributes existing resources, it is not responsible for producing new ones. If you’re unclear on why it’s wrong I’d be happy to discuss it with you at any time.


        Conant also points out that the MMTers don’t have an economic theory.

        • warren mosler says:

          as i responded to taylor, i agree and share the same concerns.

  11. Anon says:

    Hi Bob,

    Could you clarify your use of “Bask” in the post title? Thanks!

    • bobmurphy says:

      Bleg = Blog beg

      Bask = Blog ask

      • Argosy Jones says:

        it should be blask.

        • bobmurphy says:

          Except that “blask” isn’t a word. Advantage, bask.

  12. jjoxman says:

    The trick with MMT is that it uses accounting identities (which are correct, but easily manipulated) to make operational claims. While it’s true that S – I = G – T, this does not mean that private savings, net of investment, are created by public debt. Rather, it means that public debt can only be financed if people are willing to reduce the investment they finance so that government bonds can be purchased. In other words, public debt crowds out private investment. I played around with this stuff on my blog awhile back: http://crankyprofj.blogspot.com/2011/03/rehabilitating-national-income.html

    • bobmurphy says:

      Good point jjoxman and it’s what I was going to say. So don’t think I’m stealing your idea. 🙂

      • jjoxman says:

        Lol! Just happy we’re on the same wavelength.

        • MamMoTh says:

          LOL! And you are both wrong!

          • jjoxman says:

            So nice of you to point that out!

            I’m sure I’m wrong about some things – but not this one.

          • bobmurphy says:


            I mean this with sincerity, can you spell out why it’s wrong? I’m literally writing up a comparable argument myself, so I’m open to criticism.

        • MamMoTh says:

          Bob, first let me point out that there are more qualified people than me to comment on this. Hopefully they will engage in some fruitful discussion when you come up with your criticism.

          I think it’s a good idea to stick to this simple argument first without considering other aspects of MMT; otherwise we’ll get nowhere.

          Net Savings of the private sector (NS) = Income – Expenditure = G-T + X-M is a fact. that holds all the time.

          That means that in a closed economy (NS=G-T) if the government runs a budget surplus the private sector runs a deficit of equal amount, which means selling off previously accumulated assets or increasing debt, no matter what.

          Causality goes both ways though, cutting G and increasing T might force the private sector into deficit. Or the private sector taking on debt will expand the economy which lowers G and increase T and force the government into a surplus.

          This is the result of the flows in the economy not something that can be disproved.

          • Silas Barta says:

            Just so we’re on the same page, you do understand that accounting identities do not imply causal relationships between the variables, right?

            My income plus my brother’s income equals household income. That doesn’t mean that earning more causes my brother to earn less (nor even cause the total to go up!).

            • MamMoTh says:

              Do you understand what causality goes bot ways though as I said mean?

              Try to read the comments you answer to. It will help you look less dumb.

    • warren mosler says:

      i’ve always stated that.

      govt can only deficit spend (in real terms) to the extent the economy wants to net save financial assets denominated in its currency.

      trying to spend more than the tax liability and ‘savings desires’ as defined will only drive up prices, and not get the govt any more real goods and services.

      that’s an mmt fundamental

  13. AP Lerner says:

    Ok, I’m only slightly offended to not be considered a ‘big gun’ and gave a Mises paper dedicated to me 🙂

    As others have pointed out, Warren Mosler is a great place to start. If you’re feeling bold, try refuting some of the ‘billy blig’ links I sent. I will say, I feel like you are already approaching this subject from a poor starting point since you have already said you intend to refute the MMT doctrine while openly admitting to not fully understanding the MMT doctrine. That seems a bit narrow minded to me….

    PS. FYI-MMT’ers do not claim the private sector can not save w/ out a public deficit. You need to take the external balance into consideration….

  14. Tel says:


    The basic summary is: shuffle money faster than anyone can keep track of where it goes, make sure the system is too complex for anyone to get a mental grasp.

    If you search for “inflation” you find it mentioned only twice amongst this rather complex design. One mention of “inflation” is a quick afterthought that government budget surpluses is useful for fighting inflation (and I agree with that, but not much chance of any such surplus in the USA), and the other mention of “inflation” is the following reference:


    To quote:

    There are two broad ways to control inflation and buffer stocks are involved in each:

    * Unemployment buffer stocks: Under a mainstream NAIRU regime (the current orthodoxy), inflation is controlled using tight monetary and fiscal policy, which leads to a buffer stock of unemployment. This is a very costly and unreliable target for policy makers to pursue as a means for inflation proofing.

    * Employment buffer stocks: The government exploits the fiscal power embodied in a fiat-currency issuing national government to introduce full employment based on an employment buffer stock approach. The Job Guarantee (JG) model which is central to MMT is an example of an employment buffer stock policy approach.

    Under a Job Guarantee, the inflation anchor is provided in the form of a fixed wage (price) employment guarantee.

    Full employment requires that there are enough jobs created in the economy to absorb the available labour supply. Focusing on some politically acceptable (though perhaps high) unemployment rate is incompatible with sustained full employment.

    Amongst the gibberish, what comes across is they will fumble around for price fixing and central planning when it suits them. But there’s plenty more where that came from, the author apparently believes that a sufficiently complex argument will glaze the eyes of the audience and leave them hypnotically nodding. I’m reminded of one of those multi-colored wheels that looks normal when you spin it slowly but as it spins faster suddenly the colors merge and you see strange moving patterns and dancing shapes.

    Even shorter summary: MMT is a centrally planned economy, dressed up as a bank.

    • Bob Roddis says:

      Even shorter summary: MMT is a centrally planned economy, dressed up as a bank.</em

      It sounds more like a nation wide [Jim] Jonestown to me.

      AP Lerner recommended that I read the original Abba Lerner. So I bought his book “The Economics of Control”.

      The Table of Contents to “The Economics of Control” expresses his goal as an attempt to save SOCIALISM:


      The fundamental aim of socialism is not the abolition of private property but the extension of democracy. This is obscured by dogmas of the right and of the left. The benefits of both the capitalist economy and the collectivist economy can be reaped in the controlled economy. The three principal problems to be faced in a controlled economy are employment, monopoly, and the distribution of income. Control must be distinguished from regulation. Liberalism and socialism can be reconciled in welfare economics.


      MMT is a ghastly and horrible system of controls based upon surreptitious theft of purchasing power by a neo-totalitarian socialist state. Beware.

      • Magpie says:

        From Abba Lerner’s quote you offered:

        “The fundamental aim of socialism is not the abolition of private property but the extension of democracy.”.

        Just out of curiosity, which of the two goals you find “ghastly and horrible”? Not to abolish private property or to extend democracy?

    • Bob Roddis says:

      How do MMTers control inflation? Mosler says that taxes control inflation.

      Nevertheless, Chartalist MMT godfather Abba Lerner (1903-1982) was busy as late as 1980 constructing a Rube Goldberg type straightjacket of price controls:

      “Initially he toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market [!!!!!!] anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]”


      Individuals have to buy the right to change prices from others who change their price in the opposite direction? Now there’s brilliant insight from a true economist. This is the guy that AP Lerner said we just had to read to learn economics. BTW, if inflation can be easily whipped with taxes assessed by magical, all-knowing bureaucrats, what was the purpose of Lerner’s mad price control scheme?

    • MamMoTh says:

      Although MMT might owe a lot to Lerner’s work, I don’t think you should go back to Lerner to understand and form an opinion of MMT. It’s better to go to the writings of the leading MMTs, Warren Mosler, Bill Mitchell and Randal Wray.

      MMT does indeed suggest inflation should be controlled through fiscal policy and not monetary policy. They actually say that the purposoe of taxation is regulating aggregate demand under a fiat currency since taxation is not operationally necessary for government spending.

      An almost integral part to MMT is to provide a better way of controlling inflation than through a buffer of unemployment with a Job Guarantee or Employer of Last Resort program that pays the minimum wage to anyone willing to take a job.



      • Bob Roddis says:

        As Taylor Conant pointed out, the MMTers rely upon an unstated economic theory. That theory seems to be the most primitive, simplistic form of Keynesian “aggregate demand” manipulation. All of the various MMT forms of intervention have been eviscerated by the Austrians decades ago but the MMTers haven’t the slightest familiarity with even basic Austrian concepts or analysis.

        Further, let Mr. Mosler himself explain the fundamental and foundational morality and operational reality of his version of the “Controlled Economy“:

        The following is not merely a theoretical concept. It’s exactly what happened in Africa in the 1800’s, when the British established colonies there to grow crops. The British offered jobs to the local population, but none of them were interested in earning British coins. So the British placed a “hut tax” on all of their dwellings, payable only in British coins. Suddenly, the area was “monetized,” as everyone now needed British coins, and the local population started offering things for sale, as well as their labor, to get the needed coins. The British could then hire them and pay them in British coins to work the fields and grow their crops. See Mosler’s “Seven Deadly Innocent Frauds”, page 26.


        My initial reaction to reading this is that I would never invade Africa nor force Africans to pick my crops nor would a normal moral person. My initial response to learning of this episode would be to find the perpetrators of this outrage and then arrest and convict them as the criminals that they are.

        • MamMoTh says:

          And you haven’t the slightest familiarity of even basic MMT concepts or analysis. So what? It wouldn’t be the first example of two religious cults unable or unwilling to understand each other.

          Mosler is giving an example of tax-driven currency which is one of their basic concepts of analysis, like it or not. He is not advocating colonialism of any kind.

          If you are so moral, what have you done to get Henry Kissinger (just to start with) prosecuted? He is probably very easy to be found…

          • Silas Barta says:

            Right, he’s not advocating colonialism, except against US citizens. Real improvement: he doesn’t want to force African farmers to work for fiat currency, just Americans.

            You just wrote the dumbest defense possible.

            • MamMoTh says:

              LOL! He is just describing the world in which you live. And it ain’t gonna change any time soon. If you don’t like it why don’t you kill yourself?

              • Tel says:

                It is changing right there as we watch.

        • Magpie says:


          I wonder why you chose that quote from Mosler, when in page 18 we find an entirely similar hypothetical example:

          “The story begins with parents creating coupons they then use to pay their children for doing various household chores. Additionally, to “drive the model,” the parents require the children to pay them a tax of 10 coupons a week to avoid punishment. This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties. The coupons are now the new household currency. Think of the parents as “spending” these coupons to purchase “services” (chores) from their children.”

          I can’t say what Mosler had in mind when he chose the British in Africa historical example, but if I had to guess, I would have said that it was to show that the hypothetical example is realist.

          I hope you are not suggesting that I am a criminal for asking my kid to wash the car.

      • Tel says:

        OK, for the purpose of argument let’s go ahead and accept that the purpose of taxation is indeed to keep inflation under control; and let’s accept the Wikipedia claim that when the government runs a surplus this has the effect of discouraging inflation.

        Logically we would then have to accept that if the government runs a deficit it will encourage more inflation, and if the government runs a continuous deficit for a long time then there will be nothing to hold back inflation at all. Thus, on a long term basis if a government wants to keep inflation under control, they will need to run in surplus about as much as they run in deficit (which is a long-term balanced budget) even though operationally they can run a deficit for a short while by printing more money (if they drain the hot money back out again with extra taxation a few years afterwards).

        Once we understand that the government must run a balanced budget in order to keep inflation under control, we have come to the conclusion that the purpose of taxation is to give the government money to spend… but if you say that to Mosler he will never agree.

        So we reach the point where A equals B but B is not equal to A, and then the head banging starts.

        • Tel says:

          Just a follow-up. If you consider inflation to be tax by stealth then when you add the stealth tax to the explicit tax, then government always runs a balanced budget they merely hide more or less of the taxation as it suits them.

          The the MMT “operational reality” is nothing more than saying that government has the power to tax by stealth and dip into existing savings. Unfortunately, inflation has a whole lot of undesirable secondary effects because people very quickly catch on to the “stealth tax” and it becomes an explicit tax on anyone holding money. They then structure their assets in such a way that they are protected from the inflation tax and by doing so they refrain from economic activity that would be beneficial to all.

          Perpetual motion has not been discovered yet, and I find it very unlikely that the MMT brigade will find it anytime soon.

        • MamMoTh says:

          MMT agrees that a too large deficit will be inflationary, but not with your conclusions.

          In particular, running a balanced budget over a long period in an open economy with a trade deficit means that over the period the private sector will run a deficit equal to the trade deficit: Net Savings = X-M. This is a fact, again.

          As for budget deficits being necessarily inflationary they will point out to the case of Japan where almost permanent budget deficits for the past 20 have not been inflationary at all.

          So this is at best an extremely weak argument against MMT. I hope Bob will come up with some serious challenge to it, although to be honest I don’t have high expectations.

          When people start trying to deny what accounting identities tell you it’s not very promising/

          • Tel says:

            Net Savings = X-M. This is a fact, again.

            It’s not a fact, it’s complete rubbish. The government does not have a monopoly over all methods of saving. If a gold miner digs gold at rate 2R and sells gold at rate R whilst stashing gold in a strongbox at rate R then his savings are R, and completely disconnected from any government activity (also invisible to any government statistic).

            As for budget deficits being necessarily inflationary they will point out to the case of Japan where almost permanent budget deficits for the past 20 have not been inflationary at all.

            And what happened to asset prices in Japan? Is it normal that buying a house requires three generations to pay off the mortgage?

            Sure excess money can spill into various places, and it’s a crying shame that the Austrians can’t predict exactly where it will spill into. How about that?

            • bobmurphy says:

              Tel, I think you are attacking him in the wrong way. The identity is correct, but it doesn’t prove what they seem to be implying. “Net saving” for them means private saving minus private investment.

              So in your example, the gold miner would be “investing” in the accumulation of more inventory of gold. Thus he wouldn’t be saving on net, in the (weird and completely misleading) way the MMT people define “saving on net.”

              • Tel says:

                I would not personally use the word “investing” to describe someone working their regular job and just putting aside what they don’t need to spend that day. I’d call that “saving”. I understand that economists want to call such activity “investment”, so whatever floats your boat, call it “asparagus” if you like. The name is not the important thing.

                However, by subtracting off the “investment” from the actual accumulated wealth, to get a nett zero, they are in effect just ignoring the activity completely. By ignoring the activity they can then convince people that government is necessary in order to create savings.

                The Keynesian argument about the “Tragedy of Thrift” works in a very similar way — first you jig things around so that all private savings and investment cancels to zero and can thus be ignored, then you make the claim that because you have ignored it, therefore it does not exist! It inevitably becomes an argument for why government should print more money.

                This represents a deliberate narrowing of perspective to a limited set of entities, and then argument from the basis that the narrow perspective encompasses all available options.

          • Tel says:

            When people start trying to deny what accounting identities tell you it’s not very promising

            Your accounting identity is a complete and utter load of cobblers. You have arbitrarily divided the world into government and non-government and then convinced yourself that by monitoring the transactions between those two sides you have a complete picture of everything that goes on. I have news for you: the universe shows no respect for your narrow perspective. Watch how easy it is to screw with your “accounting identities”.

            I write a blog post for Robert, and he is so impressed he says it is worth at least $10k but I say, “Don’t stress over it Bob, pay me next year,” and he just writes me an IOU note. Now I have an asset worth $10k (less one year inflation) and Bob gets to keep the awesome blog post. Suddenly savings has increased by a whole $10k in one afternoon (and no one even got out of their armchair). Oh my! Your accounting identity just crashed and burned because that private exchange of $10k does not show up when you only look at how to government behaves.

            MMT would have to be the textbook example of an ideology — pretending the world does not exist so it can fit the formula better.

            • MamMoTh says:

              Net Savings = G-T + X-M is a fact which holds all the time even if you don’t understand it which is clear by now.

              Bob’s IOU to you might not be recorded until it is paid. Still, even if it where, it would not add anything to net savings of the private sector.

              Your savings increase by 10k, his are reduced by 10k, so they net to 0.

              I’m sorry you don’t get it, it’s really basic stuff.

              Don’t judge MMT if you can’t even understand sectoral balances which are economics 101 because you are blinded by ideology.

              Hopefully Bob will come up with something better.

              • Tel says:

                Your savings increase by 10k, his are reduced by 10k, so they net to 0.

                If you are going to account it that way then government cannot facilitate savings either because exactly the same rule applies (other than the subtle difference that Bob no doubt pays his IOU’s and government typically does not).

                Fortunately your accounting is completely wrong. The widely recognised purpose of an economy is to provide a mechanism for people to efficiently do work. That is to say, working citizens actually produce things of value. Your accounting has completely deleted the key point that in the hypothetical example above, Bob gains the output of my very valuable labour.

                In your model of an economy, people work without actually producing anything, they merely shuffle notes around (if you are a government employee this will probably seem quite sensible to you, so I might have trouble explaining the details).

                Try and think about it.

              • MamMoTh says:

                It’s not my economy, nor MMT’s economy. It’s the way money flows in the real economy. As such, it’s a fact and has nothing to do with people doing productive work or not.

                Most of the economy is shuffling money around leaving nothing than waste eventually, organic in the best of cases.

                Of course investment is supposed to create assets which will be valuable for some time and the stock of assets should also be considered in my opinion.

                But the sectoral balances which refer to financial flows are still a fact.

              • bobmurphy says:

                You’re not going to like what I have to say, MamMoTh (that’s hard to type), but I think I will spell it out very clearly and then we can get to the heart of the debate.

              • Tel says:

                It’s the way money flows in the real economy. As such, it’s a fact and has nothing to do with people doing productive work or not.

                Well thanks for saying that because it pretty much sums up why I don’t feel the need to take MMT seriously. If your theory has nothing to do with people doing productive work then it is utterly useless as a theory.

                BTW: you do understand that there are two sides to an accounting ledger? There is the cashbox accounting and also the stock accounting. You have just decided to ignore all stock accounting, and then you wonder why you never get a profit to come out.

                To make a profit you must buy stock at one price and sell the same item at a different price (or else manufacture new stock out of old stock). Cash accounting balances, stock accounting does not balance because the same stock item changes value. The residual is profit/loss.

                … the stock of assets should also be considered in my opinion …

                Yes, and in my opinion also.

                Now go back to your earlier equations and show me where the stock of assets comes into the picture. Also show where changing valuation of assets is accounted for (both up and down).

              • Tel says:

                In case someone hauls me up for bad explanation here… of course the physical side of stock accounting does balance. If you put 100 widgets into a warehouse and then take 100 widgets back out of the warehouse then we accept that the physical world does neither create nor destroy matter; so the warehouse returns to its original state.

                However, the financial side of stock accounting does not balance because the value of the widgets changes between purchasing and resale (and indeed the entire valuation of the warehouse changes from month to month).

                That’s what I was trying to say earlier, no doubt it could be put into a more eloquent presentation.

                Also, if you look at the system as a whole: money goes round and round (presuming no inflation) but goods are produced and consumed. Excess production of goods beyond the consumption of those goods implies stockpiling somewhere (and the physical limits of stockpiling are intrinsic to the nature of the goods, gold can be stockpiled for longer time than potatoes), thus by trade we attempt to shift our savings into some form that is resistant to the ravages of time (if I have more potatoes than I can eat and I have a requirement for long-term savings then I’m in the market to exchange potatoes for gold, or silver, or salt, etc).

                Much of our modern industrial technology consists of converting perishable goods into non-perishable goods (e.g. putting potatoes into cans).

    • warren mosler says:

      the currency is a public monopoly and therefore, like any monopolist, the govt is inherently ‘price setter’

      that is, the price level is a function of prices paid by govt when it spends and/or collateral demanded when it lends.

      not that govt knows that or acts accordingly. but the underlying logic remains and describes what does happen under current policy,

      as for the jg, we currently use unemployment as a bufferstock/price anchor

      it is my opinion that jg would function as a vastly superior price anchor to our current policy of using unemployment for that purpose

      see ‘full employment and price stability’ at http://www.moslereconomics.com

  15. Bob Roddis says:

    1. I don’t base my economic theories upon the really cool things Kissinger did like carpet bomb Cambodia. Further, I did apply for conscientious objector draft status in 1971 and I went to several huge antiwar rallies. I even have a Kissinger cartoon on my Flickr page:


    What else do you want me to do about Kissinger?

    2. MMTers do not address or confront any Austrian concerns or critiques. In fact, MMT is acatallactic as Mises explained in 1917:

    Another acatallactic doctrine seeks to explain the value of money by the command of the state. According to this theory the value of money rests on the authority of the highest civil power, not on the estimation of commerce. The law commands, the subject obeys. This doctrine can in no way be fitted into a theory of exchange; for apparently it would have a meaning only if the state fixed the actual level of the money prices of all economic goods and services as by means of general price regulation.


    • MamMoTh says:

      In my understanding MMTers put too much emphasis on the tax-driven status of currency. Most of what they say is independent of that. Anyway, their position is descriptive as this is they way modern economies work: the government has the monopoly of the currency supply and of taxation.

      However you are just showing you don’t have any grasp of the basic MMT concepts. What they say is that as any monopolist, the state fixes the price level by fixing one price, which could be the price of gold under a gold-standard, or the minimum wage with a Job Guarantee. All other relative prices adjust through the market.



      • Bob Roddis says:

        I understand the alleged difference between Mosler’s so called free market approach of allegedly controlling inflation through taxes and Lerner’s total price control approach. As I have said, I have only recently read Lerner.

        Further, I understand the impact of the Mosler approach. The Mosler/Wray approach takes no account of Cantillon Effects or distortions of the pricing process that their policies must inflict and which must necessarily lead to malinvestments and misery. Further, how can informed complicated long term economic calculation proceed when the benevolent omniscient state may at any time crank up the tax rate to “cure” inflation?

        Thus, you either have a socialist calculation problem or a Keynesian-induced Austrian Business Cycle Theory calculation problem Take your pick.

        • MamMoTh says:

          Finally! Those are interesting issues that deserve being addressed instead of the usual austrian straw man argument.

        • warren mosler says:

          i have always made it clear that the currency is a simple public monopoly, and what govt does is necessarily a distortion. there’s no way around that.

          as i’ve stated from the beginning, taxes function to create unemployment as defined, and state spending then hires those unemployed its taxes created.

          it’s all in ‘the 7 deadly innocent frauds’ at http://www.moslereconomics.com

          i understand this is just a blog, and anyone can state whatever they want, true or false, so i’m not complaining, just pointing out this page is full of ‘bad scholarship’ with regards to attribution.

    • Magpie says:

      That was an interesting cartoon and I actually like it.

      “MMTers do not address or confront any Austrian concerns or critiques. In fact, MMT is acatallactic as Mises explained in 1917”

      Fair enough. I confess I don’t know much about what Mises wrote.

      The first part of Mises’ quote sounds accurate. But why does he conclude that:

      “This doctrine can in no way be fitted into a theory of exchange; for apparently it would have a meaning only if the state fixed the actual level of the money prices of all economic goods and services as by means of general price regulation.”

      That is not obvious to me.

    • warren mosler says:

      you are confusing relative value and allocating by price with inflation.

  16. Bob Roddis says:

    Speaking of Kissinger, I forgot to mention that along with Kissinger and a mountain of skulls in my cartoon, there is a cartoon of Tricky Dick Nixon. You know, the guy who cut the last tie to gold and ushered in the miraculous MMT world of total fiat money.


    I don’t want anyone to think that I’m being coy and not claiming a philosophical connection between fiat money and a mountain of skulls.

    • Magpie says:

      Again, fair enough.

      Can you explain what the connection is?

  17. Senexx says:

    Hi Bob,

    You start with “OK I have decided that this MMT (Modern Monetary Theory) doctrine/worldview needs a thorough refuting” which strongly suggests you’ve all ready made up your mind. So there really is no point in engaging; if you had offered ‘a critique’ on the other hand?

    However I’ll oblige – as Tom Hickey has pointed out the seminal work is L. Randall Wray’s Understanding Modern Money (1998). If I was to recommend something as MMT101 it would be Warren Mosler’s 7 Deadly Innocent Frauds of Economic Policy & MMT 201 would be Randy Wray’s Understanding Modern Money.

    Ultimately the key to understanding MMT is imagine a nation without a monetary economy and then a fiat currency is introduced and a tax is enforced upon that nation. To obtain that currency, the State has to spend it first.

    Now fast forward to modern times where the currency is generally accepted and transacted. We have the familiar automatic stabilisers, tax revenues fall when there are unemployed (on social security) and so deficits go up and tax revenues rise when there are employed people so deficits fall (they’re paying taxes).

    Beyond that it just a matter of understanding the flows to the accounting identity that (AFAIK) no one disagrees with.

    C + S + T = GDP = C + I + G + (X – M)

    which becomes

    (I – S) + (G – T) + (X – M) = 0

    The sectoral balances derived are:

    The private domestic balance (I – S) – positive if in deficit, negative if in surplus.
    The Budget Deficit (G – T) – negative if in surplus, positive if in deficit.
    The Current Account balance (X – M) – positive if in surplus, negative if in deficit.

    And these are what you have to understand the flows to. From my perspective, once you understand the initial starting point of fiat, it is just common sense.

  18. Senexx says:

    As for inflation, well there is going to be an Austrian bun fight over that.

    For Austrians, inflation is defined as expansion of the broader money supply (currency plus private demand deposits). For other economists, inflation refers to a continuous increase in the general price level (average price of all final goods and services).

    To use the neoclassical definition (i.e. other economists), inflation can fought by increasing desired productivity which will see inflation remain relatively stable.

    As for the taxes example above that is used to fight inflation, that can be taken two or three ways. One is the raising of taxes (politically unlikely), adjusting the size of the deficit (likely – it’ll be shrinking with employment growth and productivity anyway) and surpluses (also likely but not a promising result until full capacity of the economy is reached).

  19. Chris says:

    It seems to me that MMTers do not realize that, in fact, the State cannot print as much money as it wants because of two factors:

    1.) The Keynesian setup for an economy is generally closed, which neglects the fact that people will invest elsewhere if their returns are eaten up by inflation. (Would this make government debt a regulator of foreign investment?)

    2.) Even if everything works perfectly and people are deluded into investing in government bonds with a nominally high yield this will mean that the State will hold most of the free capital, which it does not, will not and cannot distribute effectively.

    I believe that MMT should change its name to EFTSQ (Excuse for the Status Quo) because this is exactly what politicians have been doing for the past 3 decades. In fact, there is nothing modern about MMT because it is just a formal mathematical model of exactly what the government has been doing for the past 30 years. In fact, one could consider it a reflexive reaction to cope with the continued failure of the Keynesian dogma.

  20. Spectre says:

    MMT makes the assumption that GDP is THE “economy” (source: hyper-MMT’er Mike Norman, http://www.youtube.com/watch?v=6ZavufehR4I). What MMT has done is conflate terminology, i.e. GDP and THE “economy.” Conflating GDP and THE “economy” is a mistake, albeit common among diction unconscious minds.

    From http://dictionary.reference.com/browse/gross+domestic+product:

    “[GDP is] [t]he monetary value of all of a nation’s goods and services produced within a nation’s borders and within a particular period of time, such as a year. It became the official *MEASURE OF* the U.S. economy in 1991…” (ephasis added).

    One can not profess to understand a subject without the accurate use of language, which is why making a distintion between GDPand THE “economy” is of utmost importance. GDP as it were, is a measurement *OF* THE “economy,” as opposed to being THE actual “economy.” GDP is the equivalent of the oil change sticker in your car – it tells us how much and for how long. Thus, GDP is NOT “the economy.”

    From http://dictionary.reference.com/browse/economy?o=100074:

    “[The economy is] the *COMPLEX* of human activities concerned with the production, distribution, and consumption of goods and services” (emphasis added).

    In short, THE “economy” is a “complex,” not a measurement. Got that MMT’ers? THE “economy” can not be reduced to some statistic or mathematical model – it is more than just simply GDP. From a human-centric view, THE “economy” involves the interaction of humans with other humans, and humans with both living and non-living physical matter.

    GDP gives us a monetary value of gross income (based on resources accounted for) for a specified geographical area, over a specific period of time. I liken GDP to the gross income figure (or operating income figure if you prefer) in the income statement of a legal entity. GDP basically tells us in fiat monetary terms what THE “economy” earned, net of expenses THE “economy” “needs” to operate/function. Of course there are objections as to how the figure is calculated, namely surrounding the C & G variables in reference to: Y = C+I+G+NX equation. It is not clear why consumption [C] and government [G] are added in the equation as opposed to subtracted. Aren’t consumption and government more consistent with being expenses as opposed to profits for THE “economy?”

    In sum, MMT is bunk simply because of its erroneous foundation. It is wrong to conflate GDP and THE “economy,” they are two seperate things. GDP is gross income, a MEASURE OF the “economy,” whereas THE “economy” is a reference to the complex of human actions and physical matter to coordinate sustaining positive economic acitivity.

  21. Não liguem a impressora de dinheiro: uma resposta ao canal "marxista" Saia da Matrix – Rota Libertária says:

    […] blog e o economista Nick Rowe, de impecáveis credenciais acadêmicas e reputação internacional, defendeu a MMT da seguinte […]