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Home / New Economic Perspectives / MMT: REPORT FROM THE FRONT (PART2)


By L. Randall Wray PART 2 In Part 1 I discussed the third annual MMT conference that was recently held at Stony Brook, and you can find the program as well as videos of the conference here: ( In this Part 2 I discuss a special issue of real-world economics review devoted to MMT ( As usual, my report stretched out to become too long for just 2 blogs so there will be a Part 3, coming later this week. And who knows, maybe I’ll need a Part 4. First, the good news. The editors seem to have played the game reasonably fairly. They invited contributions by MMT proponents and opponents. Often editors will give the opponents an advantage—for example, letting them see the contributions by MMTers in advance,

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By L. Randall Wray


In Part 1 I discussed the third annual MMT conference that was recently held at Stony Brook, and you can find the program as well as videos of the conference here: ( In this Part 2 I discuss a special issue of real-world economics review devoted to MMT ( As usual, my report stretched out to become too long for just 2 blogs so there will be a Part 3, coming later this week. And who knows, maybe I’ll need a Part 4.

First, the good news. The editors seem to have played the game reasonably fairly. They invited contributions by MMT proponents and opponents. Often editors will give the opponents an advantage—for example, letting them see the contributions by MMTers in advance, without letting the MMTers see the contributions by the opponents. When it comes to MMT, editors don’t like to play fairly. It looks to me like proponents and opponents were treated equally. That is highly unusual when it comes to MMT “debates” which are almost always stacked against its proponents.

More good news. There is one good contribution made to MMT that doesn’t come from the inner circle of MMTers. This might be a first—at least, it is the first case I can recall. The typical diatribe by critics runs like this. MMT is wrong because it does not cover topics X, Y, and Z. This will come from a critic who considers her/himself to be an expert on X, Y, Z. I do not recall any critic ever going on to try to extend MMT to cover topics X, Y and Z. This is, of course, what any scientist would do (I’m using the word scientist in a broad sense to include even social science). Our critics only want to take the opportunity to find a way to criticize us, not to actually do something that would be useful. They know that the number of core MMT researchers who have developed MMT is exceedingly small—undoubtedly smaller than the core group of social scientists who have ever worked to develop a new paradigm. But rather than joining to try to rectify the lacunae, they are only interested in bashing MMT. They are not scientists—they barely rise above the level of trolls (and I’d guess trolls would even be embarrassed to be grouped together with some of our critics).

Look at me! Look at me! Look at me now!

So, this issue of rwer contains what I believe to be a first—an article that tries to fill a perceived gap. Some months ago Robert Murphy had written to me arguing that MMT has not gone sufficiently in depth on the issue of taxes. I thought that was a strange accusation—since most critics argue we talk too much about taxes (as in driving the currency and fighting inflation). Further, I had added a chapter to the second edition of my Modern Money Primer to discuss taxes in more detail—good taxes and bad taxes. But what Murphy meant was taxes at the micro level. I responded that I accept the Musgrave&Musgrave approach (which I had studied—and taught; it is THE source on public finance). He responded that that is not sufficient. I remained puzzled.

But his piece in rwer, “Tax and modern monetary theory”, clarifies his point. And, I must add, in a reasonably respectful manner. Again, this is something we rarely see from critics—who call us fascists and communists (without I suppose recognizing that there’s an ocean of difference between the two—but, then again, the critics aren’t scientists). Richard argues that “cash paid in tax is a residual figure arising from a plethora of decisions on tax bases, reliefs and allowances, as well as tax gaps that result from non-compliant taxpayer behavior”. Recognizing MMT’s argument (based on Ruml) that taxes are not really for revenue purposes, he argues for seeing “use of tax [instead] as a critical instrument in economic and social policy management”. I agree.

My own contribution to the rwer issue actually addresses his first point, that taxes are a residual—what I call (following Keynesian theory) a leakage. They cannot “pay for” anything since the spending must come first. I argue that it is truly amazing that our Post Keynesian critics adopt the leakages and injections approach, recognizing that saving (a leakage) cannot finance investment (an injection) because injections logically come before leakages, but then drop it when they discuss government spending and taxes. The same logic MUST be true of government spending (injection) and taxes (leakage). But they all get “dazed and confused” when it comes to government. They simply abandon any understanding of basic macro theory and jump on the “taxes pay for government spending” bandwagon. Truly bizarre and rather embarrassing too.

In many places I have also discussed the use of taxes for behavioral management (sin taxes, and the like). But Murphy’s article goes deeper than I have in the past. I recommend reading it, and I’m going to incorporate some of his arguments in my future work. I want to be clear—I’m not embracing everything in his article and I’m not convinced that his insights lead to an entirely different (and implicitly presumed to be better?) paradigm, modern taxation theory (MTT). But I’m glad he tried to make a positive contribution.

I’m not going to talk about every contribution to the special issue of rwer. Some of them I will not read (Rochon, Palley—read at your own risk); and one of them I read but could not follow the argument (Lawson). I have not yet read Trond’s piece (parallel currencies for Euroland in crisis); and I skimmed Armstrong’s pro-MMT piece that lays out a number of issues clearly (he mentions my contribution to rwer but doesn’t cite it—I do not know whether he had it in advance); Dirk’s co-authored piece applies MMT to the euro. Many readers will find these to be useful reviews of MMT.

Shipman’s piece focuses on details of measuring the sectoral balances, warning that mismeasurement could lead to flawed analysis. (I’ll come back to this while discussing Mayhew’s piece.) Lots of decisions go into national accounting and the official numbers can indeed mislead. For me the most interesting part of his article dealt with a difference between modern money theory and modern monetary theory. He has no problem with the first—which is the chartal theory of money—but worries about some of the analysis of the second. Unfortunately this section is too brief so I didn’t fully understand his distinction. I will note here that I use the terminology Modern Money Theory—and have seen that usage as following on from the title of my 1998 book (Understanding Modern Money). We also used this terminology in our textbook. However, many of my colleagues had used the other terminology Modern Monetary Theory. I object to that as it draws attention to the word “monetary” and leads many to believe it is all about monetary policy—while in reality much of the focus is on fiscal policy (and we argue that the traditional division between the two is highly misleading in any case). Further, it seems to conjure in some minds a similarity to Monetarism. But I’ve never seen the distinction Shipman is trying to make. It is perhaps useful but I don’t fully get it.

Toporowski’s piece is a real head scratcher. After his introduction, he begins the analysis in earnest in the first paragraph on page two. One immediately finds 3 statements supposedly about MMT:

  1. The principal doctrine is the notion that all money is state money
  2. Taxes are not necessary to finance that expenditure, but merely need to be large enough to make people hold that money, and hence “value” it
  3. in contrast to borrowing money, the monetisation of government expenditure (its financing by the central bank’s creation of money)

OK, three strikes and you are out. I decided to give him one more strike for old time’s sake, and immediately found it in the next paragraph:

  1. Proponents of Modern Money Theory have been active in promoting active intervention in the labour market through a policy of having the government acting as an “employer of last resort” for the involuntarily unemployed. But this is not an essential part of the Theory

I read that far so that you won’t have to bother. I have no idea whose theory he is presenting. None of the developers of MMT believe that there is only state money (“anyone can create money, the problem is to get it accepted”—MMT has always adopted endogenous money—hell, I wrote the damned book on it, as Bernie would say: Money and Credit in Capitalist Economies: the endogenous money approach, 1990); none believes taxes make people hold money and determine its value (we say that taxes drive a demand for money, but we do not claim that taxes determine its value or create a desire to hold money); none believes there is some policy option called “monetization” (all government spending today is always “monetized” through keystrokes to bank accounts); and none believes a JG is nonessential (the choice is between an employed or an unemployed bufferstock and MMT chooses the former).

I note he does not list even one single citation to MMT literature. That is to say, he does not even make a token effort to pretend he might have read a single piece. What would one label such “scholarship”? I’ve had an occasional first year undergrad submit a treatise on some topic on which there was no obvious research. Except for critics of MMT, I’ve never seen academic research by PhDs that doesn’t cite the work they discuss—much less an article that completely ignores the work it criticizes in a special issue of a journal devoted to the topic. Not only does this not speak well of the article, but it also does raise questions about the editors of the journal. I think it is entirely unprecedented.

Toporowski’s piece is not the only one that fails monumentally to demonstrate even a minimal attempt to survey the literature. Paul Davidson’s piece cites only Paul Davidson and JM Keynes. His claims about the missing elements of MMT—“MMT completely neglects (1) the need to hold money for contractual liquidity purposes, and also neglects (2) the need for orderly price movements in financial markets”–are not backed up by any citations or even any argument. And they are blatantly false. I’ve written on these topics, and Eric Tymoigne has written more. For Paul, money’s invention is tied to uncertainty: the invention of money had nothing to do with moving resources to the authority but rather to deal with fundamental uncertainty. It is because we cannot know the future that we invented money—so that we could write contracts in terms of money. For Paul, MMT is wrong because it sees taxes as driving currency, rather than uncertainty being the handmaiden of the invention driving creation and use of money.

However, we do not deny that use of monetary contracts is useful for such reasons—we simply argue that that cannot explain the origins of money. So we do not believe he’s put his finger on what drives money. Our argument is that money as a unit of account must have pre-existed such a use of money as a hedge against uncertainty, and as well use of financial markets, themselves. Paul has an infinite regress argument—as do many other heterodox and orthodox economists. “People invented money because they needed it to fulfill money contracts” is not a satisfying approach. “Holding money because it reduces the uncertainty concerning one’s ability to meet monetary obligations” is similarly an infinite regress. What kind of existential uncertainty do we face in a monetary economy that we do not face in a nonmonetary economy? That we will not have money when we need it. In other words, if we had never invented money, we would never need money to meet commitments in money. If we had not invented cars, we wouldn’t need seat belts to protect us in car wrecks. If we didn’t have cars and car wrecks, we wouldn’t use seat belts. Holding money does protect one in an economy that uses money contracts. But that cannot explain the origin of money.

Citations are thin in most of the other critiques, too. Collander’s piece has only two citations—one to Stephanie and one to me. Lawson has just one citation to MMT literature—to the 2012 (first edition) version of my Modern Money Primer—a book that was explicitly written for a general audience. Mayhew cites one journal article—a very early one by Stephanie—but admits she relies mostly on our textbook, “which I take to be the current definitive statement of MMT”. Imagine that. A scholar takes an undergraduate textbook to be the “definitive statement” of an entire paradigm? I’m sure this is unprecedented—another first. As I said in Part 1 earlier, our textbook is MMT-consistent but it is a macroeconomics textbook and certainly does not attempt to present the state of the scholarly work on MMT. She also uses emails as textual evidence. I guess that for some kinds of research it could be useful. But to formulate a critique of economic theory? I’m puzzled.

Lavoie makes an effort—I count 5 legitimate academic sources plus a large number of BillyBlogs—which are serious pieces as any reader of BillyBlog can attest. Plus the textbook. He even includes Scott Fullwiler in that list—who has made some of the most important contributions on the technical details. In that respect Lavoie is nearly unique—most of the others rely on the expositions designed for undergrads or general audiences. That does not mean, however, that he’s got much legitimate criticism. He’s continuing to beat a dead horse on the consolidation technique. When talking about the net impact of fiscal operations on the nongovernment sectors we sometimes consolidate the treasury and central bank—since the internal operations have no impact whatsoever on any entity outside government. Lavoie admits that this is perfectly legitimate. Here’s Buiter’s justification for doing so: “We therefore should, in order to understand the fiscal space of the sovereign, consolidate the accounts of the Treasury and central bank, and do our analyses and forecasts in terms of the accounts of this consolidated entity – the State… This is a key feature our analysis shares with Modern Monetary Theory.” I could go on with many other such examples, but there’s no point—literally everyone does this. My first Money and Banking teacher, John Ranlett at CSUS-Sacramento (he was also Stephanie’s teacher some decades later), did the same in his textbook—where I learned how to do the accounting and which made it possible for me to immediately understand Warren Mosler’s comment that “bond sales are just a reserve drain, not a borrowing operation”. So why keep beating that dead horse?

MMT economists were the first to go deeply into the operational details involved when government spends—especially Stephanie, Scott, and Eric. And so we get criticized for consolidating, and also for not consolidating because going too deeply into the details is just so difficult to understand! Can criticism get any more ridiculous than that?

But Lavoie’s main beef in this piece is that MMT doesn’t cite enough Post Keynesian work, especially his own. His main piece of evidence is our textbook (which he admits he had not finished). But it is an undergrad textbook—and we generally chose to cite the fore-fathers and fore-mothers of heterodoxy rather than those who have helped to keep the ideas alive. Far too much of the PK literature is just rehashing what the forebearers said (a problem in Insitutionalist thought, too, me thinks), anyway.

Look at me! Look at me! Look at me now!

Strangely, Warren Mosler’s contribution has been excluded from almost all of the critiques (except the Bonizzi, et al, piece; and as noted, I never read Rochon or Palley so I have no idea which—if any—MMT pieces they cited). Warren is clearly the “father” of MMT, and he writes precisely and concisely. It is like criticizing Marxism without reading and citing Marx; or Keynesianism without reading or citing Keynes. OK, yes I know that is done all the time by hacks. But can we hold our critics to what is normal standards of scholarship?

The Bonizzi contribution does contain a large number of citations to actual MMT literature. They sort of wander all over the field of MMT in a mostly congratulatory summary of the ideas, but then bring up the tired old bogeyman that MMT ignores countries that don’t have currency sovereignty as we define it. Let us say that were true—that MMT has only concerned itself with the countries that satisfy the conditions of currency sovereignty, and that it has accurately described how those systems work and has proposed policy to improve the way they work. Would that be an accomplishment worthy of praise? Or would you call it a fascist approach? Well, we know the path that critics like Jerry Epstein take. After all, those sovereign currency nations account for perhaps three-fourths of global GDP and also their economic policy and performance has big impacts on the rest of the world. Would you want to understand how sovereign currency works, or would you prefer to continue to use the flawed neoliberal deficit hawk approach of so many of our heterodox brethren?

But even the Bonizzi piece backs off the claim that MMT has actually ignored nonsovereign nations, and admits that MMT has argued there is more of a continuum of exchange rate regimes. They try to make this sound like a recent conversion, but it has long been in my lectures—as my students can attest. And UMKC produced students who have applied MMT to developing nations—a dozen years ago at least.

I will admit that when I wrote Understanding Modern Money, 1998, I was reluctant to discuss exchange rate regimes (although Warren pushed me to do so—and Warren has always made clear that when he talks about “soft currency economics” he is not including nations that don’t have their own sovereign currency). My hesitation was not because I wasn’t interested in the fate of nations that peg, but because I had no training in either international economics or development. Like most American students, my professors never got to those topics in our classes. Yes, the USA has long been too insular. But Mat Forstater is a development economist and he brought that background into his work from the very beginning; and Bill lives in a tiny little open economy and so he always had the international scope in mind. And in Part 1, I directed those who are interested in the application of MMT to developing nations to the video from the conference panel on the topic.

Finally. As I discussed above, if MMT has holes in its approach, the correct approach of a scientist would be to try to extend MMT—not to bash it with troll-like criticism. I have often asked for experts on developing nations, exchange rate theory, and international economics to help in our endeavor. Instead, they have devoted most of their effort to criticizing us and making excuses for the tired old policies of pegging, currency boards, and constraining growth to avoid balance of payments constraints. How about trying something new after all the old advice has failed to produce even one genuine example of success?

Due to the length, I will wrap up this second part here. In Part 3, I’ll summarize the rest of the contributions to the rwer issue and I will return to issues related to the treatment of MMT’s academic scholarship by the journals and associations.

L. Randall Wray
Larry Randall Wray (born June 19, 1953) is professor of Economics at the University of Missouri–Kansas City in Kansas City, Missouri, USA, whose faculty he joined in August 1999.[1] Before UMKC, he served as a visiting professor at the University of Rome, Italy, the University of Paris, France, and the UNAM, in Mexico City. From 1994 to 1995 he was a Fulbright Scholar at the University of Bologna. He is also Research Director, of the Center for Full Employment and Price Stability, and Senior Scholar at the Levy Economics Institute of Bard College, NY.

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