ALTERNATIVE PATHS TO MMT


New Economic Perspectives has a nice article ALTERNATIVE PATHS TO MMT.

First I’ll clearly state what MMT is and then outline four paths that lead to MMT’s conclusions: history, logic, theory and practice.

What is MMT? It provides an analysis of fiscal and monetary policy that is applicable to national governments with sovereign currencies.

When you say it four different ways, some people can put their understandings of the four paths together for a complete picture. In my days as an unsuccessful amateur tutor of math, I have found that people can be weak in their understanding of all four explanations, so this just confuses them.

One thing I wish MMT would change in its explanations is the idea that private banks create money. The way I put it for the situation of the USA, private banks create promises to give you money. As long as they can work within their promises to give you money, they never have to produce any real money. When people demand real money by cashing in the bank’s promise outside of the particular bank’s private circle, the real money comes from the banks reserves of real money. If the banks run out of reserves, they can go to the USA government’s Federal Reserve Bank to get the necessary real money if nobody else will lend the bank some real money.

The above explanation is how you differentiate between real money and what the private banks create. As all politicians know, it is easier to deliver a promise than it is to deliver the real thing.

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