When I saw Dan ps’s latest post, I set out to reply in the comments, but found myself unable to because the reply links were no longer there. Hence this post in reply.
My thanks to Boo Radley, stratocruiser, caleb36, bluedot12, sihlkee, and TarheelDem for their comments making common sense points about MMT. I think you set the stage well for what I’ll say below.
My main reservation with Modern Monetary Theory is probably this: It is named a monetary theory, yet its proponents expand its scope – in all directions, it sometimes seems – to include topics that have nothing to do with monetary theory. I think it’s reasonable to expect a monetary theory to describe the way money works, and nothing else. Here is how money is created. Here is how it is destroyed. Here is how it gains value. Here is how it loses value. Here is what governments must do to increase its value, here to decrease it.
Another name for the Modern Money Theory (MMT) approach is neo-chartalism. It is also sometimes called “functional finance” because it follows the orientation, emphasized so strongly, by Abba Lerner in earlier times. That said, Modern Money Theory, or alternatively, Modern Monetary Theory isn’t a name its developers chose. It is a label given the approach by others, which over a period of time in the 1990s, stuck. Once that happened its developers decided not to fight it, but to just live with it. Right now, some of us are using “Modern Money Theory,” in an effort to get away from the implication that MMT is about monetary policy, because the most important emphasis of our approach is on fiscal policy, rather than monetary policy.
Next, MMT is not, as Dan ps says above, a monetary theory. It is an approach to the subject matter of macroeconomics. The approach contains all sorts of propositions and sets of propositions. Definitions, value statements, conceptual frameworks, descriptive (fact) statements, theories, accounting identities, normative propositions, etc. So, when Dan ps objects to the proponents of MMT encompassing a lot more in their writings than just “monetary theory,” his objection, while based in part on fact, is just a reflection of his view of what the scope of something called MMT ought to be. But, unfortunately, his view is a purely personal one and is not shared by MMT, developers, practitioners, or writers.
So, what can one say about this? Only that MMT people think differently than Dan ps about what MMT ought to be and is about. So, who’s right about this, the guy who’s a “casual reader” of MMT work, or the various people who do MMT? :) :) :)
Yet proponents insist that other things, things that have nothing whatsoever to do with monetary theory, are part of Modern Monetary Theory. I’ll illustrate using my exchange with letsgetitdone since it’s fresh, but I think it’s also representative.
He writes that ’economics ought to be practiced, as Galbraith, the elder said, to fulfill the public purpose,’1 that Modern Monetary Theory ‘is an approach and not a theory’ (!!) and that ‘public purpose is core to MMT.’ Public purpose may be core to economics, but not a monetary theory. A monetary theory exists to describe how money works. One may advocate for public purpose, as one understands it, and show how it works under a given monetary theory – but that is no longer monetary theory.
Well, again, this argument may sound plausible, but it is based purely on Dan’s misinterpretation of MMT as a narrow value-free descriptive theory about money. If one actually looks at the MMT literature, something Dan as as “casual reader” has done to only a limited extent, then you will find that all the main MMT developers, as well as some less important writers such as myself, continually refer to MMT-based policies compared to alternative policies, such as neoliberal ones, in the context of the idea of public purpose.
We all agree that when we talk about “public purpose” proper we are not talking monetary theory or monetary policy. We know we’re talking about the purpose of macroeconomic policy and about fiscal and monetary policies in relation to public purpose. But so what? We think that’s what we should be talking about.
When Dan says: “. . . Public purpose may be core to economics, but not a monetary theory,” I say first, that MMT isn’t just a monetary theory, and second that public purpose isn’t core to most approaches to macroeconomics and particularly not to neoclassical and neoliberal approaches, but it is core to MMT, and that is one of the ways in which MMT differs from the other approaches.