It’s All MMT: The Fraud of “Monetary Policy”

Updated: July 9, 2024 at 8:36 am EST  See Comments

Modern monetary theory (MMT) is not convincing to most trained economists of various schools of thought. This causes many to balk at MMT and mock it, some of which is warranted as a reductio ad absurdum, especially given some of MMT’s more outlandish claims. In fact, my own thesis was an Austrian critique of MMT.

But there is also a fair amount of hypocrisy in the non-Austrian (e.g., mainstream, Keynesian, monetarist) critiques of MMT by mainstream economists. The truth is that most, if not all, of these economists share the same faulty presuppositions regarding what is euphemistically called “monetary policy.” The difference between mainstream and MMT economists is usually one of degree, not of kind.

Alan Greenspan, former Federal Reserve chairman (1987–2006) and most definitely not an MMT proponent, made a very MMT-friendly claim: “The United States can pay any debt it has because it can always print money to do that, so there is zero probability of default.” While this is literally true and points to the fact that the nominal debt and dollars are not the issue, it overlooks the distortionary consequences of this manipulation on the entire structure of production. Nevertheless, such a claim is often also repeated by proponents of MMT, as if it contains some magic missing ingredient to unlock greater stores of wealth.

In fact, MMT provides a warranted critique of other schools of economic thought that share an underlying premise while not arriving at the same conclusions. That assumption is so-called monetary policy—that governments via a central banking monopoly ought to be the sole entity that issues and controls money as a policy instrument. The dubious justifications for this are that it provides greater economic stability and expansion of money and credit according to the needs of trade. (Both of these are false, theoretically and empirically.) That said, MMT and mainstream economics both share this presupposition, assuming

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