Wednesday, September 2, 2020

The 'Kansas City' Approach to Modern Money Theory — Randy Wray

Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp’s state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and non-sovereign issues of liabilities, and hence integrates a credit theory of money (or, “endogenous money theory,” as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the “Kansas City” approach to MMT at the University of Missouri–Kansas City (UMKC) and the Levy Economics Institute of Bard Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp’s state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and non-sovereign issues of liabilities, and hence integrates a credit theory of money (or, “endogenous money theory,” as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the “Kansas City” approach to MMT at the University of Missouri–Kansas City (UMKC) and the Levy Economics Institute of Bard College..
SSRN(July 2020)
The 'Kansas City' Approach to Modern Money Theory
Levy Economics Institute of Bard College, 2020
L. Randall Wray | Professor of Economics, Bard College

9 comments:

Matt Franko said...

Sectarianism now...

NeilW said...

"While I agree with this as a general policy, I can also see a public interest in offering risk-free savings bonds to individuals, pension funds, and insurance companies. Only qualifying buyers would be allowed to hold them"

Why a tradable bond? Why does the value need to float over its lifetime?

Why not just a National Savings account?

Matt Franko said...

“ a public interest in offering risk-free savings bonds to individuals, pension funds, and insurance companies.”

Check AND f-ing mate... AGAIN!

Matt Franko said...

Neil the value wont “float!” if the risk free rate is permanent zero...

Matt Franko said...

He’s saying we still need a non zero rate for a subset of USD savers but permanent zero risk free lending rate...

MMT includes permanent zero risk free lending rate... “the natural rate of interest is zero” and all that...

NeilW said...

The value will always float due to supply and demand. If lots of people want to swap them for cash the price will go down.

Permanent zero is for those with central bank accounts. Everything else is a commercial risk rate - lending and deposits.

Matt Franko said...

Well I don’t believe in “supply and demand!”....

The prices go up and down depending on the assumptions of future govt rate policy...

If the policy was permanent zero (MMT) they would not fluctuate..

Matt Franko said...

Neil here is the functional equation:

https://www.investopedia.com/terms/n/npv.asp

The way it is now You have to make an assumption on the risk free rate and not everybody makes the same assumption ... if (perMMT) they fixed that variable then that would become a constant ( not a variable anymore) and the price wouldn’t fluctuate...

NeilW said...

It would move to depend on the current bank deposit rates - unless the bonds were so short that the pull to redemption overrode everything.

That would become the 'risk free rate'. Or more likely the 'can we make this back by flogging them insurance' rate.