Asad Zaman — Modern Monetary Theory

The starting point of MMT is that our thinking about money is conditioned by the view that money is based on gold, which leads us to ignore the radical differences between gold-backed money and “fiat” money, which comes into existence by government decree, and does not require any backing. With a gold-backed currency, the concept of a government deficit makes sense – the government must have gold, in order to spend it. However, with a fiat currency, a deficit must always be self-imposed; the government chooses not to print money in order to pay its obligations.The idea that the government does not have money to fund social welfare or investment is wrong, because the government creates money by sovereign fiat, and can always print as much money as it likes. MMT raises the question of why the government should impose taxes on citizens to generate revenue – why not just print the money instead? Readers who have been conditioned by economic theories will eagerly proffer the standard answer: because this will lead to inflation! But this answer is neither sufficient, nor satisfactory.

Based on his experiences as Governor of the New York Federal Reserve Bank, Daniel Tarullo has written that at present we do not have a working theory of inflation. Similarly, Joseph Stiglitz has written that the stable relationship between money and inflation broke down in the 1980’s, leaving us with no reliable guide to monetary policy. 

Asad Zaman is teaching MMT in Pakistan.

WEA Pedagogy Blog
Modern Monetary Theory

Asad Zaman | Vice Chancellor of the Pakistan Institute of Development Economics, Islamabad, and formerly Director General of International Institute of Islamic Economics, International Islamic University, Islamabad

also of interest

Moneyness
The credit theory of money
JP Koning

also

Real-World Economics Review Blog

Uploaded: ‘The role of money in economic theory’ by Wesley Claire Mitchell (1916)

Merijn Knibbe