HeterodoxFrom 1990s
Modern Monetary Theory
What really limits a government that issues its own currency?
The 30-second version
A government that issues its own currency can't run out of it, so the real limit on spending is inflation, not debt. Popular in politics, rejected by most academic economists. And it doesn't apply to euro countries, which don't issue their own money.
Big questions it works on
Go deeperKey ideas, thinkers, evidence and where it stands today
Key ideas
- A government that issues its own currency cannot run out of it.
- The real limit is inflation, meaning available workers and resources.
- Taxes create demand for the currency and cool inflation.
- A job guarantee as an automatic stabiliser.
Key thinkers
Warren Mosler, L. Randall Wray, Stephanie Kelton (The Deficit Myth, 2020), Pavlina Tcherneva
What it got right
It focuses on real resources rather than accounting limits. Japan has run very high public debt for decades without a debt crisis.
Main criticisms
In a 2019 Chicago Booth survey of leading economists, not one agreed that countries borrowing in their own currency need not worry about deficits. It does not apply to euro countries, which do not issue their own currency. Raising taxes quickly to stop inflation is politically hard.
Evidence worth knowing
The 2021–23 inflation is a live test of how fast fiscal policy can respond.
Where it stands today
Fringe in academia, visible in political debate.
Family line
Builds on post-Keynesian ideas about money and Abba Lerner's “functional finance”.