MMT: The Economic Theory That Says ‘Just Print Money’
Modern Monetary Theory, or MMT, has become one of the most talked-about and often misunderstood economic ideas lately. Unlike the usual way of thinking that treats government budgets like a household’s chequebook, MMT flips the script on how we think about deficits, inflation, and how countries use their money. In this post, we’ll break down the main ideas behind MMT, what it means for policies, and some of the biggest critiques from mainstream economists.
MMT views a national currency as a public monopoly, much like a utility, where the government is the sole issuer and can never run out of its own money. This perspective leads to striking conclusions: unemployment essentially becomes evidence that the currency-issuing government isn't spending enough to meet the private sector's need for financial assets to pay taxes and save. Since governments create money by spending, they don't need to "afford" programs in the conventional sense - the real constraint isn't budget deficits but inflation, which only becomes a risk when the economy hits full employment. Even government debt takes on a different meaning under MMT, as a currency issuer can always meet obligations in its own money.
Modern Monetary Theory (MMT) and mainstream Keynesian economics (KE) differ fundamentally in their ideological and theoretical approaches. The first major distinction lies in funding government spending: while Keynesians emphasise taxation and bond issuance, MMT asserts that sovereign governments can credit bank accounts to finance expenditures. Their views on taxation also diverge—where Keynesians see taxes primarily as a means to repay public debt (including central bank loans with interest), MMT argues that taxation’s core purpose is to sustain currency demand, with secondary roles in curbing inflation, reducing inequality, and discouraging harmful economic behaviours. Inflation control presents another key contrast: Keynesians rely on central banks’ monetary policy (e.g., interest rate adjustments). MMT prioritises fiscal measures like broad-based tax hikes to drain excess money from the private sector. Finally, their strategies for achieving full employment differ. Keynesians entrust central banks with a "dual mandate" of price stability and maximum employment, though these goals often conflict, as seen in the 1980s when anti-inflation rate hikes spiked unemployment. MMT, conversely, proposes direct fiscal interventions like job guarantees, arguing that monetary policy alone cannot reconcile stable prices with full employment. Ultimately, while Keynesianism leans heavily on monetary tools, MMT places fiscal policy at the forefront of economic management.
Critics argue that MMT overreaches in advocating deficits and underestimates inflation risks. Nobel laureate Paul Krugman compares MMT to "Calvinball" for its shifting rules, while Austrian economist Robert Murphy deems it "dead wrong," contesting its claim that deficits boost private savings without crowding out investment. Post-Keynesian Thomas Palley acknowledges MMT’s roots in Keynesianism but criticises its oversimplification, noting standard models already account for monetary sovereignty. He warns that MMT ignores fiscal-monetary conflict risks (e.g., legislative-central bank disputes) and would destabilise open economies with flexible exchange rates. Fixed rates, he counters, would reintroduce market constraints MMT seeks to escape. Palley also faults MMT for lacking a robust inflation theory, especially under full employment, and dismissing the risks of perpetual zero interest rates. Palley asserts it offers no novel monetary insights, only unproven macroeconomic claims.
To wrap things up, Modern Monetary Theory shakes up how we usually think about government budgets, money, and the economy. It offers some fresh ideas, like how governments can create money and why deficits might not be the problem we’ve always been told they are. But it’s not without its critics, who raise valid points about inflation risks and how some of MMT’s ideas might be too simplified or hard to put into practice. Taking a closer look at both the pros and cons helps us better understand how our economies work today. And that kind of open conversation is exactly what we need to figure out smarter ways to manage money and keep things running smoothly.
