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Modern monetary theory: an explanation

Modern monetary theory:an explanation. Professor Richard Murphy. April 2023.  Funding the Future. Formerly Tx Research UK. “Modern monetary theory (hereafter, MMT) is an explanation of the way in which money works in an economy. It also explains the consequent impact that the best use of money, using this understanding, might have on behaviour in that economy. The core suggestion made by MMT is that a government is constrained by the real productive capacity of its economy and not by the availability of money, which it can always create. Secondary insights are that money is created by government spending and is destroyed by taxation. I developed this understanding independently, a fact I first mentioned in a blog post in 2013, which was the sole reference I made to MMT on that site until 2015 when further comment was promoted by an invitation to debate with Bill Mitchell2 on MMT and People’s QE. That was immediately prior to publication of my book, The Joy of Tax, in which ideas that relate to MMT are discussed but the term is never used because I was still pretty unfamiliar with what it had to say. As I now know, MMT is most identified with the work of Warren Mosler, Bill Mitchell, Randy Wray and, most especially, Stephanie Kelton, whose understanding differs from that of the other three to some degree, in my opinion. They built on the ideas of othes like Abe Lerner, Hyman Minsky and Wynne Godley What I offer here are my interpretation of what I think to be core MMT understanding. I suspect there is much common ground in that. There will be much less common ground on my interpretation of what the understanding means and on the supposed (and very largely, in my opinion, unnecessary) theoretical justification for it. So be it: that is what political economy is about.”

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