Money and Finance
WP 03 Dirk Ehnts The meaning of MMT: a reply
Dirk Ehnts
In their examination of Modern Monetary Theory (MMT), Drumetz and Pfister (2021) approached the theory from the policy consequences that would follow. In this paper, I restate the core of MMT and offer some suggestions for central banks. Theories are explanations of what we see, and MMT describes money creation and destruction. MMT hence cannot be and is not a political manifesto. In contrast to most other theories of money, MMT is falsifiable in its core statements which are based on a balance sheet approach to macroeconomics. Since many central banks already educate the public about the creation of modern money through bank lending, it would be most welcome if they would do the same for the creation of modern money through government spending. It is here where MMT and central bankers can find common ground to move forward and leave the theory of loanable funds and that of the money multiplier behind.Cross Reference: Papers,Working Paper,Money and Finance