What makes Modern Monetary Theory different?

Jim Byrne

It is the methodological approach that makes Modern Monetary Theory (MMT) different.

It is this approach that makes MMT different from other schools of economic thought. MMT starts by describing how the monetary system works, in practice: based on observation and research into the mechanical workings of the system (where money comes from, which federal departments or balance sheets it flows through, how government contractors are paid, and so on). MMT describes what it finds.

This approach reveals important lessons. For example, it reveals why monetary sovereignty is so important when it comes to the ability of governments to manage their economies. See my article, ‘Currency Issuing Countries Versus Those With Full Monetary Sovereignty – What’s The Difference?’ for a discussion of this point in great detail.

MMT combines its findings with ideas from past economists and from other schools of thought – in order to make predictions about the outcomes of policy choices. And/or to predict the results of particular economic conditions within the economy.

For example, MMT economists find that private sector debt is more important than government debt when trying to predict financial meltdowns; interest rates aren’t an effective tool for managing inflation; high levels of government ‘debt’ for currency issuing governments have had little impact on future spending; bond sales don’t raise spending money but are used to manage the overnight bank rate, which in turn influences wider interest rates.

MMT also borrows ideas from other economists and schools of thought, integrating them into a broad framework of analysis.

For example, MMT subscribes to the chartalist story of money. Why? Well, because it is the only story about the development of money that is based on real historical evidence. Certainly barter existed and still exists but there has never been a society based on barter: there is no evidence that money grew out of the flaws of the barter system and yet this is the story that, to this day, underpins orthodox economics.

Source: Jim Byrne, LinkedIn network, 2025 https://www.linkedin.com/feed/update/urn:li:activity:7363577172151681024/