Modern Monetary Theory Is A Failed Notion As Old As Money

NEW YORK, NEW YORK – DECEMBER 09: Stephanie Kelton attends “The Bloomberg 50” Celebration at The Morgan Library on December 09, 2019 in New York City. (Photo by Clint Spaulding/Getty Images for Bloomberg)

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U.S. monetary authorities are not “printing” money to fund the federal government. See the dollar’s global circulation for evidence.

In addition to circulating as the the currency of business in New York, Los Angeles, and San Francisco, the dollar similarly referees exchange in Caracas, Pyongyang, and Teheran. All too many say Argentina should “dollarize,” except that it’s already dollarized. To focus on “legal tender” is to miss the point.

The dollar’s global circulation doesn’t just reject Stephanie Kelton’s Modern Monetary Theory (MMT), which is a left-wing version of the laughable neo-Austrian view that central banks enable government of unlimited size, it also rejects Milton Friedman’s monetarism.

The only limit to money in circulation isn’t a central bank, a Treasury, a Mint, or a printing press, rather it’s a lack of production. Where there’s production there’s always money simply because the sole purpose of production is to attain commensurate goods and services in return.

It firstly speaks to the problem with Friedman’s monetarism. The free marketeer in Friedman was seeking consistency in so-called “money supply,” but money in circulation mirrors production. Which means money in circulation is the opposite of consistent, by its very description.

It’s a reminder that monetarism isn’t a free market notion, rather it’s a variation of Keynesianism. Keynesians view government spending increases as growth (and possibly inflationary), and shrinkages of government spending as evidence of reduced growth and deflation. Friedman viewed central bank increases of exchange media as growth and possibly inflationary if, and shrinkages of it as the anti-inflationary, slower growth opposite. Monetarism and Keynesianism don’t reject each other as much as they’re opposite sides of the same coin.

Both religions imagine that government has resources that it can expand or withhold from the economy. Both religions are incorrect. There’s production, and nothing else. And where there’s production there’s always and everywhere money to facilitate the buying of products with other products.

Kelton’s MMT is as old as money simply because as long as money has existed, people have been trying to get something with it for nothing. Which means they misunderstand money. It’s not printed, rather it’s an effect of production. Forget what’s “printed,” the money that circulates is proof of work.

See yet again New York, Los Angeles and San Francisco relative to Buffalo, El Monte and Pittsburg. It’s not random that there’s exponentially more dollars in the first three than the second. Money in circulation is an effect of production, not printing presses.

It’s the production part that Kelton ignores. She imagines that since dollars are a globally accepted exchange medium now, that they would still be if they were printed to fund whatever an allegedly enlightened government wanted to purchase. Not a chance.

Missed by Kelton, along with Friedman before her, is that money buys nothing. If this is doubted, we need only consider the disappearance of the bolivar, won and rial from business exchange in Caracas, Pyongyang, and Teheran, not to mention the disappearance of the mark in 1920s Germany. What’s printed is not accepted by producers who want market goods in return for what they bring to market.

In other words, the surest sign that MMT is as old as money while also an abject failure can be found in the dollar’s circulation where it’s decidedly not legal tender. Producers require dollars in return for their production. And they wouldn’t if the dollar were being printed.

MMT fails, as has monetarism, as has MMT’s “free market” mirror in the Austrian School, because all three are obsessed with money. They needn’t be.

Money is the always and everywhere effect of production. It circulates wherever there’s production, and as though an “invisible hand” put it there. Governments aren’t that hand.