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Modern Monetary Theory (MMT) is back in the spotlight with a new movie find money and recent clips It went viral on Bitcoin Twitter and Fintwit. In this video, Jared Bernstein, chairman of the US President’s Council of Economic Advisers, appears unable to explain the most basic concepts of government debt and money printing. He claims his MMT is correct, but some language and concepts (the most basic ones) are confusing to him. Considering his role, this is a completely shocking statement.
This post outlines some major flaws in MMT. Perhaps you, dear reader, can use it to debunk his MMT. The stakes are high, as MMT believers, like Mr. Bernstein, have gained positions of power in governments around the world. Putting these people in positions of power is a very dangerous proposition. Because they will rapidly destroy currencies and cause economic Armageddon. As Bitcoiners, we believe that Bitcoin will replace the trust-based dollar, but we hope that the transition will be natural and relatively uneventful. A collapse of major currencies without Bitcoin being ready to take the lead would be catastrophic for many.
MMT overview
Modern Monetary Theory (MMT) states that budget deficits are essentially unimportant, that monetary policy should be subordinated to fiscal policy, and that monetary authorities use base money to fund large government programs. A post-Keynesian macroeconomic framework that we argue should be published. MMT promises to eliminate involuntary unemployment and tackle social problems such as poverty and climate change. MMT is rooted in the belief that all money is a creation of the state, designed through a legal framework that facilitates government control over economic activity.
According to MMT, a government that can freely print money cannot go bankrupt. However, there are obvious limitations to this power, such as not being able to control the value of the currency. MMT also redefines money’s traditional functions (medium of exchange, store of value, unit of account), making these functions a byproduct of government policy rather than intrinsic properties such as scarcity or divisibility. He claims that it is just a . This theory leads to the controversial concept that governments can designate any item as money, regardless of its nature, based solely on a legal declaration, whether it’s an acorn, a debt instrument, or a Bitcoin. , this is a concept that is completely at odds with real-world economic dynamics.
There is no consistent theory of value.
The most significant shortcoming of modern monetary theory is its approach to the theory of value. Instead of a subjective theory of value, where prices emerge through the preferences of individual agents, such as personal spending and saving decisions, MMT replaces this with a democratic or collective theory of value.
According to MMT, the value of money is not derived from its utility in monetary functions, such as as a medium of exchange, a store of value, or a unit of account. Instead, in MMT, the value of money comes from collective recognition and trust in the state that issues it. This acceptance presumably gives value to money. In other words, MMT reverses traditional understanding. Something of value does not become accepted as money, but something becomes valuable by being forced to accept it as money.
The value of money depends on the state, which is a kind of economic calculator, rather than on individual market actors. Society’s collective preferences and central planning expertise enter the equation, and the result is full employment. This is no joke. They have no theory of value beyond what I just described.
How MMT works: taxes and fiscal policy
Modern monetary theory presents a distorted understanding of fiscal policy and taxation, proposing that taxes serve as the base load for the demand for state-issued money. Without taxes, MMT proponents argue, government spending would lead to currency devaluation. This point reveals a striking contradiction. MMT believers vehemently deny that budget deficits matter at all, while at the same time insisting that taxes are essential to counteract the negative effects of deficits.
Furthermore, MMT believers overlook the broader dynamics of currency markets. Taxes alone do not necessarily drive demand for holding currency. Individuals may choose to minimize their holdings for fear of depreciation and convert other assets into cash only when necessary to meet their tax obligations. For example, a person may operate primarily in an alternative currency and only acquire domestic currency for the amount needed to pay taxes.
Regarding fiscal policy, MMT argues that the main constraint on money printing is inflation, and that inflation is due to the availability of real resources such as labor and capital. Their thinking is that printing money will generate economic growth until labor and capital are fully employed. Tax increases are a mechanism to combat inflation by taking money out of the economy.
Another serious flaw in MMT is that it requires belief that the state can accurately control the outcomes of fiscal policy. MMT emphasizes the inherent limitations of central planning, particularly the fact that the information guiding fiscal policy simply reflects past government actions and assumes perfect policy transmission without understanding actual market data or external market trends. You are overlooking the circular reasoning that there is. Are MMT planners in charge or not? If that’s the case, it’s circular. Otherwise, it’s wrong.
MMT requires frequent policy adjustments and does not allow for unintended consequences that undermine demand for money. This is because it means that policy cannot be controlled. Additionally, market interest rates further complicate matters for MMT believers. Micromanaging the economy would result in significantly lower economic activity, reduced demand for money, and higher interest rates. Therefore, while MMT argues that a state can mandate the use of its own currency, it does not have the power to control the market valuation or confidence in that currency.
MMT and resource allocation
MMT’s approach to resource allocation focuses on achieving “full employment” through top-down fiscal policy, without reference to the efficiency of use of labor or capital. Proponents of MMT argue that appropriate fiscal policy can guarantee full employment of labor, capital, and resources. But they struggle to use MMT principles to justify why seemingly unproductive activities like digging and backfilling holes are less profitable than employing market-derived labor or capital. ing. Therefore, without clear and consistent values, we often get vague explanations for differences in output.
According to MMT, all economic activities that consume the same resources must be perceived as having the same value, blurring the line between productive investment and wasteful spending. For example, there is no fundamental distinction between using resources to build critical infrastructure and using resources to build “bridges to nowhere.” This lack of understanding of value leads to policies where employment is the primary goal, rather than the value created by employment. The result is massive misallocation of labor and capital.
Conclusion and its meaning
The fundamental principles and policy implications of modern monetary theory contain serious flaws. These range from reliance on inconsistent value theories and circular fiscal policy logics to failures in competitive international monetary markets and unworkable resource allocation strategies. Each of these risks could have significant consequences if MMT were to be widely implemented.
For those following the Bitcoin space, the similarities between MMT and central bank digital currencies (CBDCs) are particularly striking. CBDCs represent a transition from the current credit-based monetary system to a new form of fiat currency that can be tightly controlled through programmable policies, and MMT’s insistence on pure fiat currency controlled by detailed fiscal policies. is reflected. This agreement suggests that regions such as Europe and China, where CBDC adoption is advanced, may naturally gravitate toward MMT principles.
These changes are monumental. Despite what MMT believers would like to think, major economies cannot immediately switch to new forms of fiat money. The transition will take several years, during which time we will see traditional currencies depreciate. Once MMT and these governments inadvertently support Bitcoin, the choices of individuals, capital, and innovators will become clear. In any case, if people were forced to adopt an entirely new form of money, it would be an easy choice for capital, economic activity, and innovation to flee to Bitcoin.
