MMT Is The Most Flawed Monetary Theory...

... except for all the other monetary theories we have.

I said so in an update to my previous post, and now I have to back it with more specific criticism. I connect the Modern Monetary Theory (MMT) mostly with Abba Lerner. He made many good points and helped us realize how we have misunderstood money. But one reason this misunderstanding lives on is that Lerner's main thesis, Functional Finance theory, is wrong.

Money is not something that can be thrown into the economy in quantities required to maintain full employment. Money is credit. Credit cannot be thrown into the economy in quantities required to maintain full employment.

Credit, as trust, is a much more delicate thing, or non-thing. It takes a long time to earn it, but it can be lost in the blink of an eye. The easiest way to lose it is by using it excessively. By throwing it at the slightest problem and finally even at mere inconveniences. Credit gets often misused when one believes that it is impossible to lose it -- that it has always been there, for good reasons.

But if we give credit another name and make it appear as something tangible, perhaps it cannot be lost. And not just that, but more of it can be created at will. Let us call it "money".

I believe John Law was of good nature. But if he saw us now, I think he would have a laugh. He knew that credit can be created at will. That it can be taken as something tangible ("money") for a while, and that all this can create a very real sense of prosperity. Real houses and real cars are built and bought -- and assumed to have been paid -- with that credit. Had we not used credit, these houses and cars would have been built, and bought, much later in time. If ever.

It's like this magical credit just cannot run out. It sloshes around the world. They say there is a glut of it, and that thanks to this glut, it is even easier to create more of it. So the glut becomes bigger all the time.

Eventually, the false sense of prosperity will disappear, often in an abrupt manner. But life will go on and become in many ways much richer, deeper again. Of course there is pain involved in this transition, and minimizing this pain will become our top priority -- rightly so. But the first thing we do must be to stop making this false sense of prosperity even grander by throwing more and more credit at our problems and inconveniences.




p.s. I'm willing to be even more specific in the comments section, especially if there are MMTers who feel that this criticism misses their main thesis. Nothing beats a good discussion, and I'm willing to learn more. Let me hear from you.