What is Modern Monetary Theory and why is it gaining traction?

Modern Monetary Theory (MMT) is a relatively new economic theory, dating back to the late 20th century, that has been gaining popularity in recent years. MMT is based on the premise that countries that issue their currency can never run out of money and therefore can always pay for public goods and services. MMT has been used to justify expansionary fiscal policies, such as increased government spending and tax cuts, to stimulate economic growth.

The History of Modern Monetary Theory

Modern Monetary Theory is a school of thought synthesizing ideas from the “State Theory of Money” by Georg Friedrich Knapp; and “Credit Theory of Money” by Alfred Mitchell-Innes. It also incorporates elements from the practical proposals of Abba Lerner, Wynne Godley, and Hyman Minsky’s views on the banking system. In 1996, Wynne Godley wrote an article on his sectoral balances approach, which MMT draws from. MMT began coalescing as an independent theory in the early 21st century and has been gaining traction in recent years. It is based on the idea that money is a creation of the state, and that the state, therefore, has the power to create as much money as it needs to fund public spending. This theory also has its roots in the work of economists such as John Maynard Keynes and Milton Friedman, who argued…