Modern Monetary Theory: An exercise in misdirection

MMT seems to have become popular recently, though I can't really see why. While they may state several true things that many people do not realise, they also make many misleading or downright false claims.

MMT Misdirection 1: The Money Supply

MMT proponents claim that they reveal the truth and bring clarity to the topic of money and yet they appear remarkably reluctant to mention "the money supply". Instead they will talk about “currency” , "net money supply", "net financial assets" or "black ink". All of these give the impression of being the money supply but they absolutely are not.

MMT Misdirection 2: Monopoly issuer

MMT proponents are keen to state that the government is "the monopoly issuer of the currency". Most people will interpret this as meaning that the government is the sole source of money. This is blatantly untrue and MMT appears in no hurry to correct the listener.

MMT Misdirection 3: The "government"

MMT proponents frequently take the term "the government" to mean the government plus central bank combined. This is not necessarily bad in and of itself except that they frequently fail to explain that they are doing so. This omission leads to confusion when they go on to talk about "government spending". Government spending sounds like spending on things like teachers, nurses and police whereas it could actually be referring to the central bank purchasing government bonds, or shares in private companies.

MMT Misdirection 4: Fractional reserve banking

MMT proponents tout themselves as being super expert on the workings of the monetary system and so one might assume that when they give MMT 101 talks to non-experts, they would be only too keen to reveal how amazing it was that our monetary system involved money creation and destruction by private banks. And yet they behave as if this was a minor technicality that should scarcely be mentioned.

MMT Misdirection 5: Conflating government bond holders with the nation as a whole

MMT proponents will often make statements implying that government bonds are simply IOUs to the population at large (and who could possibly complain about being the receiver of the interest payments). However, it is important to realize that: A) there are plenty of people that will not own any government bonds at all so they may indeed complain, and B) government bonds may be held by foreigners.

MMT claim: All money must be somebody's liability

Proponents of MMT insist that all money must be someone's liability, i.e. money is always an IOU. The problem with this idea is that it precludes the idea of everlasting tokens. Indeed L. Randall Wray, a leading MMT advocate, described the use of everlasting tokens as money as a non-sequitur. So according to MMT, banknotes must be an IOU. Read here for why banknotes are not an IOU. For a more academic discussion of this issue see Central Bank Money: Liability, Asset, or Equity of the Nation?

MMT claim: Bitcoin is simply not money

Whilst bitcoin may be poor quality money because it is not accepted in many places in return for goods and services, it is by no means "not money" because it is certainly accepted in some places.

MMT claim: Government bonds are money

Whilst it is true that on occasions government bonds are used to purchase things, it is not so common. Goods and services are not widely on sale in return for bonds. This makes government bonds poor-quality money, so to just label them as money is misleading.

MMT claim: QE does not increase the money supply

As already explained in chapter 1, QE does increase the money supply.