Heterodox
78-530: MMT may refer to: Economics [ edit ] Modern Monetary Theory , a branch of economic theory Geography [ edit ] 4QMMT (or MMT), one of the Dead Sea Scrolls Myanmar Time (UTC+06:30) Mathematics [ edit ] MacMahon Master theorem , a result in enumerative combinatorics and linear algebra Technology [ edit ] MMT (Eclipse) ,
156-433: A "buffer stock" of labor that can readily switch to the private sector when jobs become available. A job guarantee program could also be considered an automatic stabilizer to the economy, expanding when private sector activity cools down and shrinking in size when private sector activity heats up. MMT economists also say quantitative easing (QE) is unlikely to have the effects that its advocates hope for. Under MMT, QE –
234-399: A "different view". The first written evidence of compound interest dates roughly 2400 BC. The annual interest rate was roughly 20%. Compound interest was necessary for the development of agriculture and important for urbanization. While the traditional Middle Eastern views on interest were the result of the urbanized, economically developed character of the societies that produced them,
312-457: A "hierarchy of money". MMT proponents such as Warren Mosler say that trade deficits are sustainable and beneficial to the standard of living in the short term. Imports are an economic benefit to the importing nation because they provide the nation with real goods. Exports, however, are an economic cost to the exporting nation because it is losing real goods that it could have consumed. Currency transferred to foreign ownership, however, represents
390-520: A Creature of the State", economists had largely abandoned the idea that the value of money was closely linked to gold. Lerner said that responsibility for avoiding inflation and depressions lay with the state because of its ability to create or tax away money. Hyman Minsky seemed to favor a chartalist approach to understanding money creation in his Stabilizing an Unstable Economy , while Basil Moore , in his book Horizontalists and Verticalists , lists
468-503: A concept is unknown, though its use in Sumeria argue that it was well established as a concept by 3000BC if not earlier, with historians believing that the concept in its modern sense may have arisen from the lease of animal or seeds for productive purposes. The argument that acquired seeds and animals could reproduce themselves was used to justify interest, but ancient Jewish religious prohibitions against usury (נשך NeSheKh ) represented
546-474: A discount rate charged to banks for borrowing reserves directly from the central bank, and an Overnight Reverse Repurchase (ON RRP) facility rate paid to banks for temporarily forgoing reserves in exchange for Treasury securities. The latter facility is a type of open market operation to help ensure interest rates remain at a target level. According to MMT, the issuing of government bonds is best understood as an operation to offset government spending rather than
624-426: A future claim over goods of that nation. Cheap imports may also cause the failure of local firms providing similar goods at higher prices, and hence unemployment, but MMT proponents label that consideration as a subjective value-based one, rather than an economic-based one: It is up to a nation to decide whether it values the benefit of cheaper imports more than it values employment in a particular industry. Similarly
702-424: A growth factor according to the periodic interest, and then decreases by the amount paid p at the end of each period: where By repeated substitution, one obtains expressions for B n , which are linearly proportional to B 0 and p , and use of the formula for the partial sum of a geometric series results in A solution of this expression for p in terms of B 0 and B n reduces to To find
780-551: A major topic of debate after U.S. Representative Alexandria Ocasio-Cortez said in January that the theory should be a larger part of the conversation. In February 2019, Macroeconomics became the first academic textbook based on the theory, published by Bill Mitchell, Randall Wray, and Martin Watts. MMT became increasingly used by chief economists and Wall Street executives for economic forecasts and investment strategies. The theory
858-411: A nation overly dependent on imports may face a supply shock if the exchange rate drops significantly, though central banks can and do trade on foreign exchange markets to avoid shocks to the exchange rate. MMT says that as long as demand exists for the issuer's currency, whether the bond holder is foreign or not, governments can never be insolvent when the debt obligations are in their own currency; this
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#1732771805095936-447: A particular rate decided beforehand, rather on a pro rata basis as a share in the reward gained by risk taking entrepreneurs when the revenue earned exceeds the total costs. For example, a customer would usually pay interest to borrow from a bank, so they pay the bank an amount which is more than the amount they borrowed; or a customer may earn interest on their savings, and so they may withdraw more than they originally deposited. In
1014-399: A practical limitation on lending, the cost of borrowing funds from the interbank market (or the central bank) represents a profitability consideration when the private bank lends in excess of its reserve or capital requirements (see interaction between government and the banking sector ). Effects on employment are used as evidence that a currency monopolist is overly restricting the supply of
1092-628: A record by the English rock band the Beatles Television [ edit ] Miyagi Television Broadcasting , a Japanese commercial broadcaster Transportation [ edit ] Marshalltown Municipal Transit , in Marshalltown, Iowa Topics referred to by the same term [REDACTED] This disambiguation page lists articles associated with the title MMT . If an internal link led you here, you may wish to change
1170-464: A requirement to finance it. In most countries, commercial banks' reserve accounts with the central bank must have a positive balance at the end of every day; in some countries, the amount is specifically set as a proportion of the liabilities a bank has, i.e., its customer deposits. This is known as a reserve requirement . At the end of every day, a commercial bank will have to examine the status of their reserve accounts. Those that are in deficit have
1248-456: A reserve shortage on the interbank lending market . The surplus banks will want to earn a higher rate than the support rate that the central bank pays on reserves; whereas the deficit banks will want to pay a lower interest rate than the discount rate the central bank charges for borrowing. Thus, they will lend to each other until each bank has reached their reserve requirement. In a balanced system, where there are just enough total reserves for all
1326-481: A software project Multimode manual transmission , in a motor vehicle MPEG media transport , a digital container standard Science [ edit ] Methylcyclopentadienyl manganese tricarbonyl , an organomanganese compound MMT Observatory , an astronomical observatory in Arizona, USA MMt, one million metric tons Montmorillonite , a clay Music [ edit ] Magical Mystery Tour ,
1404-403: A transaction between a government entity ( public sector ) and a non-government entity (private sector) as a "vertical transaction". The government sector includes the treasury and central bank . The non-government sector includes domestic and foreign private individuals and firms (including the private banking system) and foreign buyers and sellers of the currency. MMT is based on an account of
1482-406: Is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments do not need to worry about accumulating debt since they can pay interest by printing money . MMT argues that
1560-465: Is a creature of law", rather than a commodity . Knapp contrasted his state theory of money with the Gold Standard view of " metallism ", where the value of a unit of currency depends on the quantity of precious metal it contains or for which it may be exchanged. He said that the state can create pure paper money and make it exchangeable by recognizing it as legal tender , with the criterion for
1638-573: Is also strongly opposed by members of the Austrian school of economics , with Murray Rothbard stating that MMT practices are equivalent to "counterfeiting" and that government control of the money supply will inevitably lead to hyperinflation . MMT's main tenets are that a government that issues its own fiat money : The first four MMT tenets do not conflict with mainstream economics understanding of how money creation and inflation works. However, MMT economists disagree with mainstream economics about
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#17327718050951716-409: Is because the government is not constrained in creating its own fiat currency (although the bond holder may affect the exchange rate by converting to local currency). MMT does agree with mainstream economics that debt in a foreign currency is a fiscal risk to governments, because the indebted government cannot create foreign currency. In this case, the only way the government can repay its foreign debt
1794-407: Is calculated only on the principal amount, or on that portion of the principal amount that remains. It excludes the effect of compounding . Simple interest can be applied over a time period other than a year, for example, every month. Simple interest is calculated according to the following formula: where For example, imagine that a credit card holder has an outstanding balance of $ 2500 and that
1872-416: Is equal to the interest amount paid or received over a particular period divided by the principal sum borrowed or lent (usually expressed as a percentage). Compound interest means that interest is earned on prior interest in addition to the principal. Due to compounding, the total amount of debt grows exponentially, and its mathematical study led to the discovery of the number e . In practice, interest
1950-403: Is most often calculated on a daily, monthly, or yearly basis, and its impact is influenced greatly by its compounding rate. Credit is thought to have preceded the existence of coinage by several thousands of years. The first recorded instance of credit is a collection of old Sumerian documents from 3000 BC that show systematic use of credit to loan both grain and metals. The rise of interest as
2028-425: Is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct from a fee which the borrower may pay to the lender or some third party. It is also distinct from dividend which is paid by a company to its shareholders (owners) from its profit or reserve , but not at
2106-409: Is prohibited, as well as making money out of money is unacceptable. All financial transactions must be asset-backed and must not charge any interest or fee for the service of lending. It is thought that Jacob Bernoulli discovered the mathematical constant e by studying a question about compound interest . He realized that if an account that starts with $ 1.00 and pays say 100% interest per year, at
2184-438: Is to ensure that its currency is continually in high demand by foreigners over the period that it wishes to repay its debt; an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay. In that case, the government can default, or attempt to shift to an export-led strategy or raise interest rates to attract foreign investment in the currency. Either one negatively affects
2262-418: Is where the government receives more taxes on a particular day than it spends. Then there may be a system-wide deficit of reserves. Consequently, surplus funds will be in demand on the interbank market, and thus the short-term interest rate will rise towards the discount rate. Thus, if the central bank wants to maintain a target interest rate somewhere between the support rate and the discount rate, it must manage
2340-561: The Sri Lankan economic crisis . MMT scholars Stephanie Kelton and Fadhel Kaboub maintain that the Sri Lankan government's fiscal and monetary policy bore little resemblance to the recommendations of MMT economists. In sovereign financial systems, banks can create money, but these "horizontal" transactions do not increase net financial assets because assets are offset by liabilities. According to MMT advocates, "The balance sheet of
2418-527: The theory of fructification . By applying an opportunity cost argument, comparing the loan rate with the rate of return on agricultural land, and a mathematical argument, applying the formula for the value of a perpetuity to a plantation, he argued that the land value would rise without limit, as the interest rate approached zero. For the land value to remain positive and finite keeps the interest rate above zero. Adam Smith , Carl Menger , and Frédéric Bastiat also propounded theories of interest rates. In
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2496-487: The "operational realities" of interactions between the government and its central bank, and the commercial banking sector, with proponents like Scott Fullwiler arguing that understanding reserve accounting is critical to understanding monetary policy options. A sovereign government typically has an operating account with the country's central bank. From this account, the government can spend and also receive taxes and other inflows. Each commercial bank also has an account with
2574-408: The $ 6 per year after only 6 months ( time preference ), and so has the opportunity to reinvest the first $ 3 coupon payment after the first 6 months, and earn additional interest. For example, suppose an investor buys $ 10,000 par value of a US dollar bond, which pays coupons twice a year, and that the bond's simple annual coupon rate is 6 percent per year. This means that every 6 months, the issuer pays
2652-467: The appearance of appropriate conditions for entrepreneurs to start new, lucrative businesses. Given that borrowed money was no longer strictly for consumption but for production as well, interest was no longer viewed in the same manner. The first attempt to control interest rates through manipulation of the money supply was made by the Banque de France in 1847. The latter half of the 20th century saw
2730-428: The banking system (see vertical transactions ). This action typically leads to a system-wide surplus of reserves, with competition between banks seeking to lend their excess reserves, forcing the short-term interest rate down to the support rate (or to zero if a support rate is not in place). At this point, banks will simply keep their reserve surplus with their central bank and earn the support rate. The alternate case
2808-452: The banks to meet requirements, the short-term interbank lending rate will be in between the support rate and the discount rate. Under an MMT framework where government spending injects new reserves into the commercial banking system, and taxes withdraw them from the banking system, government activity would have an instant effect on interbank lending. If on a particular day, the government spends more than it taxes, reserves have been added to
2886-530: The benefit to the borrower, and interest received by the lender in terms of a premium for the risk of default . In the sixteenth century, Martín de Azpilcueta applied a time preference argument: it is preferable to receive a given good now rather than in the future. Accordingly, interest is compensation for the time the lender forgoes the benefit of spending the money. On the question of why interest rates are normally greater than zero, in 1770, French economist Anne-Robert-Jacques Turgot, Baron de Laune proposed
2964-434: The case of savings, the customer is the lender, and the bank plays the role of the borrower. Interest differs from profit , in that interest is received by a lender, whereas profit is received by the owner of an asset , investment or enterprise . (Interest may be part or the whole of the profit on an investment , but the two concepts are distinct from each other from an accounting perspective.) The rate of interest
3042-419: The central bank, by means of which it manages its reserves (that is, money for clearing and settling interbank transactions). When a government spends money, its central bank debits its Treasury's operating account and credits the reserve accounts of the commercial banks. The commercial bank of the final recipient will then credit up this recipient's deposit account by issuing bank money. This spending increases
3120-448: The correct amount of reserves in the system. MMT economists describe any transactions within the private sector as "horizontal" transactions, including the expansion of the broad money supply through the extension of credit by banks . MMT economists regard the concept of the money multiplier , where a bank is completely constrained in lending through the deposits it holds and its capital requirement, as misleading. Rather than being
3198-414: The debt ... The redemption of government debt by taxation is the basic law of coinage and of any issue of government 'money' in whatever form. Knapp and "chartalism" are referenced by John Maynard Keynes in the opening pages of his 1930 Treatise on Money and appear to have influenced Keynesian ideas on the role of the state in the economy. By 1947, when Abba Lerner wrote his article "Money as
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3276-506: The differences between bank money and state money. In 1996, Wynne Godley wrote an article on his sectoral balances approach, which MMT draws from. Economists Warren Mosler , L. Randall Wray , Stephanie Kelton , Bill Mitchell and Pavlina R. Tcherneva are largely responsible for reviving the idea of chartalism as an explanation of money creation ; Wray refers to this revived formulation as neo-chartalism . Rodger Malcolm Mitchell's book Free Money (1996) describes in layman's terms
3354-437: The earlier writings of many classical economists, including Adam Smith , Jean-Baptiste Say , J. S. Mill , Karl Marx , and William Stanley Jevons . Alfred Mitchell-Innes wrote in 1914 that money exists not as a medium of exchange but as a standard of deferred payment , with government money being debt the government may reclaim through taxation. Innes said: Whenever a tax is imposed, each taxpayer becomes responsible for
3432-420: The economy, as by government deficit spending or bank lending, rather than from outside, perhaps with gold. In the complementary view, MMT explains the "vertical" (government-to-private and vice versa) interactions, while circuit theory is a model of the "horizontal" (private-to-private) interactions. By 2013, MMT had attracted a popular following through academic blogs and other websites. In 2019, MMT became
3510-439: The economy, whether households, firms, or public, could cause inflationary pressures. MMT economists advocate a government-funded job guarantee scheme to eliminate involuntary unemployment . Proponents say that this activity can be consistent with price stability because it targets unemployment directly rather than attempting to increase private sector job creation indirectly through a much larger economic stimulus, and maintains
3588-577: The economy. Economist Stephanie Kelton explained several points made by MMT in March 2019: Economist John T. Harvey explained several of the premises of MMT and their policy implications in March 2019: MMT says that "borrowing" is a misnomer when applied to a sovereign government's fiscal operations, because the government is merely accepting its own IOUs , and nobody can borrow back their own debt instruments. Sovereign government goes into debt by issuing its own liabilities that are financial wealth to
3666-401: The end of the year, the value is $ 2.00; but if the interest is computed and added twice in the year, the $ 1 is multiplied by 1.5 twice, yielding $ 1.00×1.5 = $ 2.25. Bernoulli noticed that if the frequency of compounding is increased without limit, this sequence can be modeled as follows: where n is the number of times the interest is to be compounded in a year. In economics,
3744-627: The essence of chartalism. Pavlina R. Tcherneva has developed the first mathematical framework for MMT and has largely focused on developing the idea of the job guarantee . Bill Mitchell, professor of economics and Director of the Centre of Full Employment and Equity ( CoFEE ) at the University of Newcastle in Australia, coined the term ' modern monetary theory '. In their 2008 book Full Employment Abandoned , Mitchell and Joan Muysken use
3822-437: The fifth tenet: the impact of government deficits on interest rates. MMT synthesizes ideas from the state theory of money of Georg Friedrich Knapp (also known as chartalism ) and the credit theory of money of Alfred Mitchell-Innes , the functional finance proposals of Abba Lerner , Hyman Minsky 's views on the banking system and Wynne Godley 's sectoral balances approach. Knapp wrote in 1905 that "money
3900-525: The financial assets needed to pay taxes and satisfy savings desires. According to MMT, bank credit should be regarded as a "leverage" of the monetary base and should not be regarded as increasing the net financial assets held by an economy: only the government or central bank is able to issue high-powered money with no corresponding liability. Stephanie Kelton said that bank money is generally accepted in settlement of debt and taxes because of state guarantees, but that state-issued high-powered money sits atop
3978-416: The form of a private tax obligation. In addition, fines, fees, and licenses create demand for the currency. This currency can be issued by the domestic government or by using a foreign, accepted currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, underpins the value of the currency. Because the government can issue its own currency at will, MMT maintains that
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#17327718050954056-474: The government does not include any domestic monetary instrument on its asset side; it owns no money. All monetary instruments issued by the government are on its liability side and are created and destroyed with spending and taxing or bond offerings." In MMT, "vertical money" enters circulation through government spending . Taxation and its legal tender enable power to discharge debt and establish fiat money as currency, giving it value by creating demand for it in
4134-403: The holder of the bond a coupon of 3 dollars per 100 dollars par value. At the end of 6 months, the issuer pays the holder: Assuming the market price of the bond is 100, so it is trading at par value, suppose further that the holder immediately reinvests the coupon by spending it on another $ 300 par value of the bond. In total, the investor therefore now holds: and so earns a coupon at the end of
4212-478: The late 19th century, Swedish economist Knut Wicksell in his 1898 Interest and Prices elaborated a comprehensive theory of economic crises based upon a distinction between natural and nominal interest rates . In the 1930s, Wicksell's approach was refined by Bertil Ohlin and Dennis Robertson and became known as the loanable funds theory. Other notable interest rate theories of the period are those of Irving Fisher and John Maynard Keynes . Simple interest
4290-408: The level of taxation relative to government spending (the government's deficit spending or budget surplus ) is in reality a policy tool that regulates inflation and unemployment , and not a means of funding the government's activities by itself. The approach of MMT typically reverses theories of governmental austerity . The policy implications of the two are likewise typically opposed. MMT labels
4368-428: The link to point directly to the intended article. Retrieved from " https://en.wikipedia.org/w/index.php?title=MMT&oldid=1205680360 " Category : Disambiguation pages Hidden categories: Short description is different from Wikidata All article disambiguation pages All disambiguation pages Modern Monetary Theory Modern monetary theory or modern money theory ( MMT )
4446-402: The liquidity in the system to ensure that the correct amount of reserves is on-hand in the banking system. Central banks manage liquidity by buying and selling government bonds on the open market. When excess reserves are in the banking system, the central bank sells bonds, removing reserves from the banking system, because private individuals pay for the bonds. When insufficient reserves are in
4524-441: The money of a state being "that which is accepted at the public pay offices". The prevailing view of money was that it had evolved from systems of barter to become a medium of exchange because it represented a durable commodity which had some use value , but proponents of MMT such as Randall Wray and Mathew Forstater said that more general statements appearing to support a chartalist view of tax-driven paper money appear in
4602-417: The nearest cent.) Compound interest includes interest earned on the interest that was previously accumulated. Compare, for example, a bond paying 6 percent semiannually (that is, coupons of 3 percent twice a year) with a certificate of deposit ( GIC ) that pays 6 percent interest once a year. The total interest payment is $ 6 per $ 100 par value in both cases, but the holder of the semiannual bond receives half
4680-507: The new Jewish prohibition on interest showed a pastoral, tribal influence. In the early 2nd millennium BC, since silver used in exchange for livestock or grain could not multiply of its own, the Laws of Eshnunna instituted a legal interest rate, specifically on deposits of dowry . Early Muslims called this riba , translated today as the charging of interest. The First Council of Nicaea , in 325, forbade clergy from engaging in usury which
4758-445: The next 6 months of: Assuming the bond remains priced at par, the investor accumulates at the end of a full 12 months a total value of: and the investor earned in total: The formula for the annual equivalent compound interest rate is: where For example, in the case of a 6% simple annual rate, the annual equivalent compound rate is: The outstanding balance B n of a loan after n regular payments increases each period by
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#17327718050954836-549: The option of borrowing the required funds from the Central Bank, where they may be charged a lending rate (sometimes known as a discount window or discount rate ) on the amount they borrow. On the other hand, the banks that have excess reserves can simply leave them with the central bank and earn a support rate from the central bank. Some countries, such as Japan , have a support rate of zero. Banks with more reserves than they need will be willing to lend to banks with
4914-406: The payment if the loan is to be finished in n payments, one sets B n = 0. The PMT function found in spreadsheet programs can be used to calculate the monthly payment of a loan: An interest-only payment on the current balance would be The total interest, I T , paid on the loan is The formulas for a regular savings program are similar, but the payments are added to
4992-413: The primary risk once the economy reaches full employment is inflation , which acts as the only constraint on spending. MMT also argues that inflation can be controlled by increasing taxes on everyone, to reduce the spending capacity of the private sector . MMT is opposed to the mainstream understanding of macroeconomic theory and has been criticized heavily by many mainstream economists. MMT
5070-430: The private sector. "Private debt is debt, but government debt is financial wealth to the private sector." In this theory, sovereign government is not financially constrained in its ability to spend; the government can afford to buy anything that is for sale in currency that it issues; there may, however, be political constraints, like a debt ceiling law. The only constraint is that excessive spending by any sector of
5148-471: The purchasing of government debt by central banks – is simply an asset swap, exchanging interest-bearing dollars for non-interest-bearing dollars. The net result of this procedure is not to inject new investment into the real economy, but instead to drive up asset prices, shifting money from government bonds into other assets such as equities, which enhances economic inequality . The Bank of England's analysis of QE confirms that it has disproportionately benefited
5226-500: The rate of interest is the price of credit , and it plays the role of the cost of capital . In a free market economy, interest rates are subject to the law of supply and demand of the money supply , and one explanation of the tendency of interest rates to be generally greater than zero is the scarcity of loanable funds . Over centuries, various schools of thought have developed explanations of interest and interest rates. The School of Salamanca justified paying interest in terms of
5304-487: The redemption of a small part of the debt which the government has contracted by its issues of money, whether coins, certificates, notes, drafts on the treasury, or by whatever name this money is called. He has to acquire his portion of the debt from some holder of a coin or certificate or other form of government money, and present it to the Treasury in liquidation of his legal debt. He has to redeem or cancel that portion of
5382-436: The rise of interest-free Islamic banking and finance , a movement that applies Islamic law to financial institutions and the economy. Some countries, including Iran, Sudan, and Pakistan, have taken steps to eradicate interest from their financial systems. Rather than charging interest, the interest-free lender shares the risk by investing as a partner in profit loss sharing scheme, because predetermined loan repayment as interest
5460-651: The same reason, interest has often been looked down upon in Islamic civilization , with almost all scholars agreeing that the Qur'an explicitly forbids charging interest. Medieval jurists developed several financial instruments to encourage responsible lending and circumvent prohibitions on usury, such as the Contractum trinius . In the Renaissance era, greater mobility of people facilitated an increase in commerce and
5538-490: The simple annual interest rate is 12.99% per annum , applied monthly, so the frequency of applying interest is 12 per year. Over one month, interest is due (rounded to the nearest cent). Simple interest applied over 3 months would be If the card holder pays off only interest at the end of each of the 3 months, the total amount of interest paid would be which is the simple interest applied over 3 months, as calculated above. (The one cent difference arises due to rounding to
5616-404: The system, the central bank buys government bonds from the private sector, adding reserves to the banking system. The central bank buys bonds by simply creating money – it is not financed in any way. It is a net injection of reserves into the banking system. If a central bank is to maintain a target interest rate, then it must buy and sell government bonds on the open market in order to maintain
5694-475: The term to explain monetary systems in which national governments have a monopoly on issuing fiat currency and where a floating exchange rate frees monetary policy from the need to protect foreign exchange reserves. Some contemporary proponents, such as Wray, place MMT within post-Keynesian economics , while MMT has been proposed as an alternative or complementary theory to monetary circuit theory , both being forms of endogenous money , i.e., money created within
5772-465: The thing and the use of the thing. In the medieval economy , loans were entirely a consequence of necessity (bad harvests, fire in a workplace) and, under those conditions, it was considered morally reproachable to charge interest. It was also considered morally dubious, since no goods were produced through the lending of money, and thus it should not be compensated, unlike other activities with direct physical output such as blacksmithing or farming. For
5850-537: The total reserve deposits in the commercial bank sector. Taxation works in reverse: taxpayers have their bank deposit accounts debited, along with their bank's reserve account being debited to pay the government; thus, deposits in the commercial banking sector fall. Virtually all central banks set an interest rate target, and most now establish administered rates to anchor the short-term overnight interest rate at their target. These administered rates include interest paid directly on reserve balances held by commercial banks,
5928-408: The wealthiest. MMT economists say that inflation can be better controlled (than by setting interest rates) with new or increased taxes to remove extra money from the economy. These tax increases would be on everyone, not just billionaires, since the majority of spending is by average Americans. Interest This is an accepted version of this page In finance and economics , interest
6006-642: Was also intensely debated by lawmakers in Japan, which was planning to raise taxes after years of deficit spending. In June 2020, Stephanie Kelton's MMT book The Deficit Myth became a New York Times bestseller. In 2020 the Sri Lankan Central Bank, under the governor W. D. Lakshman, cited MMT as a justification for adopting unconventional monetary policy, which was continued by Ajith Nivard Cabraal. This has been heavily criticized and widely cited as causing accelerating inflation and exacerbating
6084-587: Was defined as lending on interest above 1 percent per month (12.7% AER ). Ninth-century ecumenical councils applied this regulation to the laity . Catholic Church opposition to interest hardened in the era of the Scholastics , when even defending it was considered a heresy . St. Thomas Aquinas , the leading theologian of the Catholic Church , argued that the charging of interest is wrong because it amounts to " double charging ", charging for both
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