real-world economics review, issue no. 102 subscribe for free
Book Review Fullbrook, E. and Morgan, J. (2020) Modern Monetary Theory and its Critics, World Economics Association Books, Bristol, U.K., 434 pages, ISBN-13: 978-1911156512 Junaid B. Jahangir [MacEwan University, Canada] Copyright: Junaid B. Jahangir, 2022
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The book edited by Fullbrook and Morgan is a collection of articles published in Issue 89 of the journal, Real-World Economics Review. It assembles eighteen articles from experts who offer their vision or criticism of Modern Monetary Theory (MMT) that has been popular in the media given fiscal austerity, stagnating wages, rising inequality, and climate change. This review focuses on salient ideas that could be presented to economics students in a way that would challenge mainstream viewpoints including that budget deficits crowd out private investment, that government spending is constrained by taxes and borrowing, or that money is solely created by the central bank. Another motivation for this review comes in the context of the economic crises faced by countries like Pakistan that reel under currency depreciation, dependence on imports for food, medicines, and energy, and the unhelpful conditions stipulated by IMF loans. The idea is to explore whether MMT has any hope to offer such countries or whether it is predominately applicable to the U.S. whose dollar serves as the world reserve currency. Thus, the key ideas presented in this book are systematically delineated below.
A Review of Salient Ideas In his article, Wray introduces the readers to a primer on MMT. He highlights the conditions for monetary sovereignty that forms the basis of MMT. These include a government that borrows and collects taxes in a currency that it issues, and which therefore faces no financial budget constraint (p. 10). Additionally, this currency issuing government can set the interest rate on its obligations by buying bonds (p. 11). Wray emphasizes that MMT does not justify that the g e e e d ih i i ha he ce a ba i e fi a ce defici ( . 11). Instead, while downplaying financial constraints, MMT upholds real resource constraints so that it recognizes that excessive spending or poorly targeted spending can cause inflation (p. 12-13). However, Wray adds that the size of deficits and debt do not accurately reflect the i fai e ia f addi i a g e e e di g , a de ec ie eae ih enough underemployment and unused production capacity (p. 13). Wray states that MMT is critical of monetary unions, pegged exchange rates, dollarization, borrowing in foreign currency, tight budgets or austerity, and independent monetary policy with high interest rates, as despite being promoted by institutions like the IMF, they have not helped either advanced or developing countries (p. 15, 16). He rejects the textbook theory that money developed as a medium of exchange to replace the inefficient barter system and instead states 164