Monetary Realism

Understanding The Modern Monetary System…

Does Anyone Actually Know What MMT is?

As many regular readers know by now, I had a rather public falling out with MMT earlier this year leading to the creation of Modern Monetary Realism.  This was in large part due to disagreements over the Job Guarantee and the fact that many MMT founders said you can’t have MMT without the Job Guarantee (JG).  Specifically, Bill Mitchell said the JG was “central” to MMT.  Pavlina Tcherneva then wrote a piece at the MMT website asking if the JG was “crucial to MMT” in which she said:

“The JG is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism.”

It became clear that MMT was a macroeconomic theory that offered comprehensive solutions to price stability and full employment with the JG being the “most important policy proposal” (Wray’s words) in achieving this.  If you believe in unemployment buffer stocks you weren’t working under the theoretical framework that has come to be known as MMT.  So you can see how some of us find it odd that Randall Wray, an MMT founder, wrote a piece yesterday directly contradicting the comments of his founding colleagues saying:

“So, can we have MMT without a JG? Certainly!”

What makes this comment even more bizarre is that Wray wrote a piece earlier this year confirming that Mitchell’s comments were right and that price anchor (JG) was something we “need”:

“Bill’s post led to a bit of a scuffle over what is actually in MMT—with Cullen arguing that the Job Guarantee cannot be a component, while Bill insisted that it mustbe. Warren has sided with Bill and written very persuasive comments arguingthat we need the price anchor.”

So earlier this year MMT included the JG and this fellow named Cullen was wrong.  But the MMT of today doesn’t include the JG and this fellow named Cullen appears to have been right?  So the obvious question is – does anyone actually know what Modern Monetary Theory is?


Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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199 Responses

  1. Greg says


    Some comments and a question.

    You rightly say (and no one disagrees) that banks are private institutions, with private shareholders and their main purpose is to earn a profit for those shareholders. They also have a unique relationship with the government via the CB, since the CB all but guarantees at least one definition of solvency (always having enough NFAs to settle their payments….something I am not personally guaranteed). MMR agrees with MMT (part of the over 80% they have in common) that the way this relationship is viewed by virtually all the other schools is …………….. skewed. They are the only two schools that have studied the mechanics of banking operations and accounting and included these in their analyses of the macroeconomy. ( MMers seem to relish in their own ignorance of these matters mainly because they believe so strongly that the “expectations fairy” has the power to control everything if he is just more like Chuck Norris)

    MMR agrees with MMT that the imbalance currently (and almost always since credit money has accounted for over 75% of the money in the economy during most of time we have been “measuring” economic variables) is within the private banking system. They also agree, I think, that this imbalance is inevitable within the private money system. In other words a pure privately driven credit system will always result in these imbalances over time. Its inherent in the way the system is designed. I think they also agree that these imbalances are hugely detrimental to the general economy when they get large enough. The things which we have done institutionally over the years have been with the purpose of limiting the damage that private credit crashes do to the non financial sector….also known as the real economy. I dont think there is any disagreement there from anyone in MMT and MMR. Limiting financial sector instabilities is one purpose and then ringfencing them when they happen so they dont destroy other real economy sectors is another.

    It seems to me that the two schools agree that “money” has a public purpose. Banks create most of it but when they destabilize the rest we mostly agree that a public purpose MUST be served by not letting the banking system take down everyones government too. SO banks are, and should be made to pursue a public purpose to a degree. That purpose being “dont burn the whole place down as you play with matches in your own basement” Many bankers do see them selves as serving a public/community purpose, I hear their commercials all the time.

    Do you really think any big banker after getting bailouts would stand in front of the camera and say “We are not here for ANY public purpose, we are here strictly to make as much money off you US citizens as we can” ?

    They want us to think they are serving a public purpose in fact they believe they serve more public purpose than “bureaucrats”.

    Just some thoughts

  2. Cullen Roche says

    More word games. Do you also think banks exist to serve public purpose? Or do they exist to serve their shareholders (their private partners/owners)? Hmmmm….. :-)

  3. studentee says

    Banks fit the definition I provided. They have unique powers that are given to them by the government.

  4. Cullen Roche says

    Are banks owned by the govt? Or are they owned and funded by private investors who own those companies? An example of public/private partnership is the state parks….You’re not applying the right definition here….

  5. studentee says

    Yes but they have the unique ability to create liabilities that can be exchanged for government currency. This has nothing to do with ownership.

  6. Cullen Roche says

    Wrong again. Banks in the USA are mostly owned and funded by private shareholders.

  7. studentee says

    How wikipedia defines a public-private partnership:

    “Public–private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.”

    Seems like banks fit this definition.

  8. studentee says

    Are you serious Cullen? One government can run out of money, another cannot. Which one will be better able to implement a JG?

  9. Cullen Roche says

    Yeah, there’s a lot of politics involved. That’s one of my big problems with MMT. I don’t think they’ve established a rational view of the world and then applied policy to it. Instead, I think they’ve established a policy they want and tried to create a world that fits it. That’s my perception at least and there’s ample evidence of this. The money monopoly, claiming that banks serve public purpose, etc. These are easily disproven assuming you don’t take a Crusoe Island approach to viewing the world….

  10. Cullen Roche says

    Some people get things wrong. “Tough titties” as my big brothers still say.

  11. Cullen Roche says

    At least you admit it….Good to know.

  12. Cullen Roche says

    Did you just steal that quote from one of my previous comments because I’ve specifically said the same thing here a bunch of times….

  13. studentee says

    Beo and Mike just seem to think that the JG is a bad idea. That’s fine. But you’re accusing the entire literature of being a bad faith, politics-based argument. It’s understandable people would be incensed.

  14. studentee says

    “You are essentially saying that the entire MMT literature is bad faith argument because they bring state money front and center.”

    should read

    “You are essentially saying that the entire MMT literature is bad faith argument because they bring state money front and center in order to justify the JG.”

    You can understand why people would be insulted.

  15. studentee says

    “Also, I’ve seen enough trolls to know when you’re on other sites using an anonymous name to sling insults my way. I guess we can add you to the list of MMT trolls who regular this website. Please try to behave more maturely on the internet. It’s not a playground for angry old men. You’re making MMT look very bad running around anonymously insulting people who disagree with you. Just some friendly advice.”

    I only post anonymously on MNE because I’m too lazy to create an account. I’d also bet I’m five, ten years younger than you. I’m an angry young man.

  16. studentee says

    “Not sure why you keep saying this. A lot of my work has been based on Minksy’s FIH after I read Stabilizing….”

    You need to read John Maynard Keynes. State money is essential for stabilizing the horizontal. It’s necessary for the horizontal. It’s part of why it’s so important, and why MMT brings it back to the center. You are essentially saying that the entire MMT literature is bad faith argument because they bring state money front and center. Minksy is absolutely key in why they bring it back.

  17. Cullen Roche says

    Also, I’ve seen enough trolls to know when you’re on other sites using an anonymous name to sling insults my way. I guess we can add you to the list of MMT trolls who regular this website. Please try to behave more maturely on the internet. It’s not a playground for angry old men. You’re making MMT look very bad running around anonymously insulting people who disagree with you. Just some friendly advice.

  18. Cullen Roche says

    Not sure why you keep saying this. A lot of my work has been based on Minksy’s FIH after I read Stabilizing….

  19. studentee says

    Please, please actually read Minsky, Cullen. You will do yourself a huge favor.

  20. Cullen Roche says

    Go read the comments over at Mike Norman’s site. They’re appalling. MMTers literally can’t control their tongues. Sometimes I think they’re worse than Rothbards in the way they attack and spew venom at others in defense of their dogma.

  21. Ben Wolf says

    Oh, it’s shown quite a bit regarding where MMTers heads are in this . . .

  22. Cullen Roche says

    This has been a good development. It’s shown why MMT’s view of the world is incomplete….they’re verticalists who take the other extreme from horizontalists. MMR is more balanced….

  23. Ben Wolf says

    Oops, hit the post button early.

    Looks like two billion comments on why Cullen won’t accept the JG, from people who keep claiming it isn’t central to MMT. At this point Cullen I think you should just stop responding to certain commentors.

  24. Ben Wolf says

    Looks like two billion comments on why Cullen won’t accept the JG.

  25. Matt says

    Somehow I have a feeling you’re right Cullen. It’s like looking at a clockwork with different wheels. They all turn and influence each other and looking at each one in isolation you could argue one influences the other but at the same time you could vise versa.

  26. Cullen Roche says

    The argument is conflated in MMT. You can pay your taxes with credit. And banks settle tax payments in govt money even though they directly influence the creation of reserves through lending. MMT tries to downplay this relationship claiming that the state sits atop some hierarchy. It’s very misleading. I am realizing that Steve Waldman was right. We are diagonalists. MMTers are really verticalsts attempting to always “bring the state back to center stage”.

  27. Tom Hickey says

    Let’s hypothesize a system with state currency and a free banking system in which banks create their own unit of account separate from the currency and not allowed to represent it as the currency, but only convertible into the currency. Is there superior and inferior here, even though credit money by law is separate from currency and not directly subordinate to it in a cb or Treasury system in which the unit of account is homogenous and denominated in currency. That is to say, people have to convert their bank credit money into currency to pay their taxes. since this doesn’t happen automatically in an integrated vertical system like it does in the cb\Treasury system that we have.

  28. Cullen Roche says

    Subordinate, inferior….aren’t we splitting hairs? I also don’t see the value in this hierarchy of money idea that MMT has created. Yes, it’s important that a credit based money system have a facilitator in the form of the govt whose legal powers are vast. But I wouldn’t claim that credit is subordinate to govt money. That implies a level of importance that is misleading. Is the credit issued through the banks less important to the system than the govt issued money? Of course not. That’s like saying that red blood cells matter more than white blood cells. Describing the system like that doesn’t tell us anything about the system. It only causes confusion.

    Again, it’s best to think of the monetary system like a machine. The machine doesn’t have monopolist parts and it’s not a pyramid of importance. All the parts are important to its functioning. Building a hierarchy of money or establishing monopolist descriptions in an attempt to “bring the state back to center stage” is politicizing the understanding of the system and adds little real value and possibly even detracts from the understanding.

  29. Cullen Roche says

    Yeah, so they’ve built an almost purely credit based system with no support mechanism. It’s great except when you realize that the credit system isn’t supported by any entity that can actually facilitate the credit creation in perpetuity. Only an outside entity like a currency issuer can do that. So you’ve got the credit system in Europe and no facilitator. It can’t work. The USA, on the other hand, has the credit system which is largely unregulated and running around in a free for all and it also has the facilitator which ends up having the bail out the banks running out dishing out credit without constraint….Our system is arguably just as messed up as theirs is because the regulatory framework is so disjointed.

  30. Tom Hickey says

    The ECB and Eurocrats have already change the rules or ignored them big-time to hold the EMU together, and they will have to go to greater lengths to do so if the currency union is to last out the crisis. This is not going well for them. They have designed a system that doesn’t work, as MMT economists and others warned in the first place.

  31. geerussell says

    “the hierarchy of money means bank money is inferior to govt money.”

    I don’t think inferior is really the right word to describe it. It is convertible though. This certainly does have some implications on where the power and authority reside. I think it’s fair to describe any form of money as subordinate to the thing it is convertible to.

  32. Matt says

    You are talking about the budget deficit restriction or debt ceiling in the US right? And the self-imposed 3% rule in the EU? I guess in a strict sens you are right: The governments have decided in the past to restrict them selves to those restrictions. So they are – for now – bound by those rules. (I am not sure which rules other countries with their own currency like the UK have). But in a broader sense, those same rules can be changed. The EU, when the depression worsens, can decide to loosen fiscal rules or let the ECB buy up government debt (indirectly “printing money”). As the ECB already does, in a way.

    At least, for now I still assume the definition of government is still something like “by the people for the people”. Although I have my doubts about that lately …

  33. Cullen Roche says

    Well, the key point is that the pvt sector’s wealth creation and debt accumulation needs to be facilitated and supported by the govt. That’s essentially why pvt banking as a system of credit issuance alone does not work. It needs that entity that can come in and support the system in times of fragility. Otherwise, you basically get what Europe has and an unworkable system. So, it’s important to understand how the system works and how the pieces work in tandem. But it’s not appropriate, in my mind, to try to attribute monopolist powers to a system like the one we have. That only causes confusion about what we really have. And as you can see, many MMTers genuinely believe the govt is a money monopolist and that this somehow rationalizes the use of monopolist powers. It’s similar to say that it’s okay to drop a nuke on Hiroshima just because the USA had a monopoly on atomic bombs. “Well, they CAN, therefore it’s okay if they do”. No, that’s not true. And since then, there have been limits and human rights laws set up in the global community to deter govt’s from exercising these kinds of extremist powers. The USA CAN still drop nukes anywhere it wants. Does this supposed monopoly on violence mean they should or really CAN? No. Of course not. Just like the govt CAN chop my head off. It doesn’t mean they should and it doesn’t mean the system is designed to allow this. In the USA the power of money creation is dispersed away from the govt to the pvt banks. I’m not saying it works great, but it is what it is. MMT just tries to ignore it by claiming silly things like “banks serve public purpose” or the hierarchy of money means bank money is inferior to govt money.

  34. Geoff says

    Understood. I believe someone in the MMR community (JKH?) has argued that new NFA’s could be created by the private sector. I couldn’t quite follow that argument, which is most likely my fault. Something to do with stock price appreciation. In any event, it would be interesting to see an elaboration on that point.

  35. Cullen Roche says

    Sure, but money is not just NFAs. The majority of the money in circulation is bank money in the form of credit.

  36. Geoff says

    I see that there as been a good attempt to define “monopoly” in this thread, but perhaps more important is to define “money”. Granted, the definition of “money” his highly controversial, but if it is defined as Net Financial Assets, does the govt not have a virtual monopoly?

  37. Cullen Roche says

    I don’t think monopoly is the word you’re looking for, but it doesn’t matter. Being the monopolist of one component of a market doesn’t make it a monopolist on the entire market (in this case money).

    Also, the govt CAN exert lots of powers. But the system is designed not to allow these powers to be exerted. The govt CAN drop nukes on my house. It CAN chop your head off. Of course, there are checks in the system to avoid this tyranny. The USA is designed with a pvt banking system that disperses the power of money creation away from the state. It just is what it is. MMT tries to explain away the reality of a large and powerful horizontal system. And in doing so they create an alternate reality just like Rothbards do with Crusoe Island. It’s a good description, but not necessarily an entirely accurate one.

  38. Cullen Roche says


    two things: 1) Thanks for always being so honest and respectful. You don’t know how well you represent MMT. They need your voice badly even though you don’t seem to be fully on board with MMT and the JG specifically. 2) I am agreeing with you. I am ONLY describing the system we have. MMT describes a system they want. You’re right, if the political winds change then the system could very much change. But what I know right now is that the state does not have a monopoly on money. It just is what it is. And while MMT has a very very good description of the monetary system it is wrong with regards to this monopolist idea.

  39. Cullen Roche says

    The govt CAN do lots of things. But the system is designed specifically not to allow it to do all these things. This is why we have checks and balances. The current system segregates the power of money creation away from the state. MMT is trying to say that doesn’t exist and they’ve created a mythical world to bring the state back to center stage. I don’t know if the current structure is right or wrong. I just know it is. And MMT does not describe what is.

  40. Tom Hickey says

    “Nominal anchors are important”

    The importance in the MMT JG is that the price the government sets is fixed rather than indexed to inflation, like many government programs such as SS. Indexing is inflationary.

    The important of currency sovereignty to the JG is that government as the capacity to actually fund the cost of the JG no matter how it expands. This is is the similar to the cb setting the yields across the yield curve by announcing it stands ready to purchase any quantity to hit its target. Government can maintain the price it sets because it has the capacity to do so as the sovereign currency issuer.

  41. Tom Hickey says

    “Okay, so you admit that the govt doesn’t have a monopoly on bank money”

    The government at this point has not chosen to exert monopoly power over private banking very strongly. That is a political choice that could change at any moment with shifting political winds — as it has over the history of the US.

    For example, if the government were to terminate LLR, shut the discount window, and end guarantees in order to eliminate moral hazard, as some now recommend, then the cb can fix the quantity of reserves and let price (interest rate) fluctuate to control the amount of credit creation based on changing demand instead of permitting unlimited credit creation as demand rises by supplying reserves through the LLR and discount window and maintain the rate it chooses.

    BTW, even now the cb maintains the target rate by adjusting the quantity of reserves, reducing excess reserves by selling tsys through OMO. This is exercise of monopoly power.

  42. Tom Hickey says

    Cullen, you are citing the present institutional arrangement. If the political winds shift that could change overnight, as FDR ended convertibility and a fixed rate domestically and Nixon unilaterally closed the gold window.

    People in the US are agitating for drastic change, the Austrians to return to sound money and the AMI folks to end private banking, fold the cb into Treasury, quit issuing tsys, and go to direct issuance only. While Ron Paul is willing to step back from the gold standard per se, it would like to get rid of the Fed, end LLR and guarantees, institute free banking and let the government borrow from banks to obtain funds.

    These are all options for a sovereign government. In the event of another financial crisis of an equal or greater magnitude, it is not unlikely that some drastic changes will be adopted politically. It is entirely possible that to eliminate moral hazard, LLR and government guarantees be terminated and a fixed supply of reserves provided, meaning that quantity is fixed and price (interest rate) fluctuates with demand for the fixed supply.

    Arguably some change like this is not only possible theoretically, but probable in event of crisis, given the political climate, and crises are now coming every five to seven years.

  43. Matt says

    Whether or not to call the ability of the state to create any money it wants a monopoly is debatable, as it depends on the exact definition of a monopoly, etc. As this long thread shows. However, isn’t the most important point the sole fact that it can? (create money that is) That is something 99.9% of the people don’t even know/realize. Ask any citizen around the world and he/she will tell you that the government debt has to be paid back, the US state can go bankrupt, run out of money, etc.

    By the way, I’m an amateur in this and very new to the subject so I don’t take any side (wouldn’t even know which sides there are..). Just trying to figure this out, with the great help from sites like these (thanks for that).

  44. studentee says

    “But many MMTers present the JG using this price fixing rationale stemming from the monoolist argument.”

    Ah, I see.

    Nominal anchors are important. I would just subsume its potential value as a nominal anchor into the cost-benefit analysis. But I like the JG program on its own, that’s why I was here.

  45. Cullen Roche says

    Agreed! Let’s stop using the money monopolist argument to rationalize policies and let’s rationalize plicies based on their efficacy as economic programs. That’s been one of my main points since day one of this debate! Okay, now i am really off to bed. Good night. Nice chatting.

  46. studentee says

    The point is to get the debate where it belongs: a rational, cost-benefit analysis of public policies such as the JG. Or your innovation initiative. You’ve admitted that the government can set the JG wage and clear the market. No more worries about money monopolies, hierarchies, etc.

  47. Cullen Roche says

    Oh, and I 1,000% agree this should have nothing to do with monopolist powers. That’s one of my main points. But many MMTers present the JG using this price fixing rationale stemming from the monoolist argument. I don’t know why. The merits of the JG don’t stem from any operational realities. It should stem from its efficacy as an economic program. But since there’s almost no evidence showing that a JG works in real life I think they’ve created other arguments to justify it….I don’t understand that approach….

  48. Cullen Roche says

    Whats the point of this? There’s no point arguing with MMTers. You guys really think you have the whole world figured out. Good night Student. Thanks for putting up with the back and forth even though I don’t think it went anywhere….

  49. studentee says

    “Okay, so you admit that the govt doesn’t have a monopoly on bank money, but you feel that the govt is justified in using monopolist powers across the broad wage spectrum despite a lack of monopolist powers over the broad money supply. That makes zero sense to me.”

    Why does that make zero sense? What does “justification” have to do with anything? The JG either works or doesn’t work. It’s either a good idea or not a good idea. You’ve admitted that the government could set the ELR wage. Why are we talking about monopolies, broad money supplies, etc?

    The ELR sets one wage. That’s it. Just like the rate on reserves sets one price. Everything else adjusts, floats.

    “Only someone politically motivated could believe that is a sound economic argument….”

    C’mon, Cullen.