MMT Primer

L. Randall Wray’s Modern Money Primer was the precursor to his book Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, which is due out with a new revised edition in 2024. It remains one of the best ways to learn the basics of what we now call MMT. We have republished each blog post and Randy’s responses to readers’ comments here in hopes that many more people will benefit from learning in this format.

Originally published in 2011/12 on the New Economic Perspectives blog.

The posts from the MMT Primer series have been collected and organized into Randy’s latest book, Modern Money Theory. It makes for a much more coherent read and is highly recommended for anyone seriously interested in the MMT perspective. (Available from Amazon.com)

These primer posts have also been translated into Italian by our friends at RETE MMT. This link will take you to a post that contains links to the Italian versions of the posts.

Each Monday we will post a relatively short piece, gradually building toward a comprehensive theory of the way that money “works” in sovereign countries. We will then collect comments through Wednesday night, and will post a response to the comments on Thursday. The comments should be directly related to that week’s blog. Since we are trying to develop an understanding of Modern Monetary Theory (MMT), we especially encourage commentators to let us know where we have been unclear. Since we will be presenting the Primer over the course of the coming year, we will sometimes have to beg for patience—obviously we cannot present the entire theory all at once.

These blogs begin with the basics; no previous knowledge of MMT—or even of economics—is required. The blogs are sequential; each subsequent blog builds on previous blogs. The blogs will be at the level of theory, with only limited reference to specific cases, histories, and policies. That is intentional. A Primer should provide a general overview that can be adapted to specific national situations. The regular pages of NEP will continue to discuss current real world policy issues. The Primer will remain on a different plane.

MMP Blog #1: Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems

This primer seeks to fill the gap between formal presentations in the academic journals and the informal blogs. It will begin with the basics to build to a reasonably sophisticated understanding.

MMP Blog #1 Responses

Comments and responses on the Modern Money Primer Part 1.

MMP Blog #2: The Basics of Macro Accounting

You cannot possibly understand the debate about the government’s budget (and critique the deficit hysteria that has gripped our nation across the political spectrum from right to left) without understanding basic macro accounting.

MMP Blog #2 Responses

Comments and responses on the Modern Money Primer Part 2.

MMP Blog #3: Recent USA Sectoral Balances: Goldilocks, the Global Crash, and the Perfect Fiscal Storm

This week we will take a little break from pure accounting, and apply what we’ve learned to a real world example.

MMP Blog #3 Responses

Comments and responses on the Modern Money Primer Part 3.

MMP Blog #4: MMT, Sectoral Balances and Behavior

In today’s blog we will go a bit deeper into the accounting, looking at the relation between flows (deficits) and stocks (debts).

MMP Blog #4 Responses

Comments and responses on the Modern Money Primer Part 4.

MMP Blog #5: Government Budget Deficits are Largely Nondiscretionary: the Case of the Great Recession of 2007

Attempts to cut deficit spending presume that government budget deficits are discretionary. If only the government were to try hard enough, it could slash its deficit.

MMP Blog #5 Responses

Comments and responses on the Modern Money Primer Part 5.

MMP Blog #6: What Is A Sovereign Currency?

Beginning with this blog we will begin to develop our theory of sovereign currency.

MMP Blog #6 Responses

Comments and responses on the Modern Money Primer Part 6.

MMP Blog #7: What Backs Up Currency and Why Would Anyone Accept It?

This week, let us take a peek behind the currency. Is there anything there, other than the Fed Chairman’s—how shall we put it—family jewels?

MMP Blog #7 Responses

Comments and responses on the Modern Money Primer Part 7.

MMP Blog #8: Taxes Drive Money

In short, to avoid the penalties imposed for non-payment of taxes (that could include prison), the taxpayer needs to get hold of the government’s currency.

MMP Blog #8 Responses

Comments and responses on the Modern Money Primer Part 8.

MMP Blog #9: What If the Population Refuses to Accept the Domestic Currency?

The best kind of payment is an obligatory one—one that must be made to stay out of prison, or to avoid death by thirst. An obligatory payment that must be made in the sovereign’s own currency will guarantee a demand for that currency.

MMP Blog #9 Responses

Comments and responses on the Modern Money Primer Part 9.

MMP Blog #10: Keeping Track of Stocks and Flows: The Money of Account

We will go through the details of keeping track of stocks and flows in the money of account. That will also lead us into a discussion of the relation between “money” and “spending”—how do we “pay for” things?

MMP Blog #10 Responses

Comments and responses on the Modern Money Primer Part 10.

MMP Blog #11: Modern Money Theory and Alternative Exchange Rate Regimes

In this blog we will examine the implications of exchange regimes for our analysis.

MMP Blog #11 Responses

Comments and responses on the Modern Money Primer Part 11.

MMP Blog #12: Commodity Money Coins? Metalism vs. Nominalism, Part 1

As promised, this week I will begin try to dispel the view that coins used to be commodity monies.

MMP Blog #12 Responses

Comments and responses on the Modern Money Primer Part 12.

MMP Blog #13: Commodity Money Coins? Metalism vs. Nominalism, Part 2

This week, we examine coinage from Roman times to the present in Western society.

MMP Blog #13 Responses

Comments and responses on the Modern Money Primer Part 13.

MMP Blog #14: IOUs Denominated in the National Currency: Government and Private

This week we return to our analysis of the operation of today’s monetary system, examining the denomination of IOUs in the state money of account.

MMP Blog #14 Responses

Comments and responses on the Modern Money Primer Part 14.

MMP Blog #15: Clearing and the Pyramid of Liabilities

This week we examine bank clearing and the notion of a “pyramid” of liabilities with the government’s own IOUs at the top of that pyramid.

MMP Blog #15 Responses

Comments and responses on the Modern Money Primer Part 15.

MMP Blog #16: The Unusual Case of Euroland

The fundamental point to be made here is that the Euro arrangement was flawed from the beginning.

MMP Blog #16 Responses

Comments and responses on the Modern Money Primer Part 16.

MMP Blog #17: Accounting for Real Versus Financial (or Nominal)

I had thought the distinction between real and financial (nominal) was clear—but obviously it was not.

MMP Blog #17 Responses

Comments and responses on the Modern Money Primer Part 17.

MMP Blog #18: Fiscal and Monetary Policy Operations in a Nation that Issues its Own Currency

Our next topic: government spending, taxing, interest rate setting, and bond issue. We will examine fiscal and monetary policy formation by a government that issues its own currency.

MMP Blog #18 Responses

Comments and responses on the Modern Money Primer Part 18.

MMP Blog #19: Effects of Sovereign Government Budget Deficits on Saving, Reserves and Interest Rates

Let us now begin to examine in more detail the government’s budget and impacts on the nongovernment sector.

MMP Blog #19 Responses

Comments and responses on the Modern Money Primer Part 19.

MMP Blog #20: Effects of Sovereign Government Budget Deficits on Saving, Reserves and Interest Rates, (continued)

There are often two objections to the claim that government spending effectively takes place by simultaneously crediting the recipient’s bank account as well as the bank’s reserves.

MMP Blog #20 Responses

Comments and responses on the Modern Money Primer Part 20.

MMP Blog #21: Government Budget Deficits and the “Two-Step” Process of Saving

It is best to think of the net saving of the nongovernment sector as a consequence of the government’s deficit spending—which creates income and savings.

MMP Blog #21 Responses

Comments and responses on the Modern Money Primer Part 21.

MMP Blog #22: Reserves, Government Bond Sales, and Savings

Since government deficits create an equivalent amount of nongovernment savings, it is impossible for the government to face an insufficient supply of savings.

MMP Blog #22 Responses

Comments and responses on the Modern Money Primer Part 22.

MMP Blog #23: The Debate About Debt Limits (US Case)

We should not be fooled by such self-imposed constraints. We should be able to see through them to understand that since they are imposed by government on itself, they can be removed.

MMP Blog #23 Responses

Comments and responses on the Modern Money Primer Part 23.

MMP Blog #24: What if Foreigners Hold Government Bonds?

When government deficit spends, some of the claims on government will end up in the hands of foreigners. Does this matter? Yes, according to many.

MMP Blog #24 Responses

Comments and responses on the Modern Money Primer Part 24.

MMP Blog #25: Currency Solvency and the Special Case of the US Dollar

We will look to the frequent claim that the US is “special”—while it might be able to run persistent government deficits and trade deficits, other countries cannot.

MMP Blog #25 Responses

Comments and responses on the Modern Money Primer Part 25.

MMP Blog #26: Sovereign Currency and Government Policy in the Open Economy

A country that floats its exchange rate can enjoy domestic policy independence and free capital flows. A country that pegs its exchange rate must choose to regulate capital flows or must abandon domestic policy independence.

MMP Blog #26 Responses

Comments and responses on the Modern Money Primer Part 26.

MMP Blog #27: What about a country that adopts a foreign currency? Part One

A country might choose to use a foreign currency for domestic policy purposes. Here, however, we are examining a nation that does not issue a currency at all.

MMP Blog #27 Responses

Comments and responses on the Modern Money Primer Part 27.

MMP Blog #28: Government Spending with Self-Imposed Constraints

Even if the government ties its hands behind its back and its shoes together, it makes no difference – the balance sheets still balance.

MMP Blog #28 Responses

Comments and responses on the Modern Money Primer Part 28.

MMP Blog #29: What about a country that adopts a foreign currency? Part Two

There was never a strong argument for adopting the Euro, and the weaknesses have been exposed. Currency union without fiscal union was a mistake.

MMT: A Doubly Retrospective Analysis

We must have fundamental reform and MMT shines a light on the path we need to take. Randy Wray’s keynote speech at the 2011 CofFEE Conference.

Blog Responses: Retrospective on MMT

There was one substantive and flawed comment on the MMT Retrospective, so I will deal with that here.

MMP Blog #30: What is Modern Money Theory?

As an accurate description, this part of MMT should be accepted by anyone, no matter what their theoretical, political, or ideological persuasion.

MMP Blog #30 Responses

Comments and responses on the Modern Money Primer Part 30.

MMP Blog #31: FUNCTIONAL FINANCE: Monetary and Fiscal Policy for Sovereign Currencies

This week we begin a new topic: functional finance. Today we will lay out Abba Lerner’s approach to policy.

MMP Blog #31 Responses

Comments and responses on the Modern Money Primer Part 31.

MMP Blog #32: Milton Friedman’s Version of Functional Finance: A Proposal for Integration of Fiscal and Monetary Policy

Milton Friedman was a conservative economist and a vocal critic of “big government” and of Keynesian economics. Yet, in 1948 he made a proposal that was almost identical to Lerner’s functional finance views.

MMP Blog #32 Responses

Comments and responses on the Modern Money Primer Part 32.

MMP Blog #33: Functional Finance and Long Term Growth

Applying a household “budget constraint” to government is obviously inappropriate—households are users of the currency, while government is the issuer. How could economics have become so confused?

MMP Blog #33 Responses

Comments and responses on the Modern Money Primer Part 33.

MMP Blog #34: Functional Finance and Exchange Rate Regimes: The Twin Deficits Debate

The US Dollar probably will not remain the world’s reserve currency. From the US perspective, that might be a disappointment. In the long view of history, it is inconsequential.

MMP Blog #34 Responses

Comments and responses on the Modern Money Primer Part 34.

MMP Blog #35: Functional Finance: A Conclusion

Let’s finish up the discussion of Lerner’s functional finance approach addressing two issues: functional finance and developing nations and also the functional finance approach to trade deficits.

MMP Blog #35 Responses

Comments and responses on the Modern Money Primer Part 35.

MMP Blog #36: What Government Ought to Do: An Introduction

I will be making policy recommendations that are consistent with MMT. You do not have to like mine; you can come up with your own.

MMP Blog #36 Responses

Comments and responses on the Modern Money Primer Part 36.

MMP Blog #37: The Public Purpose

The public purpose is an evolving concept. The national government must play an important role in society as it helps to identify the social purpose and to establish a social structure in which individuals and groups will work toward achieving the public purpose.

MMP Blog #37 Responses

Comments and responses on the Modern Money Primer Part 37.

MMP Blog #38: MMT for Austrians

MMT is not just for advocates of big government. I have always been surprised that some of the most vehement critics of MMT are libertarians and Austrians.

MMP Blog #38 Responses

Comments and responses on the Modern Money Primer Part 38.

MMP Blog #39: MMT for Austrians: Disagreements Among Reasonable People

A response to John Carney’s published works because I think they are the most cogent MMT critiques the Austrians have to offer.

MMP Blog #39 Responses

Comments and responses on the Modern Money Primer Part 39.

MMP Blog #40: MMT for Austrians 3: How Do YOU Propose We Deal with the Elderly, Disabled and their Debts?

As Carney and others lay their proposals out on the table so that we can see what kind of government they want, the reaction by most people is sheer horror.

MMP Blog #41: MMT for Austrians Part 4: Is Description Without Theory, Ideology or Policy Desirable? Is it Even Possible?

The answer to both questions posed in the title is, I think, a big fat no.

MMP Blog #41 Responses

Comments and responses on the Modern Money Primer Part 41.

MMP Blog #42: Introduction to the Job Guarantee or Employer of Last Resort

Some have called it slavery; others accuse supporters of fascism or communism. Some claim we want to destroy the safety net. Others say we want to destroy capitalism.

MMP Blog #42 Responses

Comments and responses on the Modern Money Primer Part 42.

MMP Blog #43: Job Guarantee Basics: Design and Advantages

A JG or ELR program is one in which government promises to make a job available to any qualifying individual who is ready and willing to work.

MMP Blog #43 Responses

Comments and responses on the Modern Money Primer Part 43.

MMP Blog #44: The Job Guarantee and Macro Stability

Our claim is that the economy with a Job Guarantee will be more stable than one without the Job Guarantee.

MMP Blog #44 Responses

Comments and responses on the Modern Money Primer Part 44.

MMP Blog #45: The JG and Affordability Issues with Special Considerations for Developing Nations

A sovereign nation operating with its own currency in a floating exchange rate regime can always financially afford an JG/ELR program. So long as there are workers who are ready and willing to work.

MMP Blog #45 Responses

Comments and responses on the Modern Money Primer Part 45.

MMP Blog #46: The Job Guarantee – Program Manageability

Problems will be encountered in any real world JG program, but what must always be kept in mind is that the alternative—unemployment—is, arguably, far more socially wasteful.

MMP Blog #46 Responses

Comments and responses on the Modern Money Primer Part 46.

MMP Blog #47: The JG / ELR and Real World Experience

There have been many job creation programs implemented around the world – let’s take a look at some of them.

MMP Blog #47 Responses

Comments and responses on the Modern Money Primer Part 47.

MMP Blog #48: Is The Job Guarantee Necessary?

Once one understands that sovereign governments do not have to force millions to suffer involuntary unemployment, then the ethically defensible position of opposing a Job Guarantee is narrowed.

MMP Blog #48 Responses

Comments and responses on the Modern Money Primer Part 48.

MMP Blog #49: Should Growth Drive Jobs, or Jobs Drive Growth?

It is much better to create the jobs and then let growth follow, rather than to try to pump up growth in the hope that some jobs might trickle down.

MMP Blog #50: MMT Without the JG? Conclusion

Can you separate the MMT explanation of the cause of unemployment from the policy to cure it? Yes. Should you? Of course not.

MMP Blog #50 Responses

Comments and responses on the Modern Money Primer Part 50.

MMP Blog #51: The Efficiency Fairy and Inflation Goblins

The main objections to MMT are the belief that adoption of a fiat money necessarily leads to high inflation and perceived government inefficiency. Let’s expose these boogeymen.

MMP Blog #52: Conclusion: The Nature of Money

Let us close this blog and this Primer with an examination of three propositions on the nature of money. This has been a long and difficult blog. You might need to read it twice. Or three times.