“Money has no provenance.” Glen Cook, one of the Black Company novels

“In sum, freedom can run a monetary system as superbly as it runs the rest of the economy. Contrary to many writers, there is nothing special about money that requires extensive governmental dictation. Here, too, free men will best and most smoothly supply all their economic wants. For money as for all other activities of man, “liberty is the mother, not the daughter, of order.”

― Murray N. Rothbard, What Has Government Done to Our Money?

Modern monetary theory (MMT) is all the rage these days. Especially with the cadre of new socialists recently elected to congress and with the older socialists who all seem to be running for president in 2020.

So what is it? To begin with it is necessary to describe how money is created in the land of the free today. In 1971, the Richard Nixon closed the gold window and from that point forward the dollar is no longer backed by gold or silver. So how is dollars created today? A dollar is created by the government with the issuance of treasuries (debt) to fund the federal deficit (the difference between tax collections and expenditures). Those deficits have been growing exponentially in the past 18 years. Dollars are also created by banks who write loans from customers deposits. Finally in the years after the last recession, the Federal Reserve created dollars to buy back all types of securities in an attempt to create asset inflation (called quantitative easing).

MMT is really a quite simple concept. It has been popularized by Stephanie Kelton, an economics professor at Stony Brook University. Sovereign governments (those that create their create their own currency as opposed to European governments who participate in the Euro) can create money as needed to fund deficits. It basically eliminates the issuance of debt mode of creation of money and instead just print it (not really, money is digital now and all that is needed is a few key strokes. The only constraint to the creation of money is inflation. If you ask me, that is one hell of a constraint.

The proponents of MMT will tell you that quantitative easing has done nothing but made the wealthy elite all the more wealthy while doing nothing for the rest of the population. They are absolutely correct in that respect. As the Federal Reserve intended, quantitative easing created an inflation in asset classes that has benefited investors who owned all types of assets including stocks, bonds, and real estate. MMT would instead be used to generate demand, reduce unemployment to 0%, and fund all sorts of worthy government projects such as infrastructure, Medicare for all, etc.

Is MMT really a theory? I would say it is not. The scenario has been played out in many countries. It is currently occurring in Venezuela where inflation has reached (cue Dr. Evil) 1 million per cent. It also occurred in post WW1 Germany and in Zimbabwe.

Their is a third option. There really is no reason why governments should have a monopoly on the creation of money. Individuals, businesses, and communities could create money from known values such as gold and silver and use it in exchange for goods and services. It could save the economies of local communities when hyper-inflation eventually comes to the US.

