About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

39 Cato J. 529 (2019)
Modern Monetary Theory: Cautionary Tales from Latin America

handle is hein.journals/catoj39 and id is 538 raw text is: 











           MODERN MONETARY THEORY:
 CAUTIONARY TALES FROM LATIN AMERICA
                    Sebastian Edwards

   During the last few years an apparently new and revolutionary
idea has emerged in economic policy circles in the United States:
Modern Monetary Theory (MMT). The central tenet of this view
is that it is possible to use expansive monetary policy-money cre-
ation by the central bank (i.e., the Federal Reserve)-to finance large
fiscal deficits, and create a jobs guarantee program that will ensure
fill employment and good jobs for everyone.' This view is related to
Abba Lemer's (1943) finctional finance idea, and has become very
popular in progressive spheres. According to MMT supporters, this
policy would not result in crowding out of private investment, nor
would it generate a public debt crisis or inflation outbursts.2





   Cato Journal, Vol. 39, No. 3 (Fall 2019). Copyright © Cato Institute. All rights
reserved. DOI: 10.36009/CJ.39.3.3.
   Sebastian Edwards is Henry Ford II Distinguished Professor at the Anderson
Graduate School of Management, UCLA. This article is a revised version of his
Hoover Institution Working Paper (www.hoover.org/sites/default/files/research
/docs/19106_edwards.pdf). The author thanks Michael Bordo, Edward Leamer,
Jos6 De Gregorio, Scott Sumner, and Alejandra Cox for beneficial discussions of ear-
lier versions of this article, and Doug Irwin and John Taylor for their support.

'See Wray (2015) for details. The term modern is supposed to be an inside joke,
and refers to a statement made by Keynes in A Treatise on Money (1930: 4), where
he says that, for at least 4,000 years, money has been the creation of the state.
Money is whatever the state accepts in payment of taxes (see Knapp [1904] 1924).
'See, for example, Forstater and Mosler (2005), Tymoigne and Wray (2013,
2015), and Wray (2015) and the literature cited therein. Scott Sumner has dis-
cussed MMT in depth in his blog. See Sumner and Horan (2019).

What Is HeinOnline?

HeinOnline is a subscription-based resource containing nearly 3,000 academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline with pricing starting as low as $29.95

Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most