Interview: Demystifying Modern Monetary Theory

I am travelling all day today so no time to write at all and post. So in lieu of a more complete analysis of something interesting, I am sharing an interview I did with the Institute for New Economic Thinking (iNET) at their conference in April 2014 in Toronto Canada. iNET posted the interview on December 28, 2014 after they had finished editing and producing the material recorded in April. The interview probed the basic principles of Modern Monetary Theory (MMT) and how I think it can be extended in to the policy space. I hope you enjoy it.

Bill Mitchell: Demystifying Demystifying Modern Monetary Theory

The Institute for New Economic Thinking invited me as one of their keynote speakers at their conference in Toronto, Canada in April 2014.

As part of the visit, Marshall Auerback who is the Director of Institutional Partnerships at iNET conducted a series of interviews with some of the speakers.

This is an edited version of the interview he conducted with me as part of that series. It is 22:43 minutes.

The accompanying page – Bill Mitchell: Demystifying Modern Monetary Theoryat iNET provides an introduction to the Interview.

Thanks to Marshall for making all this happen.


And that is my blog today. Back tomorrow.

That is enough for today!

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.

This Post Has 9 Comments

  1. Bill, many thanks for all your efforts! You are a continuing source of inspiration and enlightenment!

    Two Letters published in Toronto Star ( largest daily paper by circulation in Canada)

    A new twist to fight joblessness

    Re: Are we becoming a nation of part-timers? Opinion Sept. 8

    Carol Goar seems to accept the conventional view that government should resolve our massive problem of joblessness (currently numbering 1.3 million Canadians) by inducing employers to create full-time jobs through wage and training subsidies, and tax relief. But there are more robust methods.

    In days when Canada overproduced of wheat, government purchased a large quantity of it, creating a storage buffer stock that was released into the market over time when supplies ran low. The same can be done with excess workforce capacity.

    The government through an Employer of Last Resort program could put people to work on community and environmental projects at minimum livable wage, until such time as private sector recovery would lure workers away with higher pay and better opportunities. The benefits of this type of program far outweigh the costs, and have been offered in many countries.

    If our conventional Canadian economists and politicians cannot offer detailed, comprehensive prescriptions for ending high unemployment, then we have just another addition to their long list of failures.

    Footnotes to Letters Editor


    1. The Job Guarantee: A Government Plan for Full Employment

    The benefits of full employment include production of goods, services and income; on-the-job training and skill development; poverty alleviation; community building and social networking; social, political and economic stability; and social multipliers (positive feedbacks and reinforcing dynamics that create a virtuous cycle of socioeconomic benefits). An “employer of last resort” program would restore the government’s lost commitment to full employment in recognition of the fact that the total impact would exceed the sum of the benefits.

    2. The JG / ELR and Real World Experience

    In the aftermath of its economic crisis that came with the collapse of its currency board, Argentina created Plan Jefes y Jefas that guaranteed a job for poor heads of households. The program successfully created 2 million new jobs that not only provided employment and income for poor families, but also provided needed services and free goods to poor neighborhoods.
    Financial literacy for politicians

    Published on Fri Dec 05 2014

    Re: Quebec austerity could hurt Trudeau at the polls, Nov. 28

    November is Financial Literacy Month – the time when overpaid bankers of highly leveraged institutions that market credit cards bearing exorbitant interest rates educate the lesser-informed public about personal responsibility.

    More beneficial would be a Financial Literacy Month for politicians. The curriculum should explain that a province or country is not a household, nor is it a profit centre. Rather, democratic governments are agents whose mandate is to manage the economy in accordance with public purpose.

    In order to avoid inflation when the economy is hot, the government must tamp down activity by increasing taxes and/or spending less. And when the economy is cool, the government must decrease taxes and spend more to preserve jobs and support the private sector. It’s that simple – Financial Literacy for Politicians 101.

    Implementing fiscal austerity at a time when 1.3 million Canadians cannot find work is totally inappropriate and damaging. Stephen Harper and Quebec Premier Philippe Couillard need professional help – their enrolment in this course should be mandatory.


    Seven years after: why this recovery is still a turkey

    Firms don’t go on investment splurges in a weak economy. Nor is it plausible that consumers will spend at the same pace as in the bubble years now that the bubble wealth has disappeared. This means that we have to find another source of demand if we want to get back to full employment. We can do it with government spending. We can spend more on infrastructure, on education, on retrofitting buildings to make them more energy efficient and reduce greenhouse gas emissions.

  2. I noted that Marshall went beyond the usual MMT phrasing (in the iNET intro), which says that governments don’t need to borrow in their own currency, replacing it with governments not even being able to borrow in their own currency. Indeed, the former phrasing doesn’t even make sense, as it is silly to say one does not need to do something that is not even possible. (Well, good thing.) This is more than just a fine point; it’s about correctly describing how sovereign fiats work, and MMTers should be careful to use the latter (correct) formulation.

    [For those who don’t understand this, think of issuing your own IOUs and then “borrowing” them back. You end up with no new spending power, and the original holder ends up with simply a new IOU from you. Neither your net liabilities nor the holder’s net assets change with the transaction.]

  3. Benedict@Large ,

    That’s a good point. The ‘borrowing’ is simply the replacement of one type of an IOU called cash with another called a bond.

    Interestingly cash isn’t normally counted as debt whereas a bond is. So, theoretically, we could pay off our National debt by creating enough cash. That’s an indication, at least to my mind, that the economic mainstream hasn’t got it right (as usual). Is there an MMT correction on that?

  4. Agree it’s a good idea to focus on cash and reserves highlighting the differences, or not, between those and ‘debt’. There is usually no comeback. Sometimes I get ‘well currency is just there innit ? provided as a means of exchange’ but the ‘is currency ‘debt?” and ‘is ‘debt’ currency?’ debate might make a few people think and may be easier to sell than ‘there is no borrowing’……at this stage.

  5. petermartin2001 ~

    So, theoretically, we could pay off our National debt by creating enough cash.

    Actually, each new dollar created creates another dollar of national debt. So each dollar created can only pay itself off when it is collected in taxes.

    The only way in fact to end the national debt is to collect every single dollar at issue (and shred it, as Warren would say). The only way to end the national debt is to end the currency itself.

    [Note that what the US calls its national debt isn’t. It’s simply the portion of its national debt denominated as government bonds. To get its true national debt, currency and bank reserves should be added in.]

  6. “To get its true national debt, currency and bank reserves should be added in.”

    Yes I agree. My point was they should be but they aren’t. Is this a left over from the time when currencies were backed by gold so there was perhaps an argument for excluding the “monetary base” on that basis?

    Then there is the question of the coinage. The trillion dollar coin idea exposes the flaw in the mainstream’s thinking on debt. IMO.

  7. Quick point about coinage back in the days before the Bank of England started. It may not be relevant but whatever.

    To all intents and purposes coinage, the main means of exchange at the time, was private. The king controlled the minting, the face value of the coins which would have been based on market value and could take a cut of the new coins (seignorage) and of course he could tax it. The royal mint got a cut and then the miners or the Goldsmiths who delivered the bullion to the mint got the rest then it circulated.

    When the Bank was set up the Goldmiths with whom the merchants, who had built up hoards through trade, and given to them for safe keeping, opened accounts and deposited their customers’ metal with the Bank in exchange for notes which also circulated. These accounts are the original bank reserves.

    The Bank would exchange notes for coins and vice-versa i.e. convertability was always available unless there was a run, usually in time of war but if the market price of metal exceeded the face value good coins could be withdrawn, exported and melted down and become scarce. Less gold in the vaults of course meant fewer notes circulating.

    But the main reason the Bank was set up was to be the king’s and soon parliament’s banker and more importantly to provide a loan of 1.2m presumably in coin which was offered up as capital by the initial shareholders for the latest war. The Bank carried out Banking business seperately and was guaranteed an income secured on future taxes from parliament, pretty soon had a monopoly, in London anyway, on note issue but right from the start the note issue liability was matched or ‘ funded’ by a combination of the gold in the vaults and assets of loans to the State and the ratio of gold to liabilities always appears to be below 50 per cent and sometimes as low as 10.

    Final point and then I’ll shup up. These Govt loans on the Bank’s books were short term loans as I understand it and not part of the national debt which they managed seperately and against which parliament made a quarterly repayment. ( Their tax receipts account with the bank was just debited)

    I think the original point I Was going to make was that the bank reserves had not originated from the State. I hope to able to come up with something a bit more coherent after a bit more research.

  8. Excellent video. Thanks.
    Interesting to hear people have “forgotten about basic Macro stuff”. I’ve always instinctively felt MMT or something like it was obvious and I always had a deep but vague suspicion about doctrinaire stuff. I suspect that’s partly because I got to economics through a Banking course in the 80s and I was particularly beguiled and intrigued by Central Banking and Macro-economics.
    So, I conclude the most important point to really hammer home when trying to address non-economists is the fact that currency is no longer gold and the real work is to break that assumption.
    Even people well-acquainted with the idea of fiat money easily slip into reasoning as if it were gold. Many on purpose, of course.
    “Expansion through contraction!” is funny. My version is “To get rich, we must get poor!”

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