MMT - Modern Monetary Theory
"The case against Modern Monetary Theory"
by Antony P. Mueller
Adam Smith Institute UK (ASI)
-Modern Monetary Theory (MMT) contends that government can spend
without restraint and large deficits and debt don’t matter when the economy
is not at full capacity. It asserts that the state, as the issuer of the nation’s
currency, cannot go bankrupt because it can just keep creating and printing
money; taxation exists not to obtain revenue but to oblige people to use a
nation’s currency and control inflation; and that all public expenditure
can be financed by debt or creating money.
There are a number of serious flaws in MMT:
• MMT asserts, with limited evidence, that there is substantial unused
economic capacity that government spending can activate. However, in
practice, when government excessively expands the monetary supply (prints
money) the impact is inflationary, if not hyperinflationary.
• MMT depends on governments knowing much more than they possibly
could and acting more rationally than politics allows. It depends on
government knowing precisely the natural rate of unemployment, and
therefore when to spend, to stimulate activity, and when to tax, to drain the
excessive inflationary impact of creating money. This ignores
• MMT is premised on substantial public employment policies
to create economic activity for the unemployed. This policy underestimates
the bureaucratic costs and the coordination problems that come with public
employment policies. Only autocratic governments would have the means to
enforce such policies
The Middle-Income Trap in the Perspective of the Austrian Capital Theory
Antony P. Mueller
This paper applies the Austrian capital theory to the problem why emerging
economies fall into the middle-income trap and how they may escape. The
analysis puts entrepreneurial action at the center with a focus on the
subjectivist nature of capital and on the role of the entrepreneur as the
creator of the capital structure based on expectations and his imagination.
The central thesis says that when a developing country has come close to
the lower bound of the income level of the industrialized countries in its catch-
up process but does not open its economy to free markets and
entrepreneurship, further economic progress will fail, and the country remains
in the middle-income range. The paper identifies grand-scale malinvestments
induced by government policies as the main culprit for a country to become
stuck in the middle-income trap. The policy conclusion of the analysis is that
the way out of the middle-income requires not more, but less intervention.
Instead of more government spending, less spending is required and instead
of promoting a few big companies, the country must open its markets to the
full potential of entrepreneurial action.