Kelton does not address the ontology of money of MMT. Keynes further developed it in The Treatise on Money (1930), and it has been most recently promoted by L. George Knapp (1924) called this ‘the state theory of money’, J.M. MMT contends the value of (modern) money derives from its link to credit (and debt) and underscores the important role the state plays regarding the ontology of money. The orthodox view of money asserts that the value of money is based historically on its link to precious metals and especially on its function as a medium of exchange. Kelton’s argument is based on modern monetary theory (MMT), which hinges on a critique of the orthodox view of money. In so doing, Kelton’s book achieves two groundbreaking triumphs and has one major ‘shortcoming’.įirst, the shortcoming.
Chapters Seven and Eight explain how deficit can be used to generate a stronger economy with shared prosperity to reduce inequality and other social ills. The first six chapters of her book dispel each primary myth. Kelton identifies six primary myths of public debt. This strangeness is one of the reasons so many ‘myths’ cloud our understanding of public debt.
If it seems strange the federal government can owe itself money, well indeed, federal debt is strange. However, $6 trillion of the national debt is held by government agencies such as the Social Security Trust Fund. Conventional wisdom warns against using ‘deficits to solve problems we continue to think of the deficit itself as a problem’ (8).Ĭurrently the US national debt is more than $24 trillion, 106 per cent of GDP. However, the conventional wisdom regarding deficits is that they impede economic growth and weaken the economy. Kelton contends bigger deficits can strengthen an economy and lead to faster growth. Indeed, she argues that public deficits can be very healthy for an economy. Kelton argues that government spending properly targeted and government debt need not be problematic. Stephanie Kelton, in her new book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, demonstrates that concerns about public debt overhang are ill-founded. The result is slower GDP growth and stagnation in worker’s wages and salaries. The increased taxes will lower consumption spending of households and investment spending of businesses. With debt-to-GDP ratios so high, mainstream economists warn there will be a debt overhang post-pandemic, which they proclaim will force a curtailment of public spending in the future and an increase in taxes. I'd like to receive Kamadia's Premium commentary (free)
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