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Modern Money Theory: A Critical Assessment and a Proposal for the State As Innovator of First Resort

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  • Giorgio Colacchio
  • Guglielmo Forges Davanzati

Abstract

Modern Money Theory (MMT) describes the functioning of a pure credit economy, assuming that the state can finance public spending via monetisation on the part of the central bank: in this light MMT proponents maintain that taxation and bond issues are irrelevant to public deficit financing. Another feature peculiar to MMT is the belief that expansionary fiscal policies can guarantee full employment in a condition where the state acts as an employer of last resort (ELR). The aim of this paper is threefold: (a) to understand and rationalise the logical framework of MMT (Section 2.1); (b) to address some of the controversial issues of this approach, with particular regard to the ELR programme proposal and to the actual role played by taxation and bonds in public deficit financing (Section 2.2); (c) to propose an extension of the ELR programme, arguing that it can be used for the application of innovations by the state (Section Three).

Suggested Citation

  • Giorgio Colacchio & Guglielmo Forges Davanzati, 2020. "Modern Money Theory: A Critical Assessment and a Proposal for the State As Innovator of First Resort," Review of Political Economy, Taylor & Francis Journals, vol. 32(1), pages 77-98, July.
    • Handle: RePEc:taf:revpoe:v:32:y:2020:i:1:p:77-98
    DOI: 10.1080/09538259.2020.1741893
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    Cited by:

    1. Giuliano Toshiro Yajima, 2021. "The Employer of Last Resort Scheme and the Energy Transition: A Stock-Flow Consistent Analysis," Economics Working Paper Archive wp_995, Levy Economics Institute.

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