Chartalism

Critcisms

Criticisms

Chartalism and Modern Monetary Theory has garnered wide criticism from a wide range of schools of economic thought. New Keynesian economist and Nobel laureate Paul Krugman has stated that the MMT view that deficits never matter as long as you have your own currency is "just not right".^[27]

The main response by MMT economists to the abovementioned criticism is to point out that the positions taken by critics betray a misunderstanding of MMT. Although critics often represent MMT as supportive of the notion that "deficits don't matter",^[27] MMT authors have explicitly stated that that is not a tenet of MMT.^[28]

Austrian school economist Robert P. Murphy states that "the MMT worldview doesn't live up to its promises" and that it seems to be "dead wrong".^[29] Daniel Kuehn has voiced his agreement with Murphy, stating "it's bad economics to confuse accounting identities with behavioral laws [...] economics is not accounting."^[30]

Murphy's critique specifically employs a hypothetical example of Robinson Crusoe living in a world without a monetary system, and shows that it is in fact possible for Robinson Crusoe to save by forgoing income, thereby illustrating that despite what MMT economists argue, government deficits are not necessary for individuals to save. However, what Murphy terms saving in his example would traditionally be called investment - to introduce saving into the example would require more than one economic agent, a unit of account money and corresponding borrowing. MMT economists have pointed out that the central tenets of MMT theory only aim to describe the economy of a society with a monetary system, that employs a fiat currency and floating exchange rate.^[28][31]

Murphy also criticises MMT on the basis that savings in the form of government bonds are not net assets for the private sector as a whole, since the bond will only be redeemed after the government "raises the necessary funds from the same group of Taxpayers in the future".^[29] In response to this, MMT authors point out that the repayment of bonds does not necessarily have to occur from taxes; a central bank attempting to hold an interest rate target must necessarily purchase government bonds. These purchases occur through the creation of currency, rather than taxation.^[32]

New Keynesian Brad DeLong has suggested MMT is not a theory but rather a tautology.^[33] Still others have said MMT "ignores the lessons of history" and is "fatally flawed."^[34]

Economist Eladio Febrero argues that modern money draws its value from its ability to cancel (private) bank debt, particularly as legal tender, rather than to pay government taxes.^[35] However, it is unclear how this is a critique, since banks rely entirely on the monetary services of the state and its chosen currency, via the central banking system.