Modern Monetary Theory

Government Budgets don't Work like Household Budgets

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Modern Monetary Theory is to economics what post-modernism is to psychology, a nuevo application of rationalities thought to better serve the purpose of the practice, as opposed to its “archaic” predecessors. Inflexible systematology doesn’t lend itself to a practical use of how these respective fields of study have approached their work. Modern Monetary Theory (MMT) suggests that how you or I run our household budgets is not how governments should run their budgets; and that, that should be relative to the needs of a government’s economy.

Stephanie Kelton, an economist, and one of the main contributors to MMT defines it as a description on how a modern fiat currency works. A currency backed by nothing works differently than a commodity currency. One of the main ways we see this is through inflation. When countries were on the gold standard the money supply could only increase when there was an equivalent amount of gold available. The more gold available, the more money available, and the less expensive things were.