Thoughts on Modern Monetary Theory

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by Philadelphia Public Banking Coalition Member Pamela Haines

Stephanie Kelton’s Modern Monetary Theory has come up several times in discussion recently. I have puzzled over this theory for years and spent a fair amount of time trying to get my mind around it. So here’s my current perspective: MMT does us a great service by exposing the flaws of the position that federal deficits are, by definition, problematic. Our federal government can, indeed, safely spend on pressing social and economic needs without the constraints of a balanced budget. One could argue that it has an obligation to do so, as it did in the Depression and World War II and more recently in response to COVID. 

But there are hidden costs and power dynamics that MMT fails to address. In reality, over 95% of the money in circulation in our country is not created by government; rather, it is created when private banks make loans. Though the principal of our federal deficit can sit on the books indefinitely, the interest is being paid back, in a steady and increasing stream, from public revenues to private banks. If we want to investigate what a truly democratic and equitable money system would look like, I think we have to go beyond MMT. Building on our values around public banking, the challenge is to imagine a monetary system that is not ultimately beholden to the private sector, but that is grounded in and working for the public interest. I’ve been impressed and heartened by a project initiated by a friend in southeastern Ohio who is working with his local League of Women Voters to identify the elements of a monetary system that would align with their values around democracy and equity. Their goal is to get chapters all over the country to endorse this effort as a step toward influencing the national LWV. What a great way to get people thinking freshly about our money system, in places where public banking campaigns may not be feasible in the short term.

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