The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Modern Money Theory

  • L. Randall Wray
Reference work entry


Modern Money Theory (MMT) is a relatively new approach to macroeconomics that focuses on building an understanding of the operation of sovereign currency systems and on developing a policy framework based on that understanding. This article first summarises the main conclusions of MMT – the most important of which is that a nation that issues its own sovereign currency does not face financial or solvency constraints. We next trace the intellectual antecedents of MMT, which rest ‘on the shoulders of giants’. MMT revives the State Theory of Money (or Chartalism) and integrates it with a variety of heterodox approaches to macroeconomics, including the credit, circuitiste and endogenous approaches to money, the functional finance approach to budgeting, the financial instability hypothesis and the sectoral balances approach. Among those giants, MMT borrows from Knapp, Keynes, Innes, Schumpeter, Lerner, Minsky and Godley. This article shows how their theories have been integrated by MMT to provide a coherent approach to macroeconomic theory and policy. In the final section we summarise the main implications for policy-making.


Abba Lerner A. Mitchell Innes Central bank independence Circuit approach Endogenous money Eurozone Exchange rate regimes Financial instability Fiscal policy G. F. Knapp Government deficits Hyman Minsky J. A. Schumpeter Modern money theory Monetary policy Sovereign currency State theory of money Taxes drive money Wynne Godley 

JEL Classifications

B5 B22 B31 E12 E40 E58 E62 
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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • L. Randall Wray
    • 1
  1. 1.