Richard Holden’s challenge to MMT

It is always good to see Modern Monetary Theory get some publicity.  I get to add another post to the Critic Engagement section. 🙂

Richard Holden, a professor at UNSW has a go at critiquing MMT on The Conversation.  He is schooled by those that are MMT advocates, sympathisers and those with a better understanding of MMT in the Comments section.

So here’s my challenge to the modern monetary theory crowd. Please state a formal, precise, economic model in which a monetary authority can extract an infinite amount of real resources through seigniorage. Or be quiet.

To Professor Holden’s credit, he does somewhat engage in conversation in the comments though not to a great extent.  In a response he writes:

Here’s Mitchell in his own words: “the Federal government is not financially constrained and can spend as much as it chooses up to the limit of what is offered for sale. There is not inevitability that this spending will be inflationary and it does not necessarily require any increase in government debt”.

Later on I comment:

‘limit of what is offered for sale’ – does not equate to infinite resources. Do you disagree?

Until Professor Holden engages with that very question, he has nothing substantive to say about Modern Monetary Theory.

I am delighted to see more Australian economists engaging in a Conversation about  MMT including Warwick Smith from the University of Melbourne.  This economist examines things closely and contextual with a line by line analysis in part:

OK, part one is presumably OK. The federal government can create money with keystrokes on a computer. They can, in theory, buy anything that is offered for sale in Australian dollars. Do you dispute that? He’s not claiming they can buy anything with no limit. That’s a very different claim and appears to be WHAT YOU THINK HE’S SAYING. (Emphasis mine)

The economist from the University of Melbourne and myself are in complete agreement.  So Professor Holden’s challenge has zero bearing on MMT as he insists that it says something it does not.

As for questions of whether MMT has been modelled – Professor Holden can start here:

1. Sectoral Financial Balances Model of Effective Demand

2. Mathematical Model: Analyzing the Implications of the State as a Single Supplier of that Which it Demands for Payment of Taxes