According to Ludwig von Mises’s business cycle theory, unoccupied manufacturing capacity in an economy is the result of inappropriate investments made during the previous boom. Although the rise in prices leads to redistribution, if the total output is higher, then the output per capita should also be higher. Kelton argues that if there is still a downturn in the economy in terms of unemployed workers and factories operating below capacity, then a surge in monetary inflation can put these idle resources to work. Regardless of whether the CPI growth rate is unacceptable, when the government allocates an additional one million dollars to finance costs, then prices get higher, and people with dollar assets become poorer. If a government project is considered unavailable under traditional accounting, then it should be denied funding. However, it can be argued that no matter what happens to the price level, monetary inflation transfers real resources from the private sector into the hands of political officials. Kelton and other Modern Monetary Theory theorists argue that inflation is not a problem in the United States and other advanced economies, so the printing press can be turned on. The Modern Monetary Theory is about distinguishing real limits from voluntary limits that can be changed.

A failure to define and respect limits can be harmful. If the federal government prints too many dollars in a futile attempt to fund too many programs, prices will rise quickly. However, even the countries with a high degree of monetary sovereignty were not sovereign during the gold standard, because they had to be careful about issuing currency lest gold runs out. To truly enjoy the benefits of the Modern Monetary Theory, the government must have monetary sovereignty. In fact, the situation is more complicated since the countries need to do more than just grant themselves the exclusive right to issue currency. In contrast, the issuer of a currency does not have such restrictions and does not have to worry about revenues when deciding which projects to fund. Currency users have to worry about financing costs since they need to borrow money. The author may end up convincing a large number of readers that the Modern Monetary Theory can turn unaffordable loans into smart investments by simply changing the way the government thinks about them.Īccording to Kelton, countries with monetary sovereignty do not need to manage their budgets the way a family does.

This is a dangerous message that Kelton tries to infuse into American discourse.

If too much money will be printed, the country will get high inflation, but it doesn’t have to worry about finding the money the way a family or business does. Kelton says that since the Federal Reserve has the legal ability to print unlimited money, people should stop worrying about how the government will pay for various spending programs.

Stephanie kelton the deficit myth