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63-628: In 1995 Australian Bill Mitchell , a keen cyclist and professor of economics at the University of Newcastle , created the website titled "Bill’s Cycling Racing Results and News" after finding there was a need for fast-breaking news and race results in English-speaking countries. In 1999 Sydney-based publishing company Knapp Communications purchased the website from Mitchell, and in July 2007 they sold it to British publisher Future plc for £2.2m. In July 2014 it

126-433: A "buffer stock" of labor that can readily switch to the private sector when jobs become available. A job guarantee program could also be considered an automatic stabilizer to the economy, expanding when private sector activity cools down and shrinking in size when private sector activity heats up. MMT economists also say quantitative easing (QE) is unlikely to have the effects that its advocates hope for. Under MMT, QE –

189-457: A "hierarchy of money". MMT proponents such as Warren Mosler say that trade deficits are sustainable and beneficial to the standard of living in the short term. Imports are an economic benefit to the importing nation because they provide the nation with real goods. Exports, however, are an economic cost to the exporting nation because it is losing real goods that it could have consumed. Currency transferred to foreign ownership, however, represents

252-516: A Creature of the State", economists had largely abandoned the idea that the value of money was closely linked to gold. Lerner said that responsibility for avoiding inflation and depressions lay with the state because of its ability to create or tax away money. Hyman Minsky seemed to favor a chartalist approach to understanding money creation in his Stabilizing an Unstable Economy , while Basil Moore , in his book Horizontalists and Verticalists , lists

315-514: A comprehensive strategy for revitalising progressive economics in the 21st century." His book Eurozone Dystopia : Groupthink and Denial on a Grand Scale (May 2015), provides "a critical history and analysis from the perspective of Modern Monetary Theory of the European economic crisis that started in 2009." Full Employment Abandoned: Shifting Sands and Policy Failures (2008), co-written with Joan Muysken of Maastricht University , traces

378-474: A discount rate charged to banks for borrowing reserves directly from the central bank, and an Overnight Reverse Repurchase (ON RRP) facility rate paid to banks for temporarily forgoing reserves in exchange for Treasury securities. The latter facility is a type of open market operation to help ensure interest rates remain at a target level. According to MMT, the issuing of government bonds is best understood as an operation to offset government spending rather than

441-426: A future claim over goods of that nation. Cheap imports may also cause the failure of local firms providing similar goods at higher prices, and hence unemployment, but MMT proponents label that consideration as a subjective value-based one, rather than an economic-based one: It is up to a nation to decide whether it values the benefit of cheaper imports more than it values employment in a particular industry. Similarly

504-542: A major topic of debate after U.S. Representative Alexandria Ocasio-Cortez said in January that the theory should be a larger part of the conversation. In February 2019, Macroeconomics became the first academic textbook based on the theory, published by Bill Mitchell, Randall Wray, and Martin Watts. MMT became increasingly used by chief economists and Wall Street executives for economic forecasts and investment strategies. The theory

567-477: A more critical approach to the prevalent assumptions around the subject of macroeconomics, by comparing and contrasting heterodox and orthodox approaches to theory and policy ... based on the principles of Modern Monetary Theory (MMT)". His 2017 book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (September, 2017), co-written with Italian journalist Thomas Fazi, "reconceptualises

630-524: A musician does less damage to people. "I think my economics profession is very dangerous," he says. Mitchell is a "passionate" cyclist . He was an "active bike racer" when, in 1995, he founded the website Cyclingnews .com, which was sold in 1999 to the Australian media company Knapp Communications. It was subsequently bought in 2007 by Future plc . Modern Monetary Theory Heterodox Modern monetary theory or modern money theory ( MMT )

693-411: A nation overly dependent on imports may face a supply shock if the exchange rate drops significantly, though central banks can and do trade on foreign exchange markets to avoid shocks to the exchange rate. MMT says that as long as demand exists for the issuer's currency, whether the bond holder is foreign or not, governments can never be insolvent when the debt obligations are in their own currency; this

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756-556: A new Housing Commission suburb soon after. He attended Ashwood Primary School (1957–1963) and Ashwood High School (1964–1969). Mitchell holds the following degrees: PhD in Economics, University of Newcastle , 1998; Bachelor of Commerce, Deakin University , 1977; and Master of Economics Monash University , 1982. He completed a Master's Preliminary at the University of Melbourne in 1978 (with first-class honours). Since 1990, Mitchell

819-399: A practical limitation on lending, the cost of borrowing funds from the interbank market (or the central bank) represents a profitability consideration when the private bank lends in excess of its reserve or capital requirements (see interaction between government and the banking sector ). Effects on employment are used as evidence that a currency monopolist is overly restricting the supply of

882-464: A requirement to finance it. In most countries, commercial banks' reserve accounts with the central bank must have a positive balance at the end of every day; in some countries, the amount is specifically set as a proportion of the liabilities a bank has, i.e., its customer deposits. This is known as a reserve requirement . At the end of every day, a commercial bank will have to examine the status of their reserve accounts. Those that are in deficit have

945-456: A reserve shortage on the interbank lending market . The surplus banks will want to earn a higher rate than the support rate that the central bank pays on reserves; whereas the deficit banks will want to pay a lower interest rate than the discount rate the central bank charges for borrowing. Thus, they will lend to each other until each bank has reached their reserve requirement. In a balanced system, where there are just enough total reserves for all

1008-439: A theoretical and empirical critique of the neo-liberal approach and suggest that the reinstatement of full employment, along with price stability, is a viable policy goal, achievable through an activist fiscal policy. The notion of job guarantee is introduced, whereby the government would guarantee a job to every willing and able adult individual, paying a wage that would become society's minimum wage , and would be expression of

1071-403: A transaction between a government entity ( public sector ) and a non-government entity (private sector) as a "vertical transaction". The government sector includes the treasury and central bank . The non-government sector includes domestic and foreign private individuals and firms (including the private banking system) and foreign buyers and sellers of the currency. MMT is based on an account of

1134-469: Is Director of the Centre of Full Employment and Equity (CofFEE), a non-profit, research organisation at the University of Newcastle . Its mission statement is to advance research and policies that can restore full employment and achieve a society that "delivers equitable outcomes for all". Mitchell participates in public and community activities on the issues of politics, economics, fiscal sustainability , and

1197-406: Is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments do not need to worry about accumulating debt since they can pay interest by printing money . MMT argues that

1260-458: Is a creature of law", rather than a commodity . Knapp contrasted his state theory of money with the Gold Standard view of " metallism ", where the value of a unit of currency depends on the quantity of precious metal it contains or for which it may be exchanged. He said that the state can create pure paper money and make it exchangeable by recognizing it as legal tender , with the criterion for

1323-505: Is a professor at University of Newcastle , New South Wales . He also holds the position of Docent Professor in Global Political Economy, Faculty of Social Sciences, University of Helsinki , Finland and is a Guest International Professor at Kyoto University, Japan . Mitchell works to promote active government economic policies and the use of fiscal deficits as a tool to enhance well-being and environmental sustainability . He

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1386-561: Is a professor of economics at the University of Newcastle , New South Wales , Australia and Docent Professor of Global Political Economy at the University of Helsinki, Finland. He is also a guest professor at Kyoto University, Japan since 2022. He is one of the founding developers of Modern Monetary Theory . Mitchell was born to working class parents in Glen Huntly , a suburb of Melbourne , Australia, in March 1952. The family moved to Ashwood ,

1449-568: Is also strongly opposed by members of the Austrian school of economics , with Murray Rothbard stating that MMT practices are equivalent to "counterfeiting" and that government control of the money supply will inevitably lead to hyperinflation . MMT's main tenets are that a government that issues its own fiat money : The first four MMT tenets do not conflict with mainstream economics understanding of how money creation and inflation works. However, MMT economists disagree with mainstream economics about

1512-409: Is because the government is not constrained in creating its own fiat currency (although the bond holder may affect the exchange rate by converting to local currency). MMT does agree with mainstream economics that debt in a foreign currency is a fiscal risk to governments, because the indebted government cannot create foreign currency. In this case, the only way the government can repay its foreign debt

1575-438: Is to ensure that its currency is continually in high demand by foreigners over the period that it wishes to repay its debt; an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay. In that case, the government can default, or attempt to shift to an export-led strategy or raise interest rates to attract foreign investment in the currency. Either one negatively affects

1638-418: Is where the government receives more taxes on a particular day than it spends. Then there may be a system-wide deficit of reserves. Consequently, surplus funds will be in demand on the interbank market, and thus the short-term interest rate will rise towards the discount rate. Thus, if the central bank wants to maintain a target interest rate somewhere between the support rate and the discount rate, it must manage

1701-549: The Sri Lankan economic crisis . MMT scholars Stephanie Kelton and Fadhel Kaboub maintain that the Sri Lankan government's fiscal and monetary policy bore little resemblance to the recommendations of MMT economists. In sovereign financial systems, banks can create money, but these "horizontal" transactions do not increase net financial assets because assets are offset by liabilities. According to MMT advocates, "The balance sheet of

1764-487: The "operational realities" of interactions between the government and its central bank, and the commercial banking sector, with proponents like Scott Fullwiler arguing that understanding reserve accounting is critical to understanding monetary policy options. A sovereign government typically has an operating account with the country's central bank. From this account, the government can spend and also receive taxes and other inflows. Each commercial bank also has an account with

1827-596: The aspiration of the society of the lowest acceptable standard of living. In November 2023, he was listed as one of 44 academics in Australia across all disciplines that were considered to be 'Living Legends' by a Special Research report published in The Australian Newspaper. The report stated these academic were deemed to be "living legends ... because they attract worldwide attention by virtue of their ideas". The analysis termed Mitchell an "eminent scholar" and he

1890-428: The banking system (see vertical transactions ). This action typically leads to a system-wide surplus of reserves, with competition between banks seeking to lend their excess reserves, forcing the short-term interest rate down to the support rate (or to zero if a support rate is not in place). At this point, banks will simply keep their reserve surplus with their central bank and earn the support rate. The alternate case

1953-452: The banks to meet requirements, the short-term interbank lending rate will be in between the support rate and the discount rate. Under an MMT framework where government spending injects new reserves into the commercial banking system, and taxes withdraw them from the banking system, government activity would have an instant effect on interbank lending. If on a particular day, the government spends more than it taxes, reserves have been added to

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2016-419: The central bank, by means of which it manages its reserves (that is, money for clearing and settling interbank transactions). When a government spends money, its central bank debits its Treasury's operating account and credits the reserve accounts of the commercial banks. The commercial bank of the final recipient will then credit up this recipient's deposit account by issuing bank money. This spending increases

2079-448: The correct amount of reserves in the system. MMT economists describe any transactions within the private sector as "horizontal" transactions, including the expansion of the broad money supply through the extension of credit by banks . MMT economists regard the concept of the money multiplier , where a bank is completely constrained in lending through the deposits it holds and its capital requirement, as misleading. Rather than being

2142-414: The debt ... The redemption of government debt by taxation is the basic law of coinage and of any issue of government 'money' in whatever form. Knapp and "chartalism" are referenced by John Maynard Keynes in the opening pages of his 1930 Treatise on Money and appear to have influenced Keynesian ideas on the role of the state in the economy. By 1947, when Abba Lerner wrote his article "Money as

2205-506: The differences between bank money and state money. In 1996, Wynne Godley wrote an article on his sectoral balances approach, which MMT draws from. Economists Warren Mosler , L. Randall Wray , Stephanie Kelton , Bill Mitchell and Pavlina R. Tcherneva are largely responsible for reviving the idea of chartalism as an explanation of money creation ; Wray refers to this revived formulation as neo-chartalism . Rodger Malcolm Mitchell's book Free Money (1996) describes in layman's terms

2268-437: The earlier writings of many classical economists, including Adam Smith , Jean-Baptiste Say , J. S. Mill , Karl Marx , and William Stanley Jevons . Alfred Mitchell-Innes wrote in 1914 that money exists not as a medium of exchange but as a standard of deferred payment , with government money being debt the government may reclaim through taxation. Innes said: Whenever a tax is imposed, each taxpayer becomes responsible for

2331-420: The economy, as by government deficit spending or bank lending, rather than from outside, perhaps with gold. In the complementary view, MMT explains the "vertical" (government-to-private and vice versa) interactions, while circuit theory is a model of the "horizontal" (private-to-private) interactions. By 2013, MMT had attracted a popular following through academic blogs and other websites. In 2019, MMT became

2394-439: The economy, whether households, firms, or public, could cause inflationary pressures. MMT economists advocate a government-funded job guarantee scheme to eliminate involuntary unemployment . Proponents say that this activity can be consistent with price stability because it targets unemployment directly rather than attempting to increase private sector job creation indirectly through a much larger economic stimulus, and maintains

2457-525: The economy. Economist Stephanie Kelton explained several points made by MMT in March 2019: Economist John T. Harvey explained several of the premises of MMT and their policy implications in March 2019: MMT says that "borrowing" is a misnomer when applied to a sovereign government's fiscal operations, because the government is merely accepting its own IOUs , and nobody can borrow back their own debt instruments. Sovereign government goes into debt by issuing its own liabilities that are financial wealth to

2520-602: The environment. Mitchell opposes neo-liberal economic theories and practices; he disputes the "revisionism" of History ostensibly perpetrated by mainstream or conservative economists, especially in relation to the policies of the New Deal . He has often been called to appear as an expert witness in industrial matters in state and federal tribunals in Australia, as well as in various government enquiries. His work in childcare industrial cases in Victoria and New South Wales influenced

2583-508: The essence of chartalism. Pavlina R. Tcherneva has developed the first mathematical framework for MMT and has largely focused on developing the idea of the job guarantee . Bill Mitchell, professor of economics and Director of the Centre of Full Employment and Equity ( CoFEE ) at the University of Newcastle in Australia, coined the term ' modern monetary theory '. In their 2008 book Full Employment Abandoned , Mitchell and Joan Muysken use

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2646-437: The fifth tenet: the impact of government deficits on interest rates. MMT synthesizes ideas from the state theory of money of Georg Friedrich Knapp (also known as chartalism ) and the credit theory of money of Alfred Mitchell-Innes , the functional finance proposals of Abba Lerner , Hyman Minsky 's views on the banking system and Wynne Godley 's sectoral balances approach. Knapp wrote in 1905 that "money

2709-525: The financial assets needed to pay taxes and satisfy savings desires. According to MMT, bank credit should be regarded as a "leverage" of the monetary base and should not be regarded as increasing the net financial assets held by an economy: only the government or central bank is able to issue high-powered money with no corresponding liability. Stephanie Kelton said that bank money is generally accepted in settlement of debt and taxes because of state guarantees, but that state-issued high-powered money sits atop

2772-416: The form of a private tax obligation. In addition, fines, fees, and licenses create demand for the currency. This currency can be issued by the domestic government or by using a foreign, accepted currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, underpins the value of the currency. Because the government can issue its own currency at will, MMT maintains that

2835-474: The government does not include any domestic monetary instrument on its asset side; it owns no money. All monetary instruments issued by the government are on its liability side and are created and destroyed with spending and taxing or bond offerings." In MMT, "vertical money" enters circulation through government spending . Taxation and its legal tender enable power to discharge debt and establish fiat money as currency, giving it value by creating demand for it in

2898-408: The level of taxation relative to government spending (the government's deficit spending or budget surplus ) is in reality a policy tool that regulates inflation and unemployment , and not a means of funding the government's activities by itself. The approach of MMT typically reverses theories of governmental austerity . The policy implications of the two are likewise typically opposed. MMT labels

2961-402: The liquidity in the system to ensure that the correct amount of reserves is on-hand in the banking system. Central banks manage liquidity by buying and selling government bonds on the open market. When excess reserves are in the banking system, the central bank sells bonds, removing reserves from the banking system, because private individuals pay for the bonds. When insufficient reserves are in

3024-441: The money of a state being "that which is accepted at the public pay offices". The prevailing view of money was that it had evolved from systems of barter to become a medium of exchange because it represented a durable commodity which had some use value , but proponents of MMT such as Randall Wray and Mathew Forstater said that more general statements appearing to support a chartalist view of tax-driven paper money appear in

3087-406: The nation state as a vehicle for progressive change. They show how despite the ravages of neoliberalism, the state still contains resources for democratic control of a nation's economy and finances. The populist turn provides an opening to develop an ambitious but feasible left political strategy. It offers an urgent, provocative and prescient political analysis of our current predicament, and lays out

3150-543: The option of borrowing the required funds from the Central Bank, where they may be charged a lending rate (sometimes known as a discount window or discount rate ) on the amount they borrow. On the other hand, the banks that have excess reserves can simply leave them with the central bank and earn a support rate from the central bank. Some countries, such as Japan , have a support rate of zero. Banks with more reserves than they need will be willing to lend to banks with

3213-413: The primary risk once the economy reaches full employment is inflation , which acts as the only constraint on spending. MMT also argues that inflation can be controlled by increasing taxes on everyone, to reduce the spending capacity of the private sector . MMT is opposed to the mainstream understanding of macroeconomic theory and has been criticized heavily by many mainstream economists. MMT

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3276-430: The private sector. "Private debt is debt, but government debt is financial wealth to the private sector." In this theory, sovereign government is not financially constrained in its ability to spend; the government can afford to buy anything that is for sale in currency that it issues; there may, however, be political constraints, like a debt ceiling law. The only constraint is that excessive spending by any sector of

3339-471: The purchasing of government debt by central banks – is simply an asset swap, exchanging interest-bearing dollars for non-interest-bearing dollars. The net result of this procedure is not to inject new investment into the real economy, but instead to drive up asset prices, shifting money from government bonds into other assets such as equities, which enhances economic inequality . The Bank of England's analysis of QE confirms that it has disproportionately benefited

3402-563: The realignments in the relevant State and Federal Awards in that sector. Mitchell coined the term Modern Monetary Theory , also known as MMT. He coined the term in reference to John Maynard Keynes ' claim that for at least 4,000 years money has been "a creature of the state". He is a prominent promoter of MMT in macroeconomics. He has written extensively in the fields of macroeconomics, econometrics and public policy. He has published widely in refereed academic journals and books and regularly gives conference presentations abroad. This book

3465-482: The redemption of a small part of the debt which the government has contracted by its issues of money, whether coins, certificates, notes, drafts on the treasury, or by whatever name this money is called. He has to acquire his portion of the debt from some holder of a coin or certificate or other form of government money, and present it to the Treasury in liquidation of his legal debt. He has to redeem or cancel that portion of

3528-404: The system, the central bank buys government bonds from the private sector, adding reserves to the banking system. The central bank buys bonds by simply creating money – it is not financed in any way. It is a net injection of reserves into the banking system. If a central bank is to maintain a target interest rate, then it must buy and sell government bonds on the open market in order to maintain

3591-475: The term to explain monetary systems in which national governments have a monopoly on issuing fiat currency and where a floating exchange rate frees monetary policy from the need to protect foreign exchange reserves. Some contemporary proponents, such as Wray, place MMT within post-Keynesian economics , while MMT has been proposed as an alternative or complementary theory to monetary circuit theory , both being forms of endogenous money , i.e., money created within

3654-481: The theoretical analysis of the nature and causes of unemployment over the last 150 years and argue that the shift from involuntary to so-called "natural rate" concepts of unemployment are behind an "ideological backlash" against state intervention as notably advocated, within the frame of the free economy , by Keynes in the 1930s. The authors further contend that unemployment is a reflection of systemic policy failures, rather than an "individual problem". They present

3717-537: The total reserve deposits in the commercial bank sector. Taxation works in reverse: taxpayers have their bank deposit accounts debited, along with their bank's reserve account being debited to pay the government; thus, deposits in the commercial banking sector fall. Virtually all central banks set an interest rate target, and most now establish administered rates to anchor the short-term overnight interest rate at their target. These administered rates include interest paid directly on reserve balances held by commercial banks,

3780-628: Was also intensely debated by lawmakers in Japan, which was planning to raise taxes after years of deficit spending. In June 2020, Stephanie Kelton's MMT book The Deficit Myth became a New York Times bestseller. In 2020 the Sri Lankan Central Bank, under the governor W. D. Lakshman, cited MMT as a justification for adopting unconventional monetary policy, which was continued by Ajith Nivard Cabraal. This has been heavily criticized and widely cited as causing accelerating inflation and exacerbating

3843-437: Was bought by Immediate Media Company , along with the print-only Procycling magazine. In February 2019, Immediate Media sold its cycling titles back to Future. This article about a news website is a stub . You can help Misplaced Pages by expanding it . This cycling-related article is a stub . You can help Misplaced Pages by expanding it . Bill Mitchell (economist) William Francis Mitchell (born 7 March 1952)

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3906-415: Was published by Lola Press in July 2024 and is co-written with Warren Mosler . The book offers a combination of biography, provenance, history and economic analysis where the co-founders of MMT clarify what constitutes MMT and how their ideas were developed. His book Macroeconomics (Macmillan, March 2019), co-written with L. Randall Wray and Martin Watts, is a textbook that "encourages students to take

3969-418: Was the only economist listed. Mitchell has played guitar professionally in bands over the years. Mitchell currently plays with Pressure Drop , a Melbourne -based reggae - dub band, originally popular in the 1970s and early 1980s. The band reformed in 2010. Mitchell often refers to the economics discipline, and especially the academia , in disparaging terms, stating, only half-jokingly, that his work as

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