I remember reading this really interesting idea by some economist that a government need not issue fixed-term debt such as bonds, notes or bills. Instead all it could do is print money and use it to pay for everything, thereby borrowing.

It would repay by levying taxes, which it would vary based on the rate of inflation. I. e. if the rate of inflation would be too high, it would increase tax rates to bring it down and vice versa.

My question is -- who was this economist? I need to cite this idea and need a name or better yet a citation to a paper.


I think that Stephanie Kelton is an economist who has mentioned this before. From my research, it is based on the MMT. Some practitioners of the MMT believe that the government should not issue bonds, but can instead print money. I think that I may have heard Kelton mention this a few years ago, but I am not that into the MMT. I would do some research on the MMT however, and Kelton, and that can likely lead you to the answer you're looking for.

  • $\begingroup$ Yes, that’s a Modern Monetary Theory (MMT) position. It’s easy to find articles about MMT in web searches. Although “printing money” might be viewed as a red herring; it’s equivalent to locking interest rates at 0%. Other economists have discussed that possibility - the “Friedman Rule” of Milton Friedman is one example. $\endgroup$ – Brian Romanchuk Mar 15 '18 at 20:46
  • $\begingroup$ @BrianRomanchuk Thank you for the pointer to the "Friedman Rule." But isn't MMT different in that there is no government debt other than money? The Friedman rule counts on the existence of short-term bonds whose yield would be targeted to 0% by the Fed. For MMT, in the absence of any bonds the Fed/Treasury could target a conventional 2% rate of inflation. Thus MMT and the Friedman rule seem different to me. What might I be missing? $\endgroup$ – abauthor Mar 18 '18 at 10:31
  • $\begingroup$ @abauthor - Depends on which MMTer. I belueve that Mosler’s proposal suggested that there would be Treasury bills. The difference is that the T-bill auctions would be for a fixed yield of 0.25%, with the quantity floating. (T-bills are needed for institutional reasons.) The difference is that the central bank has no discretion for setting the yield, so yes, there is a difference. I just wanted to point out that similar ideas did exist. $\endgroup$ – Brian Romanchuk Mar 18 '18 at 14:29

Simeon is correct that Modern Monetary Theory (MMT) is currently being promoted by Stephanie Kelton, who would be the economic adviser for Bernie Sanders if elected by the way.

So what exactly is Modern Monetary Theory?

The basic idea as I have read and understood it is that government does not really need to have any constraint on funding whatever projects are necessary to get the economy going.

The federal government could issue however much currency it feels is necessary to print to fund large-scale socially useful projects.

There is a distinction between borrowing money to fund projects and printing money to fund projects.

Our current model is to borrow money which is the process of the federal government of the United States selling T-bonds and uses the proceeds to fund government spending. The Treasury pays the interest on those bonds. So like with any other borrowing that we may personally do, as borrowing rises, so do the payments on the interest and as these interest payments rise, it makes it difficult to engage in whatever spending the government wants.

There is another mechanism to government funding where the Federal Reserve can create money out of thin air by buying T-bonds and injecting new money into the economy.

MMT is saying we can bypass both paying interest on newly issued money and the monetization of debt, which is the second mechanism I described of the Federal Reserve buying T-bonds and just have the Treasury department print new currency directly.

As far as citing a paper, you need to do the research. You need to learn what are the economic policy journals out there. There is the European Journal of Economics and Economic Policy, Cambridge Journal of Economics, The Financial Times, the Wall Street Journal and so on. You can find an extensive list here: https://en.wikipedia.org/wiki/List_of_economics_journals


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