The Monetary Theory Of Production And The Modern Money Theory A Critical Assessment
Guglielmo Forges Davanzati
University of Salento – Department of Social Sciences (History, Society and Human Sciences)
Please cite the paper as:
Guglielmo Forges Davanzati, (2018), The Monetary Theory Of Production And The Modern Money Theory A Critical Assessment, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018
The monetary theory of production and the modern money theory represent the two main heterodox approaches to the endogenous money view. In both cases, it is emphasised that the banking sector can create money ex-nihilo, i.e. without a previous collection of savings. In both cases, money is not conceived as neutral and, contrary to the mainstream view, inflation does not arise from excess money supply. The basic difference between these two approaches lies in the treatment of the central bank and the role of the Government. While in the first case, money creation can be generated via transactions inside the banking sector (which implies that money supply on the part of the central bank and public spending are not necessary to produce credit money), in the second case, credit money is generated by public spending on the condition that the central bank and the Government act as a consolidated sector. This paper aims at providing a critical assessment of these approaches, emphasising some controversial issues that are present in both.