Operational parameters of the modern monetary system
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"Of critical importance to most of MMT’s description of the monetary system is its elaboration of the system’s operational realities, which for MMT’ers generally means three things.
"First is the accounting logic of real-world transactions. Every transaction in a real-world economy affects financial statements of those engaged, and if an economic theory or a posited model is not consistent with how real-world financial statements are affected, then the theory is inapplicable….
"The second part of operational realities is the tactical logic for operations necessary to achieve particular, fundamental ends given a particular monetary regime. Different monetary regimes have different operational realities—the currency issuer has a different operational reality from currency users; a central bank under a gold standard has different operational realities than a central bank under flexible exchange rates. The tactical logic of operations as employed by MMT’ers is (a) general, in the sense that the purpose is to consider a “pure” fiat system under flexible exchange rates, or a state government that is a currency user, and so forth—in a general sense, not specifically referring to any particular nation or state, and (b) particularly concerned with a hierarchy of authority and thus a hierarchy of "money"….
"The third aspect of operational realities is what is not possible given the accounting and the tactical logic….
"Having said that, MMT’ers are keenly aware that governments can and do write laws that their treasuries’ operations be legally bound in certain ways…."
Abstract: At its core, there are two parts to Modern Monetary Theory (MMT). The first is a description of how the monetary system actually works, mostly focusing upon interactions between the central bank, the treasury, and the financial system, though this part also requires a very thorough understanding of the Minskyan-related literature of many MMT’ers. The second is a set of policy proposals that arise from this description and is largely outside the scope of this particular post but which can be found in any number of MMT publications and blogposts.
Of critical importance to most of MMT’s description of the monetary system is its elaboration of the system’s operational realities. This post provides a detailed description of what "operational realities" means in MMT, and then applies it to a number of core issues related to the monetary system.