Article Image
IPFS News Link • Economic Theory

Ron Paul: No, Conservatives Should Not Embrace MMT

• by Ron Paul

Culbreath's case for modern monetary theory (MMT) rests on an ignorance of basic economic principles regarding the role of money in a free market economy. Money—whether precious metals, fiat currency, crypto, or some other good—is more than the unit of account that makes exchange possible. Money is also a key part of the equation of the price system, which allows market participants to discover the highest use of goods and services as determined by the demonstrated preferences (i.e., what they willing to spend their money on) of consumers, investors, workers, and business owners. A freely functioning price system and a stable currency are thus the key to a proper functioning market. 

The most important information conveyed by prices is the price of money itself, which is the interest rates. When central banks increase the money supply to facilitate government spending, they artificially lower interest rates. This distorts the information interest rates convey to market actors. This results in investors sinking money into projects not supported by underlying market conditions. This leads to a boom which is inevitably followed by a bust. MMT's policy of never-ending increases in the money supply would create more (and bigger) bubbles, leading to more (and bigger) busts.