Modern Monetary Fallacy

The Dangerous Delusion Behind MMT’s Monetary Promises

Modern Monetary Theory (MMT) presents itself as a radical reinterpretation of government finance, suggesting sovereign currency issuers can effectively print their way to prosperity, limited only by inflation. However, beneath its confident assertions lies a profound misunderstanding of currency, valuation, coordination, and agency.

Currency serves solely as a neutral, mathematical medium to communicate subjective valuations between individuals. Its utility emerges entirely from its fungibility, widespread acceptance, and ease of quantification, facilitating efficient market coordination. MMT erroneously imbues currency with intrinsic governmental authority, fundamentally misrepresenting its neutral function. By confusing neutrality with intrinsic governmental value, MMT creates conditions ripe for catastrophic mismanagement.

MMT proponents conveniently overlook critical hidden conditions necessary for currency sovereignty, namely sustained public trust, political stability, and productive economic capacity. Conditionalism exposes the fragility underlying MMT’s assumptions: any erosion of these tacitly assumed conditions rapidly spirals into economic crisis and currency collapse.

Central to MMT is a presumption of governmental benevolence and competence, allowing the state to engineer social outcomes via coercive taxation. Yet, agency—the foundational principle of voluntary action and individual choice—is eroded when currency manipulation becomes a tool of coercion. MMT’s reliance on taxation as a behavioral lever blatantly violates principles of voluntary agency, imposing valuations by force rather than facilitating their free expression through voluntary exchange.

MMT drastically underestimates Hayek’s knowledge problem. By advocating centralized fiscal and monetary decision-making, MMT proponents assume a nearly impossible level of informational perfection and incentive alignment. History repeatedly demonstrates that centralization yields misallocations, distortions, and ultimately economic stagnation or collapse, directly contradicting currency’s primary role as a decentralized coordination technology.

History decisively refutes MMT’s casual dismissal of inflationary risks. From Weimar Germany and Zimbabwe to recent crises in Venezuela and Argentina, unchecked fiat currency expansion has consistently resulted in economic devastation, social turmoil, and severe reductions in agency and flourishing. These cautionary tales conclusively invalidate MMT’s presumptive dismissal of fiscal discipline.

Ultimately, currency functions exclusively as a neutral translator of subjective valuations, facilitating voluntary market coordination. MMT fundamentally misunderstands this neutrality, misinterprets hidden conditional dependencies, disregards agency, and arrogantly ignores historical evidence. Rather than empowering economies, MMT’s policies inexorably lead toward reduced agency, distorted coordination, and catastrophic financial collapse.

Recognizing these fatal flaws clarifies precisely why Modern Monetary Theory is not merely mistaken but dangerously misguided.