Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance
Author(s): Tianhao Zhi
Date of publication: August 2015
Working paper number: 184
The Modern Money Theory, originated from the seminal work of Knapp (1905) that established the \chartalism school of monetary theory" and later on, synthesized by so-called \neo-chartalists" such as Wray (2012), is a de- scriptive economic theory that examines the procedures and consequences of using government-issued tokens as the unit of money. Despite its high rele- vance in today's policy arena that demands a thorough understanding over the modern at monetary system, MMT is generally not well-received by mainstream academics due to some of its radical claims. In an experimental and preliminary manner, this paper proposes a set of disequilibrium models that aims to take a further investigation over the balance sheet effects of those transactions discussed by MMT from a dynamic perspective. We con- tend that some of the claims made by MMT are fallacious due to its omission of dynamic and behavioural aspects. The framework proposed in this paper would also be useful for future research from a dynamic MMT perspective.
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