What is MMT’s theory of inflation? (with academic sources)

This post contains academic sources demonstrating MMT’s theory of inflation.

(Related post: Inflation the Boogeyman versus inflation in reality (through an MMT lens).)

[Go back to the table of contents..This resource was created by Activist #MMT, the podcast (Twitter, Facebook, web). Last updated August 6, 2020.]

First of all, very few of us understand what inflation really is, but almost all of us have a very good understanding what we fear it to be.

MMT’s primary tool for fighting inflation is the job guarantee. You can learn more about that here.

In particular, search for the term “inflation” on this frequently-asked-questions page by Pavlina Tcherneva, an original developer of MMT who has been developing the MMT-designed job guarantee for more than twenty years.

There are many scholarly papers on the causes and management of inflation, starting with items eight and seventeen on this page of MMT scholarship, curated for mainstream economists by Deficit Owls‘ co-founder, Global Institute for Sustainable Prosperity research fellow, and UMKC doctorate student Sam Levey.

The term inflation can be found throughout the quarter-century of MMT academic works.

The introductory textbook written through an MMT-lens, Macroeconomics, has a sixty-page section entitled “Unemployment and Inflation: Theory and Policy,” plus many additional references for “inflation” and related topics can be found in the index.

A July, 2010 post by original MMT developer Bill Mitchell, called “Modern monetary theory and inflation,” parts one and two.

Here is a very brief yet clear description from the MMT Wikipedia page, under “Inflation control”:

  • Mainstream Keynesian: Driven by monetary policy; Fed sets interest rates consistent with a stable price level, sometimes setting a target inflation rate.
  • MMT: Driven by fiscal policy; government increases taxes to remove money from private sector. A job guarantee also provides a NAIBER, which acts as an inflation control mechanism.

Finally, something to keep in mind, from Geoff Coventry:

Sector-specific inflation requires a sector-specific response. Analyze the issue and the proposals will become clear. I suggest that there is no “MMT response” to “inflation” because “inflation” is not a clearly defined macro “thing”.