Modern Monetary Theory : Cautionary Tales from the Soviet [Dis]Union

Modern Monetary Theory (MMT) advocates fiscal control of money supply, with a view toward assuring full employment and robust growth without inducing high inflation. Successful implementation requires a strong, determined state that commands a relatively self-sufficient economy and refuses to kowtow to creditors. While few countries satisfy these conditions, the Soviet Union did and implemented a variety of MMT-like policies. Confirming a central tenet of MMT, Soviet fiscal command of money and banking generated full employment, high investment and low inflation for several decades. Other tenets of MMT, encouraging the issuance of debt in fiat currency rather than foreign currency in order to extinguish default risk and attract more material resources more cheaply, are rejected by both Soviet and post-Soviet experience.More importantly, Soviet controls came at high costs to productivity, the environment, and consumer welfare. The problems stemmed less from monetary policy proper than from the price controls and confiscatory taxes used to achieve fiscal goals. This suggests a need to reframe MMT policy debates with more emphasis on the adjustments envisioned when fiscal expansion fails to generate the gains expected