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AIER, April 2, 2019
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Reviewer Comment: The author appears to
equate the issue of paper money by American colonies with the MMT concept. I do
not see the comparison as the purpose the MMT advocates today is nothing like
the reasons various colonies resorted to paper. MMT is much more than simply
government issuing a large quantity of paper money. It seems to me that the
purpose of this essay is to link the well known inflationary colonial resorts
to paper money with the current MMT theory as a means for attack on this MMT.
For one thing, the MMT concept is based on the claim that the sovereign creator
of its money supply enables it to issue as much money as it desires and it can
also tax back as much as it wants. The colonies were not sovereign, their money
was not created by them but by the British (their paper issues were tied to
that) and their ability to tax was limited.
It is clear from the title he has chosen for this essay. MMT is indeed a recipe
for disaster, but not because it is synonymous with colonial experiences with
money.
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Professor Wright discusses the occasions for
introduction of paper during American Colonial period. He writes that they were
careful to keep account of the exchange rates of their paper with sterling and
gold. He writes: "MMT in the colonial period often led to periods of
ruinous inflation and, less well-understood revolution-inducing
deflation". He then links the monetary events in New England and South
Carolina to those colonies bearing the heaviest burden of warfare with the
French or Spanish. He correctly notes that Rhode Island on purpose foisted its
money problems off on the other New England colonies, (especially Mass.) But I
do not see this as an example of MMT.
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He claims that 'after the French and Indian
War, ... the middle colonies suffered from a large deflation rooted in wartime
excesses, structured economic changes, and new imperial regulations. And he
links this plus the Stamp Act to the colonial mood for revolution
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He continues: 'About the only time the
colonial monetary system functioned effectively was when paper money circulated
in tandem with full-bodied gold or silver coins (specie)." But British
policy continually demanded colonists pay British merchants in silver, which
resulted in shortages of silver in the colonies. And gold was not used as a
basic medium of exchange in the markets.
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Here is his point. "While the prospect
of returning to a more solid monetary anchor after the inevitable failure of
MMT may intrigue some, the socioeconomic costs of hyperinflation would be
enormous." But as I noted, the colonial monetary system was not all at
comparable with MMT.
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