American Colonists Had a Modern Monetary Theory of Their Own
In the 1600s, Massachusetts solved a dire liquidity problem by issuing the first fiat currency in the Western world.
Massachusetts inspired a burst of colonial currencies, including a 12-shilling note issued by New Jersey in 1763.
Photographer: Smith Collection/Gado/Getty ImagesHell hath no fury like an economist provoked by Modern Monetary Theory. Paul Krugman, Ken Rogoff, Larry Summers, and many others have attacked MMT, calling it “fallacious,” “nonsense,” and for good measure, “wrong.” Federal Reserve Chairman Jerome Powell has slammed “the idea that deficits don’t matter for countries that can borrow in their own currency” as “just wrong.”
The MMT debate is endlessly complex and increasingly hysterical. But it does not represent an entirely new chapter in U.S. history. Several centuries ago, a handful of creative colonists in Massachusetts came up with a desperate but undeniably ingenious solution to their monetary woes that anticipated one of the key tenets of MMT. It worked — up to a point.