He said that the state can create pure paper money and make it exchangeable by recognizing it as legal tender, with the criterion for the money of a state being 'that which is accepted at the public pay offices'. Knapp contrasted his state theory of money with the Gold Standard view of ' metallism', where the value of a unit of currency depends on the quantity of precious metal it contains or for which it may be exchanged. Knapp wrote in 1905 that 'money is a creature of law' rather than a commodity. MMT synthesizes ideas from the State Theory of Money of Georg Friedrich Knapp (also known as chartalism) and Credit Theory of Money of Alfred Mitchell-Innes, the functional finance proposals of Abba Lerner, Hyman Minsky's views on the banking system and Wynne Godley's Sectoral balances approach. However, MMT economists disagree with mainstream economics about the fifth tenet, on the impact of government deficits on interest rates. The first four MMT tenets do not conflict with mainstream economics understanding of how money creation and inflation works.

Issues bonds as a monetary policy device, rather than as a funding device.

Recommends strengthening automatic stabilisers to control demand-pull inflation rather than relying upon discretionary tax changes.

Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment.Cannot be forced to default on debt denominated in its own currency.Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases.

MMT's main tenets are that a government that issues its own fiat money: MMT is opposed to the mainstream understanding of macroeconomic theory and has been criticized heavily by many mainstream economists. MMT is controversial, and is actively debated with dialogues about its theoretical integrity, the implications of the policy recommendations of its proponents, and the extent to which it is actually divergent from orthodox macroeconomics. According to MMT, governments create new money by using fiscal policy and that the primary risk once the economy reaches full employment is inflation, which can be addressed by increasing taxes on everyone to reduce the spending capacity of the private sector. Modern Monetary Theory or Modern Money Theory ( MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.

The deficit myth modern monetary theory