Warren Mosler and the Italian Epiphany That Led to the Birth of Modern Monetary Theory (MMT)

Warren Mosler: photo by ModernMoneyNetwork, CC BY 3.0

In 1996, Warren Mosler published ‘Soft Currency Economics’, in which he tells the tale of a particularly successful trade involving Italian Government bonds, conducted during his time at Illinois Income Investors (a firm he founded himself).

It was a time of economic turmoil; Italy was facing a combination of high interest rates, economic stagnation, a lack of investor confidence, and fears of currency devaluation. Investors were busy selling off their Italian bonds, worried that the government would default on its debts.

Mosler, on the other hand, wasn’t convinced that investors fully grasped the situation. Since the Italian government, as a currency issuer, could meet its debts simply by issuing more of its own currency. This meant there was no real risk of default, unless the government chose not to honour its debts—which was unlikely. He saw an opportunity to buy Italian bonds on the cheap.

He travelled to Italy to meet Professor Luigi Spaventa, a senior official in the Italian Government’s Treasury Department, to confirm if his insights were correct. In due course, Spaventa confirmed his hunch, and Mosler made the trade, which he referred to as his ‘free 2%’ return.

Russell Huntley wrote in the foreward to the second edition of ‘Soft Currency Economics’ that:

“The Italian Epiphany subsequently led to the publication of Soft Currency Economics in 1996. The book became the cornerstone for a heterodox economic theory that was first known as Mosler Economics and today is known as Modern Monetary Theory or MMT.”

Warren Mosler - The Father of MMT

So, here we have the roots of MMT. Warren Mosler is, as we are often told, ‘the father of MMT’. Much of what you will hear in any contemporary MMT course can be found in his 1996 book.

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Photo credit: of Warren Mosler by ModernMoneyNetwork, CC BY 3.0 <https://creativecommons.org/licenses/by/3.0>, via Wikimedia Commons