“A popular myth about early American fiat money claims that various colonial and state governments created hyperinflationary disasters after they experimented with currency finance. But while New England and the Carolinas occasionally made a mess of things before the Revolutionary War, most colonies had a lot of success in issuing their own currency.”
“Early American currency finance was kept in check by several political feedback mechanisms.
First was local democratic control. Because of much smaller populations, legislatures were easier to discipline.
Second was jurisdictional competition. If a legislature let currency finance get out of hand in one place, a jurisdiction whose government had its books in order was never too far away.
Third was economic independence. Because of agriculture’s prevalence, subsistence farming and barter with neighbors provided an outside option, especially in rural areas.
Fourth was that currency finance responded to specific needs. Relatively small and targeted governments could employ fiat money as a financing mechanism more safely.
None of these conditions exist anymore. MMT advocates think their system can work on a national scale, but they’re wrong. It’s much harder for citizens to discipline the fiscal authority today, whether by “voting with their feet” or “taking to the hills.” And because MMT would transform the fiscal-monetary landscape of the entire country, it is anything but “timely, targeted, and temporary.”
Furthermore, even assuming taxes can keep inflation low, does anybody trust today’s feckless politicians to enact unpopular levies? Without the supporting economic mechanisms, MMT is exactly what its detractors claim: a sure way to turn a functioning economy into a financial basket case.”