How does MMT avoid the results experienced in Weimar Germany?

Another quora answer. The question was “How does MMT avoid the results experienced in Weimar Germany?”

MMT (Modern Monetary Theory) is a description of economic reality, arguably better than alternatives such as New Classical and New Keynesian etc. approaches.

Hence it can be applied to any economy, including the Weimar Public and to identify whether policies were fit for purpose, that is to achieve what the policy makers claim.

A government can only buy available real resources including the unemployed. If its balance is more than available resources, inflation will result since there is too much money chasing too few resources. It also recommends not to have foreign currency denominated debt, as this diverts and prevents efforts to successfully manage the domestic economy

In the Wiemar’s case, due to the Treaty of Versailles, Germany both had unsustainable gold denominated debt (which is equivalent to foreign currency denominated debt) and there was a supply side resource crash, due to the actions of France over Rhine resources. In such a scenario MMT shows that inflation would result, and, with positive feedback due to these two process, likely to turn into hyperinflation.

If people had understood MMT (or the equivalent then), they would have argued against the terms and conditions of the Treaty of Versailles and predicted the result. This is pretty much what Keynes did in The Economic Consequences of the Peace – Wikipedia.

So if MMT had existed then, it would have evaluated and criticised the Treaty of Versailles economic policy proposals, warning of the consequences of those policies and it would have been shown to be correct for that scenario.

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