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Listen to Thom Hartmann discuss modern monetary theory with Economist Stephanie Kelton.

HARTMANN: First of all, can you give us a snapshot, your summary of what modern monetary theory means.

KELTON: Well, I guess the easiest way to say it is that it’s a way of doing economics that brings us into the 21st century. It recognizes the simple fact that we’re not on a gold standard any more and so much of the way that we teach economics today, not just in the US, but all around the world, is based on these outmoded ideas that are no longer relevant in the modern era. What modern money theory does is really recognize that the system works very differently today by virtue of the fact that the monetary system changed in a really important way in 1971 — that is the year in which we broke from gold. And so we have this monetary system today that is based on pure fiat money and it just doesn’t work the way it used to work under the old system but we act like we’re still hamstrung by the same sorts of constraints that were present under the old system. We aren’t taking advantage of a whole range of policy options that we can adopt now that weren’t really available to us before.

HARTMANN: Okay, so under the old system before Nixon closed the gold window in ’71, we were basically constrained in the number of dollars we could produce by the amount of gold we had. Is that an accurate statement?

KELTON: Yes, more or less. You had to be very careful when running your fiscal and monetary policy because what you were pledging to do was to convert the currency into gold which is of course a limited finite resource and so you had to be very careful about how many dollars you actually created and had in circulation because if you had too many people all at the same time deciding ‘I don’t want to hold the dollar I want to convert into gold’, then you could run into real problems in terms of keeping that monetary system (INAUDIBLE).

HARTMANN: So how do you respond to somebody who says in 1971 if you paid 15 or $20,000 dollars for a house, that house right now would sell for 2 or $300,000, in fact, in 2007 probably would have sold for $400,000 dollars. Isn’t that evidence that we should have stayed on the gold standard? I mean that is basically the kind of Ron Paul response.

Listen to the rest of the interview with Economist Stephanie Kelton.

Thom’s Guest: Stephanie Kelton, Associate Professor of Economics at the University of Missouri-Kansas City, Research Scholar at The Levy Economics Institute and Director of Graduate Student Research at the Center for Full Employment and Price Stability. She is also creator and editor of New Economic Perspectives.

Visit the New Economic Perspectives website.

SONALI KOLHATKAR IS ON MATERNITY LEAVE.