MMT on International Trade: A Multi-Level Framework Beyond Mercantilism
Editor's Note: This is the first in a five-part series that examines MMT's approach to international trade and addresses Steve Keen's longstanding critique. While Keen has advanced these arguments since at least 2018, his recent 2025 publications have brought renewed attention to this important theoretical debate. The series progresses from conceptual foundations to detailed accounting proof:
Part 1: MMT on International Trade: A Multi-Level Framework Beyond Mercantilism
Part 2: Addressing Keen's Critique: Opportunity Costs, Marx, and Production Economics
Part 3: Reconciling Perspectives: How MMT's Multi-Level Analysis Resolves Trade Paradoxes
Part 4: The Accounting Reality: Balance Sheet Proof of MMT's Trade Insights
Part 5: Keen's Latest Contradiction: Why Trade Surpluses Don't Create Money
New instalments will be published weekly.
In 2018, economist Steve Keen published a provocative critique titled "MMT's Ignorance of Economic Thought," challenging Modern Monetary Theory's characterisation of exports as "costs" and imports as "benefits." This framing, which appears deceptively simple, has become one of the most misunderstood and contested aspects of MMT's analytical framework.
Keen's critique raises important questions about MMT's engagement with economic history, its treatment of real resource constraints, and its analysis of international trade dynamics. As someone who has worked extensively within the MMT tradition, I find Keen's challenge valuable—not because it undermines MMT's core insights, but because it creates an opportunity to clarify how MMT's trade analysis operates across multiple levels of abstraction.
The "exports as costs, imports as benefits" formulation isn't merely a rhetorical device. It represents a fundamental reorientation of understanding international trade, moving beyond financial accounting to focus on real resource movements. This perspective challenges the mercantilist bias that pervades conventional economic thinking, where trade surpluses are celebrated regardless of their consequences for domestic living standards.
Keen's critique of MMT's trade perspective has evolved over nearly a decade, from his initial 2018 publication 'MMT's Ignorance of Economic Thought' to his most recent 2025 work. Throughout this period, the fundamental disagreement about how to properly analyse international trade has remained remarkably consistent, though the specific arguments have been refined.
MMT's Multi-Level Trade Analysis Framework
Before addressing Keen's specific critiques, it's essential to understand that MMT analyses international trade through multiple integrated levels of analysis:
Real resource movements - The physical transfer of goods and services between nations
Financial flows - The monetary operations and accounting realities of trade transactions
Capacity utilisation effects - How trade affects domestic production scales and efficiency
Employment impacts - How trade affects labour markets and job creation
Sectoral balance implications - How trade affects the financial positions of domestic sectors
Keen's critique becomes problematic when it conflates these distinct levels, failing to recognise that statements true at one level of analysis can coexist with seemingly contradictory statements at another level. MMT's sophistication lies in understanding how these levels interact while maintaining analytical clarity about which level is being addressed.
Let's explore why Keen's thoughtful critique ultimately misses the mark by conflating these different analytical frameworks and levels of analysis.
The Real Resource Perspective vs. Policy Prescription
Keen fundamentally misinterprets the MMT statement that "exports are a cost and imports are a benefit" as a policy recommendation rather than what it actually is: an analytical starting point describing the real resource transfers involved. This statement is descriptive of real resource flows, not prescriptive of desirable trade positions.
When MMT economists make this statement, we are establishing a basic accounting reality: from a real resource perspective, exports represent domestic production that is transferred abroad, while imports represent foreign production that is transferred domestically. This framing deliberately counters the mercantilist bias in conventional economics that treats exports as inherently "good" and imports as inherently "bad."
The Purpose of Trade in MMT's Framework
Contrary to Keen's assertion, the primary purpose of exports is to finance imports, specifically, to obtain goods and services that cannot be produced domestically or can be obtained more efficiently from abroad. This perspective is entirely relevant to both macroeconomics and trade theory.
Countries that pursue export-led growth strategies while restricting imports fundamentally misunderstand the purpose of trade. They accumulate financial claims on other nations while sacrificing domestic real resources that could improve their citizens' living standards. This perspective helps clarify why persistent trade surpluses can represent a suboptimal economic strategy from a real resources standpoint.
In our next post, we'll address specific aspects of Steve Keen's critique, examining how MMT's framework handles questions of opportunity cost, producer motivation, and economies of scale in export production.
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