The Origin of Modern Monetary Theory: Warren Mosler’s Insight at the Italian Treasury

In the late 1990s, Warren Mosler, a former Wall Street financier turned economic thinker, found himself in Italy, engaging with officials at the Italian Treasury. Mosler was on a mission to understand the intricate workings of sovereign finances and public debt. At the time, Italy was managing significant public borrowing, and questions about its debt sustainability loomed large as the country prepared for European monetary integration.

During a meeting with high-ranking officials, Mosler posed a simple yet radical question:

“What happens if the Italian government fails to issue sufficient bonds to cover its deficit?”

The response startled him. Without hesitation, the officials explained that if the government didn’t issue enough bonds, the Bank of Italy would simply credit the necessary funds into the Treasury’s account. For Mosler, this casual admission flipped conventional economic wisdom on its head. It revealed a critical truth: a government that issues its own currency does not rely on taxes or borrowing to fund its spending. Instead, it creates money through its central bank, constrained only by inflation and resource availability—not by arbitrary budget limits.

This epiphany became the cornerstone of what would later be called Modern Monetary Theory (MMT). Mosler realized that sovereign currencies like the Italian lira—or the US dollar—operate fundamentally differently from household or business budgets. Governments do not “run out” of their own currency; they issue it. Taxes and bond issuance, Mosler argued, serve purposes other than “funding” the state: they manage inflation, influence demand, and provide a stable store of wealth.

Returning to the United States, Mosler began to share his insights with a growing network of academics and policymakers. Economists such as Stephanie Kelton, Randall Wray, and Bill Mitchell built upon his observations, developing a coherent framework that challenged the austerity-driven orthodoxies of the time. MMT emerged as a bold alternative, emphasizing the potential for full employment and public investment without the fear of fiscal insolvency.

Mosler’s conversation at the Italian Treasury became a pivotal moment in economic thought. It underscored the need to rethink fundamental assumptions about money, debt, and government spending—a legacy that continues to shape debates about fiscal policy worldwide.