Understanding Modern Money: The Key to Full Employment and Price Stability

by L. Randall Wray

In this innovative and very practical book, L. Randall Wray argues that full employment and price stability are not the incompatible goals that current economic theory and policy assume. Indeed, he advances a policy that would generate true, full employment while simultaneously ensuring an even greater degree of price stability than has been achieved in the 1990s. Wray's clearly written argument incorporates incisive historical analysis, modern monetary theory, and an examination of policy alternatives that rises above the doctrinal debates among monetarists, supply-siders and Keynesians over natural or non-inflationary rates of unemployment. Understanding Modern Money proclaims that a labor buffer stock program would guarantee full employment and increase labor productivity and economic growth, while reducing inflationary pressures. Wray's analysis shows that, contrary to popular belief, the dangers of a government budget deficit are largely imaginary. He outlines a program in which the government acts as employer of last resort, thereby providing employment and training to the otherwise unemployed, and stabilizing the wage scale which acts as a brake on inflation. This permits greater price stability without requiring conventional methods such as wage and price controls or countercyclical monetary policy. This ground-breaking book offers important new ways of thinking for policymakers, students, and general readers interested in economics, employment policies, and monetary theory.

Genres: Economics, History

208 pages, Paperback

First published February 1, 1999

Reviews

[Anthony]

Wray's prose is dense, rich in jargon, and tedious to work through at times, so it could not go any higher than three stars. However, the ideas in this book are fascinating, hence it could not go any lower than three stars.

The central idea of this book is that taxes drive money. That is, contrary to the belief that governments need to collect tax revenue to be able to spend (underlying the push for fiscal austerity in government), Wray argues for the view that the reason to charge taxes is to create a demand for the fiat money created by the government, so that private citizens will accept that money in exchange for goods and services (i.e., government spending). On this view, governments will tend to run perpetual deficits, as private citizens and banks will hoard money, so that the government will have to spend more than it collects in taxes. Wray then proposes a measure the government can use to stabilize the price of its currency: offer a fixed price for unskilled labor, so that government spending responds automatically to fluctuations in private demand (as private demand for that labor decreases, government spending will increase as it absorbs the unskilled labor, and vice versa as private demand increases again).

It's hard to escape the feeling that, as with all economic models, this one glosses over myriad difficulties that would plague this policy if it were implemented in the real world. But it is tempting to think that much of the current debate about government fiscal policy is all built upon a misunderstanding about the nature of money and its relation to governments.

[Guillaume]

Excellent introduction to how the fiat/credit monetary system actually works today.

[Alex]

suuuuper dry, but some good args in here

[Juston Fenton]

Fantastic

[Seth]

repetitive, but randy had to break the conditioning somehow

[Marcelo Azevedo]

Excelente análise (incluindo uma breve história da moeda e desconstrução do mito de que impostos financiam o estado), mas o capítulo de proposta é ingênuo, pressupondo que os empregadores aceitariam pacificamente redução dos lucros em troca de uma sociedade com pleno emprego.

[Randy Allred]

Recommended as a detailed introduction to Modern Money Theory.