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L. Randall Wray

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

by L. Randall Wray (Author)

4.2 37 ratings

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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.

Review

'Randy Wray's book offers a fresh perspective on the issues of price inflation and employment in the macroeconomy. While consistent with earlier post Keynesian and institutionalist approaches, he nevertheless brings some new ideas to the debate. His is the sort of book that leads the reader to stop frequently to sketch out a concept or to digest some new application or theory. It is a very enjoyable read . . . Randy Wray's book is fascinating, and it already has me rethinking the "post Keynesian" portion of my intermediate macro class. The arguments are very powerful and well integrated and the support he provides for twintopt [money viewed as "that which is necessary to pay taxes"] and ELR varies from theoretical to historical. I highly recommend it.' -- John T. Harvey, Review of Social Economy

'In this important book, Wray accomplishes a difficult task indeed, managing to offer both a critique of key mainstream macroeconomic views and a plausible alternative.' -- Teodoro Dario Togati, The Economic Journal

'In this important book, Randall Wray argues that federal governments should act as employer of last resort . . . Wray's book clears up many misunderstandings about ELR. It presents an excellent case for its desirability and its feasibility.' -- Marc Lavoie, Eastern Economic Journal

'In Understanding Modern Money, L. Randall Wray lays out a thoughtful and compelling case for a paradigm shift among economists, policymakers, and the general public. Specifically, he explains why the way in which modern economies operate forces policy makers to choose between lower rates of unemployment or higher rates of inflation and why a third alternative exists . . . Wray's work is highly recommended.' -- Shaw J. Gebhardt, Oeconomicus

'This is a stimulating academic text.' -- Economic Outlook and Business Review

'An highly original and well-constructed volume which promotes an innovative policy approach to achieve full employment together with price stability.' -- Aslib Book Guide

'A fine and strikingly imaginative reappraisal of modern monetary theory that recovers some of its subject's long neglected political aspects by creatively reinterpreting Keynes and other older theorists.' -- Thomas Ferguson, University of Massachusetts, Amherst, US

'This is the best kind of book - one that coaxes you to see the world in a new light. Old assumptions and prejudices melt away and you find yourself thinking differently, (and more hopefully), about vitally important but troublesome issues of economic and social policy.' -- Philip Harvey, Rutgers University of Law, US

'In this innovative new work, Randy Wray has convinced at least one reader that full employment and price stability are fully compatible goals in today's world. . . . Pivoting on his fresh rereading of the history and nature of money, Wray generates insight after insight, and will change forever the way in which we think about key macroeconomic variables and relationships.' -- John Adams, Northeastern University, US

'An important book, one that should begin a new discussion of full employment and price stability. (Wray) shows that the basic presumptions of mainstream macroeconomics were and are flawed. . . . Both the analysis and the policy proposals in this book deserve wide dissemination. It is time for a new approach to these questions, and this book opens the door to new ways of thinking.' -- Ed Nell, New School for Social Research, US

'An excellent text containing a challenging new perspective on the role of money and the role of government. It is a very creative analysis with a new perspective which challenges the basics of conventional thinking. . . . [Wray ] clearly shows how conventional wisdoms misunderstand the basic role of money in a capitalistic society.' -- John Groenewegen, Erasmus University, Rotterdam, The Netherlands

'Extremely well written and persuasively argued. . . . turns economics from a dismal science into a positive science, capable of clear policy recommendations that cut the gordian knot of the unemployment-inflation tradeoff.' -- Jan Kregel, Universita degli Studi di Bologna, Italy

'Understanding Modern Money breathes a whiff of fresh air over th desert of unimaginative, and only too often irrelevant though lofty sophisticated technicalities, in which macroeconomic writing has landed us in the last decades.' -- Y.S. Brenner, University of Utrecht, The Netherlands

'This is a most important work, one that should be read by all serious economists regardless of their particular theoretical persuasions. Wray not only presents a most innovative study of the relationship among money, public policy, employment, and the price level, but develops a position on how a modern monetary economy works that is clear, insightful, and useful. This book, in my opinion, is the most important theoretical study in decades.' -- John F. Henry, California State University, US

'An innovative and carefully argued proposal for solving the most pressing economic issue of our times - how to eliminate unemployment without reigniting inflation.' -- Paul Dalziel, Lincoln University, New Zealand

'This book is to be recommended to any reader interested in both economic theory and macroeconomic policy, whether the person be an academic economist or policy maker. The book is, for the first time, exposing an original theory of money without any unnecessary controversies, in the tradition of Keynes's "Treatise on Money". . . . It is a major advancement in the elaboration of an heterodox macroeconomic theory along post Keynesian lines.' -- Alain Parguez, University of Franche-Comte, France and University of Ottawa, Canada

About the Author

L. Randall Wray, Professor of Economics, University of Missouri-Kansas City, US; Senior Scholar, Levy Economics Institute, US and Research Director, Centre for Full Employment and Price Stability, US

ISBN-10

1845429419
ISBN-13

978-1845429416
Publisher

Edward Elgar Publishing
Publication date

June 26, 2006
Language

English
Dimensions

6.25 x 0.75 x 9.25 inches
Print length

208 pages
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L. Randall Wray
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Product details

Publisher ‏ : ‎ Edward Elgar Publishing (June 26, 2006)
Language ‏ : ‎ English
Paperback ‏ : ‎ 208 pages
ISBN-10 ‏ : ‎ 1845429419
ISBN-13 ‏ : ‎ 978-1845429416
Item Weight ‏ : ‎ 11.2 ounces
Dimensions ‏ : ‎ 6.25 x 0.75 x 9.25 inches

Best Sellers Rank: #2,060,766 in Books (See Top 100 in Books)
- #1,206 in Money & Monetary Policy (Books)
- #3,053 in Economics (Books)
- #12,333 in Professional

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4.2 37 ratings

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4.2 out of 5

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Creig

A Fascinating and Unconventional View of Government Spending, Taxing, Deficits, and Bond Sales.

Reviewed in the United States on December 5, 2017

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I have reconsidered my review below, when I wrote it I obviously had not yet fully absorbed and appreciated what I had just read. Now after more than 5 years of further study, I have concluded that this work by Wray is among the seminal works, and could arguably be "The Seminal Work", on what has become known as Modern Money Theory. As such, it is possibly the most important exposition of government taxing and spending since the end of the gold standard. Because of its potential impact, I would not be surprised if it were to be eventually recognized as one of the most important works on money ever written... I was not fully prepared to appreciate its importance on first exposure. Now I do. This is essential reading for anyone studying economics today. Every working PhD economist who received their doctorate degree prior to 2000 must read it. It is scholarly, it is thorough, and it is ground breaking. Publication of "Understanding Modern Money" followed publication of Warren Mosler's important book "Soft Currency Economics"; yet another important contribution to the development of Modern Money Theory . With the perspective that comes with time, we are now able to give proper credit to those who have led the way forward from common, but very incorrect, understanding of government finances to something that is consistent with observation and actual Treasury-Central Bank operations. Misunderstanding of government finances is rife among politicians and very, very dangerous. Wray, Mosler, Abba Lerner and a handful of others are leading us out of darkness into the light.
My original review from 2017 follows:

As a student of economics I found Professor Randall Wrays' book fascinating. Wray is a Minsky Protege and Minsky's influence is clearly present in this well written exposition on fiat Money and its function in a modern economy. An enlightening and unconventional way of looking at Central Bank and Treasury operations is presented. A case for backing currency with a "labor standard" is clearly presented. The book is well written but requires some basic knowledge of economics and central banking practice to get the most out of it. There is a very nice exposition of money from an historical perspective as an introduction. Then the book moves to Treasury and Central bank operations but from an unconventional perspective. The thesis of the book is two-fold. It makes a case that the conventional view; completely misunderstands the nature of government spending, taxing , deficits and bond sales. It proposes that the government agree to hire all unemployed workers that are able and willing to work at what is essentially the lowest wage that one can live on without subsidy. This is termed the employer of last resort, or ELR program. The ELR wage then becomes the base or minimum wage which private employers must match or exceed to compete for the labor pool. There is no need for unemployment compensation since the ELR program would result in zero unemployment as it is usually defined.. The author discusses in detail how the government can control the value of it's currency by setting the base price of labor . The price of labor than, in effect becomes a currency standard, or one might say the government has adopted a labor standard for its currency. This concept is thoroughly explored and critiqued in the later chapters. Especially interesting is the long discussion of deficits and their relation to net savings.

I think this book is remarkable in the incite it provides by looking at government finances in a wholly new light. The book is dated in regard to recent changes in the way the Fed regulates the Fed Funds Rate, but this in no way detracts from its importance or usefulness. I highly recommend Professor Wray's interesting treatment of fiat money, government finances and labor to anyone with an interest in these topics, and it would be particularly of interest to economists who are in need of a fresh look at topics they may have thought they understood.

6 people found this helpful

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Alex

Important Read

Reviewed in the United States on August 23, 2011

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Quite simply, the book is an important read given current economic debates ( government deficits and debt etc) and is very good.

Following a brief introduction, the book contains a few chapters on the history of money. This part of the book, while perhaps important for an academic, is boring, irrelevant, and in my opinion, too philosophical for a general reader. There are many quotes from Keynes and Smith in the drawn out chapter(s), and to be honest, they are difficult for an ordinary reader to understand. I ended up skipping to the end of the "history of money" chapter once I was halfway through it - and I still don't regret doing so.

Apart from that, providing you have some basic knowledge of monetary operations and reserve accounting, he book is fantastic . It clearly explains the operational realities of government spending, the issue of government securities, bank lending and so on.

The question remains: Why does this book deserve five stars if part of it wasn't worth reading, and part was fantastic?

Answer: Because this book answers the fundamental economic questions that no other book answers. Many other economic books are based on "The US is screwed - lots of debt, hyperinflation, aging population, China etc" - these type of books best resemble propaganda, and are ignorant the operational realities of the monetary system. Understanding Modern Money couldn't be more different - it is a beginner to intermediate or above guide to the fundamentals of monetary economics. It answers the big questions such as:

Will a USA government check bounce? Can the USA operationally default?

Why does the federal government issue Treasury securities? How does this affect the overnight interbank lending rate? Will the market drive up interest rates?

Where do you get the "money" to pay your taxes from? Why isn't there a society with its own currency, no taxes and no government spending?

Furthermore, it answers these questions in different style to more mainstream books. A mainstream book would answer the first question by going into depth about the debt/GDP ratio, interest rates, demographics, consumers propensity to save and so on. On the other hand, Understanding Modern Money simply explains why the USA can not operationally default (it can only default because of political incompetence) regardless of how much it spends or China's desire to buy Treasury securities. It explains that there is no such thing as the USA "running out of money", regardless of demographics, interest rates, debt/GDP ratios, S&P downgrades and so on. Yes, inflation is a potential problem, and Wray acknowledges that - but solvency or "bouncing checks" are not problem's.

As you can see, Understanding Modern Money gets to the heart of modern economics - the operation realities of the monetary system and reserve accounting.

20 people found this helpful

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Amazon Customer

Four Stars

Reviewed in the United States on March 14, 2015

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We should be using this book as monetary policy as we speak.

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gc

Everything now makes sense

Reviewed in the United States on May 14, 2012

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I have a BS in Economics and 33 years experience trading fixed income securities for a living. I read this book in a weekend after going through everything posted on the MMT Primer. I was hooked. Realizing taxes create demand for fiat money and the money multiplier starts with the loan being made and not the other way around makes so much sense. When S&P downgraded the US I argued with a Bloomberg Economist that S&P was opining on the ultimate value of the US dollar paid back when the bonds mature and not on the likelihood of default and that was not their job. I now have a better way of saying it.

6 people found this helpful

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S Hudson

crappy but with some value

Reviewed in the United States on August 27, 2014

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Had a good explanation of MMT and its history, otherwise crappy: poorly written, incomprehensible.

Helpful

One of the best MMT Primers

Reviewed in the United States on February 11, 2012

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For those in the early stages of being introduced to Modern Monetary Theory, you can't do much better than this book. It is not bogged down with jargon yet it is serious, insightful and shatters a number of myths both about the origins of fiat money and how it changes the debate in areas like the deficit, trade and unemployment. The job guarantee component of MMT (or at least some schools of MMT) is introduced and discussed. Also recommended for those looking for exposure to MMT is the short but brilliant The 7 Deadly Innocent Frauds of Economic Policy and Free Money: Plan for Prosperity

3 people found this helpful

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Teddy

UNREADABE

Reviewed in the United States on May 4, 2020

This may be a great book but when you can't read the text it really doesn't matter. I started this book and was quickly frustrated with the Kindle editon as it alternated between screen shots of the original pages and a Kindle version of the text. Each turn of a page was a surprise!!! Very frustrating and I never got past the first chapter as this "flip flop and duplication" made the book unreadable.

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Boris Recke

THIS BOOK IS SUPER COOL FOR GETTING STARTED IN NEW WAYS OF ECONOMIC THINKING

Reviewed in Germany on August 19, 2013

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I WISH THERE WAS A GERMAN TRANSLATION OF THIS GOOD BOOK OR OF WARREN MOSLERS BOOK (SEVEN INNOCENT FRAUDS).
HOPE MMT (MODERN MONEY THEORY) WILL COME UP WITH A GOOD BOOK ON THE EURO AS WELL.
EUROPE SHOULD USE THE MMT ADVISE TO COPE WITH UNEMPLOYMENT AND INFLATION.

One person found this helpful

Amazon Customer

Soldi ben investiti per capire come funziona l'economia

Reviewed in Italy on November 15, 2012

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SOLDI SPESI BENE PER CAPIRE COME EFFETTIVAMENTE FUNZIONA L'ECONOMIA

Questo libro è stato scritto da uno degli economisti della MMT (Modern Money Theory), scuola economica d'ispirazione post-keynesiana influenzata dai lavori dei grandissimi Keynes, Abba Lerner (le cd. "politiche keynesiane" sarebbero, più correttamente, politiche lerniane), Minsky e Godley, e fondata da Warren Mosler. Quando si sente parlare di economia e di crisi economica e del debito ecc., si ha l'impressione che si parli di fenomeni incontrollabili, imprevedibili e difficilmente comprensibili. L'MMT in questo senso è rivoluzionaria: rende comprensibili le dinamiche economiche e rende chiaro che non è la moneta il centro inamovibile intorno a cui ruota il tutto ma l'uomo (se lo si permette); elimina tutti i miti riguardanti l'economia e toglie le paure irrazionali e infondate circa la finanza pubblica. Ma la maggiore forza della MMT sta nel suo carattere propositivo: offre gli strumenti per un'economica giusta, la piena occupazione, il pieno stato sociale, la piena democrazia. Compie una RIVOLUZIONE COPERNICANA importantissima.

Non si tratta di pazzi o incompetenti (tant'è vero che si basano sui dati, sulle statistiche, a differenza degli economisti mainstream che non saprebbero spiegare NIENTE): LA MMT è STATA L'UNICA SCUOLA ECONOMICA CHE HA PREDETTO, CON INCREDIBILE MINUZIOSITà, LA CRISI DEL 2008 E LA CRISI DEBITORIA+ECONOMICA CHE INVESTE L'EUROZONA. Wynne Godley, uno degli ispiratori della MMT, ha predetto l'attuale crisi dell'eurozona nel 1992, appena firmato il trattato di Maastricht: 20 anni fa era già chiaro che il sistema euro era insostenibile e che avrebbe portato a una catastrofe.
F.A.R.

5 people found this helpful

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Dr. G. Kennedy

Guide to getting lost

Reviewed in the United Kingdom on May 14, 2013

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First few chapters fine, then begins to move through unexplained territory. Does not answer directly the inevitable mist of unusual approaches. However, there is plenty of material that makes sense. I think it needs to explain Wray's approach to 'modern money'; as written it falls short of 'understanding' it.

One person found this helpful

リッキーk

貨幣観と経済政策論の融合

Reviewed in Japan on June 3, 2002

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本書は貨幣とは何か、という点から説き起こし、主流派経済学、あるいは一般に流布されている経済観を全面的に批判する。彼は通常の物々交換から「欲望の二重一致」の問題を解消する為貨幣が発明されたという貨幣観を否定し、"tax driven money"（課税貨幣観とでもいうのか?）を提起する。残念ながらこの部分は著者が別のところで書いているもののほうが面白く、本書からだけでは深いところまでは理解できず、むしろ皮相に思えてしまう。いずれにせよ、こうした貨幣観の転換によって、現代の経済政策に対する指針そのものの変換が提起される。とりわけ興味あるのは金融政策が貨幣供給量またはインフレ率をコントロールし、財政政策が不況・失業対策を担当するという従来の考え方から、財政政策によって貨幣供給量、インフレ率を管理し、金融政策はインターバンク市場レートを管理するという考え方に転換すべきである、との主張である。そして一種の「本位制」への復帰を唱えるのだが、「何」本位制かは読んでのお楽しみ。

　著者はハイマン・ミンスキーの直弟子にあたり、ポストケインジアンの一角を占めるのであるが、ここで提起されている経済観の転換は、ポストケインジアンやサーキットセオリーの中でも、最も大胆なもののひとつといっていいだろう。

8 people found this helpful

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