Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems

by L. Randall Wray

In a challenge to conventional views on modern monetary and fiscal policy, this book presents a coherent analysis of how money is created, how it functions in global exchange rate regimes, and how the mystification of the nature of money has constrained governments, and prevented states from acting in the public interest.

Genres: Economics, Nonfiction, Finance, Money, Business, Politics, History

294 pages, Paperback

First published August 7, 2012

Reviews

[Luke · Rating 5 out of 5]

Readable? Check.
Rigorously argued? Check.
Just enough detail, with citations to go deeper? Check.
A novel (to me) thesis? Check.
Changed the way I think about something fundamentally? Check.

That's five stars baby.

[Mohamed E · Rating 5 out of 5]

Mind boggled, jaw dropped, head scratched; this book was a gem of a read!

While I'm not totally sold on Modern Money Theory - MMT, I believe this is due to my own cynicism towards its novelty rather than to flaws in the theory. I could only come up with "I feel that there is a weakness in the logical sequence of its arguments but I can't put my finger on it", for that reason I'll abstain from passing criticism this time.

I found the theory to be quite elegant in its descriptive capacity and to quote the author, at its core, MMT "provides a coherent approach to understanding our economy as a whole; it provides a "world view" that begins with an understanding of the "nature" of money".

It does so through defining money as a unit of account and money - tokens - as IOU's and eschews defining it through its function as a medium of exchange, but more interestingly, it presents counterintuitive statements and then justifies them through observations on the mechanics of monetary systems and inferences based on these observations; such statements include:

-Government spending comes first, then taxation
-The purpose of taxes isn't to generate government spending
-Government doesn't need taxes to spend, it needs them to drive money
-Spending induces income
-Quantitative Easing is deflationary
-Corporate taxes are bad
-Hyperinflation isn't caused by excess reserves or too much currency printing

In MMT's prescriptive capacity, I think more work needs to be done on its proposal that government plays the role of Employer of Last Resort, but I found Functional Finance to be a valid proposition; arguing that governments don't need to maintain surplaces or even balanced budgets is a good point, that the "correct" fiscal deficit is the one that achieves full employment and that fiscal policy should be used in conjunction with monetary policy to attain full employment and price stability and explaining how this could be done are great additions by MMT to contemporaneous policy debate.

I'm not sure if MMT will be referred to in policy debates any time soon, but I'd recommend this book to curious readers and I'm sure progressives will find it a delightful read.

[Clif · Rating 4 out of 5]

Nothing is easier to do than spend money, but the economic system has a complexity that can appear to make it very hard to understand. This means most people (including most members of Congress) don't try to understand it or are wrong in how they believe it works leaving those who do understand it free rein to work it to their advantage. The 1% didn't get to where they are purely by inheritance.

At one time it was simple. Money was linked to gold, a limited resource. A reserve of gold had to be held to support the money. In the U.S. for quite some time an ounce of gold was worth $35. As the economy increased in size, ever more money was in circulation and much of it (today more than half of it) was held by foreign countries that could, and did, demand gold for their dollars.

There was a gold drain and it became obvious that promising gold for money couldn't be sustained. In 1971 President Nixon set the dollar free of the gold standard, making it a "fiat" currency, one that was related only to what it could be exchanged for in other currencies.

I would say it was at this point that money became modern money and this free-floating valuation of the U.S. dollar is what brought forth a new way of thinking about government spending that is Modern Money Theory. To this reader, nobody explains it more simply than L. Randall Wray in this book.

Wray shows that the continual furor in DC over approving government spending increases is un-necessary and pointless. So also is the dire prediction of the end of life as we know it coming due to government debt.

When a government is free to create money the danger of government debt in itself is not only slight, but the call for a balanced budget is literally counterproductive. There is only one reason for taxation and that is to create a need for the currency with which the taxes are paid. Since the people must pay taxes and taxes can only be paid in U.S. currency, we have to get hold of that currency and that is the foundation of the demand for it. The government does not need tax income to spend, since it can (and does) keystroke its own currency into existence. Federal taxes are not an income that must pay for federal government spending and to claim that they do is a pointless restriction on government policy. This restriction on federal government spending is what deficit hawks are all about as they present a false analogy to family, corporate, city or state income and spending. None of these print their own money like Uncle Sam and they are truly bound by budgeting income and spending or disaster awaits.

There are three pools of money: the government sector, the private sector and the current account (the balance between imports and exports). Over all three sectors there must be a balance. If one or two are in surplus, the third must be in deficit to make a balance over all. This is what the flow of funds information that the Federal Reserve publishes shows and it is accessible to anyone.

The takeaway from the balance that must always exist over the 3 sectors combined makes it easy to understand the situation. Since the U.S. imports much more than it exports, our dollars are going to foreign countries, taking them away from our private sector (homes and businesses). How do we get them back? Our government issues debt that foreign countries eagerly buy up with the dollars they've made from selling us their stuff!

How is debt bad when it is eagerly bought up and when it is bought with dollars that the U.S. government can issue out of thin air by computer keystrokes? But, you ask in alarm, what happens when those foreigners ask for their money by turning in their Treasury bills and bonds...a kind of international run on Uncle Sam? Stay calm and realize that when the foreigners come to trade in their bills and bonds all that they receive are dollars, another form of debt from Uncle Sam. They are only trading one form of I.O.U. for another both issued by the United States.

This was what was made possible when Nixon ended the gold standard. Up to that point, dollars were coming in from abroad and gold was flowing out of Fort Knox. You have to mine gold, it can't be created by a keystroke on a computer. Those days are over. The dollar is now evaluated only in terms of other currencies and the dollar is the international unit of exchange. It appears to be a no lose situation for the U.S. but for one thing, inflation.

If the government issues too much money; more than is needed to allow for the new wealth that comes with new products for sale and new business ventures that increase commerce, then each dollar will become worth less and more bucks will be needed to buy things. That's inflation.

Uncle Sam can't issue us all free money because inflation would quickly destroy the extra value we think we would be getting. Inflation is a real danger that must be guarded against and the Fed tries to do this by adjusting the famous interest rate always being discussed as TV pundits ponder what the Chairman of the Fed will do with it.

L. Randall Wray and the MMT community have a better idea, a federal jobs program that takes up the lack of demand for employees by the private sector with guaranteed work at a minimum wage of $15/hour. But I will leave that subject for you to investigate in this very readable and math-free address to the American people that urges us all to evaluate economics by the way it actually works rather than the traditional way that provokes anxieties, austerities and the false idea that the government "can't afford" things. The only thing that can't be afforded is inflation.

[Alan · Rating 5 out of 5]

Long-time American Agriculturist editor Gordon Conklin, (whose brother happened to have been an economist) used to joke, "If you laid all the economists in the world end to end, they wouldn't reach to a conclusion."

That came to mind as I read L. Randall Wray's second edition of Modern Money Theory. This is not a book with which all economists will agree.

I would go so far as to coin a term for him and his MMT colleagues. They are protestants rebelling against the high church of established monetary theory—or perhaps I should say "theories," because there was already more than one.

First: Why read such a book? Because monetary policies of the many nations of the world underlie their prosperity and poverty.

One need look back only as far as the recent financial crisis in Greece to see how a screwed up money system has real-life consequences for real people. One need look back only as far as 2008 and the massive infusion of bail-out money into the United States banking system for evidence of controversial monetary policy at work.

And one need only listen to contemporary American and European politicians (and, indeed, economists) argue about "Keynesian economics" versus "austerity" to begin to wonder who is right, or if anyone is right.

Any politician running for office who wishes to avoid ridicule runs on a platform calling for a balanced budget or even a Constitutional amendment requiring a balanced federal budget, saying "It's common sense. You and I have to balance our household budgets and live within our means. So does the government!"

Former President Clinton likes to brag that his administration presided over budget surpluses. Sounds good, right? Well, maybe not.

Read Wray's book with an open mind. Read it with the possibility that common sense does not apply in this situation and everything you thought you knew about money and taxes and budgets and deficit spending is just simply wrong—backwards, even—and for the most simple and surprising reason: sovereign governments are money issuers; state and local governments, corporations, businesses, and households are money users.

Sovereign governments therefore play by different rules.

I implore you to read the book and not settle for this, a certainly inadequate explanation of MMT. The book is the explanation. I can, at best, only pique your curiosity.

MMT involves several interrelated concepts.

1. Double entry accounting. For every debit there must be an equal credit.

If I write you a check for $100, it is debited from my account. It is credited to your account. But that fails to answer the question of where and how the hundred dollars were born.

2. All money originates with government. “At the beginning,” the private sector had none until the government spent it into circulation. If the government needs a million dollars to buy boots for soldiers, it creates money out of thin air by writing checks to various shoe factories. (It's a government debit and a private sector credit.) The federal government is not relying on tax revenue to pay for the boots.

3. Therefore, Federal government spending equals private sector income. Accumulated over the years, Federal government debt equals private sector wealth.

Wray’s book and MMT are built on these accounting truisms. All his observations and proposals grow from them. Among them:

a. The massive government bailouts of Wall Street banks in 2008 were not done at taxpayer expense. The Federal Reserve System created the money out of thin air via computer keystroke. Fed Chair Ben Bernanke confirmed this in testimony before Congress.

b. The notion that the Federal government will run out of money to pay for Social Security, Medicare, and Medicaid in the future is—monetarily speaking—false. It is impossible. However, a monetarily confused or fearful Congress could choose not to fund the programs. But that is a different story. Example: Russia chose to default some years back, even though it had the money on hand. Go figure.

c. The Federal government can buy anything it wants. Deciding what it wants to buy (aircraft carriers? new bridges? mission to Mars? universal higher education?) can be the high moral question facing government. Wray calls it “the public purpose” and says the monetary system, properly understood, can facilitate it.

d. If, by “accounting identity,” Federal spending equals private sector wealth, then the reverse is also true. High taxation to pay-down a Federal deficit (or debt) diminishes private sector wealth. Thus we can see a relationship in the Clinton administration’s balancing budgets / paying-down debt and the loss of private sector buying power that manifested itself as stagnant and declining middle class incomes, and contributed to the one-percent versus the 99-percent divide.

e. State and local governments are different. They are not sovereign currency-issuing governments and therefore engage in deficit spending at their own risk. With the advent of the European Currency Union (ECU), Greece became, in effect, a state government in a federation unwilling to subsidize it (unlike, say, the way the U.S. government is a net—if inadequate—subsidizer of Louisiana.)

f. There is a point at which too much government-issued currency begins to pose the threat of inflation. Wray says the line should be drawn at full employment or nearly so, even if it means a Federal jobs program similar to the old Works Progress Administration and Civilian Conservation Corps (a new version of which he advocates). When everyone who wants a job has a job, then ease back on the money throttle, says Wray.

All in all, the book confirms my suspicion that most politicians who rant about balanced Federal budgets and government austerity programs are still comparing the Federal budget to Grandma’s farm budget or their state budgets, back where they were Governor. Neither applies.

[GMO Burt · Rating 4 out of 5]

This is the second book about MMT I have read. If this book is a 'Primer,' then the first I read must have been akin to a child's activity book.

I am an accountant by trade and much of the more difficult/dull material in this book is part of what I do for a living so I was able to get through them fairly easily. Much of the early chapters rely upon 'Accounting Identities' to explain the theory at hand. I think the reader who has no experience with double-entry bookkeeping might feel compelled to give up in the first half. After all, who wants to learn accounting if nobody's going to pay you for it at the end? However, if one sticks with it and uses a little brain power, it seems possible to make it through. I think it's worth it as MMT will likely become very important to us all in the coming decades.

Outside the accounting portion of the book there were other difficult parts for me. I am particularly vexed at understanding the ins-and-outs of exchange rates and I had to do a bit of research outside of the book to try to understand how they operate. This caused me to put the book down for a period of time as I did not want to persist with inadequate understanding. Once I felt a little more grounded- though I don't think I really understand exchange rates all that well- I was able to stumble to the finish line.

The books final chapter was what I liked best as it gave an interesting philosophical discussion of what money is. I don't think this discussion on it's own would have borne much fruit if one did not read all the denser material which preceded it. It was a nice sort of treat at the end for a book that I ultimately found both challenging and rewarding.

The book is clearly written and neither does it talk down to its reader nor does it assume too much knowledge on their part- excepting, maybe, exchange rates! If you really want to understand Money as it operates in the real world, I'm not sure you could do better than this.

[Yngve Skogstad · Rating 4 out of 5]

My acquaintance with MMT beforehand was through following a few MMT-ers on Twitter, reading some of their academic work as well as other articles and podcasts, but I hadn’t quite been able to make it all cohere, so I figured I’d better study it in a more systematized and pedagogical manner. Thus, I bought this introductory book.

Randall Wray has written a very accessible primer that answered nearly all my questions on MMT and the workings of our contemporary financial system. I admit to having a few aha moments while reading this, and I am now completely convinced regarding the descriptive side of MMT. As for “their” policy proposals, it’s more of a mixed bag. Wray’s job guarantee proposal is pretty shitty, as he (in vain) attempts to pander to Austrians, but I still don’t think it necessarily has to be.

I now have a much better understanding of inflation, the nature of money and debt, the importance of accounting identities and how they relate to macro economy. I of course think everyone should read this book, but particularly leftists who go on about “taxpayer’s money”, simply regurgitating Thatcher’s mantra while thinking they’re being radical or something.

[Czarny Pies · Rating 5 out of 5]

Randall Wray's "Modern Money Theory" is an extremely important book. It is not for the general public. It is intended for use in a third or fourth year undergraduate course in economics. It can also be read of course by anyone who took advanced courses in economics in the past.
In the last ten years Modern Money Theory (MMT) has become extremely influential in government and central banks around the world. The simplest idea is that no government with the sovereign power to issue currency can ever run out of money. It can simply keystroke into existence whatever amount of money is needed for its spending programs.
According to MMT government debt is beneficial. When a government runs up debts it transfers wealth to the private sector. A government surplus, on the other hand , moves money from the private to the public sector. Moreover, MMT contends that the idea that increasing government borrowing pushes up interest rates is a myth. According to MMT a central bank can reduce the interest rate to whatever level it wishes by increasing reserves in the private banks.
Similarly, government expenditures are also good because they stimulate economic growth. Finally government spending is not inflationary.
However crazy this sounds, economies appear to function according to the model proposed by MMT . Consider what happened in my country Canada during the Covid pandemic. In fiscal 2019-20 Canada had a deficit of 11.8% (with revenues of $(CDN) 334.1 billion expenses of $(CDN) 362.9 billion.) In fiscal 2020-21 the deficit was 103.6% (with revenues of $(CDN) 316.4 billion expenses of $(CDN) 628.9 billion. The deficits were incurred to compensate those who were laid off or fired because of the workplace lockdowns
At the outset I had loudly predicted that inflation rates in excess of 1000% would arise and that the Canadian Dollar would collapse. None of this happened. Those thrown out of work retained their purchasing power because of government income support payments. Social peace prevailed and the Canadian economy flourished. Inflation peaked at 5.7% and the Canadian dollar maintained its relative strength against all major currencies. The experience was virtually identical in the US and throughout the EU. MMT had vindicated itself against all its critics.
MMT is based on the idea that money is not a thing but a unit of measure. It is the velocity of the money that creates wealth not the quality of metal that it is stamped on or the paper that it is printed on.
Since the first coins were struck in Lydia (now Turkey) currencies have typically been fiat currencies. The nominal value of the coins were consistently above the market value of the metal (gold, silver, or copper.) In the 1870 there was an effort made to fix the value of currencies to gold which was abandoned everywhere by the start of WWII. After WWII, the US dollar was pegged to gold but in 1973 this policy came to an end. Today most money exists in purely electronic form.
In the view of MMT pegging a currency either to a metal such as gold or to another currency such as the US dollar is an extremely risky policy. Eventually, circumstances will force the issuer to default on its currency. A completely free floating fiat currency gives the issuer the most policy options. A country with the sovereign power to issue currency can never be forced into default. (There have in fact cases where governments have chosen to default rather than simply issue more money these situations are extremely rare.)
According to MMT, governments with the sovereign power to issue currency can create money at will through keystrokes and thus do not need to impose taxes to fund their spending. They impose taxes because it is necessary to ensure that their currency is accepted. (The logic is simple. Someone will accept a currency if he or she knows that there is a large body of individuals and corporations that require the currency in order to pay their taxes. ) The second reason for imposing taxes is to discourage undesirable activity. For this reason alcohol, tobacco and gasoline are heavily taxed.
Not too surprisingly, Wray does not think that the EU can survive. The primary problem is that in the EU the central bank is not empowered to bail out the nation members who must seek financing in the free market when they are near default. Wray feels that for the EU to survive, the fiscal power must be taken away from the individual countries in the union and the central bank must be empowered to bail out the members when necessary. Under such a system, neither the EU nor any of its members would ever be in danger of default. With such a structure the Greek and financial crises of 2008 would never have occurred. While the EU could be reformed, Wray still considers it to be a bad idea as a sovereign nation should never in his view renounce its right to issue its own currency.
Wray's major suggestion is that sovereign nations should implement programs of JG / ELR; that is to say they should offer job guarantees to those who wish to work or to act as employers of last resort. JG / ELR provide financial security to all citizens and would ensure social peace. Because sovereign currency issuers can never run out of money, it is entirely feasible.
Much of MMT is counterintuitive. Nonetheless it is essentially compatible with Keynesian economics. Equally important, it was tried during the Covid pandemic and proved to be highly effective. Everyone having the right academic background should read Wray's book as MMT is rapidly going in acceptance and influence.
Those who have never studied economics at university ought to read Stephanie Kelton's "The Deficit Myth"

[Emma Schreier · Rating 5 out of 5]

This is a truly wonderful and refreshing book. L. Randall Wray is fantastic in both his expertise and delivery, and he fundamentally changed the way I view the U.S. economy and the rest of the world.

The biggest takeaway from this book is that “taxes drive money”; fiat money is not widely accepted simply because the guy standing next to you accepts it, but it’s because (most) people in a functioning economy need it to pay their taxes. Additionally, the book exerts a lot of effort into debunking the myth that a government operating with a sovereign, floating currency needs taxes before it can “afford” anything in the domestic currency. Brilliant. And finally, Wray introduces the interesting and highly controversial policy proposal of “the Job Guarantee.”

This is definitely a book that you need a strong background in economics to understand. Given such a background, however, Wray walks through every step without missing a beat, and really that makes it a way more pleasurable read than similar books that skip steps and cut corners.

Read this book if you’re interested in the relationship between the Treasury and the Fed, our trade deficit with China, or just generally about how we spend money in the U.S. It’s awesome.

[Drew · Rating 5 out of 5]

The current financial landscape is divided between those that want to ascribe theories to the financial system as it pertains to their inherent beliefs on morality and those intent on merely describing it for what it actually is. This is for those in the latter. L Randall Wray is of the foremost experts on Modern Monetary Theory (MMT) in the next installment of financial observations that began with Hyman Minsky. While the prognosis of MMT is still somewhat unsupported in practice, their diagnosis is undeniable. This is a must read primer on MMT.

[Ian · Rating 5 out of 5]

Invaluable

I don't read this book front to back, but find it still a very valuable resource. Amongst economic books, blogs, videos that theorise and explain, this book adds to my growing appreciation of heterodox economic ideas. Randal always writes with great clarity and a serious regard for understanding and learning.

[Warren · Rating 5 out of 5]

Not the easiest of reads (for an untrained economist) in parts but the author does a great job of making the concepts as easy to understand as possible. This is an amazing book and should be on anyone's reading list who has an interest in economics and/or political economy.

[Alex · Rating 5 out of 5]

prose style atrocious, ideas fascinating

[timv · Rating 4 out of 5]

This is a in depth overview (textbook?) of the Modern Money Theory of macroeconomics of nations. I found the book to be a dense, but understandable, explanation of the theory. there’s basically no math in the text, but a reader would benefit from a basic grounding in finance and accounting, which I don’t have, and some of those parts escaped my understanding.

The basics of the theory are pretty simple and easy to understand, however contrary to present day popular thinking on these subjects. I picked up the book to read because for a decade or more the behaviors of the American and other powerful economic nations economies have not behaved according to the theories I was taught.

I don’t think I’d recommend this book to the casual reader, it is way too detailed and dense. I would recommend it to someone who would like to understand the details of arguments of the MMT proponents. I found the arguments to be quite convincing, although I could certainly see places where the practical implementation would not be nearly as smooth as pontificated in the text.

this was not my first exposure to the theory, and it has taken me a couple years to accept the mindset proposed by the MMT crowd. For me, their theory reflects the reality of the economic situations of many nations today much better than the currently accepted theories.

The book has a large number of inserted text boxes discussing frequently asked questions and I learned a lot from taking the time to read these sections. Considering that a economist wrote this book, it’s reasonably clearly written. The text could’ve used a glossary for all the acronyms that are thrown about.

[Tomas Herceg · Rating 4 out of 5]

It's a very interesting book which really opened my eyes. Definitely worth to read.
My only problem with the book is that it's quite difficult to read. Especially in the first chapters, some terms are used many times before they are properly explained. And in the entire book, many concepts are repeated and emphasized again and again - for example, the last chapter was quite boring as the amount of new information was almost zero, and all the thoughts were summarized in the previous chapters too.

[Jesper Döpping · Rating 5 out of 5]

This was my first time exposed to MMT

This book is clear in its argument, easy to read for a non-financial person. Being way more sociological in my way of thinking I do wish it had more examples, and concrete process description, but as an introduction it works perfect.

At first the argument is strange as most of think about money only as a mean of exchange. Yet, the arguments are clear and strong. It really gets you to think, and interpret the world in a new way.

[Andy Wang · Rating 4 out of 5]

A thorough overview of Modern Monetary Theory. Covers MMT, its mechanisms, and its policy implications across a variety of lenses (sovereign currency vs. not, fixed vs. floating exchange rate regime). Has interesting case studies from contrasting examples of the US and Eurozone. Although the book gives a nod to inflation concerns, I'm unsatisfied with the depth of this.

[Josh Smith · Rating 4 out of 5]

Must read.

[Stone · Rating 3 out of 5]

Note to self

Aggregate Saving Identity
Assets for one is the liability for the other. Deficits in one sector create the surpluses of another. it is impossible for both the public sector and the private sector to run surpluses. The net saving of the non government sector as a consequence of the government’s deficit spending, which creates income and savings.

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0
The three balances must balance to zero. This implies it is impossible to change one of the balances without having a change in at least one other. Aggregate spending creates aggregate income.

At the individual level, income causes spending, at the aggregate level, spending causes income.

All money “tokens” are records of debt.

Real assets can get monetised when someone goes into debt.

If domestic income is too low, the government needs to spend more (relative to taxes). Unemployment is sufficient evidence of this condition, so if there is unemployment it means government spending is too low (or taxes are too high).

If the domestic interest rate is too high, it means government needs to provide more “money”in the form of bank reserves, to lower the interest rate.

Money Concept
Think of a coupon for a free pizza that you receive in the mail. The coupon was created before the pizza was made and the pizza company did not have to have any pizza ready before it printed the coupon and mailed it to you. The pizza will be made only if you present the coupon at the pizzeria, at which time pizza will be made. In our analogy the cash is the pizza and the coupon is the checking account.

Only cash withdrawals or repayment of loans can reduce the quantity of bank deposits – otherwise only the names of the account holders change.

The gold cannot become financial wealth unless there is a debtor to a bank, allowing the gold to be monetised through a sale.

Limitlessness / keystroke
They can favor policy that generates employment and development without increasing imports (import substitution policies, for example). They can create jobs programs that are labor intensive (so that foreign-made capital equipment is not needed) or programs that provide the output that the newly employed workers need (so that they do not spend their new incomes on imports).

The most “unsound” budgetary policy is mindless pursuit of something called a “balanced budget” – meaning one in which tax “revenues” exactly match government spending over a stated period (usually a year).

How does someone buy the gold from me? In exactly the same manner as the home mortgage example discussed above: the buyer goes to a bank, offers an IOU, gets a credit to a demand deposit, writes a check, and transfers the demand deposit to gold seller.

The Treasury can always “afford” anything for sale in its own currency, although government always imposes constraints on its spending.

Since government deficits create an equivalent amount of non government savings it is impossible for the government to face an insufficient supply of savings.

Let us be careful to acknowledge that these principles do not imply that government ought to spend without constraint. Nor does the statement that government can “afford” anything for sale in its own currency imply that government should buy everything for sale in its currency.
In the control sense exogeneity means the government can “control” the variable, for example, can control the money supply, control the interest rate, or control the price level, and so on.

Even though banks can create unlimited amounts of deposits, they have no incentive to do so because it may be unprofitable and it can expose them to both insolvency and illiquidity risks.

Interest (exchange rate peg/float)
If the banking system has excess reserves, the overnight inter-bank lending rate falls below the target (so long as that is above any support rate paid on reserves), triggering bond sales; if the banking system is short, the market rate rises above target, triggering bond purchases.

If a country wants to be able to use domestic policy to achieve full employment (through, for example, interest rate policy and by running budget deficits), and if this results in a current account deficit, then it must either control capital flows or it must drop its exchange rate peg.
not be able to simultaneously pursue domestic full employment, a fixed exchange rate, and free capital flows.

Control capital flows or it must drop its exchange rate peg.

(Interest Rate, Investment) Lower interest rates to stimulate investment. But the Fed has now been running rates at just about zero for well over half a decade; Japan has been doing it for over two decades. There’s still virtually no investment, rotten growth, few jobs created, and relative stagnation. It doesn’t work.

(Interest Rate, Demand) Firms produce what they think they can sell, and unless they think their sales will be higher through a long series of tomorrows they are not going to increase productive capacity by investing. Tax cuts will not get them to invest more, unless there is some magic fairy dust that makes them believe tax cuts will increase sales into the long distant future.

The recipe for restoring prosperity is to create jobs and raise wages at the bottom so that sales to consumers will grow.

(Float, Peg) We will argue that a floating currency provides more policy space – the ability to use domestic fiscal and monetary policy to achieve policy goals. By contrast, a fixed exchange rate reduces policy space.

(Peg, Reserve) Peg unless you have an unassailable foreign currency reserve

“Taxes Drive Money” + Government
In the case of a sovereign government, there is a special power – the ability to tax – that virtually guarantees that households and firms will want to accumulate the government’s debt.

Neither reserves of precious metals (or foreign currencies) nor legal tender laws are necessary to ensure acceptance of the government’s currency. All that is required is imposition of a tax liability to be paid in the government’s currency. It is the tax liability (or other obligatory payments) that stands behind the curtain.

Money is a measuring unit, originally created by rulers to value fees, fines, and taxes owed. By putting the subjects or citizens into debt, real resources could be moved to serve the public purpose. Taxes drive money. So, money was created to give government command over socially created resources.

Government spends by crediting bank reserves and taxes by debiting bank reserves.

Spending first: the reality is precisely the opposite: households need the government to spend before they can pay taxes!

The government needs a tax not to produce revenue but to produce sales of labour, resources, and output for currency.

When taxes are paid, the taxpayer’s tax liability to the government is eliminated. At the same time, the government’s IOU that takes the form of bank reserves is also eliminated. At the same time, the government’s asset (the tax liability owed by the worker) is eliminated when taxes are paid, and the government’s liability (the reserves held by private banks) is also eliminated.

Me: Asset = $5 coconuts; Liability = My $1 IOU; my assets exceed my liabilities by $4, which is my net worth until I eat coconuts. You: Asset = $4 fish + My $1 IOU; Liability = 0; so your net worth is $5 until you eat the fish.

The financial deficit of one sector (me) equals the surplus of the other (you). And that once we net out the financials, we are left with the real stuff (fish and coconuts). No magic involved.

Demand deposit
banks explicitly promise to convert their liabilities to currency (either immediately in the case of demand deposits, or with some delay in the case of time deposits).

Monetisation proceeds in two steps: the first is to impose a monetary tax and the second is to put a monetary price on the resources government wants.

You need a reasonably broad-based tax that is hard to avoid. It is easy to avoid a tax on money income if people can live without money income. So what the colonisers did was to impose either a head tax or hut tax. Everyone has a head and a hut.

Once you’ve monetised an economy such that a large portion of the members must work for money incomes in order to buy the necessities of life that are largely available only for monetary purchase, then you can move to other kinds of taxes. It is very common to use wage taxes, sales taxes, profits taxes, income taxes, and wealth taxes in highly monetised economies. These will “work” once you’ve monetized the economy, although they would not “work” in an economy that was not yet monetised.

Inflation
These principles also do not deny that too much spending by government would be inflationary. Further, there can be exchange rate implications: if government spends too much, or if it sets its interest rate target too low, this might set off pressure to depreciate the currency. This means that the government’s interest rate-setting policy as well as its budget policy will be mindful of possible impacts on exchange rates and/or inflation rates; in that sense, interest rate-setting and fiscal policy are “constrained” by the government's desire to influence the exchange rate or the inflation rate.

It is not true that the ability to “print money” through keystrokes necessarily leads to hyperinflation. All sovereign governments that issue their own currency spend by keystrokes. Even if they promise to convert at a fixed exchange rate, they still spend by keystrokes. If keystrokes invariably cause hyperinflation, we’d have hyperinflation all the time. We don’t. Hyperinflation are unusual outcomes.

There are probably multiple paths to hyperinflation, but there are common problems: social and political upheaval; civil war; collapse of productive capacity (that could be due to war); weak government; and foreign debt denominated in external currency or gold.

If prices rise so much faster than the money supply, how can we conclude that the hyperinflation is caused by “too much money chasing too few goods”?

Unemployment and poverty are viewed as the cost of maintaining not only low inflation, but also the value of the currency.

WOWs:
(Income, Demand, Full Employment) The income of the worker is the most important source of the demand for final output of consumer goods. So operating the economy at full employment and with a relatively stable wage in our buffer stock jobs program will help to stabilize not only consumption spending and household income, but it also helps to stabilize wages and therefore prices.

(EU, PIIGS) When individual nations like Greece or Italy joined the EMU, they adopted a “foreign” currency – the Euro – but retained responsibility for their nation’s fiscal policy.

(EU) While the whole idea behind unification was to prevent un-neighborly behavior that had led to two World Wars within Europe, the construction of the EMU was guaranteed to promote it.The EMU rewarded self-interested behavior by any member willing to pursue it, and Germany reaped most of the rewards.

(Gold standard) Countries went on and off gold. When a crisis hits, they’d abandon gold. With recovery, they would go back on until the gold constraints forced them to go off when the economy crashed again. Rather than contributing to monetary stability, the gold standard destabilized the economy.

(Cash Holding, Value) Keynes said that no one would hold money as a store of value in the absence of uncertainty. Holding wealth in a highly liquid form like money makes sense only if you are uncertain, and even scared about the future. In a financial crisis, everyone runs to cash. It gives a very low return, but that is better than a huge loss!

(Coin Value) A society cannot decide to have more income, but it can decide to spend more
coins usually circulated far above metallic value, at a nominal value proclaimed by the sovereign government.

(Unemployment, Poverty) Unemployment and poverty are viewed as the cost of maintaining not only low inflation, but also the value of the currency. (This is related to the “Phillips Curve” argument: we need lots of unemployed people to keep wages and inflation in check.)

(Export, Wages, Demand) Countries with trade deficits might cut domestic demand to push down wages and prices in order to reduce imports and increase exports. With both importers and exporters attempting to keep demand low, the result is insufficient demand globally to operate at full employment (of labour and plant and equipment). Even worse, such competitive pressure can produce trade wars – nations promoting their own exports and trying to keep out imports.

(US, Trade Deficit) Even if the United States were to try to deflate its economy to reduce its trade deficit, that is not likely to work because the ROW would make adjustments to continue to net export to the United States.

(US, Trade Deficit) The United States imports more than it exports because the rest of the world wants to accumulate savings in Dollar-denominated assets.

(Income Reconfiguration) The idea is that we do need to reduce inequality, and while taxes on the rich might help, it will be more effective to try to reduce inequality at the source: reduce the high incomes at the top, and raise them at the bottom.

(Income Reconfiguration, The Rich) With each recovery from a downturn, the rich capture a larger share of the subsequent growth. She has shown that no matter how you slice up the rich at the top of the income distribution – the top 10 percent, the top 1 percent, or the top few tenths of a percent of the top 1 percent, their share of the spoils from growth has increased in each subsequent recovery.

(Market) While our economy is often referred to as “market-driven”, it is actually driven by power.

(Minimum wage) In the absence of true full employment, the actual minimum wage is always zero – because those who cannot find work cannot get the legislated minimum wage.

(Inflation) Think of it this way: inflation is the cost of preserving culture.

(Inflation) To keep pace with productivity growth in manufacturing, each kindergarten teacher today would have to have hundreds of five-year-old crowded into every classroom. It didn’t happen. To preserve “inefficiency” in the kindergarten classroom, we need inflation.

[Andrii Tymchuk · Rating 5 out of 5]

Гроші - настільки невід'ємна частина життя та відома всім річ, що питання на кшталт "а що ж таке - ці ваші гроші?" звучить або надто просто, або навпаки - дуже по-філософськи, без надії знайти істинну відповідь. Ця книжка відповідає на це запитання з боку держави як головного розпорядника грошовою системою в країні. За рівнем доступності матеріалу її навіть не можна віднести до науково-популярної літератури, а радше до підручника з дуже вільними рамками оповіді. Хоча на майже 500 сторінках тексту обґрунтовується всього лише кілька тих самих ідей, голова може закипіти, особливо якщо ви не стикаєтеся з балансовими звітами та бухгалтерськими проводками кожного дня.

Книжка описує ММТ (modern money theory - не зовсім канонічне бачення щодо природи грошей), яке дає зрозуміти, наскільки різними є ситуації, коли держава розпоряджається власною, ні до чого не прив'язаною валютою, на відміну від випадків фіксованого обмінного курсу або й взагалі використання валюти іншої країни. І саме в першому випадку держава має значно більшу свободу у впровадженні тієї економічної політики, яка є найбільш доцільною в певний момент.

"Що за свобода? Надрукувати зайвих грошей? Уууу, а як же інфляція???" Звичайно, цей страшний термін, відомий абсолютно всім неспеціалістам, нікуди не зникає. Але автор показує, що зв'язок між кількістю грошей й інфляцією не настільки прямолінійний, як часто здається людям. А у випадку використання власної валюти держава в будь-якому разі витрачає шляхом створення грошей буквально з повітря. Ну майже з повітря. З паперу, або з натискань клавіш на комп'ютері.

"Як із повітря? А як же податки? Державі надходять податки як її дохід, і вже потім вона їх витрачає, хіба ні?" Саме так собі уявляють цей процес більшість людей незалежно від ступеня підкованості у фінансах. І, в принципі, саме так воно й працює у випадку використання іноземної валюти, або коли ми говоримо про місцеві бюджети. Але якщо держава здатна самотужки "створювати" гроші, у цьому поясненні трохи втрачається сенс.

"Так а для чого ж тоді потрібні ці податки, для чого мучити людей?" Згідно з ММТ, притягнення громадян до оподаткування - основне джерело створення попиту на національну валюту. Адже без зобов'язання сплачувати податки саме у валюті країни учасники ринку використовували би для розрахунків що завгодно інше, що вважали би надійнішим засобом. Та й і без цього в податків є дуже багато функцій, які вони виконують, від вирівнювання доходів населення до викорінення шкідливих звичок (акцизи на алкоголь, цигарки?).

Більшість схильна довіряти тому, що має обмежену кількість у природі (золото, біткойн?). Але від того, що пропозиція біткойна обмежена, він не стає безпечним джерелом вкладень. Все одно вартість такої валюти визначається суто ринковим попитом, який одного дня цілком може перетворитися на нуль. А якщо певна валюта є законодавчо закріпленим інструментом для здійснення виплат на користь держави, попит на неї як на засіб розрахунку завжди існуватиме. Але не будьте, як Нікараґуа - не запроваджуйте біткойн у якості національної валюти. Я вже згадував, що це вносить серйозні обмеження для спроможності держави керувати економікою? Є й значно ближчий приклад - боргові кризи в деяких країнах Єврозони. Тепер я значно краще розумію, чому на цьогорічному референдумі Швеція відмовилася від запровадження євро на користь своїх перевірених рідненьких крон.

Витратив багатенько мозкової енергії, щоб таки завершити прочитання цієї книжки, але ніскілечки про це не жалкую.

[Andrei Balici · Rating 5 out of 5]

“You see, it’s all debits and credits: keystrokes that record bonds of indebtedness.” Randall Wray is right. According to empirical evidence, money emerged from debt, not barter. The oldest writings in history are records of debt, and that’s a fact. When one party becomes indebted to another, it issues a promissory note, or an IOU (I owe you). That’s money.

In the current macroeconomic setting, things become a tad more complex, but the definition stands. If money must be a record of debt, then who is the debtor in the case of a banknote owned by an individual? Well, that would be the government. When you hold a note, you’re actually holding a claim on the government: the government’s debt.

If you think about it, there is no money without government debt. A seemingly dull fact, this statement has huge implications: going into debt (or spending) creates money, which is then used to pay taxes. A sovereign must spend before it taxes away. “Taxes for revenue are obsolete.”

This book is perhaps the most cogent primer on Modern Money Theory (MMT), offering a clear description of the present institution we call money. One of the book’s strengths is Wray's decision to focus on the actual underlying mechanisms rather than delving too deeply into historical material. This choice makes the book particularly accessible and relevant.

The book's importance in the current macroeconomic system cannot be overstated. It liberates us to consider better fiscal policies without being constrained by artificial monetary policies. By understanding that a sovereign government’s spending is not limited by revenue, we can reimagine fiscal policy in ways that promote public well-being and economic stability.

[Angus · Rating 4 out of 5]

At the very least it is well written and did a good job of presenting the ideas of modern money theory. I find the idea here interesting, but I’m not familiar with wider economics to weigh up and critically assess what is written here.

That said the author does a good job of explaining concepts I never write understood before, such as the different between the reserve bank and treasury, the identity between foreign, domestic public and domestic public accounts, as well as a few other things.

But again I’m not familiar with the fundamentals that this builds upon so in some cases I’m accepting some of what they say at face value.

Also the tax does not are not revenue things makes sense, at least at a jurisdiction that prints money. But it leaves me with questions for levels of government that have many responsibilities but no ability to print money, like a state government (in Australia or the USA).

At least now I can follow memes/shit-posting on Twitter about “job guarantees” and “tax ≠ revenue”.

[Gabriel Sims-Fewer · Rating 3 out of 5]

Wray is honest about the fact that MMT has both a descriptive and a prescriptive element, which are not mutually inclusive. The first half of this book is a good resource for understanding the former, though it is far less accessible to those uninitiated to the cult of economics jargon than one would hope of a "primer".
The latter half of, which engages with the policy proposals of the core MMT theorists, is disturbingly conservative , short sighted, and out of touch with the human reality behind the graphs and equations. Full of hackneyed references to "incentives", "productuvity", "competition" etc., and unsubstantiated claims about human nature and American culture, as well as a total failure to question the nature and desirability of "work" in the capitalist context, this section of the book is better left in early 20th century, where it would be only slightly less out of place.

[David Z · Rating 5 out of 5]

Really good intro to MMT and generally a really good intro to understanding money in general. It's definitely going to take some time - as well as a few more books and articles - to fully absorb the MMT logic and to then be able to look for logical gaps, but most of the errors one could point to in this book still wouldn't stop it from being a great starting point for developing a framework with which to conceptualize and understand money. Most importantly, I think MMT (or at least Wray's presentation of it) does a really great job of opening up the possibility for imagination in regards to expansion of positive public infrastructure, institutions, goods, etc. against the stale 'balanced-budget' or 'debt crisis' fears many people have, although his politics seem do seem a touch naively optimistic at times.

[Cameron Wilson · Rating 4 out of 5]

Definitely needs an editor because a lot of the early and later chapters could be consolidated. Wray's grandpa conversational style might be a benefit to some, but its irrelevant to the most important parts of the book (chapters 3,4,6 and 7). Also some equations in the boxes of the 2015 edition are misprinted and unreadable.

[Carlos Agraz · Rating 5 out of 5]

Well, if your are interested in MMT this book is aptly named. If you are already familiar with MMT, it will be redundant, but again the title informs you of this. If you want a primer, in my opinion, you cannot go wrong with this.

[Xiang Yang Ng · Rating 5 out of 5]

A fantastical account on how money actually works and how we can use that information to transform our governments so that they would not stick to past economic and governmental ideas that only look good on paper.

[Manuel Martínez · Rating 3 out of 5]

Siempre es interesante conocer otros puntos de vista y enriquecer el debate económico.
El resumen central del Estado como ultimo empleador y la creación de dinero para sufragar la deuda pública es realmente peligroso y un importante generador de inflación.

[Eve · Rating 5 out of 5]

Love the book and currently checking on the blog and thinking of reading another book written by the professor.

[David · Rating 5 out of 5]

Excellent primer on MMT.

[Kingsborough Library · Rating 4 out of 5]

All I can say about this book is that I don't know enough about economics to pass judgment. It is strange and I have strong, mostly inarticulate feelings about it.