L. Randall Wray

Bard College · Economics Program

In this paper, we use the Modern Money Theory framework to analyze whether government debt (and deficits) in a country with its own sovereign currency presents a problem. We argue that permanent deficits and even a rising debt ratio are normal, especially in developed nations with current account deficits. In contrast to the conventional approach,...

The cost of the Green New Deal is usually estimated in financial terms, adding the projected costs of the various programs which leads to the conclusion that large tax hikes would be needed to pay for it. In this paper, we apply the methodology developed by J. M. Keynes in How to Pay for the War to offer a better approach for evaluating the afforda...

This paper discusses Modern Money Theory (MMT) with a particular focus on the role of the state in its monetary system and the nature of money. It addresses the main differences between the orthodox, heterodox and MMT approaches to monetary theory while reconciling endogenous money theory with the state money approach. By emphasising the symmetry b...

This article examines the fiscal and monetary policy options available to China as a sovereign currency-issuing nation operating in a dollar standard world. We first summarize a number of issues facing China, including the possibility of slower growth, global imbalances, and a number of domestic imbalances. We then analyze current monetary and fisc...

This paper revisits J. Fagg Foster’s early assessment of the relevance of John Maynard Keynes’s theory of institutional economics. In his view, neither institutionalists nor most of Keynes’s followers really recognized the importance of Keynes’s theoretical insights. I examine Foster’s views on economic theory, with a particular focus on monetary t...

Stability is destabilizing. Those three words capture in a concise manner the insight that underlies Minsky’s analysis of the transformation of the economy over the entire post-war period. The basic thesis is that the dynamic forces of the capitalist economy are explosive so that they must be contained by institutional ceilings and floors—part of t...

Greece’s current predicament is not mainly due to structural problems—or at least, will not be cured by attacking presumed structural problems. Greece is surely not alone in suffering from the tremendous rise of unemployment (and especially youth unemployment) and as well falling GDP. This chapter argues that the main problem is with the setup of t...

Perhaps no economist was more vindicated by the global financial crisis than Hyman P. Minsky (1919-96). Although a handful of economists raised alarms as early as 2000, Minsky's warnings began a half-century earlier, with writings that set out a compelling theory of financial instability. Yet even today he remains largely outside mainstream economi...

In a completely revised and updated second edition, Randall Wray takes a new approach to macroeconomics that challenges conventional wisdom and uncovers how money 'works' in the modern economy. This book synthesizes the key principles of Modern Money Theory, exploring macro accounting, monetary and fiscal policy, currency regimes and exchange rates...

In previous sections we have examined in detail the three balances approach developed largely by Wynne Godley. In some sense all of that is preliminary to examining the nature of modern money. Further, a key distinguishing characteristic of MMT is its view on how government really spends. Beginning with this chapter we will develop our theory of so...

In this chapter we will examine policy that will promote full employment with price stability. Most economists believe that full employment and price stability are inconsistent. Indeed, unemployment is seen as a tool to be used to promote price stability. In this chapter we first examine MMT’s approach to full employment. We will argue that it is p...

In this chapter we will begin to examine our next topic: government spending, taxing, interest rate setting, and bond issue — that is, we will examine fiscal policy for a government that issues its own currency. Note that it is not possible to completely separate fiscal policy from monetary policy, especially in the area of the issue of Treasury de...

All “modern money” systems (including those of the “past 4000 years at least” as Keynes put it) are state money systems in which the sovereign chooses a money of account and then imposes tax liabilities in that unit. It can then issue currency used to pay taxes. In this chapter we return to our analysis of the operation of today’s monetary system,...

In this introduction we provide a short summary of the basics of Modern Monetary Theory. We will not go deeply into any of the theory or policy, but instead provide an overview of the conclusions. The purpose is to explain why it is important to understand the MMT approach. Many readers have told me that building an understanding of MMT has complet...

In this chapter we will examine the MMT view of inflation and hyperinflation. The usual belief is that budget deficits and full employment are prone to cause inflation, if not hyperinflation. Many critics even argue that following MMT is necessarily inflationary — the path to ruin. Let us first see how inflation is defined. We then turn to hyperinf...

The previous discussions were quite general and apply to all countries that use a domestic currency. It does not matter whether these currencies are pegged to a foreign currency or to a precious metal, or whether they are freely floating — the principles are the same. In this chapter we will examine the implications of exchange regimes for our anal...

In this chapter we will turn to what government ought to do. This chapter will specifically treat only the sovereign government that issues its own floating rate currency. From the chapters above, that will make it clear that we are addressing only a government that does not face an affordability constraint. The floating rate regime provides the gr...

We have argued that taxes drive currency. Sovereign government does not need taxes for revenue, but to create a demand for its currency. With that in mind, we need to rethink tax policy. How best to drive the currency? What kinds of taxes are best? Besides driving a currency, what else can taxes be used for? We explore such issues in this chapter.

In this chapter we are going to begin to build the necessary foundation to understand modern money. Please bear with us. It may not be obvious at first why this is important. But you cannot possibly understand the debate about the government’s budget (and critique the deficit hysteria that has recently gripped many nations) without understanding ba...

In this Primer we have explored the macro identities as well as the stock-flow implications that are necessary to formulate appropriate policy for any sovereign nation, including developing nations. We carefully examined operational realities for a nation that adopts a sovereign currency. We have also explored the constraints imposed by different c...

Modern Money Theory (MMT) is a relatively new approach to macroeconomics that focuses on building an understanding of the operation of sovereign currency systems and on developing a policy framework based on that understanding. This article first summarises the main conclusions of MMT – the most important of which is that a nation that issues its o...

In this paper, I examine whether Hyman P. Minsky adopted an endogenous money approach in his early work--at the time that he was first developing his financial instability approach. In an earlier piece (Wray 1992), I closely examined Minsky's published writings to support the argument that, from his earliest articles in 1957 to his 1986 book (as we...

Modern Money Theory (MMT) has explained why monetarily sovereign governments have a very flexible policy space that is unconstrained by hard financial limits. It has provided institutional and theoretical insights about the workings of economies with monetarily sovereign and non-sovereign governments. It has also provided policy insights with respe...

This paper explores the intellectual history of the state, or chartalist, approach to money, from the early developers (Georg Friedrich Knapp and A. Mitchell Innes) through Joseph Schumpeter, John Maynard Keynes, and Abba Lerner, and on to modern exponents Hyman Minsky, Charles Goodhart, and Geoffrey Ingham. This literature became the foundation fo...

Over the past two decades there has been a revival of Georg Friedrich Knapp's "state money" approach, also known as chartalism. The modern version has come to be called Modern Money Theory. Much of the recent research has delved into three main areas: mining previous work, applying the theory to analysis of current sovereign monetary operations, an...

It is commonplace to speak of central bank “independence” - as if it were both a reality and a necessity. While the Federal Reserve is subject to the “dual mandate,” it has substantial discretion in its interpretation of the vague call for high employment and low inflation. Most important, the Fed’s independence is supposed to insulate it from poli...

This paper examines the fiscal and monetary policy options available to China as a sovereign currency-issuing nation operating in a dollar standard world. We first summarize a number of issues facing China, including the possibility of slower growth, global imbalances, and a number of domestic imbalances. We then analyze current monetary and fiscal...

When I was a student at Washington University, Hyman P. Minsky handed to me a 1984 draft paper by Jan Kregel titled ‘Reading Copy. The Multiplier and Liquidity Preference: Two Sides of the Theory of Effective Demand’ — which would later be published in a 1988 volume edited by Alain Barrere. It was the first time I had been exposed to a serious expo...

This paper examines the fiscal and monetary policy options available to the People's Republic of China (PRC) as a sovereign currency-issuing nation operating in a dollar standard world. The paper first summarizes a number of issues facing the PRC, including the possibility of slower growth and a number of domestic imbalances. Then, it analyzes curr...

Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic...

The book studies the trends that led to the worst financial crisis since the Great Depression, as well as the unfolding of the crisis, in order to provide policy recommendations to improve financial stability. The book starts with changes in monetary policy and income distribution from the 1970s. These changes profoundly modified the foundations of...

Before we can reform the financial system, we need to understand what banks do; or, better, what banks should do. This article will examine the later work of Hyman Minsky at the Levy Institute, on his project titled “Reconstituting the United States’ Financial Structure.” This led to a number of Levy working papers and also to a draft book manuscri...

One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unencumbered by hard financial constraints. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of man...

As my economics training began in the Institutionalist tradition, I was exposed from the start to the view that money is not a ‘thing’ but rather an institution. This meant more than the obvious fact that most of our ‘money supply’ is issued by private bank ‘institutions’. Institutionalists define institutions broadly to include socialized patterns...

It is now more than clear that highly indebted members of the European Monetary Union will not be able to service their debt. There is no alternative to debt relief. A few of Europe’s leaders finally have started to recognize this inconvenient fact. However, they are not likely to approve any generalized approach to saving Europe. Instead, they wan...

This paper argues that the usual framing of discussions of money, monetary policy, and fiscal policy plays into the hands of conservatives. That framing is also largely consistent with the conventional view of the economy and of society more generally. To put it the way that economists usually do, money “lubricates” the market mechanism — a good th...

Most countries have suffered from the global financial crisis. Some eurozone countries—the so-called PIIGS—are now facing debt crises that could conceivably threaten the entire euro project, a situation that has spurred the Chinese government to worry about its high governmental deficit, inflation, and a speculative boom in real estate and equities...

This paper integrates the various strands of an alternative, heterodox view on the origins of money and the development of the modern financial system in a manner that is consistent with the findings of historians and anthropologists. As is well known, the orthodox story of money's origins and evolution begins with the creation of a medium of excha...

This paper provides a quick review of the causes of the Global Financial Crisis that began in 2007. There were many contributing factors, but among the most important were rising inequality and stagnant incomes for most American workers, growing private sector debt in the United States and many other countries, financialization of the global econom...

Euroland is in a crisis that is slowly but surely spreading from one periphery country to another; it will eventually reach the center. The blame is mostly heaped upon supposedly profligate consumption by Mediterraneans. But that surely cannot apply to Ireland and Iceland. In both cases, these nations adopted the neoliberal attitude toward banks th...

Over the past two decades a group of us has developed an alternative approach to monetary theory that integrates the insights of Knapp’s (1924) state money approach (also called chartalist and adopted by Keynes (1930, 1914)), the credit money view of Innes (1913, 1914), Lerner’s (1943, 1947) functional finance approach, Minsky’s (1986) views of ban...

It is commonplace to link neoclassical economics to 18th- or 19th-century physics and its notion of equilibrium, of a pendulum once disturbed eventually coming to rest. Likewise, an economy subjected to an exogenous shock seeks equilibrium through the stabilizing market forces unleashed by the invisible hand. The metaphor can be applied to virtuall...

President Dimitri B. Papadimitriou and Senior Scholar L. Randall Wray argue that the common diagnosis of a "sovereign debt crisis" ignores the crucial role of rising private debt loads and the significance of current account imbalances within the eurozone. Profligate spending in the periphery is not at the root of the problem. Moreover, pushing aus...

In this chapter we will turn to what government ought to do. This chapter will specifically treat only sovereign government — one that issues its own currency. From the chapters above, that will make it clear that we are addressing only a government that does not face an affordability constraint. In this chapter we will examine alternative views ab...

In previous sections we have examined in some detail the three balances approach developed largely by Wynne Godley. In some sense all of that is preliminary to examining the nature of modern money. Further, a key distinguishing characteristic of MMT is its view on how government really spends. Beginning with this chapter we will develop our theory...

In this chapter we will begin to examine our next topic: government spending, taxing, interest rate setting, and bond issue — that is, we will examine fiscal policy for a government that issues its own currency. Note that it is not possible to completely separate fiscal policy from monetary policy, especially in the area of the issue of treasury de...

The previous discussions were quite general and apply to all countries that use a domestic currency. It does not matter whether these currencies are pegged to a foreign currency or to a precious metal, or whether they are freely floating — the principles are the same. In this chapter we will examine the implications of exchange regimes for our anal...

All “modern money” systems (which apply to those of the “past 4000 years at least” as Keynes put it) are state money systems in which the sovereign chooses a money of account and then imposes tax liabilities in that unit. It can then issue currency used to pay taxes. In this chapter we return to our analysis of the operation of today’s monetary sys...

In this chapter we will examine policy that will promote full employment with price stability. Most economists believe that full employment and price stability are inconsistent. Indeed, unemployment is seen as a “tool” to be used to promote price stability. In this chapter we first examine an approach to full employment that is consistent with MMT,...

In this chapter we are going to begin to build the necessary foundation to understand modern money. Please bear with us. It may not be obvious at first why this is important. But you cannot possibly understand the debate about the government’s budget (and critique the deficit hysteria that has recently gripped many nations) without understanding ba...

In an important sense our task throughout this monograph has been to develop a theory of the nature of money. When asked “What is money?”, most people respond — quite reasonably — that money is used to buy something. This gets at money’s use as a medium of exchange, which is of course the most familiar use. If pressed further, most would also say t...

The Queen of England famously asked her economists why ‘no one saw it coming’ – referring, of course, to the global financial collapse that began in early 2007. In fact, many economists, market participants, and even policymakers did recognize problems. Since the beginning of the crisis, I have been arguing that Hyman Minsky had been studying the t...

This paper takes off from Jan Kregel’s paper “Shylock and Hamlet, or Are There Bulls and Bears in the Circuit?” (1986), which aimed to remedy shortcomings in most expositions of the “circuit approach.” While some “circuitistes” have rejected John Maynard Keynes’s liquidity preference theory, Kregel argued that such rejection leaves the relation bet...

Yet another rescue plan for the European Monetary Union (EMU) is making its way through central Europe, but no one is foolish enough to believe that it will be enough. Greece’s finance minister reportedly said that his nation cannot continue to service its debt, and hinted that a 50 percent write-down is likely. That would be just the beginning, ho...

In this paper, I first quickly recount the causes and consequences of the global financial crisis (GFC). Of course, the triggering event was the unfolding of the subprime crisis; however, I argue that the financial system was already so fragile that just about anything could have caused the collapse. I then move on to an assessment of the lessons w...

The world's worst economic crisis since the 1930s is now well into its fourth year. Minsky's work has enjoyed unprecedented interest, with many calling this a "Minsky moment" or "Minsky crisis" and locating the beginnings of the crisis in the 2000s. I argue that we should not view this as a "moment" that can be traced to recent developments. Rather...

This paper examines the causes and consequences of the current global financial crisis. It largely relies on the work of Hyman Minsky, although analyses by John Kenneth Galbraith and Thorstein Veblen of the causes of the 1930s collapse are used to show similarities between the two crises. K.W. Kapp’s “social costs” theory is contrasted with the rec...

In this paper I first provide an overview of alternative approaches to money, contrasting the orthodox approach, in which money is neutral, at least in the long run; and the Marx-Veblen-Keynes approach, or the monetary theory of production. I then focus in more detail on two main categories: the orthodox approach that views money as an efficiency-e...

Stability is destabilizing. These three words concisely capture the insight that underlies Hyman Minsky’s analysis of the economy’s transformation over the entire postwar period. The basic thesis is that the dynamic forces of a capitalist economy are explosive and must be contained by institutional ceilings and floors. However, to the extent that t...

This paper begins by defining, and distinguishing between, money and finance, and addresses alternative ways of financing spending. We next examine the role played by financial institutions (e.g., banks) in the provision of finance. The role of government as both regulator of private institutions and provider of finance is also discussed, and relat...

In the aftermath of the global financial collapse that began in 2007, governments around the world have responded with reform. The outlines of Basel III have been announced, although some have already dismissed its reform agenda as being too little (and too late!). Like the proposed reforms in the United States, it is argued, Basel III would not ha...

In this paper I will follow Hyman Minsky in arguing that the postwar period has seen a slow transformation of the economy from a structure that could be characterized as "robust" to one that is "fragile." While many economists and policymakers have argued that "no one saw it coming," Minsky and his followers certainly did! While some of the details...

The Queen of England famously asked her economic advisers why none of them had seen it (the global financial crisis) coming. Obviously, the answer is complex, but it must include reference to the evolution of macroeconomic theory over the postwar period - from the Age of Keynes, through the Friedmanian era and the return of Neoclassical economics i...

This paper advances three fundamental propositions regarding money: (1) As R. W. Clower (1965) famously put it, money buys goods and goods buy money, but goods do not buy goods. (2) Money is always debt; it cannot be a commodity from the first proposition because, if it were, that would mean that a particular good is buying goods. (3) Default on de...

Does excessive sovereign debt really Hurt growth? While most economists accept the desirability of expansion of deficits over the short term there are a number of theoretical arguments that lead to the conclusion that higher government debt ratios might depress growth or lead to national insolvency. These have been further “strengthened” through em...

Senior Scholar L. Randall Wray lays out the numerous and critical ways in which we have failed to learn from the latest global financial crisis, and identifies the underlying trends and structural vulnerabilities that make it likely a new crisis is right around the corner. Wray also suggests some policy changes that would shore up the financial sys...