Smart Taxes of Randall Wray’s classic Understanding Modern Money
This review is from: Understanding Modern Money: The Key to Full Employment And Price Stability (Paperback)
Randal Wray is not a pretty writer such as the likes of John Maynard Keynes or his contemporary Paul Krugmann. He uses a spare vocabulary and is short on rhetoric. This book is all the better for that. The spare style is convincing; the facts speak for themselves.
These facts describe a money system totally at odds with what most people imagine and the vast majority of economists conceptualise. Wray explains how money and taxes are created by governments as two sides of a single coin;- indivisible, interdependent and a wonderful invention to get work done for the common good. He describes money as a flow, a flow that enables value creation but not of value in itself. Governments give life to money by issuing it, and governments take its life away through taxing it back. Money does not reincarnate after passing away as taxes. Instead new money is created again by governments as is needed. Taxed money simply disappears. Governments do not levy taxes to raise money, they levy taxes to give value to the money that they have already issued. Governments do not have to sell bonds to raise money, they sell bonds to give their people an interest-bearing way of saving money for future spending. In this world of modern money, a deficit is not a burden on future generations but an accounting tool for scoring economic performance.
Of course, private banks create money too but their money depends on governments accepting their debt-based money in payment of taxes. When debts are repaid, bank money evaporates. Only governments can create money without a matching debt. And in a debt burdened world, this is what governments can and must do.
Sometimes the truth is uncomplicated but hard to believe because it is so simple. Randal Wray first wrote Understanding Modern Money in 1998 with marginal impact beyond a small group of economists and market traders. His perspective is gaining ground as other conceptualisations of the money system fail to offer practical solutions to the growing economic crisis. But most economists and politicians still cling to those misbegotten virtual reality like religious tenets even as the forces of economic and social disintegration take hold. What does it take for the insights in this modest book to be given the attention they deserve?
Read it.
