Randall Wray on Tax Driven Money

The always insightful Tom Hickey at Mike Norman Economics has linked to an excellent presentation and Q&A session featuring Randall Wray and Bob Jessop. The video goes for about an hour-and-a-half, but there turns out to be four minutes or so that are particularly relevant for present purposes.

In an earlier post, Ongoing Debate Over Currency Value, I wrote:

My interpretation of MMT has been that enforceability of taxes (or fees or some other obligation to the state) is sufficient but not necessary (i.e. that other factors could conceivably be sufficient) …

In the ensuing discussion there was some uncertainty on this point. Randall Wray happens to touch on the same point (at about 1:11:10 in the linked video):

Let me start from the general claim, which is that from inception you need an obligation, and it needs to be denominated in some unit of measurement. And so, in shorthand, what we say is “taxes drive money”, okay. And, of course, that can be a little more broadly defined to say that you need fees, fines, tribute, tithes, taxes, some kind of an obligation that is denominated in a unit of account. …

… However, we are not trying to claim that, um, taxes drive money, that that is necessary. It is merely sufficient. Taxes will drive a money. That’s a sufficient condition. Um, it’s perfectly conceivable – and people have many stories about this – of private entities creating a unit of account, denominating liabilities in that unit of account, and then exchanging those liabilities and using those in payment. It works pretty well in theory. It’s just that in practice we don’t find these.

Okay, so I guess this shows that heteconomist has not always exemplified loose cannon MMT, but rest assured, I do my best.


41 thoughts on “Randall Wray on Tax Driven Money

  1. As others have said, the problem with MMT is that it is a simple description. So simple that the mind appears to reject it.

    The underlying base axioms really are very straightforward.

  2. Just to transcribe a little more of Wray’s answer from about 1:11 to 1:15:

    … Anyone can write an IOU in the state’s unit of account. You and I can write IOUs in Canadian dollars, and we don’t need the state to accept those for you and I to accept them. And we could have a fairly big payment community in which we all agree to accept each others’ IOUs without the state ever giving those any kind of a legal, um, sanction.

    Ah, even bank deposits in the United States are not accepted by the Treasury. They are not, okay. The bank just promises to make the payment for you. When you write a check to the IRS or whatever you call it here, um, the IRS does not accept that check, okay. It’s that your bank promises to make the payment to the Treasury. And your bank makes the payment using currency. It uses central bank reserves.

    So even today bank deposits are not accepted by the government in payment of taxes. However, the bank is acting as an intermediary and promises to make the conversion on demand, so they make the payment for you.

    So the money things are denominated in the state unit of account, but anybody can issue the money things. They might make them convertible on demand into the state’s currency, they might not. Okay, so it’s not a necessary thing. You don’t need taxes behind any particular money things to make them circulate. But the general observation is that the money things are almost always written in the state’s unit of account.

  3. There are two major issues involved. The first is factual-causal, and the second is normative-institutional. MMT has the former down cold, providing a reasonably simple explanation that is very close to the actual operations, even though simplified. However, it has not yet been successful with the latter, and most objections are “moral.” We need to confront moral objections based on morality. However, conservatives will never come along, and once they realize the truth of the present system, they will fight tooth and nail to change it to fit conservative morality, e.g., “sound money.”

  4. Yes, really good presentation of Prof. Wray – saw it last night, haven’t seen the Q&A part yet.

    Prof. Wray said something like: “..We can not separate the economic from the political and any attempt to separate money from politics is itself political.”

    Liked that very much.

  5. “Prof. Wray said something like: ‘..We can not separate the economic from the political and any attempt to separate money from politics is itself political.'”

    This is exactly what neoliberals attempt to do. They equate neoliberal economics with policy, which is to say, no government intrusion in the economy other than to protect persons and property, therefore no economic policy other than laissez-faire. That is a policy position.

  6. “…is sufficient but not necessary…”

    Yep, yep. I remember following a discussion here earlier this year when someone over at FT tried to discredit MMT by having people pay taxes in cows. And then ended up scoring an “own” goal. Like in a couple sentences. MMT never even touch the ball, and I could even hear them screaming “Dude, WRONG way”. The rest of us just covered our eyes. 🙂

  7. There was a time that taxes were collected in goods, generally agricultural produce, since money was scarce out there in the fields. Tax collectors dropped by periodically, accompanied with a few soldiers and cart, and estimated what was owed. The producer handed it over cheerfully, or they just took it and then some, and the fellow was fortunate if he didn’t received a beating.

  8. I would say that there are probably a number of sufficient conditions to drive money other than just taxes, e.g., legal tender laws. But as a necessary condition for state money, whatever the conditions may be, they are enforced by state power. Tax evasion has pretty generally been considered a crime across history, and legal tender laws require acceptance of the unit of account in payment of debts. Libertarians, of course, hate this.

  9. During the more then 500 years when Bulgaria was under Ottoman occupation, there was a so-called “blood tax”.

    All Bulgarian families were obligated to give their firstborn male child to the Sultan. These kids then were raised and trained to become professional soldiers loyal to the Sultan.

  10. “Okay, so I guess this shows that heteconomist has not always exemplified loose cannon MMT, but rest assured, I do my best.”

    Sorry, PeterC, you don’t seem to be doing enough… 🙂

  11. Peter,
    Not much to debate here, I fully agree with your points.

    You stated that the conservatives will always have moral objections against the normative part of MMT (or any similar socjoeconomic doctrine). This is a critically important observation. I am in the process of reading “The Righteous Mind” by Jonathan Haidt. I guess there can be certain ways to circumvent the “mental block” at least in regards to the first, positive, (“factual-casual”) part of the doctrine. Whether this may clear the field for an open debate about the real social issues is yet to be seen.

    The social conservatives are humans, too. All of the members of my family except for my dad are “progressives/liberals” (using Jonathan Haidt’s definition) so I kind-of intuitively understand where the conservatives come from even if that position is alien to me.

  12. @Tom and Adam (ak)

    Considering a slightly different but related topic to the one you guys were touching, Chris Bertram from Crooked Timber offered this explanation to the question of why employers believe themselves entitled to make demands that to many people sound excessive: “because of a sense of the right of private power to do what it likes on and with its property”.

    From where I seat, that comes close to explaining why MMT finds objections from a moral perspective (as we all witnessed in the recent inter-MMT JG debate)

    This is the Crooked Timber post:
    Fuck me or you’re fired!

  13. @ Magpie

    This is certainly the case in the ongoing conflict between labor and capital, which shapes the behavior of labor in reaction to the behavior of capital. Labor can see that capital is after all it can extract, so they adopt a correspondingly ruthless attitude. This is why employers hate unions and seek to suppress the bargaining power of labor. It’s sheer exploitation and labor realizes it. The only way that capital gets away with it is through divide and conquer strategy coupled with massive propaganda, disinformation, and distraction in the media, as well as lobbying for favorable (anti-labor legislation), and either importing immigrant labor or off-shoring production, as well as enlisting conservative economists to justify neoliberalism as the natural order.

    Why wouldn’t labor respond in kind as it is able to? This is a fight to the finish, as Marx recognized, and it is a long way from over. Capitalism simply replaced feudalism and the composition of the oligarchy changed but the oligarchy remained in place.

    Oligarchy is based on privilege, and privilege is the enemy of democracy. Therefore neoliberal capitalism is the enemy of democracy, and since history has a liberal bias politically, neoliberal capitalism is eventually doomed for the dustbin of history, just like aristocracy by right of birth. The privilege of wealth is also passed on by birth not through heritage but through inheritance, which is why the wealthy hate inheritance taxes.

  14. Tom Hickey, legal tender laws are not sufficient for money to be accepted, people can and will refuse to deal with them if the right conditions spring up.

  15. Admittedly, when trust in money breaks down sufficiently, people will go to barter and demand only real goods and assets in exchange. That generally only happens either through war, a complete economic collapse, or a hyperinflation. But then not only money breaks down but also social order.

  16. @Tom,

    I agree. But there is a little subtlety that sometimes goes unnoticed when one discusses these matters: many individual bourgeois genuinely, truly, honestly believe that bullshit.

    I mean, it’s easy for them to believe that capitalism is a moral system.

    Consider extreme inequality, for instance. Imagine I am a gazillionaire. Now I hear that people get what they deserve (which is one of the rationalizations for inequality).

    But I get a lot, that’s why I’m a gazillionaire in the first place. Therefore, I must deserve a lot: somewhat I did something to earn what I get.

    You don’t get much? Man, you must be doing some seriously wrong things.

    Then someone else says that, as a matter of fact, it’s the poor who has more to win from my being a gazillionaire: I’m a job creator, or a philantropist, a role model!

    (That’s another of the rationalizations of inequality, and it’s close to what John Rawls said, for instance).

    Why, Tony Abbott (Australian opposition leader, for those not in the know) said exactly that a few days ago.

    So, now you see: I’m really a great bloke.

    Therefore, if you speak against inequality, you are the opposite of me: at best, you’re an ignorant fool, half-mental; at worst, an evil, evil, bastard.

    That’s how seductive this whole thing is.

    I can make money like crazy on the effort of my workers, defrauding the commonwealth of the people of Australia, not paying taxes for that, and bringing in foreign workers to squeeze them good.

    I also pay good money to have “experts” explain how good and moral and deserving I am.

    I just need to believe it.

    Man, I’m such a moral guy.

  17. Good point, Magpie. Human capacity for self-delusion is immense. When it comes to inequality and the wealthy, toss in self-serving religious notions and the result can be prosperity theology, exceptionalism, etc.

    Trixie: Do you have the link? 🙂

  18. Why yes Peter, why yes I do:


    (Whistles innocently)

    Good news? I was going to decorate! Because, when you’re ready to tweet, we can’t have you roaming around Twandy Land with the default cloud background and the ‘faceless pawn’ profile pic.

    Bad news? I’ve already forgotten the password for the twitter account AND the gmail I created and attached to it.

    Result? Clouds and a ‘faceless egg’ following Charlie Sheen.


  19. Thanks PeterC

    I am going to post two links to a subject where morality and inequality are an issue: the sale of organs for transplant.

    The first article makes a very compelling case on how the currently existing system of kidney donations operates poorly.

    Then, it considers a barter solution (my voluntary donor agrees to donate her kidney (good, but unsuitable to me) to you, in exchange for the, to me, suitable kidney of your voluntary donor).

    The barter solution, however, is insufficient to solve the problem entirely.

    From here, it jumps to the market solution: either directly (I need a kidney, I’ll pay you for one of yours) or through a government intervention (the government buys the kidney, and saves money in dialysis).

    It doesn’t consider any other alternatives (one is to make donations the default, with an opt-out option) and doesn’t really consider any objections, although some are mentioned.

    This is the article: Virginia Postrel (July, 2009). “…With Functioning Kidneys for All”. The Atlantic Magazine.

    To avoid problems with the blog software, I’ll post the second link in the comment just under this one.

  20. The second article (Martin Beckford (August 2, 2011). “Students Could Pay Off Debts by Donating Kidneys, Says Academic”. The Telegraph/UK, link at the bottom) considers one such market solution actually proposed.

    Note that the title is misleading: the idea is not to “donate” (i.e. to “give away for free”), but to sell one’s kidney and it even advances a figure: 28K pounds.

    Regardless, in libertarian/free marketeer terms, the idea is that we have a win-win situation: people genuinely in need of kidneys get what they need, people genuinely in need for money, get what they need. And, as people engage in this exchange voluntarily, then we must assume everyone wins.

    Quite clear cut, in Beckford’s view (perhaps in Postrel’s one, too).

    Let’s consider the context of the proposal: British PM David Cameron’s austerity budget included university fees hikes. Students who could not cover those hikes through savings or extra incomes, and went into debt to keep on studying.

    One could argue, following libertarian lines, that those students had a verbal contract with their universities. The contract was breached by the universities and, through coercion, higher fees were forced upon the students. And this is what creates the need for extra money.

    Incidentally, note here that no libertarian that I know of ever argued this way and in general they seem happy with Cameron’s budget.

    It is in this context that the market provides a solution to the students’ Cameron-created debt problem.

    I could cite arguments against the market solution (for one, it could expand the already existing black market for organs, see China references in the previous link), but I think you guys already have enough with this.

    One last observation: Marx spoke of this in a different context. I am referring to original accumulation (which was mentioned, I think, by one of the leading young MMTers during the JG controversies).

    Marx also spoke of the tendency to commodify (i.e. to turn things into goods and services for market consumption).

    This is the link: http://www.telegraph.co.uk/health/healthnews/8677153/Students-could-pay-off-debts-by-donating-kidneys-says-academic.html

  21. Around the world there are still babies dying in pain, children labouring and sold as brides, women sold into prostitution and maltreated, workers being exploited, human organs harvested, ‘blood diamonds’ dug from the soil, the utter obliteration of landscapes in war – the blight of the darker side of the financial sector; misery and suffering in so many different ways it is hard for me to imagine how one species inflicts so much pain on its own kind – human beings:

    “… without love,
    without understanding
    logic is useless”
    [Prem Rawat]

    This is the power and grace of death: it draws a line through human stupidity; composts and recycles the residue; and every day offers a chance anew to get it right!

  22. Hi peter – this is (as always) tangential to the topic. Still, I thought it might be a nice interlude; inspired by something I read recently from Aboriginal Art, Wally Caruana, Thames & Hudson, London 1993.

    The Dreaming
    The spiritual life of Aboriginal people centres on the Dreaming. The Dreaming is a European term used by Aborigines to describe the spiritual, natural and moral order of the cosmos. It relates to the period from the genesis of the universe to a time beyond living memory. The term does not refer to the state of dreams or unreality, but rather to a state of a reality beyond the mundane. The Dreaming focuses on the activities and epic deeds of the supernatural beings and creator ancestors such as the Rainbow Serpents, the Lightning Men, the Wagilag Sisters, the Tingari and Wandjina, who, in both human and non-human form, travelled across the unshaped world, creating everything in it and laying down the laws of social and religious behaviour. The Dreaming is not, however, merely a guide for living, and agent of social control, or simply a chronicle of creation, restricted in time to a definable past. The Dreaming provides the ideological framework by which human society retains a harmonious equilibrium with the universe – a charter and mandate that has been sanctified over time.

    Art and authority
    It is by the acquisition of knowledge, not material possessions, that one attains status in Aboriginal culture…

    … Traditional Aboriginal society is structured by a number of systems that organise all aspects of life and perceptions, and indeed, by which the universe is ordered.

    There is, by effect, a visceral loss derivative to our Western culture here.

    We too have our modern patterns; our structured systems – but none of them have the longevity and reflection of a “spiritual, natural or moral order of cosmos”, distilled over 60,000 years + of living intimately and affectionately with a wide brown land. Nor do our systems prize “knowledge … (over) … material possessions” in the same sense.

    Could our aboriginal brothers have felt something, known something, assimilated something REAL – which we are ignoring?

    In their Dreaming, their human spirit, in connection with personified and deified supernatural and celestial beings, (hence energies extant in the wider cosmos, and natural and moral order) shape the land (similarly the great Devas of the East).

    The Dreaming is recognised as more real than the mundane world and one’s social position is mundanely accorded, (human beings love hierarchies) in respect to one’s assimilation of these energies; descended to influence all who are receptive – far below.

    For the West, this 60,000 year old environmental and cultural assimilation is known as ‘primitive religion’.

    The greater loss to the West (I am thinking) is not in the discarded personification and deification of spiritual, natural, and moral energies – but in the loss of their being actually felt, consciously embraced and appropriated as Reality, in every human heart.

    For me, the human spirit in the West is like a wounded swan, dispossessed of the knowledge and the techniques to soar in wonder, to celebrate the Universal Ocean of which it is a part. And I have seen how it longs to soar; and how it still possesses the power to easily recognise – when freed from its earthly bonds and conditioning – to once again fly high and ‘feel’. There is no university on this earth for ‘feeling’.

    Instead, people think that thinking is everything and that feeling is somehow a sign of weakness (not strength); or secondary, inferior or imprecise: nowhere is the human power of feeling celebrated as the greatest of our powers, the divine Gift, and the key to unlocking the heart to the energy that created us. Instead we get endless documentaries about the human ‘brain’.

    Maybe the monkeys descended from us, just to remind us how stupid we can be? Well! Look where 200,000 years of brain development has taken Homo sapiens.

    The human spirit is locked up in mind, in ego (the persona); in the mud of the earth and the mechanics of (e.g.) a monetary system. In the mundane. So, who is primitive? What is primitive?

    We need to understand Science as first of all a very detailed but contextual theory about the Universe in which we live; the rightful province of mind and intellect, not of feeling. Our best account of the material Universe, (subject to revision from the day we carved out the first stone axe and skinning flint): but boy does it get revised over the yugas, crores and millennia. Someone who wants to assign a genetic code as a complete explanation, to the feeling of wonder and awe that wells up from the heart, when confronted with the beauty of the galaxies and deep space, nay that universal energy which sub stands all, has never ever felt what the human spirit is capable of; has never ever seen how far aloft it may soar (even besting poor Icarus). Has never understood or unlocked the power of the human soul to feel, and to Know – through feeling.

    Or understood how the human spirit has always helped to condition and shape: “travelling across the unshaped world”. How the body and brain, the ever-changing genetic blue-print are just a vehicle. How the society is just a play, also a vehicle – conditioned by consciousness – no matter what the level of technology. How even the entire universe is ‘but a stage’.

    Where did I come from; who am I; what am I meant to be doing; what will happen to me when it’s time to go? That has not changed.

    When it is the dark, lost, the human spirit paralysed – blindly shapes suffering below. Its’ personas on earth run amok, like kites in the wind without tails or string – cut from the Reality of their truth, their Dreaming. Ego becomes important, mind becomes everything; the Universe becomes a purely material place, shut out from the Light. The little clay doll hypnotised by its theories, dances on the face of this earth, afraid of its own existence; nowhere is there Peace – Life an enigma! In Ignorance, ignoring – the place inside of its own heart where the spiritual, natural and moral universe devolves.

    Listening to my aboriginal brothers, I think they are right! I think they accept Western technological prowess, but see just as clearly what is missing from the Western psyche. All of the monetary systems in the world are not worth a penny without the power to live and touch the human spirit, the human heart; the soul’s ability to feel and feel and feel deeper and deeper until it beholds the Divine, and the great privilege of the human mind to comprehend just a tiny tiny little portion of the Greatest Dream!

    After 200,000 years Homo sapiens (and perhaps you have wandered through ‘the worlds’ for far longer than that if the old stories turn out to be true), please tell me – what is Reality?

    What is your Reality …..?

  23. Peter, THERE you are. And here I’ve been sending you all these super important tweets to your new fancy account. To no response. It’s not unlike talking to a wall. Or to myself. At least try to be a gentleman?

  24. I was hoping this twitter thing would just turn out to be a fad. Already I’ve had to grapple with rudimentary blogging. Now this!

  25. “Now this!”

    Man down, man down!

    Look Peter, I’m not happy about this either. It’s 2012 (at least where I live), and I’m supposed to have a rocket jetpack strapped to my back. Instead we have Twitter. Just deal. And prove to the world how much you hate yourself by listening to half a conversation. Or how long it takes you to drag your hand down your face.

    Your torture chamber awaits.

  26. …. the silence between the notes defines, the way the strings are plucked or the reeds blown, turning sounds into music, beauty and form.

    Was wondering what you made of RWray’s latest NEP comments on the BIG peter? In the years ahead, will we still think of planet earth as a factory and people as a workforce?

    There were the Millennium ideals; most of which seem to have been shot down in favour of the utter stupidity of magnetically polarised HDD particles as real constraints?

  27. The positions on BiG and Job Guarantee appear to me to reflect the author’s desires not to be seen to be wrong.

    For a BiG to be as economically effective within the current economic system as the Job Guarantee all that needs to be shown is that there are sufficient voluntary positions of the right type available and sufficient people on BiG take up those positions so that private sector companies see those people as viable hires.

    That reduces the risk of hiring and strips out the cost in the same way as JG, That’s the economic effect.

    Beyond that its a political argument I think – all to do with the amount of emphasis on the whole protestant work ethic thing.

    I like the JiG. It has the right balance IMHO.

  28. Neil, I think you are right from a practical (systems) standpoint, but not in (economic) principle so to speak. The (economic) principle involves involuntary employment and the JG guarantees everyone willing and able to work a job offer at the floor wage. This means that “involuntary” UE is impossible by definition.

    I don’t see that a BIG can make that claim, which the MMT economists regard as essential to their solution of the trifecta of production, employment and price stability.

  29. The (economic) principle involves involuntary employment and the JG guarantees everyone willing and able to work a job offer at the floor wage. This means that “involuntary” UE is impossible by definition.

    A bunch of voluntary positions within a BiG guarantees everybody willing and able to work a job. It’s largely the same thing (bearing in mind that there are variations in emphasis even amongst the MMT economists).

    The economic effect of the JG is reducing hiring risk to the other sectors – people who are ‘out of private sector work’ are seen to be able to work. At the low end that is the risk reduction cost that is eliminated.

    You could possibly get the same economic effect from a volunteer position buffer under a BiG.

    Under either system the requirement to make sure there are more positions than people is still there, but the emphasis of the schemes is different.

    I see all these schemes as on a continuum with just a varying degree of ‘compulsion’ and ‘encouragement’.

  30. I would start with a human being.

    What is the purpose of a human being?

    We know that over the last 200,000 years, Homo sapiens have been assigned many purposes by others. And these assigned purposes have been given ‘meaning’; which maybe we believe.

    And that from birth to death, most of our precious time is ‘spent’ in some way, chasing these (the rat-race)!!

    Is this our sovereign reality?

  31. Oh no, I won’t go easy on Peter. It USED to be that whenever I thought about Australians, crooks merely came to mind. But now it’s smog monsters. Sharks surround your continent so you can’t leave. And the rest of us can’t get in because that would require a time portal. And a special jumpsuit. Now it all makes sense. Especially the highly encrypted URL (and may I add, really confusing) links that defy the space-time continuum.

    Over the last few weeks, I’ve gathered enough of the missing puzzle pieces to assembly just a glimpse into what your reality must look like. (That’s my superpower). And it ain’t pretty:

    [EDIT: Link no longer seems to exist.]

  32. Not to mention our ‘white Australia policy’ (the boats are smaller these days) and broken-spirited indigenous population: we have the most poisonous snakes; we binge drink and annoy our neighbours; keep yappy dogs; swim in rips and swollen rivers; wear short pants and applaud atrocious rock musicians – and the whole continent is surrounded by sharks – its native grasses nearly wiped out too. Our next leader looks like Big-Ears, thinks like Noddy and loves carbon. We don’t know how to share water! Our ancestors arrived on boats as convicts. We haven’t got a clue what is happening outside of our borders.


    Alive and well! (Go easy on peterc – I think he is very sensitive, tidy, and practices acceptable waste disposal)!!

    Somebody once nominated Bill Mitchell as a national treasure (like Ayers Rock).

  33. And the evidence continues to POUR in (~4:03 mark):


    “The kids – they always talk about the US. ‘I wish I could go to the US one day’. I’ve never heard someone say, ‘I wish I could go to Australia’.”

    That’s because you CAN’T get there from here! People are starting to figure it out. In which the “reality” for Australia will be exposed for what it is:


    That’s the bottom-line here folks. Mmhmm. Yeah. And my job here is done.


  34. “The kids – they always talk about the US. ‘I wish I could go to the US one day’ …”

    So true.

  35. I know. Sorry about that.

    At the moment, attempting further posts would just result in repeating myself. There is still much to explore, but I need to read and think some more first.

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