Randy Wray, Modern Money, and Jobs for All
LIBERTY AND JUSTICE FOR ALL
Episode 9 October 15, 2026
Egberto Willies: Welcome to Liberty and Justice for All, right here on KPFT 90.1 FM Houston and the Pacifica Network. I’m Egberto Willies, joined by my co-host, Dr. Michael Merrill. Today, we dismantle conventional economic orthodoxy.
Joining us is leading economist and scholar L. Randall Wray, a pioneer of Modern Monetary Theory and the author of A Great Leap Forward: Heterodox Economic Policy for the 21st Century. We’re digging into how sovereign currency actually works, debunking the national debt hysteria, and exploring what it truly takes to build an economy centered on human dignity.
Randy, welcome to Liberty and Justice for All. I’ll pass this on to Dr. Merrill to continue with the topics he really wants to dig into.
Michael Merrill: Well, yes. It’s a pleasure to see you and get a chance to talk with you, Randy. You don’t mind if I use “Randy”?
L. Randall Wray: Not at all.
Michael Merrill: Feel free to call me Mike as well. I taught Modern Monetary Theory to industrial relations students at Rutgers about ten years ago, and I was pleased to see the light bulbs go off in most of their heads. There were a few who never seemed to find the switch, but only a couple. What they found so liberating was the realization that they weren’t operating under the constraints they’d always been told they faced, and that other possibilities actually existed.
The way I see this conversation going is, first, I’d like you to give us your version of Modern Monetary Theory. It doesn’t have to be an elevator speech, but maybe a short version of MMT and your own contributions to it. Then, I’d like to explore two implications of MMT that astonish most people.
The first is that it is actually possible for us to afford anything useful that we want to do. Financial constraints are the least of our problems. In fact, they’re not really a problem at all, even though we’re constantly told they’re the main reason we can’t do reasonable things.
L. Randall Wray: All the time.
Michael Merrill: The second is related but distinct: why unemployment can be abolished, why it should not exist, and why it is such a scourge. If we work to get rid of diseases like diphtheria and cholera, why don’t we work to get rid of unemployment? It probably kills as many people, whether through despair or other consequences.
Those are the two themes I’d like to explore. I see them as complementary, though they emphasize different things. I don’t think we need to get too deep into the technical weeds about money and finance, but I don’t want us to shy away from those details if they’re important or essential.
So, that’s my outline. Why don’t you start by telling us a little about yourself and what you think are the most important things for us to know?
L. Randall Wray: Okay. A really quick history of how I got here also helps explain the main ideas behind MMT.
I didn’t plan to be an economist. I was trained to be an elementary school teacher, so I studied psychology and child psychology. I actually studied no economics at all. I graduated during Nixon’s recession, which evolved into the stagflation era. It was a terrible economy, and I couldn’t get a job. There was also a glut of teachers, which is unusual, but that happened in the 1970s. I ended up getting employed through CETA, the Comprehensive Employment and Training Act, which was a form of job guarantee that we can talk about later. I worked in county government.
Michael Merrill: Which county? Where were you working?
L. Randall Wray: Sacramento County, in California. Sacramento is the capital of California and I ended up in the Engineering Department of Public Works. I’d only had one math class in college, and it was math for elementary school teachers.
My job interview went like this. The guy asked, “Can you do math?” I said, “Yes, I’m very good at math.” Which was actually true. I had been good at math in high school. Then he asked, “Can you write?” I said, “Yes, I’m a good writer.” And he said, “Okay, you’re hired.”
As the federal government was paying my salary in a way he had nothing to lose. And so I learned how to write specifications for garbage trucks. More importantly, I helped formulate what I think was only the second curbside recycling program in the United States. At the time, the idea of putting your recycling out at the curb was very new. Then, after that, I went to work for the Energy Commission.
The way I got into economics was that I had a lot of student loans, and to defer repayment I needed to be enrolled at least half-time. I actually ended up spending seventeen years in college. I asked my boss if I could take courses related to my job because they would cover the fees, which were very low since it was a state school. He said, “Try economics.” That’s how I got into it.
I always remembered the high unemployment of that era and the government’s offer of a paid public-sector job. That experience stayed with me.
I started studying economics at Sacramento State and was encouraged to pursue a PhD, something I’d never planned to do. Eventually I ended up at Washington University in St. Louis, studying with Hyman Minsky, who I believe was the greatest economist of the second half of the twentieth century, and certainly the greatest American economist. He got me interested in money and finance.
Michael Merrill: Can I interrupt for a minute? Just so people understand what you’re saying. I understand you to say, “Paul Samuelson was okay, but Hyman Minsky was better. Anybody you’ve heard of, any economist from a textbook you may have read in college or high school, those people may be fine, but Hyman Minsky was better.”
L. Randall Wray: I’d be more critical than that, but “Yes.” Minsky went to school with many of those early Nobel Prize winners. He dismissed them as members of the king’s court. In his view, all they did was tell the king what he wanted to hear. They were apologists. That was his perspective. They developed mainstream economics, which helps explain why we have chronic unemployment and why the Federal Reserve raises interest rates as we head into recessions.
Michael Merrill: They’re the ones telling the emperor he was wearing fancy clothes.
L. Randall Wray: Exactly. They’re the reason for much of this.
Anyway, I became interested in those questions. The first area I worked on was called endogenous money theory, which was a very new idea at the time. The textbooks, including Samuelson’s and many others, told a story about how money is created in which banks are simply intermediaries. They take in people’s money savings and lend those savings out. According to that view, banks are constrained [the amount of money banks can lend is constrained] by the amount of savings deposited with them and by the reserves supplied by the central bank through reserve requirements.
At the time, it was the dominant view. But it is all false. What endogenous money theory says, and what Hyman Minsky was teaching, was that banks first evaluate a borrower’s creditworthiness. If they decide you’re a good risk, they create the money and make the loan. [They don’t need to have money on deposit to lend money to borrowers. If a potential borrower is a good risk, banks can simply create a credit line for them—i.e., create money for them to use.]
Michael Merrill: I need to interrupt one more time. I would like us to put Modern Monetary Theory, heterodox economics, Minsky, and all of that, into a black box for a moment. We can come back to it later. But most of our audience aren’t economists. They’re people who care about the world and would like to see a better one. So, I’d like to ask you to jump ahead for a moment and focus first on solutions. Later, we can explain why these solutions are feasible. But for now, I’d like to focus first on solutions.
So, there’s a lot of talk right now about affordability, about how people can’t afford things, how wages aren’t enough, and of course there’s unemployment. What should we be doing to make things affordable? What should we be doing to abolish unemployment? Let’s talk a little about the solutions first, and then we can help people understand why those solutions are possible.
If you were suddenly put in charge, what would you do to fix our problems? Then we can come back and examine the reasoning behind it.
Egberto Willies: Yes, what would you do?
L. Randall Wray: Well, the problem we face, and have faced for decades, is the belief that the government is financially constrained. There’s a great deal of discussion right now about the $40 trillion national debt. The argument is that because of this debt, the government can’t afford to provide decent jobs, decent health care, or a good, free college education. The claim is that the government simply can’t afford these things.
Michael Merrill: But we can afford Patriot missiles.
L. Randall Wray: Exactly! The conventional story is that government is financially constrained and therefore must prioritize. The priority of this administration, as well as Democratic and Republican administrations before it, is what they call national defense.
Of course, I would argue that they’re not defending us from genuine threats but from threats they’ve largely imagined or exaggerated. Still, the story goes like this: the government is funded by taxpayers [in the same way that banks get their funds from depositors], so it has to decide how to spend taxpayers’ money.
The three major spending categories are defense spending, Social Security (which has long been considered politically untouchable), and interest payments on government debt. Those are the top priorities of our elected representatives and policymakers.
We’re also told that we’ve spent so much on these priorities that we cannot afford a national health care system like those found in other developed capitalist countries, and some conservatives even attack Social Security, arguing that we can’t afford it. That’s the framework they’re operating within.
Michael Merrill: Why can we afford these things?
L. Randall Wray: There are two institutions in society that can create money. And in effect they create it out of thin air because, in reality, money is largely just entries in someone’s deposit account. Money is created when an institution [bank or government] credits someone’s account.
If you go to a bank and say, “I want to buy a new car,” and the bank determines that you’re creditworthy, the way it makes the loan is by crediting a deposit account. Now, they’re usually not going to deposit the money directly into your account because they want to ensure it gets used to buy the car. So, they credit the car dealer’s bank account.
But that’s what the loan is. The loan consists of crediting the dealer’s account. The dealer now has a positive balance in a checking account, and you owe the bank money. Over the next several years, you’ll repay that loan. It used to be common to have four-year car loans; now seven years is not unusual. Every month, you make a payment, perhaps $700, to pay down the debt. Where did the money come from? The bank created it when it made the loan.
Banks, then, are one type of institution that can create money. The other institution that can do it is the federal government. [Actually, any government with taxing authority can create money, but the Constitution explicitly denies to state governments the power to “coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts,” which they could otherwise do.]
Those are the two institutions in our economy that create money. Banks create money for the non-government sector, for households, businesses, and investors. They create money when they make loans. And the federal government creates money. Whenever it makes a payment, money is created. I’m on Social Security, and maybe you are too. Every month I watch my bank account online, and suddenly there it is, the deposit has arrived.
Where did it come from? It’s a keystroke. That’s what it is. A keystroke that makes a credit appear in my checking account.
Michael Merrill: Let me put on a skeptic’s hat for a moment, because I’m sure some listeners think this sounds too good to be true. One way of hearing what you’re saying is that there are no limits to how much money a bank can lend and no limits to how much money the federal government can create. Are there limits? If so, what are they?
L. Randall Wray: Yes, there are limits. But the limits are not physical. The limits are the rules by which banks [and governments] have to operate. We wouldn’t want banks operating without rules. Occasionally they do, and occasionally they engage in fraud.
Michael Merrill: Yes, we’ve seen that.
L. Randall Wray: That’s why we had a global financial crisis. Banks weren’t following the rules. They were lending to fraudsters. That does happen, but we try to minimize it.
One of the key rules is that banks are supposed to determine whether you’re a creditworthy borrower. If you claim to have income, they’re supposed to verify it. Do you really have a job? Do you really earn what you say you earn? What’s your credit history? How often have you defaulted on loans before?
Those things are important because the bank wants a very high probability of repayment. A bank can usually survive if only about 2% of its loans go bad. If the percentage climbs much higher than that, the bank starts getting into trouble. That means banks have to be very good at evaluating risk.
Michael Merrill: Let me see if I understand.
What you’re saying is that if a bank makes too many bad loans, eventually the bad loans overwhelm the good ones. At that point, the bank loses its ability to continue creating money effectively. So that’s a real limit on a bank’s power to create money out of thin air. Is that a fair way to put it?
L. Randall Wray: Yes, that’s right. There are market forces at work because shareholders become concerned if a bank isn’t earning profits. At the same time, government regulators and supervisors review the bank’s books to make sure it’s not misleading anyone. Sometimes regulators don’t do a very good job. Hopefully, most of the time they do. But the point is that the limits on banks are the rules we impose on them.
[But not all bad loans are based on fraud. Some are based on the failure to accurately predict the future. The role of fraud should not be overstated. It is there. But it is not the only factor. There is more on this below.]
Now, what about the federal government? It has rules there, too. One of the most important is that Congress is supposed to control the power of the purse. Congress decides how much the government spends and on what programs through budget legislation. Congress also passes tax laws. So, in principle, it is Congress that decides how much the government spends and how much revenue it collects.
Some forms of spending are tied to economic performance. During a recession, welfare spending rises. Unemployment compensation rises. Food assistance spending rises. The laws specify who qualifies for those programs and how much support they receive, but the spending automatically increases when the economy weakens and falls when the economy expands.
The same thing happens on the tax side. Income tax rates may remain unchanged, but tax revenue rises when the economy is strong and falls when the economy is weak because people’s incomes change. In other words, Congress establishes the rules that determine when taxes are paid, how much is paid, what spending occurs, and under what circumstances.
At least, that’s how it’s traditionally worked. Then President Trump came in with the DOGE team, and everyone knows that story. They began slashing spending, firing workers, and making broad cuts. Someday we’ll sort all of that out.
Egberto Willies: Professor Wray, let me jump in for a second.
One reason I’ve stayed quiet is that, listening to you and listening to Professor Merrill’s questions, what I keep seeing is an economic system built around institutionalized fraud. Everything you’ve described works within the economic system we have today. However, if a recession occurs, nothing physical in society actually changes. The factories are still there. The trees are still growing. The means of production still exist. The problem seems to be money.
The problem is the way we organize the exchange of goods and services. It’s a human-made structure, and that structure is where the dysfunction appears. The productive capacity remains, but the interaction between all those productive resources breaks down. We constantly try to solve problems within what I would call a fictional, even fraudulent, framework.
One thing I hope to understand, and I’ve asked similar questions of people like Stephanie Kelton, is this: How do we get out of that system? Take 2008 as an example. The economy froze because Insurance Company A insured B, B insured C, and C insured A. In software development, we’d call that a “deadly embrace.”
L. Randall Wray: That’s a good term for it.
Egberto Willies: Yet we got out of it, as you said, by making ledger entries. So how do we create a system where those ledger entries prevent us from ending up in that situation in the first place? And, relating this to what you advocate, how do we ensure permanent employment? How do we make sure that wherever unemployment appears, we address it in a systematic and regulated fashion?
L. Randall Wray: Well, we live in a capitalist system and sometimes it works well. If we look at the period from the end of World War II through the early 1970s, capitalism worked reasonably well in the United States, where real living standards grew fairly rapidly. The same was true in Europe, which had to recover from the devastation of the war but did recover. It was also a strong period for much of the developing world. Those countries didn’t catch up to the wealthiest nations, but conditions were improving. That particular period of capitalism performed quite well.
We can look back and ask: What was the framework that made it work? The answer is that it was heavily regulated. The economy operated under many of the New Deal regulations put in place by Franklin Roosevelt. Government had also become much larger.
At the start of the Great Depression, the federal government amounted to roughly 3% of the economy. Economists measure the economy through GDP, which represents total national output and income. A federal government equal to 3% of GDP was tiny. Roosevelt began expanding the role of government, and World War II expanded it even further through military mobilization. By the postwar era, the federal government accounted for roughly 20% to 25% of GDP, and it has remained in that range ever since.
What emerged was a large federal government along with strong regulation, particularly of the financial sector. We imposed strict rules on banks because they had engaged in many of the fraudulent activities you’re talking about. We reined them in. We closed many of them. In effect, we said: “You’ve been too fraudulent. You will not reopen.” Those are the kinds of measures that were taken. And they worked for an entire generation.
Egberto Willies: Dr. Wray, let me interrupt for just a second, because I think you may have named the issue, and tell me where I’m wrong if I’ve misunderstood. I’ve spoken with Dr. Robert Reich and others, and what I find is that there’s this magical word most American economists never seem to move beyond: capitalism.
You said Roosevelt came in with heavy regulation, and then you talked about how well things went after World War II. Correct me if I’m wrong, but after World War II there was enormous government spending to rebuild Europe. In the process, a great deal of value was extracted from what we would now call developing nations: countries in Africa, the Caribbean, Central America, South America, and parts of the Mediterranean world.
Yes, living standards improved for many people in those regions because the industrialized countries were buying huge amounts of raw materials from them. But ultimately, it was still a system of extraction. The extractors, America and Europe, flourished. But those who supplied the raw materials without adding value ended up exactly where we’d expect them to be today.
L. Randall Wray: Well, saying that developing countries performed well economically doesn’t necessarily mean they were on a path toward becoming fully developed countries. That’s absolutely true. And I wouldn’t say it happened by accident. I think barriers were put in place to ensure that those countries would not become fully competitive with the rich countries. I think that’s a fair observation.
Of course, there is one country that developed very slowly for a long time and then experienced an extraordinary acceleration in growth and you know which country I’m talking about.
Egberto Willies: Mm-hmm.
L. Randall Wray: China. China is an example of a country that developed and became highly competitive. In many areas, it’s now ahead of the United States.
Michael Merrill: I’d like to push back a little on both of you, if I can.
Egberto Willies: Why does that not surprise me?
Michael Merrill: First, I think of myself as a labor guy as much as anything else. I’ve spent my career working with trade unionists, both officially and unofficially. If someone tells me the only way I can get a better deal is to regulate my boss and trust regulators to protect me, my answer is no. I want real power. And I don’t mean power from the barrel of a gun. I mean the power to create conditions that employers have to respond to.
The key question for me is: what is the countervailing power? In the 1930s and 1940s, labor unions served as that countervailing power as they grew rapidly. But eventually the economy diversified around them, and globalization was, in many ways, a way of weakening organized labor and reducing its influence.
That’s my first point.
Egberto Willies: Co-host, let me just say I’m with you 100 percent on that.
Michael Merrill: Good. My second point is directed toward you, Egberto. I don’t think fraud and extraction alone are sufficient explanations for the world’s prosperity. I don’t think economic development is simply a zero-sum game where some people lose and others take everything. I think there’s also a positive-sum element in which people innovate, work harder, develop new skills, and create new opportunities.
One country that hasn’t been mentioned yet is Brazil. I think Brazil deserves to be recognized as a development success story in many respects. There have been successes in the developing world as well as failures. If we explain everything as fraud and extraction, we risk overlooking the hard work, ingenuity, and achievements of people outside the United States and Europe. They have made real advances. We haven’t always made it easy for them, certainly, but they have made advances, nonetheless.
And one final point. When you jumped in earlier, Egberto, I wanted Randy to address another thing directly. He implied that the $40 trillion national debt is not a major concern. But just as there are limits to how much money a bank can create through lending, I would argue there are limits to how much money the federal government can create before problems emerge.
Maybe those limits show up as inflation. Maybe they show up as hyperinflation. Whatever form they take, if the value of a currency collapses, that’s a serious problem. History shows that can happen and I don’t want us to lose sight of the fact that we’re talking about real-world processes with real constraints.
The goal is to create institutions that encourage people to do the right thing, not because they’re morally superior, but because it’s in their best interest to do so. But there are limits.
Egberto Willies: Before Dr. Wray answers, let me add one thing I’d like him to address. The reason I use the word extraction is simple. If I give you crude oil and you turn it into gasoline, diesel, and jet fuel, and then both of us consume those finished products, I’m permanently at a disadvantage. I’m supplying the raw material while you’re capturing the value added through processing and manufacturing.
That’s not a question of whether people work hard. That’s simply mathematics. But go ahead, Dr. Wray.
L. Randall Wray: Okay. Fair enough. One of Franklin Roosevelt’s reforms was to reverse the federal government’s longstanding hostility toward labor unions. Before the New Deal, the government was extremely hostile to organized labor. I completely agree that part of the strong economic performance during that era came from bringing labor unions to the table. At one point, roughly a third of the workforce was unionized.
Workers had real bargaining power, which helped shift the distribution of income toward wages. And it wasn’t just good because it allowed households to buy homes and improve their living standards. It was also good for the economy as a whole. Shifting a larger share of national income to workers strengthens economic demand. In the 1920s, income had become increasingly concentrated among wealthy people, many of whom were speculating in financial markets.
That’s where we are again today. We’re back to levels of income inequality similar to those that existed on the eve of the Great Depression. That’s one reason I believe we’re in a very dangerous situation. But it’s not government debt that’s causing the problem.
Let me address that point directly. What is the limit on the government’s ability to spend? The most obvious limit is resources. The government ultimately spends money on real things. Real labor. Real materials. Real productive capacity.
Take World War II as an example. The United States deliberately shifted productive capacity away from consumer goods and toward military production. No automobiles were produced for civilian use during much of the war. Factories that had produced consumer goods were converted to military production. If you wanted to buy a new car, there wasn’t one available. There were no new tires going to the civilian sector either. People had to make do with what they already had because those resources were needed for the war effort.
Also, the economy was planned during World War II. The government made sure production was coordinated in a way that prevented runaway inflation. In fact, inflation remained remarkably low. There was one year in which inflation reached about 10 percent, but generally speaking, World War II was the first major war in which the United States avoided severe wartime inflation. We learned some lessons from World War I. Although the United States was less heavily involved than Britain, Britain experienced very high inflation during and after that conflict. In World War II, economic planners carefully managed production and resource allocation to prevent inflationary pressures.
So can $40 trillion in federal debt, by itself, cause hyperinflation in the United States? No. In my view, there is essentially zero chance of that happening. In fact, there is no example of a modern democratic country moving from low inflation to double-digit inflation, then to triple-digit inflation, and finally into hyperinflation simply as a result of government debt accumulation.
Michael Merrill: Please explain for our audience what hyperinflation is, as opposed to ordinary inflation? It’s not just a higher inflation rate. Explain what it means.
L. Randall Wray: Sure. A classic example is the Weimar Republic in Germany. In a hyperinflationary environment, workers may demand to be paid twice a day. They get paid at lunchtime, run out and buy groceries immediately, return to work, get paid again at the end of the day, and rush out to spend that money too because prices may have risen before the day is over.
The conventional definition of hyperinflation is somewhat arbitrary, but it’s usually defined as inflation exceeding 50 percent per month. If you compound that monthly, you’re talking about annual inflation rates in the thousands of percent.
Historically, hyperinflation has occurred only alongside complete political collapse, civil breakdown, or the aftermath of losing a major war. The losers of World War II experienced hyperinflation. Germany, the principal loser of World War I, experienced hyperinflation. The lesson is: don’t lose a world war.
[Also, don’t experience “complete political collapse” or “civil breakdown.” Hyperinflation is not properly an economic problem. It is a political problem. It occurs when the sovereign authority issuing a nation’s currency becomes illegitimate—the political equivalent of economic bankruptcy—and the value of the currency it issues goes into free fall, becomes worth nothing but worthless keystroke or piece of paper.]
Otherwise, you can still have inflation. In the United States, inflation has approached 10 percent at times, but it eventually came back down. Some countries experience much higher inflation because of exchange-rate crises. But countries that issue major international currencies generally don’t face those kinds of exchange-rate problems. Inflation rates of 50 percent or 60 percent simply don’t occur under normal conditions in countries like the United States. That’s not something we need to worry about.
So, what is the actual limit on federal government spending? Again, the first limit is resources. If the government tries to buy too many resources, it begins competing with the private sector for labor, materials, and productive capacity. That competition can drive prices upward, but it can also prevent private businesses from obtaining the resources they need.
Then shortages begin to appear. Shortages are particularly harmful because they make people angry and disrupt everyday life. The supply-chain disruptions during COVID are a good example of what happens when demand runs ahead of available supplies. That’s the real issue. The problem isn’t how much money exists.
Michael Merrill: Let me ask about that in the context of today’s news. Rising interest rates and falling bond prices have been in the headlines. Are those developments signaling concern about resource shortages, or are they unrelated?
L. Randall Wray: No, they’re unrelated. Financial markets are worried that the Federal Reserve will continue raising interest rates. If you buy a bond today that yields 5 percent, you don’t want to be holding it if the Fed raises rates and new bonds begin paying 6 percent. At that point, the market value of your bond falls. If you need to sell it, you’ll probably receive less than you paid for it.
Egberto Willies: Bond prices and interest rates move inversely.
L. Randall Wray: Exactly. And markets suspect, probably correctly, that once the Fed starts raising rates, it tends to continue doing so over a period of years. Historically, rate increases often unfold over two years or more.
Michael Merrill: So, are you saying Donald Trump is right when he says the Fed should lower rates?
L. Randall Wray: Yes. I don’t necessarily agree with how he arrives at that conclusion, assuming he’s thought about it in those terms, but yes, I believe rates should be lower.
Michael Merrill: So regardless of his reasoning, you agree with the conclusion?
L. Randall Wray: Right. Lower rates.
Egberto Willies: Dr. Wray, first of all, thank you for saying that. I’ve been waiting for somebody with the courage to come right out and say it.
Now here’s the other thing that drives me crazy. You just said that inflation emerges when there are shortages or a lack of resources. Michael, my partner in crime over there, doesn’t like it when I describe a lot of what happens in our economy as fraud, manipulation, or wrongdoing. But here’s why I use those words.
There are very few things that we truly have shortages of in today’s economy. I’d argue that gasoline shouldn’t cost four dollars a gallon. Diesel shouldn’t cost seven dollars a gallon. Many of the prices we’re paying today aren’t based on genuine scarcity. As a former engineer in the oil industry, I can tell you that we almost never experienced actual oil shortages. What we experienced were manufactured shortages used to manipulate prices.
And I think we see versions of that throughout much of a capitalist economy that claims to allocate resources efficiently. I think its claim of efficiency is demonstrably false.
L. Randall Wray: I half agree with you.
Yes, the United States became a net exporter of oil. One could argue that if we’re exporting oil, then we can’t really claim we’re running out. We could simply reduce exports and have more than enough for domestic consumption. But we allow oil prices to be set in international markets.
Egberto Willies: True.
L. Randall Wray: Maybe you could call that a kind of distortion. But the fact is that major commodities are priced globally. As a result, even if we have all the oil we need domestically, prices will generally follow international market prices.
And there’s a second point that relates to current events and the conflict involving Iran. What we’re actually short of in some cases are refined petroleum products and other derivatives.
Egberto Willies: Right.
L. Randall Wray: We can’t instantly increase production of those products. As a result, someone driving a gasoline-powered car may face difficulties obtaining certain products or services, such as motor oil, for some period of time. There can be shortages of derivative products even when crude oil itself isn’t scarce.
As for the earlier oil shocks associated with OPEC, you’re right. Those crises weren’t caused by the world running out of oil. They occurred because access to oil supplies was restricted. We were effectively cut off from portions of the supply.
Michael Merrill: Since we only have about twelve minutes left, I’d like to turn the conversation in a slightly different direction. It may seem a little more theoretical, but I think it’s directly relevant.
When I push back on Egberto’s use of the word fraud, what I’m really thinking about is the way money functions within the economy. I’m a historian, and much of my work focuses on how the American economy functioned before the rise of deposit banking and modern currency and by my estimate what I call the credit or gift economy accounted for roughly 80 percent of US economic activity in 1800. In other words, most exchanges occurred outside what we would think of as a money economy.
Before around 1800, a reliable monetary system was developed, the real economy was constrained by the limited availability of usable money. Over the last 300 years, however, we’ve seen tremendous increases in output and productivity and a good part of that growth was due to the spread of the money economy itself.
Money is an extraordinarily useful social technology. It incentivizes people to work because they can see immediate rewards. They receive a paycheck instead of waiting for a complex chain of barter and reciprocal obligations. It also makes large-scale coordination possible. We don’t need to personally know everyone involved in a production chain. The monetary system allows millions of people to cooperate without direct relationships.
That said, it also has flaws. Its signals can be distorted. In that sense, I share some of Egberto’s concerns. The classic discussion of this comes from Karl Marx in his analysis of commodity fetishism in Capital. His argument is that there is no inherent relationship between a commodity’s exchange value and its use value. That disconnect is a fundamental weakness of a money economy and contributes to recurring economic crises.
So what interests me is this: How do we create an economy that still rewards productive effort, still provides incentives to work and innovate, but also guarantees that people’s basic needs are met and that they don’t have to suffer unemployment? That’s where I want to bring the conversation.
Randy, you and your colleagues have been among the most articulate advocates of a job guarantee. I think we’d all be better off if we could design an effective version of that. I’d like you to talk about it.
Egberto Willies: Mike, I think that’s the most important part of this discussion.
L. Randall Wray: Okay. Marx talked about capitalism’s tendency to expand into more and more areas of life. Historically, capitalism spread outward from Europe and North America, but today it exists virtually everywhere in the world. That includes China.
Michael Merrill: Capitalism with Chinese characteristics.
L. Randall Wray: Exactly. China may officially describe itself as communist, but there’s a great deal of capitalism operating there. Capitalism tends to take over more and more activities. When I was a kid, nobody paid someone else to mow their lawn. You mowed it yourself. Today, in my neighborhood, very few people mow their own lawns. And that’s just one small example of how market relationships expand into areas that were once outside the market system.
So, what should we do? I think we should reverse some of that trend. There are sectors of the economy that should not operate for profit. Education is one. Health care is another. Those should not be profit-driven industries.
My mentor, Hyman Minsky, used to say that we should socialize the commanding heights of the economy. By that he meant the most important sectors, and often the most technologically advanced sectors, because they naturally evolve toward monopoly.
Look at the internet. Look at airlines. Look at artificial intelligence. These industries tend toward concentration and monopoly power. In my view, they should not be left entirely to capitalism. They should be socialized to some degree.
That brings us to the job guarantee. I have no problem with the private sector creating jobs and pursuing profits. But we also need a public option. We need a publicly funded employment program available to anyone who wants to work. Those jobs should do useful things, offer decent wages, provide benefits, and contribute to society. And just as importantly, they should force the private sector to compete. If private employers want workers, they should have to offer something better than the public job guarantee provides.
I think those are the two broad answers. First, reduce the role of profit-driven markets in sectors where they don’t work well. Second, create a permanent public employment option so that no one who wants to work is left without a job.
Michael Merrill: I can’t help approaching this from my labor background.
What really interests me is not socializing the commanding heights, at least not in those terms. I want to empower the base. I think we spend too much time trying to figure out how to take control of the commanding heights of the economy when we should be trying to make them less important.
We need to give people the power to say no to bad deals. That’s the most effective way to limit the power of those who run the economy. If people can walk away, then real bargaining power exists.
Most people don’t actually spend their lives flying on airplanes. They live close to home. What they need is transportation close to home. The internet, on the other hand, is the road system of the twenty-first century. There absolutely should be a public internet. There should be open access to these platforms, or at least viable public alternatives that people are free to use.
In that sense, the Post Office is a useful example. It’s a public alternative to private package and mail delivery. People may try to undermine it, but it’s in the Constitution, and that makes it very difficult to eliminate.
This is one reason I like the idea of a job guarantee. But when I read proposals for it, what I keep asking myself is: how can we create a sector of the economy whose purpose is to maximize the well-being of workers? There can be a profit-maximizing sector. Let it compete and innovate.
But in a democracy, we should also be able to create a sector whose primary goal is maximizing wages, ensuring that everyone can live a decent life, in a place of their own choosing.
L. Randall Wray: Instead of talking about maximizing wages, I’d say the dollars themselves aren’t what matter. What matters is living standards.
Michael Merrill: Absolutely. Real wages. The goal is to maximize real living standards.
L. Randall Wray: Exactly. I would say the goal should be to maximize living standards, to provide the highest quality of life we can while remaining environmentally sustainable. And we should do that while dramatically reducing inequality, ideally eliminating as much inequality as possible. That should be the objective.
Michael Merrill: It seems to me that there are three central economic problems.
The first is availability. Do we actually have the resources needed to make things? That includes not just physical materials but also the labor, skills, and knowledge required to produce them.
Second is affordability. Even if we solve the problem of production and continue to encourage innovation and technological advancement, we still need a way to distribute the fruits of that labor fairly and ensure that everyone can achieve at least a minimum standard of living.
L. Randall Wray: Beautiful.
Michael Merrill: And third is sustainability. We may be able to provide prosperity for this generation, but are we doing it in a way that also works for future generations? Or are we simply extracting resources from the Earth and leaving little behind?
I don’t see a way of solving the availability problem without some kind of monetary economy.
At the same time, I don’t see a way to solve the affordability problem without creating meaningful institutional counterweights, systems that give ordinary people the power to push back against concentrations of wealth and power.
And then, beyond that, we need to figure out how to create a genuinely sustainable system.
Egberto Willies: We’re just about out of time, Dr. Merrill. What I’d like to hear now is a closing statement that ties together everything we’ve been talking about.
Michael Merrill: Actually, I’d rather let Randy close us out.
L. Randall Wray: Fair enough. I think my conclusion would be this: We’re not trying to get rid of a monetary economy. What we’re trying to do is make sure that the monetary economy works for all of us. We want it to reduce inequality, raise living standards, and help save the planet. The monetary system should be used to achieve those goals. And the problem cannot be a lack of money because a sovereign monetary system cannot simply run out of money.
Nor do I think the fundamental problem is a lack of physical resources. I believe there are ample resources available, and I believe we can stop the kinds of exploitation that are contributing to environmental and climate crises.
So, the core problem is not money. The problem is largely political. We need to solve the political problem. We need a political system that acts in the interests of the population as a whole rather than in the interests of plutocrats. That’s what I believe we need to do.
Michael Merrill: Liberty and justice for all!
Egberto Willies: You’ve been listening to economist L. Randall Wray on Liberty and Justice for All.
For Egberto Willies and Dr. Michael Merrill, keep challenging conventional economic myths, keep demanding that public money serve the public good, and stay tuned to KPFT 90.1 FM.
Dr. Wray, thank you so much for joining us on Liberty and Justice for All.
L. Randall Wray: Thank you. It was my pleasure.