Professor: L. Randall Wray      Co-Teacher Frankie Pircher

Fall 2007. Class Meets: Wed 5:30-8:15 pm, KBP 301* (Occasional 531 Seminars are held 7-8:15 in KBP Room 2)

Office Hours: Mon/Wed 1:30-3:30 pm, or by Appt.  Office: Manheim 202C, phone 235-5687 Best Way to Reach Me: email Note: do not leave a phone message!

Co-Teacher:  Frankie Pircher   Email:      Office:  Haag Hall 308       Office Hours:  Tuesday 11am – 1pm, or by Appt

TA for Econ 431/531: Yeva Nersisyan, Office Hrs Mon 10-12 am, Royall 410A, email

Course Description: An investigation of the financial aspects of the process of economic growth, with an emphasis on monetary theory and monetary policy. Institutional material will provide the backdrop for a discussion of the connection between prescriptions for monetary policy and monetary theories. The class will cover both orthodox and heterodox approaches to money. While the focus of the course will be primarily theoretical, we will also examine the evolution of money and banking.

Course Format: Lectures, with time for questions and answers.

Course Evaluation:      Undergrads (431): Exam 1 30%; Exam 2 30%; Homework 30%; Participation 05%; Community Service 05%; Total 100%

                                    Grads (531): Exam 1 30%; Exam 2 30%; Homework 10%; Research Paper 20%; Participation 05%; Community Service 05%; Total 100%

The exams will require essays; the first exam will cover the orthodox approach; the second exam will cover the heterodox approach. Review questions will be distributed before the exams. There will be approximately one homework assignment every three weeks. You may work together on homework assignments, but each student must turn in his/her own essay written in his/her own words. Grad students (531) will produce a 5000 word research paper on an assigned question. I will look for evidence of plagiarism in all written work; it usually takes less than 30 seconds to find the source. Plagiarism is a serious offense and will be treated as such. Late homework and late Grad student research papers will be devalued by 10%. Students are expected to attend all classes, prepared and alert. Each student must also pay 5 buckaroos as evidence of community service performed.

Texts: The main texts are An Introduction to Monetary Theory and Policy, by Dwayne Wrightsman (DW), and Understanding Modern Money by L.R. Wray (UMM). The Wrightsman text is out of print, so a xerox copy is available for purchase at cost ($15) from the department. The Wray text is available from Edward Elgar Publishing ( or from the usual internet sellers. You can also purchase a (cheaper) copy from the department at cost ($15). (Note: it does not matter whether you buy the first or second edition as the differences are minor; there is also available a Portuguese edition, and a Spanish language edition.) In addition, there will be a number of journal articles and chapters of books as required readings; the Grad students (531) will have more required readings. Most will be available on-line from my webpage. You can also find most of the articles in the original journals, in books, or on the web.

Exam Dates: The exam dates are listed in the class schedule. Plan accordingly. There will be no exceptions except for university-approved absences. Please check your vacation plans, purchased tickets, visa expiration dates, exams for other classes, weddings, work schedules, or any other possible conflicts and drop this class IMMEDIATELY if you cannot resolve conflicts.


1) 22 Aug        Introduction: What is money? Does money matter?

2) 29 Aug        Orthodox theory of money supply

DW Ch 1-5

531: Brunner: "High Powered Money and the Monetary Base", and

 Money Supply", in The New Palgrave, Edited by Eatwell, Milgate, Newman; Tobin: “Money and Income: Post Hoc Ergo Propter Hoc?The Quarterly Journal of Economics , Vol. 84, No. 2 (May, 1970), pp. 301.

3) 5 Sep           Orthodox theory of money demand

DW Ch 6-9 

531: Tobin, “Liquidity Preference as Behavior toward Risk”, RESTUD, 25, Feb 1958.

4) 12 Sep         Monetarists vs “Keynesians”

DW Ch 10

Brunner: “The role of money and monetary policy” (FRB-St. Louis Review 1968)


531: Friedman: "The role of monetary policy" (AER 1968), Tobin: “Friedman’s Theoretical Framework” (in Milton Friedman’s Monetary Framework, ed. by Gordon, 1970);  Cooley and LeRoy, "Identification and estimation of money demand" (AER, 1981)

5) 19 Sep         Orthodox Monetary Policy, Part 1

DW Ch 11-14

531: Poole: "Optimal choice of monetary policy instruments in a simple stochastic macro model" (QJE 1970) ; Ben Friedman: "Lessons on monetary policy from the 1980s", JEP 1988.

6) 26 Sep         Orthodox Monetary Policy, Part 2: New Monetary Consensus

Meyer, L. H. 2001. “Does Money Matter?” Homer Jones Lecture, Washington University. St. Louis, MO: Federal Reserve Bank of St. Louis, March 28.


Bernanke, Ben S. 2004. “Gradualism”, Governor Ben S. Bernanke, at an economics luncheon cosponsored by the Federal Reserve Bank of San Francisco (Seattle Branch) and the University of Washington, Seattle,Washington. May 20.


Wray, “The Fed and the New Monetary Consensus: the case for rate hikes, part two”, Levy Public Policy Brief No. 80, Dec 2004,


531: Bernanke, B. and F. S. Mishkin. 1997. “Inflation Targeting: A New Framework for  Monetary Policy?” Journal of Economic Perspectives 11(2): 97-116;

Arestis and Sawyer: “Inflation Targeting: A Critical Appraisal”, Levy working paper 388,


7) 3 Oct Optimal Currency Areas, and REVIEW OF ORTHODOX APPROACH           


                        Mundell, "A Theory of Optimum Currency Areas", International Economics, 1968. Royal Swedish Academy of Sciences, announcement of         Nobel to Mundell, 1999.            


Midterm Review Questions

******10 OCTOBER: EXAM 1: ORTHODOX APPROACH********************

8) 17 Oct         Intro to Heterodox Approach to Money

UMM, Preface and Ch 1

Wray, “The endogenous money approach”, CFEPS Working Paper 17, Aug 2001,

Wray, “Banking, Finance, and Money: A Socioeconomics Approach”, Levy Working Paper 459, July 2006,

531:                   Goodhart: “The two concepts of money: implications for the analysis of optimal currency areas” (European jnl of Political Economy 1998)

531: Foley, “Money in Economic Activity” and Desai, “Endogenous and Exogenous Money”, both in The New Palgrave, Edited by Eatwell, Milgate, Newman

9) 24 Oct         Origins and Nature of Money

UMM Ch 2-3

531: Tymoigne and Wray, “Money: an alternative story”, CFEPS working paper 45, July 2005,; John Henry: “The social origins of money: the case of Egypt”, and Michael Hudson, “The archeology of money: debt versus barter theories of money’s origins”, both in Credit and State Theories of Money, Edited by Wray.


11) 31 Oct       Heterodox Monetary and Fiscal Policy

                        UMM Ch 4

                        Lerner: "Money as a creature of the state" (AER 1947);

531: Bell: “Do taxes and bonds finance government spending?” JEI, Sept 2000 (also Levy Working Paper 244 1998); Lerner, Abba. “Functional Finance and the Federal Debt”, in Selected Economic Writings of Abba P. Lerner, David Colander (Ed); Innes: “What is money?”, in Credit and State Theories of Money, Edited by Wray.

12) 7 Nov        Heterodox Monetary Policy

UMM Ch 5, 7

Lavoie: “The endogenous flow of credit and the Post Keynesian theory of money” (Journal of Economic Issues 1984)

531: Friedman: "A monetary and fiscal framework for economic stability" (in Essays in Positive Economics, 1953); Wray: “Endogenous Money: Horizontal and Structural Aspects”, To Be Distributed; Moore: “Wages, bank lending, and the endogeneity of money" (in Money and Macro Policy, ed. by Jarsulic)

13) 14 Nov      Interest rates, Liquidity Preference, and Keynes’s approach to money

                        Keynes, Ch 13 and 17 of the General Theory

Wray: “Keynes’s approach to money: an assessment after 70 years”, Levy Working Paper 438,

531: Keynes: "Alternative Theories of the rate of interest" (EJ 1937); Fullwiler, “Setting interest rates in the modern money era”, JPKE, Spring 2006 vol 28, no 3 p. 495.

*************21 NOVEMBER Thanksgiving Break NO CLASS*****************

14) 28 Nov      International Money and Exchange Rates, and REVIEW FOR EXAM 2: HETERODOX APPROACHES

        Wray, “Understanding Policy in a Floating Rate Regime”, CFEPS Working Paper 51,

531: Sardoni and Wray: “Flexible Exchange Rates and Currency Sovereignty”, Levy Working paper 489,;

Final Review Questions

*******5 Dec:            Exam 2: Heterodox Approaches ******************************

Grad Student Research Papers: Due 12 Dec by 5pm; Email them to



The following statement is included with the syllabus by request of the Dean: Statement on Sexual Harassment

Recently there has been considerable media coverage of an alleged case of sexual harassment of a graduate student and an Associate Professor in the College.  That case is under active investigation and no findings of fact have yet been made.  It is important that we do not jump to conclusions of guilt in cases such as this; nor should we prematurely assume that the allegations are false.  The presumption of innocence until proven otherwise is a cornerstone of the American justice system.  Please be assured, though, that the College and the University of Missouri-Kansas City have a zero tolerance policy for sexual harassment, intimidation, or discrimination of any kind.  The faculty and the administration are committed to creating and maintaining an environment on campus that is free of all forms of harassment, intimidation, and discrimination. Should you or a friend ever experience any action or speech that feels coercive or discriminatory, you should report this immediately to the department chair, the office of the Dean, and/or the Affirmative Action Office.  The Affirmative Action Office will be   responsible for investigating any complaint of discrimination or sexual harassment. We are a community of learners dedicated to the pursuit of knowledge and the acquisitions of skills that will enable us to lead rich and full lives.  We can pursue these ends only in a culture of mutual respect and civility.  It is incumbent upon all of us to create a culture of respect everywhere on campus and at all times through our actions and speech.  On behalf of the faculty of UMKC, I pledge to you that we will maintain a safe environment on campus that fosters respect for everyone. Dr. Gary L. Ebersole

Professor of History and Religious Studies, Chair, UMKC Faculty Senate