Tuesday, April 12, 2016

New Report: Why State-Issued Money is Not Debt

Positive Money Fights Back

To be truthful I have always found Positive Money’s interpretation of how money is made a lot easier to understand than Randolph Wray’s version. Michael Hudson viewpoint makes much more sense too, and his books are easy to read. I’ve read one of  Norbert Haring’s books on economics too and I have nothing but respect for him. It was one of the best books I have read.

Randolph Wray has been very critical of Positive Money but here they have taken his arguments full on. If Positive Money are correct (which means that not only is Michael Hudson correct, but also Ellen Brown as well) this is fantastic news for ordinary people and the Left. 

I got into an argument with Minethis1 on YouTube about how money was made and he was pretty aggressive. Minethis1 is virulently anti neoliberal too and makes loads of superb YouTube videos, so I was on his side, but he was pretty aggressive towards me and my Ellen Brown position. But he just wouldn’t explain his position, or couldn’t, which was pretty maddening. He just kept saying that private banks create the money on behalf the government so it is Government money. Well, like I said, that just didn’t make any sense to me because banks can create as much as they like, there are no constraints, and they can charge what they like, just look at credit card rates.

New Report: Why State-Issued Money Is Not Debt, by Positive Money

Positive Money advocates a shift away from the current ‘debt-based’ monetary system, in which almost all money is created by commercial banks when they make loans, to a ‘sovereign money’ system in which only the central bank is able to issue new money. In the past, we’ve described sovereign money as ‘debt-free money’, because it is spent into the economy without any household or firm taking on further debt.

This triggered an ongoing debate about the use of the term ‘debt-free money’. Randall Wray argues (here and here) that all money is a form of debt, regardless of whether it’s issued by banks when they issue loans, or by the government when they spend. His reasoning is that (a) the money is recorded as a liability on the balance sheet of the issuer, and (b) if it wasn’t a debt, it would have no value. Eric Lonergan and Norbert Haring have engaged in the debate with some very insightful points.

This type of debate always runs the risk of descending into semantics. To try to find a definite answer on the subject, we’ve been looking at the official guidelines followed by accountants around the world to see whether sovereign money should be recorded as a debt.

What we found is that according to the International Accounting Standards, sovereign money cannot be considered a debt of the state. But if sovereign money is not the debt of the state, then what is it? It turns out that sovereign money conforms to the classification of equity.

In the 10-page briefing, we explain:

·        What the International Accounting Standards say about debt, liabilities and equity
·        Why bank notes are currently recorded as liabilities of the state
·        Why the fact that the state currently accepts sovereign money as payment for taxes does not mean that sovereign money is a form of debt. (Hint: It’s a throwback to the gold standard era that ended over 80 years ago.)

·        If sovereign money is equity, what is it equity in?

The fact that sovereign money is not debt is important for two reasons.
Firstly, issuing sovereign money does not simply mean that, as Randall Wray claims, we are replacing one form of ‘debt money’ with another form of debt-based money. There is a significant difference between money issued as debt by commercial banks, and sovereign money issued by the state.

Secondly, there is a significant difference between issuing sovereign money and sovereign debt (government bonds). Sovereign debt obliges the state to deliver a stream of interest payments over the lifetime of a bond, plus the obligation to deliver cash (sovereign money) when the bond matures. In contrast, sovereign money imposes no such obligations upon the state. So issuing sovereign money is not simply another form of deficit spending, as some economists have argued.


pebird said...

Well, either way it's on the right side of balance sheet. And we appear to agree it's not an asset.

nivekvb said...

I clicked on the Norbert Haring link and I can see now why I didn't understand Randall Wray's, Debt Free Money and Banana Republics, because it doesn't make sense. This is what Norbert says about the Wray's article. This is just the intro, the rest of his article is worth reading. Click on 'weiterlesen' to get the rest of it.

'Randall Wray is probably the best known representative of a branch of economic thinking called Modern Monetary Theory (MMT). On Naked Captilism I read his polemic called "Debt-free money and banana republics". I am more than a bit disappointed. From somebody like Randall Wray, who specializes on debt, I would have expected a more careful treatment of the relation of money and debt, especially if he wants to be vitriolic and call those cranks, who argue for “debt-free money”. Randall does not seem to know, what debt is.'

Neil Wilson said...

This is all pissing in the wind by a bunch of propaganda arseholes trying to redefine words again. This is the same as Austrians redefining 'inflation' to fit their ideology.

They are *wrong*. Alex Douglas has already pointed out why. If you follow their example, then taxes cannot exist because there is no explanation for them. Since taxes do exists and MMT has an explanation for them it follows that the MMT description of money is more in keeping with reality.

"My worry with this view is that it leaves taxation entirely unexplained. By the time the state has bought goods and services, it already has everything it needs. What is the point of taxing back the currency from us? It has already got what it needs: our goods and services. Why should it tax back currency that it is capable of printing? Why should it take our wealth when it is perfectly capable of creating wealth on its own?"

Equity is similarly a liability. That's why it is on the right hand side of the balance sheet. The idea that equity is 'free' is utter crap.

Anything that is 'free' isn't recorded anywhere. You don't need to record things that are 'free'. That's why oxygen for the workers isn't on the balance sheet.

These guys are trying to redefine words 1984 style via their 'only the state can create money' ideological lens. They are purveyors of Newspeak to push an ideology that literally ends up with them in charge of a autocratic/technocractic centralised money supply and poor people paying through the nose for private banking services that should be a public monopoly.

They need to be stopped and called out for the dangerous ideologues and propaganda artists that they are.

Neil Wilson said...

"Positive Money advocates a shift away from the current ‘debt-based’ monetary system, in which almost all money is created by commercial banks when they make loans, to a ‘sovereign money’ system in which only the central bank is able to issue new money"

Which is impossible. Just redefining the word 'money' doesn't stop other entities in the system creating money. You just refuse to see it because it fails to fit your world view.

The dystopian nightmare the centralised money brigade envisage is described in Geoff's piece on NEP

Neil Wilson said...

"There is a significant difference between money issued as debt by commercial banks, and sovereign money issued by the state."

Actually there isn't. Once again it is failing to separate what is on the left hand side of the balance sheet from the right.

Recipients of bank created money - which is a right hand side entry - have to pay no charge to keep that money. In fact the bank generally pays them. So if state create money is 'equity', then so is bank created money. Both are assets in the hands of the holders.

It is the asset on the right hand side of the bank balance sheet that incurs the charge. The charge is imposed by a bank on a debtor in the case of bank created money, and on a taxpayer in the form of a tax bill for state created money.

'Debt free' money is a PR euphemism for 'taxed money'. You could similarly call bank money 'tax free' money.

John said...

"My worry with this view is that it leaves taxation entirely unexplained. By the time the state has bought goods and services, it already has everything it needs. What is the point of taxing back the currency from us? It has already got what it needs: our goods and services. Why should it tax back currency that it is capable of printing? Why should it take our wealth when it is perfectly capable of creating wealth on its own?"

Is there something prior to learning how to read? Because it seems this is what is needed, reading clearly being too much effort or just too damn difficult. As has been said a gazillion times, taxes drive money. TAXES DRIVE MONEY. TAXES DRIVE MONEY. TAXES DRIVE MONEY. TAXES DRIVE MONEY. TAXES DRIVE MONEY. TAXES DRIVE MONEY. TAXES DRIVE MONEY. TAXES DRIVE MONEY.

How many times does it have to be said? No wonder Bill and Randy get so infuriated by the debt-free-money Taliban. No matter what they say and however many times they say it and explain it, it's utterly pointless.

The debt free crowd might as well start championing word free literature or number free arithmetic. Money is a debt. Redefining the terms changes nothing. You might as well call gravity "custard". Pouring hot custard on your jam roly-poly is not only possible but also necessary. Ergo, gravity is hot and yellow and yummy and desirous of jam roly-poly! What's wrong with that? Anybody who disagrees is an advocate of big banks or the anti-custard equivalent, that being cream.

Brian Romanchuk said...

The belief that money does not require interest payments is silly. The only way they works is if the interest rate is zero. In which case, the same is true for debt issuance.

With negative rates, money becomes the more expensive liability.

André said...

IFRS always updates its rules based on new knowledge, although it takes some time.

For example, there was a time were derivatives (like options) where not sufficiently understood by market participants and there were no specific definitions on its accounting standards. There was a time when this was not part of the definition of a financial instrument: "a contractual right (obligation) to exchange financial assets or financial liabilities with another entity
under conditions that are potentially favourable (unfavourable) to the entity". This sentence handles with derivative definition issues. But derivatives were financial assets/liabilities even when this sentence was not there. You had to look to broader accouting standards to get to this conclusion. But this was a confusion, not everyone had the same understanding, and then accountantes then discussed that issue and created a new understanding and a new standard.

Currency is a complex issue and economists, accountants and the society in general have trouble in understanding it and getting to a consensus. Maybe the accouting definition has not been compreensive enough yet to frame currency.

I stick with the broader definition: asset is a right and liability is an obligation.

Because the currency gives the holder the right to settle his/her tax obligations, its an asset (somewhat close to tax credits).

Because the currency gives the government the obligation to settle the holder's taxes, its a liability for the government.

I don't know if it will be someday considered a financial liability, a special liability or any other class in the IFRS standard. But if I was an accountant, I would personnaly defend the view that currency should be considered a financial liability in the government's balance sheet, because it is not a residual claim and it has a very different nature from the usual equity of private companies.

Matt Franko said...

"That's why oxygen for the workers isn't on the balance sheet."

Hey dont give them any other ideas Neil!

Matt Franko said...


That's the libertarian biased view...

The authoritarian biased view would be that the state can simply impose the use of the currency with punitive actions for non-compliance...

nivekvb said...

It's interesting how academics, and even professors of economics, have difficulty understanding this. So what chance do the public have?

Randell Wray says that Positive Money are a bunch of goods looking youngsters who don't know what they are talking about, but they have a whole load advisors many of whom are economists with PhD's who have studied banking and money all their professional careers. It's an impressive line up.

The idea that the government can just make its own money for free does seem absurd. But banks create it out of nothing and then lend it to governments at interest, well, that's just as absurd. If that's the case, then why can't we, the people, the general public, create our own private banks and lend money to the government instead.

One argument I can think about that is that publicly owned banks would cost just as much to run as private banks, so the public would not see any benefit. Plus, they wouldn't have the expertise.

In Britain there's a bank called Dave's Bank, which some guy started up to help the local community because the private banks weren't lending. But the government wasn't happy about his bank and nearly closed him down, but he won the right to lend out depositors money but they wouldn't let him use the fractional reserve system. He felt that the big banks were trying to squeeze him out.

If the public were allowed to create banks and use the fractional reserve system, charities could start up banks and lend money to the government instead, and use the profits to help the community.

Why is it that only the ruling class have to right to run banks that can lend money to the government? Surely anyone can do it, as long as they could prove that they were capable of doing it correctly. It can't be that hard, and anyone with an HNC in accountancy could manage it. It's just double entry book keeping, as you say. Dave's Bank could easily do it.

MRW said...


"TAXES DRIVE MONEY." = "the state can impose the use of the currency with punitive actions for non-compliance."

Matt Franko said...

Kevin the whole thing is a waste of time arguing about what a narrow definition of an ambiguous figure of speech "money" is...

This is textbook Wittgenstein 101 "a battle against the bewitchment of our intelligence by means of our language"

Best to just drop it and move on and let the morons keep arguing about this word among themselves...

Six said...


"TAXES DRIVE MONEY" and "the state can simply impose the use of the currency with punitive actions for non-compliance" are the exact same thing.

Matt Franko said...

MRW its weak...

Implies you couldnt impose the USD system without USD taxes... its a libertarian bias...

Logically in conflict with the MMT view that 'taxes used to control demand'...

Matt Franko said...

They say the non-govt accepts the govt currency because they need it to pay taxes...

govt could just say that the vendor either accepts the currency for provision or we will simply kill you and take the items and burn the whole place down when we leave...

Look at Confederate Army provision payments in south central Pennsylvania during the Gettysburg campaign... it worked...

Matt Franko said...



"During the retreat, Lee ordered the impressment of horses to replace those lost in battle or those too jaded for further service. The Rebels paid for the horses either in Confederate currency or by giving the owners a written description of the animals confiscated, signed by a Confederate officer."

What were they going to say? "Well... we dont want your Confederate currency BUT... if you impose a tax on us in the Confederate money, THEN we'll take it!"


MRW said...



You're confused. You don't understand the purpose taxes serve in a macroeconomy, and how that translates into their use within a microeconomy.

Further, the word "debt" is a contronym. Look it up. It depends on who is using the word, unfortunately. The issuer or the user. However, the term, the word "debt" is nothing more than an accounting term to describe the act of accounting--actually recording--where it's placed on a ledger sheet. The State records its actions after the fact, which is perfectly logical. When the State records what it's doing (after Congress has 'issued' or authorized the creation of the new currency by 'spending', which only Congress can do by law), it accounts for its actions by recording it on the right side of the ledger because that's how double-entry accounting has worked for the 900 years since that Islamic genius invented it. (What it's buying is on the left.)

Since the creation of this money is plucked out of the air by congressional appropriation, the correct term is interest-free money, not debt-free. No one has to pay it back. Nobody owes it to anybody. Congress is buying goods and services in the real economy, and hopefully, putting enough people to work fulfilling the orders. If not, time to reduce taxes so the people have more money in their pocket.

The macroeconomy is the vertical branch of a cross. The microeconomy is the horizontal branch of a cross. Only the vertical branch adds new interest-free money into the economy. On the horizontal level, the commercial bank and non-federal government level, even with its credit-money making ability, it all nets to zero. Why? Because even though each dollar ($1) created by the State when it buys goods and services produces something like $3 to $4 in the non-federal government sector via the credit-money creating ability of commercial banks, the fact remains that banks must have a credible asset *equal* to the amount of the loan backing it up. (The fact that they didn't in the case of the subprime bubble and falsified the value of those assets created the Global Financial Crisis of 2008.)

MRW said...

PART 2, contd.

Banks do not create credit-money without restraints. That's a fallacy. The restraints are collateral, the repayment terms, the size of the interest payment demanded of the owner (which the loaner has to agree to, he isn't forced to), and what the bank thinks it can get away with as a percentage to create its own profits. The loaner is under no obligation to borrow from a bank. He could simply save his pennies for years on end, and then buy his house sometime just before he dies. Everybody could, but the economy would slow to a crawl.

The genius of the Federal Reserve system invented at the start of the 20th C was giving the common man the ability to obtain credit, not just rich old aristocrats who had estates, or businesses in India, or the power of their title, as collateral for their loans. That's how the check (cheque) came into existence in the 1920s in the US.

And oh, btw, the government doesn't borrow from the people. After the Treasury authorizes the Fed to send $XXX to vendors in the private sector through its General Account at the Fed--per Congressional appropriation--a law from way back in the gold standard days REQUIRES that the US Treasury maintain a positive balance in its General Account. So to "legally" get that amount to read positive (+), the State (the US Treasury) issues treasury securities *in the amount of the congressional spending*. All this before the Fed or the commercial banks have anything to do with this process. To get people to want to exchange their dough for treasury securities, it pays interest on those securities depending on the maturity date. In the gold standard days, this was an attractive deal because gold doesn't pay interest, and if you lose the gold bars, or they're stolen, you're shit out of luck. As JP Morgan said, 'I tell all my clients, public bonds are more valuable than gold.'

How does the federal government pay the interest on those treasury securities? At the end of August every year, the US Treasury asks the Fed to tell it how much interest will be owed on all the treasury securities outstanding. Then it issues treasury securities in that exact amount to cover it. Since everyone in the world currently wants the safety of US treasury securities backed by the full faith and credit of the US, it's an easy sell. Simple.

Sorry if this is disjointed. I'm doing this on an iPad, which is a pain in the ass.

André said...

How would the authoritarian state impose the use of currency?

I am not specialist in that sort of thing, but I think most MMTers and some anthropologists/historians say that states have never imposed the direct use of currency. Instead the state take punitive actions to those that don't pay taxes. Currency was later adopted in private transactions. I may be wrong...

It's very difficult to impose the use of currency in private transactions. Maybe a court can do that in some legal cases, but that seems very limited to me...

nivekvb said...

Yeah, I'm writing my stuff in a tiny mobile phone. It's a real pain too. Thanks for all the info, I shall study it. I have a lot of things to do, and books to read. I have Randy Wray's MMT Primer to read as well. My next book to read is Killing The Host, by Micheal Hudson.

nivekvb said...

You got a good point there, Matt. I'm going to chill a bit now. There's plenty of time to learn this stuff.

André said...

Ok, the owners took the coins by force, in fear of being killed. What are they going to do with the coins? Try to buy something?Who will accept it? Why?

Probably no one. Except if the former horse owners force people to accept it. Or maybe if people are forced to pay taxes in currency to a local mafia or government.

That's how I see it. Direct force may make someone accept some coins. But it will not the community or the society accept these coins.

André said...

"An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism."

I don't think that MMT is necessarily the best and most complete theory in this world, and I do believe that the kind of plural discussion that you are doing now add a lot to readers' experience.

But the turth is that most people that write here in Mike Norman Economics do not agree with or do not understand MMT. Maybe that "focus on MMT" could be changed... At first it confused me a lot...

Bill said...

People often forget that words have more than one meaning. Both "money" and "debt" are old words, and have each accumulated a number of meanings. Technically, government issued money is an asset for the holder and a liability for the government, and is thus classified as debt.

OTOH, you can certainly draw the distinction between money and debt. Bernanke does so in explaining what "helicopter money" is. He states: "Milton Friedman’s idea of money-financed (as opposed to debt-financed) tax cuts—“helicopter money” ( http://www.brookings.edu/blogs/ben-bernanke/posts/2016/04/11-helicopter-money?rssid=Ben+Bernanke ).

So, as the old ad used to go: Wait! You're both right!

Calgacus said...

Matt:govt could just say that the vendor either accepts the currency for provision or we will simply kill you and take the items and burn the whole place down when we leave...

Fine. That is a very libertarian, Ayn Rand view of government. But what does the vendor do with this "currency" once he has it?

Burn it? For what good is this "currency" to the vendor in this scenario? - which has part of it, but not the whole: This is government spending = taxation-in-kind.

You know how Harvey convinced everyone of the circulation of blood? He just calculated how much the heart pumped. If it pumped out that much - a sizable fraction of your body mass in a minute - in the arteries (efflux), what other way could there be than (reflux) through the veins?

Wrote this before I saw Andre saying the exact same thing above. His last comment is also right, but that is the way with learning anything, becoming an expert - making all the mistakes.

Andre:states have never imposed the direct use of currency They've tried that in practice: See Mitchell-Innes etc on the Middle Ages in Europe. Didn't work. In theory this, what Matt proposes is Schumpeter's Legal Tender Chartalism. Which doesn't work, because again, it only has half of it.

Greg said...

I agree with Matt that to a large degree this discussion about the origins is irrelevant to most people and a distraction that keeps us form moving forward. We are obviously in the middle of something and not trying to get it started so discussions about origins are sideshows. While I am 100% on the side of Wray and Co about the nature of money and how taxes drive a currency to top dog status, many people on the side hear this and are repelled. Settling this point, if it were possible to settle once and for all, would not really change how we view the way forward for most people. Even if all the monetarists and Austrians were to surrender and say "you know, we've been misguided about the nature of money and our reading of the evidence means the Chartists are correct the policy prescriptions for today would still be about who certain individuals think should get financial support. The fight would just be changed form one of "we don't have the money to do that for THEM!!" to " I don't want to do that for THEM!!" Which has really been the fight all along but money has been a convenient....... excuse. Much like the assholes that attribute their hateful attitudes to just being a follower of the Bible... "Im just doing what the Bible says, don't be mad at me!!!"

nivekvb said...

I often think about the nature of money and then I might think I have finally got it nailed down in an eureka moment. I might even write about on YouTube attacking the libertarians.

And then I think to myself, hang on a minute, what about this and that, and then the whole lot falls apart again. It's because we can all make up our own i.o.u's if at want. And money is work done. We can buy things that have been made by someone, and we can pay someone to do work for us. We can save money and we get money to make more money for us. Then money becomes just numbers in a computer program. It can become worth many $trillions.

I then start to see how money works with real charity, but then the whole house of cards falls in again.

Trying to understand why bankers can create money out of nothing and lend it to governments at interest is okay, but its not okay if governments create the money themselves is not so easy.

But they say that the government is the issuer of the currency so they create the interest, the money, to pay the bankers, which means it doesn't cost us anything.

Hmm, but the bankers seem to be making an awful lot of money out of it just the same. All they have to do is put some numbers into a computer keyboard to create the money. Bank of Dave could do that if they allowed him to, and it could pay pay for the NHS. But that would mean the government getting the NHS for free, which is impossible. Oh well, back to the drawing board.

nivekvb said...

Some typos in there but your should understand it. It was put together on my tiny mobile phone.

nivekvb said...

I just had another eureka moment. The government can't create it own money and buy what it needs, because that would be getting things for free. But by borrowing from the private banks the money gets to circulate, because the bankers worked spend the money back into the economy. I'm being theoretical, but most of the ordinary banking staff would spend their money back into the economy.

But even if the above is true, then the government should start up publicly owned banks where the profits can be spent back into the community.

There should be a private banking sector, but also a public one. So Ellen Brown is right.

And you can fuck free banking because the public option will save people a fortune in taxes. And anyway, the public banks could offer free banking instead.

Random said...

"Trying to understand why bankers can create money out of nothing and lend it to governments at interest is okay, but its not okay if governments create the money themselves is not so easy."

MMT says dispense with the interest payments. Banks would only be allowed to lend based on capital development of the economy:


"About the only reason we should pay bankers to do anything is if they can demonstrate the skill of underwriting capital projects against a prospective income stream.

In simple terms this means somebody going into a bank with a proposal that requires a certain amount of money. The bank staff considers whether the prospective income stream proposed to repay that money is adequate to repay the loan and pay the wages and costs of the bank - including a reasonable return to whatever risk capital underpins the bank.

Note that there is no asset collateral involved in this process.

This underwriting process is of great benefit to all of us as it helps to ensure that we all have jobs and output. And that is why the state stands behind the banking business - helping to make sure that the cost of lending is low - in the hope of promoting that process.

The other reason might be less clear. Banking helps prevent the concentration of equity in society. If I want to start a business and the bank won't lend, then I have to find a rich person and sell them most of my business to get the money necessary to get it going. That turns me from an entrepreneur with ownership into an unpaid lackey dancing to the tune of the Vulture Capitalist class."

Random said...

Basically the idea is setting banks up for lending to businesses:

"The lending banks we need are the ones that can lend development capital effectively and stick to doing just that. If we are to have private lending banks, then they need to be able to make a decent profit doing development capital lending.

The way I would narrow banks is to offer them an incentive - an unlimited cost free overdraft at the Bank of England. 0% funding costs. In return they must drop all the side businesses and just do capital development lending on an uncollateralised basis - probably in the form of simple overdrafts. In other words they become an agency businesses delivering state money to those that require it.

I'm not even sure a capital buffer is required here. Losing your lending licence if your underwriting isn't that good should be sufficient incentive to run a tight ship. Backing off the entire thing to the central bank reduces the barriers to entry in lending - making self-employed, highly dispersed and, importantly, locally focussed underwriters a possibility (the 'Provi Model').

Any lending businesses that doesn't want to take the oath, then has to fully fund their lending on a maturity matched basis Zopa style. No deposit insurance, no access to the Bank of England, and losses absorbed by those doing the lending. This then becomes the fate of the shadow banking system - the building societies and money funds.

So that sets state funded lending against fully match-funded lending in competitive tension. State funding will likely be conservative but actually injects extra net financial assets into the non-government sector economy. Fully funded lending is just patient man helping impatient man for a fee in return for the risk."

"There should be a private banking sector, but also a public one."

You don't need to create a new system though. Just tweak the original one.

There is no theoretical difference between doing that in the private sector or the public sector. The cost still has to be paid by somebody.

The circulation isn't quite as neat as you make out. *If we're running at full capacity* then the cost of paying the loan assessor has to be paid from taxes on somebody.

Interest can be seen as a tax on profits to pay for a loan assessor to assess whether the project is worth the money. It would be the same however you organised the tax.

Tom Hickey said...

I just had another eureka moment. The government can't create it own money and buy what it needs, because that would be getting things for free.

Government creates its own currency which it uses to transfer private resources to public purpose "for free." Previous, government just confiscated goods directly. That's just the way it works.

Government doesn't use bank credit, but rather uses the central bank to credit accounts using government liabilities that banks cannot create since they only exist on the cb's books. Bank credit is on the banks' books and stays there. The only way that government can borrow and spending using bank credit is by having accounts at a bank. But government uses its own bank, the cb, to spend using its own liabilities, to sell securities paid for using its own liabilities and to collect taxes payable only in its own liabilities.

nivekvb said...

I thought I was close to working it out, but then I thought, hang on, what about the taxes? Well, I'm getting closer. Thanks for the replies.

Yes, some banking reformers are happy to leave the banks private. It's about getting the regulations right, so that finance serves industry, rather than the other way around.

nivekvb said...

So re-nationalising the railways wouldn't be so expensive after all.

Tom Hickey said...

Yes, some banking reformers are happy to leave the banks private. It's about gets

There's a reason that some people think that there should be a balance between government and the private sector. If the private sector is too strong in a liberal economy, then the elite will rule. If government is too strong then political corruption will be rife.

The problem is that even with a balance between public and private sectors under economic liberalism, the elite can capture government and run it in their interest.

There really is no ultimate solution under liberalism, and but everything other than liberalism is worse.

The most promising course for liberalism is integration of social, political and economic liberalism. Neoliberalism equates liberalism with economic liberalism.

The evolutionary advantage of liberalism is that it is pluralistic, and evolution is based on pluralism as different experiments. Liberalism really means maximum degree of freedom, which is the basis of pluralism.

Under liberalism individual and groups of individuals are free to explore options in dealing with challenges that emerge in a complex adaptive system. Cooperation is also favored in evolution through adaptation owing to return on coordination, as Roger Erickson is fond of saying.

One big reason that economic liberalism is failing under neoliberalism is owing to lack of pluralism in economics and politics. This way or the highway doesn't do well as conditions change and this way doesn't have adequate answers to the pressing questions and other ways are ruled out.

John said...

For those new to MMT, the usual ports of call are, Mitchell, Wray, Kelton, Tcherneva, Fullwiler, Mosler, etc. All say the same thing: taxes drive money. Are they missing something?

Kevin, Wray's primer is goodish, but just bite the bullet and buy the book: http://www.amazon.co.uk/Modern-Monetary-Theory-Practice-Introductory/dp/1530338794

It's pretty good - some silly mistakes though. I'm about half way through. The full text (which I estimate will probably almost double the present offering of 350 pages) comes out later in the year, so you may want to hold out for that instead. I'll certainly read that when it comes out. I can't afford any of this, but a friend of mine who has become obsessed with MMT buys all this stuff, so I just borrow his library. Having said that, my weekend bender cost a helluva lot more than the MMT textbook and it left half my guts on a London street! That's the way to look at it when you see an expensive textbook: education or near-death hangover.

André said...

Greg said: "The fight would just be changed form one of "we don't have the money to do that for THEM!!" to " I don't want to do that for THEM!!"

I don't agree! Some people do have hidden interest and will make a lot of excuses to defend their interests, but I don't believe it's a general phenomenon. A lot of dumb legislation and dumb government projects are developed mostly because people are very ignorant and not because of some sort of conspiracy.

Matt Franko said: "Kevin the whole thing is a waste of time arguing about what a narrow definition of an ambiguous figure of speech "money" is..."

Well, if people cannot discuss and agree about basic concepts as this one, how they will be able to discuss more complex issues?

This sort of discussion is essencial!

John said...

Matt: "That's the libertarian biased view... The authoritarian biased view would be that the state can simply impose the use of the currency with punitive actions for non-compliance..."

It isn't a view - it's a historical reality! The authoritarian view doesn't mean that it would work, and presumably it would only be enforced because there would be no taxes (as taxes have historically and currently serve this purpose). The US has extremely punitive actions against drugs, but drugs are common. It'd have to be more punitive than the prison sentences handed out to drug offenders. What are we talking here? Life with no parole? The electric chair? And in any case, other than the crackpot tax-free anarcho-capitalism, even advocacy of a minimalist state would ensure that taxes drive money.

andy blatchford said...

Just buy a couple of cheap bottles of wine and stay in 1 night with the book won win 😉

nivekvb said...

Hi John, I will get that book when it comes out, and when I've read it we will have to go for a pint 🍺 one day in London. I'm a real ale man myself, so a Wetherspoons would be good, and a lot cheaper, and then I will be able to afford another good book you might want to recommend. Thanks.

nivekvb said...

My gut instinct would have been for communism, if it could work. But the elite would just capture the government and turn it to authoritarianism.

I'm a liberal, so authoritarianism is not for me. But, a large segment of the population would not want communism either.

The libertarians are always saying, why should 51% be able to tell the other 49% what to do, but that would be a bad democracy? A good democracy considers the minorities. We tend to have elective dictatorships here in the UK.

In the end, the best system is a balance between left and right. The libertarians can't see that, and the hard left can't either. The balanced system gives ordinary people the most freedom, and freedom from poverty.

The balanced system is far from perfect, but it's the best system and will create the most happiness.

We have always been very collective creatures, but we are also very competitive as well. Team sports shows that very well.

Apparently because the Nordic countries are so cold, people would not have survived without extensive cooperation. 'Rugged individuals' would have perished. So collectivism comes easier to them. I wished I lived in Scandinavia.

John said...

Kevin: "I will get that book when it comes out, and when I've read it we will have to go for a pint one day in London. I'm a real ale man myself ... another good book you might want to recommend."

I don't live in London (I was visiting a friend), but a meeting with MMTers should be something we should aim at. I'll have to revise my motto of never trusting anyone who likes real ale!

As to good books, the first thing you have to do is buy Brian Romanchuk's eReport "Understanding Government Finance". It's superb. It isn't pure MMT, but it is by a country mile the best thing yet written. He's the clearest writer in the MMT tradition. His blog isn't for novices. It does deserve very careful attention and is the product of a very sharp mind.

I have found that it is impossible to really come to grips with details if you haven't read some general economics before. Unless there are any other recommendations, you could do much worse that the two textbooks Principles of Microeconomics and Macroeconomics by Baumol, Blinder, Lavoie and Seccareccia. A very good deal to be had here: http://www.abebooks.co.uk/book-search/author/william-baumol-alan-blinder-marc-lavoie-mario-seccareccia/

Kevin Hoover's "Applied Intermediate Macroeconomics" has a lot to be said for it. "Income, Employment and Economic Growth" by Peterson and Estenson is meant to be advanced, but it almost reads like a good novel. I dip into it every now and then. I really should just read it cover to cover. It's exceptionally well written. Dudley Dillard's The Economics of John Maynard Keynes is a really very good book on Keynesian economics, and may help bridge some of the divide. I'm about half way through and reading it at the same time as the new MMT textbook.

Richard Werner's "Where Does Money Come From" is indispensable. It's not MMT, but it's endogenous money. Since no MMTer has written an introductory book on money and banking, Werner is a good place to start. I read it in conjunction with the first half of "Modernising Money" by the PM people. The first half of the book is as good an introduction as you'll get. Read it before Werner's book and you'll understand a lot. Then turn to Brian Romanchuk's truly excellent eReport. That was my progression, and I think it's been a good approach. The second half of "Modernising Money" is just a waste of time. It's their debt-free money nonsense.

John said...

Randall Wray's "Understanding Modern Money" is good, if you can make it to the end. He spends far too much time on the history of money and his writing style is like swimming through treacle. You have to read sentences over and over again before realising his meaning. He makes the straightforward inordinately difficult. It took me weeks to read such a short book, and still there were questions unanswered and meanings left vague! Simply put, economists are bad writers.

Marc Lavoie's "Introduction to Post-Keynesian Economics" is too brief for the subject he's covering. I read it before I read his Principles textbooks and still got something out of it! It deserves to be read only when you've read a principles textbook so as to fully understand Lavoie.


With this groundwork you'll be able to appreciate the blog written by William the Conqueror, otherwise known as Bill Mitchell, who for some inexplicable reason has been denied twenty Nobel prizes. For the life of me, I have no idea how Bill does what he does: a huge piece of new analysis every day! It's truly amazing. Randy Wray's blog at economonitor.com isn't as technical as Bill's, but it's probably the best MMT blog for newbies. He too has been denied twenty Nobel prizes. New Economic Perspectives is also good. Neil Wilson and Brian Romanchuk have brains the size of planets and they're very helpful and lovely chaps too. Neil's writings on the UK economy are simply astounding: prepare to view the UK from a scary prism. Bill Mitchell has a brain the size of a galactic supercluster. Once you can fully understand and appreciate Bill Mitchell (which I most certainly haven't), you've instantly become the smartest economist in the UK! The only problem with Mitchell and Wray is that their writing style has a lot to be desired. If only they could write like JK Galbraith!

As William the Conqueror says "That is enough for today!"

John said...

Kevin: "I wished I lived in Scandinavia."

No, really, you don't! Unless you were born there, the Scandinavian countries are near impossible to get used to. Canada is another matter!

Greg said...


I don't really see it as a conspiracy per se but simply an example that an us vs them dichotomy is quite prevalent. Many people really do believe that most people experiencing difficulties have just brought it on them selves and should not be helped at all. They are tired of paying for others through taxes. Even if you stopped taxing them, they wouldn't want to give their time to help them either because they aren't worthy of help, they are just stupid losers making bad decisions.

To give an example I see and hear every day. I work in health care and all of us in my dept/profession are in six figure salaries with call pay..... so none of us are hurting (unless of course we made bad decisions and bought overpriced car or boat......) A week doesn't go by where I don't hear one of my colleagues standing at our case board lamenting the number of people getting surgery who "haven't taken care of them selves"..... vascular patients who smoke, orthopedic patients grossly overweight and with bad joints, diabetics with poor diets etc. The point always comes up that these people are "breaking" our country and health system and they are tired of THEIR taxes supporting these people. When I point out that if we took every one of those people off our schedule every day of the week, they would have to lay a third of US off they just don't hear it. They think that if those patients were off the schedule we would just magically fill it with people who had money clamoring for surgery. As if all these people with great insurance who take care of them selves are just fighting to get on a surgery schedule somewhere. It is fucking bizarre..... and Im talking about people with advanced nursing degrees and MDs. They are clueless as to how those people we are supposedly "supporting" are actually a huge source of our own incomes. It is really sad to see the blindness.

nivekvb said...

There's no such thing as paradise. They reckon we in Britain could be just as cold soon, if global warming destroys the Gulf Stream.

nivekvb said...

They are just a bunch of hypocrites. If they are so clever, tell them to look at the new research which shows that poor suffer more distress than most people, which causes them to eat the wrong foods, drink and smoke too much, with some having a tendency towards drug taking.

Were now know by the study of epigenitics (our genes are programmable) and neurplasticity that most of our intelligence is not inherited.

Being thick, drinking and smoking too much along with a tendency towards drugs taking, could have happened to anyone. It's just a matter of where you are born and your circumstances.

New book: Not In Our Genes, by Oliver James.

The Human Genome Project has shocked the geneticists, and the ruling class, but they are keeping quite about it.

André said...


With your example it's possible to understand better your argument, but I still say the same thing I was saying.

Some people will side with any theory/opinion that supports their interests, even if it's bad theory/opinon. Some will do it emotionaly, without even knowing about their emotional bias, and some will do it deliberately, acting with malice.

But this kind of behaviour is not the rule. If the entire world knew better about MMT and about the workings of money, policemaking would be different and better, and people would discuss public finance in a higher level generaly.

For example, I do believe that most people sincerely believe that everyone would be better off if governments always kept a positive balance, because bad things would happen otherwise.

Money is a very complex matter and it's very difficult and counterintuitive to understand that a government is different from a household.

And while people don't understand what money is and how it functions, it will be very hard to achieve any reasonable political goal like a Job Guarantee program or some public finance and budget laws that make sense...

STF said...

Hi all,

a few minor fyi's

1. It's Randall, not Randolph

2. Eric Tymoigne's Money and Banking series at NEP is the best thing I've seen on those. It's a precursor to a textbook he'll do at some point. Far better than Werner, Positive Money, etc., etc., IMO

3. I think Brian Romanchuk way at the top got it 100% right in his short comment.

4. If govt money isn't debt, then what is bank money? Shouldn't that also be the bank's equity? Govt receives its money when we pay taxes--our liability to the govt. Banks receive their money when we pay back loans--our liability to the banks. As Seccareccia and Parguez showed about 15 years ago, the monetary circuit for govt is the same as it is for banks. If govt money isn't the govt's liability, then bank money can't be the bank's liability.