Monday, 7 May 2018

Why Richard Murphy Disagrees with Positive Money on Monetary Policy.

Why Positive Money is wrong







Posted on May 6 2018

Carol Wilcox, who comments here often and is an able campaigner on land value tax issues, has asked me to comment on why I take issue with Positive Money's (PM) proposals on money creation, and why I think they conflict with modern monetary theory.
The idea I take issue with is this, which PM say is core to their policy proposals:
The central bank would be exclusively responsible for creating as much new money as was necessary to promote non-inflationary growth. It would manage money creation directly, rather than through the use of interest rates to influence borrowing behaviour and money creation by banks. Decisions on money creation would be taken independently of government, by the Monetary Policy Committee (or a newly formed Money Creation Committee). The Committee would be accountable to the Treasury Select Committee, a cross-party committee of MPs who scrutinise the actions of the Bank of England and Treasury. The Committee would no longer set interest rates, which would now be set in the market.
The central bank would continue to follow the remit set for it by the nation’s finance minister or chancellor. In the UK this remit is currently to deliver “price stability” (defined by an inflation target of 2%), and subject to that, to “support the Government’s economic objectives including those for growth and employment.” The inflation target acts as a limiter to stop the creation of money becoming excessive, but subject to that, the central bank is able to create additional money.
I always struggle to know where to start when faced with this proposal, it is so overwhelmingly harmful. The following are the objections within the constraints of a reasonable length post. They are not necessarily in order of objectionableness: candidly, they all achieve that status.
Richard Murphy Takes a Swipe at Positive Money, a replay of MMT Hockey Mask Man.?

A more Honest Title would be Why I Think Positive Money are Mistaken in their Policy position on Monetary policy.



  1. Bill Mitchell is always at pains to point out that MMT is a descriptive thing, I agree with him on that and go further and say that MMT as such should be called modern monetary practice or MMP and not MMT, Theory. Its a little like confusing Das Kapital which is a critique of the Capitalist mode of production with the Communist Manifesto which is a policy approach to repairing the wrongs or ills created by Capitalism.
    This debate has raged as between MMT ideologues and Positive Money Idealogues for a good many years what always amuses me is how one side or the other will accuse their opponent of not understanding Modern Money when what they are really arguing about is how the present system should be held accountable and who should be in charge.
    Frustrated by this fanaticism I made this cartoon a year or two back.
    My issue with both MMT and With Positive money adherents is that neither tackle the problem and mistake of Usury. Helmuth Kreutzs Money Syndome is a perrless work on the Usury Mistake and whilst Rome burns the fanatics continue to Fiddle with their own version of what constitutes a split hair.
    My main critisism of MMT and Positive Money is that they neither of them tackle the importance of Energy and the energy Cliff with respect to Energy returned on Energy invested and in that respect its a plague on both of their houses.
    This Richard werner interview with the renegade economist is well worth watching if you wish to remain arguing over what is in effect a fairly hopless instrument for allocating anything based upon real world energy constraints
    • If I might say so, you seem to be missing the point when trying to divert attention to other issues
      • I do not think that is the case, Richard. It is absurd to say that Positive Money do not understand how the money creation process works in the UK, every bit as absurd to say that Randal Wray does not know how it works in the US or Bill Mitchell is ignorant of how things are done in Australia.
        Professor Richard Werner is linked to in the final link I offer and Richard is a foremost writer and thinker on how the political aspects of money creation and monetary policy is often not considered. Princes of the Yen is one of the best documentaries on Money, the Federal Reserve and Dollar Hegemony ( Even though its focus is on Japan).
        There are two points I make, the first is very important and that is Modern Monetary Theory just states how The Monetary system works, how it works is however constructed in such a way that there are political choices and those choices ( The Political ones ) are the root of the strong disagreements that acolytes of The MMT school and the Positive Money School get into the gutter over. ( I might add that your piece here does nothing to elevate or divert the discussion out of that gutter)
        Bill Mitchell advocates for monetary policy supporting full employment. A job guarantee over a Universal Basic Income is one of the ideological disputes that always surfaces in these sorts of discussions. I have my own Political preferences and political Beliefs. My own views have no bearing on the way things are done presently. How the system works is discoverable and I think Graeber’s accounting identity article in the Guardian takes rather a lot of beating in making things pretty clear.
        My Point regarding Energy Based metrics for Economic planning purposes is an obvious one and one which has been known about since the Technocracy movement of the 1930’s. Dr Tim Morgan has recently published his full SEEDS index ( the Surplus Energy Economics Data System ) and the realities of what is possible in political economy are dictated by Resources and not money.
        Quigley Had it right too in Tragedy and hope.
        Money and Goods Are Different
        ”Thus, clearly, money and goods are not the same thing but are, on the contrary,
        exactly opposite things. Most confusion in economic thinking arises from a failure to
        recognise this fact. Goods are wealth which you have, while money is a claim on wealth which you do not have. Thus goods are an asset; money is a debt. If goods are wealth; money is not wealth, or negative wealth, or even anti-wealth. They always behave in opposite ways, just as they usually move in opposite directions. If the value of one goes up, the value of the other goes down, and in the same proportion.”
        The Relationship Between Goods and Money Is Clear to Bankers
        In the course of time the central fact of the developing economic system, the
        relationship between goods and money, became clear, at least to bankers. This relationship, the price system, depended upon five things: the supply and the demand for goods, the supply and the demand for money, and the speed of exchange between money and goods. An increase in three of these (demand for goods, supply of money, speed of circulation) would move the prices of goods up and the value of
        money down. This inflation was objectionable to bankers, although desirable to producers and merchants.On the other hand, a decrease in the same three items would be deflationary and would please bankers, worry producers and merchants, and delight consumers (who obtained more goods for less money). The other factors worked in the opposite direction so that an increase in them (supply of goods, demand for money, and slowness of circulation or exchange) would be deflationary.”
        On the point, I make about hairsplitting Heres Benjamin Franklin.
        In 1729 Benjamin Franklin wrote a pamphlet ´´A modest Enquiry into the nature and the necessity of a paper Currency.”
        a modest enquiry,
        ”There is no Science, the Study of which is more useful and commendable than the Knowledge of the true Interest of one’s Country; and perhaps there is no Kind of Learning more abstruse and intricate, more difficult to acquire in any Degree of Perfection than This, and therefore none more generally neglected. Hence it is, that we every Day find Men in Conversation contending warmly on some Point in Politicks, which, altho’ it may nearly concern them both, neither of them understand any more than they do each other.
        Thus much by way of Apology for this present Enquiry into the Nature and Necessity of a Paper Currency. And if any Thing I shall say, may be a Means of fixing a Subject that is now the chief Concern of my Countrymen, in a clearer Light, I shall have the Satisfaction of thinking my Time and Pains well employed.
        To proceed, then,
        There is a certain proportionate Quantity of Money requisite to carry on the Trade of a Country freely and currently; More than which would be of no Advantage in Trade, and Less, if much less, exceedingly detrimental to it.
        This leads us to the following general Considerations.”
        http://founders.archives.gov/documents/Franklin/01-01-02-0041
        Your article here Richard is a Polemic it does not honestly state the Positive Money Position but states your strawman interpretation of it. You state your political objections which are perfectly valid but with which others are quite likely to disagree. Politics is like that, Political Economy is like that and the Dismal Science, try as it might to elevate its members to a sort of priesthood, remains the dismal science Thinkers like Tim Morgan are changing that slowly but exchanging one lot of Neo-Liberal commissars for another lot of Post Modern Marxist Commissars, No thanks.
        Perhaps this a carryover from your 2015 discussion with Ben Dyson, Ben as you probably know is now at the Bank of England in their Blockchain / Crypto Currency team http://positivemoney.org/2015/06/response-richard-murphys-concerns/
        On The MMT side of things again there is much re-treaded rubber to examine.
        http://positivemoney.org/?s=MMT
      • I am bemused
        I used what PM said
        And as I pointed out, they want a committee of the central bank to make all money
        And as I pointed out, as all money is debt, that cannot happen
        But worse, if it did, there may be, to quote Franklin, too little money, and that’s disastrous
        So in other words PM want a quasi gold standard. And in the process they would encourage the use of alternative currencies because there would not be enough of what we actually need – i.e. money
        I am far fro0m alone in this: many would wholly agree, from Ann Pettifor onwards
        There is no strawman in my argument: I addressed what PM say and point out that a) they do not understand money is debt and b) their proposal would take us back to a dark age
        There is none of the packing in that you suggest exists: no JG, or anything else. Just plainly that they really do not know what money is. It’s debt. And a committee cannot make debt.
        You really need to get your head around that fact
        PS And if Ben Dyson is at the BoE I’m not surprised: why not employ someone who denies the truth if you want to hold out against it?
    • John says:
      Of course energy is fundamental but I have to agree with RM that it’s a bit diversionary here. I do like your cartoon though!
  2. Different Mike W says:
    First Post here. I am mostly interested in LVT.
    Critic says:
    ‘And it is worth noting at this point that governments can’t even control the amount of their own currency in circulation apart from the physical note and coin which makes up a tiny part of total supply. Banks can lend or borrow in any currency, as long as those currencies can be freely converted. At the IBRD we could lend in almost any currency. We did most of our funding in USD and EUR. The FX and cross-currency swap markets provided the means for us to do this with no governments or central banks involved.’
    M0 stuff agreed.How does this relate to domestic currency cheque accounts at M1, we all use to purchase goods and services and pay tax with ? You jump. How does it relate to MMT which will focus on employment and inflation/deflation; using both monetry policy (zero rate) and fiscal policy? Haven’t ‘clever’ people known that you cannot perfectly control bank money creation for years?
    From my perspective, LVT often gets the ‘clever people’ have known about it for years; why hasn’t it been tried treatment too. When the hostile critic has tried every other trick in the book. Hmmm.
    • The point is simple: IBRD is not representative of the real world
      The comment is than a case of ‘so what?’
      Might we engage with the world in which sterling is used in the Uk?
      • Different Mike W says:
        RM Agreed. MMT just describes the ability/powers of a sovereign state, fiat money issuer, after all.
        Second post here,
        Hostile critic then says;
        ‘say MMT can control the money supply though. How would it do this? Increasing the money supply via MMT is easy – just print and spend more. The bit we hear very little about is how MMT based policy would reduce the money supply. MMT can only remove money from the system via taxation. M4 in the UK is of the order of 3000bn. Taxation is of order 800bn. You would have to increase taxes by proportionally vast amounts to manage relatively small changes in broad money supply – and and large money supply increases would simply swamp any ability for taxation to counter it.’
        Is it not the case that UK Guv is actually carrying out ‘MMT policy’ even in the quote above? Can every penny of the £3000 bn of M4 hit the shops and car show rooms tomorrow? No. That’s rather the whole point of your Guv bonds then. After all, UK Guv didn’t need to ‘borrow’ from anybody did it?
        MMT argument is the rich would prefer to buy bonds and put the money on ice for years, rather than jam today and tax. Fine. We can move/ transform their cash from: M0, M1 to M4 bonds, to inflation target as MMT aims.
        MMT/Keynes. Lord Keynes how shall we pay for the war? ‘Why issue War Bonds of course!’ After Guv has already placed tank, ship, plane contracts and has politically decided on Total Warfare. Why? Guv invents money on balance sheet to build Churchill tanks etc. But, the middle class savers will have nothing to buy in civilian economy until after the war is won (a wall of fearful, middle class money, chasing a jar of jam and a bag of chips in the blitz, is a political and social problem even a Tory guv cannot ignore as a ‘price worth paying’).
    • Carol Wilcox says:
      As the main proponent of LVT here;o) I’m using your comment, Mike, to add something which I wanted to say on reading this blog. Drawing a comparison with MMT and PM, I think that Henry George correctly analysed the land market and produced a great policy which has never been implemented – yet. But his followers have made little progress on the original analysis and continue to rely on work from a bygone agrarian age. They have founded a religion and come out with nonsense like ATCOR (All Taxes Come Out of Rent) – using rent in the sense of land rent only and the Single Tax. Even the good socialists I know can’t seem to see that this comes from liberarian thinking
    • Roger Lewis says:
      Your comment is awaiting moderation. 
      Richard,
      Your last comment above is Childish frankly and does not engage with the points which I make The links are all illustrative.
      Bernard Lietaers work, Helmuth Kreutz’s Work, Magrit Kennedy’s work and Positives Money’s work is far from twaddle.
      Writing Polemics masquerading as Objective critique founded in evidence is dishonest, I guess the truth hurts. Ollie Bergs Paper on Bitcoin is excellent perhaps you find philosophy in the field of political economy objectionable, I do not.