MMT & Positive Money Are Converging. That’s a Good Thing

Many common views on macroeconomics are of little use and even harmful because they do not recognize basic facts about the economy. That limits useful macroeconomics to the minority who recognize that loans create deposits, that there is no money multiplier, that the household analogy is false, money is not just a veil over barter etc., and the profound implications of these facts.

Because it is, unfortunately, a minority that understands meaningful macroeconomics, and because of the enormity of the welfare issues that are at stake, it is of the utmost importance that the lucid minority support each other and sort out their differences in order to find the strength in numbers needed to implement sane macroeconomic policies that have the potential to greatly increase the public well being.

Perhaps the two greatest current macroeconomic problems are

  1. a failure to optimally use resources (including people)
  2. the design and/or manipulation of the financial system to divert real resources from producers to a financial class

The logical approaches to these problems are functional finance in the first case and changes in and/or enforcement of regulation of the financial system in the second case.

Two groups that have gained visibility (academic, policy, and/or popular) on these issues are Modern Monetary Theory and Positive Money.

MMT scholars largely focused on the first problem, how functional finance can increase the public’s well being. Positive Money’s main worry has been the second and suggestions for changes that might make resource diversion more difficult.

However, the simple point I want to make is this: in recent years the two groups have moved towards each other’s positions and interests to a significant extent, probably much more than either group or the heterodox community recognizes.

Positive money originally wanted to eliminate bank credit-money creation altogether. Crucially, however, they have modified their plan to allow for a tightly regulated system of credit money creation for individuals and businesses. (see Would a Sovereign Money System Be Flexible Enough?  also Would There Be Enough Credit in a Sovereign Money System? )

MMT, as mentioned, traditionally focused on functional finance solutions to the first problem above. However, after the 2007 financial crisis especially, they addressed the second problem above (which caused the crash) and subsequently Warren Mosler, Bill Mitchell and Neil Wilson all proposed far reaching (and similar) changes to the banking sector (here: Mosler, Mitchell, MitchellWilson )

Crucially, there is now very little difference between the banking system that MMT (or at least Warren Mosler, Bill Mitchell and Neil Wilson) propose and the banking system that Positive Money now propose.

Additionally, Positive Money has always been a proponent of the state spending for the public welfare; indeed, they had to be as this would be the only way money would be introduced into the economy under their proposals. As Positive Money has matured they have continued to develop their ideas on how the government would spend into the economy for the public good – in other words, functional finance perfectly in line with traditional MMT views.

So in short, Positive Money is fighting for functional finance and a banking system like the Mosler/Mitchell/Wilson proposals. MMT is proposing (or at least Warren Mosler, Bill Mitchell and Neil Wilson) a banking system like the one PM has evolved towards (tightly regulated credit-system) and MMT has of course long supported the state spending directly into the economy for the public purpose just as PM has.

Both groups have achieved significant political and popular support as well as media attention. This attention has often been in different places. Combining their message is a win-win and an important step in educating the business, political and internet community and thus eventually winning votes and changing real policies.

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March 28, 2019  UPDATE: The Intro to Economics textbook is finished! Live on Amazon here –

1000 Castaways: Fundamentals of Economics

13 Thoughts.

  1. There are certainly similarities between MMT and PM, though I have doubts about the extent to which Mosler, Mitchell and Wilson agree with the bank system Positive Money advocates (essentially full reserve banking as proposed by Milton Friedman and at least three other Nobel laureate economists).

    Wilson throws a fit when anyone mentions full reserve. As to Mitchell, he deletes any links to Positive Money that are placed in comments after his articles.

  2. Ralph, always appreciate your comments. Just should point out again, Positive Money proposals are not full reserve proposals at all, indeed the term ¨full reserves¨ makes little sense in the current banking system nor would it in the PM system.
    The PM proposals are aimed at eliminating the power of banks to create deposits with loans; banks would only be allowed to lend consol type money they actually hold, there would thus be no reserves in the system.

    PM has moved towards allowing tightly restricted endogenous money creation in some cases, while the Mosler/Mitchell/Wilson bank reform proposals would in effect create a system not far from the loosened PM proposed system – crucially, there is enough similarity to just get on board with one another and fight the real fight which is against the lunatic mainstream harming the general well-being of the public.

  3. Clint, You say “The PM proposals are aimed at eliminating the power of banks to create deposits…”. Exactly what Milton Friedman advocated and what he called “100% reserves”. See his book “A Program for Monetary Stability”, Ch3, under the heading “How 100% reserves would work”, and in particular the sentence: “Since it would have no power to create or destroy money…”.

    Re the “Mosler/Mitchell/Wilson” bank proposals, where do I find these? I regularly read stuff by all three authors and have never come across any such proposals. There is of course Mosler’s Huffington article “Proposals for the Banking System”. See:

    http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html

    That contained a number of ideas which I don’t strongly agree or disagree with, but it certainly contained nothing like PM’s ideas. In fact last time I saw Warren (just over a year ago) he specifically opposed the idea of stopping private banks creating money.

  4. “The PM proposals are aimed at eliminating the power of banks to create deposits with loans; banks would only be allowed to lend consol type money they actually hold, there would thus be no reserves in the system.”

    I am pretty sure that no one in the MMT community defends that kind of policy.

    It’s hard for me to understand how MMT and Positive Money are converging…

    • The similarity is that they both advocate having the state create money and spend it in a recession (and/or cut taxes). Indeed, Keynes advocated that. As to banking, I don’t (to repeat) see any “convergence” worth talking about.

  5. Ralph (and anonymous) – If the Mosler/Mitchell/Wilson proposals were actually fully implemented it tamps down a LOT on the financial sector. They are not trivial proposals and deserve much more attention. At the same time, PM has moved to consider some “endogenous” money creation under tight restrictions….that are not that far in practice from what the Mosler/Mitchell/Wilson proposals would accomplish.
    Simply put, in practice the Mosler/Mitchell/Wilson endogenous money sector proposals and the PM banking system that would allow some endogenous type money creation would be similar. There is a lot more to be gained from cooperating that nitpicking each other to death while mainstream macro continues to dominate policy in the real world.

  6. Anonymous – many in MMT see the logic of Overt Monetary Financing at the Fed over the current needless open market operations.
    Might as well go whole hog though, no real difference between OMF and just having Treasury spend Consols. The latter is all PM want; any thoughtful person can see that OMF is more logical than the current system, and that Consols more logical still – the current system does not serve the public purpose and is easily changed to what would be both an MMT and PM friendly system.

    • Clint,
      Thanks. But, again, private debt-based money issuance “easily changed” ?? to an MMT-PM construct.
      I’m thinkin on that one.
      How so, easily done ?
      Thanks.

  7. Mosler/Mitchell/Wilson do not propose the same kind of policy that Positive Money proposes. It’s as simple as that. Just ask them.

    Just because both groups defend reforms in banking it doesn’t mean that they are converging.

    It’s not about “nitpicking each other to death”. It’s about fundamental differences that are not converging.

    “and that Consols more logical still” – that kind of sentence is evidence of the fundamental difference.

    MMT believes that banks do create IOUs out of thin air, but they are convertible to another kind of IOU – government IOU. Bank deposits derive its value from the government IOUs. MMT theory places the government in the center of the system. Banks are not the center.

    Positive Money believes that money is enterly create by banks. They don’t believe that the government is relevant in the process.

    How is it convergence?

  8. Clint,
    Thanks a lot.
    But …. we wish.
    Sort of.

    Were there any movement toward a convergence, it would have to have been by Positive Money here, because you have merely re-presented Moslerian Economics on Banking reforms from 2009, Bill Mitchell on Nationalizing (?) Banks, and on CB-Bank relations under ZIRP, both from 2010 and then Neil Wilson’s piece is mostly a re-hash of the original Moslerian Economics banking reforms (not sure of the date of that NW posting).

    So, no movement there.
    No need for MMT movement …. they have the money, and they support the Status Quo, who also have the money.

    And while I find Positive Money a bit too accepting of MMT’s ‘descriptive’ machinations, and I definitely see evolving systemic proposals from PM over time (not always agreeable to this writer), I see nothing that could approach its acceptance, for instance, of the MMT tenet that TODAY, the government, yes, TODAY, creates new money every time it spends, as if there was no “revenue” side required to its Budget.

    I doubt there can be any convergence. Positive Money has the science, the law and the history of money correct. MMT has Mosler’s money and his fascinating, albeit maddening, theories about how the important thing in understanding ‘modern money’ are the CB’s “reserve adds and drains” in implementing monetary policy.
    A facade.
    A charade.
    I doubt there could be any convergence while MMT clings to these egregious errors of money system understandings.

    Thanks as always, Clint, for another thought-provoking conversation.
    joe bongiovanni
    The Kettle Pond Institute
    For the Money System Common

  9. Clint,
    I am working on setting up the IMMR chapter in the US and recently attended the MMT conference in KC. I’ve been talking with Rohan Grey of the MMN at length to try to work out a convergence. We’ve definitely made progress and hopefully will manage to bridge the final distance between us shortly. I’m reporting back to Ed Smythe, the new PM economist on our progress.

  10. Milton Friedman notwithstanding, I don’t believe it is accurate to claim PM promotes “full reserve banking” or any type of reserve banking for that matter, nor does the NEED Act. By the way, the NEED act is the only codified and explicit government directive that clearly implements the concept of government money created without the facade of borrowing. I sincerely doubt that the author and some of the commenters here have studied that piece of legislation. The claims in terms of inadequate flexibility in a non-bank money system are just assertions with no basis. Points need to proven not asserted.

  11. Thank you Joe Bongiovanni, that clarifies it for me. I’ve got a feeling Fran would question this, has anyone written her?

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