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
- a failure to optimally use resources (including people)
- 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, Mitchell, Wilson )
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 –