Home > Uncategorized > Common MMT and post-Keynesian beliefs

Common MMT and post-Keynesian beliefs

from Marc Lavoie

MMT is without a doubt part of the post-Keynesian tradition. Besides the link between the government and the central bank, as well as a few claimed novelties, such as the MMT view of the Phillips curve, the implicit MMT macroeconomic theory relies on post-Keynesian macroeconomics and its belief that the market cannot be left on its own and thus must be tamed; MMT relies on a credit-creation view of banking – the endogenous money view of post-Keynesians, more specifically I would say the horizontalist view – where banks are special financial institutions which are something more than financial intermediaries and where central banks essentially pursue defensive operations; there are obvious similarities between the circuit of State money as described by MMT authors and the circuit of private money as described in the Franco-Italian post-Keynesian monetary circuit approach; MMT authors, just like (almost ?) all post-Keynesians reject 100 percent reserve-related schemes that have regained popularity since 2008; both MMT and post-Keynesian economists believe that fiscal policy, not monetary policy, should be the main tool to stabilize the economy, and hence that quantitative easing is unlikely to jump-start the economy. They also favour functional finance à la Abba Lerner, or at least some version of it.

MMT authors and post-Keynesians alike reject the following statements, often heard from politicians, pundits and several mainstream authors: the government will run out of money; the government will go broke; the government should run its finances like a household; government deficits bring higher interest rates; government deficits take savings away from the private sector and lead to crowding out, and hence a reduction in private consumption and private investment. As Mitchell (22 August 2016) puts it, “While Post Keynesians rejected the so-called mainstream ‘crowding out’ theories (where fiscal deficits are alleged to push up interest rates and stifle private investment), MMT provides new ways of understanding why crowding out cannot occur in a modern (fiat) monetary system”. Thus there is a lot, both on the positive and negative sides, that MMT advocates and post-Keynesian authors agree upon.Modern Monetary Theory and its Critics

  1. October 29, 2021 at 10:17 pm

    Fullbrook’s book includes no critics of MMT prepared to state the obvious: governments do not in fact spend money into existence. Government spending with a private-sector vendor involves a perfectly ordinary bank-to-bank transfer of positive balances from the govt account at the central bank to the bank account of the vendor. https://stochasticpress.com/economics/2021/10/28/the-money-supply/

  2. Ikonoclast
    October 29, 2021 at 11:22 pm

    Prof. John Quiggin’s review of a relatively new (at the time) MMT textbook is quite good. In the end he gives faint praise perhaps. I would be more critical.


    “Neither modern, nor monetary, nor (mainly) theoretical.” That sums up MMT. There is nothing new or radical about it, except its own fervor for claiming it is new and radical. I went through my period of immoderate enthusiasm for MMT. Then as I learnt more, I learned that it really was highly derivative. There is no essential theoretical advance in it.

    “MMT synthesizes ideas from the State Theory of Money of Georg Friedrich Knapp (also known as chartalism) and Credit Theory of Money of Alfred Mitchell-Innes, the functional finance proposals of Abba Lerner, Hyman Minsky’s views on the banking system and Wynne Godley’s Sectoral balances approach.” – Wikipedia.

    Even here “synthesizes” is somewhat too generous. A genuine synthesis creates a new compound not a “mere” new aggregate, to use a chemistry/physics metaphor. I scare quote “mere” because aggregates are useful too as any engineer knows. MMT re-aggregates existing insights into state money. If it does prove useful the use will be in advocacy and pedagogy. Some MMT advocates do gain traction by making economic ingenues see our money system in a new way, given that said ingenues have previously only heard crude, bowdlerized economics from monetartist and neoliberal capitalist apologists.

    In the comments on Quiggin’s post Brad DeLong wrote:

    “MMT has a… strange & naive trust in the efficiency of markets. In MMT, if you shift to an unsustainable fiscal policy there is an immediate reaction in the price level in the price level & the inflation rate, as investors frantically try to move their wealth out of government bonds and into currently produced goods and services.

    This is problematic unless you are a truly efficient market fundamentalist…”

    I am not a DeLong fan in general but this seems to hold some water in the current system. Some radical de-powering of of financial capital would have to accompany basic MMT policies and perhaps MMT indeed envisages that.

    I also find MMT’s main advocates have a strange & naive trust in official measures of inflation. This seems to suit their programmatic desire to find minimal potential risk of inflation in MMT policies: a case of motivated reasoning perhaps.

    But in the end, MMT is still mainstream, It still accepts and works with and within capitalism. Capitalism will soon collapse due to its external contradictions with the natural, supporting world. All political economy posited on the axioms of capitalism will be rendered obsolete by that reality. Much more radical thinking is now required. It’s either that or total collapse.

  3. Patrick Newman
    October 30, 2021 at 10:46 am

    Certainly, the media in the UK suckles on the Micawber moneynomics idea of public financing. It is the dominant assumption when there is talk of proposed public expenditure – especially state benefits. There is, unfortunately, a powerful resonance with the public in talking about state spending as if it is the same as household accounts but just larger!

    • October 30, 2021 at 7:32 pm

      Governments ARE like households, but with roll-over and seigniorage. Some grand estates are in fact households with roll-over (debt can be passed on down the generations) but none have seigniorage.

  4. Craig
    October 30, 2021 at 8:02 pm

    MMT is a good reform exactly like UBI, a job guarantee and all of the correct refutations of many of the assumptions of neo-liberal macro.

    Now, a 50% discount/rebate at retail sale is a paradigm changing policy because it is an actual action, because it mirrors the way that money is presently created albeit only as debt (accounting entries), because it is implemented at a point that is strategically, integratively and continuously a significant part of the economic process itself (retail sale) and because the policy is the very expression of the new monetary and financial paradigm, namely Direct and Reciprocal Monetary Gifting.

    Finally, it resolves virtually all of the deepest problems of modern economies (individual monetary scarcity, systemic monetary austerity and price and asset inflation) and does the impossible so far as orthodox economic theory is concerned, that is it BENEFICIALLY integrates price deflation into profit making economic systems. This last comprises two of the primary signatures of historical paradigm changes, that is complete conceptual opposition and temporal universe inversion of reality.

    That’s all.

  5. Gerald Holtham
    October 30, 2021 at 9:20 pm

    I want to join Craig’s crusade but form a break-away movement. I think the discount on retail sales should be 37.25 per cent not 50 per cent. Now, how do we decide who’s right?
    Actually, I’m not sure how we enforce either since retailers will be able to argue about the base from which the discount functions but no doubt Craig has a solution.

    • Craig
      October 30, 2021 at 11:16 pm

      Well there’s a no brainer answer to that question. Retail sale is the end point of production so it’s obviously whatever their price is at that point that is reduced 50%. Now one could say that: “Well what if the retailer and/or any other business model before retail sale just bumps their price by 10-20%?”

      Answer: 1) part of the opting into the 50% discount/rebate policy will be that if your overall costs exceed the cost savings that the 50% discount/rebate bequeaths (payroll tax eliminations, large corporate and individual income tax cuts) read never, then you will able to raise your prices. If you don’t meet that standard then any revenue garnered from a price rise will be taxed at a rate of 100%.

      2) This applies to all business models

      3) Competition. If you raise your prices by a largish percentage how much market share are you likely to lose if even one of your competitors doesn’t raise their prices?

      4) Even if despite the tax incentives and tax dis-incentives that would be a part of the overall program of implementing the new paradigm and its policies, if yoy inflation is still 2-3% then index the discount percentage to that percentage rate…and no harm no fuss everyone’s purchasing power is still doubled.

    • Meta Capitalism
      November 1, 2021 at 3:21 am

      Henry Louis Mencken [1917] once wrote that “[t]here is always an easy solution to every human problem — neat, plausible and wrong.” And neoclassical economics has indeed been wrong. Its main result, so far, has been to demonstrate the futility of trying to build a satisfactory bridge between formalistic-axiomatic deductivist models and real world target systems. Assuming, for example, perfect knowledge, instant market clearing and approximating aggregate behaviour with unrealistically heroic assumptions of representative actors, just will not do. The assumptions made, surreptitiously eliminate the very phenomena we want to study: uncertainty, disequilibrium, structural instability and problems of aggregation and coordination between different individuals and groups. (Syll 2016, 56)

      The punch line of this is that most of the problems that neoclassical economics is wrestling with, issues from its attempts at formalistic modeling per se of social phenomena. Reducing microeconomics to refinements of hyper-rational Bayesian deductivist models is not a viable way forward. It will only sentence to irrelevance the most interesting real world economic problems. And as someone has so wisely remarked, murder is unfortunately the only way to reduce biology to chemistry — reducing macroeconomics to Walrasian general equilibrium microeconomics basically means committing the same crime. (Syll 2016, 56)

      — Lars Pålsson Syll. On the use and misuse of theories and models in economics.

      Heroically unrealistic assumptions, as Craig is so found of posting as THE easy solution, is in reality an overly simplistic pseudo-solution to complex social realities. Craig’s “no brain[er]” answer to Gerald really doesn’t address the fundamental questions that beg to be answered. Take the heroically naïve assumption “If you don’t meet that standard then any revenue garnered from a price rise will be taxed at a rate of 100%.” Who and how will the 100% tax rate be enforced? Of course, Craig will never seriously address such reasonable questions but rather just parrot more heroically naïve assumptions as “no brainer” solutions.

  6. Craig
    October 31, 2021 at 10:54 pm

    Here is a post I just made to Stephanie Kelton’s podcast The Lens.

    Don’t get me wrong, all of the heterodox reform research of Mosler, Keen, Hudson etc. is well and good, but the deepest part of the problem has not been addressed and that is discovering the single new paradigm concept and finding an efficacious way to integrate it into the economy that actually changes the nature of its entire pattern. The present paradigm for the creation and distribution of money is Debt Only. The new paradigm is Direct and Reciprocal Monetary Gifting and the most efficacious way to implement the new paradigm is with a 50% discount to consumers at retail sale every penny of which is rebated back to the merchant giving it to consumers by the FED or another monetary authority. This resolves the problems of individual monetary scarcity, systemic austerity and any possibility of inflation, and enables many more political and economic possibilities because it integrates interests and agendas on the left and the right. Again, this in no way belittles current heterodox research but rather affirms their conclusions and simply makes their stated goals a reality.

    • Craig
      November 1, 2021 at 5:50 pm

      “Who and how will the 100% tax rate be enforced?” Who enforces tax laws now? The government via the IRS of course. Maybe we should have a new forensic accounting control fraud unit headed by Bill Black to decipher it all. Actually I would expect most enterprise to abide by the new paradigm and its regulations simply because they are a beneficial “an offer they cannot refuse” not an extortion. Anyway, competition will probably keep inflation in the low single digit range as it does now and then, as I have noted before, all you’ll have to do is index the 50% retail discount to that rate and make examples of any outliers.

      You really should adopt a more positive and affirming attitude in your posts instead of the high critic/counsel of despair/erudite duncery tone that marks most of your posts.

      • Meta Capitalism
        November 1, 2021 at 11:18 pm

        Craig you beg the question once again and fail to think deeply past your great simplifications for the IRS can only enforce laws _made by Congress_ and unless Congress enacts the laws your heroic idealism dreams up pragmatic reality of competing political interest groups in the real world make your fantasies impossible. Just look at Biden’s problem with Manchin and Sinema, let alone the GOP and its religious worship of ‘market fundamentalism’. Just because you can idealistically think something does not make it real or even remotely possible.
        One look at the US proves this point succinctly. Even the Nordic countries, one of which I have lived, must contend with politics to create their social democracies that come closer to the ideals you imagine, and even they would raise serious questions about your great simplifications.
        In many ways you are behaving just like the neoliberal economic establishment that creates highly abstract idealized models and ‘theories’ (‘terrible simplifications’) divorced from reality. Your ‘theory’ is just as idealized and divorced from reality as todays mainstream economics.
        While I commend your high ideals (for surely we are suffering from a lack of ideals in society today) your ideas must also be practical enough to render them useful to function the real world in association with your fellows in society within which we must all contend with complex socio-political realities.
        And no amount of calling people names will change this fundamental reality. Unless your heroic ideals are wedded to real world pragmatism and reality they are really just naively great simplifications.

  7. Edward Ross
    November 1, 2021 at 10:41 pm

    Now re reading Marc Lavoie’s post October 29,2021
    I come down to Meta Capitalism, November 1,2021
    Where in my humble opinion he clearly addresses the problem Lars Syll outlined previously. Furthermore talking with my largely uneducated workmates and listening to their concerns that economic policies and thinking ,although expressed in simple terms, are the same as those expressed by Meta Capitalism. To me in my simple mind this highlights, the need for economists to reconnect to the real world, before making false assumption’s about the concerns of real people in the real world.Ted

    • Craig
      November 2, 2021 at 12:13 am

      Two times your current purchasing power, potentially twice as much demand for every consumer product and service and ending inflation all at the same time with a single policy that is an integral part of the temporal universe of the economic process itself seems like a nice little real effect in the real world of real people.

    • Craig
      November 5, 2021 at 5:52 pm

      “Craig you beg the question once again and fail to think deeply past your great simplifications for the IRS can only enforce laws _made by Congress_ and unless Congress enacts the laws your heroic idealism dreams up pragmatic reality of competing political interest groups in the real world make your fantasies impossible.”https://rwer.wordpress.com/2021/10/28/unmeasured-illth-increasing-faster-than-measured-wealth/

      What? Do you think I’m saying that me just posting here will make the new paradigm the reality? C’mon meta. Why do I urge people here to think in terms of starting a mass movement? I understand that every change ultimately comes down to politics. All I’m trying to do is make people look at the actual temporal universe, empirical and mathematical effects and possibilities of the policies I advocate so that they can see that they indeed do resolve the deepest problems, create new realities and can integrate the interests of opposing constituencies….so that communicated in a mass movement can create the hope of REAL change in individuals’ and commercial decision-makers’ minds and thus herd pols toward it.


  8. Ken Zimmerman
    November 8, 2021 at 9:46 am

    David Graeber helps us understand money..

    The evolution from barter to money is an old story in economics, repeated down the centuries in one form or another, to the point that even children are aware of it. It also happens to be only that: a story, and one with precious little evidence to back it up outside the heads of those who tell it.

    While some economists imagine primordial villages and basic agricultural systems where birds are exchanged for flowers to illustrate the history of money, Abel and Bernanke come up with something much more immediate: The economist is hungry.

    Barter systems would indeed make it difficult for an economist to eat lunch. Would a restaurateur exchange his goods for a lecture on monetary policy? Perhaps not, and the meal goes unsold and the economist goes hungry. Thankfully, the economist has students to whom he can sell his knowledge for dollars, which then function as a medium of exchange with which he can purchase his meal. The restaurateur is paid, the economist is satiated, while the students have learned something worthwhile.

    But the only people who pay Ben Bernanke directly for his thoughts are investors. Students do not. Perhaps instead they borrow money to pay for the lecture, along with other lectures, a place to live, and the associated administrative costs of providing lectures to students. The interest on the debt eats up most of the students’ subsequent income from the job market, leaving them with no chance of ever paying off the principal in a reasonable timeframe. The debt will stick with them forever, even shaving off dollars from their Social Security checks, and make the normal mileposts of adult life—marriage, children—difficult or impossible to achieve. Fed up with their narrowed prospects, they join a group of activists who have taken up space, literally, in the shadow of New York’s financial institutions and they start talking about what they have in common: their debt. And they decide to do something about it.

    Now this story, like the one the economist tells about the origin of money, is a stylized one used to illustrate broader truths about the world. But unlike what economists have said about money, it largely accords with known facts, and for that we have to thank the radical anthropologist David Graeber, who died earlier this week at the age of 59.

    In his major work Debt: The First 5,000 Years, Graeber asks the questions, What was debt? What was its history, where did it come from, and how did it take such a central role in our personal and economic lives? Why was our language of obligation and morality the same as the one used to describe our credit card bills? Why does the Lord’s Prayer ask God to “forgive us our debts as we also have forgiven our debtors”? 

    To even begin to answer this question, Graeber had to start with money and the bad history used to explain it. Generations of archaeologists, anthropologists, and historians had tried to find the origins of money (John Maynard Keynes referred to his own studies of money as his “Babylonian Madness”), but economists, especially in their textbooks, resorted to fancy. 

    These just-so stories about how money emerged from barter can evoke a kind of childish primitivism  (“You have roosters, but you want roses,” one textbook says) or use imaginary historical examples. Even the stalwart progressive Joseph Stiglitz uses “what appears to be an imaginary New England or Midwestern town,” Graeber writes, to explain how money can replace barter, in the form of farmer Henry selling his firewood to “someone else for money” and then buying shoes from Joshua. 

    Graeber, in contrast, identifies the origin of money as “the most important story ever told” for economists, tracing it back to Adam Smith’s Wealth of Nations and even to Aristotle. This was “the great founding myth of economics,” he writes, that money was not in fact the creation of governments. It followed that economics was its own form of inquiry, separate from other ways of thinking about social life.

    Graeber points out this account “has little to do with anything we observe when we examine how economic life is actually conducted, in real communities and marketplaces, almost anywhere—where one is much more likely to discover everyone in debt to everyone else in a dozen different ways, and that most transactions take place without the use of currency.” 

    Whereas the traditional account puts barter before money and money before debt, Graeber reverses this, noting that barter tends to only emerge in pre-industrialized societies when exchange happens outside of a familiar cultural context.

    In the historical record of ancient societies in Mesopotamia, for example, there are prices of things that may be denominated by “money” (what an economist would call the “unit of account”). But merchants “mostly did much of their dealings on credit,” and “ordinary people buying beer from the ‘ale women’ or local innkeepers  did so by running up a tab, to be settled at harvest time in barley or anything they had on hand.”

    Where debt emerged in Sumeria, so did novel forms of social domination, whose eventual effects were so dire as to necessitate harsh management of its lenders. Those early Sumerian loans to peasants quickly led to peonage, with farmers “forced into perpetual service in the lender’s household.” Fields would go unsown or not be harvested as farmers would leave their homes in order to avoid collection. The result was periodic debt amnesties.

    The book covers everything from Neil Bush’s divorce to speculation that the major world religions were responses to the coin-using great empires of the “Axial Age” of 800 B.C.E. to 600 C.E. (“It would be foolish to argue that all Axial Age philosophy was simply a meditation on the nature of coinage, but …” runs one especially expansive passage.) There is a reexamination of Cortez’s conquest of the Aztecs being spurred on by his own debt, and vignettes about the functioning of debt and money in Madagascar, where Graeber did field anthropological research.

    Debt’s deep dive into the whole history of civilization had a paradigm-shifting political point. Graeber wanted to show that “war, conquest and slavery … played a central role in converting human economies into market ones,” and that “historically, impersonal, commercial markets originate in theft.”

    He wanted to show that not only did money not arise from barter but also that states and markets worked hand in hand in its creation. And more than that, he wanted to interrogate an economic and historical worldview that tried to “reduce all human relations to exchange, as if our ties to society, even to the cosmos itself, can be imagined on the terms of a business deal.” 

    He ended Debt with a call for “some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt.” This would not only relieve so much genuine human suffering, but also … would be our way of reminding ourselves that money is not ineffable, that paying one’s debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to all agree to arrange things in a different way.

    Thanks to Debt’s almost absurd good timing, as well as his own involvement in Occupy, Graeber became one of the most prominent leaders in the post-Occupy anti-debt movement. Or rather, in the spirit of an anarchist activist, he enabled others to take the lead. Graeber’s efforts in helping start what would later become the Debt Collective were more like being “a facilitator or putting a band together,” Taylor, one of the group’s leaders, said

    The initial group that Graeber helped organize, Strike Debt, instituted a “rolling jubilee,” buying up medical debt and forgiving it. The group evolved to organize challenges to student loan debt incurred at for-profit colleges and has claimed to have helped eliminate over $1 billion of debt. Its efforts garnered the respectful attention of The New Yorker, which described the jubilee as “one of the few Occupy offshoots that has had a tangible effect on people’s lives.”

    Debt Collective’s work would be echoed directly by the dueling calls from Elizabeth Warren and Bernie Sanders to cancel student loan debt during the 2016 presidential campaign.

    The ideas in Debt also have been picked up by the Keynes-inspired thinkers that make up the school of Modern Monetary Theory, who see the state as a tool to mobilize the economy’s resources for the common good, unlimited by its ability to tax or take on debts and deficits. Alexandria Ocasio-Cortez referenced MMT when it came to funding the Green New Deal, and a leading MMT thinker, Stephanie Kelton, worked with Sanders. One of the brightest stars in the MMT firmament, Nathan Tankus, is an avid reader and admirer of Graeber.

    “If we end up winning the fight over debt, money, and deficits and manage to fundamentally reshape this society it will have been in no small part of because of Graeber’s work,” Tankus said. 

    And while he is credited with coming up with the slogan “We are the 99 percent”—perhaps Occupy’s most enduring rhetorical legacy—he claimed that he could only be held responsible for “the 99 percent,” while “two Spanish indignados and a Greek anarchist” were responsible for “We,” and only later did a “food-not-bombs veteran put the ‘are’ between them.” 

    This impulse to go beyond himself, to submerge himself in the collective, wasn’t foreign to his scholarly work, either. At the time of his death, Graeber was working with archaeologist David Wengrow on a history of social inequality. It’s supposed to cover the last 42,000 years.

  9. Craig
    November 8, 2021 at 7:59 pm

    Yes, Graeber’s research confirms that the human civilization long monopolistic paradigm for the creation and distribution of money, namely Debt Only, is the root of our social, political and economic problems. As you mention the ancients often utilized periodic debt jubilees to deal with the inevitable debt build ups. Although that was better than what we dumb moderns seem to be able to muster it was still just a reform. Now if you implemented a 50% discount/rebate monetary and price policy at retail sale (which being an integral point of the economic process itself that would continuously benefit everyone whenever they participated in exchange/the economy) that immediate doubling of their purchasing power would go a long way toward enabling them to continuously pay their debts. Implement a 50% discount/debt jubilee at the point of loan signing and you make jubilee a continuous and integral part of the economic process itself….instead of the problematic, oppressive and wholly exterior to the actually productive economy parasite it currently is (because retail sale is the terminal ending point of the economy where production becomes consumption).

    Here is the latest post on my blog Wisdomics-Gracenomics:

    The Even Bigger Secret Concept Than The New Monetary and Financial Paradigm Concept of Gifting

    And that is the natural philosophical concept of grace. An aspect or aspects of grace in fact has always been the effect(s) of every historical paradigm change. For instance, the original human paradigm change from mere struggle for survival to self awareness had the effect of making ethics and morals real. Grace being love in action and love being the supreme moral and ethical value, awareness of it was the original cosmic blessing (or curse depending on your choices in life). Hunting & Gathering to Agriculture? Abundance/greater survival. The Reformation? Non-domination/graciousness. Gutenberg Press? Abundance. Cybernation? Abundance. Monetary Gifting? Economic abundance, Freedom/the enabling of choice, The beauty of dynamic economic flow/gracefulness, The enabling of wisdom (Again, love and graciousness are the pinnacle of wisdom.

    And grace by the way is also the next new zeitgeist. (The present zeitgeist is Power and Profit)

    Zeitgeists are new mental/self actualized realities. The new monetary and financial paradigm of monetary grace as in Gifting will do more to enable the new zeitgeist of grace than any other policy action/reality because the repetitive and continuous nature of a gracious monetary gift at retail sale will enable us to consciously self actualize the goodness, the gratitudiness, the problem solving practicality and the wisdom of the natural philosophical concept of grace/graciousness.

    Just think about what the continuous experience of gratitude for a gift whenever you bought something, could positively lead to.

    • Ken Zimmerman
      November 19, 2021 at 9:34 am

      Craig, many ancient civilizations were systematic in not allowing long-term debt or great variations in wealth to accumulate. For example, both the Babylonians and Persians (Achaemenid Empire).

      • Craig
        November 20, 2021 at 7:00 am

        Yes I’m aware of that. Michael Hudson does a good job of deliniating which civilizations used debt jubilees to avoid disintegration and thus maintained social cohesion. Since the Roman empire though such has fallen out of practice.

        The problem is even debt jubilees are mere palliatives because the problem of debt build up always kept returning. What we need is a set of policies that continuously reduce debt while simultaneously securing relative individual monetary abundance. That is what the 50% discount/rebate policy does, along with a debt jubilee and second 50% discount/debt jubilee at the point of loan signing do. Everyone participates in retail sale often numerous times a day. Hence these policies of Gifting become such an integral part of the economic process and our economic lives that it changes the paradigm of money, finance and the economic system.

  10. Gerald Holtham
    November 21, 2021 at 11:32 pm

    How money originated has no necessary implication for its current form and function. Most contemporary monetary economists are completely agnostic about the barter versus debt discussion or, indeed, whether it was a bit of both.
    It is true that secondary money creation by commercial banks means new money balances have a debt counterpart. But that isn’t really true of primary money creation by the government. When the government writes cheques that are paid into the banking system, they end up as bank reserves held at the Central Bank. The accounting fiction is that these are liabilities of the Central Bank but they are a weird sort of liability in that they never have to be repaid and, indeed, can’t be repaid because they are the ultimate medium for settling transactions. Asking for repayment is like taking a dollar bill to the Treasury and asking for repayment. All they can give you is another dollar bill. The base of the money supply isn’t really debt.
    There is a school of thought, and an argument, for giving the state a monopoly of money creation but most people think private banks have, or should have important functions. It turns out to be very difficult to let banks carry out those functions without that resulting in assets that people can transfer to settle transactions. Artificially separating investment accounts from transaction accounts and forbidding transfers of the former is difficult.
    On the other hand we have the crypto enthusiasts who want to create non-state, non-debt money. So far that is creating a new, highly volatile speculative asset market but shows little sign of replacing official money as a settlement medium, except by criminal enterprises. If it succeeds it will privatise seignorage and lead to competitive moneys. If commercial banks can take deposits in the stuff and lend them out we will recreate the 19th century. Free marketeers who think competition is the answer to every problem will welcome that development but monetary history does not suggest it will solve any problems.

    • Meta Capitalism
      November 22, 2021 at 12:25 am

      I do so enjoy your thoughtful comments Gerald. Thanks.

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