Comments on RWER issue no. 71

real-world economics review issue no. 71
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You may post and read comments on individual papers by clicking below on the paper titles.  To qualify for posting, comments must refer directly to the RWER paper, and not just to other comments.  Posted comments may be considered for publication in the journal.

In this issue:

  1. Patrick Moriarty
    May 29, 2015 at 1:25 am

    Great article, Richard! I had no idea things were so bad there.
    I’m not sure that China’s GNI has passed the US. Although PPP values would partly close the gap, the World bank figures for 2013 (in 2005 exchange rate $) give 4.84 trillion and 14.46 trillion for China and US respectively.

  2. Lino Zeddies
    May 31, 2015 at 10:41 am

    Very interesting proposal!
    One issue I would be worried about though is that if this reform would work out smoothly, eventually the government might spend too many TANs and given the level of corruption, give considerable amounts to cronies. Therefore some limiting measures might be appropriate or some independent committee deciding on a cap for TAN spending/creation.
    Interestingly, there are many parallels to a sovereign money reform.

  3. Richard Smith
    June 1, 2015 at 1:28 pm

    Thanks Patrick. I’m pleased you found the article useful. But you also had no idea how fast China’s economy has been growing. According to the IMF in December 2014, China produced $17.6 trillion vs. $17.4 trillion for the U.S. in 2014. Google it; you’ll see. But GDP is of course only one measure of size. If you compare by indices of major resource consumption, China’s economy is vastly larger than the U.S. economy even allowing for the 20% or so industrial production which is producing goods we used to produce ourselves in the west.

  4. Jorge Buzaglo
    June 1, 2015 at 6:57 pm

    According to the article (p. 52) “… it has been estimated that [Chinese] princelings and other high cadres, cronies and capitalists have funneled between 1 and 4 trillion U.S. dollars in unreported assets out of the country since 2000.”

    One has however to keep in mind that (according to Tax Justice Network) the global super-rich elite had between 21 and 32 trillion dollars hidden in secret tax havens by the end of 2010 (

    Let us thus roughly estimate the relative importance of Chinese flight capital. At the lower limit, the Chinese super-rich elite would own 1 of 32 trillion dollars hidden in tax havens — that would be around 3 percent of global hidden capital. This would mean, given the present relative size of the Chinese economy, that Chinese capitalists and associates have still a long way to go to attain the levels of corruption normal in global capitalism.

    At the other extreme, the Chinese super-rich would own 4 out of 21 trillion, or 19 percent of total hidden funds—a much higher share than China’s (13 percent) share of global GDP. This upper limit would indicate much higher levels of alienation, fear and corruption among Chinese capitalists (and associates) than those of the average global capitalist — average levels very high and deleterious in themselves.

    The truth is perhaps somewhere in between.

  5. anmayhew
    June 1, 2015 at 9:11 pm

    Ib Ravn makes the sensible suggestion that economists in explaining how money is created in modern economies should skip such conventional explanations as the credit multiplier, fractional reserve, and banks as intermediators and go straight to the processes themselves as described by, for example, those at the Bank of England (McLeay, Radia & Thomas). For, says Ravn, “when explaining to a child how the solar system is organized, who would start by offering the geocentric model?” Unfortunately, in laying out the analogies that he suggests we use, Ravn falls back on other misstatements of actual processes. As, for example, in his statement that “a nation’s money constitutesT a finite and countable sum.” This is only the case if you take a statistical snapshot at the end of each accounting period; there is not a fixed fum available to use as the widespread use of credit cards reveals. The credit card I use may in any month be worth $0 or up to some thousands depending upon how I use it. Same for the lines of credit of firms and for government transactions. I suggest that those interested in useful analogies to explain money creation check out my article, “Copeland on Money as Electricity,” in the July 2010 issue the RWER. Morris Copeland developed his electricity analogy for money by recognizing that money and credit are essentially the same in modern economies and that the amount of money depends upon the activities of transactors, be they individuals, firms, banks, central banks, or central governments. Ravn is absolutely right that we need a good analogy to explain what money is and how it is created; Copeland provided the best that I have ever encountered.

  6. stephen browne
    June 14, 2015 at 2:01 pm

    this technological solution is oblivious to, or ignores (in order to mislead), the political solution that the overwhelming majority of the greeks want: a socialist economy, vis a vis a neoliberal one that they have now. this technological solution will produce the result the greek majority wants only when implemented with the socialization (workers and consumers own and operate), equal distribution (every member of the society has equal stake in), and public-interest-driven management (as opposed to maximum-private-profit-driven), of all major means of production including land and real estate properties. otherwise, most of the anticipated technical problems such as “spontaneous usury,” speculative or rogue currency manipulation, and cronyism in currency allocation, will happen, canceling any positive effects.

  7. June 21, 2015 at 4:32 am

    Why not skip TANs and go straight to Bitcoin?

  8. Walter Hanschitz-Jandl
    June 23, 2015 at 10:10 am

    As a layman I would note first on Ravn’s article that it does not matter, in a layperson‘s understanding, whether we call the bank practice decribed by Ravn as money creation or give it another name. We would not make a mistake if we defined as money only tangible money. In this case there would, by definition, be no money creation by commercial banks. But maybe there would be a problem through certain bank practices which certain authors call money creation. Of account „money“ we would then speak as a claim to (tangible) money. What it really is. To transfer such claims, however, is generally accepted as payment. For this reason manipulations with account „money“ can have the same effects as the manipulation of the supply of tangible money. This is – basically – easy to understand for us laypersons, I think.
    The article does not provide any evidence for such manipulations. Nevertheless it permanently speaks of the fact of „money creation“ by banks. In reality it only tries to explain the way in which this can happen. But these two things must be kept apart, showing an empirical fact and explaining theoretically a possibility. It may be common in economics to think up „reality“, but it should not be so.
    Richard A. Werner, in a recent article, claims to provide the first empirical evidence for money creation by individual banks. Nevertheless many authors have been dealing with money creation by individual banks for over hundred years as if it were a proven fact (should one not say that usurpation, or fraud or theft through this practice is the fact, since the question if this is money creation is a question of definition?).
    Generally, I wonder if it is correct to speak of money creation ab nihilo, as certainly no bank will make loans in the way described without possessing tangible money.
    What I do not understand is, that Ravn treats our present (tangible) money as if it were debt-free. To my knowledge banknotes are issued in a process of mutual indebtedness against interest just like account „money“, which is a problematic practice in my view.
    This is why I like his idea of debt-free money, which is spent into being, instead of our „double negative money“ („I give you an IOU of mine as credit“), which is incomprehensable to simple laypersons‘ minds like mine (or maybe the practice is mad, but only simple minds understand this).

  9. June 24, 2015 at 8:14 pm

    Its a very interesting proposal especially in relation to the way playing cards where introduced into early Canada’s economy to combat similar stagnant circumstances:

    “…it occurred to me to issue, instead of money, notes on cards, which I have cut in quarters. . . I have issued an ordinance by which I have obliged all the inhabitants to receive this money in payments, and to give it circulation, at the same time pledging myself, in my own name, to redeem the said notes.”

    It is quite related since much of the purpose was to facilitate taxes to the king or rather to not have to worry about the dangers and cost of transport to France. Much of the problems were solved and the issues that arose afterwards seem well addressed by the tax-coin implications of this proposal.

    “As a financial tool, card money played a significant role as a means of exchange. Despite the worries of French officials, colonial authorities were successful in arguing that card money served as a financial medium in Canada just as coinage did in France (Bank of Canada, 1990, p. 9). An economic substitute to the dangerous transfer of specie across the Atlantic, card money allowed France to benefit, since the King did not have the obligation to send coinage to Canada, which would have risked loss “either from the sea or from enemies” (Bank of Canada, 1990, p. 8).”

    Probably there is also useful point from the lecture Ideal Money ( by John Nash. There is a lot of small points made about Greece’s position and history in relation to the Euro. Specifically about issuing a new currency:

    ” There is a problem for the issuer of a currency, whether in coinage, paper, or electronic form, that if this currency (or money) is too good, then it could be exploited by all sorts of parties and interests that might simply wish to safely deposit a store of wealth or even to conservatively invest some assets for future good value.

    …under extreme conditions the currency issued by a state could be exploited by parties not of that state as a sort of “safe-deposit box” on which they would not need to pay any rental fees or fees like those paid to the managers of mutual funds for investment.

    If the value trend of a currency is such that a natural interest rate is not negative, then it is not an unattractive task for a central currency authority to mint or print the physical currency that would circulate. Then the issuer of currency would be partially in the position of a borrower not paying interest on borrowed money.

    …the issuer of a currency also needs to be properly prepared for the possibility of speculation on the part of interests domiciled in foreign states, etc., etc.

    But, simply to improve the conditions under which agreements regarding long-term lending and borrowing would be made, a money would be more or less equivalently good if it had a completely steady and constant rate of inflation. Then this inflation rate could be added to all lending an borrowing contracts. Hence, the problem of a money that would be too good is avoidable.”

    Here is some more quotes and explanations of different writings and lectures on the subject:

    Ultimately there maybe of a problem of “political corruption” or insecure issuance, and so I think also what is relevant is Smart Contracts ( and their implementation: (

  10. January 13, 2016 at 7:07 pm

    As a layman I would note first on Ravn’s article that it does not matter, in a layperson‘s understanding, whether we call the bank practice decribed by Ravn as money creation or give it another name. We would not make a mistake if we defined as money only tangible money. In this case there would, by definition, be no money creation by commercial banks. But maybe there would be a problem through certain bank practices which certain authors call money creation. Of account „money“ we would then speak as a claim to (tangible) money. What it really is. To transfer such claims, however, is generally accepted as payment. For this reason manipulations with account „money“ can have the same effects as the manipulation of the supply of tangible money. This is – basically – easy to understand for us laypersons, I think.

  11. January 13, 2016 at 7:09 pm

    Great article, Richard! I had no idea things were so bad there.
    I’m not sure that China’s GNI has passed the US. Although PPP values would partly close the gap, the World bank figures for 2013 (in 2005 exchange rate $) give 4.84 trillion and 14.46 trillion for China and US respectively.

  12. January 21, 2016 at 6:10 pm

    A short comment on “Explaining money creation by commercial banks: Five analogies for public education” by Ib Ravn. On p. 102 he says “But a bank can: create legal tender out of something as evanescent as a promise to pay.” I would suggest that it is incorrect to declare that a private bank creates legal tender when they make a loan. Please see the Royal Mint’s definition of ‘legal tender’:

    • merijntknibbe
      October 1, 2016 at 3:03 am

      Yep. The point is: the government guarantees that the bank money has a 1:1 exchange rate with legal tender. See however what happened in the EU, in respectively Greece and Cyprus.

  13. Stanley Mulaik
    September 17, 2017 at 9:34 am

    Have you seen my (Mulaik’s) swimming pool model of the sector inputs and outputs to/from circulation? This is an elaboration of the bathtub or sink model but with multiple inputs and outputs. This is based on a basic equation in hydrology of how changes in quantity of water in a basin is a function of the difference between the net inflows of all inflowing sources of water and the net outflow of all drains of water from the basin: ΔC = INFLO – OUTFLO. This is a simple differential equation. What is important is what is in INFLO and OUTFLO. The analogy from hydrology is that water becomes money, inflowing water coming into a confined basin corresponds to money flowing into circulation from several sources in a specified region or nation, and outflowing water is money leaving circulation through various drains or outflows. Circulation is the flow of money from party to party in exchanges of goods and services for money in the confined region:

    C is quantity of dollars in circulation in exchanges of goods and services for dollars.
    ΔC is change during some interval of time in the quantity of dollars in circulation.

    INFLO = [X+G+I+L]
    X = export income to country
    G = government spending = [Gt + Gd + Gi] where
    Gt is tax-based revenues spent,
    Gd is quantity of dollars in deficit spending
    Gi is interest payments on US securities
    I = Investment into businesses
    L = Bank loans to private sector (this is largely overlooked but Steve Keen predicted the collapse of the banks in 2007-2008 from following the plots of private debt over time, so I include the inputs into circulation in the economy of dollars from bank loans. Commercial banks create debt in lending to borrowers.

    OUTFLO = [M+T + S + P]
    M = buying IMPORTS from foreigners
    T = tax revenues collected
    S = savings (buying securities, CD’s, retailning dollars in savings accounts, IRA’s in annuities, not spending)
    P = payback to banks for loans from banks

    INFLOs, when positive, increase the quantity of dollars in circulation.
    C(i+1) = C(i) + INFLO(i) – OUTFLO(i) = C(i) + ΔC(i)
    C(i) is quantity of money (dollars) in circulation at the beginning of interval (i).
    C(I+1) is the net quantity of dollars in circulatlion at the beginning of the next interval (i+1).
    ΔC(i) is net change in quantity of dollars in circulation during interval (i).
    INFLO(I) is the net quantity of dollars flowing into circulation during interval (i).
    OUTFLO(I) is the net quantity of dollars flowing out of circulation during interval (i)

    There exists a quantity of dollars in circulation C* where there is just enough dollars circulating to clear the market of goods and services with full production and employment, respectively, at stable prices.

    Inflation is excess dollars in circulation beyond what is needed to clear the market at stable prices. In bidding for goods and services, those with the extra dollars are able to bid up the prices of goods and services and win them in competition with others not having excess dollars. Inflation occurs when C > C*> 0 and the greater C – C* > 0, the more inflation you will have.

    Deflation is producing more goods and services at given prices than there is money in circulation available to clear them all. It leads to layoffs, reduction in prices, business failures, etc.. Deflatiion occurs when C < C* and the less that C – C* 0, change due to inflows being greater than outflows. To make the quantity of money decrease, you must have ΔC 0.

    But once the quantity of dollars in circulation reaches C*, then efforts must be made to keep the dollars in circulation at that level, implying that INFLO – OUTFLO = 0 (or close to that), i.e. ΔC = 0. This does not mean that INFLO and OUTFLO are to be set equal to zero, but that their difference is zero. Nonzero values for each may be constantly needed to maintain the flow at the ideal level C*.

    But growth will depend on innovation and invention, and this may require some minor to moderate inflation, where innovators and inventors buy goods with stable prices produced with the current technology but excess money can be spent on developing their innovations and inventions, which may lead to technological advance and greater productivity and lower prices.

    A country like Japan with heavy savings may need to have large deficit spending to increase the money supply to lift the economy to C* and hold it there. Gd > S > 0.

    ( Focusing only on G and T (seeking fiscal balance at G = T) ignores the other three sector inputs and outputs of dollars into and out of circulation. You can have large exports X that given the rest of iNFLO and OUTFLO LEAVES INFLO – OUTFLO > 0. High levels of Exports can allow growth of the economy while there is decreased government spending. If the nation’s export income is sufficiently high the government may run surpluses with reduced spending and low savings, low lending and low government spending.

    A government can have much spending (tax-based and deficit based) without inflation if there is offsetting saving and or import buying: G = S or G = M > 0

    IF the eocnomy attains the level C* then efforts should be made to make ΔC = INFLO – OUTFLO = 0 by appropriate freeing and constraining values of the various inflows and outflows. Also there are ways to encourage rapid growth out of a deep recession by making ΔC large and positive, by increasing government spending, avoiding surpluses, lowering taxes, capping buying of imports, lowering interest, charging interest on savings, cutting sales of securities to investors at Treasury and Fed. But you must be ready to put on the brakes or you will overshoot into serious inflation.

    Inflation may be good if excess dollars are spent on innovation and invention). Innovators and inventors may be buying goods and services at full production and employment and stable prices, while spending the excess dollars created by bank loans or government spending or investment on innovation and inventions.

    But if you have high inflation C – C* > 0 and large, then raising taxes, encouaging imports, creating fiscal surpluses, increasing interest rates to encourage savings, encourging creation of savings plans for citizens that provide incentives (freeing taxes on savings generally and for college and skills education, capping bank lending, etc. etc., may be needed.

    The goal is not a fiscal balance, G -T = 0 but an all-sector balance accomplished in a variety of ways with a continuous flow of dollars in and out of circulation, in various compositions of quantities for the respective components of INFLO and OUTFLO.

    Defense spending, infrastructure spending, and can be heavily done with deficit spending if the country encourages buying imports or savings and both simultaneously to counterbalance defense spending. Same for infrastructure and disaster relief spending and maybe even Trump’s Wall. This was Vice President Dick Cheney’s strategy. But Trump wants to reduce importing, so this adds a constraint that must be considered. Other dollar draining programs may be needed to compensate for the high deficit spending. Capping bank lending with high interest rates on lending and savings and actual caps on loans, and higher taxes may be a possibility. (Taxes should be seen not to provide dollars for spending but for draining dollars from circulation; spending is independent of taxes; combined with reduced government spending high taxation will produce a surplus, which will be deflationary).

    Inflation occurs when the quantity of dollars in circulation is C > C* the quantity of dollars in circulation is greater than the ideal quantity at full production and employment at stable prices. As C > C* then there are more dollars in circulation than required to clear the market of goods and services at stable prices, and the rich who acquire the excess dollars can bid up prices in the competition for goods and services.

    Why do I call this the swimming pool model? Because suppose there is a swimming pool that gains and loses water from various sources that can be monitored and controlled with taps on them. Then the quantity of water in the pool can be adjusted by adjusting the various inflowing sources and outflowing drains. A full pool corresponds to C*. When C > C* the pool is overflowing, which is bad. When C < C* swimming and diving may not be ideal or safe. This incorporates in one perspicuous model most of the various principles of MMT and will aid the policy makers in how to incorporate multisector balancing in their thinking. Fiscal balancing of the budget does not give them enough freedom in optimally adjusting the economy to the benefit of the people in general.

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