Does Positive Money really think inflation is worse than tax?

Following an encounter with the Chief Operating Officer of Positive Money it might be timely to look again at some of their current thinking. Some of it is interesting – and that will be the subject of another blog, but we have to start with the really bad news.

I was dismayed to discover that Positive Money still think that there is a conflict of interest in government between the creation of money and the spending of it. That is, politely, nuts. What on earth is the point of creating money if you are not spending it? The whole point of creating money is to spend it. It may be true that selling bonds to, say, a pension fund is not, strictly speaking spending money but it is creating it for a societal purpose. The government creates money in an endeavour to allocate resources towards the goods and services that society requires. If the purpose of government is, at a most basic level, to give us defence and justice then the method it uses to achieve this is to create money (just as previously it used to ‘create’ tally sticks).

Positive Money are, as far as I can see, actually suggesting that money, something that is unlimited and costless to produce, should be limited artificially on the advice of a banking committee, presumably so that our governments do not cause inflation.

This is the bogeyman of the rich, who are always more threatened by inflation because they have acquired money which they are unhappy to see lose its value. When, on the other hand you are borrowing it, you are rather happier to see its value decline because a loan becomes gradually easier to repay.

The real alternative to high inflation is increased taxes which the rich often fear most – especially when they are levied, as of necessity all the most effective taxes must be, in accordance with the ability to pay, which ‘disadvantages’ the better off.

Positive Money is perhaps being further influenced by the fact that private banks can create new money for financial or speculative purposes. That could be stopped simply by making such contracts unenforceable. There is no need for the sledgehammer of a Monetary Policy Committee on steroids dreaming up the quantity of money that the whole economy requires (presumably excluding any amount for speculation). A government, such as we have today, would probably refuse to spend it all.

Yet, even so, by giving such an important and indeed fundamental decision to outsiders, the government would be subcontracting its ability to allocate resources to the goods and services that it is elected to provide. Admittedly it already subcontracts in the private arena by giving private banks a licence. But Positive Money, by proposing the withdrawal of those licences and giving instead one, and one only, to a centralised banking committee that is unelected, has exposed their pupose – it it is to protect government from itself.

We might call this system the dictatorship of the banking classes.

We might have thought that we’d had enough of that already.

Positive Money’s proposals would make it much, much worse.


  1. John Fitzpatrick -

    Positive Money are agnostic on the composition and appointment of a money creation committee. It’s a topic for debate.
    Some might prefer any money creation to be in the hands of the Treasury – fair enough.
    Whatever the allocation of new money there would be nothing to stop government raising more via increasing taxation or bond issuance.

    1. Peter May -

      Interesting that you say that, because that was certainly not my impression. Anyway far from being agnostic, they should actively not want it in my view. If democracy is to be freed from the bankers we need to spend and tax and not ever have to tax and spend.

      1. John Fitzpatrick -

        I don’t disagree.

        However government money “printing” is such a huge public bogey the opposition might be hard to overcome.

  2. David Moon -

    When you say the Government creates money are you talking debt free money or basing your thoughts on credit money? If the latter, the act of borrowing money is by selling bonds providing safe savings for the private sector.

    I am asking this as a Positive Money supporter who strongly supports their education of the public of how money is created but still feeling his way as to a better solution. I regularly hear the likes of Prof Steve Keen say money is created by the Government when they spend more than they takes in in taxes i.e. runs a deficit, just as the commercial banks create money when their rate of loan creation exceeds the rate loans are being repaid. Makes complete sense to me. But where the money comes from in the Government’s case is never clarified but I presume is borrowed (created) by selling bonds. This is an interesting debate I am having with others.

    As an aside, whatever the answer and one’s views, it seems to me that a continuous trade deficit is the real Achilles heal of a sovereign economy even with its own currency.

    1. Peter May -

      Agree entirely with your last point – though a stable government (perhaps unfortunately!) and the rule of law means that Britain is fairly well placed to provide a home for money/investment from abroad. There again not everyone can run a trade surplus (or deficit) at the same time.
      Some people like to think that government recycles the money it collects in taxes but it is never constrained by the taxes it collects. It is simpler I think to see the government as creating money each time it spends and destroying money every time it taxes. The money comes by way of an instruction to the Bank of England which the government owns of course. Apart perhaps from abroad for balance of payments purposes, Government never needs to borrow though it can choose to do so to provide a home for savings such as pensions, though we could change the system and have UBI.
      See also

      1. David Moon -

        Then, Peter, on my understanding you must be looking forward to our escaping Europe. The Treasury cannot print money nor under 123 run an unsecured overdraft with the Central Bank, but it can borrow to enable it to spend more than it takes back in taxes. Those liabilities of the state sector become assets of the private sector (caveat about trade and capital movements). I can accept that description but the simple statement Government creates money by spending I can’t.

      2. Peter May -

        If we remain in Europe then QE for the people is the method to create money. I think really in fact the government runs an unsecured overdraft with the central bank all the time. And I agree the EU has also been captured by the banks. I’d like to think if we remain in Europe in due course we could alter those batty regulations.

  3. David Moon -

    I’ll buy that and at least there is agreement with Positve Money that Peoples QE is necessary. Whether one supports 100% Reserve banking or not, it is essential that more people, particularly in the MSM need to understand the present money system, the role of public debt and that Government running a surplus is taking money out of the economy inflicting untold unnecessary damage and forcing up private debt.

  4. John Fitzpatrick -

    Lisbon Article 123 makes the two known methods of monetary financing explicitly illegal.

    All the alternative proposals for a beneficial variant of QE are obliged to resort to legal fictions such an zero coupon perpetual bonds ( ie worthless bonds ) or confine the action within the Bank of England so that “government” is not implicated.

    That said, government surpluses do constrain funds in the real economy. In terms of sectoral balances I think it would be more fruitful to distinguish between the real sector of making and doing and the financial rentier sector.

    Analysis which treats the private sector as a homogeneous whole tends to conceal more than it reveals. As a worker with no private pension I find it difficult to regard Treasury bonds as my asset in any meaningful sense.

  5. Peter May -

    Thanks for that.The last two paras I must think on. Need to look out for statistics, if they exist, on the private/real/financial sector.

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