Green ‘Positive Money’ – perhaps….

Having spent an afternoon at a local ‘Green Fair’ manning (and there were some womanning it as well…) a stall about money for ‘Positive Money’ I have come to a few conclusions.

First, it is the easiest sales pitch ever to be able to ask people “are you interested in money?”

Of course there will be some that aren’t. Allegedly at least.

This is a ‘Green Fair’ after all.

But most are interested. And a surprising number do know something of where money comes from. I’d say probably about 2 in 10 – but again this is a ‘Green Fair’, so probably not representative of the world in general.

Then there is the prospect of how to further grab their attention.
‘Positive Money’ concentrate on a dysfunctional money system and the idea that money is created out of thin air by private banks. Which is absolutely spot on – but people seem now to be resigned to pretty much anything that banks do, so any element of surprise or even mystery is lost.

The tax message is a much better pitch.
Pay tax? Everyone does.

And even in ‘Positive Money’ solutions they seem to ignore tax until the last minute, as far as I can see, and that, I think, prevents them from selling their ideas properly.
So not only is ‘The Joy of Tax’ a good read it is also a selling tool!

Philosophically ‘Positve Money’ are absolutely correct. (Their solutions are, regrettably, more arguable).

But I think I’ve got to realise that I’m in a Progressive Alliance – ‘Positive Money’ is the only outfit trying to communicate how money works to the man in the street so I’m sticking with them.

It is a pity that in their solutions they seem to ignore tax until the last minute, and, even then, I’m not entirely convinced they have the right ideas on it.

And more importantly, the fuzzy tax understanding really is a handicap to properly sell their ideas – and that, unfortunately, is a major problem for all of us.


  1. Charles Adams -

    Good to get out there and discuss this with real people.

    I also feel myself on the same side so to speak with positive money in the sense that we are trying to find a money system that works better for everyone.

    The sticking point for me is whether private banks should be allowed to continue to act as more than intermediaries, to create money (using a fractional reserve). We know there is a problem if banks become too big to fail and exploit secure lending to engage in high risk speculation but all this can be dealt with via regulation. If the regulation is good then fractional reserve private banking can provide a useful service and the market can operate fairly effectively.

    As you hint at, it is far more important to focus on the failings of the tax system to stabilise the distribution of wealth than on the money creation process. If you do not get tax right it does not matter how you do creation, money will just trickle up until a crisis is triggered.

    1. Peter May -

      Agree almost entirely. The thing I’m not keen on in Positive Money is the idea that money creation can be left in the charge of a committee of what in effect is the great and good. We need to ensure that control is much more local and more responsive.
      So I would certainly hive off merchant banking, who would be able to bankrupt themselves in the casino with little or no effect for the rest of us. I’d let the government direct the retail part of the banks on what parts of the economy they can lend to in general. But I think really important is the foundation of LOCAL co-operative or not for profit banks – and I think that makes for a diversity of control.
      So ‘Devolution of money creation!’ I think we are the only country in the world to have only 4 banks with the overwhelming majority of the market.
      The difficulty for either PM or my proposals is what would happen to house prices. I think the best I can think of is Steve Keen’s idea that their selling prices have to be controlled at no more than, say, 25 times their annual rent so however wealthy somebody is they cannot outbid you. What happens when in consequence we all buy because we’ve all bought and nobody rents I don’t know – but probably be a nice problem to have!

      1. Charles Adams -

        You have to have capital taxes or those with wealth accumulate at a faster rate those those that work. Capital taxes should stabilise the worst excesses of house price inflation but I do think that government has a role to play here. Even Hayek agreed you cannot expect someone to be economically active if they do not have somewhere secure to sleep. The government should provide a basic level of support from where people can grow.

      2. Peter May -

        “You have to have capital taxes or those with wealth accumulate at a faster rate those those that work. ”
        Very true – although it depends where, because sometimes it doesn’t happen, which in itself is unfair.
        So agreed, some sort of capital gains tax on houses. But it will be very difficult for politicians to execute. We have to think how it could be easier for them. I think devolution of banking control is one small way – I’m sure there are others.
        It’s interesting that there’s a chap in Penzance who made his ‘fortune’ by working in London and exporting himself (as a result of house prices, I surmise) and even so isn’t over capitalised, but has still produced a very good – and recently appreciated by me – ‘alternative’ cinema in the town, which would have been unlikely to have happened otherwise.
        All very fine but I think we’d all rather he’d made his ‘fortune’ in Penzance – or at least Redruth or Truro….
        So perhaps no capital taxes if they’re transferred into business. I wonder? I think this is extremely difficult area because if you destroy housing value, currently you will probably destroy small business value as well.

    1. Charles Adams -

      I agree with Ann and Richard on this. We need a system of credit so we can get on with doing what we want to do whether it is get a roof over our heads or start a business. Credit is the origin of money (see e.g. David Graeber’s book Debt: the first 5000 years on this). The trouble is big banks – they are too busy hedging rather than promoting small businesses. As Peter says much better to have many local banks and keep speculation separate. It is not as though we did not understand this in the past but then along came politicians that ripped up the regulations – we ended up with the global financial crisis and still have not done enough to correct the problem of too big to fail banking.

    2. David Malpas -

      The problem in my view is that the PM system would be very “safe” but would likely cause the cost of capital to rise. Credit spreads would widen which in itself imposes costs on the economy.

      PM’s reply to Pettifor mentions peer-to-peer lending a few times as a example of how the banks can be replaced. I’ve been involved in P2P lending for over 10 years at a personal level. I’m afraid I see no empirical evidence that this is as effective as the “fractional reserve” bank system for borrowers. Yes, Zopa can offer a 5-year unsecured loan at 5-6% but Barclays does it at 3%. Look at RebuildingSociety, the P2P platform that sponsors PM ( People are lending money to SME borrowers at rates of 10-20% (which when you add in the platform spread means the borrower is paying 15-25%). I’m not really sure this is the type of change you guys are looking for …

      1. Peter May -

        As you say – those are Wonga rates!
        Further evidence, I think, for the real solution being a much greater diversity of banking with local co-operative and not for profit banks.

  2. Peter May -

    Ann Pettifor says “But while we may want to limit consumption, and re-direct credit to more sustainable, useful activity, it would be a mistake to limit the things that society can do….Carefully managed and regulated credit will help finance those activities. The money in our piggy banks would be woefully insufficient.”
    Positive Money reckon on current performance I think that no more than 20% of loans go towards the productive economy so the piggy banks ARE probably sufficient – but only if we want to keep lending as it is. As she implies, we don’t.
    Agree too that such a committee would be “bordering on authoritarian.”

    PM says “Many businesses don’t even rely much on bank lending: smaller startups typically rely on friends and family. Larger businesses go to investment firms or issues bonds. So it’s quite a narrow sector of businesses that are dependent on bank lending.”
    True but that’s an argument again for keeping lending as it is.
    PM says “It’s unlikely that any committee can make a perfectly correct decision over how much money should be created. But the difference between them and the banks is that the banks only have one incentive: to keep creating more money, right until the point that it causes a financial crisis.”
    True. But that is why diversity of the money supply and the devolution of the money supply are so important.
    PM say “How [are bank clerks to approve and supervise loans]? Banks have switched to a system of centralised loan decision making, run by computers. How practically are we to force them to return to the old system of individual loan officers judging various loans?”
    Local banks wouldn’t be able to become national – or to centralise control.
    PM also say “Unfortunately, I would bet good money that Ann’s proposal to rely on regulators outsmarting the banks is far more likely to ensure everything will stay the same. Removing the power of banks to create money is the reform that would give us the greatest chance of getting a financial system that works for society and not against it.”
    If you direct banks such that any lending that doesn’t coincide with your direction is made unenforceable it gives effective leverage and control , which can be instituted quickly. If you added a seigniorage tax to all for profit banks based on what inflation was – the higher the inflation the more tax they’d pay that would help too!
    So my answer is neither are radical enough!
    I would certainly like to see trials of banks not charging interest at all but only account fees fixed for the duration of the loan – so we don’t have interest rate uncertainty built into every loan all the time. It is also vital we create more local, not for profit or co-operative banks. No committee or (except probably for large corporations) large bank boards of directors would be trying to make the right decision but local bank managers supporting local small enterprises, who already create the majority of UK jobs and are likely therefore to have better local commitment which is good for stability, both mental and economic…

  3. Malcolm Henry -

    PM, Ann Pettifor, Richard Murphy, et al seem to think that interest-bearing debt and taxation of productive activity are components that merely need to be modified and adjusted in order for the machine to work properly. I find this really hard to understand.

    Creating and/or distributing our means of exchange as interest-bearing debt is a spectacularly stupid idea (that is compounded by destroying the principal of the loan on repayment). It’s stupid because it makes money difficult to get hold of and expensive to use, which makes it hard for productive people to be productive.

    Taxing productive activity is self-evidently stupid. Why would we want to discourage people from doing useful work by penalising them whenever they trade their labour or the fruits of their labour?

    The base unit of our economy is human endeavour. We can sit and look at piles of resources (ore, coal, oil, fields, trees, gold, money…) from now until the end of time and nothing will happen. They are inanimate stuff, devoid of any value until someone applies brain and muscle power to them and transforms them into something useful.

    Our task is to find better ways of encouraging and managing such transformations: more sustainable, more equitable, more elegant ways than the profligate, selfish, exclusive smash-and-grab that is our current primitive attempt at an economy.

    PM etc. are correct to focus on money as the key to achieving this. As a tool for facilitating collaborative productive activity money is genius – maybe the cleverest thing that we’ve ever invented. The problem is that we’re using it in just about the stupidest way possible. We insist on valuing money primarily as an asset – a long term store of value – which means we seek to capture and hoard as much of it as we can. But for the productive economy to thrive money must be available and mobile – the precise opposite of what our culture and its financial machinery encourages us to do.

    Those of us who have taken the trouble to look for alternatives can see that mechanisms are available that could be combined to make money work properly for the whole economy (sovereign money; MMT; UBI; negative interest; etc.) but in order to take advantage of these we have to recognise that other mechanisms (interest-bearing debt; taxing productive activity) are worse than useless and have to be discarded.

    My Common Cashflow Fund is one attempt at assembling the useful components into a financial system that meets the primary requirement of facilitating productive activity. I’m sure there are other ways of doing it that might work better, but we’re not going to develop any of these until we admit that key components of the current machinery are fundamentally flawed and must be thrown away.

    1. Peter May -

      As I say agree with you, except that I suppose I have differences of degree and considering the art of the possible. I take the view that knocking it down and starting afresh is in the impossible box, so I think we have to start by amending the current system, which will gradually change behaviour.
      I also think money as an asset is pretty much hardwired – a tally stick was surely an asset and those go back to ancient civilsations.
      As for tax if, for example, justice requires a more equal distribution of resources you need to have some sort of Land Value Tax or wealth tax to start to even things up. There are other reasons for taxing too, not least to help to legitimise the currency. (See I agree that avoiding taxation of the productive economy is sensible although some may be necessary – tobacco and alcohol taxes for example.
      And if, like Positive Money, you have centralised all Money Creation you are putting power into very few hands and I doubt whether it’s workable for a complex economy, so I consider it better to devolve this into as many hands as possible through local not for profit banks who could levy standard account fees rather than interest.
      But of course with UBI there is likely to be less need for borrowing.

      1. Malcolm Henry -

        When I’m told that radical financial reform isn’t possible I like to remember the birth of the NHS. We are very capable of instigating and embracing radical reform when we see the virtue of it.

        I’m, not arguing against the principle of taxation. Tax is an excellent tool for encouraging/discouraging activities and, as you say, is necessary for maintaining the ubiquity of the currency. But we need to stop pretending that income tax, sales tax, NICs, etc. are natural features of an economy. They’re not. Each of them was invented on the hoof as an expedient way of raising revenue for government. They were never designed to promote productive activity. They do the opposite and are therefore profoundly stupid taxes. Land Value Tax, carbon tax, tobacco duty: all examples of taxes that serve a useful purpose.

        I am not a fan of PM’s money creation committee (same reasons as you), but neither am I a fan of your local bank idea, even if they are not-for-profit. Granting the power to create/distribute money to tiny elites (MCC or local bank managers) means that access to money is necessarily restricted by the imagination/courage/intellect/interests of those elites. And then there’s the problem of removing money from the economy as loans are repaid. Why would we ever want to do such a thing when we know that for an economy to thrive money must be available and mobile?

        The requirement is to facilitate productive activity. To meet the requirement our reforms must ensure that money is universally available. The best way that I can see of doing this is to make all money permanent (i.e. sovereign money) and electronic, and keep it on the move by applying negative interest at a rate that makes long-term hoarding unattractive. Do this and the question of who gets to create/distribute our money supply disappears. So long as we start with plenty of it (which we currently have) the quantity of money can remain constant for evermore. Negative interest ensures that nobody hoards. Everyone spends, invests, or lends at zero interest.

      2. Peter May -

        We are back to the typically British way of piecemeal reform (me) or the grand plan (you)! Agree on the NHS, but surely that has almost as much to do with the state setting up an emergency medical service in wartime, which showed it could be done. On finance we’ve lost the opportunity for big change I feel because the crisis came when Gordon Brown had to decide what to do about RBS cash machines running out of money in 4 hours time. If he’d had 4 months he might have made a better job of it!
        Thinking that the current government will do anything is a vain hope – they have neither the ability nor the inclination nor with brexit the time.
        I’m also worried about money remaining constant. With floating exchange rates I see some inflation as more or less inevitable – which means somebody is going to have to create money otherwise you’re back to the gold standard’s limited supply of money.
        I’m also very wary of making all money electronic. Potentially that gives some body (the state? the banks?) a lot of information, which even if they have much of it now they don’t know it all when I pay in cash!

  4. Malcolm Henry -

    Maybe we’ll have to wait for the next crash before it dawns on politicians that financial reform might be required. Might not have long to wait.

    Constant supply:
    The current money supply (M4) is something like 500 times bigger than the amount that gets used in the productive economy day-to-day. It would take decades of inflation (at current rates) to bring us anywhere near to being short of money. And if that time did come the most democratic and effective way to introduce new money is via the UBI distribution system – give everyone a one-off bonus to boost the money supply. Much more likely to meet our requirement (facilitate productive activity) than allowing a few bank managers or government ministers decide how the new money gets distributed.

    Electronic money:
    It’s already happened. Almost all money is electronic and the banks/law enforcement/government already have ready access to most of our financial information. Unless you’re operating a cash business illegally your access to cash is already being recorded in your accounts or when you withdraw it from the bank. Any cash payment of more than 10,000 euros has to be recorded, and you have to account for its origin.

    In a sovereign money system I’d like to see all money held by, and all transactions handled by a Citizens’ Bank that is owned by all of us, independent of the government of the day, with a constitution that’s enshrined by law and can only be amended by an act of parliament with a suitably restrictive super-majority.
    Everyone would get an account at the bank automatically as a right of citizenship. Our personal data held by the Citizens’ bank would belong to us as individuals and could only be accessed by officers of the bank with our explicit agreement, and by other agencies (including government) via a court order which could only be granted if there was compelling evidence of criminality or legitimate dispute over right to property.

    You call it a grand plan. I call it improvement by design. 🙂

    1. Peter May -

      I have to say I’m impressed.
      As you say the next financial crisis is unlikely to be far away. So let us hope…
      But we have to realise we are up against vested interests with a vengeance. Even from the formation of the Bank of England – as we know created by a couple of Scotsmen – they got a charter for two years was it? which they fought like hell to increase and the I think they got five and so on with gradual increases. Bankers are born camapaigners for their own interests – even today, for real change they’d have to be undermined and that is bound to be difficult…
      The additional doubts I have are the supply of money. Really because I reckon that almost all of the ‘extra’ 500 times of money supply is in the tax havens that the British government seems to love so. That would have to be very closely addressed/rescinded in order to keep the money supply on track.
      Also would a Citizens’ Bank mean that cash was illegal? If so I’m sure other methods would spring up – not least local currencies (think Totnes pound as the most basic). Now that may not matter because until you can pay, say, Council tax with it, it is below the official radar. You can certainly pay Council tax with the Bristol £, but both would support cash anonymity.
      Again I pretty much entirely agree with your grand plan – oh alright, improvement by design- I just forsee a few practical problems…
      And if the opportunity for improvement by design doesn’t happen we need to have a plan B. Because no politicains anywhere that I’m aware of have embraced a plan for money.
      And the only campaigning operation we have is Positive Money, (who I have to say I find are still quite open minded) but I think we’ve got to try to persuade them first….

      1. Malcolm Henry -

        “I just forsee a few practical problems…”

        Just a few?

        The only hope that we have of getting the sort of radical change that we (the majority) need is by finding ways of telling compelling stories about how our economy can and should work. I use the plural (stories) because we (the majority) are a broad church of many different congregations, each of which has its own prejudices and expectations. When enough of us have absorbed the logic of enough narratives that relate to how we live our lives then there will be a critical mass of opinion that will drag the politicians in the right direction.

        The minority – those who control and/or benefit from the current financial system – are unlikely ever to be persuaded to embrace radical reform. We will have to make full use of democracy to overpower their resistance. The political establishment might seem to be an immovable lump but that has never been true in the past, or now. Trump is the most obvious recent proof. He has succeeded in derailing conventional election machinery using nothing more than pretty feeble populist waffle.

        On your other point, if the sovereign currency is 100% electronic it’s possible that people will use other forms of physical currency, but I doubt it will be a major problem. Currently the physical manifestation of the official currency is losing appeal, probably because electronic is much more convenient and less vulnerable to theft (and the bank tends to be liable for any that is stolen electronically).

        There will certainly be attempts to establish parallel crypto currencies that operate without (or with lower) negative interest, but I suspect these will end up being speculative assets (e.g bitcoin) rather than a routine means of exchange. Issuing UBI in the sovereign currency and the ubiquity of the sovereign transaction system will keep most people on board.

  5. Peter May -

    It seems to me it we have a hard job to shift government thinking – but agree all hands to the pump!
    All change is difficult because it is bound to be destabilising. But if we start by showing where money comes from and now that the Bank of England has admitted we don’t tax and spend but spend and tax then we are gradually shifting the ground. See
    But afraid I’m still against an all electronic money – the dangers, in the fullness of time, of a government (miss)using the control it offers are too great.

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