The debate on money reform goes mainstream

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FT wolf headlineMartin Wolf’s recent article in the Financial Times has sparked a major debate in the mainstream media. The article discusses the nature of money and credit in the modern monetary system in which he suggests: “strip private banks of their power to create money”. There has been a significant backlash from critiques and many misunderstandings. But it is fantastic that this issue is finally getting attention and is being debated.

We’ll respond individually to the criticisms and misunderstandings. Now, here’s an overview of the latest articles – by the economists Paul Krugman, Ann Pettiffor, Warren Mosler and FT Alphaville reporter Izabella Kaminska:


Krugman NYTimesPaul Krugman, American economist, the Nobel Laureate in Economic Sciences, Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times.

Is A Banking Ban The Answer?

OK, a genuinely interesting debate on financial reform is taking place. I’m not even sure where I stand. But it’s certainly worth talking about.

Atif Mian and Amir Sufi draw our attention to proposals to either mandate or create strong incentives for 100-percent reserve banking, coming from Martin Wolf and, more surprisingly, John Cochrane. 

Wolf, unless I’m reading him wrong, seems to identify the whole issue with one particular form of short-term debt — bank deposits. This seems an oddly narrow view given the nature of the 2008 crisis, which involved very few runs on deposits but a massive run on shadow banking, especially repo — overnight lending that in a fundamental sense fulfilled the functions of deposit banking but also created the same kind of risks.


PettiforAnn Pettifor, Director of Policy Research in Macroeconomics (PRIME), Honorary Research Fellow at the Political Economy Research Centre at City University (CITYPERC) and a fellow of the New Economics Foundation, London.

Why I disagree with Martin Wolf and Positive Money

Because of the finance sector’s despotic power, about which I have been very vocal, many readers would expect me to support a proposal that prevents private banks from creating money, and to enthusiastically back the nationalization of money issuance. I do not however, and want to explain why.


MoslerWarren Mosler, American economist and theorist, president and founder of Mosler Automotive, and co-founder of the Center for Full Employment And Price Stability at the University of Missouri-Kansas City.

Comments on Martin Wolf’s banking article

Yes, a 100% capital requirement, for example, would effectively limit lending. But, given the rest of today’s institutional structure, that would also dramatically reduce aggregate demand -spending/sales/output/employment, etc.- which is already far too low to sustain anywhere near full employment levels of output.


, financial reporter at FT Alphaville discusses the issues in two articles:

Kaminska1Martin Wolf on funny money creation 

With his latest column on the nature of money and credit in the modern monetary system, the FT’s Martin Wolf delves deeper into the murky depths of the “what is money” debate.

Anyone who has speculated about the significance and effects of quantitative easing in the last five years should probably have a read.

In the piece, Wolf comes out in favour of the endogenous theory of money supply and explains why it is that banks, through their power to issue private money directly, influence the economy in a very different way than is traditionally accepted.

Kaminska2On the elimination of privately issued money

As Martin Wolf has eloquently argued this week, yes, there is a clear-cut and urgent need for state e-money issuance.

But the case for expanding the central bank balance-sheet to the population — something which can easily be done via the issuance of sovereign e-money — does not in our opinion necessarily demand the elimination of private money issuance along with it. More than likely both forms of money can co-exist quite healthily.


We’ll respond individually to the criticisms and misunderstandings. In the meantime, most of them are covered briefly in our Frequently Asked Questions, e.g.:


Is Positive Money reform proposal the same idea as “monetarism” in the 1980s?


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  • Hector Combe PM Bris

    This was my own personal response to Ann Pettifor’s article:

    It’s not the quantity of investments that is key, but the QUALITY of them.

    There’s too much credit being pumped into the system at present and the banks are feeding on that supply through speculation, reckless lending, mortgages etc. The funds available for loans and investment must correspond in some way to the resources made available through the public’s savings patterns (postponement of consumption of resources). Otherwise where are said resources to come from? If we print and print and print additional credit, does it mean that more resources come into existence? No, we merely create MORE CLAIMS on the same pool of resources, and bias the structure of the economy towards the actors closest to the credit creation system.

    I believe that it is this process which has resulted in too many bad investments, and therefore a recession. The key is to have a money system which transmits the information that enables us, as a society, to make quality, sustainable economic investments, with the resources actually available to us..

  • therooster57

    NO brainer …. monetize PM’s and make weight the unit of account. This can be decentralized right down to the individual because it not debt based. Pssss’t …. it’s already in action.

  • Julian Jones

    Molly Scott Cato, EU candidate in the South West UK region with a good chance of getting elected on 22 May, commented here:–_b_5233033.html

    She has been saying this before Positive Money and really deserves our support. What do your EU candidates think?

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