We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Positive Money

Positive Money want to end fractional reserve banking and have the state create money directly. According to them, when quantitative easing created £375 billion, only £30 billion was made available for the government to spend, at a time when construction workers were being laid off and school building plans to fix leaky buildings were cancelled (which juxtaposition made for a nice Facebook meme). The quantitative easing also caused a stock market bubble and made some rich people even richer.

Instead, the government could have simply invented some sovereign money, debt free with no bookkeeping, and paid the builders to fix the schools. No unemployment and happy children.

Detlev Schlichter points out that it is the government who encourage fractional reserve banking, and all that really needs to happen is for them to stop doing this and banks will create some money but not nearly as much. Also, having the state create money is no less a recipe for disaster than having the banks do it, and maybe more of a disaster. The same economic distortions will apply.

If I attempt to apply Detlev’s thinking, I imagine that perhaps the state invents lots of money and gives it to schools to spend on building repairs. Suddenly the demand for construction is skyrocketing. Prices go through the roof. This stimulates supply. Software developers and professional bloggers quit their jobs for better paid jobs in the construction industry. Whole new construction businesses are started. Pensioners put all their savings into construction industry shares. And then all the school buildings get repaired, and the government moves on to curing some other perceived shortage, and the construction bubble bursts and you are back to having unemployed construction workers and starving pensioners.

Now, Positive Money responded to Detlev Schlichter. It turns out they more or less agree with him — apart from the bit about how we do not need anyone at all to create money, which they never got around to addressing directly but I gather from their criticism of Bitcoin is because they think without inflation people will speculate and not spend. But, importantly, they do not trust politicians to control the money supply either. It turns out they think some sort of “public and transparent body” can do it.

The whole thing strikes me as wishful thinking. It sounds so good it might even get somewhere. You get to bash bankers and have free money and keep politics out of it. All you need is for the public and transparent body to stay truly transparent and public and be able to manipulate the economy with precision from a central point of control. What could possibly go wrong?

17 comments to Positive Money

  • What could possibly go wrong?

    Oi vey. Yeah, what could possibly go wrong?

    A public and transparent body that prints money ab nihilo is a political body, if not, well can I do it too? Which means they still want state control of money. How can anything… I really do mean anything… a state does be non-political and therefore free of the distrusted politicians?

  • Investment bubbles are driven by excess money, but that is only the demand side of the equation. The supply side of the equation is that the universe of available investments is artificially constrained by government regulation and the limits of existing institutions. It is easier for me to buy stock in Microsoft than it is for me to buy equity in my friend’s clothing design business down the street, thanks to the state of securities law. So which will I tend to do?

  • Regional

    The U.S. economy was in worse shape in 1938 than in 1933, you have to remember politicians are effwits who can’t get a job.

  • MrVeryAngry

    @Mastiff. Indeed. Apropos of which the FCA has just massively restricted the ability of SIPP owners to invest in unquoted equity.

    Generally. Create some open and transparetnt state body to create money? What could possibly go wrong. Suppose G Brown got back into power. Yeah. Thought so.

  • Nick (Blame FrenchMEN) Gray

    I’d prefer factional money, myself. Wholesale fabrication would simply be like issuing shares just for the sake of it. If you simply doubled the number of shares, then the value of the shares would halve. It’s a simple trick, but it might keep the kiddies (voters) bedazzled.
    These days, money seems to be not related to any one product, but to be a share in the economy.

  • APL

    Rob Fisher: ” and paid the builders to fix the schools.”

    Maybe the authorities should have produced budgets that included a rolling preventative maintanence program for the existing infrastructure.

    They know the costs, they should already have budgeted for it.

  • Mr Ed

    We’re campaigning for the power to create money to be used in the public interest, in a democratic, transparent and accountable way, rather than by the same banks that caused the financial crisis.

    They say, so they are monetary cranks and egalitarians. I would like them to listen to some Vogon poetry.

  • Mr Ed

    May I add to the indictment: The board of advisors.

    I fear that they have correctly diagnosed a problem, but have nonetheless found a ‘quack’ remedy.

  • PeterT

    It might have escaped Positive Money that the government has busily been spending money that it has not got, and that £375m of that was bought by the Central Bank (quantitative easing). How frankly this is different from the Bank just printing money and giving it to the government is beyond me. Because it isn’t.

  • john

    I’ve often wondered what would happen if we somehow — admittedly I have no idea how, it is a thought experiment — banned all taxation and other forms of revenue generation by the gov, at least the US federal gov, but authorized a specific annual figure which they may merely print and spend.

    The idea being that you’d have a perfectly predictable inflation rate, making very predictable distortions, with no ability for the gov to play favorites and do social engineering through tax policy. If they want to bribe someone with public money they’d have to actually cut them a check or engage in the already standard sweet heart cronyism.

    I’d guess that the two biggest things against the idea are 1. No practical way to prevent the politicians from simply printing even more, or adding a “temporary” tax on top of it, or redefining some tax as a “fee” or some such. 2. The very inability to engage in social engineering would be seen as a bug rather than a feature by those most involved and most powerful to implement and maintain such a system.

  • Mr Ed


    A nice place to get to from here, but for the USA, I would suggest that the Federal government should only be allowed to raise money by means of a levy on the several States, being the lower of 5% of a given State’s revenue or spending in any year. That way, the United States as an organisation would have 2.5 x the average State budget to spend, and if a State cuts spending, the contribution to the Feds goes down. No customs duties, no tariffs, no income tax, no organ for the Feds to interact with the citizen, only the States. The Treasury Secretary could personally check the tax demands sent to the States at the rate of one a week, with some vacation.

    How different would the USA be in that scenario? There could, of course, be National Guards in every State, funded by that State.

    Not sure what to do with the District of Columbia under that system.

  • Current

    There’s a difference between fractional reserve banking and what’s proposed here. In a FRB system for every pound of base money the central bank create the commercial banks create many more pounds of money-substitutes (i.e. bank balances). In normal situations, that means if the central bank create and spend a small amount of base money then that causes a lot of inflation. In system with no commercial banks the state gets to create every pound itself. That means it has vastly more incentive to create money than usual. Even if the BoE can resist the temptation to create vast now they may not be able to so easily when it can raise 40x the amount of revenue.

    Even if the board were honest this plan wouldn’t work. The assets commercial banks hold – loans – generate interest. That interest is what pays for bank services. That’s how banks can provide most of the services they do for free. We would have to pay for banking services, and it wouldn’t be cheap. If that happened then how many people would decide to open bank accounts in other countries?

    It also wouldn’t work because the demand for money varies with time. In an FRB system when the demand increases the supply increases, and vice-versa. This doesn’t work perfectly, as the Central bank set capital requirements, reserve ratios and interest rates, but it’s better than nothing. With a board of the sort proposed where would the feedback come from?

  • Boobah


    Your no-tax proposal is also problematic because one of the few things that convinces people to deal with the problems associated with the currency is that it’s the only method of paying US taxes. Admittedly, the taxes themselves are some of those problems, but once you remove them from the equation you’re more-or-less floating the currency on inertia.

    Eventually people will decide to use FutureDough or StableBucks instead of $US… at which point the $US collapses and it no longer matters how much they magic into existence because it won’t buy anything; (re)enter taxation to pay for what government does.

  • Paul Marks

    The “Positive Money” people are wrong – but there is NOTHING in establishment economics to say they are wrong.

    If Keynesian economics is correct then the “Positive Money” people are correct.

    Government should print and spend money directly – there is no special virtue in creating money (in various complex ways), lending it out the bankers and then borrowing it back again.

    This is NOT what Major Douglas (and the other people that Keynes took his ideas from) would have done – all that Keynes did was make print and spend look better by doing it via the banking system (which got City people on his side of course – all that lovely money they get first use of…..).

    But it the actual doctrine of produce more money, means more nice “demand”, means Gumdrop Trees and Rivers of Wine……

    Then one should do it the “Positive Money” way – not the special advantage for financial services industry way.

    Of course the theory is wrong (utterly wrong), but (I repeat) there is nothing in establishment economics to show it to be wrong.

    If Keynesianism is correct – so is “Positive Money”.

  • Current

    Mainstream economics certainly describes how bank loans fund the bank services provided to depositors.

  • Midwesterner

    I would like to see the 16th Amendment, which reads:

    The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

    repealed (with another amendment) by reducing the 16th Amendment’s share of gross government receipts by 1/10 in the first year, 1/9 in the second year, etc until after ten years we are back to the Constitution’s original procedure for raising revenue. It would help if the 17th Amendment (popular democratic election of Senators instead of state governments appointing the United States Senate) were repealed at the same time. Then let those two restorations claw back the Constitution for 10 to 20 years and reassess the situation.

    FWIW, there is a reason that The Federal Reserve System and the 16th Amendment came out together like debutantes at the same Progressive ball. Income taxes would be impossible as a practical matter without a monopoly currency and the requirement that all payments and exchanges use it (legal tender law). With a mandatory monitization of all transactions, no longer may a quantity of wheat be exchanged for a new wagon. The wheat and the wagon must each be converted into Fed Notes for valuation purposes in order for the new taxing authority to calculate tax due. Otherwise the IRS would be collecting pecks of wheat and pieces of wagon.

  • staghounds

    As some of the commenters suggest, in the US we do this already, but with only a third of the budget.

    In these days, when all money is only fiat money anyway, it would make sense.

    It also wouldn’t work, because one of the main things that gives money value is that it’s the only thing you can pay your taxes with.

    If taxes went away, then what would give government money value to those who possessed labour or commodities?

    Sure, soldiers, welfare deadbeats, and government drones like me would have to accept it for their pay, but what (aside from the command of the state) would make me want to trade perfectly good sweat or corn for it?