Monetary Realism

Understanding The Modern Monetary System…

MR and the Diagonalist View of Money

Recent debates have led to some fruitful discussions and circled back to a point that Steve Waldman made several months ago.  He referred to the MRists as “Diagonalists” – neither verticalist nor horizontalist, but a hybrid of both.  While I didn’t initially like the term, it is an accurate description of the path we’ve chosen (though we are open to terms that, as Carlos says, don’t sound like a rock band!).

Horizontalists (circuit theorists like Marc Lavoie and Steve Keen for instance) will generally emphasize private credit and ways that policy can influence private credit.  Verticalists (like MMTers) will generally shun policy that works through horizontal money creation in favor of policy that works through the vertical component (consolidate govt work and through the the JG, fiscal policy, eliminate monetary policy, etc) influencing net financial assets.   MR takes a more balanced approach to the monetary system.

The key here is understanding that we are not closed minded to monetary policy or fiscal policy in the approach to maintaining and influencing the balance of financial assets in the economy.  Although MR does not embed specific policy in our approach, we understand that policymakers should remain flexible and open to any and all environments.  The economy is a dynamic system and requires great flexibility in managing.  In this regard, we should never claim that any single policy is a one size fits all policy.  Instead, we take the approach of “better to have and not need than need and not have”.

Perhaps most importantly (and keeping in-line with our focus on operational realities), we must acknowledge that we have a hybrid monetary system with a private credit system (the horizontal component) and the government (the vertical component).  The horizontal component does not exist to serve public purpose.  Rather, it exists because the US monetary system is designed to disperse power away from a centralized government (it just is what it is, whether workable or not, right or wrong).  In this regard, we find the idea of a “money monopolist” misleading and inapplicable to the way our monetary system is structured.   This focus on a “money monopolist” conflates the design of our actual system and eliminates potentially useful policy responses.

So, we’ll be going on a summer tour this year playing in a town near you.  As the creator of the band’s name Steve Waldman is responsible for the band’s bills, tour bus and extracurricular activities.   If someone could send me his billing address we’ll get started immediately.   :-)

* Thanks to Ramanan for pointing out an important distinction here. Vertical and horizontal refer to the varying forms of money creation as described in MMT literature and not the ideas of Basil Moore.  Vertical refers to NFA creation via cumulative budget deficits while horizontal refers to endogenous money creation through the process of loan creation via private banks.  See here for more.  


Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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363 Responses

  1. Michael Sankowski says


    Hey bud, this is the sort of sh&t you MMTers need to keep in your crazy cult meetings and never let anyone else know about. Jesus, the more I learn about you guys the more extremist you are!

    FD – keep it cool. Really.

    We live in a democracy, and Tom isn’t evil.

    • Cullen Roche says

      Double that!

  2. Tom Hickey says

    Probably Scott Fullwiler’s simulation is a good place to start, since Cullen has issues with it. Scott gives a brief description and provides a link here.

    The definitive work is W.F. Mitchell and J. Muysken (2008). Full Employment Abandoned: Shifting Sands and Policy failures,. Edward Elgar:Cheltenham. Revised: January 2009.

    • JK says

      If Scott is reading this comments section… thanks for driving down to KC for the talk tonight!

  3. Oilfield Trash says


    Let me go at it this way, can you give me a link to any creditable study that shows that the benefits of the JG out weights the cost to implement manage and maintain the program. I would even read one from studentee if he has one laying around.

  4. Dan M. says


    Driving up the nominal value of some assets while the debt on our balance sheet keeps a fixed nominal value tends to have a repairative effect on balance sheets, though limited, and, also, if a currency or bond is viewed as a poor store of wealth, it will increase velocity if conditions are right, leading to an increase in demand.

    However, I think we agree that these are secondary to bigger things right now. Our balance sheets and debt-service cash flows put us in rough shape, so I guess I’d say that we’re beyond the slight balance-sheet repair that QE accomplishes, and velocity & horizontal money expansion will only increase if we’re not at the edge of a balance sheet & debt-servicing cliff.

    Since QE is simply an asset swap, I tend to view it as a velocity-maniputation tool, not a quantity-based tool… even though it makes M1 skyrocket… I’m an accountant though, so I visualize things in terms of balance sheets and payment stability, not whether something on your balance sheet is called cash vs a bond. You can’t make people move their financial assets (velocity) in hopes of economic activity if they feel like they have much too little of it to simply service their debts. Investment won’t occur without increased demand… so the fed is “pushing on a string.”

    This isn’t a lecture or even disagreement, but me stating my thoughts for your and others’ analysis, which always proves informative.

    Any disagreement here? Just rechecking where I’m at with all this.

    Thanks again!

    • Michael Sankowski says

      “I’m an accountant though, so I visualize things in terms of balance sheets and payment stability, not whether something on your balance sheet is called cash vs a bond. You can’t make people move their financial assets (velocity) in hopes of economic activity if they feel like they have much too little of it to simply service their debts. Investment won’t occur without increased demand… so the fed is “pushing on a string.””

      Yep. And then add in the money-like properties of cash, and all of a sudden the lines are very blurred between cash and bonds. It’s a good point about QE – in some ways, it can be viewed as an attempt to influence “velocity”.

    • Cullen Roche says

      Hey Dan,

      Yeah, I don’t disagree with that. Nice thoughts. Thanks.

  5. Oilfield Trash says


    I have not seen the Fullwiler simulation, but the results do not suprize me at a fixed wage rate.

    • Cullen Roche says

      The JG actually doesn’t prove to do much if anything in the Fullwiler simulation.

      It doesn’t prove to be a more liquid buffer stock. Doesn’t provide more growth than pump priming. But does prove to not generate inflation. Granted, this is just a simulation, but it doesn’t prove to be any better than standard pump priming with a large govt workfare program attached. So the JG position looks like a moral position and not a sound economic position, which has been my point for months….And that’s fine. Except MMT doesn’t present it as that. They present it as an economically beneficial program….

  6. Oilfield Trash says


    I can not tell if you are agreeing with studenttee or not but if you are please help me understand how

    The MMT JG is the buffer stock of employed and wage floor as price anchor.

    If the wage floor is used as a price anchor how that also does not put a min floor on incomes for workers.

    • Tom Hickey says

      As minsky pointed out in proposing a JG (and I suppose Milton Friedman could have in proposing a BIG), the “minimum wage” is zero for someone who is involuntarily unemployed, as we are seeing now in the case of those whose unemployment benefits have run out.

      The MMT JG counters the NAIRU/Taylor rule approach to regulating inflation on the basis of a supposed natural rate, using a buffer stock of unemployed to suppress wage pressure. Secondly, the buffer stock of employed means the termination of involuntary unemployment in that there is an automatic job offer for anyone willing and able to work. Thirdly, it sets the price of the wage floor as constant (not indexed). Being constant it doesn’t set a ceiling, too, as commodity buffers do.

      I don’t think it says anything about a minimum wage. The minimum wage requirement could be abandoned with the MMT JG, and workers could have the choice of accepting less then the publicly guaranteed wage floor in the private sector if offered. At least some would if they figured it provided an opportunity for advancement in the future, just to get a foot in the door.