When I make a playlist on Apple Music it will not allow old music that I had previously installed on iTunes

You can’t share music that was unmatched initially, and uploaded to a personal part of your iCloud Music Library. That music is available only to you to listen to. You should be able to put that music on a private playlist, if it is not grayed out.

Create and share playlists - Apple Support

See what friends are listening to in Apple Music - Apple Support

Get help with iCloud Music Library - Apple Support

About iCloud Music Library icons and status - Apple Support

If your songs appear in light gray text

Your songs might appear in iTunes in light gray text for a variety of reasons. Those reasons include:

• You're not connected to iCloud Music Library. If you see a Disconnected icon in the upper-right corner of iTunes, you're not connected to iCloud Music Library. Click the icon to reconnect.
• The song isn't in Apple Music or isn't available in your current country or region. These songs also appear in gray if you search for them in Apple Music.
• Restrictions are turned on for explicit tracks. Learn more about Restrictions.
• An artist or content provider made changes or edits to an album. You might need to remove the album from your library and add it back from the Apple Music catalog.

It is possible that some previous music was matched long ago, but is now not available anymore on Apple Music. If that is the case, then you can re-upload those tracks to your iCloud Music Library through iTunes on a computer. Import to iTunes on your computer, then (…) Add to iCloud Music Library.