Talking Points for the 99% (Part 2)

By J.D. Alt


(This is the working draft of a short, targeted eBOOK directed specifically at the millennials—the huge generation of energetic, creative, and cooperatively inclined young people who might, just maybe, rise up and demand a new understanding of the American economy. The eBOOK has three goals: (1) explain the basics of MMT to those who’ve never heard of it (2) unveil, at least partially, the misinformation network of the status-quo, and (3) suggest the scale of very real collective benefits a new understanding actually makes possible. Any suggestions about fine-tuning—or fundamentally altering, if necessary—the basic message of the essay are welcomed. (I’ve divided the draft into two parts to better fit the blogosphere.)

Sovereign Spending, Public Goods, & Private Wealth

It is often said that what is most obvious is the most difficult thing to see, and such is the case with sovereign fiat currencies. The answer to the question just posed is that the sovereign government spends the Dollars it issues. What does it spend the Dollars on? It buys goods and services from the citizens—bridges and jet planes and medical services, for example—and the citizens, we now understand, are happy to provide those goods and services in exchange for the fiat Dollars because (once again):

  1. They are going to need some of those Dollars to pay their taxes with, and
  2. They know that they will be able to use the Dollars to purchase goods and services from other citizens for exactly the same reason.

In other words, sovereign spending happens first and taxes are collected afterwards—and the reason the taxes are collected at all is not so the sovereign can spend further, but to ensure that the citizens will continue to want to sell goods and services in exchange for the fiat currency.

As the sovereign pays the citizens fiat Dollars to make things, and build things, and provide services (like medical research and weather forecasting, for example), the citizens accumulate Dollars in their private accounts, and they use those Dollars as a means of exchange for goods and services amongst themselves. Banks leverage those fiat Dollars with loans that create bank deposits in “bank-dollars”. “Bank dollars” are just as good as real fiat Dollars because, by law, the banks are required to convert the “bank dollars” to fiat Dollars on demand. (The only downside with this arrangement is if the banks take on more risk than they have fiat Dollars to back up—in which case they don’t have enough fiat Dollars to meet the demand to convert. This is when the sovereign government steps in—as it always must do—providing the banks with the fiat Dollars necessary to make their convert-on-demand promise good.)

A Liberating Reality

The simple reality contained in the previous paragraphs, if it can be embraced, is a game-changer for the 99%. In truth, we the citizens are not in a desperate competition with our own government to acquire and spend a finite pool of Dollars. The truth is profoundly the opposite: The 99%—by virtue of the fact that they (by mathematical definition) hold the democratic power of the sovereign government—are in a position to cause that government to issue and spend fiat Dollars, as needed, to purchase—from the citizens themselves—any goods or services the citizens would like to see created. So long as the actual, sustainable resources (labor, energy, materials, technology) are available in exchange for the fiat Dollars, there is no limit to what the citizens can be paid to accomplish. Nor is there any need to collect taxes over and beyond what is necessary to establish the citizen’s willingness to accept fiat Dollars for their goods and services. Finally, there is no need for the sovereign government to borrow fiat Dollars from the citizens. It can, and likely would, continue to issue Treasury bonds, but only for the purpose of managing interest rates in the banking industry and to provide the citizens, themselves—especially retired folks—with a reliable source of interest income.

But what about Inflation?

Earlier it was noted that the last thing the 1% would ever abide is the government “printing” money in order to pay for its spending. “Printing” money obviously increases the amount of Dollars in circulation, and if new goods and services are not available for that money to buy, then prices will go up—which is the same thing as the value of money going down. Fiat Dollars do not change this fundamental relationship, and the possibility of inflation is something the sovereign government must carefully manage and guard against.

What safeguards does the sovereign government have against inflation? First, the taxes it collects on a continuing basis (creating the demand for, and “value” of, its fiat currency) continuously drain excess fiat Dollars out of the economy. Collecting taxes “extinguishes” fiat Dollars—the exact mirror image of “issuing” them by fiat. Thus, the continuous act of tax collection reduces the number of Dollars chasing goods and services in the economy, reducing, in turn, inflationary pressure on the currency.

Second, sovereign spending which pays the citizens to create real goods and services is not the same as “printing” money in the sense of the alarm-bell description proclaimed by the 1%. As long as unused labor and unused resources are actually available, issuing fiat Dollars to marshal that labor and those resources to achieve collective goods will not create inflation but, instead, will expand the overall economy. 

Talking Points to Counter-Narrative

The outline for a 99% counter-narrative should now be growing visible:


  1. Sovereign spending which pays the citizens to produce goods and services which benefit the citizens collectively is not welfare—it is the opposite of welfare. The citizens are not dependent upon the sovereign government to provide them with anything—they are only reliant upon the sovereign to issue and spend the fiat currency which will pay them to provide things for themselves. They are also reliant upon the sovereign to establish and enforce a system of taxes, ensuring that every citizen continues to be willing to provide goods and services in exchange for the fiat currency.
  2. Sovereign spending is not limited to and, in fact, has no direct relationship to the amount of Dollars the sovereign collects in taxes. The only limits on sovereign spending are the real, sustainable resources—labor, energy, materials, and technology—which are actually available in exchange for the fiat currency the sovereign issues. So long as those real resources are available within the territorial boundaries of the nation, there is no limit to the amount of fiat Dollars the sovereign can spend to marshal those resources. The amount of taxes the sovereign must collect is related only to the inflationary pressures on the currency.
  3. The sovereign “deficit” is not a debt which the citizens have to repay with future taxes. Instead, the sovereign “deficit” is simply the balance sheet accounting of the fiat Dollars the sovereign has issued and paid to the citizens. What is written as a “deficit” on the sovereign side of the balance sheet is a financial “asset”—Dollars earned—on the citizen’s side. The citizens then use those Dollar assets to pay for goods and services amongst themselves.
  4. Issuing and spending sovereign fiat currency to pay citizens to create goods and services for their collective benefit is different than “printing” money. This process does not create inflationary pressure on the currency so long as the fiat Dollars are used to employ unused labor and marshal unused resources—and as long as the sovereign effectively manages its parallel process of continuously collecting the taxes which drain excess fiat Dollars out of the economy.

Putting the Counter-Narrative to work

Let’s briefly consider three contentious issues of our current public debate—Health Care, College Debt, and Civil Infrastructure—and see how the 99% might use these talking points and the emerging counter-narrative to demand that public policy—in light of the realities of modern fiat money—be framed anew.

Health Care

Why would we, as a collective society, not want each citizen to be as healthy, productive, useful, and happy in their lives as possible? Certainly each of us would benefit if every citizen had universal access to good health care. We are all exposed to the same pathogens, diseases, and possibilities of accidental harm—if one of us gets sick, there is a good chance another will be sickened as well. Common sense says it is in our collective interest to keep everyone as healthy as humanly possible. The 1% narrative, however, tells us the sovereign government simply does not have enough money to achieve such a goal: It is impossible for the sovereign government to collect enough taxes to pay for every citizen’s health maintenance costs, and it would be fiscally irresponsible for the government to even consider borrowing the necessary Dollars. End of story.

But now the 99% can make a compelling, and truthful, counter-argument: If the real resources are available to provide the health care—doctors, nurses, hospital beds, MRI machines, pharmaceuticals, etc.—the sovereign government can, in fact, issue and spend as many fiat Dollars as necessary to pay those doctors and nurses, rent those hospital beds, lease those MRI machines, and purchase those drug treatments, such that every citizen receives the health-care they need. So long as the sovereign spends those fiat Dollars on real medical-care goods and services, this spending will not inflate the value of the currency but, instead, will expand the quantity and quality of health services available to the citizens.

Note the 99% counter-narrative is not asking that the government provide the citizens with health-care; instead, they are simply demanding that the sovereign government issue and spend the fiat Dollars necessary for the citizens to provide themselves with the quality and quantity of care they collectively agree upon. So long as the real medical resources are sustainably available within the nation’s borders, the sovereign government has the exclusive power to enable its citizens to provide themselves the medical services they need. And while the sovereign’s spending will appear as a very large “deficit” on the sovereign’s side of the balance sheet, this “deficit” does not represent future taxes the citizens will have to pay, but rather it represents instead the “assets” that will have been entered on the citizen’s side of the balance sheet—the fiat Dollars deposited in the accounts of all the doctors, nurses, hospital staff, and pharmaceutical lab assistants who provided health care to the citizens.

In a nation that issues and rationally manages its own sovereign fiat currency, then, universal health care is always “affordable” at a level commensurate with the real health-care resources available within the nation’s borders.

College Debt

The average American college student today graduates and begins looking for their first job with a debt of $27,000.  This is not an accident, but is the result of a set of public policies firmly based upon the 1% narrative which, necessarily, goes something like this: There are three reasons why it is impossible to imagine the sovereign government paying for universal education at the college level:

First, it is simply not possible for the government to collect enough tax Dollars to pay for every citizen to attain a college degree—or a comparable certificate of special training—and it would be fiscal insanity for the government to borrow Dollars for that purpose. Second, why should taxpayers pay for someone else to go to college? They have enough burdens as it is, saving Dollars so their own children can attend a collegiate curriculum. Third, while a basic K-12 education may be considered a “right” that should be available to every citizen, college courses are a private-market commodity that citizens should pay for with their own Dollars, just like they pay for everything else. Some might even argue that borrowing Dollars to pay for college courses is a valuable learning experience in itself—teaching the virtues of investment and on-time loan payments.

But the 99% can now offer the following compelling and truthful counter-argument: If the real resources are available to provide every citizen with a college-level education—teachers, classrooms, computers, laboratories, studio-shops, etc.—the sovereign government can issue and spend the fiat Dollars necessary to enable the citizens to educate themselves. It is not necessary to collect tax Dollars in order to do this; nor is it necessary to borrow Dollars.

If the real educational resources are available, why would we choose not to marshal them? What is the collective benefit to us, as a society, when our early-age workforce is either (a) under-trained, or (b) so deeply in debt they cannot easily meet basic living expenses with their starting salaries? Would it not be a great collective benefit to our private economy if our early-age workforce was not only well-trained, but starting out their careers debt-free? How much sooner will a young family be formed, a house and car purchased, if there isn’t a $27,000 college debt to work off? Aren’t there other ways to learn the virtues of investment and on-time debt payments? And if the purpose of education is to prepare for a life’s work, why should we declare that only the first part of that preparation is a “right”?

As long as the sovereign fiat Dollars issued and spent are used to pay for real educational goods and services that did not previously exist, they will not put inflationary pressure on the currency. And while the “deficit” on the sovereign’s side of the balance sheet will be considerable, it does not represent future taxes the citizens will have to pay, but instead represents the “assets” that will have appeared on the citizen’s side of the balance sheet—the wages and salaries paid to teachers, research assistants and educational administrators and staff who provided the educational services.

Every nation that issues and rationally manages its own sovereign fiat currency, then, can afford to pay for universal college-level education for its citizens, commensurate with the real teaching resources that are available in exchange for the fiat currency it issues and spends.

Civil Infrastructure

In April, 2013, the American Society of Civil Engineers issued a comprehensive report laying out the work and repairs that will be required over the next seven years to keep America’s existing civil infrastructure safe and operational. The projected cost: $1.6 trillion. In the same month, the U.S. Congress—caving to the pressure and demands of the 1%—allowed the “sequestration” of sovereign spending to become de facto law: a blind $1.1 trillion reduction in sovereign spending intended to reduce the “out-of-control deficit” of “big government.”

Every citizen who has the need to drive across a bridge, flush a toilet, turn on an electric light, drink tap water, ride a commuter train, fly in an airplane, listen to a weather report, or lives downstream from a damn, should be concerned. If the sovereign government doesn’t cough-up $1.6 trillion over the next seven years, each of those taken-for-granted amenities of our daily lives will begin, one by one, to fail. On 25 May, 2013 a U.S. Interstate 5 highway bridge over the Skagit River in Washington State suddenly collapsed, sending three cars into the water. We are now told there are actually 66,749 structurally deficient—and 84,748 functionally obsolete—bridges in the U.S. highway system, most of them “fracture-critical” structures, (which means they were designed and built, like the bridge over the Skagit River, on the cheap to begin with: if just one bolt or rusted strut gets clipped by a truck, the entire bridge comes down.)

The 1% narrative makes it abundantly clear that it is impossible for the sovereign government to collect enough tax Dollars to even begin keeping up with the problem of our failing infrastructure. Highway taxes collected at the gas-pump, for example (which are supposed to pay for highway repairs) are declining— even as the numbers of vehicles increase—due to better fuel efficiencies. Forget about the smart electric grid and civil infrastructure of the future: we cannot, as a collective society, even afford to keep the decades-old, cracking and crumbling structures we already have safe and operational.

The interesting thing about this apparent dilemma is that the 1% has to use the same infrastructure as everyone else—so (unlike Health-Care and Education) they have come up with a proactive solution: sell the bridges and interstate highways to the 1%! They can afford to repair and upgrade these essential items of our everyday lives and commerce, and they’re more than happy to do just that—in exchange for a toll. So now the 99% will pay a toll to the 1% every time they drive across the repaired and upgraded bridges—and the 1% will slowly, piece by piece, take over ownership of the public realm. The French Revolution succeeded in reclaiming “ownership” of the world from an aristocratic elite—now the elite of the 1% are seeking, inexorably, to reinstate that ownership with the drumming beat of their mind-numbing narrative.

But now the 99% can have its own drum-beat: If they’re actually available for hire, let’s begin immediately retaining civil engineers to design fixes for every “fracture-critical” bridge in the U.S.—and hire the needed contractors (assuming they’re actually available as well) to build the fixes. And that would just be for starters: Forget the old 1% excuse of “shovel-ready”—(if an infrastructure project isn’t ready to immediately begin pouring concrete, it isn’t possible to allocate fiat Dollars to it)—and begin immediately hiring architectural, planning and engineering firms to envision, propose and design the sustainable urban infrastructures—the “smart” electrical grids, zero-carbon energy systems, driverless freeways, downtown people-movers, affordable and energy efficient residential communities, water-management and storm mitigation systems—we’re going to require in the future. Not a single taxpayer Dollar has to be collected; not a single, fiat Dollar has to be borrowed from anybody.

So long as the sovereign spending pays to employ unused labor and sustainable resources—and as long as the sovereign continues to regularly drain “excess” Dollars from the economy by collecting taxes—the new fiat Dollars spent for civil infrastructure will not put upward pressure on prices. And, even though the “deficit” on the sovereign’s side of the balance sheet might grow quite astronomical indeed, this “deficit” does not represent future taxes that must be paid by the citizens—it represents instead the “assets” that will have been entered on the citizen’s side of the balance sheet: the fiat Dollars that have been deposited in the accounts of architects, engineers, steel fabricators, concrete finishers and construction laborers.

These are just three examples of how an understanding of modern fiat money can empower the 99% to alter the national policy debate. The possibilities for cooperative ventures, benefiting tens of millions of citizens across a broad spectrum of issues and endeavors—food, energy, housing, transit, early childhood learning, and even local democratic processes themselves—are limited only by the creative imaginations of real people and the availability of real resources.

Culture of Dependence versus Culture of Empowerment

The most deceptive argument put forward by the 1% narrative is that the kind of sovereign spending demanded by the 99% will result in a “culture of dependence.” We briefly touched on this earlier, but it is such a powerful volley, it seems appropriate to conclude by countering it in some detail.

“Culture of dependence” infers a vast constituency of citizens who will do nothing with their lives except collect welfare checks, food stamps, and housing vouchers. They have no motivation to seek work or employment—or to educate themselves with the goal of acquiring job skills—because all their basic daily needs are provided for by sovereign spending.

This is a bleak picture indeed. But it clearly has nothing to do with the 99% counter-narrative we are outlining here. The sovereign spending we are proposing pays citizens to do things—quite a lot of things, in fact. As we’ve already outlined, it proposes to pay citizens to immediately begin repairing each one of our dangerously deficient bridges; it proposes to pay them to design and build the sustainable, energy-efficient infrastructure we’re going to wish we had in the future; it proposes to pay citizens to provide health-care and health-maintenance services across our entire society; it proposes to pay them to teach our children and young adults all the various skills, knowledge and technological know-how our culture has to offer.

The 99% counter-narrative—based on the real possibilities of modern fiat currency and sovereign spending—does NOT conjure up an image of lazy, indolent, unmotivated masses! Quite the contrary: it challenges every citizen—young and old alike—to imagine a better world, and then cooperatively organize themselves to make it happen. All that is necessary is for the 99% to grasp the real, democratic power that modern fiat currency makes possible.

20 responses to “Talking Points for the 99% (Part 2)

  1. Good second part, JD. Two minor suggestions:
    “As long as the sovereign fiat Dollars issued and spent are used to pay for real educational goods and services that did not previously exist, they will not put inflationary pressure on the currency.”

    Shouldn’t this read “…services the already exist”? If your wording is correct, then it’s very confusing to me and I’s sure will be to others.

    “Culture of dependence” infers

    should be “Culture of dependency” implies

  2. “If the real educational resources are available, why would we choose not to marshal them?”

    Perhaps the people selling the real educational resources are insisting on receiving more fiat dollars than the public wants to spend on them? I’ve heard that a certain Harvard professor who is now a senator was making around 300kpa in that position. Why should someone making 50kpa (somewhere near the mean) vote for policies that will direct extra funds at such professors? Well, I suppose it’s not a terrible purchase if such a vote allows that person near the mean to gain the ability to redirect such funds to themselves. However, learning is no garauntee to redirecting when having the right connections seems much more effective.

    • Professors used to set their own fees, but universities now offer salaries to candidates on a “competitive” basis with other universities. Perhaps Harvard needs to recoup some of the billion plus dollars of endowment lost on derivative investments under Larry Summers expert direction.

  3. I’m with you on the economic theory, up until your proposals for what to spend on.

    Medical care, for instance. Ignoring the problems with the current government-paid medical care (e.g., doctors refusing to see patients because the government doesn’t pay enough to cover their costs), providing medical care, whether directly or though insurance programs, for people who can’t afford it doesn’t enable those people to afford anything more than they can afford now. They are still poor, but poor with treatment instead of poor without. They still don’t have sufficient incomes, and employing more doctors won’t directly create more jobs and incomes except for doctors. Similarly, sending them to college (employing more teachers) won’t help them either, if there are no more jobs for them when they graduate.

    I agree with this goal, with a small change:

    “that the sovereign government issue and spend the fiat Dollars necessary for the citizens to provide themselves with the quality and quantity of care they collectively agree upon.”

    Instead, citizens should be able to provide themselves with the quality and quantity of care that they individually desire.

    The way to ensure that is to ensure that they have jobs. And it’s not necessarily increased government spending that would ensure that, it could also be reduced taxing, enabling increased private sector spending. [To get to truly full employment, the JG is necessary]

    This is why Obamacare will fail, because the government sets the standard for quality and quantity (and other particulars) of care, and it is different from what the citizens are willing to buy.

    Similarly, for education, the citizens should be able to buy the education they desire, and if they have or will have jobs then they can afford that. It is ridiculous to think that 100% of the workforce needs college degrees. There have always been lots of jobs that don’t require college degrees, and always will be. (And I know people who have succeeded without college degrees in jobs that are thought to “require” them). It is a fraud to offer free college to “everyone”, knowing that many will be unable or unwilling to go to college. the education problem in this country is largely that inner-city government schools are not preparing students – even the small percentage that finish high school – for college.

    Infrastructure like highways, bridges, water and sewer is different from health care and education. People can’t build their own highways, and if the 1% wants to build their own toll roads, then let them. I don’t see them making a profit at it without government help in acquiring land and rights of way, or outright selling them the finished product at less than cost. The 1% have never been prohibited from doing it on their own, and you can see the results: nothing. There is no reason for government to change that. Only a corrupt monetary sovereign, or a non-monetary sovereign would do it.

    There is a culture of dependence because of the way government has acted. Rather than budget for full employment, they have deliberately decided that some people should be without jobs (to fight inflation, you know), and given them money or in-kind benefits like crime- and drug-infested housing instead of jobs – enough money that they can have a subsistence living, but not enough that the spending will generate the necessary demand to employ them all.

    I think this is a far more powerful moral argument for MMT than the typical Progressive arguments for “free” medical care or higher education. You don’t even have to mention (because everyone knows it) that people of color suffer disproportionately from these government policies.

  4. Golfer1, isn’t government spending in the aggregate the net of dollars issued minus dollars destroyed by taxation according to MMT? If so there is really no functional difference in the aggregate between increased spending and reduced taxation, although each individual would be differently effected according to income.

    • It is true that the aggregate, macroeconomic effect is similar, but that is the result of the interaction of two things that ought to be determined by different criteria.

      Government should spend as necessary to achieve the public purpose. Rain or shine, boom or bust. Spending is not the proper lever to achieve economic performance objectives.

      Government should tax as necessary to achieve target levels of inflation and unemployment, given the level of spending. Countercyclically: more in the boom times, less in the recessions. Automatically, as much as possible.

      This is not to say that there should be no countercyclical automatic spending. JG should be the majority of it, and the others would be far less necessary. It is also not to say that there are not other (subordinated) goals for tax policy, such as spreading the burden differently according to income or wealth, or influencing consumer choices in the name of public policy (“sin” taxes, pollution surcharges, user fees, etc.). But the major thrust should be to spend according to political judgments, and tax according to economic goals.

    • James,

      “isn’t government spending in the aggregate the net of dollars issued minus dollars destroyed by taxation according to MMT? ”

      That sum more or less is “the deficit” which is a near meaningless number and measured ex post. It represents “net savings” if you will of USD financial assets taking place over the past period in question.

      Here is Bill Mitchell on this: “the deficit is irrelevant and they should be talking about the extra spending and jobs that are required. The deficit will be whatever it is – a win-win – the nation reduces unemployment and at the same time rids itself of a major neurosis (worrying about irrelevant sets of numbers).”

      Think about it, if govt were to directly provide USD balances to young people for higher education, they would pay the school the balances and then the school staff would pay taxes on their income derived from teaching…. end result: more educated young people and better/more pay for teachers.

      Now if govt just gave the existing teachers tax cuts equivalent to the student subsidy provided in my previous hypo, no students would be educated and the existing teachers would simply be able to save more USD balances.

      You can see that these scenarios are very different. Tax cuts are not equivalent to increased govt spending.

      As far as fomenting better economic outcomes of some sort, what matters is not “the deficit”, which represents savings ‘leakage’, but rather the level of the leading govt spending.

      If this is not the “MMT position” it should be imo. rsp,

      • I should have written “new government spending” rather than gov. spending, because obviously the total dollars spent would be different depending on increased budget or lowered taxes. In your example you are looking at the effects on two subgroups of the economy which would experience different outcomes depending on spending or taxing policy, but I still believe the overall or aggregate effect on the economy would be comparable. As I tried to indicate, individuals or subgroups would experience different outcomes. This is the point your example illustrates.

      • The deficit is endogenous and meaningless as a policy goal, but taxing and spending policy are not. Government has control of the two major inputs that determine the deficit. Propensity to save is relatively constant and predictable compared to policy options.

        Your analysis of a tax cut is incomplete. First, the tax cut would not go only to teachers, but even if it did the teachers would spend some of it. $300K college professors, maybe not so much. $20K graduate assistants, maybe all of it, or even more, leveraging their ability to take on more debt. They might spend some of it on cars, and the auto workers who received the extra income might send some of their kids to college, and the colleges might hire more teachers and educate more students. But the tax cut and the increased demand and employment would spread throughout the economy, not just to auto workers and college professors. The education subsidy would be highly concentrated in the education industry.

        If the public determines that more people going to college is in the public interest, then government should spend to do that. But they should do it in good times as well as bad, not as a means of increasing employment. They should not pull the rug out from under the student in his junior year because the economy is now doing better.

      • The description of the potential scenarios is nice. But what if those extra targeted funds to students is throwing money at a constrained supply situation and just leads to inflation in education prices? Do the students become better off? Or do they just end up loading up on outside sources of debt in order to cover the rising prices? (Like they already do.) A poorly designed policy would just increase the cost of an item without increasing the supply, quantity and quality, of that item. (Mosler’s description of the effect of natural gas deregulation on the 70s inflation is quite relevant.) When a suitable system that removes constraints from supply cannot be implemented, wouldn’t a general tax cut defuse the possibility of such concentrated inflation?

  5. Interesting post, to say the least. I am an econ ingenue delighted by the good news, the 99% narrative.

    The argument set out focuses on govt and the sovereign people, a nice defence of the integrity of the nation.

    How does it work internationally? I’m not clear the notions of scarce funds well debunked here do not apply to the balance of imports and exports.

    How do you pay for the oil ?

  6. “most obvious is the most difficult thing to see” You could quote George Orwell. He said “To see what is in front of one’s nose needs a constant struggle.”

    “the reason the taxes are collected at all is not so the sovereign can spend further…”. I think that is an arcane point which will confuse readers – other than those with a SPECIFIC interest in Chartalism. Plus I think the point is of limited validity.

    Certainly the fact that government demands the state’s money in payment of taxes gives the state’s money an edge over competing currencies. But suppose government spending (and tax) was reduced to say 5% of GDP. Would the US dollar immediately start losing value? Would we have rampant inflation? I doubt it.

    And that’s because once a currency is established, it continues to have value simply because currency – a form of money – is of value.

    Plus public spending amounts to far more than 5% of GDP nowadays, so I suggest the idea that tax gives the currency value is near irrelevant.

    • The question of what level of taxes are required to sustain a sovereign currency once established is not easily determined, but interesting to consider. The other aspect of taxes to provide macro level influence over aggregate demand is also important, as well as some redistributive functions (again at a macro level and with an effect difficult to measure).

      But taxes do need to be maintained (from the sovereign’s perspective) at some level to keep a primary position over other competing currencies.

  7. typo alert:
    It’s those damn dams again.

  8. It is possible we are conflating the two definitions of value. The first is usefulness and the other is monetary worth. Money must be universally useful to be accepted. It’s monetary value is transient over the long run, making it a temporary store of value. The relative value of labor is more related to establishing the monetary value of money than taxation. Taxation forces citizens to labor, with socially beneficial labor valued over socially useless labor (in theory, not in practice).

  9. This fits something Randall Wray has been pushing using ideas from Minsky. The Employer of Last Resort. I agree with them that this is the best way to eliminate poverty in this country. It would keep a supply of trained workers available for the business cycle because the government would train the untrained workers.

  10. This is a great post and thanks for it. I have a question. If we start spending all that money for health care and college, etc. and are using fiat dollars to finance it, how does that create a deficit? Is it just the double entry bookkeeping that is required or do we really owe that money to someone. Is this the concept that a dollar bill is a debit for the government? I’ve seen people attack Wray over that notion. There are many who don’t believe in our money being a debit.

    • Bill Cash,

      No offense intended, but with a name like that you need to spend some more time learning the terminology.

      Wray says money is a debt of the government, not a debit. It is a debt in the sense that the government has made a promise related to it, that it will accept the money it has issued in satisfaction of your tax obligation, which it is able to impose on you because it is the sovereign. Some people make a distinction between that sort of debt, more of a promise, and the debt that you owe the bank after you borrow money from the bank, which is how most non-economists think of “debt” in the context of money.

      The government budget deficit is the difference between spending and revenue. It doesn’t depend on whether the money is fiat or commodity-backed, and it doesn’t depend on whether the government issues bonds in the amount of the deficit or just spends, using its powers as monetary sovereign.

  11. Thanks, J.D. The two installments thus far are very good in your formulation of “talking points.”