Where does money come from?

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Wossname
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Where does money come from?

Post by Wossname »

This is my first topic posted for debate, and I present it because of a request to do so, and because I believe it is a topic for our times.

The economy is a key topic of political debate, most modern economies are monetary economies, and if we don’t know what money is we are disenfranchised. It seems to me that there is something wrong with our general understanding of money. Most people believe that people go to work and make some money, and the government takes some of it in taxes to spend on stuff. The problem is that we can’t make money, and neither can the firms that pay us. This is illegal. You can try and make your own but the government has a police force to stop you. The media keep asking how the government is going to pay for things. So where do we, or the government, get money from?

I have been persuaded by a view called modern monetary theory. There are two key parts to this:
1) Governments can make money from thin air (by having their central banks press keys on a computer).
2) An aim of government should be full employment.


I would like to focus on the first of these.

MMT is controversial. I have been asked to present the theory for discussion since I raised the issue (seemingly inappropriately) in another recent thread. I know of no more concise introduction to the topic than here:

https://mmtincanada.jimdofree.com/intro ... -language/

If it is an accurate analysis, then I believe this must have profound implications for public policy. I am content that governments should not be involved in the minutiae of which firms or individuals should be extended credit. So I am not anti-capitalist or private banking as part of a mixed economy. But some parts of an economy, I believe, should be the proper responsibility of a democratically elected government to administer. Areas like defence, prisons police and the judiciary, probation services, health care, roads education, etc. I would suggest might be candidates here. We can debate which. And we must consider that private capital may lack the inclination or resources to invest in some areas where we would wish to see investment for the public good. Be clear, MMT does not ignore inflation, and argues that real resources in the economy should be considered when governments spend. But if this analysis is right, the claim that we “can’t afford it because we don’t have the money”, or that taxes must rise or services must be cut to pay for government spending is probably wrong. This means years of government imposed austerity are misplaced and damaging. Unreasoning fear of deficits is damaging. Government spending is private money. If the government takes all its money back we don’t have any. The government deficit is money the government has spent but not taken back in taxes. The debt is just the accumulation of deficits. This represents government money that people have managed to save and so is nothing we (or our children) should be frightened of. Money symbolises a debit-credit relationship. No debt equals no money.

The main purpose of this thread is to ask if people agree with this analysis of where money comes from and its broader implications for public policy, (and to honour a request from gad-fly). MMT is discussed online but rarely in MSM. If people do not agree, why not and where do you think money comes from?

Incidentally, for those interested, Bill Mitchell, a key supporter of MMT can be found online here:
https://www.youtube.com/watch?v=YnyDRwSqp2E

I will reprint the source offered in another thread:
http://www.matchesinthedark.uk/we-pay-f ... the-money/
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Sy Borg
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Re: Where does money come from?

Post by Sy Borg »

From Jekyll Island?

For many years I wondered how every major country could be in enormous debt. It is because, most of the money is fictitious (as you said, made from thin air). Our economies are castles built on the sands of ever shifting confidence.
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Pattern-chaser
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Re: Where does money come from?

Post by Pattern-chaser »

Money began as a way to make barter more convenient, but it grew into the monster we see today. I cannot see that it is more useful to us now than it was when it was first introduced. Beyond that, I have to admit that monetary theory bores me to tears. It shouldn't, given its importance, but it does. 😐
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Terrapin Station
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Re: Where does money come from?

Post by Terrapin Station »

Money is an invention based on the concept of coming up with an abstract way to represent trade value so that if someone has bread but will only accept tractor parts in exchange, you still have a way of obtaining bread from them even though you have no tractor parts, and so that you're not required to arrange elaborate trades (10-way, 20-way trades etc.) to get what you want.
Wossname
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Re: Where does money come from?

Post by Wossname »

Terrapin Station wrote: March 11th, 2020, 9:05 am Terrapin Station » 19 minutes ago

Money is an invention based on the concept of coming up with an abstract way to represent trade value so that if someone has bread but will only accept tractor parts in exchange, you still have a way of obtaining bread from them even though you have no tractor parts, and so that you're not required to arrange elaborate trades (10-way, 20-way trades etc.) to get what you want.


I think you have it T.S.

Money is a very useful invention. It helps in keeping records of account, it is divisible, portable, has common value etc. and above all it helps to stimulate wealth creation. Wealth is created when people add value to the environment (e.g. by making goods or providing the services that people want or need). Money is how we pay for these things. Money is like the oil that runs the engine of the economy, and it is a vast improvement on a barter system. Saying the economy is designed to run on debt (private or public) is simply to acknowledge that it is designed to run on money. Most governments want a monetary economy, and modern economies have moved from money linked to a limited commodity like gold to fiat money backed only by government regulation. This allows more money to be easily created to meet the needs of a growing economy, but it follows that, as the amount of money in the economy increases, so does debt. Lowering government debt is likely to increase private debt (because we can’t make money).
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Terrapin Station
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Re: Where does money come from?

Post by Terrapin Station »

On my view, though, the way that we've traditionally approached money doesn't really work that well--this is evidenced by the fact that we have a bunch of homeless people, a bunch of people who struggle to acquire food, a bunch of people who don't have access to health care whenever they need it, a bunch of people who have to forgo education as far as they want to pursue it because they can't afford it, a bunch of people without transportation options, without leisure time/leisure options, etc.

I think a better way to approach things at this point would be to have an overseeing body (basically that can arrange trades via keeping track of a complex of information, which is easy now due to computers), where trade value is focused on a competition to provide things that people want, per surveys of the same, without needing to take anything, any opportunities away from others.
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Pantagruel
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Re: Where does money come from?

Post by Pantagruel »

Greta wrote: March 11th, 2020, 8:19 am most of the money is fictitious (as you said, made from thin air). Our economies are castles built on the sands of ever shifting confidence.
Could not agree more. And it is a fiction that is being written by the very specific minority who benefit from the construct. Something that should be high on the global priority list of things to change....
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LuckyR
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Re: Where does money come from?

Post by LuckyR »

As others have stated, money is just a way of keeping score. It is not the game itself.
"As usual... it depends."
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Sculptor1
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Re: Where does money come from?

Post by Sculptor1 »

Wossname wrote: March 11th, 2020, 8:01 am This is my first topic posted for debate, and I present it because of a request to do so, and because I believe it is a topic for our times.

The economy is a key topic of political debate, most modern economies are monetary economies, and if we don’t know what money is we are disenfranchised. It seems to me that there is something wrong with our general understanding of money. Most people believe that people go to work and make some money, and the government takes some of it in taxes to spend on stuff. The problem is that we can’t make money, and neither can the firms that pay us. This is illegal. You can try and make your own but the government has a police force to stop you. The media keep asking how the government is going to pay for things. So where do we, or the government, get money from?

I have been persuaded by a view called modern monetary theory. There are two key parts to this:
1) Governments can make money from thin air (by having their central banks press keys on a computer).
2) An aim of government should be full employment.


I would like to focus on the first of these.

MMT is controversial. I have been asked to present the theory for discussion since I raised the issue (seemingly inappropriately) in another recent thread. I know of no more concise introduction to the topic than here:

https://mmtincanada.jimdofree.com/intro ... -language/

If it is an accurate analysis, then I believe this must have profound implications for public policy. I am content that governments should not be involved in the minutiae of which firms or individuals should be extended credit. So I am not anti-capitalist or private banking as part of a mixed economy. But some parts of an economy, I believe, should be the proper responsibility of a democratically elected government to administer. Areas like defence, prisons police and the judiciary, probation services, health care, roads education, etc. I would suggest might be candidates here. We can debate which. And we must consider that private capital may lack the inclination or resources to invest in some areas where we would wish to see investment for the public good. Be clear, MMT does not ignore inflation, and argues that real resources in the economy should be considered when governments spend. But if this analysis is right, the claim that we “can’t afford it because we don’t have the money”, or that taxes must rise or services must be cut to pay for government spending is probably wrong. This means years of government imposed austerity are misplaced and damaging. Unreasoning fear of deficits is damaging. Government spending is private money. If the government takes all its money back we don’t have any. The government deficit is money the government has spent but not taken back in taxes. The debt is just the accumulation of deficits. This represents government money that people have managed to save and so is nothing we (or our children) should be frightened of. Money symbolises a debit-credit relationship. No debt equals no money.

The main purpose of this thread is to ask if people agree with this analysis of where money comes from and its broader implications for public policy, (and to honour a request from gad-fly). MMT is discussed online but rarely in MSM. If people do not agree, why not and where do you think money comes from?

Incidentally, for those interested, Bill Mitchell, a key supporter of MMT can be found online here:
https://www.youtube.com/watch?v=YnyDRwSqp2E

I will reprint the source offered in another thread:
http://www.matchesinthedark.uk/we-pay-f ... the-money/
MMT is totally on the money.
It is a complete mistake to think that governments cannot spend unless they gather taxation. The trust is completely the reverse; unless the government creates the money in spending, it cannot tax, since the source of all money is government "debt". The government so-called "deficit is not a useful measure of the health of the economy as used by the current myth of money. A deficit is the measure of the efforts made by government to improve and stimulate the economy. IN essence the deficit is a measure of potential growth. And that potential is reach by wise spending; spending that improves infrastructure, health, welfare and social support.
Clearly not all spending is good. Wars, and grandiose projects that fail to provide significant levels of employment are damaging to the value of the currency.
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Sculptor1
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Re: Where does money come from?

Post by Sculptor1 »

ERROR
For "The trust is completely the reverse..."
Read "The truth is completely the reverse.."
(typing late at night!!)
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Sy Borg
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Re: Where does money come from?

Post by Sy Borg »

LuckyR wrote: March 11th, 2020, 8:20 pm As others have stated, money is just a way of keeping score. It is not the game itself.
Not any more, it isn't. It has become a game of confidence.
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LuckyR
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Re: Where does money come from?

Post by LuckyR »

Greta wrote: March 11th, 2020, 9:21 pm
LuckyR wrote: March 11th, 2020, 8:20 pm As others have stated, money is just a way of keeping score. It is not the game itself.
Not any more, it isn't. It has become a game of confidence.
Do you mean: a confidence game?
"As usual... it depends."
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Sy Borg
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Re: Where does money come from?

Post by Sy Borg »

LuckyR wrote: March 12th, 2020, 12:19 am
Greta wrote: March 11th, 2020, 9:21 pm

Not any more, it isn't. It has become a game of confidence.
Do you mean: a confidence game?
Either phrasing has its appeal. Still, I remind myself that, when it comes to human groups, the powerful have always fooled, manipulated and exploited their underlings. The games played with currency and the politics around it to siphon money from the poor to the rich is simply BAU. Just that now the methods are more sophisticated.
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LuckyR
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Re: Where does money come from?

Post by LuckyR »

Greta wrote: March 12th, 2020, 2:10 am
LuckyR wrote: March 12th, 2020, 12:19 am

Do you mean: a confidence game?
Either phrasing has its appeal. Still, I remind myself that, when it comes to human groups, the powerful have always fooled, manipulated and exploited their underlings. The games played with currency and the politics around it to siphon money from the poor to the rich is simply BAU. Just that now the methods are more sophisticated.
No doubt. The (admittedly partial) disconnection of wealth accumulation opportunities from work ethic, drive, industriousness, native or acquired intelligence etc in the Modern era is remarkable.
"As usual... it depends."
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Pattern-chaser
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Re: Where does money come from?

Post by Pattern-chaser »

Greta wrote: March 11th, 2020, 9:21 pm
LuckyR wrote: March 11th, 2020, 8:20 pm As others have stated, money is just a way of keeping score. It is not the game itself.
Not any more, it isn't. It has become a game of confidence.
Yes!

An illustrative example: these days, shopping is considered desirable and enjoyable of itself. A 'spending opportunity' is regarded as a positive thing by many.
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