Here’s the MMT Money Story
- The national government wishes to provision itself.
- To do this, it has to transfer physical output in the country from the private sector to the public sector.
- It does that by imposing a tax in a denomination on the population.
- The population then has to offer goods and services to the government in exchange for the denomination or risk having their assets confiscated and liberty taken away. Finding the denomination and paying the tax is the cheaper option.
- The government then ‘prints money’ to settle the bills for the goods and services it has bought - at a government-determined price.
- The population settle their private trades between themselves in the same denomination, so they each have enough to pay their tax bills.
- The population pays its dues to the authorities, and the government immediately shreds all the money it has collected as tax.
- Any difference between the amount printed and the amount shredded represents people saving for a rainy day.
Print and Shred is how the system works. All modern monetary systems work this way, no matter how much they try and hide the fact.
The MMT money story explains where the ‘why not print more money’ idea falls over. The government only prints more money to buy more stuff.
Let’s consider the case of the war in Ukraine. Why can’t the Ukrainian government ‘print more money’ to pay for the war? Unfortunately, there isn’t any more stuff available for sale in Hryvnia. All the people who would otherwise be involved in production are away fighting the Russians, and anybody else is outside the reach of the Ukrainian taxation authority. Hryvinia isn’t worth anything much outside Ukraine.
As you can see, government spending automatically stops when it runs out of things to buy with its currency at a price worth paying.
In summary, printing money is only helpful if there is something available to buy with it.
And if you ‘fire up the printing press’, you automatically ‘fire up the shredding machine’ to the same extent.