An Alternative Meme for Money, Part 6: Alternative Framing on Inflation

By L. Randall Wray

As we have discussed, sovereign government cannot run out of the keystrokes it uses to mark-up balance sheets as it spends. Does our argument rely on modern technology, that sends electrons or photons (I’m not sure which) pulsing through copper or fiber-optic lines? No, of course not.

Government always spent by notching hazelwood, imprinting clay, stamping coins, chalk on slate, or “running the printing press”. There has never been another alternative. These marks or electronic entries represent government IOUs.

No matter what time period we are talking about, I would have received government payments as “Government Owes Me’s”.

Obviously, government cannot run out of these. Government can “afford” to buy what’s for sale in its own currency.

The question is not about affordability but rather concerns effects on the value of the currency and impacts on the pursuit of private interest.

As Stephanie Kelton says, cash registers do not discriminate: they do not care whether that dollar comes from government spending or private spending. If something is in scarce supply, more purchases of it by either government or private buyers might push up the price. A government purchase of something that is scarce can “crowd out” a private purchase. Government purchases need to be, and can be, planned to avoid undesired crowding out and price pressures.

Where the public purpose trumps the private purpose (say, use of rubber in WWII), government has at its disposal a number of options to reduce price pressure, including patriotic propaganda and rationing. It also has the big gun: taxes. An excise tax raises the cost to private buyers; an income tax reduces disposable income to free up production for the public purpose.

In those cases, the tax hike keeps the currency strong. It is not needed to “pay for” the government spending, but to avoid the crippling effects of high inflation.

Progressive taxes can be justified on the basis that higher income people pose a much greater inflation threat than do low income people. Cash registers don’t discriminate. Rich folk take more dollars to market, and their spending cannot be planned, budgeted, coordinated in the way that government spending is done.

And their spending is largely discretionary, not essential to daily life. Indeed, as one group of rich folk ramps up conspicuous consumption, other rich folk take up the challenge. Keeping up with the Jones’s it is called.

When resources are scarce, taxes on the rich need to be raised to protect the currency.

We don’t tax the rich to “pay for” government spending. Government is not in the position of Robin Hood. We never need rich folks’ money in order to provide for the poor. We can keystroke the bank accounts of the poor so that they won’t be poor.

We increase taxes on the rich only when their spending threatens our currency with inflation. If there’s no inflation danger, there is no point in taxing the rich before keystroking the poor. Linking the two operations only reduces public support for helping the poor. And it’s confusing. And it’s operationally wrong. Except in the unlikely event that all resources are already fully utilized.

Progressives must stop linking the two—that only plays into the hands of the conservatives.

The rich also are much more likely to endanger the currency’s value by pulling out of the domestic currency and running to safe havens at the first sign of inflation (as they are doing in Argentina now, creating pressures on the currency that raise inflation fears and fuel a cascading run out of pesos and into dollars). We need progressive taxes and inheritance taxes to protect our currency from antisocial behavior by the rich. (And we might need capital controls, too, to prevent their runs to tax havens.)

There is also a strong argument to be made for using taxes on the rich—especially capital gains taxes—to discourage sins of various kinds. The sin of speculative excess. The sin of usury. The sin of conspicuous consumption of prestige goods and services. And the sin of excess inequality.

Most important: the goal of taxing the rich has nothing to do with raising government revenue. Taxes are used to keep the currency strong and to punish sin. An ideal sin tax raises no revenue because it eliminates sin. While we cannot achieve that ideal, we can make sin less enjoyable.

It is fitting that those who already enjoy all the benefits of life at the top ought to suffer more when they are sinful. Don’t tax the sin of the worker who enjoys the occasional six-pack of brew. Go after the real sinners—those with the wherewithal to engage in truly anti-social sinning—speculative and consumption excess.

To conclude:

1. When inflation threatens, in some circumstances it makes sense to raise taxes. Since the rich pose a greater inflation threat, put the taxes on them. Cash registers don’t discriminate, so tax those with greater purchasing power.

2. There are additional measures that can be taken when inflation pressures arise; depending on circumstances, they are probably more effective: rationing, targeted wage and price controls, patriotic saving.

3. At full employment it makes sense to tax the rich while providing income to the poor. At less than full employment, this is not necessary (government is not Robin Hood who must steal from the rich to give to the poor). However, to reduce inequality it may make sense to tax the rich to reduce their richness.

4. Government spending and taxing need not be closely linked; however, as the economy nears full employment taxes need to be raised if there are strong public purpose interests in continuing to increase government spending. The goal is not to increase government revenue, but to reduce competition for relatively scarce resources in order to direct them to the public interest.

5. Not only does the high income and thus potential spending by the rich threaten domestic value of the currency, there is a danger that the rich will speculate against the currency. This provides an additional justification for removing excessive income from them through taxes, and perhaps also for taxing their speculation. Again, the goal here is not to raise government revenue, but rather to punish the sin of anti-social excess.

6. Explaining that government cannot run out of its own keystrokes (or other records of its IOUs) does not mean that one is promoting run-away government spending. Rather, it means that one must confront the inflation danger directly, ensuring that government spending and tax policy take account of inflation pressures.


We use taxes to keep our currency strong. We raise taxes when speculative excess threatens the value of our currency. Unless there is a strong reason to move resources to the public sector, once full employment is approached, either taxes need to be raised or government spending needs to be reduced to avoid inflationary pressures.

Up next: Part 7.

57 Responses to An Alternative Meme for Money, Part 6: Alternative Framing on Inflation

  1. This is a very important undertaking. Yes. We never tax the rich to get their money. We never need it. If we tax them it is for other reasons. But…

    If the rich would only spend their riches on real goods and services, even excessively or conspicuously luxurious ones, they wouldn’t be nearly as destructive a social force as they are. The trouble now is that the really-rich – the ultra-rich – can’t even begin to spend all the money they appropriate from society – in the form of monopoly rents, and from the stupendous “bonuses” they pay themselves for looting the companies they run. This in addition to their gaming in the ficticious-capital casino.

    We would have done better to prevent the ultra-rich from becoming rich – by way of sociopathic criminality and universal fraud – in the first place. Having failed in this, we need to do more than just tax them. This post is for those mild and tranquil times when the public has been vigilant, and the rich have been kept properly in check, so that the worst they can do is bid up the price of 12-year-old Scotch. It will take a lot more than the Clinton tax rates to fix this now.

    Still, this is another great post – thanks again.

    • Do the rich never invest their money in wealth-creating enterprises? It seems to me that’s where most of their wealth goes to, the attempt to create more wealth. Is it possible the entire history of wealth creation in the United States for the last couple of hundred years has passed beneath your notice?

      The current monetary base is $2 T to $3 T. The idea that you could instantly add another $60 T to that and not get inflation is ridiculous. Even if “only” $6 T of that new money was spent, you still have 3X as many dollars chasing the same goods. Basic supply and demand means the nominal price of those goods ultimately goes up 3X.

      Ultimately, the government itself will have to pay the same inflated prices, meaning that the money it’s coined isn’t going to be enough and it’ll need to borrow. This time though, the people who lent in the past won’t want to go through another cycle of lending un-inflated dollars in return for super-inflated dollars later. You can’t rip of creditors forever. They stop lending to you.

      BTW, another misnomer…. Robin Hood stole from the government (Prince John and the Sheriff) to give back to the (now) poor what they’d “taxed” from them. It’d help your understanding to get the story right. 🙂

  2. Your posts are very interesting and well thought out and true. You are trying to make logical arguments. And it might even work if a majority of Americans understood and believed it. But say 98% or more do not. But I don’t believe the ‘framing’problem has anything to do with how the government operates financially. While both Democrats and Republicans frame their arguments as ‘government fiscal problems’ that belies their real points which are political and ideological. In a nu shell, Republicans want smaller government and Democrats basically want more. Since they both know 98% or more of Americans believe we have a “spending crisis”, a “debt crisis”, a “we are running out of money” crisis, a “we don’t to end up like Greece” crisis, political leaders will try use those fears, those irrationalities, to frame their arguments to further their agendas. I think it was Warren Mosler who wrote that he once sat down with Al Gore and explained MMT. Al Gore said yes, he believed him, but that “he couldn’t go there.” It is a political problem. For politicians to admit the United States “can not run out of money” are several bridges too far.

    • Your post has to be the truest insight to the problem of promoting MMT. No amount of “framing” is going to make a dent in the public thinking until this issue is confronted , attacked, addressed, and if it is at all possible, defeated.

      • There is a “visual” problem created by the concept of “printing money”. One sees helicopters dropping money from the skies and looks askance. There is IMHO a better meme that was tried during World War II and worked beautifully.

        Apparently, when faced with a real crisis, stupid laws are suspended and one does whatever works. (That was Dr. Krugman’s idea in proposing an alien invasion scare.) To finance the war, the Fed pegged Treasury bonds at an almost zero interest rate and bought whatever the Treasury needed to run the war. (War Bonds kept money out of circulation rather than pay for the war.) Professor Timothy A. Canova (Nova SouthEastern University) has the details. That ended the Great Depression and led to a booming post-war economy. Truman eventually lifted the suspension, due at least to the gold standard.

        Since we have dropped the gold standard and our current crisis is critical enough, we should overturn whatever stupid law prevents the Fed from buying zero percent perpetual (Zero Forever!) Treasury bonds on such a schedule and in such a quantity as will, without causing harmful inflation, maximize employment and minimize the time required to create the world’s best infrastructure (meaning anything not private property: schools, clinics, railways, seawalls, national forests, tanks, drones, etc.) This implies ELR without so many words.

        The two essential reasons for creating the worlds best infrastructure are (1) “to provide for the common defense” according to the Constitution’s preamble (anyone who disagrees should be shot) and (2) to “…promote maximum employment…” according to the Federal Reserve Act (anyone who disagrees is in favor of food stamps). There should not be much controversy.

        This concept should be easier to sell than “printing money” (or forging a trillion dollar coin ) because it has been tried with great success. It’s not just some professor’s bright idea. It doesn’t need any new measures except overturning a stupid law.

  3. I like the memes, but I worry about pushing the line of argument
    on the “sin of conspicuous consumption of prestige goods and
    services”. After all, the conventional argument is that rich
    people don’t spend enough, as reflected in a Keyensian marginal
    propensity to consume curve that levels off and, indeed, from the
    very narrow perspective of aggregate demand you might say spend
    more! (provided you spend it on domestic goods and services).
    Aggregate demand is in that way something like the cash register,
    it too doesn’t discriminate. But the sins of “speculative excess
    [and] usury”. There you’re on to a point that can expressed as
    simply the desire to have a stable economy, that precisely
    because of the decreased propensity to consume there can be far
    too much hot money floating around in search of high returns and,
    in a heavily financialized global economy, that this conduces to
    endless asset bubbles which, on any view, are destabilizing and
    inefficient, and all the more so when those bubbles begin to expand
    from assets to encroach on basic commodities, e.g. food and oil.

  4. Certainly if the rich are sitting on money, instead of spending it, it matters not to inflation. But that’s not the point. Through the availability of treasury securities, “we the people” encourage the rich to sit on money by providing risk-free growth for hoarders. Even this would not matter but for the time that the rich do indeed spend. And their spending need not be inflationary in order to be distorting. Consider elections, lobbying and other influences of those dollars as they might be spent. Or the ability to purchase platforms (news media, distribution channels, etc.) and consolidate control of markets through purchases that are noncompetitive, but not inflationary. Think also of the ability to control wages and working conditions that the rest of us must endure in because we don’t control the real assets of the world. There are more things to consider than inflation.

  5. Of digital zeros and the Emperors new clothes. I guess we are all OK till some kid call us out on it. What would you like to have in your safe at home? Silence is Golden : )

  6. I am in community with conservatives and progressives. I can make a very strong case that nothing meaningful will change in this country unless the “overlap” is found on any particular issue. If anyone cares to hear that case let me know. Having said that, to stay in community we need to first discuss what we CAN agree on, before what we don’t.

    And even frame it in a hospitable way. Here is something an MMTer can say that a progressive cannot. Grover Norquist is right. The country has almost never been in full employment, and when it has been it doesn’t last long, therefore inflation is likely not an issue so therefore we should hardly ever raise any tax rates. But I imagine many progressives reading that just tuned me out, and may not have even gotten to this sentence. So goes part of #3 and #5 for conservatives. I’m not saying there is not some overlap in these two, but the conservatives have already left the building.

    I try to find the best solution or argument on any particular issue, if that falls right or left makes no difference to me. I suppose in the MMT world nationally and internationally the economics are falling slightly left, but in family, business, and State governments it frequently falls right. With regard to income disparity, it really has nothing to do with the free market or taxes, it has everything to do with crony capitalism and the rigged electoral system. Again, if anyone is interested I’m happy to make that case.

    Income disparity is way more complex than MMT and imo it does a disservice and is counterproductive to what is probably the most important work being done on the planet today (with the possible exception of electoral reform).

    • Can you address the issues that disparities in wealth and income creates? Do you think they are a problem? How might they be addressed?

      • You wrote

        In ascertaining memes to bring MMT forward into the world I think it important that MMT be as agnostic as possible with regard to left or right politics. For example I mentioned MMT to a great conservative reformer friend of mine, like three times with the standard tenets. He would not hear me, or engage with the content. Then on one phone call, I tried “Grover is right.” We then had a salient 20 minute conversation about MMT. While I don’t think he is yet convinced, we now have gotten the initial conversation underway, and can build from there. He now also thinks I am no longer simply “crazy”.

        Another meme might be to never pander to a progressive philosophy about MMT without a similar pandering to conservatives. And likewise never trash conservative dogma without doing the same to progressives.

        I just don’t think wishing progressives win this as a partisan battle is a greater strategy. And if it is, it may take a lot longer than a consensus building approach.

        • MMT, simply put, lays bare that money doesn’t matter — what matters are the real resources. Limiting access to/distribution of real resources because of money is the lie that is exposed through MMT. If the conservative position is that the distribution of real resources as determined by the current system is fair and correct, what else is there to say? MMT misses this, in a way. MMT seems to want to say that since the government can create and distribute money at will, we should. But this, like taxation, is just a proxy for redistribution of real resources. If you don’t believe in redistribution, what more is there to say?

          • In my mind, the strongest argument for MMT is that money should not be a hinderance either in helping anyone willing to work not live in poverty, that no one should retire into poverty, we should have a magnificent infrastructure, we can afford to help in the painful transition dying industries/communities suffer, and that the US should not want from capital to compete on the world stage. I’m not sure MMT has proven that the public sector knows how to run a more successful economy than the private sector. Framed this way, I think we can convince a significant number of compassionate conservatives. A number of the “other” issues, in my mind need to be framed as ending crony capitalism, and bringing our electoral system into modern times, too.

          • Redistribution is only the operative word for the reason that we didn’t make ‘distribution’ the operative word in how the money system works.
            Anyone who wants to understand the essence of money should have a read of Frederick Soddy’s “The Role of Money” – available free online.
            It is not even arguable when looking at the results.
            Money serves the distributive function for the wealth created in the national economy.
            It is distributive in nature, even if you don’t want it to be.
            Under our present system, it is upwardly distributive in favor of the holders of monetary assets.
            Thus more and more wealth into fewer and fewer hands.
            So the people who need the money the most have the least access to it.
            This system is naturally upwardly distributive.
            But its our system.
            And I think MMT makes the case that we can do what we choose with our sovereign fiat money system.
            The best thing would be to recognize the distributive nature of money, as Soddy say.
            The money system itself should work as if it were equally owned, part of the commons.
            Distributing the wealth.

            • “…the writer undertook an original examination into the real physical foundations of the conventions and half-truths that pass for economics, and particularly into those underlying the mechanism of distribution, which is, in a monetary civilization, the money system. His most significant conclusion, from which subsequent events have given him no reason to recede, —indeed it is now a truism—was that nothing useful can be done unless and until a scientific money system takes the place of the one now always breaking down.”

              Soddy,Frederick.. The Role Of Money (Kindle Locations 105-109). George Routledge And Sons Limited.

              • Thanks.
                I am ever hopeful that adherents to MMT are capable of understanding modern monetary economics for what is its scientific reality, and I don’t believe that is possible without the sound footing that Soddy brings to the study.
                Some have proferred here that we should avoid any relation to physical science in coming to understand the workings of the money system.
                But Soddy has shown, in his Cartesian Economics lectures and elsewhere, that this is why the environment has become an “externality” to our present system of debt-based money, where the key to continued operation is its return on investment.
                For those who really wants to understand modern money – read Soddy first.

            • Oh yeah, with MMT we could easily solve the whole involuntary homeless, thing, while creating lots of jobs—without risking inflation.

              With regard to the politics, by definition half the population is above the median income, and half below. Generally speaking the upper half is content with their lot and perceive they have already “won” the game. They are generally individualists, and do not want government changing the rules.

              The other half are communitarians, and believe the system is not working for them and depend on public sector solutions. Every election in modern times has only varied a few percentage points either way depending on the current hope and fears for the economy. Even in the time of Obama, the House is solidly Republican.

              No matter how much either side tries to convince the other—it comes down to ideology. The potential for MMT to breakthrough into the “overlap” is huge. IMO, a transpartisan path is best for MMT.

              • JonDenn
                Not really sure what to make of your comment.
                I think its about politics more than economics.
                I abhor party politics. The present system works against the people.

                The only thing I want to change is the money system.
                To make it apolitical.
                There was a reason why the conservative Milton Friedman supported the plan of the then-radical progressives at U-Chicago for the reforms that they proposed based on Soddy.
                It was because Friedman understood all to well that the best thing that could happen to save capitalism was “free” enterprise.
                And enterprise could only be free if it did not depend on a system of privileged capital creation and destruction, where the issuers of capital have all the advantages.
                He wanted a level playing field.
                My Dad was a Christian-Capitalist businessman.
                And, far as I know, the most outspoken advocate for monetary reform of his generation.
                If you want to take the money out of politics, you need to take the politics out of money.

                For the Money System Common.

    • Yeah, how about trying to find more excuses not to try it?
      “Income disparity is way more complex then that.”
      Imagine that, it was so complex that FDR could do it 70 years ago. If he was succesfull in doing that, does that mean that we advanced back more then 80 years?

      • I’m not suggesting income disparity is not a worthy discussion, what I am saying it is not in the best interest of ushering MMT into the world by pushing a conservative hot button. Not all conservatives are Pete Peterson. Many have fought for our country in the military. And convincing some “NPR Republicans*” or some right leaning “soccer mom’s and Starbuck Dad’s*” that MMT is greater policy, is a greater strategy. And we can’t even start the conversation with “wealth distribution”, to a conservative that’s their “off” button. Just like denying climate change is for a liberal. *From Linda Killian’s Book SWING VOTE.

  7. This is all in theory. No?
    The not so great notion that what people worry about is really just keystroke inflation is pedantic and off-putting. Why do we call money keystrokes? Government spending does not create money by keystrokes, rather it transfers money already in its accounts.
    Government spending only happens when there is money in the Treasury – money collected by taxes or gained from issuing debt – IOW, from existing money.
    So, unpedantically and in non-theory speak: today in this country and in every country in the world, national government needs tax money or debt-proceeds (revenue) before it spends.

    The reason I am not allowed to smoke weed any more, or drive on the other side of the road, is because there is a law against it.
    In this and every other country, it is against the law for the government to spend money that it does not have. It has always been thus. It will take a number of changes to the laws before the theory of modern money as laid out in these ideas can actually happen. And so we can all smoke weed again.

    If the first thing you want people to know is that the government CAN or COULD create money when it spends, then explain what needs to change in order for that to happen.
    Unfortunately, MMT presents that it is describing the operational reality of a sovereign money system when, in reality, it describes one theoretical notion for how it could operate.

    Milton Friedman’s observation regarding fiat money should inform: that a fiat money system is a natural monopoly and it properly belongs to the government.
    But that “natural monopoly” doesn’t happen because of its theoretical identity.
    Friedman made several proposals for changing the “unnatural monopoly” of the private debt-based money system into one of bonafide public money creation and issuance.
    Believe it or not, without issuing debt. Almost a bonafide Greenbacker.
    Milton Friedman.
    Just slightly to the left of MMT on how modern money really works.
    For the Money System Common.

    • No. It suggests that the “borrowing” isn’t constrained, since it isn’t really borrowing, as such. Unless the deficit grows beyond the money saved, thus needing an interest-bearing instrument, there will always be demand for treasuries, making the deficit a moot point.

      • Andrew,
        But, “No.” what?
        “Borrowing isn’t real borrowing as such.” As such…. What?
        If you read “The Legal Aspects of Money”, you will find that our government borrowing fits exactly the criteria that make those borrowings real – a.k.a. “debt”.
        Parties, Agreement, Amount Owed, Currency, Term.

        That last sentence is a doozy.
        Takeaway, I believe: THAT there is a demand for Treasuries makes the deficit a moot point.
        Or, ………. actually, if its worth it, please explain.

        • You have it backwards. If you have dollars, what can you do with them? You can spend them, in which case it isn’t your problem anymore – someone else then “owns” the dollars. (Here, investing counts as spending – since it is just a transfer of dollars to someone else.) The only other choices you have are to buy treasury securities or put the money under a mattress. One of these options pays interest. The other does not. Which would you choose? At any moment in time, it’s always better to sit on treasuries than it is to sit on dollars. As long as the government offers treasuries of the desired duration, there should be demand.

          For the borrower, debt isn’t really the same thing if you have a money printing press as if you don’t. The whole notion is kind of silly when you can make money, isn’t it?

          • Sorry, Andrew.
            Sometimes I don’t know whether to laugh or cry.
            Or if this part is real.

            A democracy-promoting, progressive proposal for transforming the monetary system into something that works for the many, that deals with the problems of unemployment and income and wealth disparity in this country FINDS that the real reason that we need to be issuing public debt securities, and borrowing MORE money, is because there is this group of people out there that have TOO MUCH MONEY, and nowhere to put it.
            Here’s some advice. Get all the cash you can and put it in your dog’s mattress.

            This is sold as the liquidity-preference brand of freeing ourselves from $Trillions in unnecessary debt, and as using the monetary and fiscal powers of the government for the public good.
            So to speak.

            “Yeah, there is no NEED to issue any debt. But some of those cash hoarders want one last shot at the government dole.”

            And the fact that we the people actually have the money printing power that we’re not using, is that what makes that debt issuance “not really the same thing”?
            It’s not that we NEED to borrow the money to pay for services. We’re smarter than that.
            It’s that we want to help out those nice cash hoarders who are running out of safe monetary assets. Rather than create money and give it to the people who need it, we create monetary assets for the people who don’t need money. And we pay them interest.
            Can you say financialization?
            Is that what taking care of our own means?

            For the Money System Common.

            • I wish I could make sense of what you’re saying, but I can’t. I think you’re saying you want a different monetary system. That’s fine. I was just explaining why, given the current system, there will always be demand for bonds.

              • Fair enough. Thanks.
                In the present system of money as debt, there will always be demand for public debt because it is a means to upwardly generate wealth from the taxpayers to the holders of monetary assets.
                That is the essence of the debt-money system.
                Not a bad gig for those receiving the payments.
                My question is why MMT involves itself with defending such a system.
                Taxes are unnecessary.
                Government debt is unnecessary.
                The government funds itself by spending.
                In theory.
                The monetary policy initiative for issuing debt does not exist with CB payments of interest on reserves – which should be much lower than at present(reserves).
                So that leaves us owing $16.3 Trillion to somebody………….. in order to provide liquidity preference to people with cash they are neither spending nor investing.
                They are causing deflation.
                Why is that our job?
                This is the sloppiest interface point between the free market and our supposed public purpose money system.
                Let the private sector issue more bonds.
                And put the money to good use.
                Let the market reflect the risk associated with the liquidity preference.
                Yeah, a new monetary system that actually works like MMT says it could, would put an end to that shenanigan.
                For the Money System Common.

        • The debt “problem” is neither taxation nor spending. The problem is borrowing. And borrowing is more than a problem. It’s a scam.

          The Treasury auctions bonds on the open market and, out of general revenue, pays interest to the bond-holders, almost all of whom are wealthy. Since the middle class contribution to general revenue is more than half of its value, a lot (how much?) of wealth has been redistributed from the middle class to the wealthy since we dropped the gold standard in 1971.

          There is a name for this. It’s a scam. Let’s call it by its name.

          • That is a measurable transfer of wealth over that time.
            Not sure what the gold standard has to do with it.

            The public issuance of debt-based monetary assets to the private holders is nothing less than a major unnecessary public subsidy to private bankcorporations, for the most part.
            The banks use the government to pick the taxpayers’ pocket.
            There are two claims of MMT that speak against this happening.
            The first is that of sovereignty. The public HAS the money-creation power right now – but it has leased it out to the BANKCORPs, and the lease is very soon up for renewal.
            The second is the MMT sub-tenet that right now the government already creates money when it spends.
            For some reason, no.
            Just business as usual.
            Nothing to see here.
            Move right along.

            At the Chicago Fed Occupation last year I picked up a sign that I found leaning up against the building, and held it high for a few hours.
            “The Status is not Quo.”

            For the Money System Common.

  8. I was also under the impression that the propensity to spend for rich people was much lower, therefore taxing the rich to slow inflation wouldn’t be a very effective route. Tax them on the grounds of fairness, progressivism, or to prevent sin as you mention, sure.. but I don’t see that it would be very helpful for inflation. The 99% are the ones with the high propensity to spend, so increasing taxes on them would have a much greater effect.

  9. Government always spent by notching hazelwood, imprinting clay, stamping coins, chalk on slate, or “running the printing press”. There has never been another alternative. These marks or electronic entries represent government IOUs. No matter what time period we are talking about, I would have received government payments as “Government Owes Me’s”.

    This is not true at all. During the Roman and Byzantine period, for example, the government stamp on a gold aureus or solidus only assured the original weight and purity of the gold. There was no “IOU” aspect at all. Payment in gold was payment in full. In fact, when the Empire did pay tribute money in gold, the recipients often melted it all down.

    • Bobbo,
      When the coin had value in itself such as gold, then you could be right to contradict Dr. Wray on that point only, but you’re missing the concept about money as a symbol — as “legal tender.” A copper coin, a notch on a stick, an notation on an accounting ledger, that’s where the value is analogous to an IOU.

      To understand money we have to dig deeper still. Those gold coins have no currency value without the assumption — a widespread assumption — that they can be exchanged for goods and services. The coins sit in your pocket uselessly until spent. Even then… their specific exchange value must be determined by someone some… mechanism… This is where I run out of anything more to say.

  10. Over time, the problem of the super rich can and should be solved by a strict inheritance law. Since Congress can be bought, money is power and inherited wealth is inherited power, aristocracy, the opposite of meritocracy and democracy. Limit the amount freely inherited by any individual to a reasonable amount and tax the balance drastically. The mere threat of such a law would reduce excessive greed.

  11. L R WRAY, “We use taxes to keep our currency strong.”
    **A Monetary Sovereignty can issue unlimited amounts of its own currency.
    **A Monetary Sovereignty uses taxes to control the quality and quantity of its own currency.
    What begs to be questioned is:
    Why would a great social MS use a method of taxation that is unfair and unequal, one that at times may harm some of its members of its society more than others?
    Why use income as a basis for calculation of a tax amount, a base that is unequal to begin with.
    The flaw lies in what is taxed, not why anything is taxed (the why is “control”.
    The only reason the currency should be taxed should be for quality and quantity control.
    If for any other reason, it would be a self-imposed misuse guided by legislation.
    Could you not imagine a “tax” for not covering your head with a scarf if you were a woman?
    Or if a woman was caught driving a car ?
    Why not use a relatively fair and equal taxation, one that is based on the initial” receipt”,” printing”,
    “or other means of issuance” of the sovereign currency.
    What better control does a MS have than one which guarantees that ALL will come back to the owner
    while at the same time create an absolute demand for it?
    **A Monetary Sovereignty must attach a means of taxation to its issuance to control
    the quality and quantity of it currency.
    ** A Monetary Sovereignty must be the sole issuer of its currency.
    Isn’t a MS the sole guarantor of its currency?

  12. Money in order to operate must be a stock and a flow at the same time. It isn’t sufficient to just issue a stock of money (amperage) into the economy but you have to create movement (voltage) by sucking it out again. (A mass of water as such cannot be used to produce electricity you must have movement too. In order to create movement you need attraction in the form of gravitation). Money as well as waterpower is more about movement than about the stock. Once the power has flowed the remaining stock of money (of worthless material or immaterial anyways) or water is useless for energy purposes (waterpower as is evident by physics isn’t cyclical but onedirectional and so is money) and may be discarded. In order to create energy again you have to restart the whole process with new stocks of water or money “at the higher level” (the new stocks in order to function must in no way be identical to the ones already “flowed”). It’s the movement from the higher level to the inferior that confers the power to do work to the stock, not its material (you could also use other liquids than water or ather materials than paper). The flow of electricity has only meaning between the two poles of the battery and not within the battery. Money has only social meaning between issuing it and sucking it out. The concept of an electricity deficit within the battery (more electricity coming out than has been used) is meaningless as there is no recycling process in place. Same accounts for money.

    • This why a progressive tax on cash, rather than income, would be so helpful. You mop up excess dollars and encourage spending simultaneously. Eliminate paper dollars and it is easily done. People will say that it would discourage savings. Yes, but that’s the point. Savings is no different from hoarding if you don’t have a reasonable expectation of spending those saved dollars.

    • Work (energy) is required to put “electricity” into a battery. Zero energy (keyboards) will create a stock of money. The analogy fails.

      • Agreed. The analogy fails.

        Money is a conceptual creation thing. That fact gives us the opportunity to extract its logical relationships and functions and manipulate them independent of any tightly bound or absolutely bound physical relationship or metaphor. That is why money is digital now. More logical than physical when it was paper or gold and had associated physical constraints (that some may long for).

        As a logical thing, money can be designed to be and do anything. Money could be a fixed stock and its related account could be the variable flow association. Might even work better that way. That frees money from traditional balance sheet accounting in that once created as a debt-free stock it never goes out of existence. Ownership account relationship is what changes and flows. Conceptually money stays in one place at the macro level. Like a Platinum coin.

      • money as a stock must be printed, keyboards must be struck: there’s always an act of creation of the stock. This is not zero energy (not much o.k., zero no). Money as a flow requires a physical act of transmission (handing out of bills or changing numbers in written or electronic accounts). My main point is that electricity only works as long as there is a level difference allowing the power to stream (voltage). This level difference with money is debt. If we all had each one a million in cash but lived each one isolated on respective islands the bills and coins would be worthless because no debt could be created. There’s no money function without debt (no electricity without voltage). The government doesn’t create money only by printing it or by striking keyboards but by using this stock to pay his debts. For money to come into existence the government must become a user of the stock it creates. Like water running down the stairs (which could be used on each step to create electricity) the money used on the prime level by the government to clear its debt runs through different debt levels until it reaches soil level, that is it is used to pay a debt owed to the governement. Here the stock of water still exists but it has lost all power to move downwards. “Money” that has reached this level has become worthless stock. Only stock introduced by the goverment on the prime level to pay its debt is money (stock and flow function combined).

        • Interesting.
          But, aren’t you conflating the exchange function with flows of debt?
          OK, try this.
          The government puts $10K in “cash” into each of our hands.
          $3.1 Trillion in cash.
          It issues no debt.
          We have a $3.1 Trillion economy.
          It grows by 3 percent annually, as does cash-in-circulation.
          (Forget about ‘velocity, please)

          It should be obvious that it is economic throughput (supply and demand) that creates the power needed to move the currency around.
          There is money function without debt.
          This money function is ‘exchange’.

          There could readily be a need to borrow (investment).
          But the amount of money would never change with that flow of monies.
          Once you realize that money is NOT debt, a lot is possible.
          Please have a read of Soddy’s “Wealth, Virtual Wealth and Debt”.

          • MMT states that taxes “drive” money. Taxes are government-created debts of the citizens.

            Also all payments made by the government or is payment on a debt created in a transaction or create their own underlying debt. For example the handout of 10K USD by the governement you describe clears a government-created debt the government imposed on itsself. (Gifts clear a debt that didn’t exist prior to the gift having been made; if it were different how can you become entiteld to keep the gift ?).

            What is true for the first spending-in and last spending-out is true for all money transactions in between. “Exchange” as you have it is the result of a debt cleared by the payment and an action by the seller as a counterpart.

            There is no money function without debt, the debt driving the paper bill called money from hand to hand.

            • Erik, thanks.
              I know what MMT states about debt. They’re wrong.
              From the beginning –
              1. Government-created debts of the citizens “drive” money. (legal tender?)
              2. All payments by government …. create their own underlying debt. (so when government spends and creates money, it is creating something (debt) that must be paid back to the government?)
              3. The government “debt-jubilee payment of $10K per head ” clears a government-created debt the government imposed on itself (??). Sorry that’s a little Irwin Corey like. Maybe Father Flotsky.
              4. “Exchange” is the result of a debt-cleared by the payment. something between buyer and seller.
              5. There is no money function without debt – the debt drives the paper bill – in the exchange.

              If people want to see the problem with MMT’s debt-is-money construct,then they can either look right here, or study the phenom of Greenbacks.

              Oftentimes the error manifests in the misdefinition of a ‘debit’ in a DEB transaction as a ‘debt’.
              The government printed the $100 Bills at 2 cent costs and brought them to me at another 2 cent costs.
              No debt yet.
              I exchange the $100 for a tank of gas at the Quik-stop.
              In the printing-creation-issuance-exchange, there is $100 more money in circulation.
              I have gained the first use of a tank of petrol.
              No debt yet.

              The QuikStop deposits the $100 Bill and it circulates forever in the economy.
              No debt forever.

              If you have any idea of the legal definition of what is a “debt”, then please explain the meaning of 1 – 5 as they relate to any so-defined ‘debt’ being created.
              Who created the “debt”? How did they create the debt? Does the debt still exist? If so, who owes who what? If not, who paid the “debt”?

              What is obvious is the error of the MMT debt-is-money and money-is-debt construct of money.
              We just added $100 dollars to the money supply without creating any debt.
              If the math of the transaction gets fuzzy, then dwell for a moment on Greenbacks.
              It was $450 Million created – something equivalent to Tens-of-$Billions today.
              There was never a debt issued to support the Greenbacks.
              This is why Ford and Edison argued against issuing Bonds for Muscle Shoals.
              “That which make the Bond good make the currency good also.”

              Debt is something that is owed and gets paid back in a certain amount of money of a certain kind by a date certain.
              Money is used to pay debt.
              As soon as MMT realizes this error,we’re on our way forward.

              For the Money System Common

  13. Would the Gesellian way of taxing money be rather inflationary or rather deflationary?

  14. Thank you for another great explanation, Mr. Wray. Every time I read about how the public purpose can best be served by MMT, it makes me feel better about this maddening world. It is too bad that the world appears to be filled with people who do not see the virtues of equality, fairness and honesty. Those “sins” have spread like a virus around the globe.

  15. L. Randall Wray

    Many comments, I will be brief.
    Bobo: Even in Roman law, coins were nominal. Value was not determined by embodied metal but rather by what the sovereign said they were worth in public pay offices; enforced in courts. Best to actually look at legal history rather than imagining how things worked.
    JoeBed: I know you’ve been reading MMT for a very long time, so you actually do know that “laws” do not constrain the sovereign currency issuer. Yes, Treas must have a deposit acct at Fed; and Yes Fed cannot buy bonds (with some exceptions) directly from Treas. But you KNOW we’ve dealt with all of this a hundred times and shown that current operating procedures ensure that Treas always has deposits to effect the spending. So your complaints are either confused or designed to confuse. For those who do not know the literature, Scott Fullwiler has laid all this out precisely. I do not want to debate it here; this series is about framing, not about rehashing what we know to be true.

    • Dr. Wray,

      My purpose is always to clarify our understanding of money, both for myself and others. Only well-informed understanding, and not confusion, can lead to achieving the goals we all want. That’s why I read “Understanding Modern Money”.

      You may believe that any of the issues that I bring up have already been ‘dealt with’; as such all we would need is a proper reference (see ‘x’ of Dr. Fullwiler) that would lead to that further clarification.

      I don’t know what you mean by saying that laws do not constrain the monopoly issuer of the currency. I thought that was what was meant by “self-imposed constraints” – laws and regulation that narrow the policy space available to any fiat-money monopoly issuer. I’d like to think that, in theory, this means the government. But in an endogenous money system the national circulating media is issued into commercial exchange almost exclusively as a debt by private banks, which is the source of our boom-bust economic cycles, and therefrom inflation and deflation.

      My ‘government spending constraint’ has nothing to do with whether Treasury has an account at the Fed or whether the Fed can directly monetize bond issuance. It is much simpler than that.

      It is that the government cannot spend money it does not have. It is that the government does not create money when it spends.
      Were the Fed to monetize debt-issuance, this would provide the money to spend.
      No problem. Just put it in the TGA prior to spending.
      The issue broached here is that a legal constraint exists against the government’s monetary policy space such that the government does NOT create money when it spends (although it certainly could by changing the laws).

      If you think this has been dealt with hundreds of times in a way that is understood by those who carry out those actions, and explains how this government money creation can solve the problems of “too little money” in the national economy today, please show me just once.

      This is what I believe is understood by those who carry out these actions, and why, under present arrangement, there is no solution to the debt-deflation problem we are facing.
      I’m sure you and others have read the government’s financial operations manuals.
      Please let me know if my reading is inaccurate:
      The Fed has to debit the Treasury’s account at the Fed before it can credit any bank’s
      reserves account at the Fed (in order to facilitate payment), and the Treasury has to maintain a
      positive account balance by collecting tax receipts and securities sale proceeds.
      As you said, by law the Fed cannot provide an overdraft or loan to the Treasury.

      While I tend to think of these as happening simultaneously, the Fed-Treasury Operating Procedures do not portend the creation of money by government spending.
      Thus, the private bankers preserve their hold on the mantle of BEING the monopoly issuer of the currency, using bank loans to create debt-based money.
      And, THAT is the problem that MMT does not solve.

      Again, please advise where I might have something confused with that understanding.
      Or why it does not matter.

  16. L. Randall Wray

    Finally. On the perfect tax system. What should we tax? It is cubic feet of dwelling space. Hard to evade and to avoid. Highly progressive. Environmentally sound. Can have different rates by city vs rural or in whatever manner you want to pursue public purpose. You can have an exemption (ie: first 1000 cf exempt) to make it even more progressive.

    • L. Randall Wray | December 11, 2012 at 7:32 pm | Reply

      Please, allow a fool to submit an answer.
      TAX the sovereign money when it is initially issued. A just and easily applied scheme. The initial
      issuance shall have a taxation attached, namely compound interest.
      Imagine the fairness and equality of such a taxation?
      Now to go off the deep end a little, this method of distribution of “sovereign currency” then becomes
      not only a means of quality control but also means of quantity control-the Sovereignty may set the rate of interest for control.
      Also, it becomes a means to guarantee the redemption ability of the sovereignty WITHOUT CREATING MORE MONEY. The money has an unbroken circulation back to the “true”
      owner of the original goods and services since repayment negates a second “fictitious” owner.
      Total wealth of a nation is the total money supply and that never is leveraged only borrowed and returned.
      Please , “due examination”, help a fool, to be just a lucky fool albeit still a fool.

  17. Is Inflation really a Bad thing? How much Inflation is Bad? Do we need a predetermined target of Inflation for economic planning?

    The author has mentioned the need of taxation and cutting spending. That’s at the point when economy is supposedly at Full employment and/or there are inflationary pressures. But then, how do we define those “inflationary pressures”. European Central Bank has this superstitious believe in maintaining Inflation around 2% mark. Here in India, the RBI’s comfortable mark of Inflation is 5-7%. Many central banks around the world set Inflation targets. But how realistic and practical are those targets when we manage economy from perspective of economic policy based on Public purpose? Do we need to have Inflation targets at all? If not, what mechanism does MMT propose to determine “right time to raise taxes and cut spending”?

    In a time when Consumer Debt is extremely high. Households are in severe debt – that includes Student loans, credit cards, home equity, Personal loans etc. At a time when Corporations are hoarding trillions, refusing to invest and kick start growth. A moderate inflation is not a bad thing at all. A moderate inflation will relieve pressure of consumer Debt and it will also force Corporations to start investing in economy and create jobs. Inflation is a inherent problem for Super rich who accumulate wealth over generations, indulging in “rentier” and parasitical activity on productive economy. An economy with deflation or little inflation is happy environment for Super rich.

    I don’t think arbitrary target based on Inflation index should be justifiable reason for raising taxes and spending cuts. 5% Inflation may sends chills down the spines of Draghi or Bernanke but i don’t think its a problem. It is actually beneficial in present environment.

    Inflation doesn’t reflect Standard of living of Society. Look at Eurozone specially Greece or Spain. They have no inflation but their Standards of living and socioeconomic status has fallen of the cliffs. Desperate Greeks or Spaniards wouldn’t mind even 10% inflation if they have jobs and Social security.

    I would look it from another perspective. Inflation is a problem if a nation has no growth. But a Nation with 5% Inflation with 7% Growth is not a bad thing. As long as economic growth can “outpace” inflation to a certain degree. Its not a problem. Or more generally, as long as fiscal and monetary policies are leading to improvement of Standards of living. Inflation should not be a real worry.

    Hardline Austrians have a habit of showing this graph which shows value of dollar plummeting by 97% since creation of Federal Reserve in 1913. What they fail to understand is that Economics is not just about money or precious metals. Money is just a vehicle to run economy. And economic achievements are not just about good macroeconomic numbers (like low CPI) but also development of Society. That includes Scientific and technological innovations, Social and moral progress – economic rights, women’s rights, Social justice, equality etc. So yes, while Dollar may have lost its “value” by 97% in terminology of Austrian School, America and world has made a remarkable progress.

    • Inflation is not the only reason, and not the best criteria, for raising interest rates. The primary reason to raise interest rates is to avoid pressing upon available resources and production capacity. Shortages drive inflation.

      Scheduling production and complex human activity is an horrendous mathematical problem. As a practical matter, there must be slack in any serious plan. If not, trouble starts: deliveries are late, you can’t get a plumber in an emergency, assembly lines stop, workers must be sent home, etc. For want of a horse-shoe nail. a kingdom is lost.

      Other than wartime or emergency needs, the Fed has to carefully monitor the economy and avoid nearing maximum capacity. Indeed, there should be incentives to increase important resources and various material reserves beyond oil. A nation should always be prepared for emergencies.

  18. Following up on the points introduced in part 5, it would be appropriate to emphasize the three functions of taxation mentioned there: 1) to create demand for currency to enable government to move privately owned resources to public use, 2) to control inflation resulting from excess demand (rather than supply shortage), and 3) to regulate behavior by incentivizing behaviors that are socially and economic economic positive, while discouraging behaviors that are socially and economically negative. The first point is needed to explain why it is beneficial to have a state currency and to tax at all. The second explains why it is necessary to tax when effective demand outruns the capacity of the economy to expand to meet it. The third addresses the point of discouraging “sin,” that is negative behaviors such as those that result in negative externalities, and of encouraging positive behaviors that lead to positive externalities.

  19. The problem I have with MMT is, it’s advocating more government spending which is wasteful ($640 toilet seat), easily susceptible to fraud (Medicare) and rewards the politically connected (Solyndra) crony capitalism.

    From my understanding what MMT wants to do is nothing more than Government Centralized Planning. I think MMT would get more traction if rather than focusing on increased government spending, it focused instead on cutting taxes which would allow the private sector to spend more.

    The fact is when money comes out of your own wallet you’re diligent in how its spent whereas when its someone else’s money you really don’t care or worse, you use it to buy favors or get kickbacks!

    • No. MMT says nothing about what money should be spent on (other than perhaps, employing people when no other employer exists). And remember that wasteful spending is always in the eye of the beholder. The guy who sold that toilet seat probably thinks it was $640 well spent. All the money that the government spends goes back to people like you and I (and toilet seat sellers).

      MMT says nothing about central planning. You need to read more.

    • Problem is not Government Spending, what you mentioned is Government Corruption. And Corruption is not limited to Government alone. Private Corporations and Wall Street are also neck deep in corrupt practices. Cutting Govt spending will not wipe out corruption. Corruption thrives well in wall Street and Private sector too.

      And best way to resolve problems in Govt is to get Politically active. When you live in Democracy, its your duty to preserve it at all times. Its not just about casting a vote once every 4 years. So if you have problem with your elected representatives who are committing frauds and wasting money, then hold their feet to the fire. Get Politically active, expose and remove corrupt Politicians from the office.

      Regarding cutting taxes. I am in favor for cutting taxes specially for middle class.

      But from a look at Wall Stt. The Corporate taxe of 35% and other federal taxes looks very high. But truth is that vast majority of Wall Stt. pay little or NO taxes. That’s because of variety of loop holes in our tax system. Its a MYTH that giving tax cuts to Corporations will make them create jobs and help the economy. Most Wall Stt. corporations are already paying 0% taxes and/or getting handsome tax refunds. Hardly any big corporation pay their “fair” share of taxes.

      The cry for tax cuts to big corporations is just a red herring used by GOP.

  20. L R WRAY, William Black, and Michael Hudson, please challenge as your opinions are interpreted by me to reach these conclusions.
    TOM HICKEY,”Following up on the points introduced in part 5, it would be appropriate to emphasize the three functions of taxation mentioned there:
    ***Finally. On the perfect tax system. What should we tax?
    Please, allow a fool to submit an answer.
    TAX the sovereign money when it is initially issued.
    Sovereign Currency issued as a loan with compound interest attached has an unfulfillable eternal demand.
    Please, allow a fool to submit an answer.
    TAX the sovereign money when it is initially issued.
    What better method is there to control inflation? Increase the initial rate?
    Deflation; lower the initial rate?
    Please, allow a fool to submit an answer.
    TAX the sovereign money when it is initially issued.
    That simply goes into a double taxation situation depending what self imposed legislation deem what offenses should be burdened with such a “fine” (tax).
    All of this is done without doubling the total wealth of the Sovereignty nor does it change the value of its goods and services which are the “guaranteed redemption”
    Where does it go wrong. Why do you not wish an end to unjust federal income taxes and prosperity
    for yourselves and your children.
    All within the bounds of MMT: unlimited issuance, inflation and deflation control, redistribution for equality ?
    Is there a “more perfect ways and means to form a more perfect union…?
    I await all profound answers-please help a fool to understand, why or why not ?

  21. Pingback: Randall Wray’s alternative meme for money | Reality-based World View

  22. There are distinct problems with the superrich, let’s say, the top .1%, holding too high a percentage of assets within the economy. The main problem is that it’s an inefficient allocation of resources for the economy to function efficiently. The “progressive” response to raise taxes is more an allocation of income then resources, and the accumulation of resources is the problem (not allocation of income). Perhaps a “doomsday” list of the style of William the Conqueror is on order so wealth can be tallied and then just tax that wealth as William the Conqueror did.

    I don’t know that Mr. Wray fully appreciates the subsidies that the superrich have received over the years. The finance and banking system caters to the rich and large corporations as they are the most credit worthy. Most MMT people have an understanding of how money is creating through the banking system, but few take the next logical step that new money is a subsidy to those who use it, as it is honored by the public. It’s easy to understand that, when say, a monarchy mints coins, that ruler receives the full monetary benefit of those coins. The same rule applies for all new money. All new money, whether created by governments or by the banks, is a subsidy to those who get the benefit of that money. The benefit (subsidy) for the top .1% has been enormous. It would make sense to unwind those subsidies.

    There really isn’t much of a moral justification to allow the superrich to keep accumulated subsidies. It’s also inefficient. The problem does arise if reallocations (wealth taxes) extend beyond the superrich and perhaps into the middle class, which would affect productivity incentives.