You admit that a currency-issuing government with a sovereign fiat currency is not revenue constrained and then seem to have trouble letting go of the household budget logic that has prevailed to limit spending on the common welfare for a half century. It is difficult to simply cast off our perceptions gained from experience, but if that experience isn’t relevant or reflects workarounds for errors and misconceptions in something as important as our ability to function as a society we should make a grand effort to begin with factual reality.
MMT begins with accurately describing “money” as a tax credit that is required to satisfy tax obligations imposed by a government to bring real resources into an economy where they are available to provision the issuing government upon demand. Imposing a tax broadly enough to drive a need for the currency/tax credit in the economy is the first order of the system, but not of operations, as unless the issuing government first spends its tax credits there are none available to satisfy the levy. Spending is the first order of operations from the start and remains so. One simply cannot collect what doesn’t exist.
Only by spending in excess of tax levies can the currency be useful in the greater economy to denominate prices of goods and services and future contracts. A balanced budget is effectively a 100% tax rate and would quickly be rightly perceived as theft of the resources and labor exchanged for the currency. Every currency expenditure of the issuer becomes an asset to someone in the private sector until it is required to satisfy a tax obligation to the issuer. To serve as a store of value a currency must be able to be net saved above any tax levies. Only once this basic premise is understood as a definition of most modern currencies can an understanding of the monetary system reflect reality.
While the issuing government has no “need” to get its currency back via taxation to enable it to spend once acceptance is achieved, taxation serves to draw down the total supply of currency to maintain its value in the economy and to accomplish social goals involving distribution. This is not possible unless all collected currency is destroyed upon receipt of payment of a tax by the issuer. Recycling currency collected into future spending defies the purpose of taxing (or borrowing) and injects all but impossible to account for factors in normal dual entry spreadsheet accounting used universally to track money flows. It is critical to accounting that the issuing government never “has” money, especially when we pinned the currency to a gold reserve at a fixed exchange rate, as the government already held the gold the currency represented.
As the name suggests, dual entry accounting requires that every entry is balanced with an opposing entry in another sector of the total spreadsheet. In the case of spending at the federal level, this means that a “debt” (negative) equal to transfers to the private sector (positive) be created in the government sector to track flows and balances. The balance of such accumulated negative entries then represents the total of money/tax credit created by the issuing government that hasn’t been “canceled” by payment of a tax obligation and the upper limit to tax levies possible without additional spending.
As spending and collecting (including bond sales) take place, this total will always reflect the “net” money supply and define deficits (additions) or surpluses (debits) within an accounting period. Confusion about vernacular and antiquated rules from the gold standard have been weaponized by politicians and many economists to portray the government as a competing “user” of the currency for political and economic gains for selected entities that benefit from austerity fiscal policy, not the least of which is the private sector banking industry that is operationally entwined by its ability to create dollar-denominated reserves for private sector loans with our Federal Reserve/Treasury system.
Is $21+Trillion too much money to have in circulation in this economy? We can, and should, have that conversation, but it should be framed in reality and that would certainly interject discussions about distribution and the purpose of government. Should the general population ever suddenly discover that reality and the wasted potential of the currency as a no-cost commodity to Congress that is Constitutionally mandated to create it for the “public welfare” and to realize the full guarantees of the document, there would certainly be a profound political change, peaceful or otherwise.
