Roger Stokes says:
April 18 2019 at 8:22 am
… John McDonnell has created the same rod for his own back with Labour’s “Fiscal Credibility” rules… they appear to believe Thatcher’s dictum that…
“It is your tax which pays for government spending. The government have no money of their own. There is only tax payers money”… yet they surely aren’t stupid enough to not understand that every time the government spends it creates money and every time it taxes it destroys it…Reply
Richard Murphy says:
April 18 2019 at 8:23 am
Don’t you believe they’re not that stupid…..Reply
That incorrect decision still stings, doesn’t it?
Surely money is neither created or destroyed but is just a means for trading goods and services. Actual wealth comes from people doing productive work. When the government takes money and wastes it on crap that no one wants, that makes everyone poorer.
Stonyground,
Yes, but these people are completely bonkers.
“every time it taxes it destroys money”
Best stop doing it then.
Like a hog in his pen, Richard Murphy continues to wallow in his own failure…
It’s enough to brighten anyone’s day.
Mr Worstall. I am very grateful that you keep keeping on at the idiot, because my alternative to your patience is violence..
Can someone re-write the whole of that without the double negatives please. I’ve no idea, and even less inclination to find out, what he said. Not that it would make much more sense more clearly written.
What incorrect decision?
Do you mean Ritchie’s tantrum with McDonnell?
Of course government has money of its own . It IS the money . It creates the currency . You try creating your own currency and find someone who will accept it. Government SPENDS money into existence . The only other institution that can create money is a bank with a licence from the government and a bank does it when it makes loan . So a bank LOANS money into existence. It does NOT lend your savings to other people . Tax is collected after the event to even up the creation of money so that we all believe in the currency . Yes it’s really that simple.
‘You try creating your own currency and find someone who will accept it. ‘
*Cough* Bitcoin *cough*
*cough* LETS *cough* Community currencies *cough*
Stroud Pound, Bristol Pound, BerkShares, Yorkies…
“Surely money is neither created or destroyed but is just a means for trading goods and services.”
Money is created whenever anyone borrows, creating an obligation to repay something of real value (goods and services) at a later date. Money is destroyed when the obligation is repayed, by delivering those goods and services.
Go to the bank and take out a loan. They first ask you to sign a contract promising to repay it at a certain rate. When you sign it, the contract itself becomes ‘money’, worth the promised goods and services, times the probability of you repaying it. However, it is not ‘liquid’ – you can’t exchange it for goods and services now only goods and services over the next few months/years/decades. They put that new money in their vault and give you a roughly equal amount of liquid money (minus their fee), that you can spend right now. Banks do not create money – they simply exchange illiquid forms of money for liquid ones. Borrowers create money. And it only has value because they promise to repay it.
The government also creates money by printing it and spending it – which is to say it borrows. But this money only has value because the government promises to accept it in payment of taxes, and then burn it. It repays. But the demand to pay taxes has no corresponding good for which it is exchanged, unless it is the services government buys. The taxpayers pay for government services, with their own work.
The anchor of government money’s value is expectations about how much it is expected to tax. It is about the rate at which it is expected to repay the borrowed debt. However, this process only acts as an anchor to keep the value stable. Most money is created by borrowers out in the real world, nothing to do with government. And they’re not generally banks, either.
Money is a promise to repay value to the bearer. That’s what’s written on the paper. It’s created by the person who makes the promise. It’s ‘backed’ by what the creator promises. It’s backed by people’s hard work. Banks don’t promise to repay your mortgage. Neither do governments. People do.
Money is a means for trading goods and services, by splitting the trade across time. We trade good for money now, and trade money for different goods at a later time. Money is a measure of what good you have done for the rest of society that society has not yet repaid. The more money you have, the more good works you have done for others and not yet received anything in return. Money is virtue, a record of how much one has helped others. Money is justice, ensuring people can get what they have earned. Money is good.
When you sign it, the contract itself becomes ‘money’, worth the promised goods and services, times the probability of you repaying it.
Somehow you always manage to outdo yourself.
Money is a recording of who owes what. We can have such recording as being specific – Tim owes Rusty a day’s worth of DIY because Rusty came help with the barn raising. We can have it general, in that someone with £100 can gain a day’s DIY labour.
Thus Tim and Rusty have just created money by swapping, over time, their labour. It’s not exclusive to governments or banks at all.
Sure, it works better when they do it, more generally, but the restriction isn’t valid. Money’s a recording of debts, thus anyone recording debts is making money.
It says something when even a group as loony as the current Labour leadership, told exactly what they want to hear (pst! you can spend as much as you want, nae bother!) won’t touch your ideas with a barge pole.
There’s a quite good explanation of money as bookkeeping in one of the Lazarus Long stories. Lazarus runs the bank of a new colony, the colonists decide to nationalise the bank (or “steal” it as Lazarus puts it). They turn up at the bank and demand to know where all the money is. “Oh, I burn it. Having it lying around would just tempt thieves.”
A very succinct description of money, from a master, Mr Worstall. Any other description of money is bollocks. Neatly illustrated when those idiots who’ve assigned themselves the power to print banknotes depart too far from the principal. See Venezuela. Money is purely a token for a book-keeping entry. Without the entries, it’s valueless. And no, cooking the books doesn’t count.
“Sure, it works better when they (government or banks) do it,(create money) more generally.”
Some of us would beg to differ.
BiS +1
Tim, many of you have done this to death on here, but that’s so concise (and understandable to lay bods), I’m going to borrow it.