A regular commentator, usually simply using the name Andrew, posted this on the blog overnight:
It would be good to find a convenient way to turn that pernicious Thatcher quote [on the government only having taxpayers' money] on its head.
First attempt: "Let us never forget this fundamental truth: the State is the only source of money in the economy. If you wish to earn, invest or spend some money, you can only do that by getting some money from the State (or from the banks which the State allows to create money by lending) and which the State has not yet recouped in tax. It is no good thinking there is any other source of money - it all comes from the State. There is no such thing as taxpayer's money; there is only public money.”
He added:
If someone thinks there is any "taxpayer's money", which has been created by a private body, not by the state or one of its licensees, I suggest they try printing and spending some of their own and see how far that gets them.
I like the idea here. This is my attempt:
There is no such things as taxpayers' money. The UK government is the monopoly producer of sterling. It is government-created money that we use. That money is created when the government spends. The part of that spending not taxed back - the so-called national debt - is the government created money that keeps our economy functioning. We can't do without it. And we couldn't pay our taxes unless this money existed. Government money is what keeps the UK going.
That could be polished. But other offers would be welcome.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
“ And we couldn’t pay our taxes unless this money existed.”
Other than trying to establish greater equality in the country, or keeping a check on inflation, what are the other purposes of taxation?
There are six reasons to tax:
1) To ratify the value of the currency: this means that by demanding payment of tax in the currency it has to be used for transactions in a jurisdiction;
2) To reclaim the money the government has spent into the economy in fulfilment of its democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation – people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.
Why not just say claiming, distributing, pricing and organising? Why put re- in front of each verb? Genuine question.
Because it is re- in each case
It is correcting distribution etc
I have always hated this phrase – but not from a MMT standpoint. “Taxpayer’s money” implies that those that pay tax should have an outsized say in how we spend it and this is wrong! If we want to speak about money belonging to anyone then it is “citizens’ money” or “People’s money”…… but a simple “money” will do nicely.
Everyone pays tax thanks to at least VAT, even a child spending their pocket money on sweets. Still I agree that those who use that phrase are coming from the orthodox/outdated side of economics.
The “Taxpayer’s money” trope is a carefully crafted, calculated and effective neoliberal term with a very deliberate purpose (this is what neoliberalism does best; turn defective ideas into powerful political demands through the medium of slick, plausible emotive motifs). It is neoliberalism’s most effective weapon. Rational analysis is left in the small print of arid controversy, a long way behind.
The purpose? I propose it is to establish the political exceptionalism, and the political primacy of taxpayers for Parliament and for politicians (who dare not ignore the most active and determined, voting constituents). Indeed to establish the taxpayer as both the most interested, entitled citizens, with the most to lose (a calculated energising stimulant to popular resistance to anything other then neoliberalism, and in one form or another it has a long history in British Right-wing politics); and reinforce the strongly related “household budget” creed; and it is a creed. It is a simple, single concept with persuasive populist power; which is why the tabloids fall on it so eagerly. Indeed it spawned a political quasi-party, the ‘Taxpayer’s Alliance’ that even managed to have a representative elected as an MP or MSP for a term, and still persists as a quasi-think-tank to whom the broadcast media will turn for comment.
Supporters of MMT have a long way to go to learn the lessons, still more actually act on them.
Hence the reason to work on it
My threads on QE have att5arcted almost 800 new Twitter followers in a day…
I don’t doubt that the “taxpayer’s money trope” is a neoliberal plot but it is going to be hellish difficult to counter as I believe it’s origins can be traced to preindustrial society where people made things both for their own consumption and for barter. In modern society where the majority are excluded from the means of production this has morphed into ‘making money’. The employee and entrepreneur alike are engaged in ‘making money’. No wonder they claim ownership of ‘their money’. It’s deeply engrained in the human psyche. However there is hope. QE during the GFC and the pandemic has given MMT proponents the opportunity to clearly demonstrate that it is government which creates money and has the power to target spending for the greater good. If this can be accompanied with a new understanding of the purpose of taxation this will be real progress. However I do wonder if it is a good strategy to get side lined into a discussion about who owns discrete sums of money once it has been distributed to wider society.
I understand that what Thatcher said in summary of her argument was “There is no such thing as public money. There is only taxpayers’ money.” That slogan is what people remember although she said more in support of it.
Can I suggest that having the MMT supporting arguments to hand will be vitally important, but that equally important will be to have a memorable slogan akin to, but opposite to, Thatcher’s. For example “There is no such thing as taxpayers’ money. There is only government created money”.
Agreed
For a slogan, shorter is better, and David’s does the trick well, but it might need some unpacking, particularly to address the natural perception mentioned by Raymond below that people earn their own money through their own labours, and graciously permit the state to take some of “their” money to spend on public goods. That might have been the case in the past, for example under the gold standard when the supply of money was necessarily limited, but it is certainly not how money works now. Unarguably, the state is a monopoly supplier for the creation of money .
To be clear, we are talking about where the money comes from. It is not about valuing the output of work – GDP or income or whatever. That would be confusing confusing a quantity with the unit in which it is measured, and eliding value (as in worth) with price (calculated in money).
Agreed
It’s the Queen’s money. We may hold it, but we must pay tax.
Er, no
“There is no such thing as taxpayers’ money. There is only government created money”
The paper I referenced in a previous comment dramatically adds to this by arguing it’s actually government created money that enabled the private sector market to take off because it created a very safe asset that could be used as a medium of exchange! Indeed it’s possible to can go further and argue it was the English government’s adoption of a paper based safe asset (the bank note) that allowed the Industrial Revolution and capitalism to really take off at the end of the 17th century. Here’s that paper again:-
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2770569
If I had a like button I’d hit it
Correct link:-
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557233
Thank you Mz Schofield; the Christine Desan paper ‘The Monetary Structure of Economic Activity’ was illuminating and worth reflecting on its contents. It notably reveals the value of interdisciplinary insights into economics; principally here from a legal perspective. The closing analysis pp.40-47 (it is a substantial paper) usefully summarises, but I thought it may stimulate interest among readers if I append here a short extract that brings out the basis of Desan’s approach, from the modern ‘safe asset’ scholarship, rather than MMT, which I think may in some ways prove a form of independent corroborational advantage:
‘the “safest” of safe assets are public. Thus Gorton and Metrick note that “privately-produced safe debt can never be as safe” as credible public debt, and Gorton calls U.S. Treasuries “riskless” compared to privately produced debt. Scholars note the flight to public debt in private asset crises, given sovereign authority to tax, issue debt, and print money. Pervasively, they treat privately produced assets as a “substitute” for public debt, and argue that the turn towards such assets occurs because the stock of public debt assets is inadequate to answer the demand for safe assets. Relatedly, they identify “proximity to the central bank” as a critical indicia of safety. “Any asset can be made safe by an implicit or explicit promise by the central bank to buy it” in an emergency.’
And in Desan’s closing peroration there is a telling insight, effectively contrasting the conventional neoliberal economic wisdom of a world in which money is ‘neutral’ and only ‘markets’ are real (p.46):
“In short, the market is a constitutional project, a function of public work as much as individual enterprise.”
Getting my Analogies in a Twist Perhaps?
Is Money like petrol or oil in an engine? Both are essential or the car won’t go. Power or lubrication? Either way I have to pay at the pump in Government created credit. It may say My Bank on the card but only a Government can licence My Bank and Your Bank to issue and hold our money. Unless you trust Fred at the betting shop?
Or is Money also like inches and kilos; a Government guaranteed measure of value? How much is a bitcoin worth at the supermarket?
Get real folks. You are taxpayers here because you live here and tax is the gearbox of the national car. We can let it run free or rein it in — like the horse we imagine we’re riding in 1901, alone and free like cowboys. However it is 2020, we are not lone rangers but horses in a herd that is only safe when it moves and grazes together.
Of course, we’d rather believe controlling a fiendishly complex human economy is something simple like turning on a tap, balancing the books or spending taxpayers money.
Thanks
Didn’t Ethiopia, not two months ago, provide the proof of this.
The Ethiopian Government demonetarised its currency, and issued a new one. It couldn’t have done that if it hadn’t the power to do so. No other organisation in the country could have that.
It is not the taxpayers’ money but the tax receiver’s money – they are the ones that create it:
http://www.progressivepulse.org/economics/taxpayers-money-doesnt-exist-and-is-in-the-hands-of-the-receivers
I think this is one of those completely logical arguments which, though correct, is doomed to failure. Whatever the reality, people *feel* that the money they have earned in providing whatever service of ethical (or dubious value) to society is theirs to spend as they please. Moreover not having read any academic papers or literature on MMT their lived experience is that their employer or, if self employed, the consumer pays them. When government taxes that money to control inflation or to ensure a more equitable distribution as advocates of MMT maintain, all they see is politicians deciding how much of *their* hard earned money they can keep and spending it on projects of which they may or may not approve.
Sorry, but I think narratives can be changed
@ Raymond Carter
The public’s “hard earned” money can only be earned if there’s a safe medium of exchange available to service the market where transactions take place including providing jobs. History (especially the cause of the 2007/2008 GFC) and an understanding of reserves based monetary systems should be telling the public why government created money plays a key and vital role. That the public elects narcissistic amateurs and crooks to political office who won’t explain this key role to them explains why democracy has deteriorated to a “banana” constitutional monarchy or republic level.
Try running the argument the other way – suppose nobody paid any taxes, literally nobody.
In those circumstances would the government have any ability to hire people and direct resources to programmes like welfare and labour to projects like infrastructure? In other words would the government have any spending power?
Unless the government has a profitable revenue stream, like a Gates for instance, then the answer has to be no.
You get this entirely wrong
The government creates all our money – out of thin air
QE proves it, but actually, all government spending starts as borrowing from the b=Bank of England
So no tax would not stop the spending
It would just lead to hyperinflation
And I’m not too keen on that
John Toons.
Try thinking of tax in a different way.
Tax removes/destroyes money from the economy that the government has already created/spent into the economy.
The tax does not directly “finance” future government spending. By taxing money out of the economy, the government creates the space for further government spending.
Bonds also remove money from the economy to create more space for government spending, but in this case the money is not destroyed, it is removed from the economy for the lifetime of the bond.
If the government didn’t tax or sell bonds, then any future government spending/money creation would lead to inflation.
‘Tax payers money’ as a concept has enabled the ignorant, the biased and the self-interested to dominate policy.
All I would add is the differentiation between that which the Government creates which to me is base or ‘pure’ cash/money free of interest and interest bearing debt money that is created by banks under license.
The choice is this: which would people rather have? Ask them that?
I watched Adam Curtis’ ‘Bitter Lake’ on iPlayer last night and his summation was that modern politicians have basically left the management of the economy to the banks (like with Richard, I am drawn to Curtis because he often has different and more accurate perspectives of world events, economics etc.,).
Curtis also points out that modern politics is about telling simple stories that gloss over the true complexity of our world (highly likely because of bad decision making by politicians in the first place).
I think that the current false narrative of tax payer’s money and there being no such thing as Government money is one of these gross over-simplifications Curtis mentions.
I hope that more MPs beat a path to your door Richard. I think that they will, because not only is the Thatcher narrative wrong, it is preventing Government power to address problems like Covid and stymieing the relief of suffering.
Fact: the BREXIT mob talk of sovereignty in terms of borders and laws. But what about the currency and the management thereof? This is sovereignty at work too – more so in fact.
Good comment
Thanks
I think “ordinary people” most of whom probably are not questioning the original creation of money think that when they have “earnt” money, either by work or investment, then think that the money “belongs” to them rather than seeing it just as a means of exchange. Once they spend the money that money is then “owned” by the shop keeper or company that they have bought goods or services from, or by the government in tax paid. This is because they have been conditioned by Thatcherism (for want of a better term) and they think from this individualist brain washing over the years that the money so hardly won by work or more or less equally by speculation is still somehow theirs and that the government has somehow tricked them out of it by taxation. So possessive are their instincts that they cannot countenance the thought that what they regard as their own money is taken for other purposes by government maybe for services that they personally dont want or care for.
Here’s the painstakingly detailed argument why Thatcher and Sunak didn’t and don’t have a clue about money creation by arguing government has no money of its own.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2770569
Basically both Thatcher was and Sunak is a lazy narcissist who never bothered to research the issue. Why have they got away with this? Because they rely on a large number of the electorate being the same!
For my reading tonight…
Apologies posted the wrong link. Here is the correct link:-
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557233
Money is whatever people accept as payment for goods and services. Unfortunately MMT is ignoring history. Germany made the mistake of printing too much, and the currency turned into toilet paper. Other countries have done likewise throughout history. Rarity gives value, while abundance devalues. I humbly suggest that exchange rates will determine confidence in a nation’s currency, and that MMT risks high inflation in the prices of imports, hurting the public. There is no free lunch. Reminder, there is no nutrition, calories, shelter …inherent in money!
I am sorry, but this is nonsense
MMT is obsessive about controlling inflation, and explaining how to do that
Nothing in MMT says print endless money – it says the exact opposite
And exchange rates if domestic inflation is controlled – as MMT says it must be – are determined by productivity differences
You really are making up a set of falsehoods
Richard – these are good nuggets:
“MMT is obsessive about controlling inflation, and explaining how to do that
Nothing in MMT says print endless money — it says the exact opposite
And exchange rates if domestic inflation is controlled — as MMT says it must be — are determined by productivity differences”
That would work on Radio and TV – nicely succinct and an opener to explain more.
I practice this stuff for a reason
It’s why I also do a lot on Twitter right now – where the audience is big, at least as I have 63,000 followers and regular retweeting by significant numbers
Was on the first panel on currency options at the NY Fed. in early 80s. Retired at 45 in 1990 from % of profits managing firm capital in that field. You, kind sir, are the one smoking funny stuff. Cheers!
No sir
I am spot on
The world now is very different from then
You need to read some BoE accounts
Steven Kurtz
You say:
“Rarity gives value, while abundance devalues.”
But does this apply to money when it is no longer pegged to any finite material such as gold?
As long as there is lots of “stuff” to buy, increasing the money supply will not necessarily reduce monies purchasing power/value.
In fact, if you want the economy to expand/grow, then the quantity of money will also need to expand/grow.
Steve Kurtz.
Germany went into hyperinflation because of war reparations to France.
It was s shortage of “stuff” that started the inflation, which was then exacerbated by creating too much money.
Only the government can create money (or banks, under licence). If anyone else were to do it, it would be counterfitting. Why does a government need to “borrow” the very thing, only it can create?
Also, MMT isn’t a theory of what could be done, it is a description of how things ARE done.
Wasn’t another factor leading to hyper inflation for Germany that it was required to make reparation payments in dollars which it couldn’t create and therefore had to borrow? Or have I got that wrong?
It could not generate the foreign currency to make foreign currency settlement
The sequencing is a matter of furious dispute
Hi Richard.
Not got enough time to draft my own version today, but a couple of points.
I would keep the language simple. Rather than Stirling, I would stick to just “money”. And rather than monopoly, I would say ” only the government has the legal authority to create all the money we all use”.
(or banks under licence)
To get the message across to as many people as possible, it has to be in a language that everyone understands.
For some, “monopoly’ is a board game and not everyone will know that Stirling is the official name for pounds/quids/spondoolies/readies.
If we want to debunk the whole “taxpayer/household” myths, then the best way is through how money is created.
Q. Who creates all the money in the economy?
A. The government (or banks under licence). If anyone else does it, it is counterfitting.
Q. If the government creates all the money in the economy, why does it need to “borrow” what only it can create?
Q. If the government sells bonds to “borrow”, where do the buyers of the bonds get the money from to buy the bonds?
Thanks
If we are trying to get an important message across to people, then it probably matters that we get certain words right. It may seem petty, but nothing discredits writing more quickly than simple spelling mistakes. So, at the risk of being called a pedant, and accused of missing the point, it is Pound Sterling, and Counterfeiting.
Zoltan
My predictive texting let me down!
🙂
Aha Vinnie – tech strikes back!
Zoltan.
That’s my excuse and I’m sticking to it:)
Money is to the economy as blood is to the child. Bone marrow creates blood and supplies it to the body, to enable it to function. Too little blood production is a disease, stunting healthy growth. As the child grows, the amount of blood grows. If the marrow ever required the blood to be returned to it, the child would die.
A good analogy is worth a lot.. I just want to check with people on here: is this in fact an analogy that holds water ?
I firmly believe we have to make sure that every single person in this country understands that money is actually created and destroyed. The banks have been doing it since banks were invented and the govt can do it too. Govts/kings initially introduced the concept of money creation, eg using coins/notes/tally sticks/cowrie shells etc, but more or less vacated the field of money creation to banks for nigh on 400 years(for various reasons). Only recently in recessions have we seen govt return to its sovereign right of creating money.
Once people get their head around that concept they may find it far easier to understand that the money they earn has to originate from somewhere and that that same money isn’t something that has always existed and just gets passed from on person to another or from one generation to another, as if it was a fixed commodity. Plus it would help get over the fact that money creation/destruction itself makes an ideal tool to control the direction of overall economy and even redistribute wealth within it.
Thatcher did not understand money. She understood a very common myth, that money is just earned and then spent on. It is nothing further from the truth.
I am a simple soul struggling to follow the nuances of this issue. I am also old enough to remember Harold Wilson’s phrase “the pound in your pocket”. Would there not be some advantage (for we simple souls) in starting with the pound in my pocket and tracing it back to its origin in Government creation? Forget tax – or, at least, don’t start there otherwise you are arguing on their (the naysayers’) terms.
Neat
I absolutely agree with your prescription that things must be put in a way that all can understand them. Including you. And me. And, oh yes, the politicians, who are people like us, that is, they are not professional economists or accountants.
I am currently thinking of having a go at moving the thoughts of my MP along the road from “taxpayers’ money” and “handbag economics” which is the most likely place where he is at the moment, as it is the dominant narrative (and justifies austerity) to an understanding that the government makes money when it needs it, and so, he should not worry that Sunak will continue to use “helicopter money.”
I am hazy on how it “does not matter” about repaying the “National Debt” . However, for practical purposes, in putting things to my MP, what is important is that Sunak has already provided £x00bn of money into the economy in the form of furlough etc. and the roof has not fallen in!. And there is an infrastructure pot of £600bn or more I read recently, and that will be spent in the next few years, partly to level up the North (I haven’t heard much about Green spending), And again the roof will not fall in.
And as someone posting before this post said, conventional economists and MMT folk agree that the debt can be tackled “later”. So at this stage, given that that is agreed, all that needs saying is that the debt does NOT have to be repaid, providing only that the helicopter money of various kinds is matched by real goods and services.
I am not sure we need to produce converts to the full Theory of Everything. We need acceptance to let us move on – and escape any return to the nonsense of austerity.
Thanks
Plus ça change… http://www.taxresearch.org.uk/Blog/2015/09/19/there-is-no-such-thing-as-taxpayers-money/
“In so saying, of course, let me make clear that there is taxpayer’s money: it is the money they have the absolute right to enjoy after they have paid their tax.”
Money that they are free as to spend as they wish, within the law – but at bottom money which was created for them by (and underwritten by the power of) the state.