Taxes pay for things, or do they?

Using the flow of funds equation broad money increases other things equal if the ΔG is greater than ΔT and is funded by printing, other things equal, however the bank of england controls the price of the money for controlling the inflation and the money supply so the increase or decrease is counteracted by a change in inflationary pressures leading to a change in interest rates and that controls inflation.

Also the BoE doesn't finance government deficits.

 

This analogy is getting just as confusing and convoluted as the real world, can't we just drop it.

Let see if i can cut through it a little, your initial thought experiment proposed that we each had half the 200-unit monetary supply, yes? The thing is i have no need for your monetary supply, I'm perfectly happy to keep using my barter system, i did some work for the baker and he pays me in loaves, the builder did some work for me and i paid him in loaves.

So i have no need for this newfangled monetary thing, maybe you need to create a demand for these £ thingies, maybe if you threatened to lock me up if i didn't contribute to your newly formed government and that you'd only accept contributions using these new £ thingies then I'd be forced in to using it, otherwise there's just no demand for these £ things and they're all but worthless.

That fall in the value of sterling is relatively small when compared to the Brexit effect and other dumb moves by politicians, as i said I'm not saying printing money doesn't come with consequences however it's not like we've never done it, is it something like £400bn that we've printed since 08/9.

I have to admit I've not had the time to look at the ONS link you posted, sorry.

However i get the feeling it will probably talk about generally accepted principals and not the theoretical principal that we've discussing.

You did read about me saying we're talking about a level of knowledge just above nout right? In other words you can almost spot my head from up there.

 

So inflation is just another from of tax? (Or, rather, a certain portion of inflation.)

 

Can someone tl;dr this 'fiat' money system?

I keep reading it as 'fix it again tomorrow/today/tony', and while amusing to me, I suspect this isn't technically correct.

 

The currency issued by the government isn't backed by a physical commodity e.g. gold and is essentially only valuable as a means of exchange because everyone agrees it is (mainly because it's what we pay taxes in, and what the government hands out to people who work for them)

 

It did get built as instead of creating a demand and supply situation for this newfangled monetary thing we used indentured labor and told people if they didn't contribute materiel's we'd lock them up.

The government doesn't really earn money, they make a law that says you must contribute to society by trading your goods or services in return for the official currency because that's the only payment they'll accept.

The theory (MMT) proposes, because fiat money doesn't have any intrinsic value, that the currency issuer creates the supply and the demand, whereas because commodity currencies is directly linked to a commodity in short supply like gold that's what gives it an intrinsic value.

The currency that the government issues pays for them, and the hypothesis goes that the only reason people accept that this currency has value is because the same government who issued the currency creates a demand for that currency via taxes.

 

If taxes pay for government spending then what would happen if the government stopped spending, eventually the money would run out because the taxes we pay would use it all up.

 

As I mentioned in the other thread, Fiat money has never worked in the past and so far it doesn't look like it will work out in the present either simply because it always reverts back to its intrinsic value which is zero.

 

Corky, for someone who asked a question, you really don't want to listen to the answers..

 

I guess Fiat in this context has little or nothing to do with the car company.

Hypothetically is there anything to stop people collectively deciding gold has no value above it's practical usefulness?
I always thought it was odd that there are vaults of gold somewhere that are somehow meant to be of colossal currency backing value even though hardly anyone ever sees them and they effectively just gather dust without any use.

 

Wait wait wait, there isn't a magic money tree?

 

It's a barter economy: I'll give you some fruit from my magic money tree in exchange for another batch of magic beans.

 

Income Tax was introduced to help fund the Napoleonic War, if taxes didn't pay for anything I doubt Pitt would have bothered.

 

In theory people could decide gold has no value but good luck trying to get the entire global populace to agree to do that.
In reality anything in limited supply can be used as money e.g, cigarettes used as currency in prisons.


The likely distant future in my view will be some kind of crypto currency, because it doesn't require lots of space and is not controlled by govt or central banks.
We would need a major economic crash before banks and the govt let that happen tho.

 

I fully accept that but it's the system we currently find ourselves in so it seems strange that most people, including our politicians, still think we operate within a commodity currency system where the currency represented the exchange of gold.

Maybe that's because from my perspective the only answers I've had for daring to question the mainstream orthodox view have been rather condescending in nature, despite Modern Monetary Theory having been around for over a 100 years, and the proposition that in a fiat monetary system taxes are not use to pay for things but as a means to control the supply and demand of the currency being an accepted part of MMT.

Maybe because i thought having a discussion was about the exchange of ideas, theories, and opinions, not about resorting to what seems to be the Internets default setting of proving whose right and whose wrong.

Because back then currency had an intrinsic value, you could exchange your currency for a share of a commodity that had value because of its limited supply and relative demand.