Yeah, this is the common MMT definition of money, I think.
Another way to think of it is that all money is IOUs. This one’s a bit hard to wrap your head around, but it works.
Start with government spending. A mail carrier walks through sleet and hail to deliver mail, a service they’re doing on behalf of the government. The government says “thanks for all that work, I owe you” and gives them a pile of IOUs in the form of dollars. Whenever the government receives a good or a service from a person or a company, it gives them an IOU in exchange.
Going back to the mail carrier, their work day is done, so they stop off at a supermarket. They grab some milk and some sausages and go to the cash. Now, maybe it would be possible for the mail carrier to do some kind of work in exchange for the groceries. Maybe advise them on how to ship things efficiently, or maybe just help stock shelves. But, it’s much easier just to hand over some IOUs. So, they hand over some of the IOUs (dollars) they got from the government. Now, the government owes the supermarket, rather than the mail carrier.
So, the store keeps doing business. It collects a bunch of IOUs from various customers, and issues a bunch of IOUs to its suppliers. When tax time rolls around, the store has a whole bunch of IOUs (originally from the government, but given in by various customers). Since the store owes the government for things like providing police to keep things secure, the FDA for keeping the food safe, and so-on, it effectively “cancels” that debt by almost ripping up the IOUs. Well, really, it hands the IOUs back to the government and allows the government to rip them up.
So, you can see the whole economy as the government issuing IOUs as spending. Those IOUs enter the economy and flow around, and people want to hang onto them because they know that in April the governments going to come around to settle things. Tax time is basically a point where people who didn’t do any work directly for the government can say “Yeah, I didn’t do any work for you, but I did give that mail carrier some milk and sausages, and he handed over your IOUs, so I’m giving those to you now”. And the government says “Yep, fair enough”. It collects the IOUs and rips them up, and the whole thing starts over.
In the past, this actually used to be a lot more explicit. When you could exchange your US dollars for gold, the idea that it was an IOU for the gold was a bit more explicit. These days we don’t need the gold. It’s an IOU not for gold, but for work done.
It took me a while to get the idea that money could be debt / IOUs. But, when I thought of government employees doing things for the government and getting given IOUs it clicked.
That all makes it much easier to understand the flow of IOUs through the economy, and much easier to understand how taxing destroys money. It’s the government ripping up IOUs that it itself issued to its own workers (or suppliers or contractors or whatever).
Yeah, this is the common MMT definition of money, I think.
Another way to think of it is that all money is IOUs. This one’s a bit hard to wrap your head around, but it works.
Start with government spending. A mail carrier walks through sleet and hail to deliver mail, a service they’re doing on behalf of the government. The government says “thanks for all that work, I owe you” and gives them a pile of IOUs in the form of dollars. Whenever the government receives a good or a service from a person or a company, it gives them an IOU in exchange.
Going back to the mail carrier, their work day is done, so they stop off at a supermarket. They grab some milk and some sausages and go to the cash. Now, maybe it would be possible for the mail carrier to do some kind of work in exchange for the groceries. Maybe advise them on how to ship things efficiently, or maybe just help stock shelves. But, it’s much easier just to hand over some IOUs. So, they hand over some of the IOUs (dollars) they got from the government. Now, the government owes the supermarket, rather than the mail carrier.
So, the store keeps doing business. It collects a bunch of IOUs from various customers, and issues a bunch of IOUs to its suppliers. When tax time rolls around, the store has a whole bunch of IOUs (originally from the government, but given in by various customers). Since the store owes the government for things like providing police to keep things secure, the FDA for keeping the food safe, and so-on, it effectively “cancels” that debt by almost ripping up the IOUs. Well, really, it hands the IOUs back to the government and allows the government to rip them up.
So, you can see the whole economy as the government issuing IOUs as spending. Those IOUs enter the economy and flow around, and people want to hang onto them because they know that in April the governments going to come around to settle things. Tax time is basically a point where people who didn’t do any work directly for the government can say “Yeah, I didn’t do any work for you, but I did give that mail carrier some milk and sausages, and he handed over your IOUs, so I’m giving those to you now”. And the government says “Yep, fair enough”. It collects the IOUs and rips them up, and the whole thing starts over.
In the past, this actually used to be a lot more explicit. When you could exchange your US dollars for gold, the idea that it was an IOU for the gold was a bit more explicit. These days we don’t need the gold. It’s an IOU not for gold, but for work done.
Totally agree. I am definately an MMTer myself. The mailman example is very good, by the way.
It took me a while to get the idea that money could be debt / IOUs. But, when I thought of government employees doing things for the government and getting given IOUs it clicked.
That all makes it much easier to understand the flow of IOUs through the economy, and much easier to understand how taxing destroys money. It’s the government ripping up IOUs that it itself issued to its own workers (or suppliers or contractors or whatever).