Do Politicians Understand How the Government is Funded and the Role of Taxes?

Executive Summary

• It is often assumed that politicians understand the role of taxes are they are in the government.
• The evidence is that politicians do not understand that taxes are not used for expenditures.

Introduction

Goverments that can create their own money do not need or use tax receipts for government funding. Governments that can create their own money are “self-funded.” This is explained in the following quotation.

“In no case must the government fund itself in dollars. Spending is limited by what is offered for sale, not by revenues. Taxes function to create a need for dollars, so the government can use dollars to purchase real goods and services. Borrowing functions to allow excess dollars created by deficit spending to earn a positive rate of interest. Deficits pose no funding risk since borrowing need take place only after spending, and only to support and maintain a desired interest rate. Interest rates and prices are subject to exogenous control by the issuer of the currency. There is no evidence that government understands this paradigm. Government budgeting assumes the paradigm that dollars must be raised through taxing or borrowing to fund expenditures at market prices. The monopolist (the government) has decided to let market forces price its product (dollars). Therefore it must constrain the quantity of spending to maintain sufficient unemployment and excess capacity to prevent a decline in the value of its product (inflation).”

Source: Mosler Economics

http://moslereconomics.com/wp-content/uploads/2019/02/Full-Employment-AND-Price-Stability.pdf

This is something private banking interests do not want to be known. Politicians are trained to think in terms of mainstream economics, which is designed to hide the money creation capability from the government itself.

Private Bankers Stand Ready to Stop All Debt-Free Money

The island of Guernsey had tremendous success with their own government debt-free money. However, both the public and the politicians were told that this multi-decade success was irresponsible. This is explained in the following quotation.

“As the new currency was paid out into circulation among the people, exchanges were being expedited. The wage-earners went to the shopkeepers, the shopkeepers went to the producers, the producers bought enough to increase their production. The currency was accepted everywhere. The government took measures against inflation by decreeing that money would be withdrawn by taxes, so it does not accumulate. And, in fact, the money was retired on schedule by taxes. But, as the increasing activity required a corresponding volume of money, other issues were brought out by the government for other works.

On October 12, 1822, the new Market house was completed and opened. Not a penny of public debt on this public enterprise.

The bankers intervene
At the time of the original issue, there was no bank upon the island. This explain, without doubt, why there was no opposition to the issue of State money.

But ten years after the first issue, the island had become so prosperous, thanks to the activity allowed by a sufficient volume of money, that the banks of England had en eye on this island.

English bankers set up branches in the island and brought the population around to orthodox rules. “It was unsound,“ they said, “to let the government finance its enterprises without getting into debt.”

The bankers did everything to stop further issues to introduce the system of interest-bearing loans to the government and to withdraw from the island the State money that had been paid out into circulation.

There was some resistance, but the bankers won their point, with their usual methods, and on October 9, 1836, the States of Guernsey had abdicated their sovereign prerogative over the control of the volume of money. From then on, the amount of the national currency decreased gradually, and was replaced by money issued by private bankers in the form of loans getting the island into debt.”

Source: Michael Journal

https://www.michaeljournal.org/articles/social-credit/item/guernsey-s-monetary-experiment

The story does not end there, as Guernsey’s debt-free money was created again after this, and the island still uses much of this money. However, the point is made that anyplace debt-free money is successful. Private bankers will defend upon that area to tell the public and the politicians that what they are doing is impossible and that money can only come from debt. Their proposal is very similar to the Groucho Marx quote.

“Who are you going to believe, me or you lying eyes.”