It was almost a year ago that I originally wrote to my MP to ask him to enquire of the Chancellor ‘Where does money come from?’
I have, at last, received a reply (click to enlarge):
It reads rather as though the writer, John Glen, Economic Secretary to the Treasury, has received intensive training from the Ministry of Circumlocution. Or maybe that’s just the way they teach them at Oxford.
So we get: ‘While it is theoretically possible for monetary authorities to finance fiscal deficits through the creation of money, allowing governments to increase spending or reduce taxation, without raising corresponding financing from the private sector, there is a risk that money financing could rapidly undermine the stability of inflation expectations.’
Which is just the old canard that printing money causes inflation.
But, interestingly, this is the sole argument against government money creation.
And when the letter continues: ‘the majority of money in the modern economy is created [my italics] by commercial banks.’ it indicates that the rest of the money is created by the government itself, of course.
‘Long term price stability is recognised as being complementary to the efficient allocation of resources in the economy, and so is an essential prerequisite for economic growth.’ seems simply to mean too much inflation can throw an economy off course.
But we still have the non sequitur that money creation by commercial banks, which the Treasury admits is the majority, doesn’t create inflation, but creation of the minority of money by the government itself, would somehow lead to undermining of the economy by inflation.
This reasoning failure or, perhaps more likely, sleight of hand, allows the Treasury to suggest that the magic money tree is a dangerous species liable to undermine the economy, when of course it is actually the species that is of unique benefit to it.
So the Treasury knows there is a Magic Money Tree but through involuntary (or voluntary) intellectual blindness misunderstands the role of tax in preventing inflation.They have already admitted in this letter that tax is not required to pay for anything.
I feel a reply to John Glen coming on.