Seven reasons why we never tax and spend

This should probably have gone up in partnership to the earlier video post ‘There is a Magic Money Tree’ because it is definitely its closest affiliate…

There are, I suggest, seven reasons why we know we never tax and spend, but actually spend first and then tax:

1. Logic:

If you have to pay tax in £ Sterling and not in sea shells or in Ferrero Rocher, then Government must first issue £ Sterling before those required to pay tax can pay with it. And the fact that the government’s own bank issues those notes with their ‘promise to pay’ written on them goes on to prove it.

2. The state’s fiat currency is by definition a public monopoly:

If you or I tried to create £Sterling it would be a criminal offence.

3. Money is not concrete but a human construct:

So how can it ever be limited?
Clearly, unless we all stop counting, it can’t.

4.The Bank of England says so:

In theory the Bank of England (the ‘Bank’) can create unlimited amounts of sterling. One reason the Bank does not do that is the detrimental effect on the economy as a whole through increased inflation. Carried to an extreme the creation of new money would render the currency worthless, as in the German Weimar Republic and more recently Zimbabwe, and a new currency would have to be introduced.

5.The Treasury says so:

… it is theoretically possible for monetary authorities to finance fiscal deficits through the creation of money…

‘Theoretically possible’ means it can be done but the Treasury can also choose not to.

6.The Exchequer and Audit Departments Act 1866 says so in section 13 (2):

“The Comptroller and Auditor General shall, on receipt of a requisition from the Treasury, grant the Treasury a credit on the Exchequer account at the Bank of England (or on its growing balance).”
[The Comptroller and Auditor General is an officer of the House of Commons who is also the head of the National Audit Office].

So, that means that whenever the Treasury demands funds from the Bank of England it can have them, even if that increases the amount owing to the Bank.

7. Government spends regardless of revenue:

Thus if you are an NHS doctor, say, you are never told that this month we can only afford 50% of your salary as the tax receipts are way down. It never happens! In any case, spending arises from an account – the Consolidated Fund – which starts and ends each day with a cash balance of zero.

So having established these seven reasons why we never tax and spend, it makes ‘So how are you going to pay for it?’ a pretty stupid, pointless question.

Money is simply the way the government gets stuff done on behalf of us all.

So when we know the Money Tree is Magic we also know also that the real question to ask is ‘are there sufficient resources both physical and human, in order to get the task done?’

Comments

  1. Jim Osborne -

    an excellent posting Peter. I am sharing it in our local “Yes” group which is running a local currency campaign advocating a Scottish currency immediately after independence.

    1. Peter May -

      Many thanks

  2. Vince Richardson -

    Bill Mitchell says very much the same, but he updates it a bit to modern day and says governments now pay via “keystrokes”. Pay first and balance the rest up later!

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