The “Where does the money come from” myth

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In Modern Money Theory, it is a myth that the government:

  1. Has to borrow and tax before it has enough money to spend.
  2. Spends / Gives away / invests money, and goes into debt (the National Debt) and that this is necessarily bad.
  3. Has to account for “where the money is going to come from”

The Game of Monopoly analogy

In the game of Monopoly, there and several players and a Bank (not too dissimilar from the government’s Central Bank). The object of the game is for the players to buy and sell property, until one person owns everything, and the other players have become bankrupt. The game is very simplistic form of Modern Money Theory. How so?

At the beginning of the game, the Bank gives every player $1500, and then $200 after each player has gone around the board. The Bank does not loan the money. The Bank does not have to get the money through taxes before handing it over. In fact the game can not be played, and life is not able to function, until the Bank has firstly given away this money. In Monopoly, just like in real life, money “lubricates” the economy and allows it to function.

Imagine new players joining the game halfway through. They could be thought of as our grown-up children, or immigrants. They have no money of their own. How will they “earn” their own money. Will they make it once around the board in order to get their $200, or will they become subject to taxes, fines and rent before they make it? The options:

  1. The new players borrow the money (but have to pay it back)
  2. The original players lend the money (but it has to be paid back)
  3. The original players with enough money, employ the new players and pay them a salary
  4. The Bank gives the new players the same amount of money as the other players

There is only one option in which the new players can participate on a level footing with the original players. In Monopoly, the Bank must give the new players some money. In real life, the central Bank (government) can do this simply by employing people who don’t have money, to produce something (infrastructure, housing, hospitals, etc).

Conclusion

In other words, the government spends/invests before it can tax and borrow. A politician or government that has to ask “where is the money going to come from”, does not understand how the economy works.

All money in the economy ultimately came from the central Bank. If you double the population (double the number of players in the game), then the government must spend double to make the economy work.

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