Post by martinconnolly on Aug 4, 2016 0:40:36 GMT
I wrote this yesterday as an attempt to put MMT into context, as a short intro.
It's not very short yet.
Thoughts? Comments?
A Short (50 years) History of Modern Money
There is a saying that those who fail to learn from history are doomed to repeat it ... and we think we have a classic case of that actually happening.
1966
Let's go back to, say, 1966 - 50 years ago.
In England, The Beatles and the Rolling Stones were big, skirts were mini, as were cars, and England won the FIFA World Cup. In Australia, Harold Holt was prime minister, Jack Brabham was Australian of the Year.
In the area of economics and money, Australian brought in decimal currency, bringing an end to the pounds, shillings and pence. The exchange rate was 'pegged' to the pound sterling at a rate of $1 = 8 shillings ($2.50 = UK £1). It maintained its peg to the US dollar at the rate of A$1 = US$1.12.
After World War II, the Bretton-Woods accord had set up a world-wide system of currencies that was pegged to the US dollar, while the US dollar was itself pegged to gold ie the 'gold exchange standard'.
This was still how things worked in 1966. Currency exchange rates were fixed, at a set rate to the US dollar, so effectively every currency was given a value according to an amount of gold.
The price of gold was set at $35 US dollars per ounce.
Government Budgets back then dealt in scarce resources, since the money was (loosely) 'backed by gold'. It wasn't possible to just make more money, or to place a higher value on it.
A country that spent a lot more than it received in income was pressured to correct this, raise interest rates, or take other action to 'bring the Budget into line' or 'balance the books'.
1971
In 1971, USA President Nixon ended the Bretton Woods Accord, and fixed rates of exchange, bringing about eventually a free-floating currency system.
This ended the convertibility to gold of the United States dollar, and most other currencies. Since then, all reserve currencies have been 'fiat currencies', including the U.S. dollar, the Australian dollar and many others.
Fiat money was first used in China about a thousand years ago. It has been used many times in history and is just one way of making a currency work. It is by no means a new idea.
Fiat or sovereign currency is money that gets its value, not from gold, but from being needed by the population to pay taxes back to the government. A government expects to be paid in its own currency, not another country's, and not in clamshells or coconuts ...
1983
In 1983 the Australian dollar was floated, meaning it joined many others as a variable exchange rate currency.
2016
So 50 years ago, Budgets managed scarce resources and that was a necessary thing back then. Over the last 50 years, there have been fundamental changes to the way most currencies worked and that is how they work today.
Government Budgets of today are still framed in the context of how things were 50 years ago. They pretend that our currency is in short supply, and they are just repeating what governments before them have done for over 50 years. Their focus is on the accounting, not on the fact that the government actually spends money into existence. The government does not need your taxes to pay for things because it has a fiat currency. It can create as much of that currency as it needs.
So it's not taxpayers who are funding the government at all. The government collects tax to give the currency value. This is how it works, but they won't tell you that. All this huffing and puffing about the 'danger of debt and deficit', the 'return to surplus', 'intergenerational theft' and (our favourite) 'budget repair' serves no purpose beyond fiscal masochism. It is self-imposed meanness.
The Future
For the moment we will leave it to you to imagine the difference this would make to our discussions about surpluses and deficits, unemployment and healthcare, education and welfare.
And, more importantly, to imagine the difference this would make to those who need the government services in health and education, in disability and unemployment support and in all other areas of government services where the current preference is just to say "no we can't afford it" when that is patently not true.
To imagine the difference it could make to our society ...
It's not very short yet.
Thoughts? Comments?
A Short (50 years) History of Modern Money
There is a saying that those who fail to learn from history are doomed to repeat it ... and we think we have a classic case of that actually happening.
1966
Let's go back to, say, 1966 - 50 years ago.
In England, The Beatles and the Rolling Stones were big, skirts were mini, as were cars, and England won the FIFA World Cup. In Australia, Harold Holt was prime minister, Jack Brabham was Australian of the Year.
In the area of economics and money, Australian brought in decimal currency, bringing an end to the pounds, shillings and pence. The exchange rate was 'pegged' to the pound sterling at a rate of $1 = 8 shillings ($2.50 = UK £1). It maintained its peg to the US dollar at the rate of A$1 = US$1.12.
After World War II, the Bretton-Woods accord had set up a world-wide system of currencies that was pegged to the US dollar, while the US dollar was itself pegged to gold ie the 'gold exchange standard'.
This was still how things worked in 1966. Currency exchange rates were fixed, at a set rate to the US dollar, so effectively every currency was given a value according to an amount of gold.
The price of gold was set at $35 US dollars per ounce.
Government Budgets back then dealt in scarce resources, since the money was (loosely) 'backed by gold'. It wasn't possible to just make more money, or to place a higher value on it.
A country that spent a lot more than it received in income was pressured to correct this, raise interest rates, or take other action to 'bring the Budget into line' or 'balance the books'.
1971
In 1971, USA President Nixon ended the Bretton Woods Accord, and fixed rates of exchange, bringing about eventually a free-floating currency system.
This ended the convertibility to gold of the United States dollar, and most other currencies. Since then, all reserve currencies have been 'fiat currencies', including the U.S. dollar, the Australian dollar and many others.
Fiat money was first used in China about a thousand years ago. It has been used many times in history and is just one way of making a currency work. It is by no means a new idea.
Fiat or sovereign currency is money that gets its value, not from gold, but from being needed by the population to pay taxes back to the government. A government expects to be paid in its own currency, not another country's, and not in clamshells or coconuts ...
1983
In 1983 the Australian dollar was floated, meaning it joined many others as a variable exchange rate currency.
2016
So 50 years ago, Budgets managed scarce resources and that was a necessary thing back then. Over the last 50 years, there have been fundamental changes to the way most currencies worked and that is how they work today.
Government Budgets of today are still framed in the context of how things were 50 years ago. They pretend that our currency is in short supply, and they are just repeating what governments before them have done for over 50 years. Their focus is on the accounting, not on the fact that the government actually spends money into existence. The government does not need your taxes to pay for things because it has a fiat currency. It can create as much of that currency as it needs.
So it's not taxpayers who are funding the government at all. The government collects tax to give the currency value. This is how it works, but they won't tell you that. All this huffing and puffing about the 'danger of debt and deficit', the 'return to surplus', 'intergenerational theft' and (our favourite) 'budget repair' serves no purpose beyond fiscal masochism. It is self-imposed meanness.
The Future
For the moment we will leave it to you to imagine the difference this would make to our discussions about surpluses and deficits, unemployment and healthcare, education and welfare.
And, more importantly, to imagine the difference this would make to those who need the government services in health and education, in disability and unemployment support and in all other areas of government services where the current preference is just to say "no we can't afford it" when that is patently not true.
To imagine the difference it could make to our society ...
