Peter Cooper — Government Spending or Lending Logically Precedes Tax Revenue

In a previous post, it was explained that enforcement of taxes (or some other financial obligation to the state) is fundamental to the viability of a national currency. Without it, widespread acceptance is not assured. The currency might cease to serve as an effective mechanism for public provision of adequate infrastructure, education, health care, social security and much more.

But there is something interesting about this. If we think about the initial introduction of the currency, the government could not have simply imposed a tax on us and then sat around waiting for us to pay. Where would we have got the currency from to pay the tax?
Clearly, the currency originally has to come from the government (meaning the consolidated government sector). The government can issue its currency in one of two ways, either by spending or lending. 

The above considerations lead us to two basic points. Guaranteed viability of a national currency requires that: 

The imposition of a tax obligation precedes government spending or lending.Government spending or lending logically precedes tax payments and tax revenue.
The logical sequence is clear: (i) government imposes taxes; (ii) government issues the currency; (iii) we use the currency to pay taxes as well as for other purposes. 

Strictly speaking, point 1 is sufficient rather than necessary. That is, it is perhaps conceivable that a national currency could gain acceptance without being backed by taxes but the effective enforcement of a tax obligation guarantees acceptance of the currency, at least to the extent necessary to satisfy tax requirements. Only a very brave (or foolish) government would attempt to operate a national currency without a tax basis.....

Good summary of Chartalism.

The reality for s currency sovereign is "spend and tax" instead of "tax and spend," as erroneously believed.

heteconomist
Government Spending or Lending Logically Precedes Tax Revenue
Peter Cooper