“Where does money come from?” That’s our question. That’s the trump card Deficit Owls play to explain why the case for austerity is shallow and sadomasochistic, now and forever. When one spreads the true answer—that the Federal Reserve creates dollars with keystrokes, that the U.S. government, unlike like a state or a household, can’t possibly “go broke”, that Uncle Sam has to worry about inflation but doesn’t need to tax or borrow to spend—policy creativity explodes. The false choices of public finance are illuminated. We can decrease taxes AND increase expenditures. We can achieve full employment AND price stability at the same time. Once we align conversation with operational reality, and recognize that we can’t collectively run out of money, we can have an honest—if always antagonistic—conversation about what institutions should do to create, administer, and regulate stocks and flows of resources.
That’s the plan, at least.
But there is, of course, another dimensions to all of this: legality. Descriptions of how money flows through the economy are inseparable from questions about the flux of claims of ownership. These complementary inquiries are deeply moral at their core, causing visceral reactions, as they pressure people to consider what they think is a truly fair social order, severed from unnecessary worries about the federal budget. Because these questions are conflict-ridden, they are the province of the legal field, of lawyers, lawmakers, regulators, and judges, who hammer out the statutes, cases, and codes that undergird commercial activity.
Money as a legal institution.
New Economic Perspectives
Raúl Carrillo
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