Everything You Know About Economics Is Wrong: The United States Has A Very Efficient Monetary System

The United States Federal Government prints money because that’s how our monetary system is designed.   Could we use a different system in which the government doesn’t have that power? Sure. Currency can be created by anyone.  Individual states, banks, even corporations can create currency.

After Andrew Jackson dissolved the Second National Bank of the United States in 1833, individual banks often created their own currencies. Jackson began what is referred to as the Free Banking Era, during which anyone could issue currency.

Banks went to great lengths to make their currency look official
Stonington Bank Used Whalers For Their $2 Note. Who Doesn’t Trust Whales?

Anyone that had the means to, did issue currency in the mid-1800s.  Similar to the crypto-coin mania, every bank, state, and corporation issued their own notes.  There was so much private money in circulation, newspapers like the Thompson’s BankNote Reporter were published solely to give updated pricing on the hundreds of currencies in the United States.

To combat the issuance of worthless currency, the United States Federal Government required land purchasers to only use a bank’s currency if it was backed by gold. This was known as the Species Act and was implemented to slow the speculation on land.  But this episode once again showed the problems of using a monetary system in which the central government doesn’t print money.  After the Act was passed, access to credit declined and inflation rose, causing the Panic of 1837 and sending the country into a severe, decade-long depression.

The point of this brief history lesson is to show that using a different monetary system is possible.  But it is very inefficient.

So, given our current system, saying “the government shouldn’t print money” is like saying “people shouldn’t obey gravity.”  The government has to print the money.  Otherwise, we wouldn’t have any money to use.  If anyone tells you differently, they are denying the existence of the printing press sitting on the National Mall in Washington, DC.

The reality is that the Federal Government prints money and the rest of us use that money because it is the accepted unit of account.

Once you accept that reality, it leads to several important observations.

It means that THE US FEDERAL GOVERNMENT DOES NOT HAVE TO BORROW OR TAX BEFORE IT SPENDS MONEY.

Let me repeat that because it is very important.

THE UNITED STATES FEDERAL GOVERNMENT DOES NOT HAVE TO BORROW OR TAX BEFORE IT SPENDS MONEY.

When the United States Federal Government wants to pay for something, it simply creates the money to do so.  When it buys an aircraft carrier, pays the military, sends a Social Security check, pays for Medicare, it simply “prints” the money.

If you had a printing press in your basement, would you borrow money from the bank?  Would you need a job to make money? No. Same with the US Federal Government. When the Federal Government wants to buy something, it uses its printing press to pay for it.

I can hear you say “Yes, but… “if the government prints money, it will crowd out private market spending.”  Or if “if the government prints money, it will result in inflation, which will destroy the value of the currency.”  All I can say is “Zip it!” We’ll get to your concerns in future posts.

 

Everything You Know About Economics Is Wrong: If The Government Can Print Money, Why Do We Pay Taxes?

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