3 ms·

My model of fiat money is like a battery: the government is both the outgoing pole (money printing) and the incoming pole (taxation). Money flows through the ec

by paulgb 6y ago

My model of fiat money is like a battery: the government is both the outgoing pole (money printing) and the incoming pole (taxation). Money flows through the economy from one pole to the other, but all demand terminally stems from the taxation pole just as all supply stems from the printing pole. Of course, things get more complicated because money exists across time, credit, and inflation. But as a simple model it explains why, for example, money tends to get devalued when it stops being accepted as tax. Just as a circuit stops flowing when you disconnect either pole.

munk-a 6y ago
I disagree strongly here - there really is no incoming pole in the government and the outgoing pole is incredibly ineffective. The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes - the total national wealth of the US is currently 105 trillion[1] while the total tax revenue is somewhere in the 3.5 trillion[2] range - it would take 30 years to cycle the full value of the US through the government at the current churn rate, the GDP is significantly smaller and (at 22 trillion) would likely take six years to fully process. Money can be thought of like a battery - sorta, but more like a bank of batteries - each one of us has a certain earning and spending potential that constitutes the voltage we're contributing to the economy - and it's all of us tiny batteries that contribute a much large proportion to the over all monetary flow than the big contributors like government (who are, by comparison, in the minority). 1. https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth https://en.wikipedia.org/wiki/List_of_countries_by_total_wea... 2. https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget
- paulgb 6y ago
  > The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes Why would it matter how quickly the government could cycle through the national wealth, which includes all private assets? The M1 money supply, at 5.2T[1] and using your 3.5T tax revenue figure, would take less than two years to cycle through. 1. https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1
  - munk-a 6y ago
    Very little value is in M1 and most of M1 is not cycled through the economy, the vast majority of M1 out there is used for illicit trading so I wanted to avoid touching on it too heavily in the paragraph above but there is a lot of M1 out there that won't get back to the government in a decade.

by paulgb 6y ago

munk-a 6y ago

I disagree strongly here - there really is no incoming pole in the government and the outgoing pole is incredibly ineffective. The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes - the total national wealth of the US is currently 105 trillion[1] while the total tax revenue is somewhere in the 3.5 trillion[2] range - it would take 30 years to cycle the full value of the US through the government at the current churn rate, the GDP is significantly smaller and (at 22 trillion) would likely take six years to fully process. Money can be thought of like a battery - sorta, but more like a bank of batteries - each one of us has a certain earning and spending potential that constitutes the voltage we're contributing to the economy - and it's all of us tiny batteries that contribute a much large proportion to the over all monetary flow than the big contributors like government (who are, by comparison, in the minority). 1. https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth https://en.wikipedia.org/wiki/List_of_countries_by_total_wea... 2. https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget

paulgb 6y ago
> The US (as an example) doesn't have the ability to effectively decrease monetary supply by simply failing to redistribute taxes Why would it matter how quickly the government could cycle through the national wealth, which includes all private assets? The M1 money supply, at 5.2T[1] and using your 3.5T tax revenue figure, would take less than two years to cycle through. 1. https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1
- munk-a 6y ago
  Very little value is in M1 and most of M1 is not cycled through the economy, the vast majority of M1 out there is used for illicit trading so I wanted to avoid touching on it too heavily in the paragraph above but there is a lot of M1 out there that won't get back to the government in a decade.