As I’ve previously written, particularly in my article about how balanced budgets can create unemployment, the fiat money system presupposes that the government or the foreign sector run routine deficits without which, some assert, the private sector would be mathematically unable to net save.
In a fiat money economy, there is no alternative for individuals in the private sector to receive net saving (claims upon the public sector) other than the money or the bonds that the sovereign government of the territory in question offers. It is what’s commonly referred to as the “monopoly supplier” of net financial assets. People often confuse the sequence of the causality of events. Conventional wisdom would have us believe that the federal government needs to levy taxes in order to obtain money to spend. However, this is nonsensical: Take a look at any dollar bill. Who created it? The sovereign government itself, of course. They don’t need your dollars in order to be able to spend. In fact, if you pay your taxes in old dollar bills they’ll simply get shredded!
A decline in private sector net saving is arguably one of the best indicators of an impending recession. Throughout American history, 6 out of 7 times the federal government ran a budget surplus, a depression followed. The 7th was the Great Recession. Modern monetary theory (MMT) suggests that falling/negative net private saving is instrumental in bringing about a drop in demand as the private sector scrambles for safety and postpones consumption, prompting businesses to produce less and lay people off.
An unemployed person is, by definition, someone who is willing and able to work for money, but doesn’t have a job. In the historically documented sequence of events in a fiat money economy, the fact that the government has imposed a tax in a certain form of money is what gives that money value, since people in the private sector now need it to pay taxes.
So when a government first imposes a tax, the next thing that happens is that a whole lot of people are now by definition unemployed: They need the money to pay the coercively imposed tax, but they have no job that pays it. Of course, from here a private sector can develop and have internal capital development, consumption, employment, imports & exports, but as shown previously, a solid basis of growing net private saving still seems to be necessary for the private sector to feel safe enough to consume enough to keep the economy from slipping into recession and ensuing unemployment.
The people who are unemployed and willing to work in any given country that employs a fiat money system with a balanced budget (without export surplus) could make a valid case that they have a claim to a government job that pays the money needed to pay the government imposed tax. In other words, a “right to a job.”
This post was written by Nima Mahdjour.
The views expressed here belong to the author and do not necessarily reflect our views and opinions.
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