Thread by @widespreadhaze

An English monetary tale: For 600 years from the 12th century, prior to the invention of double entry book keeping, English sovereigns issued to their subjects loan tallies, notched wooden sticks split into two, down the middle, in exchange for coinage, goods and services.

Coinage was minted from silver bullion via ‘free minting’. The Royal Mints took in silver bullion from individuals, typically merchants, and returned a slightly lesser amount of metal in coined form, creating the money supply in silver pennies.

Minting of silver pennies, ‘just pennies’, was worth the sacrifice of silver as they alone were accepted and used by the Sovereign, who also enforced their use by individuals in common law in English trading markets as payment of all debts.

The loan tallies thus represented discounted pre-payment of tax liabilities. At a later date they were returned to the Sovereign and ‘destroyed’ when subjects’ taxes were paid. Hence the terms: stock; foil; tax return and rate of return.

With the founding of the Bank of England in 1694, the Treasury issued ‘gilt edged stock’ in exchange for Bank of England currency. Gilt edged stock similarly represented pre-payment of tax liabilities, but paid interest and had a redemption date.

Gilt edged stock resembled debts, but in reality they were not, as they were not claims over the Treasury’s future income. They were simply Treasury promises to redeem as payment of taxes due.

The total outstanding quantity of Treasury gilts represent the ‘National Debt’. It is not really national debt, but interest bearing money that can be exchanged for £s in the bond markets or at the gilt redemption date.

The UK financial system is little changed, save that the Bank of England is wholly owned by HM Treasury and its currency is no longer backed by a commodity. The £ is simply a tax credit, a promissory note or electronic record redeemable as payment of taxes.

From this little tale the #MMT description comes into full view, shattering the modern fiscal myth that taxation and gilt issuance, national debt, pay for the government’s spending. They do not and never have.

Apart from MMT, all schools of economics believe tax is collected first and then spent. This has never been the case and is exactly backwards. A monetary sovereign must spend its currency first and taxation is a consequence of its and our spending.

Government is never financially constrained by tax revenue and it never borrows in order to spend. We can have excellent public services provision if we want; it requires only political will, within the confines of a productive economy, so called real constraints. #rethinkmoney