On the value of money, public deficit, taxes and inflation

There are some misconceptions addressed by MMT.

First of all the value of the money inside the nation is different from the value of the money for foreign countries. This is why in the former case we talk about inflation and deflation and in the latter about devaluation and revaluation.

According to MMT the State doesn't use the money from taxes to perform public spending. Instead the State is that privileged actor that has the power to issue money for public spending. So why do we have taxes? Taxes are the way the State creates demand for money in a certain currency and so the money acquires value. Also, the taxes guarantee to the State the monopoly of the currency, otherwise other independent currencies could be born and being controlled by private people or foreign countries.

The cool thing is that the State can spend more than 1€ for each euro of tax and this is why public deficit is not a problem. Additionally, public deficit is needed because when goods and services are produced there is need for an increase of money supply otherwise there would be deflation and consequently unemployment etc, because the value of money is the ratio between amount of goods and services on the market and the money supply.

The money supply can be increased only by public deficit (or by trade surplus, that is what lead countries with low public deficits to mercantilism, so competition between countries and in the end... war. But this is another story).

Instead the value of the money for foreign countries doesn't affect the capability to guarantee full employment and in general to perform huge public deficits. In fact the value of money inside the country depends on Government budget being in deficit or surplus while the value of money for foreign countries depends on the balance of trade, so more export than import (surplus) or vice versa (deficit).

Going back to taxation, when we consider how to ensure money keeps its value it's important to notice that what matter is not the absolute amount of money that is subtracted from the real economy but the actual demand of money that taxes create. So taxing very rich people for a certain amount of money doesn't produce the same effect it would have with common people involved in real economy.

Taxing more the rich is not needed to get money to spend nor to increase the demand of money and its value, it's needed for other (political and moral) reasons: economic power becoming political power and social equity. The problem of having very rich people must be addressed from two fronts, one is income being too high and the other is having too big capitals. The former is addressed by JG (for reasons I already explained) and by a proportional taxation which discourages the increase of income beyond a certain amount. Since big capital has proven to be immune to taxation, the latter is addressed mainly with one of the most powerful tool of the State: inflation. Inflation devalues the capital and revalues the work. It's a tax on the capital that can't be avoided. Inflation forces people to invest their money in real economy instead of performing speculative operations and so it is the thing international finance fears the most. 0-2% of inflation is the ideal battlefield for the speculative finance.

Of course there are amounts of capital so big that eroding them with a tolerable rate of inflation would take centuries. In those cases there is need for expropriation. Our juridical framework already allows it and in particular the Italian Constitution on one hand protect savings, but on the other recognize private property only as long as it fulfills its social function. In general we should start to think that no one is legitimized to become rich beyond a certain threshold, if it happens automatically it means that he has found a way to circumvent the economic system and so he has no right to keep the accumulated capital. This should be part of our culture.