Spending by
the government
creates its own 'financial resource' as the process of
crediting an account in the private sector takes place. This may sound like
nonsense, but in fact it is 'monetary reality'. This premise is supported by Bell
(1998; 2000) and Wray (1998a) who argue that the Treasury does not need to collect or borrow funds in order to spend, but crates new funds as it spends.
Perhaps the
following thought experiment helps to
understand how this is possible.
If you imagine two
drawers, each representing an account. The first drawer contains 100 gold coins
and the second is empty. Also imagine that there are no other gold coins
available at this time. Let's call the first drawer account A and the second
account B. Now if you want to transfer 30 gold coins from account A to account
B, you would actually first have to take the coins out of drawer A and then place
them into drawer B. Account A will then necessarily have 30 coins less in it. Now
imagine accounts A and B are held in a computer as electronic money. Instead of
100 gold coins, account A only contains the computer generated number '100' and account B shows '0'. To get account B to
show a balance of '30', it would now simple be necessary to change the '0' to
'30' on the computer. The need to raid account A and to take '30' from the
number '100' before you could credit
account B does not exist. Money is created as it is entered in B's
account irrespective of whether A's account is debited before or after this
process or not at
