(2) Spending Comes Before Taxing — The Answer to My Question, Perhaps

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Continued from here.

If MMT does indeed state that taxable money can only be created by the state, it is wrong and right at the same time.

It is right in so far as money must be created, technically implemented and coercively enforced against spoilers by the state before the latter can collect taxes. I think that is an important insight by MMT, as it clears up the common nonsense whereby somehow the act of saving/retaining money creates additional money which then can be transferred to government or firms or other individuals for them to be able to afford what otherwise they could not purchase.

It is wrong in so far as clearly the state imparts the right to create money out of nothing to the banks, who act as delegated money creators when making loans to the public. The money that they create is taxable, as it is national currency, the money that the state created as an institution (and to some extent in the form of money injected into the economy), helps implement and enforces.

There may be a technical aspect about the difference between bank money and taxable money whose significance I do not yet recognise.

For the time being, I see no problem in the inaccurate or at least misleading claim that only government can produce taxable money. After all, in a sense this phrasing is correct: modern fiat money and taxation applied to it are institutions that only the government can institute.

Ignore - mere notes. sometimes I just write and write as if being hot on a trail, only to find that I was on the wrong track:

If the non-government sector is to enhance its net assets, only government spending can achieve this. The liabilities incurred by that sector are exactly offset by the corresponding assets in that sector. Hence, the balance is always zero. If the balance is to become negative, another sector, the government sector, must withdraw assets from the non-government sector (by taking out of it via taxing more than it puts into it via government spending), which will leave the latter with a deficit and the government with a surplus. If net assets of the non-government sector is to become positive, the opposite must happen, government must add to the non-government sector's assets by spending more into it than taking out of it via Taxation.

No, that is not the answer.

Remember the question is: why is MMT insisting that the government (and only the government) must first spend money before it can collect taxes, when banks are also creating taxable money?

Let's try a two person economy: you are the government (G), I am the non-government sector (NG). You create 10 UM (units of money) and spend all of it on services that I provide you with. You do not demand a tax. In this case, NG is in surplus and G has a deficit ("Income" - spending = 0 - 10 = -10).

Next time you spend 5 UM, which increases my net assets from +10 UM to +15 UM. The government has a deficit of -15 UM (-10 from last time plus another -15 this time). But this time G demands taxes to the tune of 15 UM. In this way, NG arrives at a balanced budget of 0 UM just as G does mit a net balance of 0 UM.

Next time G does not spend anything but demands taxes to the tune of 5 UM. In this case, G generates a surplus of 5 UM, while NG ends up with a deficit of -5 UM.