Tuesday, February 14, 2012


John Carney at CNBC has a very good story on money demand and the recent “taxes drive money” discussion. He takes the MMR position that money demand is not merely a function of the government’s ability to impose taxes and that the ability to efficiently mobilize resources into productive uses is the more important link in the demand chain. He says:

“This has implications for real world economics, of course. It demonstrates that taxes are not sufficient to give money value—at least, not beyond the level of near-term anticipated taxes. What is required first is the creation of wealth, or genuine economic output.

The desire for the products of our economic output drives money. If productivity collapses—or if it is anticipated that productivity will collapse—the value of money will collapse right along with it. Read more....

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