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10 November, 21:08

How does the government sector generate money other than taxing and borrowing money

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  1. 10 November, 22:21
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    Taxation is not the only way the government raises money. Prior to 1933, the United States was on a gold standard. The amount of gold the government had in its possession limited the number of dollars the government could print. What made the gold standard important was not the gold, but rather the limit on the number of dollars the government could print. A "land standard" or a "fresh water standard" that limited he number of dollars the government could print by the amount of land or fresh water the government owned would have achieved the same effect. The value of the object serving as the standard is not important. What is important is that the object exists in a fixed quantity. As long as the quantity of the object is fixed and the number of dollars is limited by the number of units of the object the government owns, the government will be unable to print as many dollars as it likes. When the government can print as many dollars as it likes, it has the ability to impose an "inflation tax." In what way is inflation a tax? When the government prints money, prices rise. When prices rise, money loses value. For example, if a tank of gas costs $20, then the $20 bill in your pocket is worth a tank of gas. If the price of gas rises so now a tank costs $30, then the $20 bill in your pocket is only worth two-thirds of a tank of gas. The increase in the price of gas caused the money in your pocket to lose value.
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