Government Finance in a Usury-Free Economy

This article expands on ideas expressed in ‘Towards a Programme of Monetary Reform‘.

There is an important respect in which government finance differs from that of a private business: the latter borrows and spends in order to generate profit for itself, whereas the former spends for society and does not expect a direct return. Hence, the financial system must be modified for government usage.

Government can and should fund its operations by borrowing interest-free fiat money from the proposed public bank(s), just as would a private business or individual. Since it does not receive a return on its expenditure, however, it must raise the money to pay its debts by means of taxation. As in the case of private borrowing, the purpose of debt repayment is to remove excess money from circulation and avoid inflation.

Government borrowing and spending should precede the associated taxation. If the taxation were to be levied first, the money supply would undergo deflationary contraction prior to the injection of the new money. Of course, with the proposed system up and running, government borrowing, spending and taxation would all be continuous.

Government Finance in a Usury-Free Economy