Short & Simple 12 – Government Money

We saw in part 2 that to establish a currency, government needs to do three things:

1. Define a unit of account (e.g. dollar).
2. Impose taxes that can only be paid in that unit of account.
3. Spend or lend the currency into existence.

The most basic purpose of taxation (introduced in step 2 of the sequence) is to create a demand for the currency. Provided taxes are effectively enforced, we in the non-government will have a need to obtain the currency, because it is the only means of paying taxes.

Continue reading