Modern Monetary Theory (MMT) makes clear that the spending of a currency-issuing government necessarily precedes tax payments and bond sales to non-government. This has important implications. It means that a currency-issuing government does not – and cannot – require revenue prior to spending. It means that it is government spending that makes possible the payment of taxes and non-government purchase of bonds, not the other way round. And it means that when a government requires itself to match deficits with bond sales to non-government, it does so voluntarily, and on terms that are entirely at its discretion. In short, the constraints on a currency-issuing government are not financial in nature. The constraints on the spending of a currency-issuing government are properly understood in terms of real resources and the capacity of the economy to meet demand for higher output at stable prices. A currency-issuing government always has the capacity to purchase whatever is for sale in the currency of issue (which, of course, is not the same thing as saying that government should always do this). Yet, the manner in which fiscal and monetary operations are usually conducted can create an appearance that things are somehow otherwise. So, why is it that government spending necessarily comes first? In view of its implications, this is an important matter to grasp.

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