Chartalism

Description

From the Wikipedia:

"Chartalism is a descriptive economic theory that details the procedures and consequences of using government-issued tokens as the unit of money. The name derives from the Latin charta, in the sense of a token or ticket. The modern theoretical body of work on chartalism is known as Modern Monetary Theory (MMT).

MMT aims to describe and analyze modern economies in which the national currency is fiat money, established and created exclusively by the government. In MMT, money enters circulation through government spending; Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that can only be met using the government's currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities per se.

The theory was developed by economist G.F. Knapp in the 1920s, with important contributions also by Alfred Mitchell-Innes. It was influential on the 1930 Treatise on Money of John Maynard Keynes, which approvingly cited Knapp and "Chartalism" in its opening pages. Chartalism experienced a revival under Abba P. Lerner,[6] and has a number of modern proponents, who are broadly denoted as post-Keynesian economists." (http://en.wikipedia.org/wiki/Chartalism)