>Her larger point (as I see it): Taxes and bonds don't
>"fund" anything (even though they seem to, and
>everybody in and out of government thinks they do),
>because the money they are paid in doesn't exist until
>it is issued by the treasury. Taxes and bonds are
>simply alternate ways of managing the money supply,
>which in their absence would grow to inflationary
>levels.
>
>And as for governement not being able create "capital
>and labor" out of thin air: if the the government,
>through deficit spending, is reducing the unemployment
>rate, isn't it "creating" labor merely by "making it
>so"?
When a government taxes, it takes money that would have either have been saved, invested, or consumed by private actors and puts it to its own uses. If it borrows the money, it's also taking money out of private circulation. But the money is valuable because it represents a claim on goods and services produced by human labor - the money is merely a claim on that real value. It seems completely fanciful to me that you can avoid messy issues of the distribution of wealth and income and the allocation of social resources through dreamy theories like Bell's.
If the government deficit spends when resources are idle, it's not coming up against any scarcity constraint. It's not creating the labor, it's just putting unemployed people to work. But this sort of thing can only work in the short term; if it deficit spends forever, it's going to have a debt problem. And, as Jim O'Connor says somewhere, public debt increases capital's power over the state; when you need to borrow new money just to pay off maturing debts, your creditors get to call the tune.
Doug