It was in the year 2020 that a majority of people first began to “see” what money is. For a few months—after the “realization” started hitting the pages, airwaves, blogs, tweets and twits of mainstream media—it became a silly joke: “2020 perfect vision, at last! How could things have been so blurry for so long?” For thousands of years, in fact.
I found this very interesting and well written essay by J.D. Alt at New Economic Perspectives via Naked Capitalism. I recommend you read it, it's quite short - less than a five minute read - but raises some very interesting issues related to Modern Monetary Theory. Specifically, what is fiat money, what purpose does it serve and how does it work? It's an interesting and important topic, mainly because fiat money is likely to be the only kind of money used in our civilization for the foreseeable future. As Wikipedia summarizes,
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.
(emphasis mine). It is a different way of looking at money, and does seem to explain many of the paradoxical aspects of our current economy (like extremely low inflation and interest rates in the midst of very large current deficits).
I think it's important to look at alternative views of how the economy actually works, because I think the last few years have shown that orthodox economists don't understand what's going on. It's also clear that the economy as currently constituted is failing in utilizing the most precious resource we have, and the only real source of growth and advancement, human ingenuity.
But I encourage you all to read the essay and the wiki and let me know your thoughts.