Macro N Cheese

In 1946, Beardsley Ruml, chairman of the NY Federal Reserve, published an article entitled “Taxes for Revenue are Obsolete.” According to Randall Wray this was consistent with the thinking of the time. In the 1930s and 40s, politicians and economists understood that taxes did not finance the federal budget. In fact, during World War II the government ran a deficit that was 25% of the GDP and a national debt equal to 100% of GDP.   This 2017 interview begins with Wray giving credit to Warren Mosler for the MMT insight that, in short, “taxes drive money.” We need only to look at colonial America for the basic facts. The colonies passed, simultaneously, the laws allowing for issuance of currency simultaneously and allowing the government to levy taxes in that currency. The purpose of that tax was to redeem those notes and burn them, a low-tech way of achieving the same effect as today’s keystrokes debiting our accounts when we pay taxes.   During the postwar years, the understanding that tax revenue does not fun