Richard J Murphy - How the government can afford its promise to pay -
In previous video I have explained that for fifty years all that has given money its value is the government's promise to pay. This promise is honoured by the government accepting the money it creates in settlement of the tax that people owe. But how can anyone be sure that the promise will work? The answer is provided by what is called the multiplier effect.
When the government spends the money does not disappear into a black hole. Instead it becomes someone else's income. They pay tax on that, and then usually spend what they've got left.
That process is repeated by the next person who gets some of proceeds of the money that the government spent, and then the next person does the same, and each time some tax is paid.
The result is that when the government creates money to spend it can pretty much guarantee that in a well controlled economy it will get its money back in tax.
And that multiplier effect does, in that case, underpin the promise to pay - because the government knows that when it spends it will get its money back. And that is what gives that money its value. This video explains that process.
ABOUT RICHARD MURPHY
Richard Murphy is a chartered accountant. After training with what is now KPMG he established his a firm of accountants in London, of which he was subsequently senior partner, in parallel with a career as an entrepreneur and company director which lasted until his early 40s. He then moved to a career in campaigning and academia. He co-founded the Tax Justice Network in 2003, the Green New Deal in 2008, the Fair Tax Mark in 2013 and the Corporate Accountability Network in 2019. From 2015 to 2020 he was Professor of Practice in International Political Economy at City, University of London and is now Visiting Professor of Accounting at Sheffield University Management School. His best known book is 'The Joy of Tax'.
Follow Richard on his Twitter: www.twitter.com/RichardJMurphy or on his blog: http://www.taxresearch.org.uk/Blog/
Recorded at Spotted in Studios
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