Transformational Growth and Full Employment
Edited by Edward J. Nell and Mathew Forstater
Chapter 10: Functional Finance and US Government Budget Surpluses in the New Millennium
L. Randall Wray This chapter explores the nature of Ôgovernment finance.Õ The approach presented here is properly called a Ôfunctional financeÕ approach to government finance Ð an antidote to conventional principles of Ôsound finance.Õ Readers will recognize the debt owed to Abba Lerner; indeed some functional finance principles were incorporated into Keynesian economics Ð bastard and otherwise Ð but I believe the full import of LernerÕs principles of functional finance has not been recognized even by followers of Keynes. An understanding of the nature of government finance not only sheds light on Ôfiscal policy,Õ but also on the true nature of what is normally called Ômonetary policy.Õ We will then move on to an analysis of US government budget surpluses at the beginning of the new millennium and the projections that these will continue into the twentyfirst century as the government retires its outstanding debt stock. BRIEF OVERVIEW OF CONVENTIONAL VIEWS ON GOVERNMENT FINANCE According to the conventional view, tax revenue provides the income needed by the government to finance its spending. A government might be able to spend in excess of its revenue, at least temporarily, if it is able to issue debt that the public will hold. That is the government might be able to borrow from the public to finance deficit spending. One method that is almost universally scorned is for the government to issue non-interest-bearing debt Ð currency Ð to finance deficits, whether directly, by the Treasury, or indirectly through the central bank. Because government deficits financed in this manner...
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