Modern Monetary Theory and Prepayments

Modern Monetary Theory (MMT or Modern Money Theory) is a macroeconomic theory that sovereign governments have an unlimited financial ability to pay for the things they wish to purchase and to fulfill promised future payments. - Wikipedia

Modern Monetary Theory (MMT) suggests it is better for a sovereign government to increase the money supply by printing money rather than borrowing money. Printing money is cheaper than going into debt and renting money by issuing government bonds. Printed money is repaid by governments collecting taxes or selling infrastructure goods and services produced with the printed money.

MMT points out that the creation of money comes before the lending of money. Governments who have control over their own currency decide why they need the money and then create it. If they are foolish they create it give it to someone else and borrow it back by issuing bonds. However, in times of crisis, like war or pandemics, they create the money and provide it interest-free to entities who must use it to meet the government objectives.

The same method can work for local communities formed as not-for-profit cooperatives. A community can create the need for money by forming a cooperative where some members supply the money to fulfil a purpose and other members consume the goods and services provided by the purpose. The members who supplied the money get a return by purchasing goods and services at a lower price. In doing so members lend to themselves and remove the cost of the community renting money.

A common factor in the two cases is the elimination of rent on money within a bounded system. Eliminating this cost means the same value of goods and services is produced for less money. This results in an increase in productivity and builds community wealth.

The two systems can be coordinated and governments can supply not-for-profit cooperatives with zero-interest money that must be invested by the Co-op in productive assets. The government can collect taxes on the output with goods and services or other consumption taxes and the government can also get a return on the money by getting the goods and services for a discount like other co-op members.

The approach means that the government removes the cost of money from their accounts and the government turns tax into a return on investment. The approach is transparent and psychologically more acceptable to citizens as citizens can benefit by investing their savings under the same conditions as the government. The government can provide the same investment opportunity to citizens by allowing community members to prepay their taxes and get a discount when they use the prepayments.

The approach saves the community the cost of renting money which is a real cost. The money system remains unchanged. However, some projects are funded without the burden of the cost of interest. The savings are able to fund more projects or reduce the cost of goods and services to community members.

Governments do something similar today when they provide funds to citizens with tax concessions, tax rebates, and social security payments. They also do it for organisations with tax concessions, tax write-offs, tax loop-holes, grants and funding arrangements.



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Kevin Cox

Kevin works on giving individuals control over their online information - particularly their financial information with local communities.