I’m 16 and maybe that’s why I’m asking such a dumb question…
Let’s say person A makes 1 dollar. If he gets taxed 20%, he has 0.8 dollars and when he spends that money, it gets taxed even more, and to me it just sounds like money slowly goes to the government.
Where does money come from…?
In: Economics
The mint. Government uses most of that money on things like roads and hospitals and schools (hopefully) and then when the physical currency that is in circulation wears out and becomes unusable, the government pays the mint to create more.
Here is a question, or thought experiment for you. You have $10 of your hard earned money after taxes. You go out to a store and spend that $10, and buy a tee shirt. You had a 10 dollar bill and now you have a 10 dollar tee shirt. The store owner has that $10 bill.
Now is that $10, or is that $20 ?
i think it’s the other way around…
you always had to pay your government to “protect” you…
but banks “create” money… when you borrow 100€ from the bank you have to pay 110€ back…
they don’t need it all in real money, unless everbody wants their money…
edit: money is just a standard exchange medium, everybody has to believe it is worth the numbers writen on it…
Its not like government money just disappears it goes back into the economy in the form of public goods (buildings, roads, the stuff normal people dont pay for by themselves). The government also gives subsidies and distributes money to the poor
So as other are saying the government physically creates the money (currency) but the money is just a way to store our “work” so we don’t have to barter all the time. Money in that sense is created and destroyed all the time. It’s not a zero sum game. If I buy $100 in painting supplies, painted something and then sold it for $1000, I basically “created” $900 of money out of thin air. Likewise if I buy a $1000 painting and throw in into the fire I “destroyed” $1000 of money.
Within the wider economy, money just goes round and round. Other people have mentioned the central bank that creates (or destroys) money, but mostly money just goes round in circles. At the end of the month I get paid. Some of that goes to the government in taxes, some gets payed into a pension fund, the rest goes into my bank account. I spend that money on my house, on food, on clothes, on movie tickets or whatever. A supermarket gets some of that money, and a whole bunch more from all the people shopping there. That money goes to pay the people who work there, buy food from farms or whatever, a bit goes to the owners in profit. The people who work for the supermarket get paid at the end of the month. That money goes to some tax, some food, some movie tickets or whatever. The taxes go to the government, but the government then spends it. They spend it on fighter jets or building roads or paying the mayor or the soldiers in the army or the police or whatever. At the end of the month the policeman gets his pay and spends it on … You can see it just goes round and round in circles.
The whole subject of economics exists to try to figure out how this all adds up, and one of the most important questions they think about is how much money there should be in existence. One old idea is called the “gold standard” where for every dollar (or equivalent) there must be some actual gold metal sitting in Fort Knox (or a similar place). This means that the amount of money that exists is limited by how much gold is dug out of the ground and how much gold is used up making jewellery, electronics and other things that use gold. The problem with that system is if the population changes without mining more gold, the gold per person changes. Equally if a big new gold mine is created, the gold per person also changes. Some people had the idea that perhaps the economy would work better if it was possible to change the amount of money in existence independently of mines and jewellers.
The other element of the money supply is how fast the money moves around in these circles. Imagine if I have a dollar and I spend it. The guy I give it to (in exchange for something) spends it, and the next guy spends it and eventually it gets spent on something my employer sells, and it comes back to me in my next pay cheque. How long does it take for that dollar to come back to me? If I’m spending my money quickly, and all the other people are spending quickly, then it comes back to me quickly, and I earn that same dollar a second time after a short delay. If I put my money in the bank and don’t spend it for a while, and the next guys sits not it for a while and each down the line, that dollar comes back to me after a much longer period of time. So in a time when money is moving faster, even though the total number of dollars in the economy is the same, I get money coming in faster, I earn more. Equally if people don’t spend quickly, even with the same money moving around, I get money coming in slower.
What people really like to feel comfortable in the long term is for things to remain basically stable, so that the money that comes in next month is the same as last month, and the cost of things next month is the same as last month. What central banks do is measure (using clever methods) how much money is out there and how fast it is moving. If the money is moving slowly, they add a bit more money into the system. If it’s moving to quickly, they take a bit of money out of the system, in an attempt to keep things approximately the same from month to month and year to year. If we relied on gold mines to make more money, there is a limit to what the economists can do to keep the system running. Because this limitation was found to be a problem with the boom of the 1920s and bust of 1930s, and the similar booms and busts that followed, governments eventually decided that just making or destroying money out of nothing (but trust that they won’t make too much or destroy too much), they can make things work a whole lot more smoothly. And for countries in places like the US, Canada, western Europe and so on, this has worked pretty well for the last 50 years or so.
The government prints money, then loans it without interest to giant banks. These banks loan that money to you, charging interest.
The rich are bleeding you dry, making you work forever to pay an endless debt.
That’s not a dumb question at all. It is just a sign of what people learn in school today.
Currently, all money in the narrower sense (Money “in the west”) is created and destroyed by an institution called “central bank”. Central Banks have the power of creating money and lend it to a “commercial bank”, which is what you know as a “bank”. Now, for money to actually be created, somebody would have to take a credit from his bank. The bank then borrows this money from the central bank. One of the cores of this system is that every credit has an interest rate, so that there’d be a constant flow of money that ends at the central bank. When the commercial bank pays back their credit (after the customer has paid them back), this money disappears from the system. It is destroyed, so to say.
Now, when nobody would ever take a credit, there would be no money. Additionally, for every unit of currency in circulation there’s
1. One Unit of currency missing on someone’s account
2. Interest to pay
This is where it gets interesting. Pun intended. Due to interest, somebody has to borrow more money. The money that is to be paid as interest isn’t in the system yet. So, this system will explode exponentially, if nothing stops it. In the end, this is probably what people call “a bubble”.
Basically you’re right: since the governments tax just about every transaction, governments would get ever richer, eventually surpassing even most rich people. In reality, they’re just shaving off a little of an ever-growing cake, that (promised!) never was a lie. It’s just that people who do not understand the system do not understand what could be wrong with that.
Despite all optimisim, somehow, however, it always turns out so that some people have all the money, and everybody else would have to work for them. Or something. In the west, this system has lead to infrastructure degrading to the point of being unusable, violence, widespread unemployment, conspiracy theories and other failed attempts at facing reality.
Governments are not more than a player in this system. The faux reality of capitalism is deeply ingrained into political culture in the west. A few exceptions exist, Portugal and Iceland come to mind.
The government doesn’t keep that money, it spends it.
Some of the money flows directly back to regular people through salaries, e.g. for teachers, soldiers, road maintenance workers.
A lot of other money flows to corporations, who pay their workers with it. Think of all the stuff the state buys, from office supplies to aircraft carriers.
Now, where it originally comes from, thats a more complicated question. But money moving from you to the government does not make it disappear any more than if it moved from you to McDonalds.
Remember the government spends all that money, and every penny it spends goes to actual people who are paying the taxes you are taking about. So money is constantly moving around not only between people but back and forth between people and the government. Your example only follows the money in one direction but not back again.
When the government “builds a road” it has to pay for it and that is one example of how taxes are returned to the people. We don’t just get a road. We also get paid to build the road.
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