Mr. Mosler, we want to talk to you about currency. How does a state get money if it wants, for example, to build a bridge?

It can just build the bridge. It then pays it in the usual way - just like it pays all of its other expenses.

Most politicians would say: In order to spend money, you have to get it first.

I know that's what politicians say. It is a mistake.

You are the co-founder of what's called Modern Monetary Theory (MMT) - a school of economic thought that is all the rage in the United States. How would you describe the central message of this theory?

Conventional economic theory says: first taxes, then expenses. We say: the order is not correct. First, money is spent by the state or the central bank, then taxes can be paid or government bonds issued. Currency for paying taxes or buying government bonds can only come from the government or its representatives.

You can explain that.

I'll take an example. Some time ago I visited the ruins of Pompeii with my wife. Our guide told us about the life of the inhabitants of the city before the eruption of Vesuvius. They had a good life for the time. Taxes were high, as was the quality of public infrastructure. Then he showed us some ancient pieces that had been unearthed. I said, the government first paid people with these coins, but only then were people able to pay the taxes they owed.

And the tourist guide?

He said: It's the other way around. First, the state raised taxes, then it paid the workers. I then asked: Who originally created the parts? He then said: The government. So I asked, how did people get the coins to pay the taxes?

How did he react?

He asked: So people got paid first and then they paid their taxes with the coins? I said, yeah, how would it work otherwise? Then he shook his head and left. What I mean is that if the currency to pay the taxes comes exclusively from the state, then the government cannot increase the taxes first to make the payments.

He is in debt instead.

That's how we say, but I don't like to use that term because it's negative. Public debt is nothing more than money the government has spent and which has not yet been used to pay taxes. I recently read that in Pompeii, in a street, we found 20,000 old pieces. How did the 20,000 pieces get there? The government of Pompeii may have minted and spent 100,000 coins, of which about 80,000 were used to pay tax. The remaining 20,000 coins that were unearthed in the streets represent the national debt. At the same time, they are the currency of Pompeii. Is it a problem ? No.

Unless the debt increases and the interest charge takes all the government's leeway.

Pompeii did not pay interest on coins on the street, and with the current zero interest rate policy and negative interest rates, interest payments for our governments have fallen to zero. You don't have to pay interest. Interest is non-productive income or unconditional basic income for owners of government bonds, that is, those who already have money. I would like to make the zero interest rate policy permanent and eliminate such government interest payments.

So sometimes the threat of inflation?

Let's stick to the example of Pompeii. The government is building an aqueduct. Coins are a state monopoly. Suppose the government decides to pay workers a coin per day. The coin's value then becomes the value of a day's labor. Then there may be another worker who doesn't feel like building an aqueduct and prefers to grow tomatoes. Suppose he is willing to sell all ten tomatoes for one coin. The ten tomatoes are now worth a day's work.

Understood.

Now suppose the government decides to pay two coins for a day's work. Ten tomatoes now cost two coins. And with a coin, you can only buy five tomatoes. If this continues, the currency is worth less and less. It creates inflation. This is because the government decides to pay more and more for the same thing - in this case, a day's work.

So a government can spend money, as long as there is no inflation?

Something like that. In a little more technical terms, as long as there are resources available in the economy, for example, there are people who are looking for a job and who cannot find what they are looking for in the economy. private sector.

Are there any in Europe?

Sure. Take a look at unemployment rates, labor market participation rates, and low utilization rate of the economy. The EU could fix dilapidated monuments in Italy, rehabilitate schools and roads in Germany, get coal-fired power stations shut down faster and fund the conversion to renewables. She could do a Green New Deal. It wouldn't be a problem at all.

How do you explain yourself that politicians say: We can't afford it, we don't have money.

If someone says that, then they either have no idea how money works or they are lying, which is worse.

There is a third possibility: Perhaps politicians consider it important that there are certain institutional arrangements that limit the access of politics to the central bank. Power always invites the abuse of power.

My answer is whether or not we believe in democracy. If we believe in democracy, I don't see why we shouldn't educate voters on how the financial system actually works, instead of deceiving them. At the moment, that is exactly what we are doing.

You could also say: This is not a deception, but a self-restraint by the state in the interest of long-term stability.

If voters are informed and consciously opt for such a model, I have no problem with that. But I have the impression that people are deliberately left in the dark about the economic environment in order to distract themselves from their own failure.

Aren't you worried that people will choose politicians who absolutely want to put more people to work with higher public spending, even if that increases the rate of inflation?

A lot of economists support it. But I don't believe so. Inflation affects everyone, unemployment usually affects only a small part of the population. A minority will therefore be in favor of such a policy, but not the majority. People would quickly veto a government that increases inflation. I have been in business since the mid-1970s, and the generally high inflation rates are not due to high government spending, but to other factors.

Which ones for example?

The hyperinflation of the Weimar Republic, for example, was decisively caused by the heavy demands for reparation that the German Reich had to pay, even as the country's industrial center in the Ruhr area was occupied. Corruption plays an important role in Venezuela.

Why do so many economists see it differently from you?

I think it's partly a legacy of the gold standard. At that time, currency was linked to gold reserves. As a state, you didn't need to get gold unless you wanted to put silver into circulation. Governments have chained themselves. This system collapsed in the 1970s. But the institutions are still there, and many states still hold gold. It's a bit like watching the TV channel change to a new game show, while still following the show rules you've seen before.

If this is all so easy: why does the state have to raise taxes?

For people to work for the government. The state needs soldiers, police, civil servants. Otherwise, there is no army, no police, no judicial system. How does it work? The state levies taxes and accepts as money only the money that the government issues. This prompts people to look for work in order to obtain change in order to pay taxes, directly or indirectly.

So euro, dollar, yen.

Exactly. People have to work for the state so that government money can circulate and pay the tax bill. They have to offer goods and services. This allows the government to hire people, to have access to resources and to be able to carry out their projects. The state does not levy taxes because it needs money, but because it wants to ensure that its citizens need money. Today's currency is a tax credit - that's what it takes to pay taxes.

Many economists also say that the government should leave control of the economy to central banks and their interest rate policy. They do not need their actions to be confirmed by parliaments and can therefore act more quickly.

I understand that, but unfortunately the interest rate policy is not working. It never worked. I know a lot of central bankers. If you take a look at their economic models, you might find that the economy will grow 0.1 percentage point if interest rates drop one percentage point. This is a joke. But if the state spends more money or taxes less, growth immediately increases.

Are central banks powerless?

They're like a kid sitting in the passenger seat with his kid's steering wheel. They pretend to drive the car, and we like to think they do because they look so serious. But it is actually the driver who drives.