MMT essentially proposes that money is created ex nihilo or out of nothing. Whether it is private banks, central banks or governments, money is an abstract concept of ones and zeros. Thus, when your bank lends you a mortgage, it essentially creates money by typing it up on a computer. Similarly, the government has the power to create “fiat money” – that is money established by government regulation or law as opposed to currencies with intrinsic value, such as gold. In effect, the usual dictum of “tax and spend” is inverted to “spend and tax” with spending stimulating jobs and growth, which can later be taxed. Taxation is not therefore a way of raising revenue but a tool for either controlling the money supply or shaping policy through incentives.
Remarkably, the elemental question – where does money come from? – does not have a settled answer amongst economists, experts and policy makers.