If Congress relied on federal printing presses to fund its spending, then by definition the spending footprint of Congress would be very small. Yes, you read that right. No need to read it again.
To understand why this is true, stop and think what the market reaction would be if it were actually true what isn’t, that federal spending and debt were funded with “money printing.” If so, it’s safe to say that the dollar would no longer be accepted as a medium of exchange.
Forget that the dollar is “legal tender” in the U.S. such that producers of actual goods, services and labor would have to accept printed money. The legal tender angle is utterly immaterial.
Production always and everywhere buys production. It’s that simple. Money is just an exchange medium that buyer and seller agree possesses exchangeable value in the marketplace. Stop and think about what that means vis-à-vis the dollar.
American producers accept dollars in return for their work precisely because they feel they can attain roughly equal value for them in the marketplace. Products for products once again.
Just the same, Treasury taxes the dollar earnings (excessively) of American producers for the same reason: the dollars are an accepted medium. That’s once again why Treasury taxes them away. The taxation of work that commands dollars is spending power for Treasury.
Conversely, printed money isn’t even money precisely because it wouldn’t facilitate the exchange of anything. Unrelated to actual production, it could hardly buy it. Which is a short way of saying that if Treasury weren’t taxing actual production, if instead it were printing money as the various economic religions imagine, the federal government’s grotesque allocations of precious resources in politicized fashion would not take place. This is assuredly not a call to rev up the printing presses as a way to shrink government, but it is a gentle reminder that the “printing press” is not the source of growing government, debt, or both. The deep belief that it is signals an unwitting belief among Austrians on the right and Modern Monetary Theorists on the left that markets aren’t just stupid, but ferociously so.
The dollar circulates and buys things not because the federal government (or more laughably, the Fed) prints dollars, but precisely because it does not. Instead, the dollars that circulate domestically and globally are a signal of work completed, of products and services created, all in return for dollars. Absent production, there quite simply would be no dollars circulating.
Which means that if the federal government ever tried to evade the work part by printing dollars to fund its hideous consumption and borrowing, then it’s safe to say that that same federal government could no longer buy much of anything, let alone borrow. And it’s similarly safe to say that American producers would cease accepting dollars in return for their production. Seriously, who would provide labor, products and services in return for something that’s an effect of a “printing press” instead of a reward for actual work done? The answer is simple: no one.
Money in circulation is an effect of production, not the driver of it. Which means that “printing press” mysticism puts the cart before the horse, and as such is worthless. Again, if printing presses are ever used to power government spending or borrowing, there will be neither. Markets are wise.
