The Taxes-Drive-Money and Employer of Last Resort Approach to Government Policy

Abstract

This paper critically examines and seeks to stimulate debate on a new approach to government policy, which postulates that taxes drive the money supply and that the state should act as employer of last resort to ensure full employment. Taxes are said to drive the money supply and hence government spending derives from money; budget deficits are, therefore, generally needed to propel private investment and profitability. Since deficits should be the norm, this enables the state to finance a system of employing all who are willing to work at a basic-level-wage in the public sector doing social jobs. The findings of this study are that taxes do or should indeed drive money, but that money is better spent on public investment projects and skills associated with the leading sectors of the economy, rather than simply on consumption goods. Therefore, the employer of last resort policy, which is based largely on consumption spending, may be problematical. Hence, either a new approach to employment is needed or the last resort approach needs to expand its concerns to public investment and skills especially in the knowledge, infrastructure, information, social and communications areas.

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