A FISCAL THEORY OF GOVERNMENT'S ROLE IN MONEY

Authors


1 Associate Professor, Department of Economics, University of Georgia, Athens, Phone 1–706-542-2734 Fax 1–706-542-3376 E-mail Selgin@rigel.econ.uga.edu

2 Professor, Department of Economics, University of Georgia, Athens, Phone 1–706-542-3696 Fax 1–706-542-3376 E-mail Lwhite@rigel.econ.uga.edu

Abstract

As an alternative to market failure explanations, we draw on theory and historical evidence to argue that fiscal considerations explain the roles governments typically play in producing and regulating money. Public monopoly production of coins and banknotes, substitution offiat for commodity standards, and restrictions on substitutes for government money all generate revenue and especially provide means for meeting fiscal emergencies. We argue that these arrangements do not reflect conscious design so much as the evolutionary survival of the fiscally advantageous. (JEL E5, E6, H1, N1)

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