Where Do World Governments Get Their Money?

How Do They Get Money?

There only three ways that any government can get money:

1. They can take it

2. They can borrow it

3. They can invent it

That it!  There is NO other way that governments get money. They don’t have some huge pot of cash laying around waiting for them to use. It’s easy to understand why most people think that their country’s government gets all of it’s money from taxation; after all, they never tell us anything OTHER than that.  We see signs on roads “your tax money at work” and we hear on the news “…..your tax money is being spent on….” and so forth.  However, the fact is, tax money is only a very small part of the equation.

No country’s government can create wealth and they never have. As we’ll see though, they DO create money (which is NOT wealth).  All governments are simply spenders of money, distributing it where they see fit, be it on wars, corporate bailouts, social programs or whatever.

Let’s briefly discuss the three ways that they get money.

Taking It

As I’ve said, most people think that the governments of the world get their money by taxing “their” citizens.  (I put the word “their” in quotes simply because that is how politicians see it.  They are not OUR public servants, serving their country, but rather, WE are THEIR citizens).

Taxation is the smallest way that governments get money. Taxes vary from country to country in amounts, names and types, but a typical country will tax income, profit, purchases, payroll sales, land,  imports, exports, death and several others that don’t spring readily to my mind.  There are also lots of others that they call by a different name, such as fines (speeding fines etc.) and social security programs (often called National Insurance).

At one time in the United Kingdom, they even taxed LIGHT (I’m not kidding) calling it the “Window’ tax. As you can see, if they can think of a way to take your money, politician will do it!  They actually taxed how much GLASS people had on their houses.  The more glass they had, the more light they got into their homes.  If you go to England or Scotland today, you can still see thousands of examples of where people bricked-up their windows so that they didn’t have to pay so much tax.

Borrowing It

This is where the group of politicians that were elected to run the country promise to pay other countries governments at a later time, for products received (this could be anything, but typically will be energy or raw materials such as copper or iron etc.).  They pay interest on this of course, which makes paying the other country back very expensive.

This is a very complex subject and I would suggest that if you’re really interested in learning more about it, you read this article. Government debt.

Inventing It

Inventing money (or more accurately these days, changing digits in computers to larger numbers) otherwise known as printing it, is what causes inflation, and this is how most of the world’s governments get most of their money. You can read more about inflation here: Why Does the Cost of Living Keeps Rising.

The short version is this; when politicians (who make up each country’s government) can no longer take it from people (because there are fewer people earning money) and they can’t borrow any more (because the lending country doesn’t trust them to pay it back) they will invent money by either physically printing it, or by changing the digits in a computer program at their country’s government bank.  In England this is called the Bank Of England; it’s very much like the Federal Reserve bank in the United States.

This is where most money comes from; don’t mistake this for wealth creation which is a very different thing indeed.  Simply adding digits to a computer or printing pieces of paper doesn’t make people wealthy (maybe a counterfeiter would disagree with me!?).  This is about money supply, and you can learn more about it here.

To be worth anything, any country’s money MUST be backed by something that is valued by MOST people on the planet.  If it isn’t, then the currency simply has little (and sometimes NO) worth.

Luke.