Question #2305

The lesson that the Pompeii story taught us was that

• (a) The old coins used in Pompeii were able to buy goods and services.
• (b) The government had to spend first before it could collect taxes.
• (c) The once thriving city was destroyed by a volcanic eruption.
• (d) Some people worked in the non-government sector.

Answer #11538

Answer: (b) The government had to spend first before it could collect taxes.

Explanation

The answer is Option (b)

MOOC Students were given a short version of Warren Mosler's Pompei story where he reported on a conversation with a tour guide during an organised public tour of Pompeii in Italy.

The guide had showed him some simple metal coins that had been used in the city during the period when Pompeii was great.

The tour guide said that the Pompei authorities collected these coins as taxes and then paid public servants to deliver excellent public services.

Warren noted that it was backwards - the people were paid then the taxes collected.

After some denial, the question was "where do coins come from?" to which the guide said: "Well, the government made them."

Which raised the question: "How did anybody get a coin to pay the tax?

The point of the story is that it is the imposition of the tax liability that drives the desire to provide resources to the government in return for its currency.

Then once the currency is spent the capacity to pay taxes is evident.

So the answer is Option (b).