This is where the MMT people are tripping over the banking system. BOTH government spending AND bank lending create money. And the bank money trades at par with government fiat money. It is said that bank money disappears as it is repaid; that the note backing it is extinguished and the accounting units return to the ether from which they emerged. But this is not the case. Both the principle and the interest remain in the economy distributed first to a seller of which was the object of the loan, then interest to the bank and then into the normal flow of the economy. The "interest" is not taken from the economy and used to fill Scrouge McDuck's swimming pool. It is used to pay the enterprise that "provides" the credit. It may be that the bankers are sucking up too much of the interest and, in fact, hoarding it. But this is not a necessary evil of the system itself. There will have been more goods (even capital goods) produced both directly and indirectly because of the loans. Hence, the money does not lose value unless it is used unwisely (a loan not repaid) because there are more goods to "soak it up" and there are more and more people as population increases.
Government does the same sort of stuff. The battleship is brought into existence with a loan from the FED. T-Bills are then sold to "repay" the loan at the FED. Taxes are the payments on the loan (now backed by the T-Bills). MMT says that the T-Bills are not necessary and that is correct. Taxes are the real payments on the loan that created the battleship. T-Bills offer a place for people to store savings. The difference is that government is not charged with a profit responsibility. The only monetary responsibility is to insure that the money retains a proper value. Those who do not understand the actual labor theory of value (see Smith, not Marx) seem to have a serious problem with this. As we seek to fulfill our needs and wants wealth is the capacity to forgo labor or to command the labor of others.
