Where does money come from?

Money comes from two main sources in our modern economy: government spending and bank lending.

The federal government creates money when it spends. Congress authorizes spending, the Treasury instructs the Federal Reserve, and bank accounts are credited. This is sometimes called 'high-powered money' or the monetary base. The government doesn't need to collect taxes or borrow before it can spend - spending comes first.

Banks also create money when they make loans. When a bank approves a mortgage or business loan, it doesn't lend out existing deposits. Instead, it simply credits the borrower's account, creating new money in the process. This bank-created money makes up most of the money supply. However, this money is temporary - it's destroyed when loans are repaid.

A key insight is that money is not a scarce resource that exists in fixed quantities. It's created as needed through the operations of government and banking. The question 'where will the money come from?' to fund public priorities misunderstands how monetary systems actually work.