On Money, Power and Taxation

Power and money, money and power,
Which is stronger, money or power?
Money can give you a lifetime of honey,
But power allows you to steal others’ money.

Today, I’ll look at money, political power, and the relations between them.

How the economy should be

I’ll begin with a re-cap on how the world economy ought to work for all peaceful, honest, convivial human beings.

At the root of all economic activity is the creation of well-being. As I’ve said before, there is no nobler human activity than delivering what others are voluntarily willing to pay for. To get our own needs and desires satisfied, we trade with others the well-being we create. Thus, each of us creates a flow of wealth to those we trade with, and receives in return a corresponding flow of wealth. And if we are convivial people, we will always act with honesty and good faith, and strive to fulfil the promises we have voluntarily made.

There are many ways in which individuals can create wealth. For example, they can be direct producers, applying their labour and their skills to delivering products or services. They can be entrepreneurs or managers, organizing themselves and others to produce. They can be seekers of objective knowledge. They can be advancers of human capability; for example, teachers, engineers, technologists and other innovators. They can provide support to others, so making them more effective at their own wealth creation. In all these areas, in their own different ways, people co-operate with others, and compete to make themselves as effective as possible.

If any economy is to fulfil its potential, it needs several supports. One of these is sound money. Money is, in essence, an IOU backed by the wealth of the issuer. As long as the issuer remains solvent and honest, it can be used as a medium of exchange, as a unit of account, or as a store of value. A second support is property rights. These rights must ensure that money, land, goods and other wealth, which have been justly earned and have not been traded or given away, remain under the control of those who earned them, and are not unjustly taken by others. A third support is a system of objective justice, to hold to account those that cause damage to others, or subject them to unreasonable risks, or try to cheat them, or fail to deliver their side of the bargain.

The fourth support for a well functioning economy is the free market. In a truly free market, no-one is prevented from justly acquiring, or justly using, wealth. There are no arbitrary barriers or obstacles to the provision of goods or services. There are no arbitrary restrictions on what, or with whom, individuals may trade – or, indeed, not trade if they so choose. There are no tariffs on goods or services crossing arbitrary boundaries. And there are no taxes beyond what is strictly necessary to support the framework of property rights and justice, which underlies the free market. Further, there must be no political agendas that suppress the economy, or that favour some groups or individuals over others. And, in particular, there must be no policies that favour political actors, or their cronies, over others.

Franz Oppenheimer’s insight

That’s how the economy should be – isn’t it? But the economic system, under which we suffer today, isn’t even remotely like that. A clue as to why has been given us by the German Jewish sociologist, Franz Oppenheimer. In his 1908 book The State, he writes: “There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the necessary means for satisfying his desires. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others.”

Oppenheimer gave the name the economic means to “the equivalent exchange of one’s own labor for the labor of others.” In contrast, the political means is “the unrequited appropriation of the labor of others.” And he made his view of the state very clear, writing: “The state is an organization of the political means.” Otherwise said, the state is a professional robber.

Oppenheimer’s assessment is spot on. For the 16th-century monarchist Frenchman Jean Bodin, in his Six Books of the Commonwealth, created the blueprint for the “Westphalian” system of nation states, under which we still suffer. And he listed, among the rights of a monarch: “taxing, or granting privileges of exemption to all subjects” and “appreciating or depreciating the value and weight of the coinage.”

Links between money and power

At one level, money is power; the power to do what you want. It gives you the power to make choices. To decide where you will go on holiday, or what form of transport you will take, for example. On the other hand, lack of money leads to lack of power. If you can’t afford a holiday, there is no point searching the brochures. If you can’t afford to drive a car, you will have to take the bus, or even walk. You have lost your power of choice.

Money can be used in good ways, or in bad. When used in good ways – for example, as the medium of exchange in a voluntary transaction – it benefits all parties to the transaction. You get to enjoy your holiday; and the people who provided it to you can enjoy in return something they want. But money can also be misused. It can be used to pay for propaganda, or to lobby for the imposition of political agendas or the realization of pet projects. It can be used to seek political power; or to buy favours from those that have such power. It can be used to fuel schemes that take away others’ money, or otherwise violate their rights.

In the reverse direction, power – political power – can be used, either directly or indirectly, to get money. Most obviously, when corrupt political actors seek maximum money for themselves with zero or minimum effort. But power also allows the actor to set “policies,” to court favourites, and to victimize those he disfavours. He can advantage the state – as through very low interest rates – and he can bring about enrichment of some groups of people at the expense of others. He can favour his supporters, lavishly reward his cronies, and impoverish those he doesn’t like.

In this way, there grows a symbiosis between money and political power – some call it “the revolving door.” Power begets money for the powerful; and the rich and politically connected use their money to increase their power. But for the rest of us, just as lack of money leads to lack of power, lack of power leads to lack of money. Sham democracy notwithstanding, our lack of political power puts us all into danger of being dragged down into a poverty we do not deserve.

Some, especially those with a religious agenda, like to vilify money. “The love of money is the root of all evil,” they say. Now, the unjust acquisition of money – and in particular, the use of Oppenheimer’s political means – is an evil. But to use money according to the economic means, in which transactions are voluntary and to the benefit of all parties, is no evil. Indeed, the root of all evil is not the love of money, but the love of power. Power over others. Political power.

Bodin’s prescriptions for revenues

Next, I’ll try to show how this symbiosis of money and power is baked in to the Westphalian system. Bodin gave much advice to his monarchical friends on how to maximize their incomes. He identified seven sources of revenues. First, leasing the king’s lands in exchange for rents. Second, the profits of foreign conquests. Third, gifts from friends. Fourth, the protection racket; payments received in exchange for military “protection” in time of war. Fifth, engaging in commerce. Sixth, customs duties – “charging the merchants who import and export commodities.” Seventh and last, taxing the subject.

As to this last, Bodin wrote: “Do not levy taxes or impositions on your subjects, unless urgent and evident necessity forces you to it, and for some just cause, but not arbitrarily.” He suggested raising taxes on “luxuries and ornaments of all sorts, perfumes, cloth of gold and silver, silk, lace, fine tissues, gold and silver enamel, unnecessary articles of clothing, and scarlet, crimson and cochineal dyes and so forth.” And he exhorted: “It is better to make such things so expensive by heavy taxes that only the very rich and indulgent can afford them…”

Let’s see how well Bodin’s prescriptions have survived the test of time, shall we? Leasing land? Still a factor, though perhaps not as important as formerly. Foreign conquests? Well, yes. If you wonder why states with powerful militaries, such as the USA and formerly Britain, seem to have a burning desire for foreign wars at the slightest excuse, look no further than Bodin’s ideas. Follow the money! Gifts? These have been transmuted into the buying of favours, which I mentioned earlier.

The protection racket? This one has grown in size; it now extends to the “subjects” of the realm too. We are all expected to pay through the nose for a monopolistic “protection” service that is often of low quality, and may at any time be turned against us and used to oppress us. Engaging in commerce? Well, sort of; for example, in areas like education and health care. But the state doesn’t compete fairly in a free market. Instead, it seeks monopoly or near monopoly. What you get from this is what you see; bureaucratic, politicized and often failing. Customs? Tariffs and the like are still a big deal. And taxing the subject? Don’t make me sick.

Taxation today

Even Jean Bodin, could he but see what today’s political classes have done with the system he devised, might feel a pang of discomfort. Franz Oppenheimer, surely, would tear his hair out. Particularly since, at the time he wrote his book in 1908, the income tax – the biggest single imposition by the state on our economic lives – was still a gleam in the eyes of money-hungry statists. And when, just a few years later, they manufactured an excuse to impose an income tax, what did they do with the proceeds? They made a big war, in which 20 million people died. And things have only gone downhill from there.

How many different taxes do we suffer today? Even within a single nation, it must be in the hundreds. There are taxes on incomes. There are taxes on employment. There are taxes on transactions, for example value added taxes. There are taxes on company profits. There are taxes on capital gains. There are taxes on property. There are taxes on goods passing across arbitrary borders – and on people, too. There are inheritance taxes. There are commodity taxes – and not just on luxuries, either. There are “sin” taxes on things like alcohol and tobacco. There are local taxes and city taxes. There are climate levies, carbon “trading” schemes and many other green taxes. There are punitive and extortionate taxes on car drivers. And just about every week, you hear about new taxes – on soda pop or plastic bags, for example.

There is also the hidden tax of inflation. This goes back to Roman times, when emperors used to reduce the real value of their coins by putting into them less and less precious metal. More recently, as nation states have abandoned the gold standard, politicians have been able to issue “fiat money.” (Fiat is Latin for “let it be.”) Such money is cheap to print, and today it’s even easier to create just by modifying figures in a central bank’s computer. The first to get the new money – and most of all, the state – benefit from this Ponzi scheme, at the expense of those further down the chain. The result? In 50 years, the values of most currencies have fallen by a factor of more than 10. And prices have gone up to match. This is, in effect, a huge stealth tax on us, and most of all on the prudent people who have saved for their futures.

These are all instances of the use, by the state, of Franz Oppenheimer’s political means. That is, “the unrequited appropriation of the labor of others.” The oft heard argument that the state uses the money to do good things for the people, so you will eventually get back what you put in, is hokum. Surely, you might get a few worthwhile things, like some roads and a bit of health care. But at what cost? Once what you were forced to pay has been around the political and financial whirlpool a few times, it will be worth only a tiny fraction of its original value.

All these machinations, ultimately, are a big drain on you. Not just on your money, but also on your power; your power of choice. What taxation does, ultimately, is re-distribute wealth and power from the politically poor to the politically rich. From us to them.

Is taxation theft? No, it’s murder!

Some of my friends say “taxation is theft.” But they understate their case. Franz Oppenheimer’s word “robbery,” I think, better describes the violence and threats of violence, which underlie most of the state’s conduct. But I myself prefer a stronger word yet: murder.

Consider: your earned property and money represent part of your life. They represent the time and energy, which you used up in order to earn that property or money. Thus for the state to take away your money, without offering something of value to you in return – and that is what “unrequited” means – is to kill part of your life. It is clearly, too, a pre-meditated act; and a malicious one. And pre-meditated, malicious killing is murder. Thus: Taxation is murder.

To sum up

Our human economic system should be based on wealth creation and trade; the “economic means” as identified by Franz Oppenheimer. It must be backed up by sound money, property rights and an objective system of justice.

In contrast, the state uses the “political means.” Through taxation and currency inflation, it takes money from us, and offers little or nothing of value to us in return. And this amounts to murder – murder of the parts of our lives, which we used up in order to earn that money.

By Neil Lock
Source: The Ludwig von Mises Centre


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