Part 2 of this week's Fun Online Poll asks: "Which groups benefit most from the existence of 'the state'? a) Land owners, home owners and pensioners, or b) Entrepreneurs, workers and investors."
Pogo left the following comment: Bearing in mind that in order to have a consistent and enforceable "rule of law" - which is applicable to either of your groups - it's necessary to have a "state" of some form, however minimal, I'd venture to suggest that the answer should be "both".
I answered as follows: P, yes of course, having a stable political environment helps businesses, but a large part of those gains feeds straight into higher rents and land values (and generate the tax to pay the pensions). But you can have free trade even in a war zone*.
Conversely, in the absence of 'a state', land values would simply not exist - you cannot have land ownership or even exclusive possession without the existence of 'a state' to guarantee it. And in the absence of 'a state' there cannot be a State Pension, by definition.
* To illustrate this, let's look at a recent story ("HEROIN has become more available in Australia due an increase in production in Afghanistan and South-East Asia"). The supply of heroin starts in a war zone and ends in a country in which it is illegal. That's entrepreneurship - which generates some income for Afghanis (or the best income they can get from their fields) and requires capital investment by drugs barons (boats, bribes, weapons etc).
On a philosphical point, you could argue that these profits accrue to the drugs barons precisely because Afgh is a war zone and because sale of heroin for recreational use is strictly forbidden in Australia; but that supports my argument - if heroin were legalised in Australia, i.e. became a state-protected activity (just like any other business), it would be splendid news for landowners in Tasmania (who grow about half the world's 'legal' opium) and terrible news for the drugs barons (the entrepreneurs).
Rejoice! Free Propaganda!
2 hours ago
7 comments:
I´ve just had my mind blown this afternoon after reading The 7 Deadly Innocent Frauds of Economic Policy.
http://mosler2012.com/wp-content/uploads/2009/03/7deadly.pdf
It´s an easy read, really clear, no economic jargon and explains taxes, deficits, government spending and trade balances. It totally makes sense.
I discovered it after I came across a quick explanation of Modern Monetary Theory and how austerity measures are idiotic. Here´s the link
http://bilbo.economicoutlook.net/blog/?p=7864
Suddenly everything makes sense.
So based on this the Afghans would rather have Aussie dollars than heroin. Why are Aussie dollars worth anything. After all they are just pieces of paper?
- Because Aussies must pay their taxes with Aussie dollars.
And in order to earn Aussie dollars people must work to earn those dollars. So that leads to entrepreneurs and the creation of jobs. So the state creates entrepreneurs.
Andy, that first article seems very superficial to me.
And yes of course AUD is underwritten by the Australian govt. but that is a side issue; what drugs barons want is the goods and services they can purchase with them.
And it is irrelevant whether the Australian govt. derives its tax income from enterprise or land values; shifting taxes from the former to the latter would be even better for the country's overall prosperity (as it is enterprise that underpins land values; not simple land ownership) and hence the 'quality' of AUD.
@Mark
Yes, I 100% agree with you that it is much better to shift tax away from enterprise on to rentiers but this is a government decision based on both spending and taxation.
But the point I think you are missing is that the taxation is creating the demand for AUD.
Aussies could use any currency they wanted but they choose to use AUD because otherwise they would have to convert to AUD at tax time.
However if Australia reduced taxation to such a low amount that inflation got out of control or the government caused inflation by spending too much money the value of the AUD would decline and our Afghans would start asking for gold or CHF or whatever.
So the real purpose of taxation is to control inflation and reward or punish behaviour. It is not to pay for services since that is just transferring electrons (keeping score) in a central bank. Government deficit = Private savings in a fiat world.
At the end of the day it is the government/central bank that decides the value of the AUD and what that is worth in goods and services. It also decides where it gets spent and taxed. For good or bad!!
A, going back to the article - As a thought experiment, the govt. could abandon all forms of taxation and just print new notes to pay for expenditure - but those notes would by definition be worthless, so the system would collapse fairly quickly.
Although I can see a lot of practical merit in tax-backed currencies, the whole world economic system managed very well for centuries or even millennia when we had a common currency, i.e. gold coins.
@Mark
We can look at the example of non debt based money in the US
In the 1860s the North couldn't fund themselves with bonds or taxes during the US civil war so they issued the United States Note (Greenback). They issued $450mil by 1863 without any backing, reserves or interest paid.
After the war they wanted to return to the gold standard since international trade was done using gold backed currency and there was already some inflation in the greenback compared with the gold dollar.
However the withdrawal of part of the notes plus growth of the economy caused deflation and by 1878 they were on par again with the gold dollar. That was when the Congress decided to accept them on demand for gold and the Congress decided not to issue any more non debt-based money.
The greenbacks were still around until 1971 !!
You can never, ever, ever have a 'consistent' rule of law.
People are not, and never will be, consistent, even from one day to the next when you remove the obvious variable.
Andy, maybe, maybe not, but there must have been some vague moral 'promise to pay' even if it was only assumed, in the same way that everybody assumed that Fannie Mae and Freddie Mac were still government backed and would be bailed out if shit hit fan.
So when shit hit fan, it became a self-fulfilling prophecy and they were bailed out.
S_L: People are not, and never will be, consistent
Oh yes they are. Well sometimes at least. No maybe you're right. Oh sod it, ask me tomorrow.
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