Thursday, March 15, 2007

One out of Two Inevitables

We're heading into tax time again and there is the usual gnashing of teeth throughout the land.

In my first real job out of college, one year I got a big raise. This was back in the 1970s, and when my first paycheck reflecting that raise appeared, it was pretty disappointing. Turned out my marginal tax rate was just short of 50%, which isn’t wonderful.

I took account of my circumstances, however. I was working in environmental science, primarily on contracts that were either from government agencies, or from companies that were doing the work almost entirely because of various regulatory mandates. So I shrugged and said to myself, “the government giveth and it taketh away,” and refused to get too upset about it. The linkage was even more apparent during the Reagan years when taxes went down, but so did the money going to environmental research.

One of the flanks of the right wing is manned by the gold bugs, people who decry “fiat money” and want every dollar (or whatever) to be backed with something “real” like gold. It was either Ayn Rand or one of her acolytes who made a statement that all that backed up fiat money was the willingness of the government to tax the populace. They thought that was a bad thing.

But really now, the history of gold-backed currencies isn’t that pretty, matching every inflation with a painful deflation, yet still hostage to the international flows of specie, new mining (and other) discoveries, etc. Making your currency hostage to a single commodity might not be the best plan.

Then too, we have all those SF stories about what happens when gold is synthesized, or otherwise made cheap (Fred Hoyle wrote one about a solid gold asteroid landing in England). There’s nothing particularly natural or inevitable about the love of gold, and men’s willingness to accept it as a medium of exchange and store of value. Also, the conflict between “medium of exchange” and “store of value” can conflict. Convertible currencies are very good at producing “bank runs,” among other things. Bank runs seem quaint now, with many people only having seen on it “It’s a Wonderful Life.” Thank god.

On the other hand, consider the system that we actually have: the government issues currency (I’m greatly simplifying, of course), uses it to buy things, then goes out and demands it back in the form of taxes. That last part is important; it’s what gives money its value. The tax man shows up, you hand him “legal tender” and he goes away. Such a deal. You’d rather have to give him something with intrinsic value?

Just incidentally, although he became a gold bug in his later years, Heinlein gave one of the best capsule descriptions of the virtues of “fiat money” in Beyond This Horizon. You could look it up.

People do, naturally, want assurances that their tax money is spent on things that are good for them, and not on things that are bad for them. Politics arises when people differ on what those things are. Politics also occurs because many people would like a free ride (I wouldn’t have been annoyed if I’d not had to pay taxes on my earnings back on my first job). All that is common and natural.

It’s also common and natural for people to invent philosophies to make things they want seem like universal truths and absolute good. When people have a lot of money, they even spend some of it on think tanks and sycophants who will do the rationalizing for them. And one of the outputs of the sycophancy of the past several decades has been an attack on the very idea of taxation.

But there is a difference between taxation and theft, and that is the rule of law. An attack on the legitimacy of taxation is an attack on the legitimacy of government, and an attack on the legitimacy of government is an attack on the rule of law.

Of course, it’s possible to turn the chain of causation around: illegitimate governments destroy the rule of law and often destroy the legitimacy of money as well.

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