Sunday, 13 July 2014

Leviathan, Inc.: Why We Ought to Pay Taxes

     In the previous post, I argued that law exists for the purpose of increasing the freedom of those bound by it, and I spoke of a liberty dividend, the net gain in liberty that we receive in exchange for the freedoms we surrender. In this post I want to further explore the analogy of the State to a business corporation.

     A corporation is an artificial legal person. It can own property, enter into contracts, and exercise various other legal rights. Unlike natural persons, however, the corporation is owned by its shareholders. Yet it is important to remember that the assets of the corporation itself are the property of the corporation; just because you're a shareholder in the Coca Cola Company doesn't mean you can help yourself to free Cokes at the local bottler. Rather, you own a stake in the enterprise as a whole, which means that you get a say in how it is run. (Which means that if you want free Cokes, you need to elect a board of directors who will implement a policy to give away free Cokes.)
     There are lots of reasons to form a corporation, but most importantly for this discussion, a corporation allows one to undertake large projects beyond the capacity of any individual. If a bunch of entrepreneurs wanted to build a ship to engage in merchant trade, it would be prohibitively unwieldy for each to manage their own portion of the investment, hiring the shipyard and crew and buying materials and cargo and fuel and supplies. It's much easier to simply pool all the money, and appoint someone to coordinate the whole project and delegate responsibilities. And by constituting the enterprise as a separate legal person, the investors can greatly simplify the dealings with customers, contractors and clients.

     Now, the state differs from a typical business corporation in several respects. For one, you don't get much of a choice as to whether or not you invest your liberty with the state. You may have the option to emigrate to a different state, but wherever you go you're going to be subject to the local laws. As I argued in the previous post, it's actually a good investment and you ought to welcome it, even if you're not practically free to refuse.
      For another, you buy shares in a business corporation with money, which means you can own multiple shares, and that entitles you to multiple votes when electing the board of directors. The investment we make in the State for our shares is not money, but the liberty we surrender to its laws, and since each of us in principle surrenders the same individual sovereignty, each of us should have exactly one share; no one's vote should count for more than anyone else's.

     But our liberty need not be the only thing we invest with the state. There are various sorts of things which we can think of as collective assets, valuable finite resources that all of us have moral claim to but which cannot be conveniently divided up into individual shares. It makes sense to manage these resources as a single unit, on behalf of the people collectively. Governments already do this for many resources when they allocate radio bandwidth, establish fishing quotas, and charge royalties for logging and mining.
     It's true that there are some laissez faire ideologues who believe that all collective assets should be divided up and owned privately, and that a robust private law system (i.e. torts and contracts) would be sufficient to resolve the conflicts that would arise. But that would require an ideal world like the one of introductory high school physics, where the absence of friction and air resistance makes almost everything seem possible. In the real world, rivers flow and the wind blows and what I do in my allotment of ocean will unavoidably spill over into yours. In fact, it's a good thing that air and water circulates around the planet, as that's fundamental to keeping our ecosystems functioning. Sorting out who has rights to what would actually call for much more government involvement (in the form of courts hearing private tort/contract cases) than simply managing shared assets as a single unit.
     Some shared resources can be divvied up, of course, but others can't, not just because it would be impractical to do so but because the value of the resource comes from its being unified into a single cohesive system rather than broken up into many competing parts.
     Consider measurement systems, for example. We are so used to everyone knowing what a meter or a kilogram or a second is that we rarely imagine how much more complicated everything would be if we didn't all use a single standard system of measurement. It's only when we have to deal with backward countries that still use inches and ounces that we have some inkling of the confusion, but even there we enjoy the benefit of having fixed conversion rates between standards, rather  than everyone just picking their own poetic description for "This much".
     Think for a moment how insanely complicated our lives would be if we didn't have single unitary standards for standard units. We'd get by, but it'd take up a lot of our time trying to sort out how much rice it should cost to trade for how much cotton thread. Because, after all, the other hugely important unitary standard we all rely on and take for granted is money.

     Like standard units of measurement, the existence of a single system of currency improves our lives in countless ways. The time and effort saved by being able evaluate our trades with standard units is truly staggering, but we are so used to to using dollars that we don't even think about how powerful the system is. We take the convenience of money so much for granted, that we don't even think to put a price on it; we assume it should be free.
     But why should it be? Why should anything that makes your life easier be given to you for free? If there's a widget that saves you $10 of effort every day, it doesn't matter how much it costs me to produce that widget; if I can let you have it for less than $10 you still come out ahead, and have no reason to complain.
     So stop and think about how much it's worth to you to have a functioning system of currency. How much does would you pay for the benefits of living in a world where you can use the concept of a dollar to speed up your calculations and negotiations? Where you can buy insurance against risk, or pool your money with others in a joint stock corporation, or buy a house with a mortgage instead of having to save up enough gold to buy land outright? Money's a ridiculously powerful thing that we all benefit from, but the benefits are greater the more you use it. People who use a lot of money, and who therefore have access to the more powerful uses of money, ought to be willing to pay a lot more for the use of the money utility than people for whom it is a mildly more convenient alternative to barter.  It does not matter how much it costs to create and maintain the money utility; the price you are willing to pay for its use should depend on the utility you get from it.

     Now, what makes the money utility useful is the fact that all of us collectively agree to use it as a standard, and that we all agree to accept its promise of value. (Indeed, you could argue that the person who will do an hour's work for $5 contributes much more to maintaining the value of a dollar than someone who bills out at $300.) It therefore is arguably one of those collective assets of the sort the State can and should manage on our behalf, and if it is economically practical for the State to turn a profit by charging a premium for the use of money, then it ought to earn as much profit as it sustainably can for us by doing so. In the case of the money utility, the premium the State charges has a special name: tax.
     What I am trying to suggest here is that the way we usually think of taxes is wrong. We have traditionally thought of taxes as a necessary evil at best. Historically, warlords extorted tribute from people they subjugated. In time, they justified it by spending some of that money on public works that benefited their people. We still think of tax as the powerful government confiscating our property, sometimes for our own good to pay for roads and hospitals. But it's a mistake to think that what we're paying for is roads and hospitals, because then we (quite understandably) get angry at having to pay for benefits that other people use and we don't, and we elect politicians who promise to cut taxes, cut taxes, cut taxes, whether or not that's actually a good idea (sometimes it is, but not always).


  1. This is a great start to the idea of what reality exists, but you're overlooking the complex nature of how money has evolved from it's representation of wealth in the beginning to how it is "produced" and distributed in today's world. Notably how those who control money have learned how to use a representation of money (bonds, credit notes, etc.) that in turn represents wealth to effectively borrow from tomorrow and create productivity today.

    While this system is what runs a capitalistic economy, it eventually becomes so layered with money representing only a part of wealth that money represents money, and no longer wealth because those who control the INFORMATION about how money works are successful because they are the ones representing the most money with less genuine wealth because that's how to get the biggest ROI. Effectively creating a lie (money has a direct correlation with wealth) which keeps anyone who believes it in a state where they are unable to compete on the same level as those who control the system*.

    And of course, money representing wealth makes it political (as anything that two or more people necessarily agree upon becomes eventually) which means it is subject to agendas that have nothing to do with the intended purpose of its creation.

    While the idea of taxes makes perfect sense, adhering to a prescription without fair reason is idiocy - What integrity do taxes hold when they are a part of a political game where those who make the rules make them unfairly in their own favor?

    *while this situation is not unique to money, it is a big part of money in the modern world

  2. Actually, I hadn't intended to focus on money so much. The main idea here is that the State can be thought of as the corporate entity tasked with managing those resources which belong to all of us collectively. This includes charging royalties for access to scarce natural resources, but it also applies to non-natural collective resources like the money system.

    That said, the money system is a particularly powerful example of the kind of profitable state enterprise for which a progressive scale of user fees is justifiable. This, I suggest, is a legitimate moral basis for progressive income tax.