Power and Market: Government and the Economy

AN INTERVENTIONARY AGENCY, SUCH AS the government, must spend funds; in the monetary economy, this means spending money. This money can be derived only from revenues (or income). The bulk of the revenue (and the reason the agency is called interventionary) must come from two sources: in the case of the government, taxation and inflation. Taxation is a coerced levy that the government extracts from the populace; inflation is the basically fraudulent issue of pseudo warehouse-receipts for money, or new money. Inflation, which poses special problems of its own, has been dealt with elsewhere.1 This chapter focuses on taxation.

We are discussing the government for the most part, since empirically it is the prime organization for coercive intervention. However, our analysis will actually apply to all coercive organizations. If governments budget their revenues and expenditures, so must criminals; where a government levies taxes, criminals extract their own brand of coerced levies; where a government issues fraudulent or fiat money, criminals may counterfeit. It should be understood that, praxeologically, there sis no difference between the nature and effects of taxation and inflation on the one hand, and of robberies and counterfeiting on the other. Both intervene coercively in the market, to benefit one set of people at the expense of another set. But the government imposes its jurisdiction over a wide area and usually operates unmolested. Criminals, on the contrary, usually impose their jurisdiction on a narrow area only and generally eke out a precarious existence. Even this distinction does not always hold true, however. In many parts of many countries, bandit groups win the passive consent of the majority in a particular area and establish what amounts to effective governments, or States, within the area. The difference between a government and a criminal band, then, is a matter of degree rather than kind, and the two often shade into each other. Thus, a defeated government in a civil war may often take on the status of a bandit group, clinging to a small area of the country. And there is no praxeological difference between the two.2

Some writers maintain that only government expenditures, not revenues, constitute a burden on the rest of society. But the government cannot spend money until it obtains it as revenue—whether that revenue comes from taxation, inflation, or borrowing from the public. On the other hand, all revenue is spent. Revenue can differ from expenditure only in the rare case of deflation of part of the government funds (or government hoarding, if the standard is purely specie). In that case, as we shall see below, revenues are not a full burden, but government expenditures are more burdensome than their monetary amount would indicate, because the real proportion of government expenditures to the national income will have increased.

For the rest of this chapter, we shall assume that there is no such fiscal deflation and, therefore, that every increase in taxes is matched by an increase in government expenditures.

• 1See Man, Economy, and State, pp. 989–1023.
• 2The striking title of Mr. Chodorov’s pamphlet is, therefore, praxeo-logically, accurate: see Frank Chodorov, Taxation is Robbery (Chicago: Human Events Associates, 1947), reprinted in Chodorov, Out of Step (New York: Devin-Adair, 1962), pp. 216–39. As Chodorov says: A historical study of taxation leads inevitably to loot, tribute, ransom—the economic purpose of conquest. The barons who put up toll-gates along the Rhine were tax-gatherers. So were the gangs who “protected,” for a forced fee, the caravans going to market. The Danes who regularly invited themselves into England, and remained as unwanted guests until paid off, called it Dannegeld; for a long time that remained the basis of English property taxes. The conquering Romans introduced the idea that what they collected from subject peoples was merely just payment for maintaining law and order. For a long time the Norman conquerors collected catch-as-catch-can tribute from the English, but when by natural processes an amalgam of the two peoples resulted in a nation, the collections were regularized in custom and law and were called taxes. (Ibid., p. 218)