Recommended book: For Good and Evil — the Impact of Taxes on the Course of Civilization.

Recommended book: For Good and Evil — the Impact of Taxes on the Course of Civilization.

August 16, 2009


I don’t recommend too many books. This one, however, is definitely worth reading, and as you might imagine, fits right in with the themes on this website. Charles Adams takes a tour of most of the world’s great civilizations, including the Assyrians, Chinese, Greeks and Aztecs, and describes their history in terms of the government’s relationship with their citizens, the primary of which was of course their tax systems. Some of the old tax systems were incredibly corrupt. The ancien regime of France, in the mid-1700s, for example, had a system whereby nobles were tax free, and the poorer you were, the more you paid — in absolute terms! Vauban, succeeding Colbert as finance minister to Louis XIV, tried to reform the system:

Vauban proposed a 10 percent income tax in place of taille reform. Because of the Crown’s heavy expenditures, said Vauban, the income tax was the only way to save France, unless you were “either stupid or wholly malintentioned.” This last remark was directed at Louis XIV, who dismissed Vauban. … The only principle behind the taille [existing tax] was “that of paying more the poorer you are; so that a man with 4,000 to 5,000 livres of income from loans may pay 10 or 12 crowns, while another man in the same village making cheese with 300 to 400 livres of income may pay 100 crowns.”

Bad idea. Of course, the people eventually killed all the aristocrats. But, it took them many decades to reach that point.

Here’s a brief passage on the demise of ancient Egypt:

Scholars have tried to determine what went wrong in Egypt under the Ptolemies, when an empire that had survived for over three thousand years simply withered and died. … Egypt had suffered no military disasters, famines or plagues. . . .

The most impressive analysis of Egypt’s demise came from the great Russian scholar Rostovtzeff. … Rostovtzeff felt that the continual and unabated tyranny of Egyptian tax collectors produced a nationwide decline in incentive. Egyptian workers and farmers lost their desire to work — agricultural lands fell into disuse, businessmen moved away, and workers fled. Sound money disappeared as a raging inflation destroyed what capital there was. The land became filled with robbers who wrecked commerce and brought fear and despair to the populace.

Unfortunately, that’s about all the detail you get. At 500+ pages, the book is plenty long enough as it is (with similar stories from around the world), but there is so much more to investigate along these lines. PhD types have plenty to sink their teeth into, if they would stop wasting their time with the mathematical wank-offs popular in academia today.

As for success stories, here’s a good one from British history:

If epithets were formally given to English monarchs, Good Queen Bess would certainly have been called “Elizabeth the Great.” [She ruled from 1558 to 1603.] Many historians have indeed used those words. She inherited an England that was mediocre at best. The England she left was fast becoming a superpower and would dominate the world for four hundred years. …

Elizabeth outwitted every ruler in Europe as well as the most powerful men in England. She chose intensely loyal and able ministers and assistants, who could never quite predict her behavior. They remained captivated by her genius. Even her tax policy was unprecedented, and still is. … She said she would accept whatever revenue they were willing to give her.

And she stuck by her word until her death.

England didn’t pursue foreign wars under Elizabeth, but Britain had its enemies, notably the Spanish. At the time, Spain was the richest, most powerful empire in Europe. The Spanish emperor assembled the largest naval force in history, the Spanish Armada, to set sail and conquer England. This is how Elizabeth fought her war:

Elizabeth turned to Parliament for help. She said her “chiefest strength and safeguard was the loyal hearts and goodwill of her subjects.” When she issued ship-writs for ships, sailors, and guns, her writs were filled beyond expectation. Parliament granted her four “fifteenths and tenths,” plus two subsidies, most of which were collected in two months, not the usual two years. This was unheard of in English history.

The Armada was defeated of course, and the Spanish empire declined and disappeared.

You would have fought too, to avoid Spanish rule. This quote from an Oxford scholar of Spanish history describes what life was like in Spain in the later days of the Empire:

Spanish industry was strangled by the most burdensome and complicated system of taxation that human folly can devise. … The taxpayer, overburdened with imposts, was entangled with a network of regulations to prevent evasion … He was thus crippled at every step by the deadly influence of the anomalous and incongruous accumulation of exactions.

The taxes were so bad, people simply left the country.

In the early seventeenth century a Spanish writer called attention to the depopulation of Castile by flight to avoid tax: “In place of wondering at the depopulation of the villages and farms, the wonder is that any of them remain.” … [M]ost of them fled to the New World. A French spy wrote these words in Madrid to his government in Paris:

The galleons left on the 28th of last month; I am assured that in addition to the persons who sailed for business reasons, more than 6,000 Spaniards have passed over to America for the simple reason that they cannot live in Spain.

What fun!

Anyone looking for a similarly rewarding historical look at money can try The History of Money by Glyn Davies. I cribbed from it considerably when researching monetary history.

* * *

U.S.: more taxes and more spending on the horizon. Speaking of which, our own dear leaders are greasing the skids for higher taxes in the U.S. Here’s a comment from Joe Stiglitz, a leading light among lefty economists:

After Tim Geithner and Larry Summers opened the door to higher taxes to fight rising deficits and fund health-care reform on Sunday, White House press secretary Robert Gibbs scrambled to clear up the situation on Monday: “I don’t think any economist would believe that, in the environment that we’re in, that raising taxes on middle-class families would make any sense.”

In other words, the White House is trying to stick to Obama’s campaign pledge that 95% of Americans “will not see their taxes increased by a single dime.”

Maybe that’s good politics, but Nobel Prize-winning economist Joseph Stiglitz says it’s bad policy: raising taxes once the recovery is well underway may help solve our long-term problems, he tells Tech Ticker.

“If we get a more balanced view of our balance sheet we’ll realize that if we spend our money well then these great extra expenditures are going to actually make our economy more productive in the future,” he says. Spending on technology, education and infrastructure “will generate revenues that will allow us in the future to pay back any borrowing or lower taxes.”
Besides, when it comes to health-care reform the Columbia economics professor claims we’re already paying a virtual tax.

“Right now we’re often paying for it in hidden charges so it’s like a tax but it’s a hidden tax,” he says in reference to the costs associated with paying for 50 million uninsured Americans.

Don’t you love the weird rationalization that more government spending will lead to a more productive economy and more future tax revenues? This is largely the same notion that Herb Stein sold to Richard Nixon in 1971, the “full employment budget,” which claimed to spend so much money that the economy would recover enough to raise tax revenues enough that the government spending would be a net money-maker. You can see some of the same kooky notions today, even from these goofballs with the “Nobel Prize.” And they make fun of supply side economics!

The strategy of lowering tax rates to produce more tax revenue actually has a long history of success. The U.S. government enjoyed just as much revenue on incomes over $300,000 with a 7% tax ($81m in 1916) as it did with a 77% tax ($85m in 1921 — it’s on page 433.) The idea of spending more money as a way of generating revenues has no history of success at all. Nevertheless, it has been a popular idea for at least five hundred years now. Politicians are always ready to clap their hands for any rationalization to spend more money. Here’s John Stuart Mill, writing about this theory in 1830:

It is not necessary, in the present state of the science, to contest this doctrine in the most flagrantly absurd of its forms or of its
applications. The utility of a large government expenditure, for the purpose of encouraging industry, is no longer maintained. Taxes are not now esteemed to be “like the dews of heaven, which return again in prolific showers.” It is no longer supposed that you benefit the producer by taking his money, provided you give it to him again in exchange for his goods. There is nothing which impresses a person of reflection with a stronger sense of the shallowness of the political reasonings of the last two centuries, than the general reception so long given to a doctrine which, if it proves anything, proves that the more you take from the pockets of the people to spend on your own pleasures, the richer they grow; that the man who steals money out of a shop, provided he expends it all again at the same shop, is a benefactor to the tradesman whom he robs, and that the same operation, repeated sufficiently often, would make the tradesman’s fortune.

December 17, 2006: John Stuart Mill on Public Works Spending

WSJ: Look for VAT proposal from Obama later this year

* * *

Fed buys Treasury bonds on the sly: I think we’ve got to the point where the Fed can’t — or will feel like it can’t — avoid monetizing the government’s debt. Actually, I think this has been going on since the disappearance of the M3 stats, back in March 2006. Chris Martenson has some juicy details about recent Fed purchases. This is just what they’re telling us, of course. I suspect rather a lot is happening that doesn’t show up in the Fed’s statistics.

Fed Buys Last Week’s Treasury Notes

* * *

Bloomberg reported that Russian President Dmitry Medvedev presented a coin at the G8 meeting in Italy that represented a new supranational currency.

July 10 (Bloomberg) — Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.”

“Here it is,” Medvedev told reporters today in L’Aquila, Italy, after a summit of the Group of Eight nations. “You can see it and touch it.”
The coin, which bears the words “unity in diversity,” was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said.

The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.”

Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the U.S. dollar’s future as a global reserve currency. Russia’s proposals for the G-20 meeting in London in April included the creation of a supranational currency.

It turns out that the coin contains 15.55 grams (about half a troy oz.) of pure gold.

I’ve said before that there is no particular need for a “supranational currency.” Indeed, that was part of the problem of the Bretton Woods arrangement. If the primary world currency (at that time, the dollar) loses its link to gold, everyone goes down together. It would be better to have independent currencies, all of them pegged to gold independently.

Is it a New World Order ploy for bankster domination? Or an honest attempt to put the global financial system back together again the way it should be done? Or a little of both? We’ll see, but it appears the Russia/China block are more serious about this than is let on in the U.S. mainstream media.

Recommended book: For Good and Evil -- the Impact of Taxes on the Course of Civilization.

* * *

I was asked by a friend of mine at the Huffington Post to write something about Goldman Sachs. I figured I would try to paint the big picture for the general reader. It’s up to four installments now and there’s still plenty to do.

HuffPo: Do We Need Goldman Sachs?
HuffPo: The GS-Files 2: Stuffing the Taxpayer
HuffPo: The GS-Files 3: Heads We Win, Tails You Lose
HuffPo: The GS-Files 4: Always a Winner