Saturday, September 21, 2013

A Stupid Question I'd like to know the answer to

A question has occured to me, probably an egregious, that is to say, a stupid question, but it is a question to which I am not certain of the answer. Why do governments tax at all? Do they need to tax? In the modern world, where money is what governments define it to be, not just the money supply but the existence of money, where they pay in credit notes and not in gold or hard cash of any kind, in a system and a society where there is sufficient confidence to do this, is it actually necessary to impose taxes at all? Could they not simply define the money to exist in an account of their own, and then pass it to the accounts of the people they wish to pay? In theory I don't see why not. In practice it would cause inflation, I expect, but governments are good enough at that anyway. Would it actually destabilize the economy in such a way as to be impractible? Is it not, to some extent, what they do anyway? It would mean the destruction of a vast number of bureacratic systems and the resources they consume uselessly, it would  solve a lot of problems artificially imposed upon the normal working man and would make businesses much more productive, to the advantage of absolutely everyone.

I know I have the odd economically literate reader, so if there is an answer worth giving I'd like to hear it. Otherwise, feel free to cough politely, avoid eye contact, and talk amongst yourselves.

2 comments:

Vincent said...

Not just inflation but instant hyperinflation. Money is nothing but a workaround to overcome the clumsiness of bartering.

Before the NHS, if you were a poor country-dweller who needed the doctor, you might pay him with a chicken or other produce, establishing a de facto rate of exchange - food provided for service rendered.

"In the modern world, where money is what governments define it to be ..."

Suppose that the Government wants to build a road, or mend an existing one. It could pay the contractors with Monopoly money and make a law that this money is legal tender: one Monopoly pound = one existing pound coin.

It won't be long before the supermarket ups the price of a loaf of bread from £1 to £2 - and it won't stop there ...

See http://en.wikipedia.org/wiki/Hyperinflation

Or, to put it more graphically (I used to collect stamps in about 1952, so I saw some of these) try http://en.wikipedia.org/wiki/File:Germaninflation.jpg

CIngram said...

Ah, yes, the Weimar article explains and illustrates it perfectly. I assumed the problem was severe inflation but was having difficulty seeing exactly was the mechanism was.

I began to wonder about about this because it appears to be possible, in certain circumstances, to print money without causing rampant inflation, or any inlflation. 'Quantitative easing' is, or seems to be, the printing of money without hyperinflation. The appropriate circumstances, perhaps, involve some kind of confidence there is something behind that new money, converting it into a kind of loan, albeit a rather uncertain one.

Thanks for taking the trouble to answer. I have learned something I should have known long ago.