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Due to the nature of modern money, it would technically be possible to
adjust the way the monetary system works such that governments directly print
all the money they need. If this change were made then there would be no
requirement for the government to ever again borrow money or collect taxes.
This would have an obvious benefit, because it would result in the
dismantling of the massive government apparatus that has evolved to not only
collect taxes but to monitor almost all financial transactions in an effort
to ensure that tax collection is maximised. In other words, it would
potentially result in greater freedom without the need to cut back on the
'nanny-state services' that so many people have come to rely on. So, why
isn't such a change under serious consideration?
The answer is that it would expose the true nature of modern money for all
to see, leading to a collapse in demand for the official money. Taxation, you
see, isn't just a method of forcibly diverting wealth to the government; it
is also an indispensable way in which demand for the official money is
maintained and modulated.
Think of it this way: If the government were to announce that in the
future there would be no taxation and that it would simply print all the
money it needed, there might initially be a great celebration; however, it
probably wouldn't take long for the average person to wonder why he/she
should work hard to earn something that the government can create in
unlimited amounts at no cost. People would become increasingly eager to
exchange money for tangible items, causing prices to rise. The faster that
prices rose due to the general decline in the desire to hold money, the
faster the government would have to print new money to pay its expenses. With
no taxation and no government borrowing, there would be no way for the
government to stop an inflationary spiral once it was set in motion.
One of the best historical examples of how taxation creates demand for
money is the use of "tally sticks" in England from the 1100s
through to the 1600s. In this case, essentially worthless pieces of wood were
converted into valuable money by the fact that these pieces of wood could be
used to pay taxes. Moreover, once taxation had created demand for the sticks,
the government was able to fund itself by issuing additional sticks. A
summary of the tally stick story can be read HERE.
Money can currently be created out of nothing by commercial banks and
central banks, but hardly anyone understands the process. Also, many
economists and so-called experts on monetary matters who understand how
commercial banks create money are either clueless about the mechanics of
central-bank quantitative easing (they wrongly believe that QE adds to bank
reserves but doesn't add to the economy-wide supply of money) or labouring
under the false belief that money and debt are the same. The ones who wrongly
conflate money and debt tend to wrongly perceive QE as a non-inflationary
swap of one "cash-like" asset for another.
The point is that under the current system there is great confusion, even
in the minds of people who should know better, regarding how the monetary
system works. The combination of taxation and the general lack of knowledge
about how money comes into existence helps support the demand for money.
Simplify the process by having the government directly print all the money
it needs and the demand for money would collapse. That, in essence, is why
taxation must continue.
http://tsi-blog.com/
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