As this is federal and state tax deadline day in the United States, it's
worth being reminded by Beardsley Ruml, the former chairman of the Federal
Reserve Bank of New York and instigator of federal income tax withholding,
that, in a fiat currency system, governments can create infinite money, that
in doing so they are limited only by potential debasement of the currency,
and that taxes thereby have nothing to do with raising revenue but rather are
instruments of social policy and control.
Ruml's insightful observations were made in a speech he gave in May 1945
to the American Bar Association that was published in the January 1946
edition of the quarterly magazine American Affairs and headlined "Taxes
for Revenue Are Obsolete."
"Final freedom from the domestic money market," Ruml wrote,
"exists for every sovereign national state where there exists an
institution which functions in the manner of a modern central bank and whose
currency is not convertible into gold or into some other commodity. ..."
Ruml cautioned: "The public purpose which is served should never be
obscured in a tax program under the mask of raising revenue."
Elaborating, Ruml wrote: "Federal taxes can be made to serve four
principal purposes of a social and economic character. These purposes are:
"1. As an instrument of fiscal policy to help stabilize the
purchasing power of the dollar.
"2. To express public policy in the distribution of wealth and
income, as in the case of the progressive income and estate taxes.
"3. To express public policy in subsidizing or in penalizing various
industries and economic groups.
"4. To isolate and assess directly the costs of certain national
benefits, such as highways and Social Security. ...
"Among the policy questions with which we have to deal are these:
"-- Do we want a dollar with reasonably stable purchasing power over
the years?
"-- Do we want greater equality of wealth and of income than would
result from economic forces working alone?
"-- Do we want to subsidize certain industries and certain economic
groups?
"-- Do we want the beneficiaries of certain federal activities to be
aware of what they cost?"
Though it is implicit in his analysis, Ruml might have specified one other
purpose of taxation: To determine the allocation of power among the government,
social classes, and individuals.
While Ruml's memory is enhanced by his advocacy of candor in government
policy, if he was still around, still believed in transparency, and tried
returning to the New York Fed, he'd never be permitted to visit its trading
floor and indeed might not even be able to walk down "Liberty"
Street without getting run over by a truck dispatched by the Exchange
Stabilization Fund.
Ruml's essay is published in PDF format at GATA's Internet site here:
http://www.gata.org/files/BeardsleyRuml-Ameri...irs-Jan1946.pdf
The entire January 1946 edition of American Affairs is posted at the Mises
Institute Internet site here:
http://mises.org/sites/default/files/AA1946_VIII_1_2.pdf
