One of the oft-made claims by self-styled Libertarians is that ‘taxes are theft’ (and are therefore ‘bad’). This kind of assertion underpins most of the Libertarian position, and also the bulk of any anti-tax/pro-small-government arguments by folks of any political stripe. Unfortunately, it’s rare to hear this position defended as the self-styled Libertarians don’t seem all that well-read with regards to their own literature.
In the 1950s and 1960s, Ayn Rand was gaining prominence, but there were no Philosophers backing her corner, partially because she spouted utter drivel and partially because to side with Rand was engage in self-loathing (Rand was notoriously anti-Philosophy/ers).
Enter Robert Nozick, with his tome “Anarchy, State and Utopia”. Nozick is well-regarded in Philosophy for articulating what was inarticulate, and defending the generally indefensible. Nozick sketched out the Libertarian claims, largely as a response to John Rawls’s defense of Social Justice, and, well… His arguments are not obviously terrible (as much as we may disagree with them). His arguments are certainly compelling, if you have a tendency to ignore all counter-arguments to your position. But hey, that’s the human condition, right?
So let’s dive in. And hold your nose (and your breath), because Nozick doesn’t make the argument that ‘taxes are theft’. Nope: “Taxation of earnings from labor is on par with forced labor.” Yeah, he went there.
Before breaking it apart, first it needs to be broken down. For the record, this is a ‘good’ argument, insofar as ‘good’ means ‘when accepted on it’s own terms, the argument doesn’t fall apart due to inherent contradictions’. That the argument is preposterous, or horrible, or presents a shitty worldview does not mean that the argument is flawed: those feelings certainly serve as the basis for a counter-argument, but are not a counter-argument in and of themselves (and are unlikely be effective as such).
Nozick’s argument (drawn from page 169 of “Anarchy, State and Utopia”) is as follows:
Some persons find this claim obviously true: taking the earnings of n hours labor is like taking n hours from the person; it is like forcing the person to work n hours for another’s purpose. Others find the claim absurd. But even these, if they object to forced labor, would oppose forcing unemployed hippies to work for the benefit of the needy. And they would also object to forcing each person to work five extra hours each week for the benefit of the needy. But a system that takes five hours’ wages in taxes does not seem to them like one that forces someone to work five hours, since it offers the person forced a wider range of choice in activities than does taxation in kind with the particular labor specified. (But we can imagine a gradation of systems of forced labor, from one that specifies a particular activity, to one that gives a choice among two activities, to . . . ; and so on up. ) Furthermore, people envisage a system with something like a proportional tax on everything above the amount necessary for basic needs. Some think this does not force someone to work extra hours, since there is no fixed number of extra hours he is forced to work, and since he can avoid the tax entirely by earning only enough to cover his basic needs. This is a very uncharacteristic view of forcing for those who also think people are forced to do something whenever the alternatives they face are considerably worse. However, neither view is correct. The fact that others intentionally intervene, in violation of a side constraint against aggression, to threaten force to limit the alternatives, in this case to paying taxes or (presumably the worse alternative) bare subsistence, makes the taxation system one of forced labor and distinguishes it from other cases of limited choices which are not forcings.
That’s all a little wordy, so here’s an illustration: Chun and Fang both live and work in the same city, with roughly comparable lifestyles, and they both use the infrastructure of the city to roughly the same degree. Let’s say that income tax is set at 10%. To simplify things, let’s say that they both work 20 hours a week. Their taxes are equivalent to two hours of work at their jobs.
Let’s say that Chun enjoys eating out at restaurants, going to galleries, and other expensive pursuits. Let’s say that Fang enjoys spending time in parks and at beaches, and is otherwise a homebody. In order for Chun to facilitate her interests, Chun decides to work an additional 18 hours a week, on which she has to pay an additional 2 hours of taxes (framed in the way that Nozick wants to frame these things). Fang maintains her 20 hours, giving her essentially an extra 20 hours over Chun to pursue her non-work interests. Now in order to live ‘a happy life’ (as defined by each of them), Chun is requires to contribute 4 hours of pay (per week) to the government, whereas Fang is only required to contribute 2 hours. This, on the face of it, would seem inequitable.
Both women use the system to the same degree, both are equivalently ‘happy’ and well off. Arguably, Chun ‘contributes’ more to the economy than Fang, given that she spends her additional income (thus contributes more to the general circulation of money). So why is it necessary for Chun to work those additional 2 hours to pay the government for the same access/use of infrastructure that Fang has? Would we consider it reasonable for Chun to cut back to 38 hours per week (so 18 more than Fang), and refuse to pay more than 2 wage-hours of taxes to the government (i.e. pay the same as Fang)? Nozick thinks that we wouldn’t (and, in my case at least, he’s correct).
What would be the likely repercussions to Chun if she refused to pay those additional 2 wage-hours? The state would shift from benefactor to aggressor, and demand (via various legal channels) that Chun ‘pay her share’. Tax evasion is a jailable offence in many jurisdictions, so it is actually the case that Chun is required/forced to pay this money to the state. Nozick contends that, for those of us for whom ‘equity’ is an important thing, this should seem unjust. Why?
Well, let’s take the other end of things: someone who doesn’t work at all (Qiao). Fang is still working 20 hours a week, 2 of which are effectively paid to the government in trade for her access to the infrastructure of her city. Qiao pays nothing at all in income tax, yet has full infrastructural access. This does not seem equitable. Would it be reasonable to require that Qiao work for 2 hours a week to ‘pay’ for access to the infrastructure? What if Qiao could choose any job at all (given the constraints of her training/ability)? That would seem unjust, right? But requiring Chun to work 2 additional hours (above the 38 that she chose to work) in order to pay for her infrastructural access is not unjust? Nozick is making the point that these two positions are in tension, if not outright contradiction.
So take a minute or two, and think it over. Other than lashing out (i.e. calling the argument ‘stupid’, or dismissing it as an ‘academic’ issue or some such), how could you reconcile these two apparently unreconcilable positions? This is the root of the ‘taxation is theft’ argument.
The solution involves re-framing the entire discussion. When the issue is presented in the manner that Nozick does (with the emphasis on individual choice), it’s very difficult to find a solution. And this is mainly because Nozick ignores a large chunk of the picture, ignoring the forest to focus on a single tree. When viewed in the full context, the problem magically vanishes.
The fact of the matter is that to have a city is to have infrastructure. Pretty much by definition, if there is no infrastructure then there is no city (or at least a very strange city where every building provides its own power, water, waste management, etc). Someone has to pay (by some combination of time and money) for this infrastructure: for the initial installation, the ongoing maintenance, and possible future expansion. Nozick is arguing that it’s unfair to force people to pay for it. Alright then: what are the alternatives?
- Nobody pays for it. This is clearly untenable: no-one paying for the infrastructure means that it would all fall apart and become useless, resulting in the city ceasing to be viable. This is clearly not an option.
- One very wealthy person pays for it, owns the whole thing, and provides free access to everyone else. This seems both extremely unrealistic and extremely unfair: what’s preventing them from charging people, or arbitrarily limiting access? Furthermore, if no-one chooses to pick up the tab, what then? This is clearly not an option.
- One very wealthy person pays for it, owns the whole thing, and charges flat-rate tariffs to everyone else (charging a percentage of income would require that one wealthy person know precisely how much every other person in the system earns. This would seem to open a large can of worms that I’m not going to get into). This is problematic for a variety of reasons.
- Unless this benefactor actually starts the city themselves (John Galt anyone?), the basic infrastructure is going to come from… Where?
- This is highly unlikely to occur even if a mysterious benefactor were to be local: the sunk cost of the infrastructure is likely to be huge, and would not be recovered for decades. To expect our mysterious benefactor to sit back and simply wait for their return is unrealistic.
- Again, how are we going to force this mysterious benefactor to initially invest, and to patiently wait for their return?
- Flat rates disproportionally target the working-poor and serve as additional barriers to where and how people work. To set the rates as ‘affordable’ for those at the bottom of the income scale is to set them as ‘irrelevant’ for those at the top. To set them as ‘affordable’ for those at the top, is to deprive those at the bottom of access to the infrastructure. Furthermore, low cost housing is typically situated farther from the central business districts (due to the price of land dropping off the farther you go from the CBD), thus if charges are based on an usage (which Nozick is implicitly arguing in favour of), then the poor who have to commute farther would have to pay more as a result of their being unable to afford to live close to work. Lower socio-economic groups also tend to have larger families, which would require that family to use more power/water/schooling/etc than other higher socio-economic families. While everyone may have to pay the same ‘rate per km traveled’, the end result is that the poor would necessarily pay more in terms of actual money, and a lot more in terms of a percentage of their income, than those at the upper ends of the income scale.
Given these arguments, I don’t see how this is a viable choice at all. This is highly inequitable. While it certainly allows for the greatest ‘freedom of choice’ without force: what happens to those poor who wish to use the infrastructure without paying the tariffs? The force of the state must also be invoked here, but in this case it would be invoked against those whose circumstances of birth simply don’t allow them to pay (Qiao), as opposed to those who simply don’t want to pay (Chun).
- A small group of people owning the infrastructure is a variation of points 2 and 3 above, and subject to the same criticisms.
- The infrastructure is held collectively by the society (through the government). The government charges nothing at all, nor collects taxes to pay for this. This is essentially the same as situation 1.
- The infrastructure is held collectively by the society (through the government). The government charges a flat-rate tariff to everyone. This is essentially the same as situation 3.
- The infrastructure is held collectively by the society (through the government). The government charges based on the percentage of income that people earn. This would be the system that we currently have.
It would seem that this is an exhaustive list of all possible options, and that options 1 through 6 are significantly more objectionable than option 7. So sure, taxes may be theft, but all the other options result in no infrastructure, or else money being forcibly taken from someone for the maintenance of infrastructure: theft, as defined by Nozick/Libertarians, is not an ‘optional’ component of living in a society.
In response to the claim that “taxes are theft”, arguing that “no they’re not” gets you precisely nowhere: the burden is on the libertarian to explain how we could run society without the taxes. Instead, they have opted to start the argument with an emotionally inflammatory statement (the Prejudicial Language Fallacy). Ironically (or perhaps intentionally?) many libertarians self-declare as 1) rational beings who don’t make emotional arguments and 2) criticise people who become emotionally inflamed by the libertarians’ emotionally inflammatory language for being emotionally inflamed. Declaring that ‘taxes are theft’ is little more than a gambit to manipulate people into missing the huge problem with their argument.
In short (too late, sez you): the most productive/effective response you can make to the claim that “taxes are theft” is to say “so in the magical land of NoTaxes, how do we pay for the infrastructure that we all need to live in the world, in a way that doesn’t simply compound the benefit of being born into a financially secure family and penalize everyone else merely for being everyone else?”
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A question – before we get wages and anything else, how did people even get property in the first place? It’s got to start with just seizing land or other resources, and then backing up a government which recognizes property claims. You can either just use force to protect your property and have no state, just people with resources and guns, but I can’t see that as anything good, it is essentially just the same rule by force and violence that the Libertarians say they don’t want (as they view taxes as force and theft.) But if the State protects property, then poor people are getting taxed to protect rich people’s property.
So I guess my take is taxes are theft, but so is most property in the end, so the only issue is for a more just and socially responsible form of theft.
I agree: the practical upshot of the current system is that the wealth and power of the better-off is disproportionally protected. Furthermore, many of the illegitimate means of taking property that the wealthy can implement are sanctioned by the state (take the recent predatory lending practices).
My goal with this piece is to simply dismantle one single argument. I’ll attempt to solve capitalism later. 😉
Taxes are not “theft,” they’re an obligation. Taking something that you’re obligated to give — like money owed for a purchase, or services your neighbors need from you (and you need from your neighbors) — is not “theft” by any grownup definition of that word. “Theft” means taking something you have no right to take, and the owner has no obligation to surrender. If the Randroids can’t see the obvious difference between the two, then they’re either too stoopid and immature, or too sociopathic, to be worth talking to.
taxes are buying civilization. You don’t want to pay taxes? Please do exit to the right of the country and head to oh, Somalia or any place that is essentially lawless.
I had to think about the whole ‘forced labor’ thing. Forced labor on the extreme bad end is slavery, where a person is worked pretty much to death and provided with only enough food or shelter to get more work out of them. However, in some countries there is mandatory military or civil service – it’s a sort of forced labor, but it isn’t that extreme and so I don’t see it as such a big moral issue (though I think nobody should be forced into the military, but if the government provides some kind of alternate non-violent service, I don’t think it’s extreme). I think the sleight of hand the guy is pulling is to say ‘taxes are slavery’ as if say, being required to do 2 hours of community service a week and being forced to pick cotton for 90 hours a week are the same.
So perhaps you could say “not all forced labor is wrong” next? I mean, in Libertarian Land the workers would have no rights, except who they choose to be exploited by.
@5
In Libertarian Land you only have the rights you can afford to have. Want freedom of religion, well better be ready to lose your job if your boss doesn’t like your choice of faith. Same for freedom of speech. In Libertarian Land if you employ someone you can threaten them if they think differently than you.
The government provides certain services and taxes are the primary means for paying for those services.
Actually what most libertarians object to isn’t so much paying for taxes but “men with guns” enforce tax collections. Libertarians claim to be against “coercion” and “initiation of force.” They are “coerced” into paying taxes and if they don’t pay then the government “initiates force” against them. What these libertarians don’t realize (or refuse to admit) is that taxes are part of the social contract. So failure to pay taxes isn’t coercion but enforcement of contract.
smrnda: Libertarians (the ones that have some philosophical footing anyway) are going to found property rights on improvements on a natural thing. To “own” a piece of property, one improves property that is not claimed by anyone, and by the improvement ownership is justified. Ownership can also be transferred by agreement. I don’t see how property is theft under this kind of framework. I don’t know if I want to get into defending the legitimacy of the state in collecting taxes for defending property rights which seems to separate libertarians from flat out anarchists…but the fact that a large minority of day-to-day libertarians I run into have never distinguished those 2 propositions doesn’t give me much hope of going too far beyond the emotionally loaded terms covered above.
Rodney: A libertarian is going to ask when they consented to this contract. They’re going to insist that their consent is required to be bound by the contract.
Asonge
I bolded the part where it’s theft. More specifically ‘land not claimed by anyone’ has not existed (outside of possibly Antarctica), for at least a thousand years (when Polynesia was fully colonized). Therefore that definition as a source of property is useless in any modern context. This is also why taxes aren’t theft, incidentally; in practical terms, property rights come from the local government guaranteeing them, and therefore anything that said government defines as not your property (like tax money) isn’t anymore. As Raging Bee points out above, legal obligations to pay something are the exact opposite of theft, which is an unlawful taking of something. As for the ‘forced labor’ argument, it’s exactly as true as claiming that because I need to work to get money to pay my rent and electric bill that that’s forced labor; I have exactly as much choice in how I get that money as I do in hoe I get the money to pay my taxes, after all. Basically, the whole argument amounts to “You’re not the boss of me!! Don’t wanna!!!”
They can withdraw their consent at any time; just stop using any of the nations infrastructure and services and go find someplace with a social contract more to their liking. That’s the libertarian solution to labor disputes, after all, and sauce for the goose is sauce for the gander.
I don’t think we need to concede that taxation is theft.
To say that taxation is theft assumes that you have a prepolitical right to your money/property. But there is no such thing as prepolitical money/property. There is no property without the state. There is no money without the state. (Thomas Hobbes makes this argument in Leviathan. He says that the state guarantees your property rights against other people, but you have no property rights against the state). Surely the state has a right to tax you to at least maintain the monetary system. But a monetary system is part of a much larger state structure that needs taxation in order to survive. To not allow the government to “take” some of your money to pay for the system that allows for your having money in the first place is a kind of logical contradiction.
I am interjecting here only to express my extreme misgivings at the appearance of this ‘goose sauce’ anachronism on my site.
Carry on talking about serious matters.
I’m sorry. Is there a metaphor you would prefer I use to express the concept “You say that this is a solution that should be used by other people, therefore you shouldn’t complain when someone suggests it to you’?
Dalillama, Schmott Guy: I meant claimed by anyone in a way that is valid via improvement. There is a finite ability to improve the land. While all the land, in say, the UK had been “improved” in some way and claimed “legitimately”, a lot of the precursors to libertarian thought (John Locke) noted that much of America had not been improved.
I’ve heard “good for the goose” before, but never “sauce” (before Mitt Romney). Do people eat goose anymore? Is it served with ‘sauce’ rather than ‘gravy’ like other large fowl?
Also I wasn’t being serious.
The libertarian ideal functions under the assumption that those with the most means are going to operate under the best interest of society. Or perhaps, more disturbingly, they feel people with fewer means are not as deserving of the services government provide (schools, parks, roads, water, etc).
It also idealizes a system with no checks and balances. Rich people do what they want for whom them want and when they want. Any libertarian who argues that politicians are corrupt isn’t entirely wrong. There’s corruption in government. But democracy, at least, has checks and balances. Rich people controlling everything does not and when you vote for a system where each person pays out of pocket for only the services they might use, you are giving the power to money, not to people.
I like the framing of this argument and your takedown of it; it’s good reading for me, as someone that’s always just viewed taxes as something that all reasonable people agree are a basic part of society. Your reply seems a valid logical defense of that.
How would one reply to a libertarian arguing that taxes shouldn’t extend beyond these basic infrastructure type needs that everyone (or nearly everyone) agrees must exist? I haven’t given it any sort of careful thought, but it seems that the argument gets a lot stickier when the spending gets more discretionary in nature; it’s straightforward when we can agree on the basic, “someone’s got to pay for it” part, but what about when not everyone agrees on that?
@people arguing against the word ‘theft’:
When faced with “taxes are theft”, you really have two choices.
1) Debate the semantic meaning of the word “theft”. You are highly unlikely to make any headway against this, but your time is your own. Bear in mind that as long as you are arguing this (completely irrelevant, imo) sidepoint, you are completely ignoring the meat of the argument. If you want to just yell at someone, this is a good way to go. If you want to demonstrate that their argument is incorrect, I’d suggest not doing this.
2) Accept their definition of theft ‘for the sake of the argument’, and show that even on their terrible definition, their argument falls apart. Bear in mind that you can always explain how their definition of ‘theft’ is wrong *after* you show that they have a bad argument, but hey, prioritise what you will.
It’s entirely your call: argue semantics, or focus on the actual argument at hand.
I had some goose and goose sausage about a month ago, and it didn’t have an accompanying sauce or gravy, just some side dishes. I can’t speak for gander though…
@Brandon
I honestly don’t have an argument ready to go on that. For the most part, that’s an issue for the democratic process to sort out.
Whether something really is or isn’t discretionary is a thorny issue that I don’t see a simple solution to. Frankly, I’d be fine with the US returning to 1970s tax rates (i.e. above 90% for high incomes), and all of that being spent on sorting out basic housing/health/education for the country (with a strong focus on preventative health practices, ala Vancouver’s Insite, etc).
Ignoring the forest to focus on the trees is really the heart of libertarianism. Extreme, pure individualism. The insistence that everything be viewed atomistically.
From when I was a libertarian extremist (think Lew Rockwell type, just without the overt racism), the view I was taught wasn’t that those with means are going to operate in the “everyone’s best interest”; they were certainly going to act in self-interest.
They simply denied that there could ever be a discrepancy between “society’s best interest” and “individual best interest”. Or even the denial that an amorphous collective such as “society” could even exist.
If anyone is interested in actually converting libertarians (which is, sadly, often not possible; at least not immediately), following a path like this one is more likely to be productive. It was this sort of argument that made me realize I was being a complete dumbass at the time.
asonge, if it’s okay to claim property that *has not been claimed by anyone* could you refer me to an historical instance of this? I live in the US, which has a pretty nasty history of taking land by force.
I also think the whole notion of ‘owning land’ is just a human construct – the idea of ownership isn’t some Platonic Ideal waiting for a sufficiently brilliant person to figure out, but it emerged once people started to live in settled areas, where seizing territory and protecting what you have seized was how things worke.
On consenting to a social contract, I didn’t consent to the libertarian contract and refuse to take part in any society organized along those lines – anybody of any ideological stripe can play that game. I didn’t agree to live under the authority of a government that doesn’t guarantee everybody health care. Perhaps a libertarian will tell me they never agreed to live in a society where they have to pay minimum wage. But that is what we get with democracy – a kind of open ended, flexible system where we all make a case for specific policies and we try to balance the interests of everyone living under the system.
@asonge #14
This is a stupid colonialist mindset, asonge, and a prime example of why I have no love for a large amount of libertarian “thought” and policy.
The world, as it is now, is so configured based on thousands of years of conquering (read, “improving”) “unclaimed” land – that is, if you change the definition of “unclaimed” to “occupied by people of the wrong skin color/religion/tribe”. But just because that’s how things were done in the past does not in any way make it an ethical thing to do. And I’d be surprised if you could come up with a definition of land “improvement” that everyone could agree was accurate and fair.
In the U.S., we have lots of land that a lot of people (libertarians) would consider to be “unclaimed”. Like National Parks, for example. Those are largely untouched. Any “improvements” made to those lands are simply to facilitate visitors.
But you know what? Those lands aren’t “unclaimed”, no matter how many “improvements” libertarians think they could make to them. Because we (and by “we” I mean citizens of the U.S.) own those lands. All of us own them, by proxy of the government.
No “improvement” necessary, thanks.
The problem with the idea of ‘improving’ this is what’s an improvement and what’s not is subjective. I’m sure there’s someone who would like to take my back yard from me and use it for some commercial purpose, whereas I like to have a yard, however small. This is a very small scale problem of the idea of ‘improving’ land that someone isn’t doing the most with – the person who figures out how to turn my tiny lawn into a little widget factory thinks this is an improvement, but to me (and possibly my neighbors) this is just eliminating already inadequate green spaces. From the point of view of the ‘improver’ an ‘improvement’ is basically ‘something that makes me money.’
By the same logic, should concerned members of my community be permitted to level the local wal-mart so that we can replace it with a better type of business?
The counter I’ve seen (though I don’t entirely buy it) is that taxes are needed to pay for civilization, but the moral objection comes in forcing people to live in and pay for civilization. That is, they aren’t asking for the right to a free ride but for the right to opt out.
@14 asonge
I’m not convinced we really need to bother with the semantics, or even the entire concept of land improvement in the context of ownership rights. For one, it strikes me that the mentality of ‘land ownership requires improvement*’ plays neatly into the hands of / is a direct descendant of ‘us folks with guns are going to settle here and civilise the land since you guys haven’t progressed beyond huts and hunting as a way of life and are therefore mere savages’.
Aside from that, setting aside certain specific contracts, the more general concept of ownership / property rights has no need of improvement. In the general case, if I own it, I can even destroy it if I wish. Land is a little different to the due to the fact that it is a piece of a planet, but I still consider improvement irrelevant to ownership.
*Usually taken to mean either housing or farming use: perfect for a sedentary culture, shit for nomadic hunters though. Hey presto! We just defined all aboriginal land use as worthless.
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@11 anon1152
This will perhaps come off as mere semantics, but I would not only be happy to grant that taxation is theft, I would also not consider this a concession. To my mind, words like concede and admit carry connotations of ‘I was not willing to grant that assertion / release that information’. We see this silly wordplay every time a fundamentalist says something like “So, you admit that scientific theories are fallible! Gotcha!”
I’m fine with letting the libertarian establish that tax = theft (according to the very simple definition of ‘depriving someone of any posession against their will’) because I don’t think the argument hinges on that at all.
Instead of starting with those definitions, I would reframe the issue of justified or unjustified theft by starting with the justice system, crime and punishment. I think we can agree that a nation needs such a system in order to remain a nation at all; failure to maintain any authority beyond “guys please don’t be naughty” simply dissolves any state.
Thus, punishment is established as a necessary component of a government. Some examples include confiscation of items that are used to break laws (e.g. counterfeiting equipment), confiscation of items that were previously obtained and used legally but have since been used in crime (e.g. car impoundment), and of course fines. Again, I happily grant that these are all theft according to the above definition, because the point is that even if it is theft, the government may still have grounds to justify its use. For that matter, I think most would agree that even state mandated kidnapping may be warranted under some circumstance, in the form of incarceration.
Of course, the circumstances of punishment vs. tax are a tad different: the criminal broke a law, the taxpayer didn’t. This is where we return to the concepts you guys have already addressed- the idea that a person has already recieved the benefit of living in a stable environment in which he/she may live in probable peace, and has done so since birth. Incidentally, this is the point I would make against those demanding to know ‘when the hell did I give consent, dammit!’ Something along the lines of ‘accepting the benefit of stability / infrastructure / etc. for the first 15-20 years of life without rejecting or even acknowledging it can probably be considered tacit approval, so pay your damn taxes’.
Finally though – and I hope people already know this – the ‘tax=theft’ group is only a small segment of libertarian activism and thinking. While I have not met any, I have read multiple high-redearship libertarian blogs, and the few mentions of the tax / theft meme were openly mocking its supporters. This idea, while libertarian in origin, is only representative of a minority of that group.
@25 Hershele
Even with permission granted to do so, I doubt it is actually possible to opt out of a government entirely. Where would they live? All land is either claimed by a government somewhere, disputed by multiple governments, or under a treaty of non-development (e.g. Antarctica).
Brian Lynchehaun
The ‘taxes are theft’ routine stems from the libertarian concept of rights, particularly property rights, as having a Platonic existence outside of any society or government. This premise is the source of a whole lot of their fallacious arguments, so I like to start with it. I say fallacious on the grounds that an argument based on a false premise is inherently invalid, whatever its soundness, and therefore incorrect; libertarians are much like presuppositional apologists in that they often understand logic fairly well but are sorely afflicted by GIGO.
asonge
I know perfectly well what the libertarian arguments are. They’re just wrong, is all. The indegenous peoples of North America had improved a lot of areas, which British settlers took over when disease ravaged the original communities. They also engaged in large-scale land management to ensure that the woods and prairies were easily traversable and rich in game and useful plants. Further, as smrnda notes, if ‘improvement’ is the criterion, what happens when someone else decided that what they want is a bigger ‘improvement’ than what you’ve got? Finally, it ignores the concept of ecosystem services completely. In other words, its a crap position from the get go, and has all kinds of ugly racist and colonialist memes built right into it.
Holms
I see no reason to believe the last sentence, given that taxes=theft is the official position of the Libertarian Party, an is listed on Libertarianism.com, the two top non-wiki hits for ‘libertarian’ on Google. Without hard numbers, my anecdote’s just as good as yours. Also, the ‘that’s not what real libertarians believe’ dodge is as old as arguing with libertarians, and I’ll start listening as soon as any 3 libertarians can agree on what ‘real libertarianism’ is for longer than 30 seconds at a stretch. In the meantime, I’ll attack the rhetoric as it comes, and not worry about whether it comes from a Randist or Rothbard flavor anymore than I worry about whether the bible thumping homophobe is a Catholic or Baptist flavor of christian.
Dalillama
So you’re abusing terminology here.
1) “Taxes are theft” is not “a false premise”, in the way that “my computer is made of cottage cheese” is a false premise. Essentially, “taxes are theft” is a question of definition: there is no ‘fact of the matter’, merely a ‘fact as per our definitions’. This is an argument that you and the libertarian interlocutor can have for hours, without any objective measure.
2) Validity is a measure of whether a conclusion follows from premises *if* they are true. Example:
i) I am superman
ii) If I am superman, then the moon is made of green cheese
C) The moon is made of green cheese
This is a Valid argument. Pointing out the obvious falseness of either the first or second premise, or the conclusion is irrelevant with regards to validity: validity is a measure of the logical structure of an argument.
So even if the premise “taxes are theft” is false, that doesn’t demonstrate that the argument is invalid, at all. It demonstrates that there is at least one problem with the argument, but plenty of good arguments have problems: we then fix the problems to improve the arguments.
Let’s say that ‘theft’ under a particular definition is ‘taking something by force without the explicit agreement of the owner’. Sure, that’s a crappy definition for ‘theft’, but if you substituted that in to the argument (i.e. “taxes are a case of ‘taking something by force without the explicit agreement of the owner'”), then the ‘problem’ of ‘using the word theft incorrectly’ vanishes: the problem is *merely* semantic.
In order to demonstrate that an argument is Invalid, you need to show that if the premises are taken to be true, the conclusion does not follow. That requires you to take the premises as issued by the person you’re arguing with. Which is why I basically “concede” everything when I’m dealing with an invalid argument: because arguing about which premise is true or false is entirely irrelevant.
Because even if the premises are true, the argument fails.
(and finally:
3) A ‘Sound’ argument is one that has a valid logical structure, and all true premises. Thus “the argument is invalid regardless of it’s soundness” is self-contradictory)
I like the approach of this article – going utilitarian nicely sidesteps the semantic and emotional implied arguement of ‘taxes are theft – theft is bad – therefore taxes are bad’.
Remember the idiom about death and taxes being the only guarantees in life?
I like how it links to the argument that taxes are theft:
Nobody asked you if you wanted to be born into your life. You didn’t get a say in what circumstances you were born into, so you should therefore be allowed to opt-out of the parts of life you didn’t want anyway. Life is theft of time. We never asked to be alive, and yes we like some parts of it, but it is unfair to force us to spend time in the parts we don’t like, or where we are not the focus of attention.
I’d like to add an additional wrinkle. The US, as most other countries, issues a fiat currency, i.e. one not backed by anything or having fixed convertibility to anything. There’s a macroeconomic framework called Modern Monetary Theory (Wray, Mosler, Mitchell, others) that describes the economy in those terms.
In that framework, it can be shown convincingly that, ultimately, the source of all money is the government – without the government spending money or lending money to banks to cover the loans they give (because banks can create non-high powered money themselves), no new money enters the economy. Any loan a bank issues creates an asset for the bank and a liability for the entity getting the loan.
This has an immediate corollary: the government ONLY taxes money it has spent in some way before. I wonder how this plays with the libertarian argument.
The reason I bring this up is that you think in gold-standard/Bretton Woods in your description: 5) is NOT AT ALL like 1)! Taxes in an MMT economy don’t “pay” for anything. The US government, as the monopoly issuer of the dollar, could choose to spend large amounts of dollars on building, maintaining, and upgrading infrastructure without ever having to tax anyone – i.e. deficit spending.
The reason I find this so important is that the false equality between 1) and 5) is what’s being used by austerians to argue that spending (mainly on items benefiting the non-rich) has to be cut, and taxes hiked. A sovereign, currency-issuing government is NOT AT ALL like a private, currency-using entity.
In MMT terms, taxes have two purposes: 1) motivate people to accept the fiat money in the first place because this is what they have to pay taxes in, 2) serve the governments social purposes, e.g. wealth equality or discontinuation of certain habits (coal-burning, or smoking, for instance).
On the one hand, this means that the argument that taxes are needed to pay for shared infrastructure falls flat. On the other hand, the argument becomes that in an MMT economy, taxes enable money in the first place – the alternative is a barter economy.
Libertarians of course want to return to gold-standard times but the Randian assumption that gold somehow has objective worth is clearly wrong, so even in a gold-standard world some sovereign needs to guarantee means of exchange – probably through some kind of monopoly.
18
Brian Lynchehaun
No, another approach has been mentioned:
11
anon1152
You do not have to live in a city if you do not want to pay taxes. Let’s start there.
You agree to abide by the policies set out for living in a city, or wherever, if you want to live there. Do you think that it is okay to just move into someone’s house, and not pay rent? Of course not.
So what is the difference with occupying space, and using resources, in a consolidated environment that provides the structure and resources for your ability to inhabit that environment?
It is an agreement, entered into. It makes no sense to claim that taxation is theft after the fact. If you don’t want to pay taxes, go somewhere else.
It is that simple. Cult of Dusty: Why Libertarians are idiots
I’ve never read so much drivel in my life since I subscribed to the Ludwig von Mises Institute newsletter.
The “taxes are necessary” thing is the only counterargument I’ve found effective against the libertarians I’m related to.
A few of them have argued that people should have a direct hand in how their tax dollar is spent – to which I say, sure! Go for it! Lobby the government and get that policy put in place!
… because studies in my country show that what the libertarians think everyone wants their tax dollar spent on and what people actually want their tax dollar spent on are very different things. So if they ever get that through, I look forward to watching their brains explode with rage as funding for health care, infrastructure, science, and the social safety net increase and industry subsidies decrease. 😛
@goose question people. You can still get goose, look in specialty shops (or order it online) it cooks up a lot like a big, slightly gamier duck. It’s all dark meat because geese fly, and it is gonna be rich because waterfowl have a lot of fat on ’em. So no gravy, it would be too greasy. I usually make a tart sauce to go with duck, like port and dried cherries or sweet and sour sauce.
Sometimes the notion that taxes are necessary for civilization doesn’t work with libertarians, since they have romanticized notions of what life would be like for them without civilization; they see themselves as rugged pioneers on self-sufficient homesteads and feel like they’d be happier there than with civilizations. This isn’t realistic, but it’s a myth they can long for and pretend to want so far as it never actually comes up.
And they would also object to forcing each person to work five extra hours each week for the benefit of the needy.
I actually wouldn’t mind some variation of this.
The US, as most other countries, issues a fiat currency, i.e. one not backed by anything or having fixed convertibility to anything.
THIS IS FLAT-OUT FALSE! This claim is based on a definition of “fiat money” that has been distorted (by libertarians and/or goldbuggers, I suspect) to support some extremely dishonest ideas about money and monetary policy. An example of REAL “fiat money” would be the currencies of the USSR and its vassal-states in Eastern Europe: their value was literally set, and reset from day to day, by government fiat, and very lucrative (and dangerous) black markets arose in the gap between the official and unofficial values of such money. Also, the USSR went to a lot of trouble to get “hard currency” like dollars and Deutchmarks, precisely because they had value and uses their own curencies did not have. This is a very important diference between “hard (floating-exchange-rate) currencies” like dollars and yen, and “fiat money” like Soviet rubles; and that difference is being ignored by dishonest libertarians and other assholes.
There’s a macroeconomic framework called Modern Monetary Theory (Wray, Mosler, Mitchell, others) that describes the economy in those terms.
“Those terms” are false, as I just pointed out, therefore any “theory” based on “those terms” is crap. End of argument.
@Raging Bee–
side point, but the currencies of the USSR and its satellites were not fiat money in quite the sense you mean — in fact, that was one of the problems.
Many f those currencies were in fact backed by gold and such much more closely tan their western counterparts. That was precisely the problem. The “real” value of their currencies was relatively low as they were on a metal standard (sort of it’s a bit more complex) and the value was hostage to a real material thing whose price fluctuated. But there wasn’t any pricing information within the system which created all kinds of disconnects.
Then there was the “hard currency” problem. Western nations simply declared (on the basis of nothing) that “your currency is worthless.” Well, you can imagine what that does to trade when you basically have to barter.
Meanwhile, there were all kinds of other problems with the Soviet system. One was that it required that everyone do their job right and at the right time. There was little flexibility to cope with the usual hiccups that happen day-to-day. I was in the USSR just before the collapse and asked around. It was amazing how many things had to work just right to get anything done.
Due to the non-democratic nature of the system and the fact that it stopped delivering on its promises in the late 60s, people just didn’t bother to do things like go to work in the morning. They weren’t cooperating with the system in all kinds of small ways. It’s one thing when one or two people of every few hundred are cheating the system. It’s quite another when it is everyone.
@RagingBee: now I know why you call yourself raging. 😀
But on a more serious note:
First: When you write
could you fill me in which part of my statement was false? The US dollar is issued by the US government, it is not backed by anything (such as a commodity), and it is freely convertible.
Second:
“Definition of FIAT
1
: a command or act of will that creates something without or as if without further effort”
Merriam Webster – fiat
This is the meaning of a fiat-currency: that more of it can be created simply by deciding so. And this is the exact situation of most countries nowadays (the poor fools that are members of the EMU excluded). Under the gold standard, this was different since a government needed the appropriate amount of gold to back money creation – but we’ve gone off this decades ago.
Of course, by going off the gold standard and not pegging a currency to another one via fixed exchange rate, the determination of the exchange rate of a currency becomes a question of supply and demand. Demand for a currency rises when the economy of the country that issues this currency has something to offer that other entities want to buy since they then need to acquire that country’s currency. This can be goods or services, tourism, for instance. A country can attempt to manipulate its currency’s exchange rate by buying its currency up in currency markets but for this it needs some other currency, which it probably acquired by selling stuff which means that there is a demand for its economy’s products – this is what the Chinese are doing.
Third: if you had ever bothered to read the MMT crowd (which you obviously haven’t), you’d find that they
– see all money as ultimately originating with the state
– see taxes as necessary to generate demand for, and therefore guarantee, a currency
– see government spending as a tool to improve the population’s standard of living, most notably by generating full employment and reduce or even abolish poverty, e.g. through a government-provided job guarantee, but also by instituting robust general healthcare, creating a free, high quality education system, building and maintaining public infrastructure (including utilities), and initiating urban renewal and ecologic reclamation projects
– support the use of taxes to achieve social goals of the government, e.g. reducing the (over)consumption of certain resources, discouraging unhealthy behaviors, achieve wealth equality…
It’s possible that I have completely misunderstood libertarian positions but the list outlined above doesn’t strike me as very libertarian and your claim that MMTlers have to be “dishonest libertarians and other assholes” seems rather baseless.
—-
On an ad hominem note: someone who doesn’t actually make a consistent argument but just types out some claims, including name calling, and finishes with “End of argument.” might not be in a good position to discuss complex matters.
…Western nations simply declared (on the basis of nothing) that “your currency is worthless.”
If their currency had any worth, then other governments would not have been able to declare it “worthless” “on the basis of nothing.” Those who saw value or usefulness in Soviet-Bloc currencies would have chosen to trade in it, and profited from it. If a currency has worth or usefulness, than a government cannot arbitrarily order it away.
Definition of FIAT: 1 – a command or act of will that creates something without or as if without further effort
If that’s the definition you’re using, then ALL currencies are “fiat money,” including gold-based currencies, because all currencies are created by law. So now the term “fiat money” is so overbroad it becomes meaningless. If you want the term “fiat money” to be anything other than a dishonest rhetorical tool, you’ll need to come up with a more useful definition than this. There was a real difference between the behavior of Western “hard curency” and that of commie-cash, which went well beyond the relative weakness of post-Stalinist economies; so at the very least, we need to use terms that acknowedge that difference, rather than papering it over to score cheap-ass rhetorical points that have been debunked decades ago.
It’s possible that I have completely misunderstood libertarian positions but the list outlined above doesn’t strike me as very libertarian and your claim that MMTlers have to be “dishonest libertarians and other assholes” seems rather baseless.
If the definition of MMT that you quote is true, then that school of thought can easily do without all the “fiat money” bullshit — all of those tenets can easily stand without such misuse of words.
Of course, by going off the gold standard and not pegging a currency to another one via fixed exchange rate, the determination of the exchange rate of a currency becomes a question of supply and demand.
Which is why floating-exchange-rate currencies cannot be called “fiat money:” their real-world value is largely determined by forces governments can’t control, not solely by official fiat.
Due to the non-democratic nature of the system and the fact that it stopped delivering on its promises in the late 60s, people just didn’t bother to do things like go to work in the morning. They weren’t cooperating with the system in all kinds of small ways.
People were doing that LONG before the ’60s. In fact, they were doing it from the beginning fo the Soviet system, and even before that under the Tsars — who really weren’t much more competent, or less totalitarian, then their successors.
As for MMT…
…- see taxes as necessary to generate demand for, and therefore guarantee, a currency
That bit sounds kinda vague — how do taxes “guarantee” a currency or “generate demand” for it? I would amend that bit to say that a currency is “guaranteed” most by a sound economy, and sensible fiscal policy is necessary for a sound economy.
Raging Bee
Can you show an example of anyone but yourself using your personal definition of fiat money? Because every reference I can now find or have ever seen uses the definition that all the rest of us do: Money not backed by a physical commodity, which is defined as currency by a government. Such currency is backed by general trust in the issuing government/economy. Since no-one trusted the Soviet government or economy in the slightest (especially the Soviets themselves), soviet currency was pretty much worthless. The efforts of the Soviet government to change that by pronouncement don’t change that. Since the end of Bretton Woods, pretty much all currency is fiat money. This is a useful term because it allows us to distinguish those currencies from ones which arebased on some physical commodity; these currencies have a number of problems, which is why no-one uses them anymore.
Can you show an example of anyone but yourself using your personal definition of fiat money?
Yeah — just about everyone who talked about Soviet currency and how it differed from Western currency at the time. Soviet rubles had an “official” value/exchange rate, pursuant to a REAL “fiat,” and other non-gold-based currencies did not have that characteristic.
The usage of the phrase seems to have changed since the fall of the USSR, and I notice it’s very often used either ignorantly or dishonestly — particularly by Fed-bashers, Paultards and goldbuggers who try to imply that money not based on gold is not “real” money, but a newfangled invention of commie liberals who want to cheat everyone and subject everything to their “fiat.” (And if you use the phrase “fiat money” to mean all non-physically-based money, that’s flatly contrary to the generally understood meaning of the word “fiat.”)
In any case, using the phrase as you use it makes it almost meaningless, because it fails to acknowledge real and important differences in different monetary systems. I know words often change their generally-understood meaning over time, but this particular change is a bad one and should be resisted. The word “fiat” has emotional baggage in American discourse, and I’m tired of seeing it used to override facts and reason with emotional triggers.
Since the end of Bretton Woods, pretty much all currency is fiat money. This is a useful term because it allows us to distinguish those currencies from ones which arebased on some physical commodity; these currencies have a number of problems, which is why no-one uses them anymore.
A more honest, descriptive and useful label is “floating-exchange-rate currency.” What’s wrong with using the factually-correct label?
Raging Bee: your claim about the origin of the term ‘fiat money’ doesn’t seem to bear up.
The wiki for fiat money (http://en.wikipedia.org/wiki/Fiat_money) indicates that Keynes was using the term as far back as the 1930s.
According to footnote 8 on that wiki, Keynes defined it as:
There is more than one definition for this term. Merely insisting that ‘everyone else is wrong’ is not convincing, and claiming that “just about everyone who talked about Soviet currency” is not ‘giving an example’ that can be checked by anyone else.
You’re free to make these kinds of assertions, but just be aware that they’re unlikely to be convincing.
…and claiming that “just about everyone who talked about Soviet currency” is not ‘giving an example’ that can be checked by anyone else.
Sorry, I didn’t manage to log and record every newspaper article, economics text, and lecture I ever encountered (in pre-Internet meatspace, mind you) dealing with the subject. You’ll just have to take it on faith when I tell you that everyone I talked to, read or listened to, in formal and informal settings, used the words “floating exchange rate” to describe dollars and other Western-capitalist currencies. The first people I ever heard calling our currency “fiat money” were goldbuggers who clearly had no clue what they were talking about.
The wiki for fiat money (http://en.wikipedia.org/wiki/Fiat_money) indicates that Keynes was using the term as far back as the 1930s.
We were still on the gold standard back then, IIRC, and there were still a lot of people who mistrusted non-physical-material-based money, didn’t think it was “real,” and wanted to portray it as a commie invention to bankrupt the rich. Our understanding has changed since then, and our choice of words should reflect that change.
I’m pretty sure that you’re not new here. So… Wtf?
Furthermore, how the word is used in your limited experience in a US context does not make it the de facto usage beyond the US. I, for one, am not based in the US, nor have I ever lived there. Your US-centric claims are not claims ‘about the world’ as you seem to think they are.
So: I fully accept that everyone that you have ever dealt with (who, according to your above statement of “particularly by Fed-bashers, Paultards and goldbuggers who try to imply that money not based on gold is not “real” money, but a newfangled invention of commie liberals who want to cheat everyone and subject everything to their “fiat.””, would seem to be based in a US context) have abused this terminology.
1) Of what relevance is that to the rest of us?
2) You claimed that “And if you use the phrase “fiat money” to mean all non-physically-based money, that’s flatly contrary to the generally understood meaning of the word “fiat.””
As per the quote (and reference) that I provided you, your statement is false.
You can double-down, of course, and insist that none of the references in that wiki article are relevant to the “generally understood meaning”.
Or you can provide some evidence in support of what you’re saying.
But given that there is evidence to the contrary of your claim: no, I’m not going to take your assertions “on faith”. And I’m boggled, as a regular reader of this blog, that you would expect anyone to do that.
1) Of what relevance is that to the rest of us?
The term “fiat money” is not descriptive enough, it’s known to be misused by liars, and we have a better, more descriptive phrase for the same thing: “floating exchange rate” currency; so we should use the most accurate and descriptive words available. (You seem to have completely ignored that point — care to explain why? If you think there’s anything wrong with that wording, go ahead and explain. If not, why would you object to using the most accurate and descriptive wording to describe something?)
[But given that there is evidence to the contrary of your claim: no, I’m not going to take your assertions “on faith”.] And I’m boggled, as a regular reader of this blog, that you would expect anyone to do that.
You’re “boggled” that someone could get information from sources that can’t easily be cited or linked to on the Internet? You young punks are totally clueless! Why, when I was young, we didn’t even HAVE an Internet — we sometimes had to walk through three feet of snow to go to a history class or find a book or newspaper to explain world events…with no shoes, ’cause we couldn’t order them online…
[Edited by Brian]
Given that you’ve chosen to respond with misrepresentations and sarcasm, I’m out.
Raging Bee:
Why, when I was young, we didn’t even HAVE an Internet — we sometimes had to walk through three feet of snow to go to a history class or find a book or newspaper to explain world events…with no shoes, ’cause we couldn’t order them online..
Stop it! What king of sick and twisted nightmare world do you come from?? Next thing you know, you’ll be reminiscing about having to remember stuff, and spell. What a primitive existence. Augh, I can’t handle it. I’m gonna go catch the news on facebook. At least they have real money, based on personal accomplishment. Tokens!
I broke my opponents by using sarcasm — thus forcing them to run away from reasoned arguments they would otherwise have easily been able to refute! Doug and Dinsdale Pihrana would be proud.
mikmik: yeah, that sort of existence toughens a man, and BUILDS CHARACTER, so remember that next time you think of tangling with me. Now get off my lawn. Oh wait, I’m on Crommunist’s lawn…
I remember when we had to spin a numbered dial on something called a land line telephone. Then came push button.
Life was so full of optimism in those days 😉
…in three feet of snow, with mittens, ’cause we didn’t have those fancy-shmancy gloves back then…or windows to keep the snow out of our kitchens…and we liked it that way.
Speaking of which, I notice one of my cordless phones is now translating the phone numbers I enter into old-style dial-clicks — probably as a result of having some circuit fried by a power surge. I don’t really know what I should find more surprising: that, or the fact that my phone company understands the old signals. The last time that happened, it was in Charlottesville, and their phone company still didn’t understand the touch-tone beeps from the phone I’d bought for the house.
As long as we’re going for ridiculous retro quirkiness, maybe I should just buy a new cordless phone with all the modern features, and a dial.
Raging Bee: Your comment has been updated so that your “logic” is more explicit.
That’s it?! All that power to retroactively edit comments you don’t like, and that’s all you can manage? I’m disappointed. Your edit doesn’t even touch on the substance of why I couldn’t provide links to my sources. And the fact that you came back and did this after bitching about my sarcasm, avoiding my substantive points, and withdrawing from the debate, only makes it more ridiculous. I hear the ghost of DaveScot laughing at you and calling you an amateur.
If you’re going to come back and edit other people’s comments, why don’t you be serious about it, and add an answer to my more substantive question of why “fiat money” is preferable to “floating exchange rate currency” as a descriptive label?
And besides, what evidence is there that contradicts my claim that the people I knew didn’t use the words “fiat money” the way you do? Were you listening in on all my informal conversations and the economics lectures I attended? Were you reading everything I read over my shoulder?
Adding that quote of yours to my comment only makes your position look sillier. So much sillier that I had to do a double-take, as you can see…
@Raging Bee: Yeah, so I realize what’s going on in your posts (apart from the name-calling, and unsupported assertions): you focus on the relative external value of a currency to the exclusion to everything else.
These blinders prevent you from reading the “fiat” definition, which is not just the one I am using but also the one the Merriam-Webster, Keynes – as Brian pointed out, and the MMTlers use, properly.
“fiat” is a command or act that creates something, not a command or act that gives it value. Furthermore, without effort or with negligible effort – which means precisely that a currency that is backed by a commodity cannot be fiat, contrary to your claim, because acquiring this commodity will take an effort.
Instead you focus on the foreign exchange rate and assume that a currency is guaranteed “most by a sound economy”. As we went through above, a country’s economy can have an effect on the external value of the currency, i.e. the exchange rate, but what it can’t do is guarantee that this currency is accepted in the first case.
As an abstract example, assume an economy in which every producer produces the same product – one highly desired by entities outside this economy. No producer in this economy would have a motivation to accept the national currency – the only thing they could buy would be what they produce themselves and if they desire products from other economies, they need to acquire those currencies. So they’re better off getting paid in those currencies directly, or bartering.
Enter taxes and a government that enforces their collection: since every citizen needs to pay taxes, they have an interest in acquiring the currency. This in turn means that entities from outside the economy have an interest in acquiring the currency etc.
Furthermore, as you yourself pointed out, is it impossible to control the exchange rate of one’s currency. Even if one is on a commodity standard, one only has some control if everyone else is also on that standard. Otherwise, there might be low demand for your currency compared to a fiat currency and your exchange rate drops. Just setting an arbitrary value, as the Warsaw Bloc tried doesn’t work either. Which is also precisely why I have at no time (and neither have the people on whose writing I base this) claimed that a floating exchange rate makes a fiat currency. That’s your claim that you wrongly ascribe to me.
What one can do is force others who might devalue into a peg – which is what Germany did to the members of the EMU.
What a focus on the exchange rate does, on the other hand, is severely limit your options. If you’re locked into trying to achieve a certain exchange rate then this dictates your political options, which in turn allows forces from outside your state to dictate them. Exchange rate in that case influences policies.
Which is nicely illustrated by your post as well: according to you “sensible fiscal policy” is necessary for a “sound” economy which in turn influences the exchange rate. The question now is what one would consider “sensible fiscal policies”. From a
progressiveleft-wing POV, sensible fiscal policies are ones that improve the populations’ life – a decent minimum standard of living, full employment, general healthcare, free high-quality education, a non-polluted environment, good infrastructure etc. Since the foreign exchange rate has no effect on what the government can purchase domestically, a fiat currency issuing government can spend according to these social goals, and worry about the foreign exchange rate later.For someone focused on the foreign exchange rate, however, “sensible fiscal policy” keeps the foreign exchange rate at the desired level, no matter the effect on the population. Which is why it is so important that people, especially left-wingers and progressives, stop thinking in pre-fiat terms.
—-
Now, I am going to take you at face value here and assume that you actually believe everything you wrote here and don’t just use it because you disagree with the social goals that could be achieved by a fiat-currency issuing government. I’ll furthermore assume that you didn’t reconstruct your memories from pre-internet times and that people you talked to actually misinterpreted fiat currencies as you did. Fiat currencies are powerful tools in making societies more equal, in lifting people out of poverty, in subverting power structures since an educated voter is less likely to vote for neo-liberal policies. Which also means that there is a lot of opposition and there is a large body of mainstream macroeconomic work that does its best to make people believe that we live in pre-fiat times, that government debt matters, that there are funding choices to be made between different social services – hell, someone like crommunist thinks in those terms and he’s clearly progressive. So it’s absolutely possible that those people were misguided too or actively engaged in undermining the idea of fiat currencies because those would be a challenge to those who opposed FDR and everything he implemented, and who have worked so hard since the mid-70s to roll it all back.
“fiat” is a command or act that creates something, not a command or act that gives it value.
In that case, as I said before, ALL money is “fiat money,” because it’s created by official act, including money that’s officially based on this or that precious substance or combination thereof. Therefore, if we use your definition, the phrase becomes meaningless because it’s too broad. In fact, it becomes a redundancy.
Furthermore, without effort or with negligible effort – which means precisely that a currency that is backed by a commodity cannot be fiat, contrary to your claim, because acquiring this commodity will take an effort.
This is an example of the fallacy of essentialism that underlies gold-standard ideology: the idea that money based on a substance is more “real” than newer forms of money, which allegedly rely solely on some government command to have value. (Besides, acquiring money ALWAYS “takes effort,” unless it’s so plentiful it’s not worth any effort — so this distinction you offer here is bogus.)
Enter taxes and a government that enforces their collection: since every citizen needs to pay taxes, they have an interest in acquiring the currency.
What, no one ever has any interest in acquiring money unless they’re taxed?
Which is nicely illustrated by your post as well: according to you “sensible fiscal policy” is necessary for a “sound” economy which in turn influences the exchange rate. The question now is what one would consider “sensible fiscal policies”.
Of course that’s a valid question — but that doesn’t undermine my general point about what supports a currency’s value.
Raging Bee, you’re really not reading carefully – or you’re building strawmen.
At no point did I say that commodity-backed money were “more real”. I also didn’t claim that acquiring money never takes effort. Both of those are once again statement by you that you ascribe to me.
I did say that issuing fiat money by changing some numbers on a computer involves virtually no effort while acquiring the commodity first that you need before you issue money, does involve effort. Do you deny that there is a difference in effort?
As an aside, so far you use weasel words (“sound”, “sensible”, “everybody”), ascribe statements to me that I never made so you can “refute” them, and refuse to engage my arguments.
Current exhibit:
Once again, that’s not what I wrote. But no one might have an interest in acquiring their state of citizenship’s money if there is nothing that they want to spend it on and they don’t need it to pay taxes. If an individual works as a farmer, allowing her to grow her own food, and the only things she wants to acquire are imports that are paid for in US dollars, where would be her motivation to accept anything but US dollars for her products? At this point a state’s currency would become worthless for domestic purposes – and that’s a problem for a government.
And finally:
The imperative word being my. I am not trying to undermine your “general point” – I’m basically not really talking about it. I am talking about fiat currency and its domestic uses. This has nothing to do with a currency’s external value. You insist in talking about a currency’s external value, and only about a currency’s external value.
I did say that issuing fiat money by changing some numbers on a computer involves virtually no effort while acquiring the commodity first that you need before you issue money, does involve effort.
No, you said nothing about changing numbers on a computer. You may want to step back and reread what you said, and try to get your message straight. Besides, creating and backing up currency of any kind involves a LOT more than “changing some numbers on a computer.” Are you trying to imply that non-materially-based currencies are no more real than “changing numbers on a computer?” Sounds like you’re getting back to that essentialism you’re pretending not to support.
But no one might have an interest in acquiring their state of citizenship’s money if there is nothing that they want to spend it on and they don’t need it to pay taxes.
If there’s nothing to spend it on, there won’t be any economic activity to tax. Either way, you don’t need taxes to make people want to use your own country’s currency. Either the currency is useful or it isn’t. Either there’s stuff to be bought with said currency, or there isn’t.
If an individual works as a farmer, allowing her to grow her own food, and the only things she wants to acquire are imports that are paid for in US dollars, where would be her motivation to accept anything but US dollars for her products?
That’s a totally ridiculous scenario: when have farmers ever sought imported products exclusively, with no desire to buy anything made in the nearest town, or the town further down the road, or any other town inside their own country? Your fantasy scenario has bugger-all to do with the observable reality of how economies grow and evolve.
I am talking about fiat currency and its domestic uses. This has nothing to do with a currency’s external value.
The domestic usefulness of a currency have nothing to do with its external value? Generally, the more “useful” a currency is domestically, the stronger the economy will be, which then affect the currency’s external value.
Are you sure you know what you’re talking about?
You’re right: I’m sorry I didn’t make it explicit how modern governments spend money. So once more explicitly: a modern government spends money by crediting a private bank account, i.e. change some numbers in a computer.
And there you go again, talking about the foreign exchange rate.
The reality of a currency and the way it’s created have nothing to do with each other. A currency is a completely artificial construct, used to ease exchange of goods, and, if used right, to stimulate economic activity. A commodity-backed currency is not more “real” than a fiat one, it just takes more effort to create because one needs to acquire more of the commodity first.
Wrong. Taxes can be levied on property for instance. To take my hypothetical farmer – the government could tax the land she uses to farm and require that she transfer a certain amount of the national currency at the end of the year. Even if everything she acquired were either imports or acquired by bartering domestically, she then needs to acquire the national currency.
Yet another weasel word. What’s “useful”?
Oh boy. So you don’t understand abstraction either? Let’s flesh the example out a bit: the farmer grows the food that she needs herself, when she needs other products that the local economy produces, she goes to the nearest village and barters on the market. The national economy does not produce cell phones, agricultural machines (and their spare parts) and fuel so she has to buy those as imports. As a result of this she accepts only US dollars in payment of any products she sells because she has no use for the national currency. Actually, we can step this up: Everybody else acts the same, making the US dollar the national means of purchase. This is equivalent to the second outcome of your sentence
The economy can happily hum along, people can buy and sell from each other, yet they can also decide not to do this in the national currency, if there’s no use of the national currency beyond being a means of purchase.
As a result of this, in turn, the national government cannot use the national currency to advance its social agenda because while the national economy produces lots of labor and real goods, they are not for sale in the national currency. Reminds you of some non-industrialized countries on this planet? Or is it still “totally ridiculous”?
Yes, I do, and your insistence in deflecting the discussion towards one of the foreign exchange rate makes me believe that you do to.
You accidentally got one thing right: how useful a currency is for the purposes of a government has to do with the real resources that can be acquired with it. The Canadian, US, Brazilian, Japanese, UK, Chinese, Argentinian etc governments can fund every government program they want – there are no funding constraints, and unless the implementation of these programs require the purchase of imports, the foreign exchange rate is completely immaterial for these purposes. What is highly relevant, however, is that the labor and the domestic goods and services are for sale in the national currency. This means for instance that trying to purchase additional goods from an economy producing at capacity will lead to inflation. That means that shrinking the pool of available workers in a given field, e.g. teachers or nurses, will make it hard to increase staff in this field. All those constraints are real, none of them is fiscal. This also means that keeping 10+% of your labor force unemployed will shrink the real resources available. The problem with pensions is not that the government won’t be able to pay for them – a fiat-currency issuing government is not fiscally constrained – the problem is that if the healthcare staff and facilities, the public infrastructure, the nursing home staff etc have not been created, having money won’t help.
You can’t buy what’s not available in real terms.
Anyone who denies this is either ignorant of modern currencies, or exploits others’ ignorance to attack governments spending for those who need it. To wit, the drive to undermine general healthcare, social security, unemployment support, public infrastructure, education etc in so many industrialized countries.
Your insistence on focusing on foreign exchange rate at the expense of highlighting governments’ fiscal capabilities make it clear which side you come down on.
Yes, I do, and your insistence in deflecting the discussion towards one of the foreign exchange rate makes me believe that you do to.
The fact that you keep on alleging that I’m talking ONLY about foreign exchange rates, when I am clearly not doing so, only proves that you’re the one who doesn’t know what he’s talking about. so does the fact that your arguments get less coherent with each of your comments. I think you’re trying to explain/defend some economic idea you don’t fully understand yourself, and tying yourself in knots while trying to make non-sequiturs fit together at the wrong ends. I see hints of some sensible ideas in that mess somewhere, but you need someone else to help you sort it out.
And besides, NONE of your arguments have anything to do with my original point that the term “fiat money” is a piss-poor descriptor and should be replaced by other terms that better describe the kind of monetary system being used in this or that given instance. You’re really flying all over the place trying to dogfight that sopwith camel.
Shorter version: “Freedom is Slavery, Herp is Derp”.
There. just saved you ten minutes’ worth of the usual mindless drivel and propagandic idiocy that vomit from the mouth of any totalitarianism-fetishizing communist.
It was hard to choose between this and this.