18
May
2016
Lara-Murphy Show: How Governments Use Inflation as a Hidden Tax, Part 1
This will probably seem like Romper Room stuff to many of you, but for whatever reason Carlos’ idea to use Caesar as the launching-off point struck me as very powerful to connect with the average person. I first saw Carlos give a public talk on fractional reserve banking and open market operations, but he started out talking about Caesar literally debasing the currency.
If you don’t understand inflation then by all means get educated. Once you understand inflation you’ve got to love it!
1.) Unlike Rome when Caesar was Dictator, our country’s spending is done by duly elected representatives. I may not agree with the spending, but it’s legal, and once the spending is a done deal…
2.) There are only three ways I know of to pay for the spending: a.) taxes b.) borrowing and c.) inflation. And even borrowing will eventually need to be paid off or have its interest supported by either taxes or inflation.
3.) Turns out federal taxes are very unevenly shared among the citizenry. Over 50% of the people pay no federal taxes what-so-ever. Unfortunately, my own federal taxes are very high. Inflation on the other hand seems to be shared by all citizens according to their spending. No special interests can get you out of paying for inflation! Therefore, inflation is my preferred way to bear the burden of gov’t spending. It’s too bad we can’t have more of our tax burden supported by inflation instead of taxes.
1. I don’t vote, so how are they my reps?
2. Or stop spending.
3. Every person pays Federal tax even if only because of pass through, i.e. corporate tax is passed to every consumer good.
“… i.e. corporate tax is passed to every consumer good.”
FWIW, it turns out that that is logically impossible. *Mind blown*:
Papa John and “Passing On”
https://mises.org/blog/papa-john-and-passing
“Rothbard demonstrated in Power and Market that the notion of such “forward tax/cost shifting” is fallacious:
““The idea that the increased cost will be passed on to the consumer by the employer is an illustration of perhaps the single most widespread fallacy on taxation: that businessmen can simply shift their higher costs forward onto the consumers in the form of higher prices. All the economic theory expounded in this book shows the error of this doctrine. For the price of a given product is set by the demand schedules of the consumers. There is nothing in higher costs or higher taxes which, per se, increases these schedules; hence, any change in selling prices, whether higher or lower, will decrease the revenues of the business involved. …”
“… The long-run effect, therefore, is to decrease the supply of liquor produced, and therefore, by the law of supply and demand, to raise the price of liquor on the market. However, as we have said above, this process—this diffusion of suffering over the economy—is hardly “shifting.” For the tax is not simply “passed on”; it only permeates to the consumers through hurting the industry taxed.”
I’ll give you credit! Basic stuff perhaps but these things were happening in Roman times, so the analogy is entirely fair even if the historic details may not be perfect (I’m not claiming to know better BTW).
I would be interested to hear the follow-up covering fiat money. Whilst gold and sliver have intrinsic value, fiat money is backed by state violence… this is an incredibly important concept. There are two fundamental ways that government gives value to fiat currency:
* Forcing citizens to accept the currency (e.g. after a court case, the judge awards a settlement in fiat currency, you cannot demand gold, silver, etc)
* Forcing citizens to pay tax in fiat currency (thus ultimately providing a driving force behind what you do with this money… you pay over the FRN’s in return for not getting hurt). The state is a protection racket.
Another example: in Australia, under “Torrens Title” you must pay a regular local government tax in order to keep your land. This is exactly equivalent to the “hut tax” of Africa that was used to commandeer local labour into working the copper mines. On top of this is 10% tax on most purchases and of course income tax should you earn anything in order to pay the first two taxes. The inevitability of tax gives value to the fiat notes. The money bestows protection from the violence of the state.
Ultimately, governments will do what it takes to balance their books and keep the garbage trucks running. They likely see inflation as a means to an end, money wise