Political Economy 1: Taxation

1. In our times, taxation is a legal form of theft on behalf of the state. The state is essentially plundering the wealth of its citizens by imposing taxes. Unfortunately, neither governments nor the governed seem to be aware of this.

All of us believe the nonsense that has accumulated in the last 200 years or so in the form of the “science” of Economics; more rightly known as ‘Political Economy’,which isthe original term.

Very few have understood (and presently understand) the true nature of Political Economy and understand what the right kind of taxation is. Taxation and Political Economy are based on the same fundamental principles. Let us examine them closer.

Political Economy studies the production, distribution and consumption of wealth, which is goods and services.

Fiscal concerns, such as the state budget (state expenditure and income, trade balances etc) and the running of businesses do not belong to Political Economy. The former belongs to Accounting and the latter to Business Administration – or, as they are usually called when seriousness is professed, Macroeconomics and Microeconomics.

2. Political economy rests safe in the plain knowledge that, ultimately, there are only two primary factors contributing to the production of wealth (goods and services for distribution and consumption): the first being Man with his Labour and the second being the surrounding Nature with its resources.

Simply put, wealth is produced from the labour of men on the Earth and its natural resources, under a set of given circumstances. The Roman Empire saw one kind of production where slave labour was predominant, Greenland with its frozen lands saw another, early 18thcentury USA with its free, almost endless, fertile lands saw a different kind, and so does modern Arabia with its oil reserves and its autocratic regime. The four different sets of circumstances that were just mentioned are examples of a mixture of climatic and political elements. These too contribute to production, being elements from the former two factors and becoming a third one determining the mode of production and distribution – termed ‘Conditions’.

All forms of income, both private and state, emerge from the production of wealth. Without goods and services, there can be no income.

Private income originates from labour, rent, interest and similar sources.

State income originates predominantly from taxation, which is its natural source. There may be also some state-run enterprises.

3. Since there are only two primary factors (Labour and Land), it is they that become objects of taxation – nothing else. (In reality, the Conditions are another primary factor, but it is put aside for this introduction).

Today, almost universally, all of taxation iw drawn from Labour. The usual income tax, taxable profits, luxury taxes, VAT etc, all constitute taxation on Labour.

Even property taxes are a form of taxation on Labour, since buildings, cultivated land and mines are also products of Labour.

It is due to these taxes that distortions arise in economies all around the world, bringing about financial crises and depressions emerging from time to time.

An initial and direct manifestation of a side-effect on people is the dwindling of the desire to work. “Why?”, ask producers of every possible kind, must the state take away from the natural reward of my labour? Since it takes away from my labour, I’ll do everything in my power to minimise the loss.

A similar side-effect is brought about by the systems of proportional and progressive taxation, in which the more one earns or one owns, the higher the income tax one pays. Consequently, the thought now becomes “Why should I work and produce more? So that the HMRC/IRS can have it?”

Such witless taxation ends up hindering productivity and growth, as well as motivating tax evasion!

4. This leaves us with the Land. By “land” we mean the surface alone, before any labour is applied to it – without taking into account any enclosures, buildings, cultivation, digging, mining etc.

The whole of land has value – in some places lower, in others higher. The desirability of a given location (such as a plot in the city or arable land in the countryside) is proportional to and determines its value. The highest value (frequently called the surplus value) lies with locations that are found downtown in the largest cities, usually the capital, as well as locations with valuable resources such as rare minerals and metals, precious stones and sources of fuel.

The land (remember, the surface alone!) can be divided in zones or areas of similar value. Provided that the fringe or marginal areas are left free of tax, the taxation of the remaining land values does not bring about distortions in the economy (further clarification will be provided in future posts).

This system of Land Value Taxation (LVT), as was dubbed by a few scholars that have written on the subject, encourages productivity and growth (hence, the lack of its promotion by famous economists is all the more indicative of the ignorance on their behalf, even though they often mention it briefly in their textbooks). Moreover, this system is fair and just, since the land values are adjusted in accord with the natural development of society, with the population increase, with the progress in science and technology and the presence and promotion of the fine arts (a third factor). Astonishingly, textbooks will refer to this too, but also fail to take into it account!

It is just, natural and more efficient to have these values returned to the community, represented by the state, since they originate from the existence and growth of the community itself. This has been noted since ancient times.

I have written extensively on the subject in the past and will be returning from a new perspective.

– Nikodemos

Click here to read other posts on the Political Economy series.

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