Tuesday, November 25, 2008

is taxation irrelevant?

government is an unproductive entity. it is a net consumer of resources and, being a coercive monopoly, it has no idea what demand should be for its so-called "services". because very few people would ever be willing to pay for the poor and often counterproductive services of government, or because the government could never sustain itself legitimately, it must resort to extortion and theft to get the money it needs to conduct its schemes. most think of this theft as taxation, or borrowing from other countries with the promise to pay them back with stolen money at a later date. but, since 1913, the state has monopolized money production under the regime of the federal reserve.

the federal reserve is the central bank of the u.s. government. it has the ability to print money for political purposes without accountability. when the dollar's final thin tie to gold was severed by nixon in 1971, the u.s. government was free to create money in an uninhibited manner to pay for all sorts of boondoggles that would never get voter approval. this opened up a brave new world for politics. previously, government had to raise money by the very unpopular manner of taxation, or the much maligned practice of deficit borrowing. all that changed with the advent of purely fiat, or unbacked, money.

the state craves power and is, at its core, an instrument for transferring wealth and power from civilized society to the political class. because taxation is fairly straight forward and borrowing is highly visible, the state needs a way to steal from the masses that will not raise ire. enter the central bank. with laws forcing the acceptance of a certain currency for all debts, public and private, a central bank is free to print as much money as it desires to use in whatever way those pulling its strings dictate. because people don't understand what monetary inflation is, or what its effects are, it doesn't cause a stir like high taxation rates and borrowing do. it is the perfect tool for the political class to suck a society dry of its resources "on the down-low". now, politicians are able to print all the money they want to give to their friends on wall street or in the auto industry or the defense industry or whatever. benefiting the politically connected at the expense of society as a whole no longer requires a direct transfer of resources. by printing the money, which in itself has no value, they are able to indirectly shift the value of existing dollars into new ones. imagine having a swimming pool half full of ink. as water is poured into the ink, it is diluted
as the ink spreads into the water. this is a similar effect to pouring new dollars into the existing pool of money. the value of existing dollars is diluted as the new dollars soak up value. it's as if the federal reserve puts a vacuum into your pocket and sucks the value out of your dollars, redistributing it to favored groups.

not only is it a massive theft, but it hurts an economy by political distribution of resources, rather than by the rational distribution of the market. the devaluation of the currency also falsely leads investors to misallocate capital leading to the inevitable revaluing of assets creating the "boom and bust" of the business cycle - a phenomenon unknown until the establishment of the central bank.

one should always consider politicians to be liars, but be especially wary when they tout their record on tax cutting. one thing we know for sure is that they have always increased spending. so, if they are cutting taxes, but increasing spending, where does the money come from? most of the time it comes from the central bank's printing press. don't be fooled - you will pay for their extravagant, wasteful and counterproductive interventions. a tax cut is nothing more than bait for fools. never trust the state and always assume they are scheming for your wealth. now, more than ever, taxation is irrelevant.

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