How Taxes are Used to Motivate Economic Behavior
Executive Summary
- How taxes are used to promote economic behavior and as a control can be understood by reviewing the British’s imposition in its African colonies.
Introduction
How the British used taxes in African colonies to motivate behavior is explained in the following quotation.
“The following is not merely a theoretical concept. It’s exactly what happened in Africa in the 1800’s, when the British established colonies there to grow crops. The British offered jobs to the local population, but none of them were interested in earning British coins. So the British placed a “hut tax” on all of their dwellings, payable only in British coins. Suddenly, the area was “monetized,” as everyone now needed British coins, and the local population started offering things for sale, as well as their labor, to get the needed coins. The British could then hire them and pay them in British coins to work the fields and grow their crops.”
Secondly, according to Mosler, taxes keep the economy from overheating and allow the government to spend without causing inflation, as is explained in the following quotation.
“The government taxes us and takes away our money for one reason—so we have that much less to spend which makes the currency that much more scarce and valuable. Taking away our money can also be thought of as leaving room for the government to spend without causing inflation. Think of the economy as one big department store full of all the goods and services we all produce and offer for sale every year. We all get paid enough in wages and profits to buy everything in that store, assuming we would spend all the money we earn and all the profits we make. (And if we borrow to spend, we can buy even more than there is in that store.) But when some of our money goes to pay taxes, we are left short of the spending power we need to buy all of what’s for sale in the store. This gives the government the “room” to buy what it wants so that when it spends what it wants, the combined spending of government and the rest of us isn’t too much for what’s for sale in the store.”
Source: Mosler Economics
“In those parts of Africa where land was still in African hands, colonial governments forced Africans to produce cash-crops no matter how low the prices were. The favorite technique was taxation. Money taxes were introduced on numerous items: cattle, land, houses, and the people themselves. Money to pay taxes was got by growing cash crops or working on European farms or in their mines.” (Rodney, 1972, page 165, original emphasis).
Source: Mosler Economics
http://moslereconomics.com/wp-content/uploads/2019/02/Full-Employment-AND-Price-Stability.pdf
Making a Group Play by Your Rules and Use Your Money
This means that taxes are designed to reduce the spending power of taxpayers and create demand for the government’s currency. Ultimately, anyone that could would like to create its own money. If you can get that money accepted, you receive the money creation right or the right of the sovereign. If your money is accepted, and you control the creation of money, then all you need to do when you need to obtain goods and services is to create money, which any sovereign can as part of an accounting entry. However, the question is how to get people to accept your money as a value of exchange. The trick is to make that money as the only payable money for taxes. Once you have accomplished this, you will have a steady stream of workers willing to labor to pay you your money. This is money you have no use for, as you can create as much as you want. However, it keeps the public and the companies in your domain motivated to continue to make an effort to obtain this money. Once the money is accepted as payment for taxes, it becomes used as a means of exchange.