Consider the following scenarios and provide your answers below:
A group of 10 people were stranded on a very large island due to a shipwreck. The ten people set about helping each other produce things that were necessary for each others survival. Of the ten, John happened to be exceedingly industrious and managed to create more goods than the others on the island. John loved to trade the goods he created with the other people on the island, but John almost never gave any of this goods away for free. He always expected to be paid for his goods in either labor or in trade.
The others on the island began to resent the wealth that John had created for himself and decided that John should be forced to give them some of his wealth without them having to give John anything in return. They did not like the fact that John had such a comfortable life while the rest of them were barely scrapping by. In order to equalize the wealth in their community, the nine other people took a vote among themselves to institute a new government. The new government (which consists of the nine other people) instituted a tax that only effected John, which allowed them to take and redistribute property from John which they felt was excessive and then redistribute that wealth among themselves.
After several decades the population of the island had grown to 10 families consisting of 100 people and a monetary system had been agreed upon by the islanders that was predicated on the trade of fish hooks for goods and services. John’s family continued to be incredibly productive due to John’s skills as an engineer.
There were now two fairly rich families living on the island consisting of 20 family members. The rest of the community was still having a difficult time producing an abundance of goods to trade. The families that were having a difficult time got together and voted to levy a tax that would effect the richest two families. The people who were having a difficult time felt that they should not have to trade goods and services voluntarily with the richest two families in order to acquire wealth from them. They felt the two richest families were hoarding wealth and so they voted to implement a 30% tax on all income above what they considered to be the median income. The wealth that was taken from the richest two families was equally divided up among the 80 other people.
A very large and strong man named Bill, from one of the poorer families, was elected sheriff of the town. Bill’s job was to keep the peace, make sure that taxes were paid, and to act as a judge in cases of dispute. In order to accomplish this task, Bill would periodically review the richest families finances (without their consent) to make sure they were paying their “fair share.” If Bill discovered that one of the families was not paying the proper amount of taxes that had been levied by the community, Bill would simply take the property that was owed. If anyone tried to stop Bill from collecting the taxes, Bill would threaten them with violence. Bill also kept some of the money he took from the richest families for himself as payment for his services as a sheriff and judge.
After several more decades the population of the town grew to 200 families consisting of 1000 people. The monetary system of fish hooks allowed the division of labor to take place and now there were several businesses of intermixed families all working to produce goods and services for each other.
By this time there were enough children that a formal school had become necessary to teach all of them; however, the families who had children did not want to have to support the cost of a school and school teacher on their own. Since the number of families that had children outnumbered the families that did not have children, the families that had children all got together and voted to make the families without children help pay the cost of their child’s education.
The sheriff at this time did not have children and refused to give up his wealth or take the wealth of others to support a school, in defiance of the what the majority had voted to do. In response to this, the majority voted Sheriff Bill out of office and installed a new sheriff. The new sheriff mustered a posse of fellow child-having citizens and took Bill’s property by force.
After several more decades the population exploded and now there are 2000 families and nearly 10,000 people. The city now had a formal government with a town council, police force, and court system.
One of the city’s most prominent businessmen had been elected the mayor of the town, largely because he had the resources to run a large campaign. The mayor’s family owned a paper producing business that made various paper products.
After being elected to office, the mayor convinced the town council that the people would better be served if the town used paper money instead of fish hooks. This would allow the town government to print the money necessary to operate government without having to use direct threats against people in order to take their money through taxation. The town council agreed to this, along with the police and court officers who were all very eager to ensure the government would always have the money necessary to pay their salaries.
The mayor’s son got the contract to produce the paper notes. The police and courts began refusing to uphold contracts paid in fish hooks. And the government would only accept the payment of taxes in paper notes.
In order to pay their taxes, citizens had to exchange their fish hooks for paper notes at a fixed rate established by the town council. The public was not allowed to directly vote on this change in the money system. Their elected representatives on the town council made this decision for them.
I hope this article has provided you with some food for thought about the nature of government and taxation. Please share this article with your friends and family. Everyone needs to reflect on what government has done to our money and what taxation actually entails.
Of course, I am of the opinion that the use of coercion and violence to fund welfare, warfare, or public works is totally inappropriate. If people want something, then they should have to work or trade for whatever it is they want. This is the only way new wealth comes into existence. Voluntarism and free markets are the only way a civilized society should conduct itself.
If you are curious about what a civilized society might look like, please watch this lecture by Austrian economist Hans Hoppe.
Factoid: NYC had a population of just over 5,000 in 1776.