My previous article, “Deficits are a waste of Time, Government spending is the problem,” failed to address one key point in the argument against deficits.
Many economists claim that Borrowing allows government to expand public expenditures with a facility unknown in Taxation. This is certainly true. The ability of government to raise funds via Taxation is much restrained by the retardant fines and penalties imposed upon economic activity; Whereas Borrowing, in which lenders are rewarded with return of principle and the reward of interest, is devoid of such deterrence. Thus, government certainly may garner and spend far greater sums through the comparatively easy extraction of borrowed funds. Therefore, to limit the threat of plunder posed to a nation’s resources by government, they argue only Taxation should be employed.
Up to the end of the 19th century, government funded public expenditures almost exclusively with Taxation, save in time of emergency or war, as incurring public debt was considered ruinous policy. Government still wasted large fractions of the resources seized, the iniquitous practice stretching back millennia. But such lamentable squander was curtailed by the pain inflicted by Taxation. However, times have changed, and the strictures against public debt diminished, and, recently, have all but disappeared. Government is expanding at unprecedented rates with a Soviet future appearing more realistic every passing day.
However, advocates for Full Taxation have not fully considered a third option: a system in which government borrows exclusively and procures all funds directly from resident citizens. The disregard of this third option, whether intentional or through ignorance, has contributed greatly to the cause of despotism and tyranny.
If a community’s government adhere to two simple conditions: that government borrow exclusively from resident citizens and borrow in the currency of the land, the method of revenue collection and, hence, government operation would be turned on its head.
Government, inured to vigorously and ruthlessly muscling funds from taxpaying slaves and spending wildly, quickly must convert to charm and persuasion to entice perpetual, petulant, scrutinizing public banker to lend. Present methods of accounting benefits of public expenditures are primitive. With confiscation prohibited and a capital charge introduced, the contrivance and advent of new methods of public accounting will force government to financially justify every public expenditure and investment.
The people or resident lenders, informed by the novelty of financial scrutiny, shall become the arbiters of which public expenditures are worthy and deserving of funding, and which are unworthy and deserving of rejection. Government shall submit every government program to a complete examination of costs and benefits. Most programs, borne of government arrogance and greed, shall not survive such piercing scrutiny, and those that do shall be completely reformed.
How could the US Federal Government charm free-lending citizens of Florida or Maine to support gifts to politically connected farmers in Illinois or Iowa, or charm free-lending citizens of Illinois and Iowa to support vast US Naval operations throughout the world including the construction of new aircraft carrier groups? People, seeking value for money, would prefer lending to worthy public projects in the immediate vicinity, not in distant lands where projects and returns possess dubious value.
Why would the lender or Public Banker offer copious and direct financial support through costly welfare administration to able-bodied persons and favoured corporations? Why fund an unwinnable drug war, Marxist dominated public education systems, or corrupt and perverted law enforcement and court systems?
If in the era of the Public Banker malfeasance and mal-administration should persist, the people shall reprise neglect and derelictions by withholding funds and depriving government of the means to operate until the culprits are investigated, identified, arrested, charged, prosecuted, sentenced, jailed, and, if the penalty allows, executed.
One does not like to see savings or pension holdings diminished or destroyed by those entrusted with their money. The same fears that motivate the private lender motivate the Public Banker. Violate the public trust or offend the majority, the public shall cease lending, and perhaps start selling large amounts of bonds, lessening their value and causing great losses to all bondholders, among whom one may count public servants, labourers, professionals, and tradesman.
Government shall have every incentive to ensure the profitable and efficient provision of public goods. In summary, one learns quickly to treat his banker far better than his taxpaying slave.
With government compelled to seek profitable public investments the wealth of a community should explode. Imagine an economy producing 100 units with 40 to government and 60 to the people. By imposing a capital charge overseen by the vigilant Public Banker, government expenditure should decline sharply, to perhaps 10 units. The potent deterrent effect of Taxation, which so many right wing economists advance as a barrier to expansive government, shall disappear. The annual product of 100 units could easily rise to 135. Instead of a meager 60 units, the people would enjoy 125 units of product, better than a doubling of income.
Imagine a corporation that borrowed 10 units and created 65 units of assets every year, a return of 550%. Who wouldn’t buy their stock or lend them money!
If economists were to recognize the consequences of imposing a capital charge on all public expenditures, they would welcome rather than ridicule such a profoundly benign and enriching measure. Let the era of the taxpaying slave yield to the age of the Public Banker.
