Monday, 1 June 2015

How to Pay for Government

(From the archives - January 23rd, 2005)

'Tis true, said John Locke, governments cannot be supported without great charge. And 'tis fit everyone, who enjoys his share of the protection, should pay out of his estate his proportion of its maintenance.

We all know that he was right on the first count. The charges, with which political governments burden us today, are so great as to be becoming insufferable. (Not just the financial ones, either). But was he right on the second also? For how much we are expected to pay for government, today, bears no relationship to how much benefit we receive from it. What we are forced to pay is not our proportion of the maintenance. Rather, a lying, thieving, bullying political class, with an agenda of re-distribution of wealth and a hatred of earned success, is trying to squeeze us honest, productive human beings out of existence.

John Locke was usually right. And I think he was right on this matter too. Each of us should pay for our share of the benefits of government, no more and no less. Today's out-of-control taxation is suffocating good people. It must be done away with.

So, what is our share? How much should each individual pay for government? And how might we make sure that how much an individual pays is always in just proportion?

Before we can answer these questions, we must first ask, what is government for? John Locke's answer was as follows. Government, being for the preservation of every man's right and property, by preserving him from the violence or injury of others, is for the good of the governed.

If I myself were asked to summarize in one sentence the purpose of government, I would say this. Government exists to defend civilized human beings, their possessions and their ways of life against the uncivilized.

Next, what are the valid functions of government? Here's my list of three. One, civil law, to furnish a just means of resolving disputes, and provide for compensation for damage caused. Two, honest police and criminal law, to provide sanctions against the malicious and the uncivilized. Three, military defence, to defend against external aggressors. (Well, there's maybe a fourth, but I'll come to that later).

Very little of what today's political governments do is about real government. A lot of it is about building and expanding bureaucracies. A lot of it is about bullying people. A lot of it is about providing low-quality services inefficiently. A lot of it is about re-distributing and wasting earned wealth. A lot of it is about lies, spin and scaremongering.

Of the around 40 per cent of our earnings which the average Western government takes from us, only perhaps 5 per cent is used to perform genuine functions of government. The rest goes on political agendas. Many of these are actively against the interests of good people. Others force us to accept monopoly or near-monopoly services, which would be far better provided by competing private enterprises, to which we can say "No" if they start doing the job badly.

Now, how much should an individual pay for real government? I invite you to think of the genuine functions of government as like insurance. Think of your home contents insurance. What are the factors, on which its price depends? (Assuming, of course, that the insurance companies have enough competition to keep them reasonably honest).

The fair price of home contents insurance depends on two factors. One, the amount you decide to insure for. That is, the replacement value of your possessions. Two, the risk of their being stolen or destroyed. This is mainly a function of the area you live in. Multiply the amount insured by the risk, add a bit for administration and profit, and there you have your price.

The fair price of government, I think, should depend on these same two factors. One, the total value of your possessions. And two, the risk in the area where you live.

It seems very reasonable to me that people should pay for government in proportion to their total wealth. After all, the benefit to them, over and above defence of their lives, is in the long term likely to be in proportion to how much they have to insure. And it seems consistent with common sense that, if A has ten times more wealth than B, A should pay ten times more for the protection of it. It's also in the spirit – and even to the letter – of John Locke's view.

How could a non-political government price its services so that each individual pays in proportion to his or her total wealth? I'm going to make a suggestion, one which will set libertarian economists howling. I'm going to suggest adding a fourth function of government – a currency. And I'm going to allow them to inflate it!

How much would a real government need to inflate its currency each year, to cover the costs of its functions? Well, I make a guess that an individual's total wealth, on average, is between 5 and 10 times their annual earnings. That means that a government, to raise the equivalent of 5 per cent of earnings, would need to create (either on paper, or electronically) each year an amount of money between half a per cent and one per cent of the total wealth of its subscribers. That's a lot less than today's political governments routinely inflate their currencies.

This would have great benefits. At a stroke, it would eliminate all tax bureaucracy, all the complicated tax rules and regulations, all the form-filling, all the hassle, all the court cases to do with tax. It would eliminate re-distribution of wealth, and the political agendas that go with it. And this means of taxation could not be evaded. Not by anyone who holds the currency, or assets denominated in it.

Of course, my numbers will need refining. Perhaps I am on the optimistic side. And there are many potential difficulties, which would need to be ironed out.

For example, such a system is only truly fair in an area where the risk is roughly constant. People living in big cities might reasonably be expected to pay more than those outside. However, there is a solution to this. If the cost of government in London or Manchester, say, is higher than in the rest of England, then they can divide their currencies – and their governments. The London government can print London lire, and the Manchester one Manchester marks. While the English government, responsible for the areas outside, continues to print English pounds.

The proliferation of currencies would at first seem complicated to people. But I think this can be solved by technology. It should be possible to quote people a price in whatever currency they want to pay in. I could use, for example, my 40 English pounds to buy in Manchester an item whose local price is 50 Manchester marks. This is not unlike what happened in Europe before the euro – but the volumes would be so much greater, that transaction costs would reduce almost to zero.

What if people chose to hold their investments, or much of them, in "foreign" currencies? I think this would have the beneficial effect of inducing higher-cost governments to drive down their costs. I think, however, that most people would keep a significant stake in their local currency – if only because their homes would be valued in the local currency. And it would not be so convenient for a Londoner, who has chosen to hold English pounds rather than London lire, to have to get police to come all the way from England when he needs them.

The spectre of the London government and the English government going to war with each other might worry some, too. But I don't think this would be an issue. Remember, these are real governments, not political ones. In fact, I think they would happily co-operate with each other on military matters – as long as the need for military defence remains.

I can speculate still further. If cities can issue currencies and have their own governments, then why not individuals? After all, this would be a return to the roots of currencies. Currency is, in essence, a transferable IOU, whose value depends on the wealth, honesty and reputation of its issuer. Would some of us, perhaps, elect to hold some of our wealth in Gates' guilders or Branson's baht?

Even more interestingly, might there not be companies formed with the purpose of competing to provide good government to as many people as possible – and making a profit out of it? Imagine if Pinkerton's, say, had a world-wide currency – the Pinkerton's peso, perhaps – and an ambition to serve good people in every city and town in the world?

Is this idea radical? Yes. Beneficial? Yes, to everyone, except those with vested political interests. Practical? I confess I'm not sure, though I hope it could be made so.

Is it – or something like it – going to happen? Well, that's up to you, dear reader.

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