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The cycle of money and tax

Sometimes a picture emerges with extreme clarity. One of the reasons why I take part in internet discussions is that it forces one to refine one’s thinking. This was a response to a comment in the Daily Telegraph.

Governments create money to pay for their expenses. It should then be removed through the tax system. To ensure that taxes were paid with sound money, the government paid its expenses by putting into circulation an official coinage impressed with the seal of the sovereign; hence ‘Render unto Caesar’.

A primary function of government is to defend the territory and the land rights of the inhabitants. Rights of land occupation are normally achieved through land titles, which the government defends through the legal system. Government also provides the infrastructure without which land would be worthless. Thus, owners of land titles are able to collect the economic rent of land which has been created by the money spent by government. The cycle would be completed if governments then collected this rent as a result of their activities; rent of land is not created by private individuals and companies but is a stream of wealth over and above that.

Unfortunately, most of those responsible for the design of our tax systems have failed to notice that the process is a cycle: governments create money and spend it to protect land rights and sustain land values. The cycle should be completed by the collection of the land value thereby generated. Because this connection is not recognised, people throughout the world are saddled unnecessarily with taxes which appropriate by force the products of labour and enterprise.

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