Re: Collection of Taxes as Credit from the People to Government

["William F. Hummel" <wfhummel@xxxxxxxxxxxx>]

Harry Veeder wrote:

>Ok.
>
>I've been thinking more about the idea of Government borrowing directly
>from the people and I realize now that taxation already partially satisfies
>this role. Taxation is the collection of credit from the nation's people.
>The "debt" is the government's obligation to spend its credit wisely.

In a broad sense, money is credit that is widely accepted as a
medium of exchange.  But it is often useful to apply the term
'money' to what the government creates by monetizing debt, i.e.
the monetary base or base money.  All else then is credit that is
convertible into (base) money at maturity.  Taxation involves
payment in base money.  By calling taxation 'credit', the concept
of base money falls apart.  A Treasury security issued by the
government is a credit for the holder that is convertible at
maturity into base money.
>
>However, for taxation to become people-issued-credit, the
>government must also pay interest to the people while taking credit
>from them. Otherwise the government is simply extracting money from the
>the people without so much as a thank you.
>
>The people in general should be receiving interest from the government.
>Taxation without interest is offensive. The sale of bonds by the Treasury
>is how the government should finance its interest payments to the people.

The sale of bonds by the Treasury is incidental to the system.
It merely covers spending that is not covered by taxation.  Thus
interest payments to the public is also incidental to the system.
>
>In a sense this represents a synthesis of Georgian, Creditary Economics
>and Social Credit theory.
>
>Harry Veeder

Taxation, bond sales, and interest payments are not a moral
issue.  They are essential features of a modern fiat money
system.  Taxation is the key feature because it creates the need
for people to acquire the government's currency.  Since the
government is the only source of that currency, it must supply
what the public needs to pay its taxes.  It does so through its
spending via the Treasury.

However that is not enough.  The government must also control the
scarcity of its currency to maintain its value.  That is done by
soaking up any excess spending over taxes through the sale of
Treasury securities.  But the public will buy only if there is
sufficient incentive, since it means exchanging liquid assets for
non-liquid assets.  That incentive is of course the interest
received on the securities.  However the government cannot set
the interest rate itself.  The only way it can sell what it needs
to at minimum cost is to allow the market to determine the
interest rate in what amounts to an auction process.

The details of a fiat money system involve the depositories
(banks and thrifts) and the central bank.  The demand for bank
credit determines the need for banking system reserves.  Through
the purchase or sale of Treasury securities with the public, the
CB controls the availability of reserves, and thus the price of
credit.

William F Hummel