Taxes as an Inducement to Supply Real Output

In the chartalist view, taxes drive acceptance of state money. Through one channel, taxes induce labor services. The need to obtain state money to pay taxes ensures a willingness of some individuals to accept employment in the public sector in exchange for the state money. There is another channel that exists under a broader range of conditions. It is the power of government to induce supply of real output from private enterprise. Not only does government induce a private supply of real output to itself (a transfer of resources from the private to public sector), but it also induces a supply of real output to private consumers. Unlike the inducement of labor services, the inducement of private-sector output would apply equally to a pure labor economy or a purely mechanized economy, as well as to intermediate cases.

Consider the extreme scenario of a purely mechanized economy with private ownership of the means of production. With no labor performed, there would be no basis for monetary profit (see Implications of a Purely Mechanized Economy) and no profit-based reason to supply real output to non-owners. The lack of profit, however, would not mean despair for the owners. They would live in abundance, their robots and machines producing real output that could be consumed personally or exchanged (or shared) with other owners. Non-owners, in contrast, would be excluded from a share in the output, except to the extent private charity occurred.

Government, by effectively enforcing an exogenous tax obligation on owners, would be in a position to ensure that some output was obtained by non-owners. One method would be to provide everyone with a basic income equal, in aggregate, to the exogenous tax obligation imposed on owners. Another method would be for government to purchase the desired output for an amount just sufficient for owners to meet the exogenous tax obligation and then distribute the publicly purchased output freely to non-owners. Either way, owners would be induced to supply output to non-owners, whether directly or indirectly, even though at zero profit.

But, as already noted, the capacity of taxes to induce real output does not apply solely to the extreme case of a purely mechanized economy.

Suppose a basic income were introduced under today’s conditions. This would reduce the compulsion on individuals to supply labor services. But, at the same time, the incentive for private enterprise to supply output on the market would remain. Actually, if anything, the incentives applying to the owners of private enterprise would be strengthened, because any increase in government net expenditure or equalization of income distribution would bring stronger private demand for real output. Private enterprise would have an interest in extracting as much as they could of the basic income, which although initially going to consumers would end up ultimately as revenue for one business or another except when saved by the recipient.

To the extent production methods remained reliant on human labor, the inducement to supply real output would at the same time act as an incentive for private enterprise either to attract workers into employment or mechanize, whichever was the most profitable way to capture a share of the basic income (and other income) devoted to consumption. Individuals who desired income in excess of the basic income would be open to persuasion whenever the job offer was good enough. Such individuals might or might not succeed in out-competing machines for a time.

To be clear, the intention here is not to offer yet another argument on the merits or otherwise of a basic income. The point, as indicated earlier, is rather that taxes would remain a powerful inducer of real output even in the extreme eventuality of a purely mechanized economy in which no labor services whatsoever were involved in the production process.

Needless to say, the legitimacy of private ownership of the means of production would be as questionable as ever in the extreme case of a purely mechanized economy. A form of money, though, might still be retained for the purpose of individuals indicating the composition of their demand for an array of consumption items, but non-monetary mechanisms could just as easily achieve the same effect.

4 thoughts on “Taxes as an Inducement to Supply Real Output

  1. “One method would be to provide everyone with a basic income equal, in aggregate, to the exogenous tax obligation imposed on owners. ”
    If it is a very progressive tax and near full capacity then you may cause inflation? Maybe you would want the basic income slightly less than the tax. If you tax a rich man’s savings it is similar to printing money as savings function effectively as voluntary taxation.

  2. We can understand money as the physical (paper or electronic) numerical tokens in a human behavior coordination process led by the social power (state) of a territory. The process is conceptually very simple and practically very effective, developing into situations where the action of the state does not appear necessary for the induced social coordination (because everything necessary for the life of all the people is monetized).

    Money is conceptually different from a general exchange equivalent (GEE) like salt, gold or tobacco. Money requires a state to give it value, while a GEE has value by its intrinsic qualities. But money can support full labor specialization (like in full time warriors, full time farmers, full time artisans) while GEEs can only support the exchange of excedentary goods available once survival is realized.

    Human social dynamics is characterized by the emergence of groups that collaborate, compete and fight. Marx’s concept of “class struggle” captures a reduced (albeit very important) domain of the larger human social dynamics.
    In the fight between the group (or groups) with higher incomes and most extensive property against all the others, the ignorance and obfuscation of the concept of money is most useful to the first one (or ones).

    The word “property” is another important information weapon. There is nothing proper in property or ownership. The actual meaning of this word is control. Owning X or having X by property means controlling the use (or whatever) of X.

  3. Bob, I had in mind an exogenous tax imposed only on owners with govt money issued to everyone (almost all of whom would presumably be non-owners). Basically, the owners would then need to sell to non-owners to get the govt money to pay the tax. But you are right. The tax might need to be higher than the basic income (to the extent that basic income going to owners exceeded the aggregate net saving desire).

    To avoid inflation, either competition between owners for customers or price regulations would be required. (With the alternative approach in which govt simply purchased the output and distributed it free of charge to non-owners, the govt would specify the prices it paid.)

    The scenario’s a bit farfetched, I know. But in the intermediate scenario (reality) where a combination of labor and machinery is used in production, income payments to a segment or to all of the population seem to have the two effects mentioned in the post (among others). That is, they reduce the compulsion on (some or all) workers to supply labor services though at the same time increase the incentive for businesses to supply output (attract the services of labor and utilize machines).

    Canon, appreciate the insight. Thanks.

  4. While I sympathize with Chartalist monetary thinking, when it comes to the means of production, I have yet to read anybody among the left-Chartalists defend the tired notion of using debt to nationalize industry!

    To put it in extremely vulgar terms, Thatcher stated that, “The trouble with Socialism is that eventually you run out of other people’s money.” Of course, the “socialist governments” around her and before her all resorted to going into debt when nationalizing industry. Even Venezuela has done that. Again.

    So, what about debating the alternative concept of Fiscally Conservative / “Responsible” Socialism? (My terminology only)

    First, think of all the windfall profits, operating profits, and financial assets throughout the economy. Levy a special tax on those.

    Second, think about the problem of tax avoidance using terminology in tax law, and think of public policy incentives based on said jargon. A combination of cash proceeds, non-retroactive tax credits, and retroactive tax credits (for discouraging earlier tax avoidance) would be disbursed.

    Third, think beyond the narrow stigma associated with eminent domain and compulsory purchase. In local “politics” it’s within the context of development vs. Not In My Backyard. Just look at Donald Trump. However, there is progressive potential. It can be realized by exercising this in the act of disbursement as mentioned above.

    That’s how to take the relevant ownership stakes into public ownership: it’s perfectly legal and it’s very much expropriation without effective compensation, especially debt financing that can choke economies.

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