Two Ways to Drive Currency Acceptance through Taxes

When it comes to the means of production, society can be considered as falling into two basic groups – ‘owners’ and ‘non-owners’. Acceptance of a tax-driven currency can be achieved through the exertion of pressure on one or other of these groups, or both. In a low-tech, labor-intensive economy, the state essentially compels non-owners to supply labor services to owners. In a high-tech, capital-intensive economy, there is less need for such compulsion. It will become increasingly viable to place the initiative on owners to supply final output in exchange for the currency as technology continues to advance.

Here are two – of many possible – approaches to driving currency acceptance. Both assume property rights are enforced by the state. The choice is presented in stark terms to illustrate a simple point. The state can:

1. Impose an exogenous tax on all non-owners.

2. Impose an exogenous tax on owners and give non-owners a basic income.

With method 1, production is induced by compelling the majority to place themselves at the command of owners. Non-owners must offer their labor services to owners, or depend upon somebody who does. They will have to do this to survive. Owners can make a profit by hiring non-owners and paying them wages in the state currency to produce output for sale on the market. The profit motive is likely to be sufficient to drive the owners to behave in this way, but if necessary an exogenous tax could also be imposed on them.

Note that it is not necessary for the state to use method 1 to compel non-owners to work for owners. It can instead impose most or all taxes on owners. Under private ownership of the means of production, it is enough that the owners will need the state currency to meet their tax obligation. Non-owners will still be compelled to work for owners if they wish to survive. The main point of interest is that, in method 1, non-owners are coerced into productive activity for the benefit of owners.

With method 2, there is no compulsion on non-owners to work for owners. The onus is instead on owners somehow to supply final goods and services in exchange for the state currency in order to pay their taxes. They either need to attract non-owners to work for them or mechanize production. The basic income received by non-owners becomes a desired target of owners. They can get a cut of this income by outcompeting other owners. Rather than the onus primarily falling on workers to outcompete each other for less and less desirable jobs, the onus is now primarily on owners to entice workers with better pay and conditions or, if it is more profitable, to mechanize. There is still compulsion in this method, but it applies to owners rather than non-owners. Even so, the state can always compel non-owners at the same time (method 1) if technical development proves insufficient to enable sole reliance on method 2.

A variation on method 2 would be for the state to:

2′. Impose an exogenous tax on owners, purchase final output from them and freely distribute it to non-owners.

More generally, a combination of free distribution of public goods and services (2′) and private consumption out of basic income (2) could occur in proportions reflecting the electorate’s preferred mix of market and non-market distribution.

The basic point is that, in principle, driving acceptance of the currency does not have to rely primarily on compelling non-owners to offer themselves up for exploitation by owners once technology has advanced to a level at which machines remove the need for humans to engage in coerced activity. Those humans who nonetheless still choose to work for an owner will be doing so without coercion, at least relative to the present situation.

An alternative policy approach would be to compel everyone, owners and non-owners alike, to perform a minimum labor-time commitment to the extent that unpleasant jobs remain. If coerced labor is deemed necessary, it should perhaps be equally required from all. I have discussed these issues elsewhere, so won’t do so again here.

From a Marxist perspective, the likely effect of method 2 (or 2′) would be the gradual dwindling, over time, of profit income. This is because, for Marx, labor is the sole source of value. At a certain point, either owners could be paid a salary for performing whatever functions are deemed to be necessary, or society could assume collective ownership of the means of production. Presumably a dwindling of profits will not be what the ruling class has in mind if it ever decides to implement basic income. In that event, basic income would, in all likelihood, be seen as a way to dismantle the welfare state and roll back the state provision of key public services. And, indeed, basic income could well be implemented for these purposes if electorates stand by and let it happen, which they very well might given their track record at the polling stations.

None of the above should be interpreted as necessarily indicating a preference on my part for basic income rather than a job guarantee. It is simply intended to point out that coercion of labor is not the only mechanism through which taxes can drive currency acceptance. For what it’s worth, my preferences have not changed in relation to the job guarantee or basic income. I have discussed all that previously.

Related Posts

Taxes as an Inducement to Supply Real Output
Currency Viability in a Pure Income Tax Regime with a Basic Income
Unearned Income and its Distribution
Approaches to the Reduction of Aggregate Labor Time

4 thoughts on “Two Ways to Drive Currency Acceptance through Taxes

  1. A very interesting post, not just showing the possibilities of a tax on labor or capital (or a hybrid), but also the (political) pitfalls of a jg/big.

    I have the impression that you have in mind not just taxes imposed on labor or capital (of some hybrid arrangement), but also possibly taxes which are unrelated along these lines, to dive currency acceptance.

    Did you mean to leave this impression (and might we see something written on this at some point)?

    Thanks again for an excellent article.

  2. On #2: Aren’t you nearly back at the circular logic of currency value/acceptance: ‘I value it because I think someone else will, because they think’… because in this scenario, it’s optional to pay taxes? Presumably people aren’t born into two classes “owners” and “non-owners”, so you can abandon your ownership stake and just take your basic income and no taxes, and work for a wage if you want additional money.

    Another question is who are the owners in the 21st century? Everyone who owns stock, and they would be taxed to different degrees? I definitely see the point in a 19th century frame but it’s a little unclear to distinguish owners / non-owners now for me.

    Finally what about non-profitable work? Most obviously government jobs like the army, bureaucracy to levy/collect/audit the taxes, etc. Right in the description of #2’, you have ‘distribution’ as something the government can do for free, but who are the people doing that and what is their motivation? Is it enough of a presumption that the government will offer wage work and hopefully enough people want more than a basic income?

  3. gus: You came close to answering your own question in your final sentence. Provided there are a sufficient number of people who wish to earn more than the basic income, the tax imposed on owners will be sufficient to drive the currency. It would have to be a pretty large UBI for there not to be many such people. Or perhaps they are non-materialistic to a degree I see little evidence of … In any case, if the supply of labor services turned out to be insufficient, it would simply mean that the UBI was too large, given the current level of technical development. It would need to be smaller for now.

    There are at least two aspects to the issue. One is acceptance of the state’s currency, as opposed to somebody else’s currency. Since the owners must pay their taxes in the state currency, the owners will need to obtain that currency. The other issue, as already discussed, is whether non-owners will want to take jobs in sufficient numbers given the size of the UBI, individual preferences and the level of technical advance. Provided they do, they will be considering job offers in the state currency, because that is what the owners want to deal in at least to the extent necessary to pay taxes. (Beyond that, it doesn’t strictly matter which particular currency is used anyway.)

    A similar consideration arises with an income tax in relation to currency acceptance. I discussed this in an old post.

    [UPDATE. I have now included this link in the ‘Related Posts’ section.]

    As for the owner/non-owner distinction, what really matters is whether individuals are dependent on capitalists or the state for an income commensurate with their desired living standards or, rather, can live independently on the basis of their own property income. Here, for brevity, I am calling the former ‘non-owners’ and the latter ‘owners’. You can think of them as something else, if you wish.

    Whether or not owners are born into their status, there will already be people in that category upon implementation of the policy, as a result of history. Unless they renounce their ownership of means of production on introduction of the exogenous tax (unlikely, to put it mildly), they will accept the currency.

    The sentence in the post, “The choice is presented in stark terms to illustrate a simple point”, would apply equally well to the owner/non-owner distinction as to methods 1 and 2.

  4. Tofu: Yes, you could have a tax that is imposed independently of a person’s economic role. For example, a head tax on everybody. Or there could be an exogenous tax (or taxes) on one or other group or both.

    I’m not sure if the issue or a related one will come up in a future post or not. I’ll see what happens. I don’t have anything specifically planned.

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