OK, let's try. For background, reading my
fourth post should suffice.
Here we go:
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A New Monetary System From Scratch, Part 9: Government Spending and Taxation
Many years ago the townspeople set up a Town Council (TC) of ten representatives as their governing body. TC's main tasks have included deciding on public projects and imposing taxes. In the absence of a monetary system, the TC has collected taxes in form of goods and used these goods --mainly grain, salt and other staples -- to pay those who have worked on the projects.
After the implementation of the monetary system, the first public project to be decided on is improvement of the path between the town and the nearby village. The project has strong public support -- only one person, Andy, is known to oppose it. The TC is unanimous in its decision to implement the project, and a bidding round ensues.
A five-man strong team, Path-o-logistics, submits the winning bid, at SK10,000.
Path-o-logistics gets right to work and in two weeks the project is completed.
Let's have a closer look at how things look like on the recordkeeping side.
The team, Path-o-logistics, gives up something valued at SK10,000 without getting anything in return. This fact is recorded by making a SK10,000 credit entry on a new account set up for the team, as the team members haven't yet come to an agreement on how much each of them contributed to the project. (It's up to them to later debit the team's account and credit the individual accounts as they see fit.)
Which account should be debited? We will find an answer to that question by considering who received something -- in form of an improved path -- and didn't give anything in return. The recipient was, of course, the public/community. The improved path is open for anyone to use.
Let's look at two options:
1. Debit the accounts of the private sector directly.
This is equivalent to a lump sum tax. The outcome is quite simple, and it allows straightforward comparison to taxation in the absence of a monetary system. Whereas in the pre-monetary world the community would provide,
via the Town Council, certain pre-selected goods to those working in the project, now the same outcome is achieved with a greatly increased freedom of choice. Consider the following scenario:
The five men comprising Path-o-logistics get their accounts credited for SK2,000 each. At the same time the accounts of 200 townsmen, comprising the part of the population eligible for voting ("No taxation without representation"), are debited with SK50 each (SK10,000 in total; this group presumably includes the five members of Path-o-logistics, so that their net credit is reduced to SK1,950).
To make the comparison between monetary and non-monetary world easier, let us assume that the only good traded between individuals is a sack of wheat, the price of which is fixed at SK50.
The five men have provided a service worth 200 sacks of wheat (price SK10,000) to the community. For this they get 39 sacks (price SK1,950) each, 195 sacks (price SK9,750) in total. It is as if they had contributed one sack each to the "common good".
The rest of the taxpayers, 195 in total, give up one sack (price SK50) each, too. As we see, this amount matches the amount of sacks the five men receive; that is, the rest of the taxpayers end up providing 195 sacks of wheat to the workers in the project, without earning any right to receive something in return (as a group they received an improved path, though).
In the non-monetary world, the 195 sacks would have gone from the 195 individuals to the TC as tax payments and the TC would have used those sacks to pay the five men. In the monetary world, exactly the same outcome is achieved with a fraction of transportation costs, timing issues and bureaucracy, not to speak of goods lost in transit.
2. Create a new account, Public's General Account (PGA), and initially debit that account.
A debit/negative balance on the PGA means that the community as a whole has received something from someone, while giving nothing in return. How can the community give back? Either it gives/sells goods previously under common ownership or then individuals give/sell goods, without earning a right to take goods later. The former option is straightforward accounting-wise: the PGA is credited for the sale of goods and the buyer's account is debited, just like in case of any private transaction. The latter option means that the PGA is credited, not for the sale of goods, but in order to amend the records; in this case, to transfer the obligation to give up goods to a private party, whose account in turn is debited. The latter we call, of course, taxation. As you can see, it leads to the same outcome as option 1 above (the direct debit).
[End of story]
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It might be useful to compare this to the
cartalist description of government spending and taxation, which you both are familiar with.
If we take the Town Council to be the government, and the recordkeeper to be the central bank, then the setup is the same as in most of the cartalist descriptions. Right? The only difference would be the
narrative. Whereas I tell a story about a LETS-like system with no money changing hands, the cartalists would tell you how the Town Council spends money, its IOUs, into circulation and these IOUs are later accepted by the TC as a payment for taxes.
By describing the phenomena from the LETS perspective (or gift economy perspective), we achieve a synthesis between 'credit theories of money' and 'bullionism' (broadly defined; I take Nick Rowe to be a bullionist). The proponents of the latter view are right in insisting that the credit balances ("money") are not liabilities to the government, while the proponents of the former view are right in that money is not net wealth for the community as a whole. This synthesis helps us to understand why, for instance, Eric Lonergan ("bullionist") and Randall Wray ("credit theorist")
ended up speaking past each other.
Do you follow me, JP? I'm happy to elaborate.
edit: Perhaps my 'bullionist' could as well be 'monetarist'. Here's what I meant with money being net wealth:
Milton Friedman & Anna Schwartz (”The Definition of Money: Net Wealth and Neutrality as Criteria”, 1969):