The title of this article is also a title of a book by Murray Rothbard, presented to me while at university in the late 1990s. In the book the reader is immediately introduced to the notions that governments are inherently inflationary since (a) governments have no means of generating revenue without taxation, which makes political leaders unpopular, and so (b) the tendency is to print new (akin to “counterfeit”) money and (c) that the consequent “dilution” of the value of currency that causes price inflation, may be simply regarded as “taxation without consent.” Today, this may be a perspective worth considering.
Here we may pause to note that the agreed $4.7 billion bailout from the IMF and the debt that citizens will be forced to service in the future is acquired without consent of those who will service it. There was no national debate on the subject. And how could there be? NGOs are but a shadow of their former selves, press freedoms have been limited by law, and private citizens have no constitutional guarantees to speak (or think) freely -- if they do so against “interests of the state.” It’s all there in black and white.
The national “think tanks” frequently report on economic policy and the dangers of macroeconomic currents. However, their reporting stops being intelligible the very moment something interesting is said, wrapped in linguistic abstractions. As a former employee of one of these think tanks, I know they have the ability to speak plainly but choose not to. This “sophisticated” form of self-censorship is done by necessity, for self-preservation. But it’s not very useful to the general public and “the national interest.”
The debt that citizens will be forced to service in the future is acquired without consent of those who will service it
Who will dare to speak plainly? Tell us, revered economists, how will IMF’s austerity measures that involve currency devaluation, tax increases, and budget cuts, affect our savings and collective welfare? And returning to the title of this article, if our money sharply and quickly loses its purchasing power it may be a good time to ask: Is it really “our” money?
This question is not meant to be philosophical but legal. To illustrate -- in my youth I worked for a man, Christensen, who once served a six-month jail sentence in Sweden testing this presupposition. The case concerned whether or not coins that he had purchased were legally his own property. Christensen was a rebel of sorts, an antique book trader in his retirement, a jack of all traits type of man. In the 1960s he had made a small fortune by purchasing old x-ray prints which he then melted, to extract its silver content.
In the 1980s Swedish coins contained silver. Christensen took notice of the fact that the silver content of the coins was more valuable than the purchasing power of the minted coin. He purchased millions of such coins (directly from bank tellers) and melted them to extract the silver. He was eventually prosecuted by the government for destruction of public property. However, as per laws of the land his lawyers successfully argued that the coins were indeed his property. When he was jailed for tax evasion for not declaring profit for the enterprise, he continued to purchase the coins from within the jail.
In hindsight, Christensen’s actions were perhaps not entirely without merit. Certainly not without precedence. In times of economic distress, we often resort to hoarding gold, since if we purchase gold items, we can reasonably expect it to retain its value and laws to support the claim of ownership. But extending this logic to fiat money and presuming that money we earn, or purchase, is also “our” property seems dubious. Reportedly, over the past two years, private citizens’ accrued savings have lost about a third of its purchasing power. You and I may not currently face economic distress as a result, but millions of citizens currently face distress and may feel as having been robbed blindly (taxed without consent).
Last week’s press releases informed us that we are now to be further taxed and significantly so in the coming years, as a condition for the pleasure of doing business with the IMF. Unfortunately, these taxes will be mostly indirect taxes (VAT) which is passed on to consumers and as if hidden in the price of goods. Going largely unnoticed, VAT is often referred to as the “low hanging fruit” easily collected and typically prescribed by the IMF. But it will likely hurt low and middle income come takers the most. Corporate taxes are already comparatively high in Bangladesh, and collection efforts are hampered by non-compliance. In efforts to increase compliance the government may now lower it.
Taxes are never welcome, but do seem unavoidable. Today, only about two million citizens pay direct taxes on income in Bangladesh (1% of the population). This is so because levying direct taxes further will cause resistance among voters, and will be administratively cumbersome. But over the long run direct taxation on income is better for citizens, since it will awaken them from their slumber and force them to speak their mind and take a more active role in the nation’s future. Arguably it is also better for governments. Compared to the shocks of price inflation it is less likely to destabilize the polity.
Mick Moore of the Institute of Development Studies, Sussex, argued precisely this in 2008, when he said that direct taxation historically comes with a “governance dividend.” An obvious example is that taxation on incomes makes party politics more relevant for voters. In Western democracies the main substantive content of competitive electoral politics is really all about budgets -- how they are raised and how they will be spent. It is this debate which distinguishes the traditional left and right, and the compromises made in the name of national interest and welfare.
But neoclassical economists (like the IMF) are not trained to think in “political economy” terms. This is partly why IMF austerity measures cause so much distress, protest and misery in other countries that borrow from them. The neo-classical tradition, to think strictly in narrow economic and mathematical terms began some 150 years ago.
Over the past two years, private citizens’ accrued savings have lost about a third of its purchasing power
Before that, the more holistic study of “political economy” had roots in moral philosophy beginning with the analysis of Scottish philosopher Adam Smith (Wealth of Nations 1776), whose work can be traced back to the philosophy of Thomas Hobbes, John Locke, and notably the real-politics perspective of Nicolo Machiavelli (1469–1527). In this Machiavellian world of ours -- the world of insecurity, unpredictable shocks, failure in international diplomacy, exploitation and violence, we are sorely in need of more holistic approaches to national problems of the global South.
The idea that money, banking, and mathematics can solve our long term problems seem increasingly absurd. If the past is an indication of the future, IMF austerity measures, meant to balance our over-cooked books will do nothing but cause more economic misery to the common citizen. Increased taxes on consumption and budget cuts for social welfare may even cause political havoc and thereby hinder economic growth -- as in the days of “hartal politics.”
In conclusion, leaders of the government need better economic advice -- from within and from international organizations. While taxation is preferable to inflation, on the modality and focus of taxation (direct versus indirect) the advice from the IMF is wrong. Contra IMFs advice, a focus on direct taxation in income has the potential to bring back contestation in public life, governance by plurality and inclusion. Such an approach will be disharmonious, politically messy, and cumbersome. But, arguably, it is the lesser of evils.
The longer-term rewards for braving direct taxation and the disharmony that it entails, will be increased government legitimacy (and longevity) by reintroduction of a more democratic form of citizenship culture. Such an evolution of citizenship culture is more suited to a middle-income country, undergoing growing pains, and with aspirations of modernity.
Jens Stanislawski is an independent researcher.
