Government is Right to Fear Bitcoin; it will Remove State Monopoly Power
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Government has more than its fair share of power and money. Rather than viewing the government as distinct from big business, I view them as similar beasts, it’s just that government is funded by taxpayers, while big business is funded by government and private enterprise.The rise of cronyism, where large corporations cosy up to government for ever greater hand-outs of public money, is one symptom of this ‘balance of power’ situation. As government grows, so the free-market suffers, and the more public money is spent on the public’s behalf by government, the more special interest groups there will be attempting to get their hands on this ‘free lunch’.
Government acquires your property (money) through an act of coercion, and spends it on whatever it sees fit. Some of this expenditure will benefit you, but the simple fact is that your money will never be spent effectively by other people. Individualism; where free markets, guided by self-interested individuals, choose the best allocation of capital is the most efficient way. The amount of our money spent by government on our behalf has been rising steadily over the last few decades, and currently stands at 44% of GDP. While it is true that some activities are best handled by a centralised authority – military and police forces for example – the bulk of the government departments (and there are many) are not only unnecessary, but are actually injurious to the economy, detracting from the free-market and tending towards inefficiency and bureaucracy. There is no reason why education, healthcare, business, energy and countless other functions cannot be handled by the private sector at the local, most individual level possible.
When government runs the show, it spends money by decree. This is a very socialist view that seems to be commonplace in the late 2010’s; that overarching policy, manufactured by technocrats, is the best way to organise our affairs, rather than the specific desires or wishes of individuals.
Much of the expenditure is wasted in the bureaucracy inherent in any activity where individuals are doing things, not because they want to or because they instigated the act, but because they have been told that they should. As a result, project leaders are ill-informed, and spend most of their time asking themselves what they are doing and why, and then measuring their performance against the initial brief. A private sector business would be far more efficient and effective, not only for having initiated the whole exercise in the first place. It’s also interesting how putting your own money on the line helps to focus the mind.
how much of your money is spent on your behalf by someone who doesn’t understand you, doesn’t know your situation and desires, and cares very little about your own specific circumstances
Given that government makes the rules and enforces those rules by means of force, and given that politics is more interested in playing the game of politics and re-election than it is in your specific wishes (hence the recent referendum result, which went against the majority of politicians) there would seem to be no end in sight to the increase in state appropriation of our money. That most people think nothing of handing over 40% of their earnings to someone else to spend on their behalf is symptomatic of a loss of conservative values in Britain, and the rather excellent sales job of Tony Blair and his successor David Cameron.
As 1st June approaches we must remember (civil servants look away now) to celebrate our tax-freedom day #taxfreedomday. Up to that date, all of the money you have earned has gone to the government, afterwards, you get to keep the rest for yourself. It does bear thinking about just how much of your money is spent on your behalf by someone who doesn’t understand you, doesn’t know your situation and desires, and cares very little about your own specific circumstances? Most importantly, it might be wise to ask yourself whether you feel that you are getting good value for that money, or whether you think you could do a better job of spending your money yourself.
You may feel that this situation is acceptable, that the government has oversight of the best causes. Perhaps, but wouldn’t you like to have some say in the specifics of where your money was spent? Do you give to charity, or do you feel that you pay enough in taxes to warrant not giving to charity? You may be surprised, even relieved, to learn that many charities gain the largest portion of their funding directly from government, while donations from the public are a distant second place. When you pay the government such a high proportion of your income in taxes, you effectively outsource these kinds of decisions to someone else to administer on your behalf. If this is what you want, fine, but wouldn’t you like to have a say rather than hand over your compassionate responsibility to the government?
But I digress. The point I want to make is that this government focussed power is waning. The reason? Bitcoin and other cryptocurrencies.
The simple fact is that government needs to extract taxes from the public to fund its activities. Where there is a shortfall in tax collected, government may choose to borrow money from the public (via issuing government bonds), otherwise it must reduce its size to suit its budget. As long as government can increase taxes to fund it activities, its power and influence will grow.
The Public Sector is a Bumbling Mess
If you have ever worked in or with the public sector – and it’s hard to imagine, given its size, that you haven’t cone across it in some way shape or form – you will have come across the kind mentality which sums up ineffective government spending: Projects are allocated funding for a specific reason which must be used within the budget year, or it is not available the following year. Departments don’t spend where there is a need; they spend because there is a budget which needs to be spent. This demonstrates two primary dysfunctions of government spending:
1) It can lead to the activity being carried out in an unplanned, unfocussed or haphazard manner, regardless of the specific current need
2) Government spends public money, where it is available, not based upon whether it is appropriate to do so.
Enter Bitcoin, a marvellous thing. It is exciting because it cuts out the banks which collect taxes on behalf of the government, and allows direct exchange of money between individuals without government being able to tax. What Bitcoin and other cryptocurrencies have to their benefit is that they are decentralised, as step towards the denationalisation of money that F.A. Hayek wrote about in his paper of 1976 titled “Denationalisation of Money”. Hayek, a free market proponent argues that government monopoly of money is economically injurious, and that the people should be free to choose their means of exchange. He saw a free market of money, where competing issuers of money, rather than being a bad thing, would be the only way to encourage prudential currency. If issuers started to overprint their money, the value would fall and the free market would seek other means of exchange which held their value better. Under the current government monopoly of the money supply by central banks, the situation is geared up – as one might reasonably expect it to be – in the benefit of the government. Inflation – a unrepresented tax on the public and means to push earners into higher and higher tax brackets – is publically stated as their aim. The government is aiming for your money to devalue by 2% a year. Does that sound like a good way of holding your wealth?
Property Tax – The Future?
Governments then must seek other ways of collecting taxes; those that do not rely on income, or sales, and those which are not geographically constrained (on individuals). The logical answer is property taxes. It is very hard to hide a piece of land. You cannot put it in a Cayman Islands offshore tax haven. It is here in the UK. Pollution would also be taxed, not carbon dioxide which is a beneficial gas, but toxic emissions. The following taxes would be abolished:
- Income Tax
- Corporation Tax
- Stamp duty land tax (to encourage the transaction of property to those best placed to use it)
- Inheritance tax (earned wealth would be able to be passed down)
- Alcohol and drugs inc. tobacco (this encourages immoral activity)
- Council Tax (replaced by property ‘land’ tax)
- Betting tax
- Fuel Duty (replaced by pollution tax and property tax on the vehicle)
- Air passenger duty (replaced by pollution tax)
- Insurance premium tax
- Capital gains tax (under a land tax, there would be very little unearned capital gains to tax)
- Business Rates (replaced by property tax)
- National Insurance
- Vehicle excise duty (replaced with property tax)
You might argue that implementing a property tax would be difficult to do, but when you consider that it would be virtually the only tax to administer, and a transparent one at that, the abolition of the other taxes would free up enough resources to do a good job of the remaining tax. Pollution tax would be based upon emissions of pollution (motor vehicles, aircraft, combustion activities, discharges into water courses, etc). Those freed up from the HM tax office could go and do something productive with their lives.
You may consider this scenario fantastical, but when cryptocurrencies take off, when people realise that government fiat money is not a very good option, when they realise how much money they are giving to the government, and when they realise that they can avoid funding the state, government will have to act to preserve itself, and property taxes are pretty much their only option. This all bodes well for the UK economy which has become a one trick pony of late, with the sales moniker ‘Property Ponzi UK’ attracting global investors in the British property pyramid scheme. A tax basis on property should mean moving away from rent seeking activities toward productive, entrepreneurial, free market based activities, and hopefully moving towards a more progressive future with a smaller government and more effective spending of your money, by you.
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Also published on Medium.