Using Tax to Prevent Damage to Capital- One of its Best Uses

Capital when its working right is an efficient value transfer mechanism for useful exchange. When its not people can lose faith in it, which can be deadly for a fiat currency but not great even for metal monies. #4 below describes the situation where tax can be used to preserve capital as an honest means of exchange.

  1. Inflation. People find that they cannot afford stuff anymore because of printing money or excessive price increases or other factors. It also means the terms of credit will not be good.

  2. Deflation. The supplyside can’t get its return on investment and can’t cover depreciation etc., you can’t sell stuff for what you paid for it and as it continues you hold your breath until you pass out.

  3. Rotting capital. People get the money but they don’t spend it. Its motive power is removed and it rots so to speak. A state can try to print more money but surge of captial to fill the gap can cause more hording and a situtation that runs away.

  4. A rise in people who accumulate a lot of wealth but do so by means that do not exchange fair constructive value.These are people are not bargaining fairly or getting fat without just contribution- the law’s unjust enrichment is one case. They would be people who were not constructive entreprenuers, people who weren’t providing good value, it could be crime or vice or rent seeking. In this case a tax is both dissuasive of such behaviors which prevents damage to the utility of capital but is also used to lessen the actual impact and continuing impact of such damaging exchanges. Those exchanges occur but some portion, even a punitive amount, of what damaged the capital by not being the fair exchange of value through contribution can be put back into circulation, even if arbitrarily. This is good becasue in the case of people doing non constructive things or engaging in something-for-nothing or scam or fraud like things, their accumulation of capital will likely be used as a lever accelerate such behavior. Better to put it back as quickly as possible into the stream of solid value exchange. That is the theory of progressive taxation which “disincentivises greed.”

Its almost like undoing a crime after the fact. But its less personal. No one has to necessarily be accused and there is still buyer beware and the goods don’t have to be timely returned to the right person, but everyone benefits from currency and capital stability,