In their day, serfs apparently paid about 33 percent of their income to their betters. Today, Western citizens often pay close to 50 percent of their income for services provided by their democratic governments. Britain is probably ahead of America in this regard, but not by much. Some Scandinavian countries charge their top wage-earners up to around 70 percent, and this is often mentioned approvingly by those who defend progressive tax strategies. What is ironic is that under the current central banking regimes, government can actually print all the money it needs without resorting to taxes. Granted, the additional money might have an impact on price inflation, but it is certainly feasible.

For Americans anyway, one of the remaining mysteries having to do with the federal levies is why the income tax was passed around the same time as the bill enabling the Federal Reserve -- way back in 1913. There are various theories to explain this. One is simply that revenues were necessary. Another would be that having a tax-and-spend system obscures the workings of the American central bank and makes its money creation a little less obvious. A third explanation would be that the income tax is necessary to drain money from the system that the Fed has added in through its banks. However, this doesn't make much sense on close examination as the money extracted via an income tax is returned to the larger economy through federal spending of some sort.

We're inclined to favor the second alternative. Having now lived through a full-blown economic crisis, we find that much which was once theoretical and questionable has become fairly obvious. For free-market economists, such events as are now occurring provide a kind of time capsule illuminating debates long pursued. In the case of monetary versus fiscal policy what seems to become clear is that the argument over TARP funds of some US$700 billion is a great deal more public than the Fed's expenditure of trillions in secret and without a presentable accounting.

It is perfectly feasible that a central bank can indeed fund all of a nation's needs without a single drop of tax. In fact, were the central bank redirected toward government funding, there is no reason why a given central bank could not print the requisite funds and pay for government services out of the same electronic debt money now issued via money center institutions.

We return to previous considerations of central banking realty. Once one has created a money mechanism, its utility seems strictly one of tradition. Before the advent of central banking, banks were simply warehouses that lent funds based on the amount of gold and silver in their vaults. Of course there were many other ways that one could receive capital, through friends, neighbors or successful business ventures. But once central banking was introduced, the mechanism of bank lending was raised above all others, as a monarch is raised above all the others. The operation of bank-lending was somehow reconfigured not as a greater good, but as the greatest good.

Today, politicians throughout the Western world explain solemnly that "banks have to lend again." Thus, they lavish trillions, as if, throughout history, only the presence of banks and bank lending provided the potential for society's advancement . Yet is this so? Or may one continue the argument that it is human action - individuals trying to better themselves and their communities - that has resulted in most of humanity's most miraculous strides. We continue to like to think so.

The saddest part of the current economic crisis in our opinion is that it is so unnecessary. Were individuals merely allowed to manage their own affairs and their own money, the free-market itself would see that resources were appropriately distributed. Those who worked hard and well would likely be rewarded. Those who worked less hard and with less intelligence would receive lesser compensation. Those who did not work because of indolence or injury, would receive some sort of community care, usually through religious auspices.

Is this sort of approach so awful? What hubris makes it possible for us to think that elected officials can distribute wealth more wisely than the invisible hand? What makes us so certain that our elected officials are wiser, fairer, more efficient. In fact, there is much evidence to the contrary. The tithes demanded by central governments continually rise even as income and opportunity continue to fall. The money that Western governments demand now from citizens will not likely subside any time soon. In fact, the demands and tithes may rise.

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© 2009 The Daily Bell

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Posted in Monetary Commentary, Guest Commentary, The Daily Bell