20 January 2009

Free Banking Needs a New Tax System

Over at the Guardian, George Monbiot has published an article suggesting that alternative currencies could be a way to keep businesses running without giving increasing levels of assistance to the banks. It's a suggestion which touches on LETS and free banking, which I'm generally supportive of, although I'm not sure how successful the approach would be in tackling the current situation in a short time frame, given the scale of the problem and the increasing importance of on-line trade.

Playing Devil's Advocate, the only problem I can envisage with employer issued scrip (aside from the employer going bust) is the situation which arose in the cotton mills. Many of the mill owners paid their staff with tokens which were redeemable at the owner's shop, which generally sold shoddy and over-priced goods. In effect, it allowed the mill owner to suppress wages after they had been paid by increasing shop prices or reducing quality. In general, I wouldn't expect that to be a concern now, except in areas where there are few employers working to attract staff. The most likely would be the local authority, which is another reason why getting as many activities as possible out of government control and into a competitive marketplace is a good idea.

The real problem for governments when alternative currencies are used is that they break the tax system; how can somebody be expected to calculate their tax free allowance when they're being paid in all manner of different tokens for goods and services, not Sterling? Even with a flat tax taking a fixed percentage of whatever people earn irrespective of the currency, it would make financial planning extremely difficult. The best way I can see to resolve the problem would be to move to a tax system based on resource use charges (land value taxes, oil drilling licences, broadcasting licences, etc.) and user fees for government services, all levied in sterling. That way, tax would only be levied when the individual is transacting directly with the state, so if somebody didn't directly obtain any government services or natural resources, they would have no need to pay taxes directly and therefore would have no obligation to use Sterling. With no taxes on sales or income, alternative currencies would be free to flourish while the government would be able to levy all taxes in Sterling. People would be free to opt out of having to deal with the state financially and I think that has to be a good thing.

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