A Taxless Economy Knows Not a Rich Man

First Published @ nolanchart.com on March 2, 2009

A study of primitive economies shows that they have no concept of producing a surplus. When they do, the surplus is communally owned. There is no distinction in individual status and no concept of privately controlled possessions. There is neither individual accumulation nor inheritance.

Such an economy is marked with poor standards of living for there is no economic motivation to excel in one's work. As there is no private gain, there is no concept of taxation either. The big leap for a society is when it begins to recognize an individual's rights over the fruits of his labor. It unleashes the creative and work energies of the people in their individual capacities, brings forth specialization of trades, often some form of money, and the possibility to accumulate and defer the consumption of the rights earned.

Accumulation of wealth in a modern economy requires many institutional arrangements to protect it. The legal system to enforce contracts and inheritance, the local authorities to recognize the ownership of property, the police to prevent another from taking away one's earned or inherited wealth. It is often stated that Capitalist economies work on "survival of the fittest" and allow the better person to achieve more for himself. Whereas this is true for the first few generations of people as a societal economy turns Capitalist, it is not fully true thereafter. A few generations down the line, many factors skew this "self evident 'truth'".

Left to itself, in this "system", different people, by virtue of being born in different economic strata, start from different start lines, receive vastly different education, and by and large, get equipped for vastly different career paths. For one born in the middle or working class, exercising "free choice" in education and career requires you to be either born a genius of Einstein proportions (to receive a full scholarship) or have willingness to start your adult life slapped with a heavy dose of debt.

The vibrancy and longevity of a Capitalist system lies in the continuous effort of the State machinery to level the playing field between the members of the various strata of society, in terms of opportunity to contribute to economic activity and profit from it. In a sustainable Capitalist order, the people that do succeed forego a significant part of their accumulations to maintain the infrastructure and paraphernalia - physical, intellectual and moral - that enables them to make, and hold on to, their private gains, and to bequeath the same to their children. Their tax pay-in also works to inject fair competition for their own progeny from the progeny of those that didn't make it in this generation.

Anything less makes the system inherently unstable and susceptible to rejection by the "remaining 95%" - when they see hope neither for themselves nor their children; when they are confronted by an "order" that perpetuates and inflates inequality from one generation to the next as a systemic feature. A vibrant Capitalist system needs to be like a spring, always attempting to bring you towards the 'mean position', more strongly the farther away you are from it - requiring of you to continually innovate and persevere to stay on top. THAT is the creative paradigm a well conceived Capitalist system needs to have, to take society to the pinnacle of achievement.

"Once Successful, Forever Entrenched" Banking on "Trickle Down" is actually quite a recipe for "crumble down" - like a 100 story building that has 80% of its weight in the 20 stories right at the top.