Taxation, Inflation, and War

0:00As Dr. Thornton had mentioned yesterday, in an earlier article called War and the Money Machine Concealing the Costs of War Beneath Available Inflation, I discussed the roles played by taxation, debt and monetary inflation in financing war and hiding its true costs. In this lecture, I will focus on the government's unrestrained power to tax, inflate and issue debt, How governments unrestrained power to tax, inflate and issue debt creates conditions that lead to war. Commentaries on war stretching back more than two millennia to the Peloponnesian Wars have enshrouded the fundamental causes of war in an almost impenetrable fog of myths, fallacies and outright lies. Accordingly, war is generally portrayed as the inevitable outcome of complex historical forces and Accidental Circumstances, generally beyond the control of human combatants.

0:56Fortunately, there exists a well-developed science of purposeful human action. This science is referred to as praxeology and includes economics, which is its best developed branch. But the basic principles of praxeology can be applied to analyzing any branch of human action or human activity, including war. What we might call the logic of war-making is a relatively undeveloped area of the science of human action. Its elaboration is therefore especially necessary for dispelling the mythology of war and shedding light on its true origins and nature. The basic axiom of this discipline is that war is the objective outcome of the human endeavor of war-making. As a human activity like any other, war-making is a product of reason, purpose and choice.

1:45of Choice. Therefore, proper analysis of war must take into account the goals of the war makers, the means at their disposal, the benefits they anticipate from the war, and the costs they expect to incur in executing it. It also must distinguish in a general way between the individual beneficiaries and victims of war. These victims include not only the vanquished group of war makers and those who reside in the territory they control, but especially the productive inhabitants of the region controlled by the victorious organization of war makers. At this point it is necessary to define war and distinguish it from other forms of inter-human violence in order to circumscribe the bounds of the logic of war making within the general praxeological system.

2:31I propose to define war as violent conflict between two groups of humans, One or both of which is an organization which effectively exercises the monopoly of violence over definite territory. Let me give you a few concrete applications of this definition. A conflict between two American Indian tribes over grazing land that sustained buffalo herds, even though it involved the most cruel and pitiless violence, and I recommend the book called The War Before Civilization to show you that the primitive tribes were not peaceful, Peace-loving, nature-loving groups that you think they are. So even though it involved the most cruel and pitiless violence, it was not a war because neither tribe was under the dominion of an identifiable organization that laid claim to a monopoly of violence over a given land area.

3:26The Indian wars of the late 19th century were very definitely wars because after the Civil and the Federal War, the Federal Government was the ultimate arbiter of when and by whom violence could be resorted to within the United States and its territories.

3:45Historically, the typical organization of war makers have been national governments, especially those of the democratic variety. I am here using the term democratic in the broad sense that includes totalitarian democracies controlled by parties such as the National Socialist Party in Germany and the Communist Party in the Soviet Union. These parties came into being during the age of nationalist mass democracy. In any case, all governments past and present, regardless of their formal organization, involve the rule of the many by the few. In other words, all governments are fundamentally oligarchic. The reasons are twofold. First, governments are nonproductive organizations and can only subsist by extracting goods and services from the productive class Thus, the ruling class must remain a minority of the population if they are to continually extract resources from their subjects or citizens. Genuine majority rule, quote unquote, on a permanent basis is impossible because it would result in an economic collapse as the tribute or taxes expropriated by the more numerous rulers deprive the minority engaged in peaceful productive activities

4:58The second factor that renders oligarchic rule practically inevitable is related to the Law of Comparative Advantage. The tendency towards division of labor and specialization, based on the unequal endowment of skills, pervades all sectors of human endeavor. Just as a small segment of the population is adept at playing professional football or dispensing financial advice, so a tiny fraction of the population tends to excel at wielding course of power.

5:44As one writer summed up this iron law of oligarchy, quote, in all human groups, at all times, there are the few who rule and the many who are ruled, unquote. The inherently non-productive and oligarchic nature of government thus ensures that all nations under political rule are divided into two classes, a productive class and a parasitic class, or in the apt terminology of John C. Calhoun, the American political theorist, tax payers and tax consumers. The king in this court, elected politicians and their bureaucratic and special interest allies, the dictator and his party apparatchiks, these are historically the tax consumers and not coincidentally the war makers. War has a number of advantages for the ruling class. First and foremost, war against a foreign enemy obscures a class conflict that is going on domestically, In which the minority ruling class coercively siphons off the resources and lowers the living standards of the majority of the population who work and pay taxes.

6:45Convinced that their lives and property are being secured against a foreign threat, the exploited taxpayers develop a, I'm going to use a Marxian term here, false consciousness, quote unquote, of political and economic solidarity with their domestic rulers. Domestic Rulers An imperialist war against a weak foreign state, for example Grenada, Panama, Iraq, Iran, is especially enticing to the ruling class of a powerful nation because it minimizes the cost of losing the war and being displaced by domestic revolution or by the rulers of the victorious foreign state. A second advantage of war is that it provides the ruling class with an extraordinary opportunity to intensify their economic exploitation of the domestic producers, through emergency war taxes, monetary inflation, conscripted labor, and the like.

7:37The productive class generally succumbs to these increased depredations on its income and wealth, with some grumbling, but little real resistance, because it is persuaded that its interests are one with the war makers. Also, in the short run at least, modern wars appear to bring prosperity to much of the civilian population because it is financed in large part by money creation. I will return to this point in a little more detail later. We thus arrive at a universal, praxeological truth about war. War is the outcome of class conflict inherent in the political relationship. The relationship between ruler and ruled, parasite and producer, tax consumer and tax payer. The parasitic class, the rulers, make war purposefully and deliberately in order either to conceal and ratchet up their exploitation of the much larger producer class.

8:31It may also resort to war making to suppress growing dissension among members of the productive class. For example, libertarians, anarchists, etc. who have become aware of the fundamentally exploitative nature of the political relationship. Furthermore, the conflict between ruler and rule is a permanent condition. This truth is reflected, perhaps half consciously, in the old saying that equates death and taxes as the two unavoidable features of the human condition. Thus, a permanent state of war or preparedness for war is optimal, especially from the point of view of a large exploitative state. Take the current U.S. government as an example. Just an example.

9:16It rules over a relatively populous, wealthy, and progressive economy from which it can extract ever larger bootles of loot without destroying the productive class. Nevertheless, it is subject to the real and abiding fear that sooner or later, productive Americans will come to recognize the continually increasing burden of taxation, inflation, and regulation So the U.S. government, the most powerful megastate in history, is driven by the very logic of the political relationship to pursue a policy of permanent war. From the war to make the world safe for democracy and the war to end all wars, to the Cold War and on to the current war on terror, The wars fought by U.S. rulers in the 20th century have progressed from episodic wars restricted to well-defined theaters and enemies to a war, the war on terror, without spatial or temporal bounds against an incorporeal enemy.

10:20Okay, we call this enemy terror. A more appropriate name for this neoconservative contrived war would involve a simple change in the preposition to the name war of terror. Because the American state is terrified that productive, work-a-day Americans will awaken and put an end to its massive predations on their lives and property, and maybe to the ruling class itself. In the meantime, the war on terror is an open-ended, imperialist war, the likes of which were undreamt of by infamous war-makers of yore, from Napoleon and Alexander the Great to Hitler and his generals. The economist Joseph Schumpeter, a native Austrian, but only on the periphery of the Austrian School, was one of the few non-Marxists to grasp that the primary stimulus for imperialist war is the inescapable clash of interests between rulers and ruled.

11:21Taking an early megastate, Imperial Rome, as his example, Schumpeter wrote, and I'm going to read a lengthy quote from Schumpeter because it's extremely insightful. Here is a classic, and he's writing about Rome, here is a classic example of that policy, which pretends to aspire to peace, but unerringly generates war, the policy of continual preparation for war, the policy of meddlesome interventionism. There was no corner of the known world where some interest was not alleged to be in danger or under actual attack. If the interests were not Roman, they were those of Rome's allies. And if Rome had no allies, then allies would be invented. When it was utterly impossible to contrive such an interest, why? Then it was national honor that had been insulted. The fight was always invested with an aura of legality. Rome was always being attacked by evil-minded neighbors, always fighting for a breathing space.

12:16The whole world was pervaded by a host of enemies, and it was manifestly Rome's duty to guard against their indubitably aggressive designs. They were enemies who only waited to fall upon the Roman people. No attempt can be made to comprehend these wars of conquest, and I'm still quoting Schumpeter, from the point of view of concrete objectives. Thus, there is but one way to an understanding, scrutiny of domestic class interests, the question of who stood to gain, owing to its peculiar position as a democratic puppet of ambitious politicians and as the mouthpiece of a popular will inspired by the rulers. He's talking about the Roman proletariat here. The Roman proletariat did indeed get the benefit of the war booty in the form of bread and circuses.

13:06So long as there was good reason to maintain the fiction that the population of Rome constituted the Roman people and could decide the destinies of the empire, much did depend on its good temper. But again, the very existence in such large numbers of this proletariat, as well as its political importance, was the consequence of a social process that also explains the policy of conquest. For this was the causal connection. The occupations of public land and the robbery of peasant land formed the basis of a system of large estates operating extensively and with slave labor. At the same time, the displaced peasants streamed into the city and the soldiers remained landless, hence the war policy. The Latafundian landowners, that is the large landowners, were of course deeply interested in waging war.

13:56The alternative to war was agrarian reform. The landed aristocracy could counter the perpetual threat of revolution only with the glory of victorious leadership. It was an aristocracy of landlords, large-scale agricultural entrepreneurs, born of struggle against their own people. It rested solely on control of the state machine. Its only safeguard lay in national glory. An unstable social structure of this kind merely creates a general disposition to watch for pretext for war, often held to be adequate with entire good faith, and to turn to questions of foreign policy whenever the discussion of social problems grew too troublesome for comfort. The ruling class was always inclined to declare that the country was in danger, when it was really only class interests that were threatened.

14:48This lengthy quotation from Schumpeter vividly describes how the expropriation of peasants by the ruling aristocracy created a permanent and irreparable class division in Roman society that led to a policy of unrestrained imperialism and perpetual war. This policy was designed to submerge beneath the tide of national glory and war booty the deep-seated conflict of interests between expropriated proletarians and landed aristocracy. Ernest Hemingway once wrote, the sinews of war are five, men, money, materials, maintenance, by which he meant food, and morale. In a modern market economy, Hemingway's five M's in practice boil down to one, money. A political oligarchy that rules and exploits a large and productive economy need only get its hands on sufficient money funds in order to obtain the men, material and maintenance necessary to carry out its war plans.

15:45An ever-expanding supply of money and debt also boosts the morale of the civilian population by creating the temporary illusion that war brings prosperity. But once the initial stages of inflation give way to crisis, recession, price controls and rationing, the productive class becomes aware of the enormous destruction of real income and capital that the war entails, aside from its purely physical destruction of lives and property. At this point, the bitterly disillusioned and demoralized producers begin to realize that their own interests are not identical with those of their imperialist rulers. So what are the means available to the productive class for putting an end to the imperialist war, sucking the lifeblood out of their economy?

16:31Vladimir Lenin wrote, Convert the imperialist war into a civil war. All consistently waged class struggles in wartime and all seriously conducted mass action tactics inevitably lead to this, unquote. But as the logic of war making reveals, there are a number of tactics available to the productive masses short of violent revolution that strikes at the sinews of the imperialist war machine. War Machine. The first is the general strike, an Atlas-Shrugged scenario writ large in which the producers go on strike for lengthy periods of time and live off their accumulated savings. This chokes off the taxes that pay for the war as well as the supplies needed to execute it. Mass boycotts of goods and services produced by enterprises immediately profiting from the War, as well as central government enterprises such as the post office, strikes directly at the revenues of the ruling class, or strike directly at the revenues of the ruling class.

17:38Withdrawing all bank deposits and using only cash in exchange would cause fractional reserve banking to grind to a halt for a lengthy period of time, as the monetary authorities would have to freeze all bank accounts until sufficient currency was printed and delivered to banks throughout the country. This would take months and would completely disrupt the monetary and financial system, in the meantime forcing the government to resort to the archaic and costly technique of literally printing up and shipping new currency to pay for its war expenditures. Selling government bonds en masse, causing their prices to plunge, would wreak havoc with the balance sheets of banks and other financial institutions and make it extremely difficult for the government to issue war debt. These mass action tactics would have one additional and very important benefit.

18:27They would cause a deep rift in the ruling class, which in a plutocratic democracy such as the U.S. includes significant elements of big business and big finance. Those corporate firms and financial institutions suffering the greatest hardships would turn against the war and the ruling class would shrink further. The prospect of civil war with its former allies would loom and it would have a strong It's a strong incentive to halt its war-making endeavors. Before I end, one quick anecdote. When I was a student in Boston, it was 1971 and they were doing the mass protests against the Vietnam War. There were a group of radical economists at Harvard and MIT and a number of their graduate students that took out a big advertisement There was a town newspaper in Boston that was read mainly by the student population. It was called Phoenix, I believe.

19:26And in that advertisement or it wasn't really an advertisement as much as a call to action, they asked every college student in Boston, and there were 250,000 of us out of a total population of 600,000, on the following Friday to withdraw all the money from their checking accounts. In which case, the banks in Boston would grind to a halt, at least until they were sent more currency by the regional Federal Reserve Bank of Boston. I was an economics student at the time, I was a junior, and I knew enough that this would actually work. I said, this is great. We discussed a little bit. Well, that was on Monday. By Friday, everybody was out partying where everybody forgot that no one drew anything from any checking account.

20:15But these actions, which are peaceful and legal, as far as I know, the logic of war-making tells us, and it's really an allied discipline with economics, which is also praxeologic, it tells us that there are certain consequences, certain definite consequences that would occur that would put pressure on the imperialist ruling class to bring the war to a halt. So, I'll end by saying that my intention has not been to present a rigorous account of the logic of war-making, which has yet to be fully developed. Rather, I've just tried to illustrate how general truths can be deduced and common myths can be dispelled by simply treating war as war-making, okay, as a purposeful human action. Thank you.

21:03There are a number of writings coming from the left, which make it seem like a parallel argument, but they're talking about not governments or oligarchies, they're talking about corporate interests, and often they'll even confuse the word capital with corporate interests. Do you see any hope for a time to clarify the semantics there and make it more related to the left on these points?

21:58and therefore must extract resources from producers. That is setting up a productive and a non-productive class or a parasitic class, okay? We have to be very clear about that. But once we're clear about that, I think we can talk about some corporate interest, not all, but some corporate interest being sort of incorporated into the ruling class. So the terminology, I think we have to be clear on terminology, what we mean by these things, okay? So when I quote Lenin, a class struggle to me is a libertarian class struggle, which is really the older notion of a class struggle. It's the producers against the parasitic class or the tax consumers, or using tax consumers and taxpayers. I think that's a key piece of terminology that will distinguish us from the left.

22:45Walter? Question here. A story about your prison days in the womb of an antisocial also. There was a protest against the Viet Cong war and all the lefties came out of the US out of Viet Cong. There were about 10 of us military men and we had to find the US out of the bomb.

23:08One of the justifications you hear for the war in Iraq is that it makes our oil keeper Does this make any sense?

23:46Would you have said that's also true for the first Iraq war when Hussain was in Kuwait and potentially moving on?

24:16As a war maker himself, what he would like in this case is more resources. So what is he going to do when he takes over the oil in Kuwait? Sell it. Okay, thank you very much, Joe.