Taxes and History

0:00I'm going to talk about taxes and history, also sort of the pre-history of taxes, what is the likely way that taxes came about? There's a philosopher and writer named Franz Oppenheimer who distinguished between the economic and the political means of gaining wealth. There's the economic means, which involves production, you can, you know, farm and produce your own crops and produce wealth that way, or it can mean trade. And then there's the political means, where you just kind of take what you want. Now, obviously, taxation would fall under the political means.

0:50Taxation and the political means are very old. In fact, they might be considered older than mankind itself. You might consider the animal kingdom as operating according to the political means, sort of taxing each other all the time. You might consider a lion who takes down a zebra that he's taking what he needs, what he wants from the zebra. The Zebra is not giving it in return for anything else, it's just the law of the jungle. Or after words, when the lion is eating the zebra and a jackal comes over and snatches some of the food away from the lion, that's not economic means, that's sort of political means too, that's sort of taxing the lion in a way.

1:45You're just taking what you need, what you want from the lion. Now, that sort of law of the jungle is also what Montaigne, a French philosopher, he had what Rothbard, Murray Rothbard called the Montaigne Fallacy, which is that no man gains except what another man loses. And that's sort of the way it is in wildlife, that, you know, the lion doesn't gain unless the zebra loses, the jackal doesn't gain unless the lion loses. Another philosopher named Thomas Hobbes, he characterized the state of nature as a war of all against all, and that also describes the political means.

2:38Taxes usually aren't thought of in that nature, red in tooth and claw kind of way. It's considered more gentlemanly. And so it'd be interesting to trace how you can go from messy violence like that to gentlemanly violence, like the nice little process that we have when we fill out our tax returns and we mail our check to the government and it all seems very genteel and civilized. Another way of looking at the law of the jungle is what Mises called biological competition. Now, humans also engage in biological competition, sometimes in ways that are very little different from the animal way.

3:28For example, cannibals. When cannibals go to war with each other and one side wins, they just eat the other side, just like the lion and the zebra. But then there's also biological competition with non-cannibals too, because if some barbarians sack a city and they take no prisoners and they just kill everybody and just take all the food and eat all the food, that's pure biological competition. There's no society there at all. The inkling kernel of some sort of social thinking can start. Society is whenever someone takes someone else's purposes in mind with regard to their purposes.

4:16So with animal, with a barbarian who just sacks a city, they don't care about the other person's purposes at all. The Theory of Money and Credit

4:52Part of the inkling of a society because you're at least taking other people's actions into consideration a little bit. And then another step might be that the barbarians come and the people in the city say, look, you know, if you invade us, we're going to fight back and we're going to kill some of you and it's going to be really hard and eventually you'll probably win and you'll take our food. But if you don't invade us, we'll just give you this much of our food outright in exchange for you just leaving us alone. And so the barbarians might take them up on that offer. They might say, okay, it's easier this way. And so that is how booty, you know, booty is like when pirates just, you know, take what they want, how booty becomes tribute.

5:48And the tribute is a kind of a tax. You could consider the booty as a sort of a tax, but it's sort of a short-sighted tax, it's like a one-time short-sighted tax, where you don't realize that, oh, if I just take all the booty I want, then they won't be able to produce much anymore, and then, you know, I won't be able to get very much booty in the long run, whereas with the tribute, you know, it already seems a little bit more civilized, and it already seems more like what we would normally think of as Attacks, and sometimes the barbarian invaders instead of sometimes they'll take the tribute and then they'll they'll just leave sort of like the the golden horde these Mongols who would just sweep into Russia once in a while and they just take everything and they just leave or sometimes they would come in and they would settle in among their victims Tribute throughout the course of the year as they lived there. One group that did that

6:55were the Spartans. So the Spartans were these Greeks who came down from the north and they invaded these people and the native people became what were called helots and they lived They worked separately and they did all the work and the Spartans became sort of a nobility, a noble class that they didn't do the work, they just fed as parasites off of the helots. And so that's another step where booty can become tribute and tribute can become a sort of a tax. Another way of thinking about tax is as a ransom.

7:45What's a ransom? Who can tell me what a ransom is? Anyone?

8:00Well, we have ransom even nowadays. For example, if someone kidnaps someone and they would demand a ransom, the only way they'll let them live and let them free is if they get some money for it. So it's like money for your freedom. And you might think of tribute as money for your freedom, or taxation as money for your freedom.

8:57It's your money or your life, or you could say your money or your liberty. So in a way, a tax is also a ransom. There's an economist who made a distinction between stationary bandits and roving bandits. So roving bandits would be just like the pirates and the brigands and the barbarians who just sweep in and then sweep out. And the stationary bandits are just bandits who just settle in with you and eventually Conquest Theory of the State

9:56The thing that can happen when the bandits are stationary and they're living among you is that they want you to forget as quickly as possible that you're a bandit and so they will especially, they'll have intellectuals who sort of create what's called apologia, sort of intellectual defenses of the bandits and one apologia that they might say is that they might say, The odds will favor us if we are obedient to these rulers. Another thing that can happen that helps this apologia is the bandits will give a little bit of what they took back as a service.

10:50And people will start, especially if their, if this view is supported by the intellectuals, people will start thinking, wow, you know, that's so generous of them, that's so nice of them, that they're giving me some stuff, giving me some food, and they're taking care of me, forgetting where they got that stuff in the first place. It's sort of like there's this comic where there's like the state and he's got his hand in your back pocket and he's giving you money in front of you and it's like that's how it works and so that helps to legitimize the state, the bandits. Another thing that happens is the state will institute democracy, and what can happen with democracy is that one set of people can use the state to mug another set of people, and so the state kind of serves as like a mugging medium, like a middleman for mugging, Whereas, because if one group directly mugged the other group, you know, it would seem uncivilized, un-gentlemanly.

12:07But if they do it through the process of elections and voting for people who will take from other people and give to them, and then they do it back, then it all seems very... Then you get the myth that, like Obama recently said, the government is us. So you can't really worry about what we do because we're a democracy. The government is us. And that kind of legitimation really goes a long way in empowering the state to basically do whatever it wants. Now, another way of looking at the state is thinking about the difference between hunting and gathering and farming.

12:58So, you could think of it as the roving barbarians and pirates and brigands. By the way, Murray Rothbard said that the state is a band of brigands writ large. You can think of them as hunters, whereas you can think of the stationary bandit who settles in, you can think of them as farmers. That they don't just outright kill the people and just take things once, they live with the beasts, of just like a farmer lives with his pigs and chickens and takes the substance from them as they go along.

13:44And so when you look at a political map of the earth, instead of just seeing countries, you could kind of see a bunch of farms. And then that kind of puts wars in a different perspective, that wars can be considered as one farm invading another farm. Sometimes in order to directly tax the people, sometimes it's about farming farmers, because instead of directly taking over and directly taxing the people, you tax the taxers. So, for example, in England, when the Danes would come in and then the English kings would have to gather what's called the danegeld, which was the money to pay as the tribute to the Danes, to the Vikings.

14:47And so, that's sort of like farming farmers, that the farmers take from the people and then they give to people who in turn farm them. Now, states often have a motivation to limit taxation. It doesn't make sense to tax completely. You don't want to kill the golden goose, the goose that lays the golden egg, because then there won't be any more eggs. And then you start getting back to where you were before, where it's just pure biological competition, and you're just destroying them, and it's just like a one-time tax.

15:33And then over the long term, you don't have as much. Another way of thinking about this is that free range farming is often, if you're gentler with the chickens and the pigs, that they'll be more productive. And so if you let them trade with each other and feel free, then they'll be more productive and then you can tax more from them in the long run. So, this gives us some perspective on the history of taxation once we understand sort of the nature of taxation. One fallacy that people like to put forth is they like to say, well, you know what, before we had the state, before we had the taxation, you know, we had all these tribes that were just killing each other all the time.

16:31and that was more like the war of all against all, and now that we have the state, you know, everything's, we're all richer, we're all more civilized and more productive, and that gets things backwards, that puts the cart before the horse. But what happened is that property and the division of labor came first. People on the earth didn't always have private property and trading and the division of labor. In primitive societies, there was a lot of, it was just very communal. Even though there wasn't a state, there also wasn't very much in terms of private property. Everything was just communal. And then what happened is that when private property, but in that, in that time, there's nothing to tax, you know, if, if everything's primitive and there's no private property, there's no division of labor and there's no wealth being built up, there's nothing to tax.

17:29The parasite has to have a host to survive. So the parasite couldn't have come into the scene until the host got big enough. And so, civilization developed first, and then the state came, and that produces the myth that the state caused civilization.

17:53So, all the early civilizations that we see, so the first civilization was in what is now Iraq, it was called Sumer, And they had private property first, before they had a state. There's a book called Ancient Iraq by George Roux, where he demonstrates this. And it became a flourishing civilization in spite of the parasitic state that was on top of it. And then you had the civilization in Egypt. But, back then, taxes, it was pretty clear what they were.

18:39It wasn't as genteel as it is now. There's a scribe, an ancient Egyptian scribe, wrote this about a tax collection. He said, Dost thou not recall the picture of the farmer when the tenth of his grain is levied? Tenth is where the word tithe comes from, that was kind of the classic rate of taxation in the ancient world, was the tenth. Worms have destroyed half the wheat and the hippopotami have eaten the rest. There are swarms of rats in the fields, the grasshoppers alight there, the cattle devour, The little birds pilfer, and if the farmer loses sight for an instant of what remains on the ground, it is carried off by robbers. Moreover, the thongs which bind the iron in the hoe are worn out and the team has died at the plow. It is then that the scribe steps out of the boat at the landing place to levy the tithe. So a scribe is someone who writes.

19:45And so back in ancient Egypt, not very many people knew how to read and write. And it was usually the people who read and write. Those were the administrators who served the pharaoh and who staffed the state. And they were the ones who were able to keep tax records. And so they were generally the bureaucrats. And so education at the time was often about becoming a scribe, in order to become a bureaucrat and often to become a tax collector, to levy the tithe. So levy means to raise, to pull out. And there come the keepers of the doors of the king's granary.

20:33So at the time, they collected taxes in kind. So it wasn't so much of a money economy. So they would collect the grain. The grain was the tax, and so it would be a certain percentage of grain, and they're crying out, come, now come, there is none, there's no grain, and they throw the cultivator full length upon the ground, bind him, drag him to the canal, and fling him in head first. His wife is bound with him, his children are put into chains, the neighbors in the meantime Leave Him and Fly to Save the Grain. So, IRS audits are one thing, but that was when taxation was really recognized for what it was.

21:28So, what can happen is that, like I said before, states have an interest in limiting the taxation. Now, if you don't limit the taxation, then you're going to be pretty poor. And if you do limit the taxation, you as a state are going to be richer. Now, a richer state is going to be able to conquer a poorer state a lot more easily. So that produces what's called the paradox of imperialism. Now, imperialism means an empire. Now, normally, we think of, you know, freedom in the domestic area, going along with freedom in terms of foreign policy, that if you're liberal in one area, you're going to be liberal in the other area, but actually, that is often not the case, because it's the states that are liberal in the domestic area, that don't tax their people as much, they end up having more resources, and so they're able to conquer the other states, and so you have like for example the Athenians were pretty free, the Greeks

22:43called Athenians and so they were able to create their own empire, but it was a pretty vicious empire. They had what was called the the Delian League and League kind of seems to mean like a voluntary association, like the Justice League and but it wasn't voluntary and they they realized that there was a famous speech by the leader of the Athenian democracy named Pericles and he told the people he's like we have an empire let's let's just admit it we have an empire and we've got to be we've got to act like an imperial nation we have and we have to be cruel in order to maintain our empire and so there were a lot of city states in Greece that wanted to get out of the Delian League.

23:48They wanted to get out from under the thumb of Athens and one of them was called Mylos and they didn't want to pay tribute to Athens anymore. and so they were completely depopulated every male I mean we think of Athens as like you know this wonderfully civilized place and you know we think of Socrates and Plato and all this stuff they they executed every single adult male in Milos for for the temerity of not wanting to pay tribute to be part of of the League, and so eventually then the next big empire that came along was the Macedonian Empire launched by Alexander the Great and the Macedonians were, their base were the Greek city states and so again they were able to use the civilization of the Greek city as a base to fund their empire. The Roman Empire was similar, but the Roman Empire was also brutal in terms of how much it exacted as tribute from the people.

25:03There's a great quote from the historian Tacitus, who recalls a speech by a Scottish leader called Calgacus. And the Scots were being invaded by the Romans. And Calgacus said of the Romans, that they are the robbers of the world, having by their universal plunder exhausted the land. If the enemy be rich, they are rapacious. If he be poor, they lust for dominion. Neither the East nor the West has been able to satisfy them. Alone among men they covet with equal eagerness, poverty, and riches. So you can kind of think of the American Empire in that way too, that not only have we tried to, especially in the past, take over rich areas, like we had imperial designs on China for a long time, but we're out there bombing caves in the middle of nowhere to take over these poor people too.

26:14So, rich or poor, it doesn't matter, the empire just spreads. To robbery, slaughter, plunder, they give the lying name of empire. They make a wasteland and call it peace. Tacitus talked about another leader in Britain named Boudicca, a female, and she said this in one of her speeches, she said, how much better it would have been to have been sold to masters once and for all than possessing empty titles of freedom to have to ransom ourselves every year. So again there's that notion of the ransom as a tax and just like with us it's like an annual ransom, an annual money payment for your freedom. So that was the Roman Empire.

27:04The Roman Empire fell largely because of taxes. Eventually it got bad at limiting its taxation so it could continue to feed on the population. Mises talks about how first the Romans debased the currency, which itself is a tax, The Tax, because when you create money out of nowhere, that's what's called an inflation tax, and instead of collecting taxes in the debased currency, they started to requisition just goods and services from the people in order to support the army, and then Diocletian, this Roman Emperor, he turned that requisition into a huge tax.

27:59Eventually, people started getting poorer and poorer, and some people wanted to move into the countryside. Some people wanted to escape to go be with the barbarians. They thought, oh, if I got to escape this Roman Empire, I got to go be with the barbarians where I can be free. And so Diocletian tried to freeze everything. He put a price ceiling on everything, Mises talks about the upshot of all this. He said to avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves. On the other hand, the owners of the big estates restricted their excesses of grain, oil, wine, and other necessities for themselves.

28:45settled on the countryside and tried to grow grain, oil, wine, and other necessities for themselves. On the other hand, the owners of the big estates restricted their excess production of cereals and began to produce in their farmhouses the products of handicraft which they needed. For their big-scale farming, which was already seriously jeopardized because of the inefficiency of slave labor, lost its rationality completely when the opportunity to sell at remunerated prices disappeared. As the owner of the estate could no longer sell in the cities, he could no longer patronize the urban artisans either. He was forced to look for a substitute to meet his needs by employing handicraftsmen on his own account in his own villa.

29:33he discontinued big-scale farming and became a landlord receiving rents from tenants or sharecroppers and so that is basically how the medieval economy started was from this process that Mises talks about which came about because of the excess taxation however the the middle ages The Middle Ages after the initial dark ages that happened because of this Roman folly, the Middle Ages had actually very limited taxation. Rothbard talks about that there were no regular taxes.

30:24In the medieval era, while the king was supposed to be all-powerful in his own sphere, and that sphere was restricted by the sanctity of private property so the king had to often come hat in hand to ask for taxes and that was the origin of the parliament and the estates general in France that they were holding the purse strings they were having to decide whether to let the king have those taxes or not and so the middle ages were actually a time of great economic prosperity The Roman era was great and the Middle Ages were poor, but it was in the Middle Ages where iron was first used on a widespread basis.

31:10It was when they had windmills and water mills that could produce things that used energy in a continuous manner. and so cities were springing up all over medieval Europe in these places in northern Europe where the Romans didn't even really cultivate, like it was just wasteland during the Roman era. Basically, the Romans was just a parasite city living off of the East. It was still the East, Egypt and Greece and Asia Minor, where all the wealth was, that mercantile civilization, and Rome was just living off of that as a parasite. People living in Italy were exempt from taxation. More than that, they started getting bread dole.

31:55People were coming into Rome just to basically live off of welfare. And so it was really a parasite civilization. And it was in the medieval era when there were more limited taxes. That's when economic growth started really getting underway. Rothbard talks about the 14th century depression and that's when kings started to become powerful again and some of the prosperity that had built up through the Middle Ages was destroyed, especially Philip the Fair, was not fair to the people, the fair meant handsome, that he was kind of handsome. Rothbard says that in the early 14th century, Philip IV, the fair, king of France, moved to tax, plunder and effectively destroy the vitally important fairs of Champagne to finance his perpetual dynastic wars.

32:49Philip levied a stiff sales tax on the Champagne fairs. He also destroyed domestic capital and finance by repeated confiscatory levies on groups and organizations with money, including the Jews who he just just completely confiscated their wealth and kicked them out the Lombard bankers the Italians did the same thing to them the Knights Templar who were international bankers he killed them and and took all their money and so it was it was with kings like Philip the Fair later on In the early 18th century, strong kings like Henry VIII and Louis XIV became really strong, and they started taxing people a lot more, and that ultimately ended up with the revolutions that happened starting in 1688 and then through the 18th century.

33:49What happened with the kings would want to go on all these wars. They'd have all these dynastic wars and they'd have to tax the people. And so, especially the dynastic wars of Louis XIV and XV, that it was because of the taxes to support those wars that people were so upset and ultimately the French Revolution came out of that. And the American Revolution, I mean, it's very politically incorrect. But the American Revolution was a tax revolt, and it was a war of secession. Two things that people don't really like in certain circles these days, but that's exactly what they were. And it largely came out because of the Seven Years' War of the British, that it was a really expensive war, and that's how the British Empire started, really, was the result of the Seven Years' War.

35:16have taxation only with representation. We're not represented in parliament. And then the Stamp Act came about. And that's the dumbest thing to do is you don't want to tax people who publish newspapers because they'll rabble rouse. And so the Stamp Act was hugely unpopular. And Benjamin Franklin went over and said, like, you know, we don't want internal taxes. The British said, OK, fine, we'll do external taxes. We'll do the Townsend Acts, which were a bunch of tariffs. The American colleges said, wait a minute, we don't want any taxes, actually, unless we are represented. They did boycotts, tax revolt in terms of boycotts, and so most of the Townsend Acts were removed except for the Tea Act, Because they wanted to keep just one little tax, even if it was inconsequential in terms of revenue, it was the principle that mattered.

36:19The people in the government, they wanted to keep the principle because they wanted to be able to expand on that principle later. They wanted to be able to get serious revenue later, so they wanted that symbolic last thread of taxation. and then of course that last, the Tea Act resulted in the Boston Tea Party which precipitated the American Revolution and there you have it.