I think this statement from economist Brian Domitrovic in an op-ed at Forbes:
As I have argued for years, taking a cue from Nobel economist and Wanniski companion Robert A. Mundell, a major nation shorn of all forms of taxation can get all the revenue, in effect, it needs by issuing currency. The demand for the dollar, from international and domestic sources alike, would be unthinkably large if we eliminated all forms of taxation. The United States could buy anything it wanted on the open market by issuing currency into this demand. It could also, in such an environment, easily make the dollar convertible in gold, in that currency would be in tremendous differential demand against gold in business conditions that were fantastic.
should warm the hearts of all proponents of Modern Monetary Theory.
To the larger questions of the evils of both tariffs and taxes addressed in the op-ed I would very much like to see an explanation from advocates of free trades, low (or no) taxes, and expansive immigration policies, how they plan to accomplish decent lifestyles for most Americans under their plan. They should show their work, i.e. put real, practical, foreseeable numbers behind their plans.
The article was looking good until the paragraph cited.
The scenario he describes has already occurred, and the results were the exact opposite.
In 1968, LBJ lifted the gold cover, and since then, dollars can be created without limit. Those dollars were still able to be converted by foreign countries, and once they realized that the dollars they were holding were quickly becoming worthless, they began exchanging them for gold.
By 1971, there were more dollars than gold reserves to exchange for them. Nixon had the choice of allowing the gold supply to vanish or allowing the dollar to default.
You cannot have a unlimited currency and a gold standard at the same time.
The currency used for domestic trade is the dollar (credit-backed dollars), and the currency used for international trade is the eurodollar (trade-deficit dollars). With credit-backed fiat currencies, there can be no reserve currency, and trade balances are never reconciled.
The eurodollar is the currency used for international trade because they are the largest pool available. For the yuan, rubble, or euro to replace the eurodollar, China, Russia, or the EU will need to create a very large trade deficit, but I do not think that will happen any time soon.
When China buys Russian oil using the rubble, China must borrow rubles if they do not own enough. The Chinese will most likely use the eurodollar to pay for the cost of borrowing. The exchange rate between the eurodollar and the rubble will determine the one-to-one costs, but the vig will be the same.
The impression I received was that he believes that the price of gold would rise commensurately.
Sounds like perpetual motion, wrong somewhere.
Using an extreme position can be a useful tool to illustrate points. However, generally not in economics which by its very nature deals in tradeoffs. The author falls into that trap. “Free” markets, “free” trade or no taxes have no real meaning. They are relative concepts and come complete with pros and cons. I’ve never met, for example, anyone apposed to all taxation. And pure free trade or free markets don’t exist. (In a related quip Milton Friedman once noted that he was resigned to the fact that only government could operate the armed forces, and also resigned to the fact that it would therefore cost 3x as many dollars as the private sector.)
Speaking of quips. The best one I’ve seen on chartalism or MMT is that its the refuge of politicians and their economists who have promised free beer for everyone but haven’t figured out how to pay for it yet.
I am not sure what his logic is, but it is wrong. Convertibility to gold means a gold backed dollar. As, it must. Allowing an infinite number of dollars to be created backed by a finite amount of gold is going to end one way, only.
I forgot to mention that private ownership of gold was outlawed from 1933 to 1974. Domestically, nobody could hoard gold as a store of wealth. So, you either had to spend them, invest them directly, or invest them indirectly (saving).
The only reason ‘dollars’ are used as currency for international trade is because the supply is ginormous. Plus, eurodollars can be lent back into the US financial/banking system as dollars. So, they have an intrinsic value, as well.
Presently, there are no restraints to the US government ‘printing’ dollars. As @Ben Wolf has noted many times, government borrowing is an accounting gimmick. The vig makes the scheme seem legitimate, and it is paid by taxes. You could eliminate the vig, or roll it into the next round of ‘printing’.
Presently, dollars are convertible into gold by anybody or anything – purchase gold. This is not a gold standard (in any form) because the dollar/gold ratio fluxuates.
Unless he has developed the dollar version of String Theory, I have no idea of what he means. Actually, there probably is a Monetary String Theory, but as with the physics version, you need to radically change your view of money.
@Drew
He is saying, “if you want more of something, don’t tax it.” If this is applicable to investing or anything else, it is applicable to the production of domestic goods.
Personally, I find the argument nonsensical. Basically, the only things taxed would be booze, tobacco, strippers, and anything that is fun.
I have never heard/seen the minimum taxation level from anybody who advocates for lower taxes. All I have seen is “if a little is good, a lot is better.” I would be interested in what price “free” traders are willing to pay and, again, with “free” markets.
I have no doubt that Milton Friedman’s quip was an off-hand remark, but it demonstrates his lack of knowledge of the military among other things.
Machiavelli comments on the problem of hiring mercenaries for your army. They have no incentive to fight. The various Italian Principalities would hire Swiss mercenaries for their army, and when they sent them to fight, they would be few skirmishes. (Interestingly, Swiss mercenaries had no problem killing their fellow countrymen when the did fight.)
Outsourcing is not really all it is made out to be.
“Free” trade and “free” markets require the freedom of somebody or something to be constrained. The natural state of trade, markets, and almost anything else is not “free”. “Free” is very expensive. It is like a city below sea level or navigable rivers.
Few advocate of “free” trade or markets are willing to actually pay for them. The vast majority want ‘free as in beer’.
Tasty – point by point
Of course taxing has effects. But there are certain legitimate functions of the state that require financing. If all you had to do was print money then we need to hang every politician in sight for failing to make everyone millionaires and subjecting them to poverty. It should be a capital crime.
30% for maximum taxes. 5% for minimum. (Gross income). Everyone should have skin in the game. Now you have heard from someone.
It represents Friedman’s understanding of playing with other people’s money in the name of the good. There’s a lot of that going around.
My problem with free trade or markets is that they become corrupted from the academic’s ideal. We have managed trade. We have regulatory capture, paid for subsidy etc in markets. Those come at great cost to the losers in the game. The problem is that the shorthand “free markets†is generally better than any other system, even though straw man issues are raised by critics due to those markets’ lack of perfection. The goal should be to limit corruption, and that generally means minimization of the scope and power of governments.
@Drew
I can live with your brackets, and the gross income stipulation simplifies things greatly. I would love to see @FamousFictionWriter when he got his first tax bill.