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Government Assets

Previously by Jim Davies: Diamonds in the Mud

Recently there's been a deal of talk about "sovereign default", ie the possibility that whole governments might go belly-up. That would be (alas) only in the sense of deciding not to pay their financial obligations. Something that's not supposed to happen, because every time you and I go to visit our money we are reassured by that pretty sticker on the teller's window, about how bank accounts are well insured. All backed by the "full faith and credit" of the FedGov. Ha!

So what are the assets of any government?

A real entity such as a company of people who agreed to pool resources and engage in peaceful enterprise has both assets and liabilities. It will have cash, machinery, real estate, bonds and other investments, product inventory, accounts receivables, etc. On the Liabilities page (does that go on the right, or the left?) will be seen a list of what the company owes – to stockholders, suppliers, lenders, etc. The two columns will have the same total; or if not, there is trouble.

That equilibrium can be disturbed, by some unexpected expense. BP has an oil spill, and is shaken down for $20 billion; where can it find such a sum? – answer, it cancels the payment of dividends. The $20B showed up suddenly on the Liabilities side of the balance sheet, so an entry had to be made on the Assets page, and it was: instead of paying out $20B to stockholders it retained that sum as cash and is paying it out as claimants prove they were damaged by the spill. All being well, those items will disappear soon from both sides.

But if something unpredicted happens to a government, how can it cope? It has no assets to sell (though see below) and no profits building up ready to be disbursed as dividend. It doesn't trade. There is one asset and one only, and it's a bit intangible: the power to tax. That's it.

Two aspects of this power to tax are worth exploring: where it came from, and whether it has any limits.

When we consider the source of that power, we hit trouble right away. In America, the founders kindly spelled it out for all to see: Article I, §8 of the Constitution declares "The Congress shall have the power to tax..." But wait: who, exactly, is granting Congress that power? Hmm. It must be the same people as signed the charter, yes? – all thirty nine of them? Not exactly. If any of them had started taxing anyone, he would have been charged with theft. So, perhaps the power was granted by those the thirty nine represented – the States? Surely, they had the power to tax? Hmm again. Each had such power for "its own" citizens, but (a) where exactly did each get that power (same question, one level removed) and (b) did they have power to tax people in any other State? – clearly, not.

What gave each State government its power to tax its residents? – probably not the King (who said he got it from God, though nobody heard God confirm it, and anyway that Divine Right was by then definitely fraying at the edges) because the States had only recently told His Majesty where to go; so it must have been from The People there residing. So, did The People have such power? – absolutely not. Had any of them gone around taxing, he'd have been put in the stocks, or otherwise dealt with as the thief he was.

There's nobody else, by whom the power to tax might have been delegated up the chain. Therefore, the Article I delegation of power was hokum. Nobody can grant a power they do not have, and nobody had it. It was a counterfeit from start to finish; there is no power to tax. Except, of course, the power that comes from the barrel of a gun; I mean just that the carefully enunciated appearance of legitimacy was completely bogus.

So much for America. Does any other government (in Greece, for example) have this single asset, the power to tax? Nope. By exactly the same reasoning, nobody exists who has the right to steal, nor therefore the right to pass that power to his government. The alleged asset is a fiction, in every case. Therefore, every government in the world is permanently bankrupt; they all undertake liabilities (when borrowing money for instance) but never have any balancing assets.

So it may seem superfluous to ask whether the power to tax has any limits, our second question above. Since the power doesn't exist, that would be moot. However we might consider whether the de facto power – the kind coming from a gun barrel – has any limits. Surprisingly, it does.

Perhaps the easiest way to see the limit is to imagine a slave plantation. There, each worker is taxed 100%. Apparently, not much of a limit there. That isn't accurate, however; because the slave's ability or potential to work productively is considerably more than he can be persuaded to deliver by force; he goes slow. Nobody works under compulsion as well as he works when motivated by the hope of profit; twice, or three times as well. So the slave owner's "power to tax" is really no higher than about 50%, if imposed on what the laborer would produce if free, as we are supposed to be. It's interesting to me that total tax rates in the modern world all seem to hit a ceiling of not much higher than that, despite all the hoopla of freedom and democracy and entitlements. The heaviest – on Swedes and Dutchmen, when I last looked – are around 65%, and here it's hovered for many years close to 50%. It seems that rates much higher are recognized for the slavery they are, and yield no extra revenue. Art Laffer would agree.

This is the situation currently being faced in several countries; the people are saying quite loudly (through demonstrations and strikes) that they won't suffer either a tax hike or a reduction in services or government jobs, just because government spent more than it took in. The respective powers to tax, backed though they are by guns, are at or near their limits. It's easy enough to crush an individual tax refuser, and even several; but when the streets are blocked by tens of thousands of angry voters saying "no way" democracies begin to run short of options. Hence, perhaps, the appointment of unelected receivers in Athens and Rome. Perhaps that lies in our future too – but what can even that kind of Duce do? – machine-gun the crowds? Not even that would increase tax revenues.

One matter remains to consider: above, I suggested that a government "has no assets to sell." Some may say that is not true; our Federal one, for instance, has a ledger full of them. A large portion of all US land is apparently titled to them. All its office buildings, some in prime urban districts, have a strong market value. It has computers (some of them hidden underground, but real nonetheless) and other equipment. It has aircraft and guns and bombs and bio-chem weaponry, up the gazoo. Could not all those assets be sold, to pay off creditors if push came to shove?

Harry Browne thought so, back in 1996 when he proposed winding down the size of the FedGov by 83% over his prospective eight years as President, by selling those assets to make the transition gradual; and at the time I went along with that. It seemed a rather painless way to solve a serious problem and achieve a most desirable outcome. But now, I'm not so sure. Every one of the assets just mentioned was acquired by force; some of the land was confiscated by the stroke of a pen, from native Americans and others, all the rest was purchased with money stolen from taxpayers. So do such assets truly "belong" to the government at all? – I don't think so. It is, all of it, stolen property. One of the several big messes that will need to be cleared up in the coming free society will be how, fairly, to allocate title to all of it. Can it be returned to its rightful owners? – sometimes, but not often. Should the weapons be sold, to anyone? (Huge army surplus sale this Friday, one day only, nuclear warheads for pennies on the dollar...) – not many, I hope. And when sold, to whom exactly should the proceeds go? – all taxpayers, pro rata? Perhaps, but what about deceased ones? – to their estates? It's all pretty hairy.

So I'll stand by the original statement, that there is not a single legitimate asset in the possession of any government, tangible or otherwise. They create all the mayhem, destruction, misery and death that can be seen from any random sampling of a dozen recent articles in LewRockwell.com, yet they are all utterly bankrupt. What is an honest person to do, in the light of this?

I suggest to boycott them wherever possible; not to work for them, not to pay them anything avoidable, to take action to terminate their existence, not to vote for any of their puppets, not to socialize with their agents but rather to encourage them to quit their jobs much as one might so advise soldiers in the Mafia, and above all, on no account to lend any of them money. Not just because such loans would be obviously insecure, but mainly because buying its bonds would be immoral.

December 8, 2011

Jim Davies [send him mail] is a retired businessman in New Hampshire who led the development of an on-line school of liberty in 2006, who expects to experience a free society in his lifetime, and who in 2008 wrote the books A Vision of Liberty, Transition to Liberty, and, in 2010, Denial of Liberty and To FREEDOM from Fascism, America!

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