but he's writing here about the US economy.
As to taxes for revenue, US Federal Reserve Chairman Beardsley Ruml wrote a paper in 1946 titled "
http://hiwaay.net/~becraft/RUMLTAXES.html">Taxes For Revenue Are Obsolete". At the time we had recently moved off of the gold standard and were operating under a fiat system, exactly as we are today. This isn't copyright any longer, but in the interest of length, I will just excerpt the most relevant section. The emphasis below is mine.
The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.
The first of these changes is the gaining of vast new experience in the management of central banks.
The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.
Free of the Money Market
Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity.
The United States is a national state which has a central banking system, the Federal Reserve System, and whose currency, for domestic purposes, is not convertible into any commodity. It follows that our Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes. In general, it may be said that since all taxes have consequences of a social and economic character, the government should look to these consequences in formulating its tax policy. All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.
What Taxes Are Really For
Federal taxes can be made to serve four principal purposes of a social and economic character. These purposes are:
1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
3. To express public policy in subsidizing or in penalizing various industries and economic groups;
4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.
In the recent past, we have used our federal tax program consciously for each of these purposes. In serving these purposes, the tax program is a means to an end. The purposes themselves are matters of basic national policy which should be established, in the first instance, independently of any national tax program.
As the monopoly issuer of the dollar, our federal government doesn't need to borrow from the markets or collect taxes in order to spend. In fact, money has to be spent into existence by the government before it can be taxed or borrowed. In a fiat system, taxes are mainly used to control inflation, but as Ruml highlighted above, they can also be a means of redistributing money and encouraging investment in key sectors or altering consumer behavior, etc.
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