Here’s an interesting paper from Mathew Forstater, a colleague of F. Randall Wray at the University of Missouri-Kansas City. The author interprets the history of British colonialism in West Africa using the Chartalist theory of money. The piece is called “Taxation: A Secret of Colonial (So-Called) Primitive Accumulation”:
Colonial governments…required…means for compelling the population to work for wages. The historical record is very clear that one very important method for accomplishing this was to impose a tax and require that the tax obligation be settled in the colonial currency. This method had the benefit of not only forcing people to work for wages, but also of creating value for the colonial currency and monetizing the economy…[Although] taxation was often imposed in the name of securing revenue for the colonial coffers, and the tax was justified in the name of Africans bearing some of the financial burden of running the colonial state, in fact the colonial government did not need the colonial currency held by Africans. What they needed was for the African population to need the currency, and that was the purpose of the direct tax. The colonial government and European settlers must ultimately be the source of the currency, so they did not need it from the Africans. It was a means of compelling the African to sell goods and services, especially labor services for the currency.
Post-Keynesians are surely right that the origin of monetary circulation lies with tax obligations to the state. Initially these were levied in kind (e.g. barley) or labour-time units owed (e.g. for military service). But eventually private agents were allowed to discharge their personal tax debts to the public power by surrendering symbolic tokens (indicating that someone else had fulfilled or cancelled the obligation). Soon enough these became transferable certificates: money. This money could, depending on the social context, take a variety of forms: tally sticks, paper vouchers, metal discs stamped with the royal insignia, etc.
But the contemporary orthodoxy, along with most heterodox and left-wing Classical-type economists, adheres to a more polite outlook. In this view, favoured by Adam Smith and Marx, money emerged to facilitate commodity exchange, lubricating a tendency to ‘truck and barter’. The Chartalist approach has several advantages over this latter view:
- It helps to explain a wider range of historical developments, like those in British West Africa discussed above. Here the colonial state, rather than commodity exchange, created a monetary economy. The imposition of tax liabilities induced demand for and circulation of the new state-issued coinage. In doing so it forced part of the social product to take the form of commodities (goods and services sold in return for coin) in order for private agents to raise the money to pay taxes. The role of powerful bureaucratic states (domestic or imperialist) in the establishment of capitalism is thereby revealed to be less contingent than is often supposed, especially by Marxists.
- It allows a better understanding of government spending, suggesting that fiscal constraints and solvency risk are not problems for states that issue their own currencies, as explained here by Wray, here by Dimitri Papadimitriou, or here by Bill Mitchell.
- It provides a better grounding for a common argument: that which locates the proximate cause of the Eurozone’s “sovereign debt” crisis in monetary-fiscal mismatch. The governments of PIIGS countries do not issue their own currencies; equivalently, the EU lacks sufficient powers over taxation, spending and redistribution.
- It better supports the Smithian or Classical/Marxian notion of money as ‘the power to command labour.’ The state is the original appropriator of surplus labour. Money is the tokenisation of this surplus, that which permits the separation of the “symbolic appropriation” of this surplus (the levying of tax) from its “real appropriation” (the state’s procurement of goods and labour resources.) When the state receives tax payments, it merely collects its own tokens. Actual appropriation occurs when these tokens are used to buy and consume real goods or services. Central banks spend by crediting the accounts of sellers. Taxes falling due are then offset by an amount equal to this credit. If the Australian Defence Department purchases a submarine from ThyssenKrupp, it disguises the transfer of wealth by crediting Thyssen’s account. This account acquires purchasing power because the Australian government undertakes to accept its contents in settlement of tax debts. The public debt is the difference between real and symbolic appropriation, terms which may not be equal for political or administrative reasons. As Keynes observed, the holder of this debt – the rentier class – symbolically appropriates a portion of the social surplus whose real appropriator is the state.
Tags: Britain, British Empire, British West Africa, Cameroon, Chartalism, Chartalist theory of money, endogenous money, fiat money, Gambia, Ghana, imperialism, Keynesian economics, Marxism, Nigeria, numismatics, primitive accumulation, Sierra Leone