All governments – communist, capitalist, fascist, monarchy, theocracy, whatever – survive on the skim. They take money from productive people, by force or threat of force. However prettied-up or justified this fact may be, it remains the central fact of rulership.
It’s a simple but disturbing truth: A late-stage state’s modus operandi must always be “government against the people” – an MO that is inherently predatory. And it’s not because the participants are all sociopaths (though many are).
At most times, governments try very hard to skim quietly, as with payroll taxes, where the producer’s money is taken away before he or she ever holds it in their hands. That’s also why tariffs were a traditional tax – the average person never saw it, and didn’t feel violated.
But when governments are massively over-extended, they lose the luxury of the quiet skim and become more aggressive. This is simply what happens in long-established, monopolistic institutions, like governments. They spend wildly to make themselves look good, then find they need more money. Not willing to cut their spending, they have two choices:
- Debasement of the currency, which they always do first. But this trick never works for very long, since people do engage their minds when conducting commerce and adjust their prices to counteract the debasement.
- Squeeze the producers dry, any way they can.
The Problem of Legitimacy
You may wonder why the governments don’t just cut their spending. That would seem an obvious choice. But they can’t cut spending without tarnishing their image as the mighty protector and the great fount of human compassion. People pay taxes willingly because of this high and mighty image; lose the image and you lose tax compliance.
Think about it: the governments of the West portray themselves as the saviors of the weak, the healers of the sick, and the fixers of every problem. But if they stop paying off the poor, there will be riots, and the producers will get hurt. No longer being protected, they may no longer consent to having their money taken away from them day by day.
Governments function on legitimacy more than force. If they lose their legitimacy, they are done. Therefore they cannot cut spending.
The Philosophy of “Government Against the People” at Work
Our Western civilization is at a late stage, just like Rome in the 5th century, or Greece in the 3rd and 4th centuries BC, or like the Egyptians and Sumerians before them. The same basic suite of problems engulfs them all at these stages, but we will use Rome as example, since that is the closest to us in both time and temperament.
Take a look at the two graphs below.
This one shows the Roman debasement, which involved mixing cheap metals (such as lead) into their silver coins:
Now look at this one, showing the debasement of the dollar, which involved the creation of debt-based currency:
These are essentially the same chart, showing the same phenomenon.