Tender For Tender: A Perspective

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“Taxation is theft” is an oft-repeated phrase among libertarians, and one that is met with shock, disdain or ridicule from non-libertarians who have not thought about the subject very thoroughly, or who have never questioned the institutions and systems that govern our lives today. But as libertarians, we firmly and actively question the powers and even the very existence of the institutions that govern our lives and the system that gives them life. In keeping with that libertarian virtue, I would like to present a proposal, an alternative if you will, to the present monetary and financial system. I would like, specifically, to present an alternative proposal to the present system of taxation and public spending, which, of course, requires an alternative to our present system of banking and money creation.

In a truly libertarian society, there would be no taxation of any kind. The main purpose of taxation is to garner public funds for public spending. Of course, most of that public revenue goes to service interest on government borrowings. It may also be noted that it is immoral to take from the earnings of people, stealing from the fruits of their labours or ingenuity for whatever purpose or activity. And at the same time, just as it is ridiculous for a sovereign government to borrow money, I believe it is equally ridiculous for a sovereign government, under a fiat monetary system, to have to rely on taxation for funds to finance public works.

I believe in government issued fiat money; I do not believe gold or the gold standard would allow for mobility and prosperity in today’s world because so much gold today is concentrated in so few hands, and central banks have helped to confiscate gold over to the International Monetary Fund (IMF) for loans to their respective countries. So, let me present my simple and humble proposal for an alternative to the present monetary system, banking system, taxation and public spending. I hope I can keep it simple and I will do so in the following points:

  1. The government can print its own money as per existing laws such as the Coinage Act in the case of India or as stated in the Constitution in the case of the US. The Central Bank will cease all money creation and/or lending. Government can create money at will and this money will be the funds for any and all spending by government.
  2. The government can circulate this fiat money to the people through the banks and to the banks by the Central Bank. Hence, the Central Bank and the banks will cease to lend to the government, but will simply be the distributors of money. Now the banks and Central Bank will no longer earn by buying and selling bonds, yet they still need earnings for paying salaries to their staff, for operating expenses and maintenance, etc. They can earn this by keeping a percentage of that government created fiat money to meet those expenses. And this can be done by the government issuing notification for tender applications from interested banks for circulation of money. The lowest bidder gets the job. And the maximum percentage can be decided by the government considering the various factors like salary, operation costs, estimates of public works, etc. In this way, the competition in the banking market will also be vibrant. Interest rates on deposits will also be left to the market, and such bidding, which is earnings for the banks, will also influence interest rates for the banks.
  3. Now that the lowest bidder gets the job, the government will transfer the money from the Treasury to the banks that got the various projects through the Central Bank. The money will then go to the public in the same way. For example, for roads construction, if X bank bids the lowest, it gets the job. Since this particular project is under the Public Works Roads Dept., that money will be stored in that bank favouring the Roads Dept. The Roads Dept. can then issue notification for tender applications from contractors for construction of roads. Here too, the lowest bidder gets the job. Salaries, expenses for the Roads Dept. can be paid from the percentage retained in the bank account favouring the Roads Dept. Only authorised expenses, such as salaries, can be withdrawn. The government can issue different notifications for different projects depending on necessity and developmental needs.
  4. In this way, money is freely created without debt or interest. It is also spent in a very market driven way, from top to bottom. Yet government can tax the public for maintenance of these public amenities when it needs to check inflation and can issue new notifications for circulation of new money to check deflation. The cap on maximum bid is also a tool to check and balance the economy.
  5. Banks can earn any other profits they so desire by lending at interest. But by now this interest will be market driven. It can lend to any private parties at its own risk or gain. But it cannot lend out of people’s deposits. This will ensure than the risk will be borne solely by the bank and its equity holders and will not affect the people and economy in critical ways. This will ensure there will be no bank runs, and no banks or borrowers will be too big to fail. Depositors may sign an MOU with banks to allow part of their deposits to serve as lending resources, but in such cases an increase in loans taken from deposits must result in proportionate decreases in deposits in the books of the bank. In other words, such amounts taken from deposits for lending will cease to be deposits and become equity for the depositor providing the MOU.

I believe this is one way to fund public works and circulate money without debt or taxation, and it also provides a healthy way to check inflation and deflation. It also allows normal banking practices such as lending and depositing, but all private business must be transacted on the sole risk of the concerned parties. Hence, interest rates on deposits may even be 0, depending on the creativity and business skill of the concerned bank.

* Kitdor Halari Blah was raised and lives in Shillong, India, and is a graduate in commerce from St. Anthony’s College. Presently serving in a Regional Rural Bank as Manager.

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1 COMMENT

  1. Seriously, dude, you need to take a read-through of “Human Action” by Ludwig von Mises, and you’ll see why this is a very bad deal.

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