Fiscal Policies, Spending Policies and Conflicting Aims

Abstract

Few people really appreciate that the state has no money of its own. The money it has in its Treasury comes from two sources: taxation and the central bank’s printing press – in other words, inflation. The first is the object of the government’s fiscal policies; the second, that of the central bank’s monetary policies, as well as of the politicians’ pressures. The two correlate because the difference between the money the government gets through a reasonable level of citizen taxation and its unwisely assumed huge commitments – from entitlements to foreign aid and military expenditures – is made up by the printing press, as well as by increases in all sorts of taxes. ‘We must tax the poor,’ André Tardieu, a French radical socialist prime minister, said in 1930. ‘They are the most numerous.’ Indeed, so it is. Value added tax (VAT) picks up a hefty share of private money for the government and it is paid by both rich and poor.