April 2, 2013
I’d like to share a lesson in economics today, and I call it the “Production, Coercion and Theft” lesson.
There are only three ways to accumulate money and wealth in world (other than stumbling across a hidden treasure and actually finding money, that is):
#1) Production: Offer something of value in exchange for money voluntarily traded by recipients
#2) Coercion: Confiscate money (or stores of value) by claiming authority over those who earn it
#3) Theft: Steal money (or stores of value) from those who already have it
Every person in society today acquires money in these three ways (with “gifting” being a fourth way that’s in a separate category because it’s passive, not active). The office worker, the entrepreneur, the laborer, the weekend burglar and even the professional politician all acquire money in one of these three primary ways.
Production means offering something of value to another party who is willing to trade you dollars for it. It can include both goods and services. A 9-5 office worker, for example, offers the value of their time and effort, and in exchange they are compensated at an agreed upon pay rate.
Production can also mean adding value to physical goods. We do this at the Natural News Store by sourcing organic superfoods from around the world and packaging them in pouches and cans for retail in the USA. This is a classic example of value-added production.
Out of the three methods of money accumulation covered here, production is the only one that adds abundance to the economy. The other two methods reduce wealth and ultimately promote poverty.
Coercion means forcing someone to give you money. This is the default method of all government bodies, from your local property tax collector to the federal IRS. Coercion means extracting money from someone in a non-mutually-agreed (i.e. “non-voluntary”) way.
A mugging is money extraction via coercion. Ironically, it is almost identical to taxation: There is a threat of force stated or implied, followed by a request for a certain amount of money: “Give me your wallet” or “Pay $12,453.24.” Your compliance results in the source of the coercion taking your money then moving on to their next victim. Non-compliance results in you either being shot, stabbed, arrested at gunpoint or stripped of other possessions you may own.
Theft is different from coercion in that there is no interaction at all between two parties. Theft is when someone breaks into your house and steals your flat screen TV when you’re not even there. Or it’s when someone breaks into your online bank account and transfers all your money to an offshore crime haven in Nigeria.
Theft is what recently happened in Cyprus, where banksters stole 40% or more of private account balances, later stealing 60% or more of many business accounts. It wasn’t coercion because there was no threat of force, nor any compliance on your part. You simply wake up one morning and find that your bank account, your truck, your wallet or your laptop computers is missing. That’s theft… and that’s how the global banking system fundamentally functions.
Another advanced kind of theft is committed by the Federal Reserve. By printing new money, it steals the value of all the money you currently hold. This is called “currency theft” but a full discussion of it is beyond the scope of this lesson. For now, let’s stick to simple theft and coercion.
The illusion of compliance
Governments typically shy away from engaging in outright theft. Why? Because they hope to create the illusion of voluntary compliance. By coercing you into giving up your money “voluntarily,” they avoid the appearance if outright stealing money or property from you. You “agreed” to pay your taxes, didn’t you?
In certain cases, of course, the government does engage in outright theft. This is called “eminent domain” and it means the government simply claims ownership of something you own (usually some land or a building), then decides how much money to pay you for it. The government claims the right to steal from you for “the common good,” implying that the benefit of some is more important than protecting the private property rights of all.
Theft is also carried out through misrepresentation and fraud. If a used car salesman sells you a 2005 Chevy pickup with “only 25,000 miles” on it, but it turns out they hacked the odometer and the vehicle actually has 300,000 miles on it, that’s misrepresentation and fraud.
This is very common in the food industry where “extra virgin olive oil” often turns out to be cut with GMO canola oil. Or where “tuna fish” actually isn’t from tuna. In the health supplements market, misrepresentation and fraud is also common among heavily-hyped “miracle” supplements that claim impossible results. Acai weight loss pills are a good example.
Misrepresentation and fraud is how virtually the entire system on Wall Street operates, by the way. It’s all a numbers game where investment houses sell stocks short while telling their customers to buy. The ratings are faked, the customers buy the stock, the investment brokers sell it short and wait for the stock to tumble from its artificial high, after which they rake in the profits.
Why governments prefer coercion to theft
By and large, governments far prefer coercion to theft. The IRS, for example, continues to insist that paying federal tax is a “voluntary” act. “Compliance is voluntary,” they admit. But this brand of volunteerism comes with the heavy hand of coercion. A typical warning letter from the IRS threatens the recipient with losing all his property and spending years in jail if they refuse to comply.
So yes, paying the IRS is “voluntary” as long as you don’t mind the consequences: Years in prison and the forfeiting of everything you own. That’s classic coercion.
By the same token, a Chicago mafia goon could walk into a popular night club in 1929 and say, “You’s gonna volunteer to pay us 20% of your profits, okay?” (Say that in your head with a cartoonish mob accent for better effect.) Followed by: “It would be a real shame to see a nice joint like this burn to ashes, y’know?”
This is not unlike the offer made by the IRS. Pay us 50% (or more) of your income, or lose your freedom.
Obamacare is implemented entirely by coercion. The gambit is this: Buy Obamacare health insurance, or we’ll just conficate money right out of your paycheck. That has very little difference from the mafia’s offer of “pay us 20% or we burn this place down.” In both cases, it’s a threat and a demand for compliance. That’s coercion.
Coercion and theft are signs of a crumbling society
When society is healthy, production is the dominant method of wealth creation. But when society begins to fall into criminality, corruption and government gone bad, coercion and theft become the dominant methods for diverting wealth from those who have earned it into the hands of those who are receiving it.
All agents and employees of the government are, by definition, beneficiaries of coercion. Their salaries are paid entirely by the government’s confiscation of wealth from private sector workers and businesses, all of whom comply solely because they are threatened with imprisonment if they fail to do so.
The ratio between production and coercion is a very good indicator of the level of freedom in any given nation. When tax rates are low, production is high because people have more incentive to start businesses, hire more people and produce more products or services. Wealth is primarily created by productivity
But when tax rates are high — more coercion — production plummets because the rewards for starting a business and hiring workers are diminished. The focus of the economy becomes government growth accompanied by increasing coercion / confiscation of private wealth.
When societies approach collapse, coercion shifts to outright theft: Stealing money right out of your bank account, for example, like we recently witnessed in Cyprus. Government also routinely target pension funds and even private retirement accounts, attempting to keep itself afloat by any means necessary.
In summary, the fall of society can be understood through these key transitions:
Abundant society = Freedom and liberty = Production and wealth creation
…then Production becomes Coercion
Coercion society = High taxes, growth of government = Wealth confiscation
…then Coercion becomes Theft
Theft society = Looting of private bank accounts, government seizure of industry = Wealth destruction
…Theft leads to Collapse
The EU has entered the stage of “coercion becoming theft.” The collapse is near.
Readers always ask me for “sources” when I write original articles, so I’ll answer this question up front: What is my source for this analysis? There is no specific source. These ideas are self-evident. I did not read them in any particular book or website, nor learn them in a course of some kind.
Click here to read “Economics in One Lesson” (PDF) and gain an understanding of economics vastly exceeding that of Ben Bernanke.
See the article just published on Mises.org which just happens to coincide with my own article here. It’s entitled, Taxation is Robbery, Part 1.