Ode to the taxman

Is taxation what you really think it is?

Tell your accountant he's a wonderful man, he does his fishin' well,
next time you see him will you tell him I'll meet him down in Dingly Dell.
Owed, owed, owed to the Taxman - Alan Hull, Lindisfarne

The earliest evidence of taxation dates back at least five thousand years ago to the first Egyptian dynasties, in the forms of tithes (a payment of one tenth of typically agricultural or other produce but later, in Mesopotamian records, expanded to include silver, textiles and other ‘assets’ and forms of wealth) or corvée, a form of forced labour by those who had no assets or produce to tax by tithes (the term ‘labour’ seemingly derives from the Egyptian term for tax [Burg, 2004]).

Since inception, the main purpose of these taxes was seemingly two-fold – to build the machinery of state domestically in order to reinforce the power of ruling regimes (including monumental statements like the pyramids at Memphis or Giza) and also to fund the expansion through military conquest, securing access to assets and resources (human, mineral and natural). The Rosetta Stone, chiefly known today as a synonym for deciphering codes and languages, was actually a tax decree issued by Ptolemy V, carved of course in hieroglyphics.

Taxation therefore came into being as a form of war finance.

The major alternative throughout history has been debt, i.e. borrowing.

By mediaeval times, both borrowing and taxing had become widely used by nation states – Edward I of England resorted to both borrowing and taxation to fund various ‘military adventures’ in Scotland, Ireland, Wales, France and the ‘Holy Land’, as well as civil war with an aristocracy, who raised armies against Edward to vent their opposition to tax increases (this may constitute the first appeal against tax overpaid).

This process of raising taxes also had the effect of rendering the relationship between state and citizens more co-dependent – in order to successfully pass tax statutes, Edward I called parliament more frequently than any of his predecessors. He also banned Jewish moneylenders from England when they sought to exploit his military difficulties against France, by imposing harsher lending terms, in an early iteration of populist politics.

Fast forward seven and a half centuries, and the landscape of nation-states has evolved significantly. This map illustrates the changing face of Europe, for the last 2,400 years, highlighting that even the most powerful republics, kingdoms, principalities and empires have ebbed, flowed and in many cases, disappeared:

https://www.youtube.com/watch?v=UY9P0QSxlnI

The stability of modern nation states, with the ensuing capability to issue its own, uncollateralized currency, theoretically reduces the need to borrow or to tax, in order for modern governments to raise funds for domestic or foreign ‘adventures’ - we’d refer to Stephanie Kelton’s excellent ‘The Deficit Myth’ for a thorough explanation and we’d also recommend watching ‘Finding the Money’ - here’s the trailer:

Policymakers are waking up to this reality but don’t necessarily expect that to be an unmitigated positive outcome - having more tools in their kit doesn’t change the incentives that drive policymakers. Taxation in the twenty-first century can be a driver for change, but that doesn’t necessarily mean change that is positive for most participants in/victims of the global economy.

Don't miss our next episode, where we'll explore whether or not hedge funds add value to portfolios. Stay tuned to dive deeper into these crucial subjects and gain insights that can help you navigate the changing global landscape.