70. Consider the Cost of a Holiday.

Consider the Cost of a Holiday.

Bob Komives
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Consider alternate views of a 4th-of-July holiday. Whether caused by law, by spending money, in-kind contribution, or price manipulation, a 4th-of-July holiday has virtually the same economic impact. The cost to the economy is the same, and the benefits are the same.

Ignoring for a couple of paragraphs the spending alternative, each of the other alternatives can cause its own monetary impact. Whether created by law, in-kind contribution, or price manipulation, the holiday affects the productivity of most businesses in the country and creates new businesses catering to the holiday itself. The marketplace reflects and facilitates these effects.

The net result might be negative --the holiday reduces national production, causes inflation. How? Since our chosen alternatives do not directly change the supply of money, if production of goods and services falls, each dollar could buy less than it could were there no holiday. Prices would rise as the same number of dollars chase fewer goods and services. Perhaps the holiday brings real benefits, such as reaffirmation of democracy and communal effort, but they do not reflect themselves in the marketplace.

The holiday might, however, be deflationary. Workers might respond to the goodwill and relaxation with increased production that more than makes up for the lost day. The 4th-of-July industry that caters to the celebrating public is a bonus. As a result, the marketplace would see an increased supply of goods and services to buy without any reciprocal increase in money to buy them. The market benefits outweigh the market costs; prices fall. 

Now, let's consider the other tax alternative for creating a holiday --government buys the 4th-of-July holiday from employers. The pure economic impact of the holiday would tend to be the same, the costs and benefits the same. However, the financial --monetary-- impacts would differ. In the worst case, if production of goods and services falls the resulting inflation would be greater. Even more money would chase after fewer goods and services. In the best case, the holiday and post-holiday increase in goods and services would be greater than the pre-holiday value of the money invested. That would produce some deflation.

Monetary taxation carries added risk, but it must also carry added potential benefit. Otherwise, only our stupidity could explain our continued fascination with the use of money to finance government. Once a monetary system is in place, monetary taxation may be the simplest, most practical way to achieve a goal. A bit more inflationary pressure might be perfectly acceptable if the non-monetary benefits are high and if it is impractical to set up price taxation, in-kind taxation, or taxation by law.

A tax in money offers potential benefits the other alternatives do not. In our monetized societies, the private economy generates a huge demand for money. As the economy grows money supply must grow. If money supply does not change with economic growth money becomes rare. Prices go down --which is nice for those who hold the money-- until there is so little money that it is not useful as a common means of exchange. To prevent collapse of the monetary system, the caretaker of money must find ways to meet the demand for money. Government spending is an understandable, direct, and valid way to infuse the private investment market with money it needs. Thus, money spent to buy a 4th-of-July holiday can both finance the holiday and help fill a general need for money. Because needed money is demanded money, and because it enters at the 4th-of-July, the economy goes to the 4th-of-July to get it. This "going there to get it" is the essence of monetary taxation.

One way or another, by one tax or another, if we want a 4th-of-July holiday, if we think it is good for us, we will tax ourselves to get it. 

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 70.  Consider the Cost of a Holiday ::
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