Taxes For Revenue Are Obsolete — Ruml, 1946

The Paper

In 1946, Beardsley Ruml — Chairman of the Federal Reserve Bank of New York and Treasurer of R.H. Macy & Co. — published an essay in American Affairs titled “Taxes for Revenue Are Obsolete.”

The argument was simple and has never been refuted.

A sovereign government that issues its own currency does not need to tax in order to spend. It can create the money it needs directly. Taxation serves four purposes in a modern monetary system — none of which is funding government expenditure:

  1. As an instrument of fiscal policy — to control inflation by withdrawing money from the economy
  2. To express public policy — to discourage or encourage certain economic activities
  3. To redistribute income and wealth — progressive taxation as a social instrument
  4. To isolate and reduce the purchasing power of certain groups — as a political instrument

What taxation does not do, in a country with monetary sovereignty, is fund the government. The government that issues the currency does not need to collect it before spending it.

The Implication

If taxes do not fund government spending in a monetarily sovereign state, then the claim that “we cannot afford” hospitals, schools, housing, or the social wage is a lie.

It is not a statement about money. It is a statement about power. It is a statement about whose interests the government serves.

When a government tells you it must keep the bond markets reassured, it is telling you that it has chosen to borrow from the creditor class at interest — money it could create directly — in order to convert the taxing power of the state into a permanent revenue stream for the rentier.

This is not necessity. It is choice. It is policy. It is the administration of the extraction machine in democracy’s name.

The Confirmation

Ruml wrote in 1946. The Bank of England confirmed his analysis in March 2014 in its Quarterly Bulletin: “Money Creation in the Modern Economy” (McLeay, Radia, Thomas).

The paper confirmed that banks create money when they make loans — that the money does not pre-exist the loan, is not taken from deposits, is created as a ledger entry at the moment of signing. The same logic applies to sovereign money creation: the constraint is not financial. It is real — the productive capacity of the economy, the availability of labour and materials.

When a government says it cannot afford something, it means it will not fund it. The word “cannot” is doing the work of “will not.” The distinction is the entire argument.

The Jubilee Application

If a monetarily sovereign government can create money to rescue banks — as every government in the developed world demonstrated in 2008 and 2020 — it can create money to cancel the odious debt. The mechanism is identical. The political will is the only variable.

Ruml’s paper was written eighty years ago. It has been known, suppressed, rediscovered, and suppressed again. It is not obscure economics. It is the operating manual of every central bank on earth, applied selectively, for the benefit of the creditor class, and withheld from the population as though it were a state secret.

It is not a state secret. You are reading it now.

Sources

  • Ruml, B. (1946). “Taxes for Revenue Are Obsolete.” American Affairs, Vol. VIII, No. 1. New York.
  • McLeay, M., Radia, A., Thomas, R. (2014). “Money Creation in the Modern Economy.” Bank of England Quarterly Bulletin, Q1 2014.
  • BlackRock Investment Institute (2019). Dealing with the Next Downturn. — Going Direct confirms the same mechanism applied in crisis conditions.

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