Had the banks all closed down, credit card and cheque purchases would
become impossible. But instead of allowing them to fail, a Jubilee could
have been declared. It would have declared all debts incurred prior to Day
Zero legally invalid, excepting modest guaranteed deposits. Those toiling to
meet mortgage and credit card debt would have been liberated. The taxpayer
would have been freed from the crushing burden of the national debt, and
surprisingly, the banks would have become super-solvent. Their liabilities
would have shrunk relative to their cash reserves. Industry would have
remained privately owned. But the abolition of debt, which has been a radical
measure since antiquity, would have hit the aristocracy of money the way the
French revolution hit the aristocracy of land.
The Russians did it after 1917, and shortly later, the German Social
Democrats achieved a similar effect via hyper-inflation. Today, some
governments have veered towards the German 1920’s course: printing money
to pay for the huge debts they have taken on. The inflation that results could
hit small and large depositors alike. The alternative of abolishing debts serves
to polarise political opinion against the peoples’ main enemy—the rentier
interest—whilst benefiting the majority.
3.7 State Finance
This brings us onto the general topic of state fi nance. Socialist economies
typically have a higher level of state expenditure than capitalist ones at a
comparable level of economic development. It is essential that the state has
an efficient revenue raising mechanism, with taxes that are easy to collect
and difficult to avoid. Social democratic states like Sweden relied mainly
on income taxes along with an efficient civil service. The USSR relied upon
turnover taxes on industry and on profits earned by state firms. Which of
these models of tax revenue should be used is one of the major strategic issues
that has to be faced by as an economy moves towards a socialism.
We argue that the Soviet model of taxation had several drawbacks,
which, in the long run, contributed to the final collapse of the Soviet socialist
economy.
a. The use of indirect taxation, such as turnover or value added taxes, and a
fortiori reliance on profit income, puts the state in the position of being a
collective capitalist vis a vis the workers.
b. The use of indirect ^][ۈ\