Does money circulate because the government says, 'Pay your taxes in money'?
Let's check this idea against historical facts.
How the State and Taxes Support Money
We will examine the relationship between acceptance for taxes and the circulation of money, drawing on academic theories and historical records.
Time to read the text: about 6 min
The review questions are optional and not included in this time.
What you can read: the course opening and contents are free; the full text is for those who have purchased
After purchase, you can read the full text once your access starts.
The Relationship Between Taxes and Money in 3 Minutes
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1873
Taxes changed from rice to money. Villages now needed to get yen.
The form of tax created a demand for money.
3rd century
In Rome, silver coins collapsed, and the state collected taxes in goods.
The state is also just one player under the rules of trust.
1393
The shogunate taxed moneylenders and had them collect the taxes too.
6000 kanmon per year
The tax system shaped the financial system.
From 1945
Government-backed banknotes were rejected, and cigarettes became money.
The very power to collect taxes had collapsed.
1990
The unification of money pulled the unification of the country forward.
The state makes money, and money makes the state.
The answer is: 'A strong theory, with conditions.'
Trust, the power to collect, and the arrow pointing back. These are the three limits.
2In numbers
6000kanmon
The annual tax the shogunate set for pawnbrokers and sake brewers in 1393.
3What would you do?
'Money circulates because the state demands it for taxes.' What's your verdict on this idea?
Pick one
Completely true
In 3rd-century Rome, when trust collapsed, the state itself gave up on its own silver coins and collected taxes in goods. So it's not completely true.
Completely false
The switch to money for taxes in the Meiji era created a demand for yen in every corner of the villages. The power of taxes to back money is real.
A strong theory, with conditions.
This is our verdict for this course. As long as trust is maintained and there's a real power to collect, it's a strong force. And the arrow also works in the opposite direction.
Big theories aren't meant to be knocked down, but to be used by understanding their limits.
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What you will understand after this course
- Be able to accurately state the core proposition of Chartalism (the tax-driven theory of money).
- Be able to cite historical facts that support the proposition (monetization of tax payments, the practice of paying taxes in coin, the century of payment in kind).
- Be able to cite historical facts that contradict the proposition (rejected legal tender, money not mandated by the state).
More about this course
Course number: F9
Supervised by: Mitsuru Hayama
Beyond the text: 6 exercises · 2 coins · 4 readings How reading times are calculated
You will also understand
- Be able to discuss the qualified conclusion that "taxes are one force driving circulation, but not the entire force."
You can start this course without reading any other course.
Also worth reading, to see the connections (optional)
- The People Who Contemplated Money
What you learn: Can explain the origin of the name Nomisma (that which is born from Nomos).
The text refers to this course in sections 4, 6.
If you want to know more about checking sources (optional)
- Is It Really True? Checking History
We re-examine the origins of money and famous anecdotes, comparing them with historical records and actual artifacts.
Assessment
6 exercises in this course (4 check, 1 compare, 1 written). Progress is recorded by self-assessment.
The 6 chapters of this course
- Taxes give rise to money — supporting historical facts.The monetization of the land tax created a demand for yen in every corner of the villages. The form of taxation creates the demand for money.
- Taxes Abandon Currency — Rome's Century of Payment in KindWhen currency collapsed, the state itself collected taxes in kind. The demanding party, too, abides by the laws of credit.
- Taxes Organize Finance — The Middle Ages of the *Nōsenkata*The shogunate's pillar was the tax from moneylenders, and its collection was entrusted to the moneylenders themselves. Tax collection was the blueprint for finance.
- The Day the State's Paper Is Refused — A Control Experiment for the PropositionThe officially supported Reichsmark was rejected, while unmandated cigarettes circulated. The limits of the power of taxation.
- When Money Makes the State — The Reverse ArrowCurrency led to national integration. The arrow is not a one-way street from state to money.
- Verdict — Compelling, with limitations.Taxation is a powerful force for circulating currency, but only within the scope of effective collection power and alongside other forces.
Readings (4)
- When temples were banks Japan the 1393rd century–the later 15th century The shogunal Mandokoro, Kyoto
Section 3. The most vivid scene of the co-evolution of taxation and finance. - The coinage of the Roman province of Gaul France the later 3rd century The field of Châlons and the mint of Trier
Section 2. Taxes were collected in kind—the century when the state itself abandoned coinage. - The country that threw away its coinage Japan the 10th–12th centuries The provincial granaries and Ōshū
Section 2. A record of the state itself providing a standard other than coin. - When tobacco was money Germany 1947–1948 A ruined city, the eve of the reform
Section 4. A Controlled Experiment: The Rejection of State Paper Money
Read next
Is It Really True? Checking History →What you learn next: You can find a hedge in a passage and name which of the six types it is.
Time to read the text: about 8 min ／ What you can read: everything, free
Price
After purchase, the full courses, the illustrated books, every country’s story and the numismatics examination are open to you.
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