Taxes and Markets

Taxes and Markets April 13, 2012

Why did governments demand taxes and why did people pay? This makes sense if we think that markets pre-existed or if we think they come into being spontaneously. But David Graeber ( Debt: The First 5,000 Years ) doesn’t think that they do. Why would kings take control of mines, extract silver and gold, stamp their pictures on them, put them into circulation, and then demand them back.

His answer: “This is the simplest and most efficient way to bring markets into being.” A king with an army of thousands needs to keep them fed. They can live off plunder as long as they’re fighting. When they are not on the march, they still need to be provisioned and housed. By giving coins to his armies, and demanding that every family in the kingdom pay back coins in taxes, he could turn the entire national economy into “a vast machine for the provisioning of his soldiers” (p. 50). Markets come into existence as a way of keeping the army going.

That was hypothetical, but Graeber uses a real-life example from the French occupation of Madagascar in the early 20 th century.

Once the island was subdued, the French authorities imposed a head tax. It was high by Malagasy standards, and could be paid only in francs: The general in charge “did indeed print money and then demand that everyone in the country give some of that money back to him.” The French described it as a “moralizing tax,” a way of teaching the “natives the value of work.” Farmers could make enough money to pay the tax only by selling some of their rice, but the tax was due just before harvest, when the price of rice was at its lowest. If a farmer miscalculated how much rice to reserve for his own use, he would later have to buy some of his rice back from the market at higher prices. Farmers fell into debt, and to get out they started raising other crops that could be sold in the markets – coffee, pineapples – or to send their children to the city to work for wages. The colonial government aimed to “make sure that the peasants had at least some money of their own left over, to ensure that they became accustomed to minor luxuries – parasols, lipstick, cookies – available at the Chinese shops.” Part of the purpose of the tax, in short, was to teach “new tastes, habits, and expectations” and to create consumer demand that would tie Madagascar’s economy to France for the long run.

Some Malagasy resisted: “more than sixty years after the invasion, a French anthropologist, Gerard Althabe, was able to observe villages on the east coast of the island whose inhabitants would dutifully show up at the coffee plantations to ear the money for their poll tax, and then, having paid it, studiously ignore the wares for sale at the local shops and instead turn over any remaining money to lineage elders, who would then use it to buy cattle for sacrifice to their ancestors” (p. 51).

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