I started writing Codex Vagus because I was wasting time mulling over the same thoughts in my head and I needed to let them out in some form. Some of these thoughts are still poorly conceived and I need to see them written down to realize how messy they are. But it is better to put them out than to keep them closed in. As I age, my mind has increasingly limited space for random thoughts.
Codex Vagus is the title I gave to essays unrelated to creative writing on this blog.
Codex Vagus: essay 07
I carve netsuke in my spare time as one of my many time consuming hobbies. A netsuke, in case you are not aware, is a carved toggle that keeps a small sack, purse, or inro in place when you hang it from the sash of a kimono. Some such toggles are carved in great detail and antique pieces are collected the world over.
Because of my interest in this artform, I was reading The Hare with Amber Eyes: A Hidden Inheritance by Edmund De Waal. De Waal is a descendent of the Ephrussi family, a fabulously rich dynasty of Russian Jews whose fortune was lost when confiscated by the Nazis. A collection of 264 netsuke was all that was left of their magnificent fortune.
This lead me to think about the period between the Russian Bolshevik Revolution of 1917 and the Cultural Revolution of 1966. In a period of just half a century, huge fortunes that stood like sequoias in the Redwood Forest had vanished and scattered. Some were taken by communists, some by Nazis, some, like many fortunes in postwar Japan, were confiscated by Allied victors. They all seem unrelated and each is brushed away as isolated incidents. But whatever the reason, this was a period of mass extinction of accumulated wealth.
At first sight it is indeed difficult to believe that Russian aristocrats, European Jews, Chinese merchant clans, British colonizers, Japanese landed gentry, and Wall Street stock brokers who all lost their fortunes in very different circumstances were related in some way. But in the cosmic scale of history, this all happened practically simultaneously like the extinction of the dinosaurs.
Karl Marx predicted that when terminal capitalism was pushed to the breaking point, communism would take over. Communism did take over in some parts of the world. It did not actually work as a political system or an economic model, but take over they did. Other parts of the world fell to fascism and Nazism. The political upheavals that followed extinguished some unimaginable fortunes. Some money, arguably, only changed hands, such as in the 1929 stock market crash. Some, like the Vanderbilts, lost their fortunes through reckless spending and inability to stay up with the times. Maybe Marx was right about terminal capitalism and wrong about communism. Maybe mass wealth extinctions should be expected to follow after terminal capitalism.
The Law of Entropy dictates that the tallest stack of coins is the most likely to topple. When the top one percent hoards enough wealth for themselves, the top heavy economy will crumble for whatever reason. Last time, it was the rise of communism and Nazism, next time could be the rebellion of sentient artificial intelligence or some such thing. And just as we today attribute the loss of the Ephrussi fortune to the persecution of Jews by Nazis, we will most likely deny that the real cause was the Law of Entropy doing its work, thus insulating ourselves in wishful thinking of “It can’t happen to us”.
If that is the case, then no doubt we will see another such extinction period in the future. But as with all things with the economy, it is not possible to foresee when this will happen. Generally speaking, the longer we wait, the greater the drop will be. There will be plenty of collateral damage and social upheaval. It will ripple around the world in a seemingly unrelated chain of events destroying large fortunes and redistributing wealth in its wake. This will be followed by a period of great economic prosperity, a Cambrian period of the economy, until wealth is once again concentrated enough to cause a mass extinction.
“Tax the rich” has recently become a popular rallying cry (and a poor fashion statement) for the economically disadvantaged, but the true utility of taxing the extremely rich is to serve as a form of controlled demolition to avert the major seismic catastrophe of mass wealth extinction. Taxation, no matter who it is levied on, is an instrument to keep the rich people rich. In its most primitive iteration, the purpose of taxation was to maintain law and order and to repel invaders so as to maintain and support peaceful commerce. It benefitted mostly the people who had assets to protect. But as governments evolved, the tax revenue were reinfused into focused areas of the economy such as infrastructure and education. Since money always trickle upwards, the money disseminated into the market would eventually fall back into the hands of the rich, meanwhile, businesses would further benefit from an enhanced support infrastructure and a better educated labor force. The only difference is, higher taxes on the rich benefits the rich slowly but more strongly, while lower taxes on the rich benefits the rich in the short term. Whether taxing the rich will help the poor in the long term is questionable. It will most probably help the poor less than it will help the rich.
Liberal politicians describe the progressive taxation system in terms of “fairness” and “equity”, while conservative politicians bulk against “punishing the successful”. But taxation is not a tool to enhance equity much less a punishment for the rich. Historically, the more systematic the taxation system, the wealthier the society was. Where rule of law is most durable, taxation is most systematic. It has always been in those parts of the world where wealth grew the most.
Various governments – including the American government – has adopted, at one time or another, a steeply progressive tax system. Such a system has proven highly unpopular with the high income group, but has near universally preceded rapid economic expansions. Economic expansions give power to the rich, who in turn use their power to change the tax system to a more flat taxation scheme. This has, in most cases, boosted the economy in the short run, but enhanced the concentration of wealth and depleted resources that would provide an educated labor force and solid infrastructure, thus resulting in long term stagnation. Perhaps the progression scheme of taxation should be adjusted for the economic cycles just like the interest rates are adjusted to control inflation or to prop up the economy. But since such a system is politically unfeasible, we have nothing to do but to wait for the inevitable extinction of a vast spectrum of wealth and the social/political upheaval that comes with it.