Let us suppose we are the State: warriors enjoying a monopoly on the allocation of means. Our subjects compete to own them. How may we better allocate them in order to maximise our wealth?

We essentially provide a protection service. A transaction is voluntarily performed only if both parties hope to reap a profit. Otherwise, the transaction would not happen. Therefore, we ask for something in return for our protection; the most direct form of wealth being money through taxation.

We organise a bid for each means. Here is how it works:

Each subject has an idea of how much value he can derive from means. This value is not cardinal but ordinal. This is why one cannot put a price on, for instance, living in a particular social environment. We ask each subject his estimated value of his property and then require a proportional tax on that value. With a twist: if later someone declares it at a higher price, we transfer ownership to him.

Some questions:

• Would the subject not undervalue his property? He would risk another subject seeing the opportunity of a margin (derived value - taxation) and declaring ownership.
• Would the subject not overvalue his property? He would then overpay taxation.
• Would the subject not hide his property? He is free to do so. But he then has to protect his means himself, that is, act as a State. He may not take ownership of means of the State, expect its protection, and pay nothing in return. He is also free to seek the protection of another state.

An advantage of this taxation system is that it defines the owner of each means we have to protect. In case of conflict, we can directly deduce the rightful owner.

Let us examine this taxation system from the point of view of our subject. Would he not fear for his property being acquired whenever a wealthier subject would desire it? Actually, he pays for protection for a certain duration. This means he estimates the duration of use of the means and pays the matching tax. During this time, he is the owner and no other subject can declare ownership without his agreement.

Now, let us look at the implementation. Such a taxation system would introduce a lot of bureaucratic overhead. How may we organise such bids?

Bids are relevant only when there many potential bidders, when a transfer of ownership may occur. We can design an institution devolved to transferring ownership to the highest bidder and supervise the process. Another name for this institution is a market.

• For consumption goods, we can estimate the average duration of use and ask for a proportional tax, like a value-added tax on sales.
• For production goods which are not destroyed, we have to regularly tax.
• It may be a scarce unproduceable good, such as real estate, hence a regular real estate tax.
• For goods which are not directly sold, we estimate their value through how much wealth they generate. For instance, a corporation tax would be proportional to earnings.
• Subjects matter here only for the labour they provide. Their labour is actually a good sold on the market and the matching price is their income, hence a regular income tax.

This is the wealth-maximising fiscal policy for the State. If we look at the fiscal behaviour of current states, we will notice we did not design a fiscal policy but merely described reality. Naturally, if there is something we may count on the State to achieve, it is to extract the most wealth possible from its subjects.

This taxation system achieves its end and is therefore legitimate. Is it concurrently the optimal fiscal policy for subjects? To the extent that it achieves secure ownership, yes. When subjects criticise fiscal policy, they usually criticise:

• Tax rates.
• The way money is spent.

They may ask for a relief on low-earning households for social justice, for instance. But this questions of the end of the State, which is another subject.

• Next: Identity Gestalt