How an Economy Grows and Why It Crashes

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A   R E P U B L I C   I S   B O R N
And although the government did 
keep a number of people on its 
payroll—lighthouse keepers, 
constables, judges, and navy 
paddlers—everyone understood that 
those jobs could exist only because 
the government taxed society’s producers. If producers didn’t 
send in fi sh, the government employees couldn’t eat. 
So far, so good. But there’s always something…
B
ecause the islanders understood that government 
spending was really the same as taxpayer spending, they 
believed that it should be the taxpayers who decided how 
the money was spent. As a result, voting was restricted to 
those who paid tax.
It was also understood that taxes reduced the available pool 
of savings on the island and limited the supply of investment 
capital. But most island residents agreed that the commercial 
benefi ts that fl owed from increased island security, fewer 
canoe wrecks, and a court system that enforced contracts 
and disputes, more than compensated for the lost savings.
REALITY CHECK

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