Of all the concepts I noted in my post on making capital controls work this morning, the one likely to be most unfamiliar is Spahn taxation, so I have added a glossary entry on this subject, as follows:
Spahn taxation
The Spahn tax is a proposed system for taxing foreign exchange transactions in order to reduce harmful financial speculation. It was developed by German economist Paul Bernd Spahn as an alternative to the Tobin tax, or an addition to it.
Spahn argued that a flat-rate transaction tax, as James Tobin proposed, risked penalising routine, low-risk currency trades that facilitate international trade and long-term investment. Instead, he suggested a two-tier system:
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A very low basic tax rate
This would apply to all foreign exchange transactions. Its purpose is not to stop trade or long-term investment, but to provide a small friction that slightly slows down high-frequency speculative activity and raises some revenue.
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A high, variable surcharge
This would only apply in periods of excessive exchange-rate volatility, when speculation becomes predatory and destabilising. The surcharge acts as a circuit-breaker, helping central banks prevent destabilising capital flows without banning foreign exchange activity.
The key innovation is that the surcharge only triggers under specific market conditions, which are identified and enforced by regulation or automated systems.
Spahn taxation sits within a wider set of tools, including capital controls, aimed at protecting countries from speculative attacks that can destroy economic stability. From my politics of care perspective that underpins Funding the Future, Spahn taxation recognises that financial markets serve society, not the other way around. Markets should not be allowed to impose crises on democratic economies in the pursuit of private profit.
The broader implication is that currencies are public goods. Their stability is essential to everyday life, wages, savings, pensions and investment. Spahn taxation helps ensure that those who try to profit from volatility bear a cost while those engaged in genuine trade and investment are largely unaffected.
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I’m all for it, but it may well go the way of the polluter pays principle – after all, all that stupid behaviour that contributes to volatility just creates ‘price pollution’.
There is nothing finance likes more than a ‘level playing field’ – or should we say, one that tips the scales in their balance? All of the time. ‘Fuck you buddy’ as RAND used to say.
I’m all for it. Thanks for making it known. Add it to the list of sharp subjects we will use to nail down and entomb North American style capitalism one day.
I’m embarrassed to say I have not heard of an Order in Council either, so looked it up. There are Orders IN Council and Orders OF Council which are distinctly different. New to me!
This answers the question I raised under the Tobin Tax post. I should have read them together.
I have been thinking about the £, about the money circulating in our country. It appears from government demand to fund the particular things the government has said it wants to do. After it has been spent it might return via tax to be removed. Some of it stays in circulation or is put into hiding.
But, whatever it’s uses, it has been created legally by our democratically elected government and as such it actually belongs to the electorate, all of us. I’m not suggesting it should be in our hands, although that would be nice, but I am suggesting it shouldn’t be used to harm us. Poverty is harm, not getting Healthcare is harm, not getting adequate social care is harm, not getting a good education is harm.
There must be ways of preventing money which belongs to the people from doing the people harm.
“Money is a creature of law,” as the chartalist precursors of modern monetary theory remind us. And what the law creates in a democracy is created in our name. That is the essential point you are making, I think: that the pound is a public institution.
It enters the economy because government spends. Tax later reclaims some of it. Some stays in circulation. Some is hoarded. But all of it exists because a democratic state issued it.
First, that means money is not a private commodity. It is a public tool. And like any tool, it can be used well or badly.
Second, money should not be used to harm those who ultimately give it legitimacy: the electorate. Poverty is harm. Denied healthcare is harm. Inadequate social care is harm. Poor education is harm. None of these outcomes are natural. All arise from political decisions about how publicly created money is used—or withheld.
Third, when governments pretend that “there is no money” or that public spending must be constrained for its own sake, they allow the flows of money to be captured by private interests: landlords, financiers, and monopolies. The result is predictable: inequality rises, public services collapse, and people suffer. This is not a matter of affordability. It is a matter of choice.
Fourth, preventing public money from doing harm requires purposeful design. That means fiscal policy aimed at full employment and universal services; taxation that curbs excess accumulation; financial regulation that directs savings into useful investment; and an absolute rejection of austerity, which is simply the deliberate refusal to use the state’s own currency for public well-being.
Finally, democracy demands more than voting. It demands that the money created in all our names be used for all our benefit. If we understand that the pound belongs, ultimately, to the people, then the politics of harm becomes indefensible—and a politics of care becomes inevitable.