Geoffrey S. Lea
Honors in Economics:
An Austrian Analysis of Value-Added Taxation
Capital formation simultaneously allows for complex production and facilitates the production process, inventing the wheel and greasing it at the same time. Just as complex production is impossible without developed capital, a complete understanding of production cannot exist without a deeply rich understanding of capital. Given the varied and inter-temporal nature of capital, the Austrian school’s theories on subjectivity and the market process make it the ideal frame of reference for a cogent analysis of capital. To this end, Garrison’s model of a capital-based macroeconomy is used to test theories about the effects of policy decision on capital formation and the production process. Value added taxation is a tax on consumption long employed in Western Europe. The arguments in favor of such a tax are its flatness and that by taxing consumption, not investment, it will not disrupt savings or investment practices. This piece puts these assertions to the test in light of an Austrian understanding of capital and the production process.