3 Preconditions for Taxing Income

The concept of taxing income is a modern innovation and requires three things: a money economy, an accurate accounting system, and thirdly, an orderly society.

 
A money economy is a system of trade where money has replaced barter. The word “money” is believed to originate from a temple of Juno, on Capitoline, one of Rome’s seven hills. In the ancient world Juno was often associated with money and the temple of Juno Moneta at Rome was the place where the mint of Ancient Rome was located. Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment.

An accurate accounting system also requires a clear understanding of receipts, expenses and profits. For this we can thank Luca Pacioli (c.1447 – 1517) the ‘Father of Accounting’ who published works for the double entry accounting system based on procedures in use by Venetian merchants during the Italian Renaissance. Most of the accounting principles and cycles described by Luca are still in use today including double entry accounting, journals, ledgers, trials balances, year-end closing dates, cost accounting, accounting ethics, and the Rule of 72.

An orderly society is a group of people involved in persistent social interaction, or a large social grouping sharing the same geographical or social territory, typically subject to the same political authority and dominant cultural expectations. The patterns of relationships (social relations) between the individuals are neat and methodically arranged and bound by functional interdependence comprising characteristics such as national or cultural identity, social solidarity, language, or hierarchical structure.

For most of the history of civilization, these three preconditions required for taxing income did not exist, and taxes were instead based on other factors. Taxes on wealth, social position, and ownership of the means of production (typically land and slaves) were all common.