I find it hard to think of any innovation in taxation - any new form of taxation, any new way of collecting taxes - that was not brought into being as part of a government scheme to pay for war.
What has caused the growth of government in the 20th century?
Historical analysis can provide the answer to this question. In particular, it is essential to study the history of warfare. The State grows during times of war -- to the detriment of individual liberty. As Randolph Bourne famously said, ‘War is the health of the State’.
In Australia, it was the World Wars that set the fiscal, institutional and ideological precedents that allowed for the rise of big government. The wars legitimated Keynesianism by allowing social democrats to speak lovingly of the wonders of central direction of the economy.
World War I, in which nearly 60,000 Australians died, saw moves towards centralization of political power over the individual. As Neil Barnwell points out, the nationalist sentiment brought about by the “Great War” has been adeptly harnessed by governments ever since:
Large scale government involvement in [World War I] paved the way for further government involvement in the economy, culminating in the period of extensive public ownership and regulation of industry after 1945. Government industrial and organisational initiatives in marshalling and managing resources for the war effort helped erode argument that markets and private ownership were the best promoters of economic development. Additionally, the repatriation of returned soldiers led to government involvement in social programs on a scale never before anticipated or expected. Thus the First World War paved the way for an expanded role of government in industry and society once the war was over.
War traditionally gives governments increased powers. For Australia the Second World War shifted the balance of power away from the states and in favour of the federal government, with the permanent move of the powers of taxation to the centre. Moreover, the federal government’s increased controls over goods and services, including manufacturing and transport, gave it confidence to experiment with a planned mixed economy.
Those who favour free-markets should re-think their attitude towards war in light of the above.