In a Levy Economy you raise the money you need on demand instead of building it up slowly with taxes (see above for a detailed explanation of how taxes, happiness and population work).
To convert over, you should build cottages to increase your population while lowering taxes slowly until you are just barely breaking even.
When you need money, go to your castle and select “Increase Gold.” Each “levy” drops your happiness by 20, but it bounces back quickly with low taxes.
Your levy amount becomes much larger as your population goes up.