Political Discussions
Do you agree with Adam Smith?
Posted by Agit8r • 7/13/09 • Subscribe to this Discussion [RSS] • Report This Topic
Topics: progressive taxation, social justice, the real laissez-faire
"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation."
"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."
From "Wealth of Nations"
User Comments
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Sounds Obama-ish.
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Well I certainly agree with the second quote. Economically speaking, the wealthy simply cannot spend enough of their money in the manner it needs to be spent in order to sustain the economy - therefore their taxation should be higher to make up for their inability to contribute to the economy on a whole.
Whereas taxes on lower income citizens needs to be lower, lest you impair their ability to survive. In order for enough money to flow into the economy, the greatest amount of people need to constantly buy goods - and that greatest part of the population happens to be those who make relatively little money.
But they contribute because they must in order to live - and so helping to cushion their finances by easing their tax burden helps them be able to go out and buy all of the consumables they will buy.
In other words, 100 families with lower incomes will spend more out in the economy combined than two or three wealthy families (Since the wealthiest people make up 2-3% of the population, 2-3 families is proportionate to 100 families). That's 98 more cars, 98 more trips to the grocery store, 98 more purchases at local stores that cater to everyone not wealthy - 98 more of everything in all industries but those which only the wealthy can patronize.
Our economy cannot survive on $40k luxury cars and Brooks Brother's suits alone.-
"Economically speaking, the wealthy simply cannot spend enough of their money in the manner it needs to be spent in order to sustain the economy - therefore their taxation should be higher to make up for their inability to contribute to the economy on a whole."
Money that is not spent is left in the bank and in investments, which serve to increase production. An argument can be made over-taxing the rich is it encourages them to invest less, especially in their own businseses (yes, there is a business tax, but it's higher then the income tax and most business people get around it by filing their profit as income.) This creates less work, less increase in incomes and (most importantly) a smaller production yield for which prices will adjust. Government investment would work if (and this would never happen) government would spend the money on the right things.
"Whereas taxes on lower income citizens needs to be lower, lest you impair their ability to survive. In order for enough money to flow into the economy, the greatest amount of people need to constantly buy goods - and that greatest part of the population happens to be those who make relatively little money."
Milton Friedman thinks that the hand-to-mouth classes shouldn't be taxed at all. I agree with him, and payroll tax is evil.
"In other words, 100 families with lower incomes will spend more out in the economy combined than two or three wealthy families (Since the wealthiest people make up 2-3% of the population, 2-3 families is proportionate to 100 families). That's 98 more cars, 98 more trips to the grocery store, 98 more purchases at local stores that cater to everyone not wealthy - 98 more of everything in all industries but those which only the wealthy can patronize."
Spending only affects the economy short-term. Any recession created by too little spending is eventually off-set by lower costs (though this eventually could be years, as it was in the 30's.) This isn't to say (as the 30's proved) that you shouldn't pay attention to spending, but it's really more important that people spend consistently then spend much.
As for Smiths thesis on house tax, I respectfully disagree and believe that if Smith lived today, and saw what happened to the surfer dudes in California when their properties increased in value, he would disagree too. Taxes should be dependent on income, not property, as income taxes harm no natural right of a citizen, though they may harm his finances this is minor, while property taxes may well strip him of his second most important right after the freedom of speech. -
yes, the fact that nearly half of all federal revenues come from payroll taxes is indeed evil. unfortunately we get to choose each election, between two kinds of regressivism. Adam Smith and other Laissez-Faire economists at the end of the eighteenth century would not have concurred.
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Jeremy - investments don't create jobs and keep farms and local businesses in business.
Letting your money sit in a bank account or investment fund doesn't keep the farmer's tractor's running - as we've seen with the collapse of the investment based economy not once but twice now.
Investments are simply no substitute for actual purchasing power. -
also, they are no match for leveraging
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@Agit8r...how do you feel about the fair tax?
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If I recall correctly, the fair tax is a national sales tax, no?
I would be ok with a combination of "Fair tax" along with a land value tax, if the two would replace the Inocome Tax, AND a the payroll taxes.
I also think that there are numerous ways that we could cut federal spending. -
@Anok: Letting your money sit in a bank account causes it to be lent out, by a bank, to a farmer who needs to buy a tractor, who then pays it back in interst, some of that interst going back to you. A tractor can't run if you don't have one to run.
Further, higher prices mean higher operating costs, and lower prices mean lower operating costs. It works both ways, though wealthier countries will have higher prices as a byproduct of so much money being lent by the bank (creating new cash), which leads to the need for financial regulation. But you need reserves for that, to hold out of the economy.
@satj: Yeah, it's obsurd that our corporate tax is higher then our income tax. We're punishing useful rich people to help not so useful rich people. Where's the justice there? Still though, you don't want to overtax the production sector, and the upside to huge salaries is it causes a certain class to have large bank accounts which can be lent to small businesses. My position is tax the middle class at the same level as the upper-class, and just exempt the absolute poorest 25% of ANY taxes and everyone else will be taxed by their income minus highest income of anyone who doesn't pay taxes. -
@Agit8r...I agree that it would be better IF it replaced the "temporary" income tax.
"The first income tax imposed in America was during the War of 1812. Its original purpose was to fund the repayment of a $100 million debt that was incurred through war-related expenses. After the war, the tax was repealed, but income tax became permanent during the early twentieth century."
www.answers.com/topic/income-tax -
it would be more similar to the sort of direct taxes that our founders envisioned. They are also to a certain degree voluntary taxes, regardless ones level of productive ambition. And certaintly, if implemented correctly, no less just than our present tax code
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@Abit8r...Here is a useful web site and I put a link to their FAQ page.
www.fairtax.org/site/PageServer?pagename=about_faq -
Sorry Jeremy - investments are no replacement for purchasing power - unless those investments are buying the farmer's produce, then the need for the tractor doesn't exist, and neither does the loan to buy the tractor, and thus renders the investment that may or may not have enabled that loan useless.
Purchasing power comes first, and the rich simply cannot contribute enough in the economy through purchases to sustain the economy - regardless of how many of their investments enable loans. -
@Anok: Purchasing power adjusts for supply. A dollar can be a hundred dollars if there is enough unbought supply to go around. Cash flow is much much more important then a random number on a balance sheet between 0 and infinity. Now, if the economy is generally good and people are buying stuff in general but simply have no interst in your crops, your farm will go out of business, but if everyone's finding no buyer, everyone will cut prices and some will stay afloat, even grow. The latter situation is unrealistic because it happens in peoples minds before it would happen in reality, and the business owners adjust their prices before consequences would've ensued.
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Jeremy you've missed my point - you can have investments coming out of your ears, but if there is no purchasing there is no company, and thus no economy. Unless people are willing to finance everyday purchases then investments alone cannot and are not an economic system.
In other words - you can have an economy that survives on it's own without investments, you cannot have one that survives without purchasing.
When the majority of wealth is held by a minority of people you throw your economic system out of whack, and it will collapse. We've seen this happen time and time again in the US. Two big collapses and multiple small collapses over the course of 100 years. The wealthy simply do not have the purchasing power to sustain an economy - even with all of their investments. -
Of course you can suppliment this lack of purchasing power by the rich loaning the poor money on interest for consumption (though this being an Adam Smith themed thread it should be noted that Smith states in "Wealth of Nations" that borrowing in order to consume is the path to ruin) this creates a consumption bubble whereby the interest paid by the reputable covers the loss of loans to the disreputable (and then some, so that profit may be had). Until the burden of debt causes the number of the disreputable to be of such a number that no further profit may be extracted. Then, seeing that the vein has gone dry, the gold diggers sell their copius shares of industry, crash the market, let the government pick the peices of their tantrum up, and buy shares again slowly at a profit.
It's the old "coming and going" business model -
Heh, isn't that what just happened to us?
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that is what I was referring to. That's what I see happening
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@Anok: "In other words - you can have an economy that survives on it's own without investments, you cannot have one that survives without purchasing."
Only if there had been investment previously to establish it, and only for a little while, as anything that is built does break down and must be replaced, which requires investment by definition. That investment could take the form of labor in a field, which has monetary value. The fact that one must be constant and the other lasts for a while does not discount the latter's importance.
Investment money can be misused and, as Agit8r pointed out, perhaps suspending the credit card is something that should be considered as a banking regulation, but growth economically can only really occur thorugh investment and slanting the tax system towards consumers just drives up prices. Actual consumption of goods will actually drop in the long-term, as their will be less to consume, though you will get a little wave effect as you first go in to debt as producers mistakenly don't raise their prices (they always do, it's called fear), and then sags as everything is bought out and prices overshoot.
Undertaxing the poor only can help by giving them a slightly larger share of a pie which is shrinking slightly, but taxing the rich and undertaxing both the poor AND middle-class only inflates prices as the rich spend very little of what they make on consumer goods. -
@JJ
Markets existed prior to capital investment, prior to governments, prior to the banks which governments may charter, prior to state issued Specie and moneylenders, and even prior to informal mediums of exchange.
Only the various forms of capitalism revolve around the raising of capital, whether through state bounties, bank loans, venture capital investment, or the issuing of company stock. Each have their own potential hazards, but clearly ther is more than one way to skin the capitalist--or rather, more than one sort of capitalist to skin. -
What Agit said ^
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@Agit8r: What preceded is still a form of investment, just as barter is still a form of consumption. It's a less effective, efficient form of investment, but it's still the same action, just as you would have less efficient (but still existant) consumption if we jacked up income taxes on the poor to 90%, only that would eventually fix itslef through prices sliding down. Of course, I have said this before ("even tilling a field is investment" or something to that effect.) I even mentioned government investment in a previous post. But the fact is, it is through invesment of one sort or another that growth occurs, and consumption will eventually fix itself as no one wants a warehouse of goods sitting around more then is neccesary to handle large orders and promised assistance.
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that's true, there is property in labors. Yes, very Madisonian
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We need to go back to the tax structure we had before Reagan, which I believe was 70% on anything over 3 million dollars. I doubt there's anyone making more than 3 million a year ethically.-
So everyone making $3 million a year or more, are unethical?
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Yes, dey's be unethical. (dumb... da, dumb, dumb, duh-umb)
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And if your little business that you have miraculously takes off and you make over $3 million, you will be unethical as well?
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You have a hypothetical for every situation, don't you AR.
That said, I'll be happy if I make a million from my new business venture. -
If I were making that kind of money, I would be happy to be taxed at the higher rate, assuming I was irresponsible enough not to reinvest those excess profits in the business or maybe some nonprofit work.
One thing people here don't get: Higher tax rates in Europe have definitely not killed the profit motive there. Sure, the earlier days of even higher rates caused some musicians to come over here, but in general the money-making elite understood the deal: their country is stable and provides a platform to make even more money, and that is worth investing in. -
And according to your own statements, you will be an evil, greedy unethical millionaire.
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I could be wrong, but I think Sati is referring to a personal net income of over 3 mill a year per person (not the profit of one's company - which is not personal income). Although I'm tempted to agree with him, I'm thinking that in this day and age $3 mill is too low depending on the job you have. I'm pretty sure movie stars and sports icons make that and more.
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Yes, income tax. Movie stars and professional athletes make ridiculous sums, but not for the good of the industries. Gone are the days when a working class family can go to a ball game or movie without draining their bank accounts. Raising the taxes on any amount over three million would take away the greed incentive for demanding those gargantuan salaries. The movie stars and ball players would still be rich -- just not as rich. And the government could have a somewhat balanced budget.
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the mention of sporting events bring to mind this passage from J.B. Say:
"It would be somewhat bold to maintain, that a parent is bound in justice to stint the food or clothing of his child to furnish his contingent to the ostentatious splender of a court or the needless magnificence of public edifices. Where is the benefit of social institutions to an individual whom they rob of an object of positive enjoyment or necessity in actual possession, and offer nothing in return but the participation in a remote and contingent good which any man in his senses would reject with disdain?"
...like those stadium (such as the one for the Texas Rangers) which was paid for with sales tax revenues. o_0
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Thanks for sharing that, Agit8r. I've noticed some eighteenth-century recognition for the need for progressive taxation in some of the cahiers de doléances in 1789. They just didn't call it that. Instead they used language like you quoted. And these men were propertied. The difference? There used to be a time when wealth and responsibilities went hand in hand.
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Thomas Paine called it that in "Rights of Man, Part the Second"
I wonder what a Pound Sterling from 1792 would be worth in today's dollars...?
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I find most interesting how Smith's words refute the "trickle down"/corporate welfare ideology.
"The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate"
en.wikipedia.org/wiki/Concurrent_estate#Rights_and_duties_of_co-owners-
But remember, he was some old eighteenth century dude, not relevant now, and certainly not connected to anything American. Oh wait . . . What about the founding fathers?
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"Smith's Wealth of Nations is the best book to be read, unless Say's Political Economy can be had, which treats the same subject on the same principles, but in a shorter compass and more lucid manner."
--Thomas Jefferson; letter to John Norvell
and in case anyone wonders if J.B. Say stood for progressive taxation, i quote from chapter 8 of Book III of the work mentioned above.
"...a tax merely proportionate to individual income would be far from equitable: and this is probably what Smith meant, by declaring it reasonable, that a rich man should contribute to the public expenses not merely in proportion to the amount of his revenue, but even somewhat more. For my part, I have no hesitation in going further, and saying that taxation cannot be equitable unless its ratio is progressive." -
I figured they read him, so I was being sarcastic, but nice find.
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I wonder why the righties haven't joined in. I thought they were all about this "spontaineous order" stuff o_0
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Outmatched?
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Outmatched? Hardly.
More like bored, thank you very much.
I think Adam Smith was a very strange fellow. By all accounts he was not a gregarious person, with his odd walk and speech impediment. But he was a profound thinker and once he got started, he was a very good lecturer.
Now, it is of note to remember that Smith's "Wealth of Nations" was influenced by the French during his tenure there. Also, I find it a bit odd that some of his teachings are a bit socialistic for me. Now where this comes from is probably another thread.
Do I agree with him? I would have to say yes and no. But that is because I have never studied him thoroughly enough to make a complete distinction on this question. -
Smith was influenced by the Physiocrats to be sure, for that is where Laissez Faire originates. Smith believed that a system of free exchange was preferable to mercantilism. It is sad that this philosophy has never been fully tried.
he wrote an earlier text, which I have not had the opportunity to examine beyond a glance, which may give us some greater understanding of his thought processes.
en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments -
Oh, come on, Agit8r. Antirocks wasn't interested in Physiocracy or laissez faire. For him "the French" connection was designed as a slur, something to cast aspersion on a man who his co-ideologists hold in the highest esteem. Now you've gone and made the man commit heresy. Have you no shame?
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But the french were all evil... up until Bastiat...
Actually the physiocrats were much more hierarchal and regressive, and they didn't consider manufacturing to be "productive" industry at all, but they weren't mercantilists, and it is from this that Smith drew inspiration. -
To add to what AR said, he was born to Margaret F. Douglas at Kirkcaldy, Scotland. His father, also named Adam Smith, was a lawyer, civil servant, and widower who married Margaret Douglas in 1720 and died six months before Smith was born. Although the exact date of Smith's birth is unknown, his baptism was recorded on 16 June 1723 at Kirkcaldy.
(and other Wikipedia facts...) -
Since you bring it up, Agit8r, and without looking to see if Wikipedia will "confirm" this (see, by way, Professor Wikipedia at www.youtube.com/watch?v=eaADQTeZRCY), the Physiocrats made a major intellectual breakthrough. Whereas the mercantilists saw the economy as a zero-sum game, with one country's gain being another's loss, the Physiocrats noticed that economies could actually grow. Now where they identified that growth was off. They said it was the land, which when cultivated produced more wealth. But they made a breakthrough, nonetheless. And then Smith took that idea and relocated where wealth was created: through labor. Anyway, that's why I throw the term "Physiocrats" at my students, even though their economics textbooks tend to jump from mercantilism to Smith.
The other thing I've noticed about Physiocrats: If you look at Quesnay or Turgot, you'll notice a purely economic discourse. This is the first time I've noticed that in history. Admittedly, I've only taken a lecture and seminar on the subject, not done any real research, but the economics texts from earlier are usually also concerned with other things besides just economics, whether that be religion, ethics, administration, the business of a merchant, or what not. Smith also offers something like the Physiocrats: the notion that one can talk about economics as an independent discourse. And then in the nineteenth century this subject emerged at university. -
"Oh, come on, Agit8r. Antirocks wasn't interested in Physiocracy or laissez faire. For him "the French" connection was designed as a slur, something to cast aspersion on a man who his co-ideologists hold in the highest esteem. Now you've gone and made the man commit heresy. Have you no shame?"
No it wasn't mark. I was merely reflecting the time he spent in France and to be sure, their revolution did have its effect on him. Why do you automatically assume I am casting aspersions on someone? How do you know what I am or am not interested in?
And by the way, I am not an ideologue. -
see, by way, Professor Wikipedia at www.youtube.com/watch?v=eaADQTeZRCY)
Poor Professor Britannica. O_O -
How did the French Revolution affect Adam Smith and his book, The Wealth of Nations? Last I heard, the former began in 1789, but the latter came out in 1776.
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I misspoke about Smith and the French Revolution. As I said, I am not the consummate student of Smith, but rather I follow Burke. However, it still stands that Smith's time in France did open him to new acquaintances and left its mark on him.
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yes. Adam Smith died in 1790, before the French Revolution even got radical.
unless you are talking about Jefferson... whom the radical small-government ideology doesn't even exist without. Who else are you gonna pull out? Madison? He was much more of a proponent of an active federal government, advocating internal improvements and the like. He just wanted the congress to amend the constitution in order to do so, before going forward. Thomas Paine? I think we've covered him before, and if not simply read 'Rights of Man, Part the Second.' Hamilton, the tax and spender? Adams, the mercantilist?
*reads response* Oh, Burke!
Didn't we go over that he was a gun-grabber and whatnot else?
It's way past my bedtime, I'll catch up in the morning
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Wow! Here's food for thought:
"Not seeing there, that freedom, as in countries where it is a common blessing, and as broad and general as the air, may be united with much abject toil, with great misery, with all the exterior of servitude, liberty looks, amongst them, like something that is more noble and liberal. I do not mean, Sir, to commend the superior morality of this sentiment, which has at least as much pride as virtue in it; but I cannot alter the nature of man. The fact is so; and these people of the southern colonies are much more strongly, and with a higher and more stubborn spirit, attached to liberty, than those to the northward. Such were all the ancient commonwealths; such were our Gothic ancestors; such in our days were the Poles; and such will be all masters of slaves, who are not slaves themselves. In such a people, the haughtiness of domination combines with the spirit of freedom, fortifies it, and renders it invincible."
--Edmund Burke; Speech on Conciliation with the Colonies (1775)-
That's interesting insight--that paranoia of tyranny is porportionate to the oppression of others in the same locale
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And that region is still sensitive this way, just as tyranny against African Americans in the South didn't end all that long ago. Hmmmm.
Now I'm wondering if there is a connection to Gandhi's insights on ends and means, but I'm afraid the discussion might jump the shark with that one. -
i don't know that I would limit that priciple to the south though...
or assume that it is all past -
I meant legalized tyranny.
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right, right. true.
But when law enforcement and other institutions operate a de facto tyranny, there is little actual difference. -
@Agit8r...I would love to ask your thoughts on de Tocqueville's soft tyranny, but I am afraid that mark might yell at me for "necroposting" since you started this thread 5 entire, whole long days ago...
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I presume that you are referring to "Soft Despotism" as perhaps summarised by the passage:
"[The people] devise a sole, tutelary, and all-powerful form of government, but elected by the people. They combine the principle of centralization and that of popular sovereignty; this gives them a respite: they console themselves for being in tutelage by the reflection that they have chosen their own guardians"
xroads.virginia.edu/~HYPER/DETOC/ch4_06.htm
(a soft tyranny being apearently something different en.wikipedia.org/wiki/Soft_tyranny#cite_ref-1)
The notion of a soft despotism (at least anything remotely nearing the extent that DeTocqueville describes) is anwered by either the Federal principle or by the ability of moneyed interests to divide the people against one another.
The latter of those powers has indeed--by exerting control over both the states and the federal government--produced some degree of such "parental" despotism, particularly during the second half of the 2oth century and so far during this century as well. Or can one not see such influence as described below, in the functions of lobbying the governmental bodies, using it's coercive power to exact taxes from the populace, and freely dispersing what 'information' it sees fit...
"Thus it every day renders the exercise of the free agency of man less useful and less frequent; it circumscribes the will within a narrower range and gradually robs a man of all the uses of himself. The principle of equality has prepared men for these things;it has predisposed men to endure them and often to look on them as benefits." -
Well, I was wondering what you thought about it.
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I think that DeTocqueville was interpreting events in America such as he saw fit to support the premise of his work. Historically, the Jacksonian Democracy did not result in a socialist welfare state, and within a few decades America had become a mercantilist (original capitalist) economy. So it appears in retrospect that Detocquevill was talking out his backside.
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You don't think that he was addressing the state of events in Europe and comparing and contrasting them with what he saw in America?
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was there actually flourishing democracy OR a welfare state anywhere in europe in the 1830's. I'm actually asking, as I haven't studied that.
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Hell... In this country we used to have Ronald Reagan, Johnny Cash and Bob Hope...
now we have Obama, but no Cash and no Hope...-
LOL. As for me, I will keep my liberties and freedoms, you can keep the change. By the way, I am speaking to the libs when I say that.
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Adam Smith could probably not imagine the society we would become, most of his theory is wiped out by coercion of which we are plentiful.
There was an interesting piece in the WSJ, you need a subscription to read it all but it's here
online.wsj.com/article/SB124813343694466841.html#mod=testMod
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This post expounds on the journal piece.
You all might find it interesting.
digbysblog.blogspot.com/2009/07/america-is-worth-paying-for-by-dday.html -
“Mr. Burke is the only man I ever knew who thinks on economic subjects exactly as I do, without any previous communications having passed between us.”
-- Adam Smith -
here is a great quote from Smith on the corruption of insiders regulating themselves:
"I expect all the bad consequences from the chambers of Commerce and manufactures establishing in different parts of this Country... where Clamour always intimidates and faction often oppresses the Government, the regulations of Commerce are commonly dictated by those who are most interested to deceive and impose upon the Public." -- Adam Smith; letter to Le Duc de la Rochefoucauld (1740) -
"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce."
-- Adam Smith; "Wealth of Nations" -
"The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of...
They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species." -- A. Smith; from 'Theory of Moral Sentiments'-
""The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires..."
Sounds like he was describing a Statist. -
maybe he was. He was after all one of the principle theorists who founded free market economics...
Also, the rich tend to be statists, regardless of political leaning; George Soros, Teresa Hienz Kerry, George W. Bush...
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