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February 8,
2001
To the
Editor:
The recent
700-word “Anti-tax Silliness” essay (Courier Journal 1/26/01) by
Professor Sam Fleischacker, from the University of Illinois, certainly
deserves a rebuttal, which I have not seen yet.
First of
all, President George W. Bush is not a libertarian by any means, as
Dr.Fleischacker implies. Mr.
Bush’s political and economic philosophies and actions are far closer to
a moderate Democratic philosophy than to a libertarian philosophy.
Next, most
libertarians are neither absolutely anti-government nor anti-tax.
However, most libertarians believe in a severely limited
government. The primary
function of government should be to protect society from force and fraud.
Government should not provide goods and services that can be
provided by the private sector, such as education, health care, and
support for the truly needy. Libertarians
oppose progressive taxation, especially for the purpose of wealth
re-distribution. They also generally oppose other governmental economic
interference with the free market.
Dr.
Fleischacker also implies that Adam Smith, an 18th century
economist, would approve of America’s modern welfare state economic
model and our level of taxation. Obviously
it would be difficult to predict how Adam Smith would view America’s
current economic and governmental systems since Smith published his
“Wealth of Nations” in 1776, over two hundred years ago.
What would Smith say about a marginal income tax rate of over 50%
for an average middle-class two-wage-earner family?
What would he say about the effectiveness of the government’s
“war on poverty,” especially considering the huge sums of money spent
on the program? What would
Smith say about continually inflating the definition of poverty?
What would Smith say if he had witnessed the great experiments and
monumental failures of socialism during the twentieth century?
Although
Adam Smith had many great insights about the market process, it is also
important to realize that Smith was an extremely early economic theorist,
and that his economic understanding and analysis was primitive relative to
the development of economic theory since his time.
Advocates and opponents of the free market must look much deeper
than Adam Smith to understand and evaluate the economic arguments
advocating the free market and limited government.
Austrian
economic theorists, and Ludwig Von Mises, in particular, offer a much more
developed and comprehensive analysis of the free market than Smith does.
For example the Austrian’s subjective theory of value corrected
Smith’s labor theory of value. In the 1920’s Mises also identified the “economic
calculation problem“ of socialism.
According to this logic, private property and the market process
were critical to rational economic decision-making and entrepreneurial
innovation. The economic
calculation problem explained why socialism and governmental economic
intervention were ineffective and counter-productive to society.
Both the subjective value theory and the economic calculation
problem theory were developed long after Adam Smith departed from this
earth.
According to
Dr. Fleischacker, Adam Smith also advocated progressive taxation.
This indicates a shallow understanding of the market process
relative to financially successful people.
People usually become prosperous in a market economy by best
providing consumers what they demand. Consumers exchange cash with the producer for goods and
services. Both the producer
and the consumer benefit from an exchange.
A prosperous producer has served society by providing goods and
services to consumers, and has benefited from society and governmental
protections no more than the consumer, who received the goods and
services.
In addition,
a prosperous producer may better serve society by saving his income and
providing capital and capital allocation decisions than by contributing
money to the poor either though government or through private sector
charities. The prosperous
producer benefits society by providing capital that improves the
productivity of labor and drives down the cost of production.
Progressive taxation tends to lower the general savings rate of a
society because obviously the prosperous save more that the less
prosperous. Less saving means less capital, lower productivity, and
higher prices.
Dr.
Fleischacker may consider arguments for property rights, limited
government, and capitalism silly. But
Dr. Fleischacker’s arguments for the welfare state look pretty weak, if
he must rely on Adam Smith to offer theoretical support.
Austrian economic theory has provided the intellectual ammunition
to demolish arguments for socialism, the modern welfare state, and
governmental economic interference with the free market.
That’s probably why most universities don’t provide a course in
Austrian economic theory or even mention it.
They don’t want their students to know.
Jim Welding
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