Yes, Taxation Is Theft

Yes, Taxation Is Theft

Libertarians think that taxation is theft. The government takes away part of your income and property by force. Your payments aren’t voluntary. If you think they are, try to withhold payment and see what happens.

An influential book by Liam Murphy and Thomas Nagel, The Myth of Ownership, tries to show that this view of taxation is wrong. Many people, they say, foolishly resent taxes. By what right does the government take away part of what we own? Isn’t this legalized theft? The government may claim that it needs the funds to provide essential social services: are the poor to be left to starve? But these assertions do not justify its policy of forcible seizure. Isn’t it up to each owner of property to decide what, if anything, he wishes to donate to charity and other good causes?

You might guess that the authors will respond, along conventional leftist lines, with a denial that property rights are absolute: you do not have the right to keep all that you own, if the government’s exactions are devoted to a good purpose. Quite the contrary, they adopt a much more radical stance. You are not giving away anything at all to the government when you pay taxes, since you own only what the laws say you do.

Our authors are nothing if not direct on this point: “If there is a dominant theme that runs through our discussion, it is this: Private property is a legal convention, defined in part by the tax system; therefore, the tax system cannot be evaluated by looking at its impact on private property, conceived as something that has independent existence and validity. Taxes must be evaluated as part of the overall system of property rights that they help to create. . . . The conventional nature of property rights is both perfectly obvious and remarkably easy to forget . . . We cannot start by taking as given . . . some initial allocation of possessions— what people own, what is theirs, prior to government interference.”

An example quickly discloses the authors’ fallacy. Suppose that the government banned advocacy of libertarian property rights. Against those who claimed that this interfered with free speech, advocates of the new measure replied in this way: “Don’t you see the obvious conceptual error that underlies your protest? ‘Free speech’ is a legal category. People have no independent liberty of speech, apart from what a particular legal system grants them. Your opposition is absurd: away with you!”

I doubt that Murphy and Nagel would display much patience for this sophistry. Legal rights indeed depend on the specifications of a particular legal system; but it is perfectly in order to say that people have moral rights, not created by the legal system, that the law ought to respect.

In like fashion, opponents of taxation are guiltless of the conceptual error Murphy and Nagel impute to them. They maintain that people possess property rights that the government ought to recognize. Why is the falsity of this view “perfectly obvious”? It is rather Murphy and Nagel who have lapsed into grievous error: they confuse legal with moral rights.

The authors at one place acknowledge the point at issue: “[D]eontological theories hold that property rights are in part determined by our individual sovereignty over ourselves. . . . On a deontological approach, there is likely to be a presumption of some form of natural entitlement that determines what is yours or mine and what isn’t, and this prima facie presumption has to be overridden by other considerations if appropriation by taxes is to be justified. On a consequentialist approach, by contrast, the tax system is simply part of the design of any sophisticated modern system of property rights.”

Our authors of course reject the entitlement view, but they have here made a crucial admission. Given that this theory exists, is it not evident that their earlier account is false? The alleged error that opponents of taxation commit is present only if the conventionalist theory is true. Supporters of Lockean entitlements to property may be incorrect, but they at least have a theory: they stand acquitted of simply failing to grasp a conceptual point, the charge that Murphy and Nagel bring against them. Do they think the Lockean account obviously incoherent? They say nothing against it but instead go on interminably to accuse opponents of their view of confusion.

The conventionalist theory they support leads quickly to disaster. Isn’t it “perfectly obvious” that it makes us all slaves of the government? Once more, Murphy and Nagel acknowledge the objection. Their view “is likely to arouse strong resistance” because it “sounds too much like the claim that the entire social product really belongs to the government, and that all after-tax income should be seen as a kind of dole that each of us receives from the government, if it chooses to look on us with favor”

They fail to see that their admission gives away the game. If, as they admit, individual rights require some degree of private property, then the government cannot morally tax away this property. If so, there are moral limits to the taxing power, and it is not “a matter of logic” that there cannot be a pre-tax income over which persons retain full control

Murphy and Nagel are pure conventionalists about property when this enables them to attack libertarians, but they shrink from the full implications of the position. How is this tension in their presentation to be resolved? I suspect that in practice they would not deviate very far from the total subordination of property rights to the state. They consider endowment taxation, in which people are taxed, not just on their income, but rather on their potential to generate revenue. Someone who abandoned a multi-million-dollar business career in order to become a Trappist monk might on the endowment account be taxed as if he continued to receive his former high income. Our authors eventually reject this monstrous proposal, though not on the grounds that it compels people to work.

To reject the proposal because it compelled people to work would put them suspiciously close to a famous argument, advanced very effectively by Robert Nozick, that income taxes are akin to forced labor. Of course our authors cannot accept so libertarian a view; “we may assume that this argument is not dispositive against taxation of earnings.” Since taxation is acceptable—this we know a priori—no argument that holds it illegitimate is right. But then we cannot reject endowment taxation if we reason in a way that would also condemn the income tax. “[T]here is no intrinsic moral objection to taxing people who don’t earn wages” (p. 124). We can, then, maintain that endowment taxation is “too radical” an interference with autonomy; but we cannot in principle reject it.

If you affirm a “conventionalist” account of property, you will wind up in dark waters. Taxation is indeed theft.

Reprinted from the Mises Institute

Mises and Rothbard on Catalan Secession

Mises and Rothbard on Catalan Secession

Many people in Catalonia wish to secede from Spain and form their own country, but the Spanish government has used force to block them from doing so. What should libertarians think of this conflict?

In trying to answer this question, it is useful to seek guidance from Mises and Rothbard. Not that these two thinkers are always right, but it is a safe bet that these two giants of twentieth-century social science will have something illuminating to say.

Mises addresses the issue directly. In Omnipotent Government, he criticizes the eminent Spanish liberal Salvador de Madariaga for his opposition to Catalonian independence. “If some peoples pretend that history or geography gives them the right to subjugate other races, nations, or peoples, there can be no peace. It is unbelievable how deep-rooted these vicious ideas of hegemony, domination, and oppression are even among the most distinguished contemporaries. Señor Salvador de Madariaga condemns the demands of the Catalans and the Basques for independence, and advocates Castilian hegemony for racial, historical, geographical, linguistic, religious, and economic considerations.” (pp. 15–16) (Madariaga served variously as Professor of Spanish at Oxford and Spanish Ambassador to the League of Nations. He and Mises were friends, until this dispute drove them apart.)

Attempts to suppress the autonomy of a distinct linguistic group, Mises thought, would tend to lead to war. Peace requires that groups be allowed to choose their own destiny. “It is futile to advance historical or geographical reasons in support of political ambitions which cannot stand the criticism of democratic principles. Democratic government can safeguard peace and international cooperation because it does not aim at the oppression of other peoples.” (p. 15)

Mises extended the right of secession very far: any group wishing to fend for itself should be free to do so. “The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. … If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done.” (Liberalism, pp. 109–10)

For Mises, then, preserving peace holds primary importance. Groups should not be forced to remain in a country against their will. Mises does not make it a requirement for secession that the seceding group accept libertarian, or as he would say liberal, principles. It is not even a requirement that the seceding group favor institutions more libertarian than those of the country they wish to escape. Mises would have little sympathy for the view, held by some libertarians today, that Catalonian independence should be opposed because the Spanish government is at present less socialist than the Catalonian provincial authorities.

Rothbard held very similar views, although for him individual rights rather than avoiding conflict lay at the heart of the secession issue. “National boundaries are only just insofar as they are based on voluntary consent and the property rights of their members or citizens. Just national boundaries are, then, at best derivative and not primary. How much more is this true of existing state boundaries which are, in greater or lesser degree, based on coercive expropriation of private property, or on a mixture of that with voluntary consent! In practice, the way to have such national boundaries as just as possible is to preserve and cherish the right of secession, the right of different regions, groups, or ethnic nationalities to get the blazes out of the larger entity, to set up their own independent nation. Only by boldly asserting the right of secession can the concept of national self-determination be anything more than a sham and a hoax.” (“The Nationalities Question”)

Rothbard had little use for the notion, held by some libertarians, that because only individuals exist, nations have no significance. “We must not fall into a nihilist trap. While only individuals exist individuals do not exist as isolated and hermetically sealed atoms. Statists traditionally charge libertarians and individualists with being ‘atomistic individualists,’ and the charge, one hopes, has always been incorrect and misconceived. Individuals may be the only reality, but they influence each other, past and present, and all individuals grow up in a common culture and language.” Like Mises, Rothbard does not require a seceding group to be classical liberal in orientation in order to secede. If it is not, that is unfortunate; but the members of the group do not lose their right to form a new political association.

One might object to Mises and Rothbard along these lines: Can we not imagine situations where secession would have very bad consequences? Must we support secession, come what may? The views of neither thinker require this. Too often libertarians seek a geometric politics, in which absolute principles follow rigidly from the non-aggression principle. Such deductions are not to be had, and Mises and Rothbard both deemed it essential to apply libertarian principles to particular circumstances with the requisite practical judgment. In doing so, they argued, support for secession is almost always the preferred course.

Alan Greenspan, Sellout

Alan Greenspan, Sellout

Sebastian Mallaby is the Paul A. Volcker Senior Fellow for International Economic Relations at the Council on Foreign Relations. One can be sure, then, that his new comprehensive book, The Man Who Knew: The Life and Times of Alan Greenspan, reflects an Establishment point of view. As if this were not enough to tell us where the book is coming from, Mallaby informs us that he had Greenspan’s full cooperation in writing it. “This book is based on almost unlimited access to Alan Greenspan, his papers, and his colleagues and friends, all of whom were generous in their collaboration.

Though the book is hardly a panegyric to Greenspan, Mallaby views his subject with considerable favor. Nevertheless, the book contains ample material for a more severe verdict: Greenspan abandoned the free market convictions he effectively defended early in his career as an economist. To uphold economic truth was not the path to the power and influence Greenspan sought; and he readily adjusted his beliefs to fit with his ambitions.

Greenspan attached himself to Ayn Rand’s inner band of disciples; but his adherence to free-market economics did not stem from his alliance with Objectivism. Greenspan learned economic theory from Arthur Burns at Columbia University. For Greenspan, like his mentor Burns, statistics had primary importance: economic theory emerged from discerning patterns in the data and was strictly subordinate to its empirical sources. “Burns was the chief heir to Wesley Mitchell’s empiricist tradition, and his influence restrained any enthusiasm that Greenspan might have felt for the new trends that had begun to stir in economics. … Even the cleverest econometric calculation was limited because yesterday’s statistical relationships might break down tomorrow; by contrast, finer measures of what the economy is doing are more than just estimates — they are facts.”

From his studies of the data, Greenspan arrived at an important conclusion. Financial markets played a crucial role in the genesis of the business cycle: “Squarely confronting the notion that financial markets are merely a casino of meaningless side bets, he laid out an insight for which Nobel laureate James Tobin would later capture the credit. Stock prices drive corporate investments in fixed assets. … In turn, these investments drive many of the booms and busts in a capitalist economy.”

Greenspan applied his insight to Fed policy in a way that resembles the Austrian theory of the business cycle. During the 1920s, “the Fed’s key error was to underestimate its own contribution to the stock bubble. The rise in the market had set off a rise in investment and consumer spending, which in turn had boosted profits and stoked animal spirits, triggering a further rise in the stock market. The 1920s Fed had been the enabler of this feedback loop — in order for investment and consumer spending to take off, companies and consumers needed access to credit. Faced with a jump in the appetite to borrow, the Fed had [wrongly] decided ‘to meet the legitimate demands of business,’ as Greenspan put it.”

Greenspan drew from his analysis “a radical position: the United States should return to the gold standard of the nineteenth century. By tying money and credit to a fixed supply of gold, the nation could prevent toxic surges in purchasing power.” … “‘The pre-World War I gold standard prevented speculative “flights from reality” — with their disastrous consequences,’ “Greenspan insisted.”

Nor was this the only area where Greenspan adopted a radically free-market stance. Defying the mainstream, “Greenspan followed up with an attack on government efforts to rein in monopolies with antitrust laws. … He pointed out that it was not just corporate managers who would want to challenge monopolists; the financial system would demand that they do so. If a monopoly extracted fat rents from its customers, its share prices would soar; that would give entrepreneurs an incentive to create rivals to the monopoly, and it would give financiers an incentive to ply those rivals with abundant capital.” Mallaby views this “crude” view with evident distaste, noting that both Friedrich Hayek and Milton Friedman adopted a more “nuanced” position.

What then became of this free-market radical? Unfortunately, his desire for “power and pelf,” in Murray Rothbard’s phrase, led him to alter his views. A firm commitment to freedom would never gain him entry to the inner sanctum of government, and Greenspan soon learned to temper his views.

In his radical days, Greenspan had opposed government bailouts to failing firms: the discipline of failure was essential to the operation of the free market. In 1971, he defied his teacher Arthur Burns, who favored bailing out Lockheed. “Testifying before the Senate, Greenspan refused to back his mentor. ‘I am in fundamental disagreement with this type of loan guarantee,’ he began. Government-directed lending ‘must inevitably lead to subsidization of the least efficient firms,’ damaging productivity and therefore living standards. … What the economy really needed was for weak companies to go bust, so that capital and workers would move to better-run establishments.”

Once close to the levers of power, matters were different. He wished to become Paul Volcker’s successor as Fed chairman, and he knew that firm opposition to Fed policy would hurt his chances for the job. Going against his earlier analysis, he supported the “largest bank bailout in U.S. history,” the rescue in 1984 of the Continental Illinois National Bank. He admitted the dangers of the bailout, but it was, as Mallaby summarizes his position, “necessary and appalling.” Appalling, one suspects, because of its effects on the free market; but necessary to advance Greenspan’s career. By the time he became Fed Chairman, the transformation was complete. By 1989, his “libertarian rejection of bailouts was long gone; what he wanted above all was the space to fight inflation.”

Greenspan wanted to fight inflation; but the best way to do it was no longer acceptable. A gold standard, he had long ago recognized, would bring with it monetary stability; but to replace the Fed with a commodity standard not subject to control by the government would erode his power. Accordingly the gold standard had to go.

He cast aside the gold standard with a transparent sophism: “A necessary condition of returning to a gold standard is the financial environment which the gold standard itself is presumed to create. … But, if we restore financial stability, what purpose is then served by a return to a gold standard?” (quoting Greenspan). Why a gold standard cannot help create a stable financial environment, but instead presupposes it, Greenspan left unclear. Even less clear was how the Fed was supposed to preserve stability in the absence of the gold standard. Evidently we were to rely on his supreme powers of judgment in steering the economy.

Greenspan in his long career as Fed chairman gained the power and acclaim he coveted; but the crash of 2008, two years after the end of his tenure in office, led to a sharp decline in his reputation.

In their attitude toward compromise, Greenspan is the polar opposite to Murray Rothbard. Rothbard could have tailored his views to win the favor of Arthur Burns, who was a family friend, but he refused to do so. He never abandoned his principles, and he took the measure of Greenspan. Writing about him in 1987, Rothbard observed: “Greenspan’s real qualification is that he can be trusted never to rock the establishment’s boat. He has long positioned himself in the very middle of the economic spectrum. He is, like most other long-time Republican economists, a conservative Keynesian, which in these days is almost indistinguishable from the liberal Keynesians in the Democratic camp.”

In looking over Greenspan’s fall from free-market grace, the melancholy first lines of Browning’s The Lost Leader, addressed to Wordsworth, come to mind: “Just for a handful of silver he left us,/Just for a ribbon to stick in his coat. …”

Republished from the Mises Institute.

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