Murray Rothbard's View on Taxation

0:00I'm Joseph Stromberg, the resident historian at the Mises Institute, and the talk is on Murray Rothbard's view of taxes. I could summarize it very quickly, but that would take all the fun out of it. Basically, Rothbard didn't like taxes, because he didn't like states very much, and this was their main source of income. And at best he thought states were sort of bumbling, inefficient monstrosities, but of course most of the time they were doing a lot of harm also. And so he didn't like the fact that they also were supporting themselves by what amounted to highway robbery, although highway robbery is supported by a good deal of ideology and historical precedent and so forth.

0:47So with Rothbard's work we get not just complaints about taxes or some sort of emotional reaction, We also get a lot of technical economic analysis of how they work and what the specific disadvantages of specific taxes are and various other things that are quite useful. Of course, he held in general that any tax cut is good provided it was a cut-cut. Now I have to explain a linguistic phenomenon. Rothbard had to start inventing reduplicated words. For instance, he thought that films had gone to hell, so if he said a movie movie, he meant a real film in the tradition of those made in the 30s and 40s and not some modern schlock. Similarly, a cut cut was a real tax cut. It was not a cut in the estimated projected increase in next year's budget.

1:39And this device of cutting the projections, I think, emerged in the 1970s, and Rothbard thought this was a debasement of the language to call this a cut, In fact, the budget for the Department of Agriculture will be larger next year, not smaller. There's no substantive cut, so the language is simply being misused. So his critique of various proposed taxes and existing taxes runs through all of his work. His political journalism, as Justin Raimondo calls it, is a useful term, but also his technical economic writings and his historical work. One of the earliest things I run into is a 1949 memo on war finance. We've just been at a conference in Chicago on war finance, because no center in World War II is over.

2:24We have the Cold War presented to us, and there's all sorts of discussion that will, making this big effort, you know, be inflationary. What will happen? How are we going to finance all these big public projects attendant on the Cold War and an active foreign policy? So Rothbard followed the reports of this conference and did this short paper on war finance, but here he just follows Mises' position that given there's a war and you can't do much about that, what's the least damaging way to finance it? And he concludes, as Mises does here and there, that the best thing is to actually tax people, then they know what it costs, and it's less to starting than creating a vast new amount of public debt, which will then exist in later years as a consequence of this war.

3:17It's also a point that John Davenport, the American and Austrian economist, made in 1919 in a paper. I don't think he could publish it in 1908. If Wilson would have arrested him, I suppose he couldn't dissent from the law policy. The next thing of interest is a paper called The Uneasy Case for Degressive Taxation, a critique of Bloom and Calvin. Now, Bloom and Calvin had written a piece in the University of Chicago Law Review in 1952. Rothbard reads this, finds it quite interesting, and does a lengthy critique, which has since been published in the Quarterly Journal of Austrian Economics, Spring 2001. And he says, well, there's some good points in this essay by these men because they do take apart some of the arguments in favor of progressive taxation.

4:09Unfortunately, they make their own argument for a kind of proportional taxation which has almost as many flaws. They kind of like the way in which they critique some of the arguments, but he's not very kind to a lot of what they say, a lot of their positive argument. And this is an interesting piece, which I won't summarize here, but it's interesting partly because some of the phrasing and some of the arguments that he uses in this essay carry over into Man Economy and State, which he's also working on at the same time. I would say in summary he basically hands these guys their heads while recognizing what he thinks are their positive contributions and their good insights.

5:00He's particularly harsh on their using democracy as a kind of fallback position. and so forth, and he's got some interesting commentary on that side of it. But the whole article is rather interesting to me as an excellent critique of the kind of sloppy thinking that passed for economic, social science and ethics in the age of the New Deal. There's really a lot of bad argumentation going around, a lot of assumptions, and this This is one of Rothbard's pet peeves, is an economist in the guise of doing scientific analysis will smuggle in big truckloads of ethical premises they haven't defended or argued for and then say well there's a shortage of potatoes in Des Moines therefore the state must do X and they don't give you any reason to believe this and there's one amusing bit where there's some discussion that Bloom and Calvin don't like either entirely But some argument to the effect that we must have some sort of slightly progressive or proportional taxation for the children.

6:19And Rothbard says, well, if you follow this premise to its logical conclusion, you have to nationalize children. Of course, this is a proposal we'll probably eventually hear. And also he has some fun with people who make arguments on the notion, on the premise that life is a race, or life is a game. And he disposes of this fairly quickly and has some fun doing it. Now his economic treaties, which I will hold up in case someone hasn't seen it, which has been republished in this edition, combining the entire work as he intended it to be published, was begun or first suggested in late 1949 and begins as a textbook in which you're simply going to expound Austrian theory as developed by Mises and Human Action in a step-by-step version aimed at the intelligent public, college classrooms and so forth.

7:13And as often happened with Rothbard, it got more complicated and insightful, larger and turned into a treatise in its own right. Now the original, his original plan was to do the work in three parts, the first two parts would expound the logic of the pure market economy, work out all the implications, all the categories of economic thought, proceed from axioms and proceed deductively. Part three was going to bring the state in, which it assumed out, it assumed that somehow property is protected and exchanges take place. Now he's going to bring the state in and see what happens when the state intervenes in the economy. This was part three. Well, this was considered controversial in the late 50s, somehow.

7:58And the reader, Frank Meyer, said, no, this should be published as a separate book. This is too radical. It's too drastic. This shouldn't come out as part of the economics treaties. And so under friendlier auspices, Man Economy and State then is published in 1962 by Van Nostrand publishing it for the Volcker Fund. Under friendlier auspices, the book comes out as a separate book, part three comes out as Power and Market in 1970, published by the Institute for Humane Studies. And to make this work, Rothbard had to sort of cut parts of part three that he thought would still pass muster in Man Economy and State. So he did a shorter chapter, chapter 12, and saved some of his material, and the rest of it appears in Power and Market.

8:49And there's some repetition, inevitably, but not as much as you might think, because he leaves out in here the discussion of, most of the discussion of money and banking, which you'll find in his treatise, Man Economy and State. So let's kind of go through this. I'll try to avoid repetition, but he does discuss some of the same things. But starting with this material, mostly in chapter 12 of Man Economy and State, he's brought the state in, and he thinks that you can divide interventions into three kinds, autistic, binary, and triangular interventions. The autistic interventions don't amount to much, so we won't worry about them. But a binary intervention, the state tells you to do something In a triangular intervention, the state tells two or more people not to trade in some commodity, not to do something involving one another.

9:46And he's rather interested in that most of the right-wing or free market economists of the period were mostly concerned about triangular interventions, price controls and things like this. didn't seem to be very concerned about binary interventions, so they didn't have much useful to say in his view, or not as much as they could say, about taxation. Now, another idea he brings in very early is John C. Calhoun's analysis of net taxpayers and net tax consumers, that the very fiscal operation of the state, and Calhoun says this, I think, in the Disquisition, anyway, Rothbard will take you to the source, The very fiscal operation of the state at any time and place will tend to divide society into two classes, those who are paying for it and those who are being benefited by it.

10:36And Rothbard rather liked this exposition and quotes about two pages of it. And this is sort of the fundamental assumption Rothbard works, and it's not the only source you could get this from. He decided Calhoun's exposition was quite good. So he says of this point, since all state actions rest on the fundamental binary intervention of taxation, it follows that no state action can increase social utility. That is, can increase the utility of all affected individuals. Sure, the people that are getting the subsidies or the government bureaucrats are getting the money, their utility is doubtless improved, although we can't really measure it. And there's no workable way to compare the utilities. It's sort of reasonable to assume And since they're taking it and somebody else is giving it up, their utility has increased in some unmeasurable amount.

11:31And I mentioned in passing that he's already addressed these issues in an essay published in 1958 on the reconstruction of utility and welfare economics. And, well, maybe it's 56, I'm sorry, but nonetheless he's addressed very technical issues There were some technical issues involving the Pareto optimality and all of these notions that were sent from the economic literature. So he was using the standard framework and within this he launches a devastating critique of much of what's being said about welfare economics and utility theory in the 40s and 50s. Now he goes on to what he thinks of as a futile search for a neutral tax.

12:21Now what would a neutral tax be? Well, a neutral tax is a tax that is thought to do as little damage to the structure of the market, what would actually be happening without the tax. So as little distortion as possible, as little allocation of resources in a different direction. And a lot of economists thought this was possible to find. In fact, Mises thinks it's possible to find such a tax, and Rothbard has quoted him in a later piece to this effect. And Rothbard's not buying it. He says, quote, The tax and expenditure process, therefore, will inevitably distort the allocation of productive factors, the types of goods produced, and the pattern of incomes from what they would have been on the free market. The larger the level of taxing and spending, i.e. the bigger the government budget, the greater the distortion will tend to be.

13:14So he's saying you always get some distortion, there's no neutral tax, but the level is important in practical reality, it's important politically and this is a key notion with Rothbard. He doesn't even care about progressivity, whether the rates are progressive. He doesn't think that's as important as the general level. In fact, he gives an example of two countries in which one has a progressive rate, but the rates are so low that both the poor men and the rich men would prefer to live in the first country and not the second one, where the rates are just significantly higher, but not progressive. Okay. Now he also makes an interesting point that the Marshallians, followers of Marshall, had tended to look at a particular type of tax in isolation, while the Volrasians hold that taxes, quote, may be analyzed only in conjunction with what is done with the proceeds. So they're interested in where the money goes, how it's used in the economy. And he says the Austrian approach would

14:16ideally combine these two types of analysis. He says it's actually futile, quote, to separate them and since they're both stages in the same process of burden and redistribution. And here he goes back to a point he's made earlier in the book where he says actually the whole notion of distribution is wrong. You just have hundreds and thousands of exchanges going on all the time. There's no distribution. He says the fact that we even think in terms of distribution already arises from the intervention of the state and the economy in the form of taxation. The market process is taking care of itself. You don't have to talk about distribution as some result of this. It's a constant ongoing set of exchanges. And he adds that the budgetary process impairs the property right of everyone and his own product and creates this effort process and therefore the problems of distribution.

15:13And here he's probably also influenced by Albert J. Nock, Frans Oppenheimer and other people who have written along these lines, as well as the more radical classical liberals who had always thought of government activity as being fundamentally plunder and exploitation and who thought, therefore, you'd want to minimize this as much as possible by constitutions and other means. Okay, now he goes into an analysis of different types of taxation, which is interesting. With income taxes, he says, there's probably some natural limit to how much can be taxed, beyond which the top heavy burden can no longer be carried by the diminishing stock of producers. Well, this is simply a matter of numbers, in a way. There's so many people producing, they're being taxed.

15:59They're being taxed more and more, they pay more and more people who are doing the taxing or benefiting from it. At some point, you would expect the system to break down. And there are also limits, he says, imposed by the disincentive effects of taxation. In general, as in the less developed countries, and here he cites Peter Bauer, increased taxation will make monetary incomes less worthwhile and tend to drive people back into barter. There's a lot of interesting literature on this, so I won't go into it. He says, in some cases of high income taxation, a person will slacken his efforts, but in others he may work harder to try to offset the burden, so this is not entirely predictable. The other way, there's a loss of utility because in the case of working harder, he's lost leisure, which is a consumer good.

16:49Again, another insight that isn't always appreciated sufficiently. Further, an income tax, quote, crippled saving and investment by lowering the payer's real income and the real value of his monetary assets. As a result, the whole process will shift the social proportion more towards consumption and less saving. But again, knowing Rothbard, this isn't the whole story. It's not sufficient to say that this will... high income tax rates will favor consumption and reduce saving. Because again, Rothbard is never happy with the limitations of conventional free market thinking. So he goes on to add that too many free market defenders seem, quote, are more concerned about governmental measures penalizing saving and investment than they are about humbling consumption.

17:40Why would you want to humble consumption? He says, you know, leave the market alone, it will decide the proportions, people's time preferences and so on, will sort these things out. That's what the market does. So it isn't necessarily a decisive argument to say that a particular tax favors consumption because there's nothing wrong in principle with consumption. Now, returning to the search for the elusive neutral tax, he argues that these people looking for it misconceive what a neutral tax would have to be. Quote, for a tax to be truly neutral to the free market, it would not be one that left income patterns the same as before.

18:25Because the market process doesn't leave patterns the same either. It would be a tax which would affect the income pattern and all other aspects of the economy in the same way as if the tax were really a free market price. Obviously, this is not going to be possible. But it does follow that the so-called poll tax would be far closer to the goal of neutrality. But nonetheless, since it is a tax and people aren't actually giving the money out voluntarily, there'd be at least three groups unduly affected, the poor, the uninterested, and the hostile. Because again, you can't leave out the subjective factors. If people are going to pretend to compare utility, then they have to understand that the guy who really hates this whole idea suffers more disutility than the people that don't mind or the people that actually believe this is a good way to proceed.

19:21So he's constantly bringing in different arguments from utility theory and so on to bear on taxation. He says also the cost principle, the attempt to have taxes cover the actual costs of administering a service or a government program ought to be looked at. He says it's a neglected principle, but it raises the problem of how the service is to be defined. And some people don't want some of the services that are being offered. In fact, they don't consider them goods, they consider them bads, so again, this is a further complication. And in the last analysis, you can't measure benefits from government services in quite the same way that you can say that if someone buys something, it's a safe conclusion that he wanted it.

20:13and demonstrated preference, as Rothbard calls this. Okay. Now, talking again about progressivity, as before, he says that free market economists tend to overweigh its effects and to underweigh the destructive effects of proportional taxation. But again, it's the height of the tax that he believes is the key problem. Also, again, taking on a sort of political rhetoric of the period, He says that the poor as such do not rob the rich by way of progressive taxation. The state robs both to some degree or another and then decides how to distribute the money. And so it may well be, again, since numbers matter, there being fewer rich people than people of medium incomes or poor people, that the progressive income tax neutralizes opposition, Allows the state to tax everyone more than it otherwise could, and with this money the state will then subsidize some of the poor and some of the rich as it sees fit.

21:16You don't have this set of coalitions, you won't have the clear case of any class of people that already existed being robbed to subsidize another class, in fact the classes as we know them are coming out of this process, in some ways the class structure is a result of this process. Okay, but enough on the income tax, the next, well the one point I can still make or should make about that is that income tax in Rothbard's view cannot be shifted, you're stuck with it, you have the income tax, you pay it and you're stuck. Now he goes on to sales taxes and he says it is a widespread fallacy that businessmen can simply shift their higher costs forward onto the consumers in the form of higher prices. And this is still true. I mean, any political discussion of a sales tax, you'll hear this argument put forward, I suppose, by people who are sometimes well-meaning.

22:11But he says this is something not true. If you could raise the price to absorb the tax, you'd have already raised the price. The market would have already raised the price. So you might try it. It's not likely to work. So instead what happens is that the retailer is paying the tax, so he's going to have to cut costs. So the effects of the tax are shifted backwards to original factors, land and labor, try to use less of those. And so there are effects that ripple outward from the tax, but they're not shifting forward to the consumers. In a roundabout way, in the longer run, if the tax drives the marginal firms out of business, you have a smaller supply and fewer competitors, and prices then go up because of these circumstances.

23:02At that point, the consumers are affected by higher prices, but not because the businessman in the first instance could pass it on just by tacking the number on to the prices that existed before the tax. In a similar case is the notion, again widespread in conservative circles in this period, that unions per se were causing inflation. It would be truer to say that inflation was allowing some of this to take place, but even then it's not really that successful.

23:38What the unions can do is raise wages and cause unemployment. This is another matter. Now Rothbard goes into, I'm just trying to go through this sort of point by point, but leaving some stuff out into a critique of the Georgists and the notion of single tax, and I may come back to this in terms of what he says about it in power and market. Now he argues that some taxes are in fact a lot worse than others, and one is the excess profits tax, capital gains and such taxes. He's like any other economist. He's concerned about taxes that cause capital accumulation, destroy, reduce the capital structure, and distort the capital structure, and so on.

24:31He also is interested in what he regards as the central flaw in the whole process. The central flaw is the separation of payment and service. Let's assume these are services. Nevertheless, someone takes the money. Somebody else hands out the service. The service is theoretically free if you allow for the fact that the money got taken and used. And free services lead to misallocation, waste, overuse, all because of the basic split between payment and receipt of service. Hence, the slogan popular at that time with a lot of conservatives, and maybe still popular if they even think about these things, That government should be put on a business-like basis is an utter fallacy. You cannot put government on a business-like basis. This can't be done. It always has the possibility of trying to expand its income by coercing more money to come in.

25:20There's no profit and loss test of anything it does. There's no check crane on it. So it is not a firm on the market. And with that line of attack, you can do away with a good deal of the public choice approach, which tries to treat government as a kind of genial business firm in the market itself and behaving like other firms. But no, Rothbard says a fatally arbitrary element has been built into the very vitals of the enterprise when it's a state enterprise. And thus government enterprises introduce islands of calculational chaos. And this comes after the chapters in which he's discussed the socialist calculation problem and so forth. So he's alluding to government enterprises as sort of islands of socialism which have a hard time meeting a standard of calculation of costs and loss of profit and loss or costs and so forth which businesses can do because they're in the market. Also false is the argument that the state can take the long view with its assets and property and manage them

26:28He says this is true of politicians generally, with the possible exception of a hereditary monarch, who might actually be taking care of what part of the realm is actually considered his property, and of course, Hans Hoppe has developed this sort of insight rather further. As for Social Security, first we're taxed for an out of current earnings, and then because it is not actually a self-standing program, we're taxed again to make it work as it goes. So it is rather interesting in that respect. And of course Rothbard's aware that the so-called employer contribution is in effect coming out of wages.

27:25It's interesting, this argument wasn't available when the welfare state was first being promoted by Bismarck in Germany in the second half of the 19th century. If the anti-Bismarkians had had this argument they might have done a little better. A little better, at least Ralph Reiko suggests that in his book, but this argument wasn't understood, who's paying for what. So, Rothbard concludes that Social Security is essentially, quote, a program that makes more palatable a general taxation of lower income wedge-earning groups than would otherwise be possible. And if you ever look at your pay stub, you'll see what a large amount that is. And I don't think anyone now believes that it goes into a little vault and is put aside for social security. It's just part of the general bunch of money that the government has to work with.

28:14Corporate taxes, corporate corporation income taxes place an extra burden on the corporate form. And this is also a form of double taxation on the same income on the grounds of legal fiction that the corporation is somehow a separate existing real entity and can be taxed, as well as the individuals. And he points out one consequence is that profits are often left undistributed to put off taxation. And he says the expected thing is about capital gains, noting that they sometimes encourage investors not to sell and so on and so forth. There's a discussion also of excise taxes, but this is not that different from the discussion of sales taxes except that these are more pinpointed The excise tax on whiskey is going to affect that business more than the general sales tax.

29:04So again, there are some distortions and so on from what would otherwise happen. Now, property taxes. Rothbard makes the interesting point that since a real sale has not occurred, you don't know, and at least in Austrian terms, you don't know what something's worth. There's no real sale. So there's guessing what a piece of property might sell for when they make the appraisal. So this is inherently iffy and a bit arbitrary. Now, gift and inheritance taxes are taxes on capital. He considers these to be particularly destructive for obvious reasons. And now we're into power and market. I'm further along in the discussion. Since it's one volume now, it just sort of goes continuously.

29:52Now we're into the section that's published originally as power and market. And here he takes up his further critique of the Georges in a single tax. And I think one interesting point he makes is that, well, suppose that they try this and they're going to tax the rents that the landlords get at 100 percent and force idle land into use and other things they think they're going to accomplish. Well, why would the landlords charge the rent? Would you go around charging rent and then give it all away? Why do they even do this? So basically, they're simply destroying the landowner's function as someone who allocates resources and does other useful services. And it has some discussion of what might actually ensue if you had the single tax, that all distinctions in the land market would vanish and there'd be a rush into the more useful lands and all sorts of chaos.

30:43So you'd establish a calculational chaos in the real estate market. So I think that's pretty telling. But he says nonetheless that George's TAF raised an interesting problem. There is a land question because of the role that the states and before that feudal lords played in controlling and allocating land arbitrarily for their own reasons. And there he suggests briefly the homesteading model is the alternative and what amounts to absolute allodial title, though he doesn't use that term. And this whole discussion of homesteading and the first user and so on and there between that and a system in which the state arbitrarily says it owns the land and then parcels it out to its friends who then can make a profit either by feudal rent indefinitely or by selling it to real settlers.

31:36This point is also developed in his historical work. You'll find in volumes 1 and 2 of Conceived in Liberty, His History of the American Colonies, some discussion of this exact question. And a few historians, as far as I know, have brought this degree of economic insight to historical topics. I just mentioned that in passing. He continues with the discussion of the just tax. There's this idea there are canons of taxation. How can you come up with taxes that are just? And, of course, he says, well, why, now that we've given up any notion of finding a just price, why do we want to look for a just tax? He finds this rather strange, and again makes this point that undefended ethical notions are brought in in all this literature in trying to justify taxation.

32:28But he says the writers first have to establish the justice of taxation itself. No one bothers with. Well, this is a telling argument. I think it's a problem. Maybe they can, but they aren't bothering to do it. They'd proceed on to the different kinds of taxes. And some of this goes back to Adam Smith. Adam Smith says things like a good tax has minimal costs of collection. Well, it's true from some point of the state. What about from the standpoint of other people? Payment should be convenient. Again, somewhere critique could be made. There should be certainty, and Rothbard, just as a counter argument, says well what would happen if the taxes fluctuated, maybe this would be a benefit to some people, and so on and so forth. Another rule often suggested for taxes is uniformity of treatment. Everybody should be treated the same.

33:20And he objects, quote, the justice of equality of treatment depends first of all on the justice of the treatment itself. Equality of unjust treatment can never be upheld as an ideal of justice. So, I don't know why on this kind of argument equal slavery would be good because it was equal. And here he's getting to the core of a lot of the egalitarian proposals that are still around, that don't go away. Justice is something that isn't established, but it's all right, apparently, as long as it's done equally to everyone or as much as possible. So again, a rather powerful argument, I think. Now, another typical Rothbardian theme is this discussion of how a lot of economists and political scientists will treat someone's failure to be taxed as a privilege.

34:12Let's say, by some accident or by some trick of the tax code, someone is not being taxed. This is considered a subsidy or a special privilege. And yet all that's happened is that you're being allowed to keep some amount of money you already had, that you presumably have earned honestly, you're being allowed to keep it. This can't be a subsidy. It's a subsidy if they take other people's money and give it to you. Again, I think he's on solid ground. But again, just looking at the tenor of political discussion in this country, you can see this point is not widely appreciated. Okay. Now, returning to income taxes, in a later discussion in the Power of Market, he says, well, how do they even establish what taxable income logically includes?

35:06What if you have a garden? Are they going to estimate what you would have paid if you'd gone to the grocery store and bought the vegetables and tax you on that? Or if someone had given them to you? If you're living in your own house, is this to be figured as hypothetical imaginary rent that you could have been paying and then either deducted in your favor or held against you? And these problems actually come up, I mean, that's why I don't read much in this area. There's just too mind-boggling. Did Clinton propose imputing rental income for people who live in their homes? I believe you're right. And then Rothbard also is another example of something he thinks is absurd.

35:53He says, well, are they going to start figuring a housewife's work is imputed labor? Well, naturally, you can't satirize anything that comes along. They'll do it eventually. So back in the, I think, the late 70s, there were some German feminists demanding that someone figure out what this kind of work would cost if it were in the market. And they were attacked mercifully by a French Marxist, André Gores, who's, I guess, must be a paleo-Marxist, for acting as if something that wasn't in the market should be put in there. So this got very convoluted, so once for once one of the Marxists said something interesting. But here we find an interesting thing, it's the reification of the market, which actually comes from the left as much as from anyplace else, the reification of the market, but in aid of trying to bring something else under the umbrella of the welfare state, another paradoxical thing that happens is not the Austrians doing this.

37:01Now, one of Rothbard's fundamental starting points is the notion that if something can't be achieved, then there's no point in talking about it. So, praxeologically, you couldn't accomplish a certain goal, then it's a waste of time. And this is why he has at the end of Power and Market a praxeological critique of ethics, which I think is worth reading. He's suggesting that if you can show on the basis of economic reasoning The Theory of Money and Credit bogs down much the same way, because utilities, quote, are not quantities, but subjective orders of preference.

38:05The Sacrifice Theory at least admits that a burden is being imposed. So it's not the sort of happy social democratic view of taxation. At least it admits there's a burden. And then they're trying to say, well, without showing why there should be a burden, they try to say how you could, you know, farm it out. Who should be paying it, suffering this burden? So the Equal Sacrifice Theory comes under his ban of having equality or equal treatment as a substitute for finding out whether the thing is just to begin with. And then there was the Minimum Sacrifice Theory and so on, so I won't go into that, but again another attempt at justifying taxation as we know it. Now I jump forward to a paper Rothbard gave in 1980, and published after that the next year in the Cato Journal, and reprinted in the Logic of Action, pages 56 through 108, and this is the myth of the neutral tax.

39:05So you might think he just repeats here his strictures about how you can't find a neutral tax. Actually, this is more fun because it's much more political and it gives you a broader framework for looking at the question, not just the economic theory deficiencies of the neutral tax. So it's an essay on political economy, in the old sense of the word, in which politics is assumed to intrude on the economy and you have to address the consequences, which says a business in the market is neutral. So the mom-and-pop doughnut shop is in the market. They're certainly neutral to the market in the sense that they're not distorting the market process. If a shop starts lobbying for a subsidy, that's different. In fact, I think this is the whole key to business ethics.

39:53Business ethics exist as long as you don't go to the government looking for a subsidy or some way the government can penalize your competitors. If you do that, you're pretty much on the straight and narrow path. And all the other stuff that press is going on about these days, about the Great Decline in Business Ethics. This is either just personal bad behavior that should be treated as crime or it's the result of government policies that encourage bad behaviors. A huge number of moral hazards around these days. So how do businesses get their income? Well, they have investors and they have customers and all the investments add up to a complicated integrated structure of production and the factor owners, the laborers and the landowners and so on, get their income in advance of production.

40:41And we also know when consumers spend, they benefit. There's profit and loss tests to know if they're serving the consumers. And Rothbard also includes in the market voluntary non-profit organizations, which is fortunate. They would do that. But now along comes the robber. Along comes Jesse James. Oh, I know that's not fair to old Jesse. But somebody comes along and wants your money. Is he providing a service? Probably not. Is he providing goods? Probably not. And Rothbard just goes into a lengthy discussion. It's rather amusing because it's totally unnecessary, but he says there are so many people that claim that certain things that happen aren't coercive and certain actions are voluntary, that he extends the comparison of the highway robber and the taxation process at some length and has some fun with that.

41:34Now, but the state of course has to support itself in this fashion, and in doing so it establishes hegemonic bonds over society, he quotes Mises here. And given all this as a starting point, then the so-called services being provided by the state are beside the point. We don't know if there are services that are wanted. We'd find out if we had a market for them. And they don't constitute a justification for the whole process. Process. And again, Rothbard is very good at finding a quote, finding a stunningly odd or stupid quote from some eminent figure to illustrate the point. Here he quotes Sir John Hicks. And Hicks says, well, we can't really start it out very well, so we'll just have to assume that somehow the fiscal process of the state must somehow correspond to what that people actually want, even if the leader is Robespierre or Nero.

42:33Now, I don't know if Hicks actually realizes how that sounds. Now, here, of course, Rothbard goes on to deconstruct the usual public goods argument and the whole defense business. And it's worth reading. I don't know that I think I'm running short on time to go into all of that. But nonetheless, taking protection or defense as the usual reason given for having the state and the main public good is providing shows rather easily that there's a whole array of services that come under this and suggests that it's odd that economists can treat every other good or services and the policing of all sorts of different possibilities and possible services and products and apply marginal analysis to this and they don't do this in this case.

43:36And this brings them to the usual free rider problem and so on. So if the hypothetical movie theater has some empty seats, it doesn't cost them any more to let somebody come in and sit there. Does this follow that the movie theater should be nationalized because there's a free rider problem if they chose to do that? Well, they don't choose to do it because, in fact, you can often exclude people from the service if they're not paying. So this problem begins to vanish pretty quickly. So we'll get on to Rothbard's general notions of taxation. And here he quotes Jean-Baptiste Say, and Say says, The best scheme of finance is to spend as little as possible, and the best tax is always the lightest.

44:25Nice classical liberal sort of thing to say. And once again, Rothbard mentions that about the closest approximation is the poll tax, that everybody in the country pays $10, and that's it until it comes up again. So it's not progressive, any of that stuff. He'll distort the market, and he induces the case of the Belgian Congo, in which just this kind of tax was imposed to force people who were otherwise engaged supporting themselves to go work at what the Belgians wanted them to do. So all these taxes are problematic, even the one that's closest to meeting the test. And with that, I'll just say a few things about another piece that's in the Logic of Action Volume 2, the Myth of Tax Reform.

45:13This is Rothbard's discussion of the flat tax. The flat tax got a certain amount of play during the Reagan period, and people were saying, well, you know, it's simpler. And Rothbard says, well, he doesn't care. If it's simpler, is it going to cost more? You know, in any event, it was part of an attack, partly for political effect, on so-called loopholes. And again, a loophole doesn't follow that as a subsidy. You're not actually being given something. to keep something, so he applies this same general approach to that. And then the flat taxers are proposing to tax all net income, so we're back to having to decide what is income, and all the same problems come up with any proposition of this type.

45:58And he quotes Mises on the question of loopholes, why they should be considered bad. He even quotes Mario Cuomo on this point, where Cuomo for once had a good argument and said, Well, why are people complaining if New York gets a subsidy, aren't you getting subsidies for the tobacco farmers in North Carolina, who's gotten moral about subsidies, rather interesting argument. Another argument that was going around that Rothbard critiques came from the people who admitted that if the point was to bring in the same amount of revenue through a flat tax, then there might actually be a net increase, and their attitude was, well, this will force the people to revolt against their state and local taxes, and they'll bring those down. And Rothbard says these arguments seldom work that way, and if nothing else, it's like a good argument. It's like saying that we should bring back conscription, because this will make more people protest the next bad war we get. Well, what it will

46:59And what he'll do is give the government a lot cheaper manpower base and make them more adventurous. And the effect, the desired effect would take a long time to be realized. It's going to be a very good argument. And finally, he says, the flat taxes are proceeding on the assumption that total revenue should remain the same. You're not actually going to have the government suffer a cut of its income. You're simply going to have a way they like better to achieve this result. Well, and he asked, of course, obviously, in a Rothbardian fashion, why should the revenue stay the same? Why do we want this portion of GNP that government now occupies to go on? So I'll read you his final summary of his approach to taxes.

47:46He says, the principle should be clear. To support all reductions in taxes, whether they be by lower rates or widening an exemption in deductions, and to oppose all rate increases or exemption decreases. In short, to seek in every instance to remove the blight of taxation as much as possible. So I will close with that. Oh, yes. It seems like a sign from trying to lower the burden, lowering the rate, we have a sales tax consumption tax right now, where it's collected through existing retail outlets and we're able to reduce the IRS workforce from 300,000 to 100,000.

48:40It's stated now that the current income tax and compliance costs are anywhere from $300 million to $600 million a year. If you could knock at the cross of compliance with the time and effort, you know, you hear about corporations whose tax returns are still at this room, It would seem like that would be a benefit.

49:17Politically, you'd have to propose it that way in the beginning. But you've really got to work on the spending side. To get rid of that onerous time and money compliance.

49:35and then somebody figured out how many bureaucrats would be going around keeping track of that and it didn't seem to be much of a gain in that sense and if sales taxes didn't inspire people to not comply I don't know any way it would be running across the Indian reservation between Ontario and some other places as much as they do so I don't know I speaking for myself I don't see any great advantages to it I mean, I'd have to think about it, and I know Rothbard wouldn't want to be bogged down in that kind of... What's the cost to the taxpayer to get prepared for? You know, there is that, and I wouldn't deny that...

50:21Well, again, it's interesting, but... But if you can get a movement to bring this about, it seems like you can also just get a movement to bring down the rapes. I don't know. Dan? Oh, I was just going to say, first of all, for that point, I think it's quite right that one can never be sure what the compliance costs are going to be before a tax is initiated. It may very well be that the apparatus required to enforce the sales tax could be every bit as bad as the one we have for the income tax. It is an issue, but one has to be careful and make sure that you're not just trading one thing for something else that's bad or even worse. I did have a question for you, though, about whether Rothbard had said anything about our friend Milton Friedman who gave us the withholding pass, and whether Rothbard had talked about that.

51:12Well, not in the sources I was using today, but he does mention this here and there in his writings and his polemics against Milton Friedman, yes. In fact, there's the piece, or I don't know what else to call it, the sort of anti-Chicago issue of the Journal of Libertarian Studies. They reprinted, this is a couple of years ago, Rothbard's piece on Friedman from The Individualist, first published in 1971. And I'm sure that was mentioned there. And it was on the Libertarian Forum, so he's quite aware of Friedman's role. Actually it comes up in one of the things I was talking from today, but just in the context of a temporary tax that's never repealed, but again it's sort of like, I'm sure you know that the telephone tax goes back to 1898, so there is a tendency for these things to not be undone, or at least to only be undone partially.

52:10Well, I'll get to you. Does Rothbard deal at all with the sort of widely held, widely accepted view that some kind of taxation is necessary to fund defensive wars? No. No, he's being Rothbardian. He would reject that argument. I mean, I can show you readings where he goes into this, but no, he doesn't accept even the defense argument as an ultimate necessity. I think his attitude in the end is that, pragmatically, we're sort of stuck with states and they can do a lot of harm. So, in the short or even medium term, we want to keep them doing as little as possible. But he was always pretty certain you didn't actually have to have them, period.

53:01So, it's a matter of principle, yes. Did Rothbard address the taxes from the legal standpoint, or just from the way it was administered, in the economic sense? Well, who was liable to pay the different taxes, and how they could be collected, and how they could determine who was liable for it, etc. I think he's more interested in this first article, the one from, he wrote in 1952, that was just published recently. He talks about Blumenkauwens dismissal of constitutional arguments.

53:48And this would be the argument that even with the 16th Amendment, the way in which taxes are supposed to be proportioned does not change. And there was an important constitutional argument that had been first dismissed kind of out of hand I have a hand by a couple of Supreme Court justices, I think Rothbard calls their argument sheer nonsense or something, or sophistry, and then the economists take it up and say there's no legal problems, and everything else is just the administration and whatever Congress votes it can do, and then the courts sustain it. So he's had some interest in the constitutional questions, but I don't think, I don't know offhand if he did much with the kind of thing you're talking about. Well, the way I've read it, I've stated this a little bit. The Constitution allows the Federal Government to tax in two different ways, direct taxes and indirect.

54:40And the direct taxes, the Constitution also states that the Federal Government cannot directly tax an individual within the States. And then the indirect taxes on exports, tariffs, excise taxes, and so forth, and the question came up about the 16th Amendment in Brashova v. Union Pacific Railroad, it stated that the tax was constitutional because it kept the indirect tax as an indirect tax on privileged And so a privileged activity had to be named in order for an entity to be liable for the tax, and while also there's a distinguish between natural persons and artificial persons, natural persons have God-given rights, whereas artificial persons, like There are corporations, statutory trusts, limited liability groups, and other situations like that are subject to the government and operated at swim, therefore, our official persons are required to pay, and that is indirect exercise on the previous activities.

56:30Well, I think I can say that I don't think Rothbard ever looked into this area, and it's not my area, so he did ask someone else about that, about the kind of common law and so forth, aspects of it. I'm sorry, I can't be much help on that. Well, you know, I've studied that a good bit. He seems to take the presumption that the person, or the natural person, is liable for it before the artificial person is, and it's completely contrary to what I've read in my opinions. Well, he takes the position that the natural person is real, but that's another matter we don't want to get into right now.

57:22Anything else? I guess we're out of time. So thank you.