D. Voluntary Contributions to Government

A few writers, disturbed by the compulsion necessary to the existence of taxation, have advocated that governments be financed, not by taxation, but by some form of voluntary contribution. Such voluntary contribution systems could take various forms. One was the method relied on by the old city-state of Hamburg and other communities—voluntary gifts to the government. President William F. Warren of Boston University, in his essay, “Tax Exemption the Road to Tax Abolition,” described his experience in one of these communities:

For five years it was the good fortune of the present writer to be domiciled in one of these communities. Incredible as it may seem to believers in the necessity of a legal enforcement of taxes by pains and penalties, he was for that period . . . his own assessor and his own tax-gatherer. In common with the other citizens, he was invited, without sworn statement or declaration, to make such contribution to the public charges as seemed to himself just and equal. That sum, uncounted by any official, unknown to any but himself, he was asked to drop with his own hand into a strong public chest; on doing which his name was checked off the list of contributors. . . . Every citizen felt a noble pride in such immunity from prying assessors and rude constables. Every annual call of the authorities on that community was honored to the full.⁸²

The gift method, however, presents some serious difficulties. In particular, it continues that disjunction between payment and receipt of service which constitutes one of the great defects of a taxing system. Under taxation, payment is severed from receipt of service, in striking contrast to the market where payment and service are correlative. The voluntary gift method perpetuates this disjunction. As a result, A, B, and C continue to receive the government’s defense service even if they paid nothing for it, and only D and E contributed. D’s and E’s contributions, furthermore, may be disproportionate. It is true that this is the system of voluntary charity on the market. But charity flows from the more to the less wealthy and able; it does not constitute an efficient method for organizing the general sale of a service. Automobiles, clothes, etc., are sold on the market on a regular uniform-price basis and are not indiscriminately given to some on the basis of gifts received from others. Under the gift system people will tend to demand far more defense service from the government than they are willing to pay for; and the voluntary contributors, getting no direct reward for their money, will tend to reduce their payment. In short, where service (such as defense) flows to people regardless of payment, there will tend to be excessive demands for service, and an insufficient supply of funds to sustain it.

When the advocates of taxation, therefore, contend that a voluntary society could never efficiently finance defense service because people would evade payment, they are correct insofar as their strictures apply to the gift method of finance. The gift method, however, hardly exhausts the financing methods of the purely free market.

A step in the direction of greater efficiency would have the defense agency charging a set price instead of accepting haphazard amounts varying from the very small to the very large, but continuing to supply defense indiscriminately. Of course, the agency would not refuse gifts for general purposes or for granting a supply of defense service to poor people. But it would charge some minimum price commensurate with the cost of its service. One such method is a voting tax, now known as a poll tax.⁸³ A poll tax, or voting tax, is not really a “tax” at all; it is only a price charged for participating in the State organization.⁸⁴ Only those who voluntarily vote for State officials, i.e., who participate in the State machinery, are required to pay the tax. If all the State’s revenues were derived from poll taxes, therefore, this would not be a system of taxation at all, but rather voluntary contributions in payment for the right to participate in the State’s machinery. The voting tax would be an improvement over the gift method because it would charge a certain uniform or minimal amount.

To the proposal to finance all government revenues from poll taxes it has been objected that practically no one would vote under these conditions. This is perhaps an accurate prediction, but curiously the critics of the poll tax never pursue their analysis beyond this point. It is clear that this reveals something very important about the nature of the voting process. Voting is a highly marginal activity because (a) the voter obtains no direct benefits from his act of voting, and (b) his aliquot power over the final decision is so small that his abstention from voting would make no appreciable difference to the final outcome. In short, in contrast to all other choices a man may make, in political voting he has practically no power over the outcome, and the outcome would make little direct difference to him anyway. It is no wonder that well over half the eligible American voters persistently refuse to take part in the annual November balloting. This discussion also illuminates a puzzling phenomenon in American political life—the constant exhortation by politicians of all parties for people to vote: “We don’t care how you vote, but vote!” is a standard political slogan.⁸⁵ On its face, it makes little sense, for one would think that at least one of the parties would see advantages in a small vote. But it does make a great deal of sense when we realize the enormous desire of politicians of all parties to make it appear that the people have given them a “mandate” in the election—that all the democratic shibboleths about “representing the people,” etc., are true.

The reason for the relative triviality of voting is, once again, the disjunction between voting and payment, on the one hand, and benefit on the other. The poll tax gives rise to the same problem. The voter, with or without paying a poll tax, receives no more benefit in protection than the nonvoter. Consequently, people will refuse to vote in droves under a single poll-tax scheme, and everyone will demand the use of the artificially free defense resources.

Both the gift and the voting-tax methods of voluntary financing of government, therefore, must be discarded as inefficient. A third method has been proposed, which we can best call by the paradoxical name voluntary taxation. The plan envisioned is as follows: Every land area would, as now, be governed by one monopolistic State. The State’s officials would be chosen by democratic voting, as at present. The State would set a uniform price, or perhaps a set of cost prices, for protective services, and it would be left to each individual to make a voluntary choice whether to pay or not to pay the price. If he pays the price, he receives the benefit of governmental defense service; if he does not, he goes unprotected.⁸⁶ The leading “voluntary taxationists” have been Auberon Herbert, his associate, J. Greevz Fisher, and (sometimes) Gustave de Molinari. The same position is found earlier, to a far less developed extent, in the early editions of Herbert Spencer’s Social Statics, particularly his chapter on the “Right to Ignore the State,” and in Thoreau’s Essay on Civil Disobedience.⁸⁷

The voluntary taxation method preserves a voluntary system, is (or appears to be) neutral vis-à-vis the market, and eliminates the payment-benefit disjunction. And yet this proposal has several important defects. Its most serious flaw is inconsistency. For the voluntary taxationists aim at establishing a system in which no one is coerced who is not himself an invader of the person or property of others. Hence their complete elimination of taxation. But, although they eliminate the compulsion to subscribe to the government defense monopoly, they yet retain that monopoly. They are therefore faced with the problem: Would they use force to compel people not to use a freely competing defense agency within the same geographic area? The voluntary taxationists have never attempted to answer this problem; they have rather stubbornly assumed that no one would set up a competing defense agency within a State’s territorial limits. And yet, if people are free to pay or not to pay “taxes,” it is obvious that some people will not simply refuse to pay for all protection. Dissatisfied with the quality of defense they receive from the government, or with the price they must pay, they will elect to form a competing defense agency or “government” within the area and subscribe to it. The voluntary taxation system is thus impossible of attainment because it would be in unstable equilibrium. If the government elected to outlaw all competing defense agencies, it would no longer function as the voluntary society sought by its proponents. It would not force payment of taxes, but it would say to the citizens: “You are free to accept and pay for our protection or to abstain; but you are not free to purchase defense from a competing agency.” This is not a free market; this is a compulsory monopoly, once again a grant of monopoly privilege by the State to itself. Such a monopoly would be far less efficient than a freely competitive system; hence, its costs would be higher, its service poorer. It would clearly not be neutral to the market.

On the other hand, if the government did permit free competition in defense service, there would soon no longer be a central government over the territory. Defense agencies, police and judicial, would compete with one another in the same uncoerced manner as the producers of any other service on the market. The prices would be lower, the service more efficient. And, for the first and only time, the defense system would then be neutral in relation to the market. It would be neutral because it would be a part of the market itself! Defense service would at last be made fully marketable. No longer would anyone be able to point to one particular building or set of buildings, one uniform or set of uniforms, as representing “our government.”

While “the government” would cease to exist, the same cannot be said for a constitution or a rule of law, which, in fact, would take on in the free society a far more important function than at present. For the freely competing judicial agencies would have to be guided by a body of absolute law to enable them to distinguish objectively between defense and invasion. This law, embodying elaborations upon the basic injunction to defend person and property from acts of invasion, would be codified in the basic legal code. Failure to establish such a code of law would tend to break down the free market, for then defense against invasion could not be adequately achieved. On the other hand, those neo-Tolstoyan nonresisters who refuse to employ violence even for defense would not themselves be forced into any relationship with the defense agencies.

Thus, if a government based on voluntary taxation permits free competition, the result will be the purely free-market system outlined in chapter 1 above. The previous government would now simply be one competing defense agency among many on the market. It would, in fact, be competing at a severe disadvantage, having been established on the principle of “democratic voting.” Looked at as a market phenomenon, “democratic voting” (one vote per person) is simply the method of the consumer “co-operative.” Empirically, it has been demonstrated time and again that co-operatives cannot compete successfully against stock-owned companies, especially when both are equal before the law. There is no reason to believe that cooperatives for defense would be any more efficient. Hence, we may expect the old co-operative government to “wither away” through loss of customers on the market, while joint-stock (i.e., corporate) defense agencies would become the prevailing market form.⁸⁸

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¹See Man, Economy, and State (1962, pp. 850–78; 2004, pp. 989–1023).

²The striking title of Mr. Chodorov’s pamphlet is, therefore, praxeologically, accurate: see Frank Chodorov, Taxation is Robbery (Chicago: Human Events Associates, 1947), reprinted in Chodorov, Out of Step (New York: Devin-Adair, 1962), pp. 216–39. As Chodorov says:

A historical study of taxation leads inevitably to loot, tribute, ransom—the economic purpose of conquest. The barons who put up toll-gates along the Rhine were taxgatherers. So were the gangs who “protected,” for a forced fee, the caravans going to market. The Danes who regularly invited themselves into England, and remained as unwanted guests until paid off, called it Dannegeld; for a long time that remained the basis of English property taxes. The conquering Romans introduced the idea that what they collected from subject peoples was merely just payment for maintaining law and order. For a long time the Norman conquerors collected catch-as-catch-can tribute from the English, but when by natural processes an amalgam of the two peoples resulted in a nation, the collections were regularized in custom and law and were called taxes. (Ibid., p. 218)

³If a bureaucrat receives a salary of $5,000 a year and pays $1,000 in “taxes” to the government, it is quite obvious that he is simply receiving a salary of $4,000 and pays no taxes at all. The heads of the government have simply chosen a complex and misleading accounting device to make it appear that he pays taxes in the same way as any other men making the

same income. The UN’s arrangement, whereby all its employees are exempt from any income taxation, is far more candid.

⁴The shift will not necessarily, or even probably, be from the codfish to the armament industry directly. Rather, factors will shift from the codfish to other, related industries and to the armament industry from its related lines.

⁵The diffusion effect of inflation differs from that of taxation in two ways: (a) it is not compatible with a long-run equilibrium, and (b) the new money always benefits the first half of the money receivers and penalizes the last half. Taxation-diffusion has the same effect at first, but shifting alters incidence in the final reckoning.

⁶On the other hand, since the officials do not usually consume the products directly, they often believe that they are acting on behalf of the consumers. Hence, their choices are liable to an enormous degree of error. Alec Nove has pointed out that if these choices were simply the consumer preferences of the government planners themselves, they would not, as they do now, realize that they can and do make grievous errors. Thus, the choices made by government officials do not even possess the virtue of satisfying their own consumption preferences. Alec Nove, “Planners’ Preferences, Priorities, and Reforms,” Economic Journal, June, 1966, pp. 267–77.

⁷Two other types of revenue are consonant with neutrality and a purely free market: fines on criminals, and the sale of products of prison labor. Both are methods for making the criminals pay the cost of their own apprehension.

⁸See above and Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” pp. 250–51.

⁹It might be objected that, while bureaucrats are solely exploiters and not producers, other subsidized groups may also be producers as well. Their exploitation extends, however, to the degree that they are net tax consumers rather than taxpayers. Their other productive activities are beside the point.

¹⁰Usually, of course, it cannot, and the result will be equivalent to a specific excise tax on some branches of sales, but not on others.

¹¹Whereas a partial excise tax will eventually cause a drop in supply and therefore a rise in the price of the product, there is no way by which resources can escape a general tax except into idleness. Since, as we shall see, a sales tax is a tax on incomes, the rise in the opportunity cost of leisure may push some workers into idleness, and thereby lower the quantity of goods produced. To this tenuous extent, prices will rise. See the pioneering article by Harry Gunnison Brown, “The Incidence of a General Sales Tax,” reprinted in R.A. Musgrave and C.S. Shoup, eds., Readings in the Economics of Taxation (Homewood, Ill.: Richard D. Irwin, 1959), pp. 330–39. This was the first modern attack on the fallacy that sales taxes are shifted forward, but Brown unfortunately weakened the implications of this thesis toward the end of his article.

¹²Of course, if the money supply is increased and credit expanded, prices can be raised so that money wages are no longer above their discounted marginal value products.

¹³If the government does not spend all of its revenue, then deflation is added to the impact of taxation. See below.

¹⁴For example, see E.R.A. Seligman, The Shifting and Incidence of Taxation (2nd ed.; New York: Macmillan & Co., 1899), pp. 122–33.

¹⁵Mr. Frank Chodorov, in his The Income Tax—Root of All Evil (New York: Devin-Adair, 1954), fails to indicate what other type of tax would be “better” from a free-market point of view than the income tax. It will be clear from our discussion that there are few taxes indeed that will not be as bad as the income tax from the viewpoint of an advocate of the free market. Certainly, sales or excise taxation will not fill the bill.

Chodorov, furthermore, is surely wrong when he terms income and inheritance taxes unique denials of the right of individual property. Any tax whatever infringes on property rights, and there is nothing in an “indirect tax” which makes that infringement any less clear. It is true that an income tax forces the subject to keep records and disclose his personal dealings, thus imposing a further loss in his utility. The sales tax, however, also forces record-keeping; the difference again is one of degree rather than of kind, for here the extent of directness covers only retail storekeepers instead of the bulk of the population.

¹⁶Perhaps the reason for the undeserved popularity of the elasticity concept is that economists need to employ it in their vain search for quantitative laws and measurements in economics.

¹⁷Even the official tax is hardly uniform, being interlarded with extra burdens and exemptions. See below for further discussion of uniformity of taxation.

¹⁸See C. Lowell Harriss, “Public Finance” in Bernard F. Haley, ed., A Survey of Contemporary Economics (Homewood, Ill.: Richard D. Irwin, 1952), II, 264. For a practical example, see P.T. Bauer, “The Economic Development of Nigeria,” Journal of Political Economy, October, 1955, pp. 400 ff.

¹⁹These expenditures are commanded by the government, and not by the free action of individuals. They therefore may satisfy the utility (or are expected to satisfy the utility) only of the government officials, and we cannot be sure that anyone else’s is satisfied.

The Keynesians, on the contrary, classify all government resource-using expenditure as “investment,” on the ground that these, like investment expenditures, are “independent,” and not passively tied to income by means of a psychological “function.”

²⁰Thus, see Irving and Herbert W. Fisher, Constructive Income Taxation (New York: Harper & Bros., 1942). “Double” is used in the sense of two instances, not arithmetically twice.

²¹Although there is much merit in Professor Due’s critique of this general position, he is incorrect in believing that people may own capital for its own sake. If people, because of the uncertainty of the future, wish to hold wealth for its service in relieving risk, they will hold wealth in its most marketable form—cash balances. Capital is far less marketable and is desired only for its fructification in consumers’ goods and earnings from the sale of these goods. John F. Due, Government Finance (Homewood, Ill.: Richard D. Irwin, 1954), pp. 123–25, 368 ff.

²²These economists generally go on to advocate taxation of consumption alone as the only “real” income. For further discussion of such a consumption tax, see below.

²³Thus, one of the standard conservative arguments against progressive income taxation (see below) is that savings would be taxed in greater proportion than consumption; many of these writers leave the reader with the inference that if (present) consumption were taxed more heavily, everything would be all right. Yet what is so worthy about future, as against present, consumption, and what principle do these economists adopt that permits them to alter by force the voluntary time-preference ratios between present and future?

²⁴Some writers have pointed out that the penalty lowers future consumption from what it would have been, reducing the supply of goods and raising prices to consumers. This can hardly be called “shifting,” however, but is rather a manifestation of the ultimate effect of the tax in reducing consumer standards of living from the free-market level.

²⁵It must not be inferred that the present author is an advocate of uniform taxation. Uniformity, in fact, will be sharply criticized below as an ideal impossible of attainment. (An ethical goal absolutely impossible of attain ment is an absurd goal; to this extent we may engage, not in ethical exhortation, but in praxeological criticism of the possibility of realizing certain ethical goals.) However, it is analytically more convenient to treat various types of income taxation in relation to uniform treatment of all income.

²⁶For the sake of convenience, we are assuming that this income is pure profit, and that interest income has already been disposed of. only pure profit increases capital value, for in the evenly rotating economy there will be no net savings, and the interest income will just pay for maintaining the capital income structure intact.

²⁷For a discussion of taxation on accumulated capital, see below.

²⁸See Due, Government Finance, p. 146.

²⁹Another problem in levying a tax on accrued capital gains is that the income is not realized in money directly. Uniform taxation of income in kind, as well as of psychic income, faces insuperable problems, as will be seen below. Just as there may be taxes on the imputed monetary equivalents of income in kind, however, there may also be taxes on accrued capital gains.

³⁰Harold M. Groves, Financing Government (New York: Henry Holt, 1939), p. 181.

³¹Irregular income poses the same problem as irregular realized capital gain. The difficulty can be met in both cases by the suggested solution of averaging income over several years and paying taxes annually on the average.

³²Fisher and Fisher, Constructive Income Taxation, passim.

³³Neither does hoarding receive any special encouragement, since hoarding must finally eventuate in consumption. It is true that keeping cash balances itself yields a benefit, but the basis for such balances is always the prospect of future consumption.

³⁴In the same way, the charm of the sales tax lies in the fact that it cannot be progressive, thus reducing the burden of income taxation on the upper groups.

³⁵See Groves, Financing Government, p. 64.

³⁶The final capital value is not $8,000, since the property tax is levied at 1 percent of the final value. The tax does not remain at 1 percent of the original capital value of $10,000. The capital value will fall to $8,333. Property tax payment will be $83, net annual return will be $417, and an annual rate of return of 5 percent on the capital of $8,333.

The algebraic formula for arriving at this result is as follows: If C is the capital value to be determined, i is the rate of interest, and R the annual rent from the property, then, when no tax enters into the picture:

iC = R

When a property tax is levied, then the net return is the rent minus the annual tax liability, T, or:

iC = R – T

In this property tax, we postulate a fixed rate on the value of the property, so that:

iC = R – tC,

where t equals the tax rate on the value of the property. Transposing,

C = R/i + t; the new capital value equals the annual rent divided by the interest rate plus the tax rate. Consequently, the capital value is driven down below its original sum, the higher are (a) the interest rate and (b) the tax rate.

³⁷On tax-capitalization, see Seligman, Shifting and Incidence of Taxation, pp. 181–85, 261–64. See also Due, Government Financing, pp. 382–86.

³⁸This distortion of location would result from all other forms of taxes as well. Thus, a higher income-tax rate in region A than in region B would induce workers to shift from A to B, in order to equalize net wage rates after taxes. The location of production is distorted as compared with the free market.

³⁹On the extent to which the lower-income classes actually pay taxes in present-day America, see Gabriel Kolko, Wealth and Power in America (New York: Frederick A. Praeger, 1962), chap. 2.

⁴⁰Cf., Bertrand de Jouvenel, The Ethics of Redistribution (Cambridge: Cambridge University Press, 1952).

⁴¹See Murray N. Rothbard, The Single Tax: Economic and Moral Implications (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1957); also idem, A Reply to Georgist Criticisms (mimeographed MS., Foundation for Economic Education, 1957).

⁴²George virtually admitted as much:

To abolish the taxation which, acting and reacting now hampers every wheel of exchange and presses upon every form of industry, would be like removing an immense weight from a powerful spring. Imbued with fresh energy, production would start into new life, and trade would receive a stimulus which would be felt to the remotest arteries. The present method of taxation . . . operates upon energy, and industry, and skill, and thrift, like a fine upon those qualities. If I have worked harder and built myself a good house while you have been contented to live in a hovel, the tax-gatherer now comes annually to make me pay a penalty for my energy and my industry, by taxing me more than you. If I have saved while you wasted, I am mulct, while you are exempt. . . . We say we want capital, but if anyone accumulate it, or bring it among us, we charge him for it as though we were giving a privilege. . . . To abolish these taxes would be to lift the enormous weight of taxation from productive industry. . . . Instead of saying to the producer, as it does now, “The more you add to the general wealth, the more shall you be taxed!” the state would say to the producer, “Be as industrious, as thrifty, as enterprising as you choose, you shall have your full reward . . . you shall not be taxed for adding to the aggregate wealth.” (Henry George, Progress and Poverty [New York: Modern Library, 1929], pp. 434–35)

⁴³George himself can hardly be blamed for the weak treatment of time, for he could draw only on the classical economic theories, which had the same defect. In fact, compared with the classical school, George made advances in many areas of economic theory. The Austrian school, with its definitive analysis of time, was barely beginning when George framed his theory. There is less excuse for George’s modern followers, who have largely ignored all advances in economics since 1880. On George’s contributions, see Leland B. Yeager, “The Methodology of George and Menger,” American Journal of Economics and Sociology, April, 1954, pp. 233–39.

⁴⁴Phil Grant, The Wonderful Wealth Machine (New York: Devin-Adair, 1953), pp 105–07.

⁴⁵For a critique of George’s peculiar theory of interest, see Eugen von Böhm-Bawerk, Capital and Interest (New York: Brentano’s, 1922), pp. 413–20, especially p. 418 on the capitalization of idle land.

⁴⁶See Frank Knight:

Men do hold land “speculatively” for an expected increase in value. This is a social service, tending to put ownership in the hands of those who know best how to handle the land so that the value will increase. . . . They obviously do not need to keep it idle to get the increase, and do not, if there is a clear opening for remunerative use. . . . If land having value for use is not used by an owner, it is because of uncertainty as to how it should be used, and waiting for the situation to clear up or develop. An owner naturally does not wish to make a heavy investment in fitting a plot for use which does not promise amortization before some new situation may require a different plan. (Frank H. Knight, “The Fallacies in the ‘Single Tax,’” The Freeman, August 10, 1953, pp. 810–11)

⁴⁷“Land itself does not service civilized men any more than food itself does. Both are served to them.” Spencer Heath, How Come That We Finance World Communism? (mimeographed MS., New York: Science of Society Foundation, 1953), p. 3. See also Heath, Rejoinder to “Vituperation Well Answered” by Mason Gaffney (New York: Science of Society Foundation, 1953).

⁴⁸See Spencer Heath, Progress and Poverty Reviewed (New York: The Freeman, 1952), pp. 7–10. Commenting on George, Heath states:

But wherever the services of landowners are concerned he is firm in his dictum that all values are physical. . . . In the exchange services performed by [landowners], their social distribution of sites and resources, no physical production is involved; hence he is unable to see that they are entitled to any share in the distribution for their noncoercive distributive or exchange services. . . . He rules out all creation of values by the services performed in [land] distribution by free contract and exchange, which is the sole alternative to either a violent and disorderly or an arbitrary and tyrannical distribution of land. (Ibid., pp. 9–10)

⁴⁹George, Progress and Poverty, p. 404.

⁵⁰See Knight:

To collect such rent, the government would in practice have to compel the owner actually to use the land in the best way, hence to prescribe its use in some detail. Thus, we already see that the advantage of taxation over socialization of management has practically disappeared. (Knight, “The Fallacies in the ‘Single Tax,’” p. 809)

⁵¹See Heath:

Must we suppose that land . . . distributes itself? . . . It can be and often is distributed by the government of a prison camp or by the popularly elected denizens of a city hall. . . . Alternatively, in any free society its sites and resources must be and chiefly are distributed by the process of free contract in which . . . the title-holder is the only possible first party to the contract. From him flows his social service of distribution. The rent is his automatic recompense, set and limited in amount by the free market. (Heath, How Come That We Finance World Communism? p. 5)

See also Heath, The Trojan Horse of “Land Reform” (New York: n.d.), pp. 10–12, and Heath, Citadel, Market and Altar (Baltimore: Science of Society Foundation, 1957).

⁵²Frank Knight says of the Georgist dream of every man’s unconditional right of access to the soil, that (1) “everyone actually has this right, subject to competitive conditions, i.e., that he pay for it what it is worth,” and that (2) the only viable alternative would be to “get permission from some political agent of government.” For

any attempt to give every person an unconditional right to access to the soil would establish anarchy, the war of all against all, and is of course not approximated by a confiscation and distribution of “rent” or its employment for “social ends.” (Knight, “Fallacies in the ‘Single Tax,’” p. 810)

⁵³Frank Chodorov, The Economics of Society, Government, and the State (mimeographed MS., New York: Analysis Associates, 1946).

⁵⁴American homestead legislation, while attempting to establish a “first-user, first-owner” principle, erred in believing that a certain type of agriculture was the only legitimate use for land. Actually, any productive activity, including grazing or laying railroad tracks, qualifies as use.

⁵⁵Knight, “Fallacies in the ‘Single Tax,’” pp. 809–10.

⁵⁶Oppenheimer, The State, pp. 83–84. On the breakup of feudal domains into separate substates, see ibid., pp. 191–202.

⁵⁷It must be repeated here that direct users would not be the only ones ever permitted to own land in the free market. The only stipulation is that use be the principle that first brings original, unused land into ownership. Once ownership accrues to a user, then the user can sell the land to a speculator, let it be idle again, etc., without distorting market allocations. The problem is the original establishment of valid titles to property. After valid titles are established, the owner can, of course, do what he likes with his property.

⁵⁸Note the assumption that Smith and his heirs die out or cannot be traced. If they can be, then the property rightly reverts to them in a freemarket system.

⁵⁹Ludwig von Mises, Socialism (New Haven, Conn.: Yale University Press, 1951), p. 375.

⁶⁰Adam Smith, The Wealth of Nations (New York: Modern Library, 1937), pp. 777–79. See also Hunter and Allen, Principles of Public Finance, pp. 137–40.

⁶¹This discussion applies to Professor Hayek’s adoption of the “rule of law” as the basic political criterion. F.A. Hayek, The Constitution of Liberty (Chicago: university of Chicago Press, 1960).

⁶²Mises, in Aaron Director, ed., Defense, Controls and Inflation (Chicago: University of Chicago Press, 1952), pp. 115–16.

⁶³To say that an ethical goal is conceptually impossible is completely different from saying that its achievement is “unrealistic” because few people uphold it. The latter is by no means an argument against an ethical principle.

Conceptual impossibility means that the goal could not be achieved even if everyone aimed at it. On the problem of “realism” in ethical goals, see the brilliant article by Clarence E. Philbrook, “‘Realism’ in Policy Espousal,” American Economic Review, December, 1953, pp. 846–59.

⁶⁴See Walter J. Blum and Harry Kalven, Jr., The Uneasy Case for Progressive Taxation (Chicago: university of Chicago Press, 1963), pp. 64–68.

⁶⁵Due, Government Finance, pp. 121ff.

⁶⁶Said Smith:

The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion of their respective abilities; that is, in proportion to the revenue which they respectively enjoy under 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 to their respective interests in the estate. (Wealth of Nations, p. 777)

⁶⁷J.R. McCulloch, A Treatise on the Principle and Practical Influence of Taxation and the Funding System (London, 1845), p. 142.

⁶⁸E.R.A. Seligman, Progressive Taxation in Theory and Practice (2nd ed.; (New York: Macmillan & Co., 1908), pp. 291–92.

⁶⁹For an excellent critique of the Seligman theory, see Blum and Kalven, Uneasy Case for Progressive Taxation, pp. 64–66.

⁷⁰See ibid., pp. 67–68.

⁷¹Due, Government Finance, p. 122.

⁷²Groves, Financing Government, p. 36.

⁷³Hunter and Allen, Principles of Public Finance, pp. 190–91.

⁷⁴See Chodorov, Out of Step, p. 237. See also Chodorov, From Solomon’s Yoke to the Income Tax (Hinsdale, Ill.: Henry Regnery, 1947), p. 11.

⁷⁵The acceptance of this critique dates from Robbins’ writings of the mid-1930’s. See Lionel Robbins, “Interpersonal Comparisons of Utility,” Economic Journal, December, 1938, pp. 635—41; and Robbins, An Essay on the Nature and Significance of Economic Science (2nd ed.; London: Macmillan & Co., 1935), pp. 138—41. Robbins was, at that time, a decidedly “Misesian” economist.

⁷⁶For a critique of sacrifice theory, see Blum and Kalven, Uneasy Case for Progressive Taxation, pp. 39–63.

⁷⁷For an attempt to establish proportional taxation on the basis of equal sacrifice, see Bradford B. Smith, Liberty and Taxes (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, n.d.), pp. 10–12.

⁷⁸Pushed to its logical conclusion in which the State is urged to establish “maximum social satisfaction”—the obverse of minimum social sacrifice—the principle counsels absolute compulsory egalitarianism, with everyone above a certain standard taxed in order to subsidize everyone else to come up to that standard. The consequence, as we have seen, would be a return to the conditions of barbarism.

⁷⁹The ability-to-pay principle is unclear on this point. Some proponents base their argument implicitly on sacrifice; others, on the necessity for payment for “untraceable” benefits.

⁸⁰This does not concede that “costs” determine “prices.” The general array of final prices determines the general array of cost prices, but then the viability of firms is determined by whether the price people will pay for their products is enough to cover their costs, which are determined throughout the market. In equilibrium, costs and prices will all be equal. Since a tax is levied on general funds and therefore cannot be equivalent to market pricing, the only way to approximate market pricing is to set the tax according to costs, since costs at least reflect market pricing of the nonspecific factors.

⁸¹Blum and Kalven mention the cost principle but casually dismiss it as being practically identical with the benefit principle:

Sometimes the theory is stated in terms of the cost of the government services performed for each citizen rather than in terms of the benefits received from such services.

This refinement may avoid the need of measuring subjective benefits, but it does little else for the theory. (Uneasy Case for Progressive Taxation, p. 36 n)

Yet their major criticism of the benefit principle is precisely that it requires the impossible measurement of subjective benefit. The cost principle, along with the benefit principle, dispenses with all government expenditures except laissez-faire ones, since each recipient would be required to pay the full cost of the service. With respect to the laissez-faire service of protection, however, the cost principle is clearly far superior to the benefit principle.

⁸²Dr. Warren’s article appeared in the Boston University Year Book for 1876. The board of the Council of the University endorsed the essay in these words:

In place of the further extent of taxation advocated by many, the essay proposes a far more imposing reform, the general abolition of all compulsory taxes. It is hoped that the comparative novelty of the proposition may not deter practical men from a thoughtful study of the paper. (See the Boston University Year Book III (1876), pp. 17–38)

Both quotations may be found in Sidney H. Morse, “Chips from My Studio,” The Radical Review, May, 1877, pp. 190–92. See also Adam Smith, Wealth of Nations, pp. 801–03; Francis A. Walker, Political Economy (New York: Henry Holt, 1911), pp. 475–76. Smith, in one of his most sensible canons, declared:

In a small republic, where the people have entire confidence in their magistrates and are convinced of the necessity of the tax for the support of the state, and believe that it will be faithfully applied to that purpose, such conscientious and voluntary payment may sometimes be expected. (Smith, Wealth of Nations, p. 802)

⁸³The current poll tax began simply as a head tax, but in practice it is enforced only as a requirement for voting. It has therefore become a voting tax.

⁸⁴See below on fees charged for government service.

⁸⁵Voting, like taxation, is another activity generally phrased in terms of “duty” rather than benefit. The call to “duty” is as praxeologically unsound as the call to sacrifice and generally amounts to the same thing. For both exhortations tacitly admit that the actor will derive little or no benefit from his action. Further, the invocation of duty or sacrifice implies that someone else is going to receive the sacrifice or the payment of the “obligation”—and often that someone is the exhorter himself.

⁸⁶We are assuming that the government will confine its use of force to defense, i.e., will pursue a strictly laissez-faire policy. Theoretically, it is possible that a government may get all its revenue from voluntary contribution, and yet pursue a highly coercive, interventionist policy in other areas of the market. The possibility is so remote in practice, however, that we may disregard it here. It is highly unlikely that a government coercive in other ways would not take immediate steps to see that its revenues are assured by coercion. Its own revenue is always the State’s prime concern. (Note the very heavy penalties for income-tax evasion and counterfeiting of government paper money.)

⁸⁷Spencer, Social Statics; Herbert and Levy, Taxation and Anarchism; and Molinari, Society of Tomorrow. At other times, however, Molinari adopted the pure free-market position. Thus, see what may be the first developed outline of the purely libertarian system in Gustave de Molinari, “De la production de la sécurité,” Journal des Economistes, February, 1849, pp. 277–90, and Molinari, “Onzième soirée” in Les soirées de la rue Saint Lazare (Paris, 1849).

⁸⁸These corporations would not, of course, need any charter from a government but would “charter” themselves in accordance with the ways in which their owners decided to pool their capital. They could announce their limited liability in advance, and then all their creditors would be put amply on guard.

There is a strong a priori reason for believing that corporations will be superior to cooperatives in any given situation. For if each owner receives only one vote regardless of how much money he has invested in a project (and earnings are divided in the same way), there is no incentive to invest more than the next man; in fact, every incentive is the other way. This hampering of investment militates strongly against the cooperative form.