Tuesday, March 29, 2011

Misrepresenting Adam Smith

I have recently been told twice, once in conversation and once online, that Adam Smith favored progressive taxation—on the second occasion at least, that he favored a progressive income tax. One passage from The Wealth of Nations was offered in support of the claim by both people, some additional ones by the online claimant. The passage:
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Taxation in proportion to revenue isn't progressive taxation, it's proportional taxation—in modern terminology, a flat tax. The quote not only isn't evidence for the claim, it's evidence against it—important evidence, since it is the first of the maxims of taxation with which Smith introduces his discussion of possible taxes.

Not only is Smith not endorsing a progressive income tax, he isn't endorsing any sort of income tax. Reading further into the passage, he successively rejects taxes on income from capital, taxes on wages, and taxes on the income of professionals. The only income he approves of taxing is the income of government officials. What he is arguing for is a system of taxation whose effect is proportional to income, not a tax on income.

The online claimant offered a number of other quotes which he thought provided evidence that Smith was in favor of progressive taxation. One of them was actually evidence, not that he favored it, but that he regarded a tax that fell more than proportionally on the rich as tolerable--"not very unreasonable."

But the most interesting one was the following:
It must always be remembered, however, that it is the luxuries, and not the necessary expense of the inferior ranks of people, that ought ever to be taxed.
This was offered as evidence that Smith wanted to tax the luxuries of the rich rather than the necessities of the poor. It was offered in the same words, with the same interpretation, on a Daily Kos web page I found which was making the same argument and using the same quotes.

Here is the full paragraph whose first sentence is being (mis)quoted.
It must always be remembered, however, that it is the luxurious and not the necessary expense of the inferior ranks of people that ought ever to be taxed. The final payment of any tax upon their necessary expense would fall altogether upon the superior ranks of people; upon the smaller portion of the annual produce, and not upon the greater. Such a tax must in all cases either raise the wages of labour, or lessen the demand for it. It could not raise the wages of labour without throwing the final payment of the tax upon the superior ranks of people. It could not lessen the demand for labour without lessening the annual produce of the land and labour of the country, the fund from which all taxes must be finally paid. Whatever might be the state to which a tax of this kind reduced the demand for labour, it must always raise wages higher than they otherwise would be in that state, and the final payment of this enhancement of wages must in all cases fall upon the superior ranks of people.
Note, first, that the first sentence is talking about "the luxurious and not the necessary expense of the inferior ranks of people." Smith is arguing, not for taxing the luxuries of the rich, but the luxuries of the poor. Changing that to "the luxuries, and not the necessary expense of the inferior ranks of people" makes it possible to misread it as "the luxuries of the rich, and not ...  ."

That misreading is impossible if you read the rest of the paragraph. Smith's argument is that a tax on the necessities of the poor will raise wages, hence be paid by the rich, and that one should therefor tax the luxuries of the poor instead. Not only is he not arguing for taxing the rich, he is arguing against taxing the rich.

There is another very popular misreading of Smith which was not made by either of the people I was arguing with, but does show up on the Daily Kos web page and in a variety of other places—the claim that Smith supported public schooling. The web page quotes (from another web page):
For a very small expence the public can facilitate, can encourage, and can even impose upon almost the whole body of the people the necessity of acquiring those most essential parts of education.
Smith has a long discussion of possible ways of organizing and funding education, in the course of which he argues both for and against a variety of alternatives, so it is easy enough to select out a passage which appears to be for government provision, such as this one. For an example on the other side:
"Those parts of education, it is to be observed, for the teaching of which there are no public institutions, are generally the best taught."
His final summary statement on the subject, however, is:
The expense of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expense, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.
Or in other words, some public funding of schooling is not unjust, but an entirely private system is also not unjust and might even be preferable.

It's also worth noting that the public involvement he is considering is much less than what we take for granted. Thus he writes, immediately after the sentence that the web page quotes:
The public can facilitate this acquisition by establishing in every parish or district a little school, where children may be taught for a reward so moderate that even a common labourer may afford it; the master being partly, but not wholly, paid by the public, because, if he was wholly, or even principally, paid by it, he would soon learn to neglect his business.
Not, I think, an opinion that supporters of our public school system would be willing to endorse.

I find it amusing that the Daily Kos piece starts out with:

"Conservatives love to quote Adam Smith, the Father of Capitalism. But I doubt that many of them have actually read his works."

The author of that also likes to quote Smith—and also has not read his works.
---

(added later)

Googling around, I find about the same number of hits for the two versions of the first sentence of the paragraph I quoted: "luxuries," and "luxuriant". Not all of the former sort are from webbed quotes--some are from webbed texts of the book. That suggests that it may be different in different editions. Checking various sources, the third, fifth, and sixth editions all have "luxuriant." The fifth was the last edition published in Smith's liftetime, the third apparently the edition in which errors in the first and second got corrected; those two seem to be the basis for most modern editions.

I haven't yet located a source for the text of the first edition—it's possible that "luxuries" is a mistake there. Or that it was added by some editor or printer in some later edition.

If so, the version I object to is not a deliberate misquote. But reading the rest of the paragraph makes it clear that it cannot be interpreted as arguing for a tax on the luxuries of the rich.

41 Comments:

At 3:36 PM, March 29, 2011, Anonymous Richard Allan said...

Yeah, you see this all the time.

It's funny how people seem to assume that, if Adam Smith said something, all free-market advocates should automatically believe it. Why should that be the case? I'm tempted to believe it has something to do with the fact that everything Karl Marx says seems to be automatically taken as gospel by advocates of socialism.

 
At 4:09 PM, March 29, 2011, Blogger Edward Miller said...

This comment has been removed by the author.

 
At 4:10 PM, March 29, 2011, Blogger Edward Miller said...

You missed the important quote, which has recently been circulating around thusly:

"It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion"

In it's full context, it is clear he was speaking of Georgist-style taxation on rent, not a progressive income tax. Here is the full quote:

"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion"

 
At 5:14 PM, March 29, 2011, Blogger David Friedman said...

"You missed the important quote"

I quoted the "not very unreasonable" part of that, to make the point that he was saying that a tax whose consequence was a more than proportional burden on the rich was tolerable, but wasn't arguing that that characteristic of the tax on house-rents was itself desirable.

 
At 11:16 PM, March 29, 2011, Anonymous Kid said...

Even if Adam Smith did say it, that doesn't make it true. Defending Adam Smith feels to me like cheering for your favorite sport's team, rather than actually debating the issue.

 
At 12:49 AM, March 30, 2011, Blogger David Friedman said...

"Defending Adam Smith feels to me like cheering for your favorite sport's team,"

That's true, but it's not what I'm doing.

I'm not arguing that what Smith is saying is correct--I disagree with him about quite a lot of things. He was a brilliant man with a very wide range of knowledge, but he wasn't a very good economic theorist--not nearly as good as Ricardo, for instance.

What I'm arguing about is not whether his views were right but what his views were. Quite a lot of people, mostly left of center, try to argue that Smith's views were subtantialy further left, in modern terms, than they really were.

Part of that is the correct realization that Smith, on the whole, was on the side of workers as against employers. Part is incorrectly concluding that he agreed with modern liberals about what policies were in the interest of workers. That links to the assumption, very common on the left, that libertarians are pro-business and anti worker, anti-poor. It's the common pattern, left and right, of assuming that people who favor different policies than you do must agree with you about the consequences of those policies, and their disagreement thus comes from being in favor of consequences that you are against.

And part is selective quoting, I think almost always by people who haven't actually read the book and tried to understand it, designed to make Smith appear to favor policies that he didn't favor. That's the part I'm attacking in this post.

 
At 9:06 AM, March 30, 2011, Anonymous Anonymous said...

If you're aiming for a "flat" tax system and you have some regressive taxes (in the modern parlance) like a poll tax or tobacco duties, you need income tax to be progressive to even them out. Or some other progressive tax.

 
At 12:32 PM, March 30, 2011, Anonymous Paul Sagar said...

Well this blog entry is very silly, for the simple reason that Adam Smith couldn't have been in favour of progressive income tax in 1776 because income tax (progressive or otherwise) didn't exist in 1776.

As noted above, you deliberatel (!) ommitted the Smith quote where he explicitly says something more than in proportion. Which is rather amusing.

Anyway, I also wrote a silly blog post on this matter, ages ago. Except I went into a good deal more detail, attempting to look in depth at what Smith's intentions might have been, and how they might be updated for modern concerns.

Overall my conclusion is that there's a plausible case for Smith the "progressivist", if only a slim one.

Now, a couple of years older and wiser, and a year into a PhD on 18th century Scottish political and economic thought, the debate seems a bit silly to me. So I'll just ROFL at my ignorance back then and yours today. I mean, if you start invoking "luxury" in an 18th century context without knowing the enormous background debate which it fits into, then you're way, way out of your depth.

Here's the post, in case you care (which you probably don't - as you've almost certainly read it and ignored it alreaddy, seen as a quick google for "Adam Smith Tax" brings it up straight away...and you claim to have done some googling):

http://badconscience.com/nerd-posts/adam-smith-the-adam-smith-institute-and-flat-tax/

 
At 1:15 PM, March 30, 2011, Blogger David Friedman said...

To Paul Sagar:

Thanks for the link--I hadn't come across your discussion.

I find your treatment of the first Maxim difficult to understand. You argue as if all that Smith said was that taxes should increase with income, hence that it isn't inconsistent with a flat tax.

But what he actually wrote was that taxes should be "in proportion to" revenue. That isn't merely consistent with a flat tax, it requires a tax structure whose incidence is equivalent to that of a flat tax. So far as I can tell, you simply ignore that in your discussion.

Later, discussing a passage that I mentioned briefly in my post, you write:

"Secondly, and crucially, it is a clear statement that the rich ought to contribute “something more than in proportion” to their revenue"

That simply isn't true. "It is not very unreasonable that" isn't equivalent to "it is desirable that."

Not only is the passage not a clear statement that the rich should contribute more than in proportion, it isn't a statement that the rich should contribute more than in proportion at all. It is a statement that the fact that a particular tax falls more heavily on the rich is not a strong argument against it. Smith is trying to accomplish a variety of different objectives, as shown by his different maxims, and he is willing to give up a bit on one maxim in order to achieve more of another.

Your discussion is much better informed than most on this subject, but you still seem to be trying to force Smith into agreeing with you instead of figuring out what he is saying. "Proportional to" doesn't mean "monatonically increasing with" and "it is not very unreasonable that" is not equivalent to "is desirable that." Still less is it "clearly" equivalent, which is what your claim requires.

 
At 9:09 AM, March 31, 2011, Blogger Milhouse said...

Well this blog entry is very silly, for the simple reason that Adam Smith couldn't have been in favour of progressive income tax in 1776 because income tax (progressive or otherwise) didn't exist in 1776.

Now that is about as silly an assertion as I've seen in some time. I hope I don't have to explain why.

 
At 9:11 AM, March 31, 2011, Blogger Milhouse said...

I first read The Wealth of Nations in 1982, on your parents' recommendation (in Free To Choose).

 
At 1:34 PM, March 31, 2011, Blogger Joe said...

About the most progressive thing I remember Adam Smith saying the last time I read him was that he opposed predatory lending and supported statutory limits on interest. It's also notable that Rothbard makes a big stink about Adam Smith in his history of Economics, thinking Smith sent Economics on a wayward path, which was only later corrected by the Austrians. One of his pieces of evidence was the opposition to predatory lending (I think he also accuses Smith of having a labor theory of value). So, I guess from Rothbard's perspective, Smith was too progressive, if that's worth anything.

 
At 1:39 PM, March 31, 2011, Blogger David Friedman said...

I've had quite lengthy arguments with supporters of Rothbard with regard to Rothbard's treatment of Smith, both on Usenet and on the web--I expect you can find them with a little searching.

I regard Rothbard's arguments as deliberately dishonest. He accuses Smith of wanting an export tax on wool, for instance, without ever telling the reader that what Smith was proposing was to replace an absolute ban on export, enforced with ferocious penalties, with an export tax. And that's only one of multiple examples of leaving out essential facts in order to attack Smith.

I'm not sure what you would define as "predatory lending." Smith does support usury laws, although I think his argument for doing so doesn't work.

 
At 2:03 PM, March 31, 2011, Anonymous Anonymous said...

The Blackadder Says:

Adam Smith couldn't have been in favour of progressive income tax in 1776 because income tax (progressive or otherwise) didn't exist in 1776.

One wonders how the income tax managed to come into existence if no one could support it until it already existed.

 
At 3:19 PM, March 31, 2011, Anonymous Kid said...

There is a much simpler refutation to an invocation of Adam Smith - which is that the fact Adam Smith said something does not make it true (or false). Whether or not he actually said it is only relevant to the reputation of the speaker for practicing scholarship and/or proper journalism.

If somebody quotes Adam smith as having made some plausible-sounding argument in favor of a certain policy, it is the argument that demands attention, not the attribution of the quote.

Not the greatest amount of respect for Adam Smith can balance the scale of reasoning against overwhelming evidence, if his opinion contradicts it, nor is his approval needed, if his opinion agrees with it.

 
At 7:12 AM, April 01, 2011, Blogger William Newman said...

Kid wrote "There is a much simpler refutation to an invocation of Adam
Smith - which is that the fact Adam Smith said something does not make
it true (or false)."

That's OK too, but factual misstatements deserve correction regardless
of whether someone is trying to misuse facts about someone's writings
to make an argument from authority. If someone writes that Adam Smith
wrote that currency should be triangular glass coins issued only in
the winter and decorated with pictures of dragons on one side and
pancakes on the other, you're welcome to "refute" that by pointing out
that Adam Smith's authority is not a good basis for our currency
decisions, but I'm at least as interested in people just pointing out
that Adam Smith never wrote that.

 
At 8:23 AM, April 01, 2011, Anonymous Zach said...

I was force-fed this article at NYU about Adam Smith's 'progressive bent.' I'd be happy to email it to you if you'd like, as I would love to know what you thought of it.

http://www.jstor.org/pss/2598329

 
At 2:14 AM, April 02, 2011, Blogger adringuti said...

Mr Freidman, I came across this posting, can you explain your comment on not having read fully through Rothbard's critique of Smith in his History of Economic Thought. I am huge fan of yours, but it seems you overlook the fact that Rothbard was criticizing the important fact that Smith was being progressive, whether slightly as you seem to keep pointing out, or to a conspicuous proportion that Rothbard seems to delineate fully. The point is that Rothbard suggested he was a statist, whether suggesting small amounts of government intervention, or more larger evident ones.

http://www.lewrockwell.com/gordon/gordon21.html

 
At 5:14 AM, April 02, 2011, Anonymous Kid said...

William Newman, if somebody, say, http://www.dailykos.com/story/2009/10/21/795604/-Adam-Smith-favored-progressive-taxation, starts out with ["Conservatives love to quote Adam Smith, the Father of Capitalism . But I doubt that many of them have actually read his works."] your reaction should be "So what? What Adam Smith's views were is irrelevant, it is the content of the quotes that may be interesting"

The entire rest of the 1200+ word article, which offers evidence as to what Adam Smith's views were, is already irrelevant, whether factually true or false.

Why are we getting massive food fights over what some authority's views were? This strikes me as an Islamic discussion over what Muhammed the prophet did or did not say - cult followers debating what the cult leader said, etc. None of this should scarce ever be relevant in deciding the wisdom of a particular policy decision.

Is there any chance of debate on actual policy issues, rather than what authorities have or haven't said?

Seeing adringuti's indignant reaction to David Friedman's alleged misrepresentation of the views of Murray Rothbard, I fear we may have a long long way to go.

 
At 12:04 PM, April 02, 2011, Blogger David Friedman said...

Adringuti asks about my view of Rothbard on Smith. The David Gordon piece he links to, arguing against me, contains a link to my original argument. If he reads that, he should be able to see my reasons for thinking that Rothbard's arguments are deliberately dishonest.

The issue isn't whether Smith was an anarchist (he wasn't) or even a hard core libertarian (he wasn't). It's what his views were, and how they compare with views of his contemporaries.

I discussed the controversy on this blog some years ago--for that discussion, including my response to David Gordon, see:

http://daviddfriedman.blogspot.com/2006/06/old-news-friedman-contra-rothbard.html

For the comment thread on the Gordon piece, including some back and forth with Gordon and Vincent Cook, see:

http://blog.mises.org/5182/friedman-contra-rothbard/#c95952

 
At 5:53 AM, April 05, 2011, Blogger Head Zombie said...

"Quite a lot of people, mostly left of center, try to argue that Smith's views were subtantialy further left, in modern terms, than they really were."

I have always had a very strong intuition... albeit essentially unfounded... that it was Smith's ideas in Wealth of Nations which were largely responsible for the economic directions of the early United States. Indeed, that the pervasive RIGHT leanings of the new nation in comparison to the old were a reaction to Smith's new and radical positions.

So while I can't for the life of me explain why, I feel that claiming Smith's leanings were to the left is not only incorrect, but dramatically and stunningly incorrect.

 
At 2:57 PM, April 07, 2011, Anonymous Andrew said...

You realise that "read it on DailyKos" is about as meaningful as "read it on Blogspot.com", right?

These are just random people who can write what they want. It's a blog site. Quote the author, not the site that is hosting the blog.

Some people think that youtube made all of the videos on the site!

 
At 9:38 AM, April 08, 2011, Blogger Jkirk3279 said...

"Indeed, that the pervasive RIGHT leanings of the new nation in comparison to the old were a reaction to Smith's new and radical positions."

Head Zombie... why would you conclude that early America was Right-leaning?

Democracy over Monarchy is Right Leaning?

You know, that's funny.

Because I would have thought that a Democracy where the People rule is the definition of Left Leaning.

 
At 9:09 AM, April 10, 2011, Blogger Forlornehope said...

If a flat tax is accompanied by a significant tax free allowance, it is progressive. While the marginal rate remains constant the average tax rate increases with income. At the limit it tends to the marginal tax rate as the allowance becomes less significant. In fact a relatively high tax rate combined with a high tax free allowance gives a strong progressive tax without the disincentives of steps in the marginal rate. The trouble is that to understand all that you have to be much more numerate than almost all politicians of journalists.

 
At 2:12 AM, April 11, 2011, Blogger SheetWise said...

JKirk --

"Because I would have thought that a Democracy where the People rule is the definition of Left Leaning."

I agree. But what about a Constitutional Republic that limits the powers of the state?

 
At 4:29 PM, April 17, 2011, Anonymous Data Room said...

Are we bound to accept what Adam Smith says? Everyone must be independent thinker regarding any matter even taxation. If you are going to accept a single person suggestions, this can be a disastrous issue in the long run

 
At 2:45 AM, July 20, 2011, Blogger Matt Tanous said...

Jkirk, Sheetwise, you both are wrong. Left and right were decidedly different back then. Specifically, right-wing is generally conservative - i.e. status quo. Thus, then it was monarchy that was right-wing.

The left then, unlike now, was liberal, but not in the modern meaning. It was liberal in the libertarian or classical liberal sense.

In this way, the new American Republic, based on the ideas of Montesquieu, Locke, and Adam Smith, was "left-wing". Now, however, the terms liberal and left-wing has been re-appropriated by socialists and "Progressives" (the anti-Conservative, anti-status quo), which is the New Left. And as a result, the true liberals were left to form a coalition with the conservatives that were now defending the status quo of a mostly free nation.

As can be seen by some of George Bush's actions, though, one can easily see that as socialism is becoming the norm, conservatives are becoming more socialistic, sadly.

 
At 7:18 PM, July 26, 2011, Anonymous Anonymous said...

"a year into a PhD on 18th century Scottish political and economic thought"

No offense, dude, but someone who is devoting his life to studying 18th century Scottish political and economic thought has no right to criticize ANYONE ANYWHERE for doing something "silly."

 
At 1:45 AM, August 30, 2011, Anonymous MyTradeZone said...

Free enterprise is the only way to economic success. Adam Smith wasn't a progressive.

"there would not, perhaps, be anything very unreasonable."
By saying "perhaps" and "not very unreasonable," Adam Smith was simply speculating on this topic, and as 220 years of economic experience have shown us, progressive taxation is horrible, totally infringes upon our rights to property and the pursuit of happiness, while inherently presupposes a sort of immorality of getting wealthy, which needs to be "equally distributed" among the less well off. Adam Smith did not believe people have an inherent "right" to have "freedom from want," as the progressives say.

 
At 7:18 AM, October 20, 2011, Anonymous Cindy Brown | Atlanta Wedding Photojournalist said...

"the expense of defending the society, and that of supporting the dignity of the chief magistrate, are both laid out for the general benefit of the whole society. It is reasonable, therefore, that they should be defrayed by the general contribution of the whole society, all the different members contributing, as nearly as possible, in proportion to their respective abilities."

"When the toll upon carriages of luxury, upon coaches, post-chaises, etc. is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts, wagons, etc. the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor, by rendering cheaper the transportation of heavy goods to all the different parts of the country."

(The Wealth of Nations)

A very specific example that sounds progressive to me. (I would support taxing BMWs at a higher rate than Kias.)

 
At 4:30 PM, October 20, 2011, Blogger David Friedman said...

Cindy points at a passage which appears to support a tax targeted at the rich. There is another such passage which I mentioned but didn't quote, on which Smith comments that it is not very unreasonable to have a tax which bears more heavily on the rich.

The problem with taking such examples as evidence that he favored, on net, progressive taxation is that he starts his discussion of taxation by saying that he doesn't--his first maxim is taxation in proportion to income. In this case as the case of education, Smith makes lots of points in favor of or against a variety of alternatives, but the best information on his general position comes from the summary statements, such as the maxims.

 
At 10:14 AM, October 30, 2011, Blogger prometheus said...

"Even if Adam Smith did say it, that doesn't make it true."

No if about it... He did say it and he was absolutely correct.

 
At 1:34 PM, December 13, 2011, Blogger Fearsome Pirate said...

The reason people have such a hard time with Smith is that he's a liberal thinker--he tries to give serious thought to as many sides of an issue as he can, attempts to genuinely weigh the positives and negatives of them, give some assessment of the reasonableness of each, and come to the best conclusion.

In modern discourse, to even repeat a view different from your own without immediately condemning it as stupid or evil is to endorse it. That's why they incorrectly think Smith endorses this or that.

 
At 2:25 PM, February 17, 2012, Blogger erickgant said...

Arch-capitalist Adam Smith:

"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

An Inquiry into the Nature And Causes of the Wealth of Nations (1776). Book Five: Of the Revenue of the Sovereign or Commonwealth. Chapter II: Of the Sources of the General or Public Revenue of the Society. Article I: Taxes upon the Rent of House.

The rich beneifit the most from the creation of the state, as the state was devised to protect private property; even all of the so called socialist programs were created to shore-up capitalism. Adam smith argues for the taxation of luxuary whether enjoyed by the rich or the poor.

 
At 9:11 AM, April 23, 2012, Blogger Jack said...

Great post and comments. Thanks!

 
At 7:33 AM, November 10, 2012, Anonymous Erik said...

"And part is selective quoting"...Isn't it exactly what you did, what already happened over centuries and ultimately shaped the image of Smith being an advocate of laissez-faire capitalism and free markets? In fact, the diligent customs inspector formulated several views that deviate quite strongly from the arguments that are derived from the more popularly quoted parts of his magnum opus. Even the "invisible hand" (which students are taught to shake in awe in basic econ classes yet is only mentioned once in the entire book) is only said to *frequently* (and not always) work for the society as a whole:

“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.” (Book IV, Chapter 2)

It also seems like grasping at straws to dismiss Smith's luxury tax remark as just some element of discussion. If he was just writing it while not being content with it at all, he would have used another wording but as Norwegian economist Agnar Sandmo comments: “This formulation is notable both for its substantial content and for the tone of its language, which leaves one with no doubt as to the author’s sympathy and social concerns.”

To refer to the rich with such drastic terms as "indolence and vanity" would appear to be completely out of place if he thought that the luxury tax was bogus. He would have used a more neutral vocabulary. The words he used instead are part of a rhetoric even our European labour union representatives would abstain from - and that tells quite something.

 
At 9:09 AM, November 29, 2012, Anonymous Pax On Both Houses said...

Shame on you for deliberate deception.
http://daviddfriedman.blogspot.com/2011/03/misrepresenting-adam-smith.html

Adam Smith's complete quotation (which you carefully prune) reads: ""The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion"" "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911 http://en.wikiquote.org/wiki/Adam_Smith

In this passage, Smith is not recommending a flat tax (as you allege) but goes categorically beyond flat taxation with a frank proposal for progressive taxation.

American "conservatism's" linchpin penchant for self-destruction resides in its ubiquitous determination to de-contextualize "shards of truth" in order to promote essentially deceptive positions.

Here is what full contextualization looks like: " Republican Rule and Economic Catastrophe – A Lockstep Relationship." http://paxonbothhouses.blogspot.com/2012/05/republican-rule-and-economic.html

Will you post my comment in its entirety?

I rest my case.

Attentively, Alan Archibald

Hillsborough, North Carolina

http://paxonbothhouses.blogspot.com/2012/11/adam-smith-on-taxing-rich.html

 
At 4:31 PM, February 27, 2013, Anonymous solomzi said...

would love to know the impacts of individual income tax vs capital gains tax in the economy,

 
At 8:51 PM, May 01, 2013, Blogger hucktunes said...

You completely misunderstand Smith when he says that "It must always be remembered, however, that it is the luxuries, and not the necessary expense of the inferior ranks of people, that ought ever to be taxed." Smith doesn't mean to tax the luxuries of the poor. The rich pay the "necessary expense of the inferior ranks of people" by paying their wages and that money should not be taxed because "Such a tax must in all cases either raise the wages of labour, or lessen the demand for it."

 
At 11:56 PM, May 01, 2013, Blogger David Friedman said...

To tax the luxuries of the inferior ranks of people indeed means to tax the luxuries of the poor. Smith's point is that if you tax the necessary expenses of the poor that will drive up wages, via the iron law of wages, so the tax will really be paid by the not poor. In order to actually tax the poor, you have to tax their luxuries instead.

Read the chapter and see if it isn't clear.

 
At 11:58 AM, May 02, 2013, Blogger hucktunes said...

You are correct. Taxes on spirits do indeed generate much revenue.

 

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