Corruption, Taxation and Enjoying Some Free Time

One of the most important questions about politics we must ask ourselves is: How should we live in a state we don’t approve of?

I’m a classical liberal, as I expect most of the Cobden Centre readership are. I have yet to hear of a classical liberal or libertarian who isn’t irritated by modern western states – particularly their petty regulations and high taxation – and I’m no exception. What should we do about that though? One thing we should do is to change opinion and that’s one of the things the Cobden Centre is about. But what about at a personal level? Should our political view affect how we do our jobs, for example, or our tax arrangements?

It could be argued that we should be more diligent in our own work for the sake of the generations after us. Since the state in it’s current size will cause many problems in the future, we can offset them by creating more capital now. The problem with this view is that it considers long-run economics without considering long-run politics. Suppose a government increases redistribution by taxing and spending more and a large proportion of citizens decide to work harder or just as hard as they were before. If that happened the case could be made that redistribution doesn’t affect economic output, or at least it doesn’t affect it as much as was thought. This sort of behaviour aids the political case for socialism. It’s also unsustainable, it’s likely that future generations will not understand the rationale behind it, or for various reasons won’t continue acting this way. That means the negative consequences of government policies will be delayed rather than prevented, and may be worse when they occur. During major wars governments have encouraged citizens through propaganda to work their hardest, and in some cases citizens have worked harder. Certainly this has been positive in justifiable wars. But for the more historically common unjustifiable wars it has been counter-productive and has only funnelled greater power to some of the worst states.

At the opposite extreme is the view that it’s legitimate to cheat the state or anybody else. From an ordinary moral point of view, it’s unacceptable to cheat the state and clearly unacceptable to cheat other citizens. But a large part of economic thought and libertarian thought is focused on challenging traditional ideas of morality (Walter Block’s “Defending the Undefendable” for example). Is this an indefensible idea that should be defended? I don’t think so. Firstly we must remember that laws protect us all and that society couldn’t exist without them. If others see us flouting laws because of our political ideas then they will be encouraged to do the same to aid their political ideas. In this case it’s worth remembering that we’re a minority. This point is made very well in Robert Bolt’s play “A Man for all Seasons”. Another good reason comes from Hayek and is easiest to explain with an example. Suppose a property developer bribes local politicians to grant him planning permission for new buildings. He reasons that the government is unfairly standing in his way with it’s labyrinthine planning laws and denying him profit. He may be correct about those planning laws, but he isn’t correct to think that he’s compensating himself for what the state have denied him. In the absence of planning laws it’s not clear that he would make more profit. Other property developers may out-compete him. What the developer is doing here isn’t to get compensation for his business being damaged, rather he is guessing what compensation he is entitled to and awarding it to himself (and enriching a politician to boot).

A further problem occurs when redistribution is involved. Suppose instead a businessman persuades the state to subsidise his industry. Can this just be compensation for the high taxation he must pay? No, because the state are providing the subsidy by taxing others. Notice this argument is also wrong for the first and second reasons above. If the subsidy is wide, to a whole industrial sector, that means the businessman in question must still compete against others in his industry, but the subsidy still betters the whole sector at the expense of other sectors.

It could be argued that all wealth today is irretrievably muddled. That is, in the past various groups benefited from redistribution by the government or from preferential treatment. Those groups then passed some of their ill-gotten wealth to their family and spent the rest. That wealth has been passed around to others, often unknowingly. So, all wealth is tainted and nothing that is earned can be certainly “honest”. This is true and also beside the point. If we were all to refrain from trading because all wealth is tainted in this way then mankind would be sent back into the state of primitive autarchy. That would clearly be a worse outcome than the world economy continuing to function and everyone receiving “unjust” incomes. The first error in this argument is requiring perfect retrospective justice, something that can never be achieved in practice. Like everything else, justice has diminishing returns: after some point the costs of it outweigh the benefits. Some critics accuse supporters of Capitalism of being the exclusive defenders of this idea. This is confused. All social theories and proposals to change society (whether in a small way or a radical way) don’t offer any of us a just recompense for how we have acted in the past. What they claim to offer is what their proponents believe is a better future. Even Marx was reluctant to ethically approve of his revolution of the proletariat. Instead he framed it as an inevitable development of the human race.

More importantly, the argument for free markets is that they provide incremental improvement for all classes of society. When markets first become more free that will unjustly impoverish some and enrich others. But, the long term growth that they generate serves the common good. In time, wealth generated in the market era comes to dominate that inherited from before. Of course during this time state actions will continue to unjustly redistribute wealth, I’m not denying that. We must compare free markets to other economic systems. Is there any other system that can justly apportion wealth and also ensure progress? I don’t think there is. So, we should limit our concern about long-run wealth redistribution. We should only be concerned in situations where the issue is direct and recent. For example, suppose a man takes gifts from someone he knows is benefiting from government privileges or someone who has in the recent past. In that case there’s a good case to criticise him.

In my opinion we have quite a lot of latitude to act against statism on a personal basis. If taxes are set high enough to discourage me from working as many hours as I would otherwise, then I accept that. I don’t plot violent revolution, but I do work less and enjoy more free time. I don’t see anything wrong with avoiding taxation by legal means. Modern states are currently taxing almost every working person much more than the cost of basic services. Today “tax planning” is mostly a matter of preventing income from being redistributed. There’s a lot we can do to oppose the current state of the world, but we should be careful not to go too far.

Written By
More from Robert Thorpe
Mises’ monetary theory compared to other theories
Lots of people talk about “The” Quantity Theory of Money and “The”...
Read More
7 replies on “Corruption, Taxation and Enjoying Some Free Time”
  1. says: John Spiers

    Dear Mr. Thorpe,

    I think this needs to be supported:

    “When markets first become more free that will unjustly impoverish some and enrich others. ”

    How can ending subsidies and regulations (that which unfrees the market) and allowing people to trade freely, unjustly impoverish some? Or enrich others?

    1. That for some promised pensions and assured circumstances become null and void? If they did not consider the offer, and see its unsustainability at inception, they only experience condign punishment. That they did not discern that a violence-grounded transfer of wealth to them was unethical is not worthy of our concern.

    2. Once their circumstances change, it changes in a manner that offers them the exact same opportunity that we mere merchants have: to serve customers. The impoverishment you imagine is the cessation of taxpayer-funded indolence. The poor babies will actually have to provide a value.

    3. These welfare queens presently deny the rest of us the good of the genius and innovation. The fact that they congregate at the trough means they are not competing and widening the division of labor, adding to the myriad of goods and services that constitute the true wealth of a nation.

    4. How, in a free market, does anyone gain exceptional wealth? Without government monopoly, subsidies and restrictions, freedom to compete surely militates against exceptional wealth, defined as lots of money. What happens is the mundane hegelian dialectic of thesis, antithesis, synthesis… people see a good profitable idea in action, tweak their own version until it recompenses satisfactorily, and at the same time someone is studying both successes coming up with another unit in the division of labor, with everyone trimming the profits of anyone enjoying excess, by serving a segment of customers more better cheaper faster. Yet, all are self-employed and self supporting, and the range of goods and services ever widening. More better cheaper faster. Think of telephones 1970, and telephones today. Unimaginable advances. Next, cancer cures, 25 bucks each, and profitable at that.

    This isn’t fantasy, we should all visit Hong Kong for a glimpse of the possible.

    John Spiers

  2. “Firstly we must remember that laws protect us all and that society couldn’t exist without them. If others see us flouting laws because of our political ideas then they will be encouraged to do the same to aid their political ideas. ”
    About 150 years ago Max Stirner remarked, that all laws are made by the state, for the state and an individual has no rights. The state graciously leaves him some of them .. perhaps.
    And Nietsche said: …State is the name of the coldest of all cold monsters. Coldly it tells lies too; and this lie crawls out of its mouth: “I, the state, am the people.” That is a lie! It was creators who created peoples and hung a faith and a love over them: thus they served life.
    I am sorry, but I still can’t believe you to tell me, that I shall respect and obey a monster!

    1. says: Current

      I am sorry, but I still can’t believe you to tell me, that I shall respect and obey a monster!

      I’m not asking you to respect it, I’m pointing out the social benefits of obeying it.

      The problem is, what is the alternative? The alternative is to disobey the state, does that help? In modern situations it would hinder long term progress. That’s because the opinions of the common people are not a great deal better that of the state, if anything they are more statist and nationalistic than that of the elites.

      Revolution in the modern western world can’t lead to anarchy in the sense of “Anarcho-Capitalism” but it certainly could lead to anarchy in the normal sense. There are situations where revolution is appropriate, perhaps in Libya for example, but not in the US or UK.

  3. How about a Tax Revolt en Masse? The middle income earners pay the most tax and we all are denied specifying where it is spent except by picking the lesser of 2 evil parties. Maybe use the Rally against Debt March in may to start it? Withhold taxes is the most responsible thing a responsible person can do. Ceasing mortgage payments to banks would be the 2nd most responsible thing a responsible person could. if that does make sense, the 3rd most responsible thing a responsible person could do is read ‘Economics in One Lesson’ by henry Hazlitt (its free as a pdf online). If that doesn’t make sense, be responsible and stop lying to yourself.

  4. says: Current

    I don’t agree with “Dr. Werner L. Ende” or “abolishincometax”.

    We must consider several inter-related things:

    * We don’t know that we are right. Some of our ideas for a classically liberal or libertarian society may be foolish. I think many that come from purest libertarians are. On this point people should remember Hayek’s argument for societal evolution.

    * Even if we are right what about transition? There are currently practically no private regulators left. In some countries there is practically no private health service. The lack of these things will be very damaging if a sharp transition were to occur.

    * The public don’t agree with us. The masses aren’t close to being classical liberals or libertarians. Any transition would have to be forced on them against their will. Is that even possible regardless of whether or not it’s ethical? Remember Mises explanations about popular power. The difference between despotism and democracy isn’t a black-and-white one that in one the people rule and in another they don’t. Even in a dictatorship the dictator only stays in power because he can command the loyalty of a large section of the population.

    * Civil disobedience such as not paying taxes is only productive if it’s purpose is widely understood. If the population believe it’s only a matter of greed then they will not support it.

    * How does not paying mortgages help? Certainly it harms banks that acted illegally or immorally, but it also harms those bank who didn’t.

    I agree about reading Hazlitt though.

    1. says: mrg

      I think the public can be brought round, if empowered:

      * give them veto power over government borrowing and money printing (any time the government wants to do it, they must hold a referendum)
      * radically simplify the tax system, so that people realise what they’re paying (in the process, tax rates could be reduced without hurting the budget)
      * offer them a yearly referendum on how much tax they would like to pay (+10%, keep constant, -10%)

      I like to think that offered these choices, the public would choose to restrict government borrowing, and lower taxes.

      1. says: Current

        I largely agree. But those things require persuading the public of a great deal first.

Comments are closed.