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Schumpeter - The Crisis of the Tax State

Schumpeter - The Crisis of the Tax State

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Published by heliochryton
Also known as The Fiscal Crisis of the State. Published in 1919, this is an important essay by Joseph Schumpeter, Austrian Finance Minister and Harvard professor. This essay introduces the concept of 'fiscal sociology' in a historical context.
Also known as The Fiscal Crisis of the State. Published in 1919, this is an important essay by Joseph Schumpeter, Austrian Finance Minister and Harvard professor. This essay introduces the concept of 'fiscal sociology' in a historical context.

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Published by: heliochryton on Sep 04, 2010
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peter to Hugh
Kelly of McCraw-Hill, February 2 1, 1941, Harvard Univer-sity Archives.213. Chapters
and 2 exist in substantially longer, handwritten versionsat the Harvard University Archives. Given their length, one would guess thatthe final version would have been two to three times as long as the versionprinted here.2 14. Schumpeter to Leslie Hastings, February 2 1, 1941, Harvard Univer-sity Archives.215. Schumpeter to Thurlow Field Collier, May 21, 1943, Harvard Uni-versity Archives.216. Schumpeter, "An Economic Interpretation of Our Time," lecture 8,14.217. Ibid., 15.218. Schumpeter,
114045. Elizabeth Boody Schumpeter includedthe lectures because Schumpeter never finished the part
History of EconomicAnalysis
that was to deal with contemporary economic theory.2 19. Schneider,
Joseph A. Schumpeter,
49.220. Schumpeter, "American Institutions and Economic Progress," 2.221. Ibid.
Many people assert, and indeed in some circles it has become axio-matic, that the fiscal problems left in the wake of the war cannot besolved within the framework of our prewar economic 0rder.l Thisorder was a mixture of highly contradictory elements. Only by heroicabstraction could it be called an economy of free competition; yetwhatever drive and success it had were due to such elements of freecompetition as remained in spite of everything-in spite even ofthose attempts at state tutelage which, though reinforced by the war,were by no means created by it. Will this economic order collapseunder the weight of the war burden or, indeed, must it collapse? Orwill the state have to alter it so much as to make it something entirelynew? The answer tends not to rest on dispassionate analysis. As usual,everyone endeavors to proclaim the fulfillment of his own wishes tobe a necessary consequence of the war. Some foresee that "high cap-italism," having culminated in the war, must now collapse; others lookforward to more perfect economic freedom than before, while yetothers expect an "administered economy" fashioned by our "intellec-tuals." This is bound to happen because the state-so says the bour-geois smugly-or because the free economy-so says the intellectualenthusiastically-have failed. Neither of them, though possibly thesocialist a little more than the other, attempts to justify his judgmentin a manner which bears even a faint resemblance to scientific habitsof thought. This discussion, unpleasant like almost every expressionof today's culture or lack thereof, goes to prove that there remainsfree competition at least in slogans: the cheapest wins. In no otherfield of knowledge would such a performance be possible. Only ineconomic matters does everyone consider himself called upon tospeak asin expert; every Tom, Dick, and Harry feels entitled ingen-uously to recite age-old fallacies and naively to declare his own mostsubjective economic or ideological interest to be the last word of wis-dom. In these pages, however, we shall only touch upon this question.Whoever expects an exhaustive discussion of it should lay down thispamphlet. For our main concern is with other matters.
If the initial assertion is true then we face a crisis of much greaterscope than is indicated by the catchword which has provided us withour title. If the tax state were to fail and another form of providingfor the wants of the community ensued, this would, on the one hand,mean much more than that a new fiscal system replaces the prewarone. Rather, what we call the modern state would itself change itsnature; the economy would have to be driven by new motors alongnew paths; the social structure could not remain what it is; the ap-proach to life and its cultural contents, the spiritual outlook of indi-viduals-everything would have to change. On the other hand, itshould be pretty clear that a continuous failure of the tax state couldnever be the fortuitous result of any disturbance, however big-as if,for example, an otherwise perfectly healthy tax state had suddenlybecome impossible owing to the world war and its aftermath. Eventhe simplest considerations show that, at most, the war could havebrought to light a much more basic inadequacy of the particular so-ciety whose fiscal expression the tax state is; that, at most, it couldhave been the occasion which laid bare the structural weaknesses ofour society and thus precipitated a collapse which was inevitable fordeeper reasons. Here we come to the sociologically important vistawhich the fiscal position opens before us and which is our main con-cern. What does "failure of the tax state" mean? What is the natureof the tax state? How did it come about? Must it now disappear andwhy? What are the social processes which are behind the superficialfacts of the budget figures?
Fiscal Sociology
It is Goldscheid's enduring merit2 to have been the first to have laidproper stress on this way of looking at fiscal history: to have broadcastthe truth that "the budget is the skeleton of the state stripped of allmisleading ideologies"-a collection of hard, naked facts which yetremain to be drawn into the realm of sociology. The fiscal history ofa people is above all an essential part of its general history. An enor-mous influence on the fate of nations emanates from the economicbleeding which the needs of the state necessitates, and from the useto which its results are put. In some historical periods the immediateformative influence of the fiscal needs and policy of the state on thedevelopment of the economy and with it on all forms of life and allaspects of culture explains practicallyall the major features of events;in most periods it explains a great deal and there are but a few peri-ods when it explains nothing. Our industrial organism cannot be un-
derstood the way it actually is if this is overlooked. And our peoplehave become what they are under the fiscal pressure of the state. It isnot merely that economic policy has, up to the turn of the century,been motivated primarily by fiscal considerations: exclusively fiscalmotives determined, for example, the economic policy of Charles
led in England up to the sixteenth century to the domination by for-,ign merchants under the protection of the state; led in Colbert'sFrance to the attempt at subjecting the whole country to the guildand led in the Great Elector's Prussia to the settlement ofFrench artisans. All of this created economic forms, human types,and industrial situations which would not have grown in this mannerwithout it. All of this, too, continues to have an effect to this day.More than that, fiscal measures have created and destroyed indus-tries, industrial forms, and industrial regions even where this was nottheir intent, and have in this manner contributed directly to the con-struction (and distortion) of the edifice of the modern economy andthrough it of the modern ~pirit.~ut even greater than the
significance of fiscal history. The spirit of a people, itscultural level, its social structure, the deeds its policy may prepare4-all this and more is written in its fiscal history, stripped of all phrases.He who knows how to listen to its message here discerns the thunderof world history more clearly than anywhere else.Most important of all is the insight which the events of fiscal historyprovide into the laws of social being and becoming and into the driv-ing forces of the fate of nations, as well as into the manner in which
conditions, and in particular organizational forms, grow andpass away. The public finances are one of the best starting points foran investigation of society, especially though not exclusively of its po-litical life. The full fruitfulness of this approach is seen particularlyat those turning points, or better epochs, during which existing formsbegin to die off and to change into something new, and which alwaysinvolve a crisis of the old fiscal methods. This is true both of thecausal importance of fiscal policy (insofar as fiscal events are an im-portant element in the causation of all change) and of the sympto-matic significance (insofar as everything that happens has its fiscalreflection). Notwithstanding all the qualifications which always haveto be made in such a case, we may surely speak of a special set offacts, a special set of problems, and of a special approach-in short,of a special field: fiscal sociology, of which much may be expected.Of these approaches, the development of which lies as yet in thelap of the gods, there is one which is of particular interest to us: theview of the state, of its nature, its forms, its fate, as seen from thefiscal side. The word "tax state" is a child of this view, and the follow-
ing investigations are concerned with the implications quite clearlycontained in this term.
The Crisis of the Desmesne Economy at the Close of theMiddle Ages
The modern tax state whose "crisis" is debated today has, in its turn,grown out of the crisis of its predecessor, the feudal relationship. Atleast so far as Germany and Austria are concerned (and our materialwill in substance be limited to these two countries) it is well knownthat the modern tax state is not rooted in the tax state of antiquity,5either in the sense of continuity or in the sense of resuscitation or"migration of culture." It is rooted instead in the highly autochtho-nous circumstances of the territories of the
and the princes ofthe fourteenth to the sixteenth centuries. Its genesis can be told in afew words.6 The pressure of the times created it. The fourteenth-and fifteenth-century prince was not the absolute ruler of his countrythat he became after the Thirty Years' War. He was confronted by thesolid position of the estates, that is primarily the nobility of variousdegrees, to a lesser extent the clergy, still less the burghers of thetowns, and finally and least important, the remains of free peasantry,particularly in the Tyrol and in Eastern Frisia. The estates held theirposition vis-8-vis the prince by their own power and in their ownright, and it was a position essentially similar to that of the prince,resting on essentially the same sanctions and consisting of essentiallythe same elements. The position of the prince, too, consisted merelyof a sum of the rights of dukes, counts, various feudal officials, land-owners, etc., as did the rights of all other land- and relatively inde-pendent allodial lords. The difference between the overlord and theothers was at first only one of degree; he was
primus inter pares.
Onlygradually was this overshadowed by the fact that his dependence onthe Emperor and the
through vassalage and otherwise evapo-rated more and more while the subordination of the great lords ofthe territories, which rested on the particular titles, not only re-mained intact but grew and finally merged into the whole of sover-eign rights-into a special "sovereignty." This sovereignty was one ofthe germs of state power,' as was the position of the nonsovereignfeudal lords, though to a lesser extent and partly in other spheres.Even then the prince, supported by the logic of the facts and aidedby Roman patterns of thought, assumed the bearing and the phrase-ology of state power. There did remain in this sovereignty somethingof the organic position of earlier days, something of the deposable
dignitary of the Carolingian and Ottonian
ut it was not yetstate power, for it did not rest on any general sovereignty, the rep-resentative and personification of which the prince might have felthimself to be and from the sanction of which the rights of the re-maining powers which confronted the prince within the territorymight have derived. The prince owned his sum of rights and posi-tions of power for his own benefit, so that his phrases of public wel-fare then and much later had no other meaning than, for example,similar expressions uttered by a factory owner of today. The naturallaw distinction between the
and the
persona privata
ofthe prince did, therefore, not simply remain unrecognized at the timebecause of deficient legal or sociological analy~is,~ut it had no factualbasis and would have been meaningless. The prince did not lookupon his territory then as a modern estate owner looks upon his cat-tle. All this came later. But he did look upon the sum of his rightsprecisely like this-as a
of which he could dispose in amanner which was nobody else's business.Nor was the prince the only one who considered his prerogativesin this way. Everyone else did too, in particular the other "lords" ofthe country whose opinion alone counted. Certainly, they took astand as to the manner in which the prince used his rights. But theydid so in no sense other than that in which interested persons of ev-ery industry or every region today take a stand vis-8-vis the possiblyvexatious or anti-social behavior of a landlord or factory owner. Wethink this strange, but unjustly so. For it was impossible then to speakof any point of view of common welfare, which is what we miss. No-body represented such a point of view and it was not founded on anysocial power.Of course, many of these princely rights did, at the time, serve theneeds of the community, especially the right of jurisdiction. But thisdoes not make them anything "public" or "governmental." The com-munity needs shoes, too, but this does not bysany means make shoemanufacturing a public affair, though it could be one. Altogether,there is nothing which
not be a "general" or "public" affair, oncethe state exists; and nothing which
fall within the "public" or"state" sphere in the sense that we could not otherwise speak of astate.l0 As long as the state does not exist as a separate and realpower, the distinction of public and private law has simply no mean-ing. The statement that during the middle ages public law was shotthrough with aspects of private law or that there existed only privatelaw is as illegitimate a projection of
modes of thought into thepast as is the opposite assertion.11 The concept of the state is inappli-cable to the circumstances then existing, but not in the sense that

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