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by John MacBeath Watkins
It is sometimes obscured by the math, but economic theory is a theory of values. Adam Smith, author of The Wealth of Nations, was by profession a moral philosopher, which is why he was writing about values. He was certainly not a believer in the natural moral probity of successful businessmen. "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices," Smith wrote. He understood the need to regulate markets, that in fact, markets cannot survive without regulation. If property rights are not secure, trade becomes impossible and is replaced by banditry.
I have a theory that one of the problems with Russian capitalism is that they had spent decades describing capitalism as a criminal system. When they decided to become capitalists, this was still their understanding of what capitalism is. It didn't help that some of the western economists advising them had lived so long under societies with properly functioning legal systems that the need for such a thing was not uppermost in their minds, but without such a legal system, you don't get markets. You are more likely to get banditry or kleptocracy. Because economic theories arise from systems of value, they are entangled in our moral outlook and our political urges. Those who prefer the moral outlook of that most moralistic of writers, Ayn Rand, can be expected to view success as evidence of moral superiority. And if you believe the rich are morally superior to the poor, your policies should reward that superiority. If you think individual effort and individual genius should be rewarded, you will advocate high inheritance taxes, since the virtue being rewarded dies with the person who earned the money. If you believe better people have better children, that moral superiority is heritable and those who are of good breeding deserve more power and wealth than those who are low born, you will think the inheritance tax should be eliminated. Of course, there is another justification for elimination of the inheritance tax, that all private money should be private, and people should be able to keep it. However, unless you believe government is entirely parasitic and no tax should ever be collected, there must be taxes, and the only question is which taxes are fair, and how much government we need to pay for. The dead have no more use for wealth, unless you think grave goods will assist them in the next world, and should they take such wealth with them, the question of inheritance does not arise. As a result, the question of inheritance tax is not about the rights of the deceased, but about the income of the inheritors. One would think it would be taxed as ordinary income, but instead the debate we have in our politics is about whether inheritance should be taxed at all. But of course, I'm dealing with this philosophy as if participants in the debate were operating with pure logic from simple premises. As Immanuel Kant once observed, “out of the crooked timber of humanity, no straight thing was ever made.”
I believe this reflects the resilience of the structure of our society and our ways of thought. The structure of our though grows deep and influences us on a level far deeper than conscious thought. We have lived in a society structured largely on Hobbes' subjective system of value, but there is an older system of value still operating that tells us that we strive not just for our own place in society but also for our children's place. Striving for their future gives us longer horizons, and reason to take actions that will benefit not just us, but future generations as well. Paul Ryan, an avowed acolyte of Ayn Rand, proposes eliminating the inheritance tax, although Rand's theory locates moral virtue in the individual; his stand on death dues, however, shows that he is also subject to ways of thought that come from an older and more organic form of conservatism that locates virtue, and the goals we strive for, in the clan. This is a form of conservatism that Edmund Burke might recognize more readily than Rand. Striving for the success of the clan may even have biological roots that go deeper than the structure of thought. Such an ancient behavior pattern will have been through numerous justifications, all of which reflect a real human desire and most of which do not explain it. Of course, striving to make your clan more wealthy is a way of making your clan more worthy, since wealth is in some ways stored potential power. The wish to pass on wealth to one's offspring is the wish to be the founder of a noble clan, an instinct toward establishing an aristocracy. Thorstien Veblin, observing the rentier class that existed in the Gilded Age, called them the “Leisure Class,” because to own property and not labor was evidence that one belonged to the economic aristocracy that existed before the income tax and the inheritance tax made it more difficult for rentier status to be passed down the generations. “Abstention from labour is not only a honorific or meritorious act, but it presently comes to be a requisite of decency. The insistence on property as the basis of reputability is very naive and very imperious during the early stages of the accumulation of wealth. Abstention from labour is the convenient evidence of wealth and is therefore the conventional mark of social standing; and this insistence on the meritoriousness of wealth leads to a more strenuous insistence on leisure.”1 So an ideology reveals itself to be a mere justification; the Ayn Rand acolyte shows that instead
1 The Theory of the Leisure Class, Throstien Veblin, Chapter III, Conspicuous Leisure.
of an advocate of rewards for meritorious effort of the individual, he strives for conditions that will make possible an aristocracy that he can, perhaps, bequeath on new generations. Perhaps not even bequeath on his own descendants, but on people who will run society the way that something deep in him wishes to see it run, with the “better” families steering society for the lesser folk. And all in the name of freedom. Currently, justifications for those desiring a new Gilded Age and a new economic aristocracy are entangled with our notions of freedom, a term which, like truth, can be surprisingly difficult to define. Marx looked on it as “freedom from;” freedom from oppression, freedom from want. JeanJacques Rousseau defined it in several ways. There is the natural liberty that exists in the state of nature, the “unlimited right to anything which tempts him and which he is able to attain”2 which, sadly, is limited by the state of nature which Hobbes so ably described, in which even the right to keep breathing is uncertain because of the chaos that accompanies such unrestrained freedom. Rousseau suggests that we gain considerably by civic liberty, in which the rights remaining to us are defended by the entire community as part of a social contract. But he was unsatisfied with this Hobbesian state of affairs in which our greatest freedom is from violent death. Rather, he felt that we should aspire to moral liberty, “for the impulsion of mere appetite is slavery, and obedience to the law one prescribes to oneself is freedom.”3 Ayn Rand saw it as freedom from restraints that sought to shackle the more able in the service of the less able. In other words, like Marx, she saw it as freedom from oppression, having located a different form of oppression. While Marx saw labor create wealth that went to the oppressors like that fellow Friedrich Engels who kept helping him out with money and editing his work, Rand felt that the uncreative class was oppressing the creative class. In Anthem, she wrote of the more athletic dancers being burdened with weights to make their performance more equal to less able dancers. I suppose in
2 Rousseau, J. ‘Of the Social Contract’ in S. Cahn (ed.), Classics of Modern Political Theory, Oxford: Oxford University Press, 1997, pg. 427. 3 Ibid, p.427.
tax policy, the moral equivalent is progressive taxation. But arguments about freedom are not the only justifications offered for economic theories. Our feelings about natural freedom and the obligations of the social contract can devolved into a rather snarled web of the structure of thought. The Alexandrian solution to this Gordian knot is to propose economic arguments based on efficiency. And what is more efficient than a perpetual motion machine? The advocates of tax cuts to the top marginal rates justified them based on an economic theory that proved not to be true, that such cuts would lead to faster economic growth that in the end means they pay for themselves. Long after it had been shown that the Laffer curve does not function at American levels of taxation, the theory was still trotted out to justify the policy. Those who think the success of the individual depends in part on the society that enables such success tend to think the successful should give something back in return. And they also have an argument for the efficiency of their desired taxation policies, that excessive inequity in a society leads to economic troubles because there is insufficient demand. And in the long twilight battle between conservative and liberal views on how to deal with recessions, we see what are clearly moral imperatives once again. Those who think success is a sign of virtue also view failure as a sign of moral inferiority. It is right, therefore, that people should suffer for their failures. Therefore, those holding this view will naturally think unemployment benefits should not be extended, even though there are five job seekers for every job as I write this. Those who think we ought to help those less fortunate -- and the key there is the term “less fortunate,” a very different view of their moral situation -- will naturally think the benefits should be extended. Further, they are more likely to think society should do something to help those less fortunate to get a job. This moral outlook is compatible with Keynesian economics. One would think that 74 years after John Maynard Keynes published The General Theory of Employment, Interest and Money, that the rightness or wrongness of the theory would have been tested,
and we would know which policies governments should adopt. But the moral consequences of the theory are abhorrent to a large part of the population. Although it is difficult to run experiments in macroeconomics, we can look at projections and see if they are correct. One group of economists, for example, the monetarists, predicted that the stimulus package passed by congress in 2009 was too large and would result in high inflation in short order. Another group, the neo-Keynesians, said the stimulus was too small, and would not result in robust recovery and lower unemployment, concluding that deflation was the real threat. One would think society would then take the advice of the economists who came closest to getting it right, but as I write this, most policy makers seem to be following their value system rather than their experience on this matter. It reminds me a bit of the global warming controversy. Conservatives claim liberals only embrace the science on this because the policies required to fix it fit with the liberal agenda, but this is an obvious instance of projective identification. Conservatives strive to find any chink in the science because they find the policies required to deal with the problem abhorrent. And of course, where moral arguments are made, self-interest is not far away. Carbon-producing industries have long given financial support for conservative politicians and think tanks. If we were looking at these issues dispassionately, we would simply find the best policies for solving the problems. But there are few things we are more passionate about than our system of value.
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