October 01, 2004

No, it's not your money

They all do it of course. Drawing on the resurgence of folk libertarianism over recent decades, all parties now talk as if governments take money from individual taxpayers to spend, with conservatives more intent on emphasising that they wish to give taxpayers back their money so they can decide for themselves how they wish to spend it. With the parties flinging it about, albeit the Howardians in an appreciably more drunken style than Latho's camp, it may help to remember that it's not really your money, at least as an individual. It's our money collectively, most of which has in fact been provided by governments, past as well as present. Indeed, if morality was the only policy consideration, most people should give a good deal of what they already have back to its rightful owner - the government on behalf of society as a whole. In this election side-light, distinguished Australian ex-pat philosopher, Peter Singer, takes us through the logic in an extract from his current book, The President of Good & Evil: The Ethics of George W Bush:

When Bush told American taxpayers that the budgetary surplus accumulated in recent years was ‘your money’, most of them would have taken that as a truism. Of course it was their money—where else did the government get its money from, but by taxing the money they earned? Yet this assumption rests on what New York University Law School professors Liam Murphy and Thomas Nagel – among the few philosophers who have paid attention to any of Bush’s ethical pronouncements—have called ‘the myth of ownership’. Ownership is not a natural relationship between a person and a thing. It is a social convention, and in societies with a legal system, it is defined by the law.

Take a simple example: if I collect berries in the forest, do I own the berries I collect? Today, perhaps it depends on who owns the forest. If I own it, I own the berries. If you own it, and you did not permit me to collect anything from it, then I have stolen your berries. What if the forest is in public ownership? Then laws and customs may determine ownership of forest products. Suppose that the use of the forest has been regulated by ancient customs, interpreted when necessary by a council of representatives of all the surrounding villages. Then my claim to the berries depends on the customs. The custom might be that all the berries should be picked together, and then divided equally among the villagers. In that case, I would not own the berries I collect. Alternatively, the gatherers of berries might be able to keep what they pick, after giving a percentage to the council, which uses the proceeds to pay the wages of foresters. The foresters ensure that the paths I use are not overgrown, and they protect honest villagers against brigands who would otherwise rob them of their pickings.

Suppose that the custom is for the council to receive one basket of berries in every ten gathered, but some pickers think that the council could provide the necessary services quite adequately if it received only one basket in twenty. Last Sunday I gathered twenty baskets of berries. Would an opponent of the 'every tenth basket is for the council' custom be justified in pointing to my twenty baskets of berries and telling me: 'They're your berries!’? No. If the council had not paid the wages of the foresters I may not have been able to get through the forest to the places where the berries grow. Had I managed to achieve that, I may still not have been able to avoid the brigands and return with the berries I picked. Even if the council takes more than it needs, there is no sense in which the berries I picked are all mine.

The seventeenth century philosopher John Locke—a major influence on early American political thought—argued that we gain a right to property by 'mixing our labour' with natural objects, as long as we leave 'enough and as good' for others. If I have carved a piece of wood into a chair, tilled the land, or gathered berries, they become mine—provided there is still wood, land and berries for others to do the same. But why does mixing my labour with something that was not mine make the entire object mine? Might not mixing what is mine with something that is not mine just as easily mean that I lose what is mine? (If I own some salt, and put it into a lake, I don't make all the water in the lake mine.) There is no good answer to this challenge to Locke, or at least, none that shows the existence of a natural right to property. Nor is the requirement that when we appropriate objects from nature, we leave enough for others, one that can be satisfied today. The best justification of a right to private property is that we will all be better of if we recognise such a right. But if it is the common good that justifies the recognition of a right to private property, then the common good can also set limits to that right.

Now consider a modern society based on private property and free enterprise. Instead of gathering berries, I work for a large corporation that makes automobiles, much appreciated all over the world by those who can afford them. The corporation's stock is listed on the national stock exchange, and it financed its modern factory by issuing bonds. For my labour, the corporation pays me a wage, on which I pay taxes. Let's say my wages are $1000 a week, and from that I pay $200 in taxes. If an opponent of this rate of tax were to point to the $1000 cheque and say 'It's your money!' that claim would be even more difficult to defend than the parallel claim about the berries. For the corporation could not make its cars without a legal system that fosters and protects mining rights, private ownership of land, an accepted currency, systems of transport, the production and sale of energy, the existence of an educated labour force, corporate oversight, the protection of patents and the prevention of monopolies, judicial resolution of disputes, national defence and the protection of trading routes. Even if it could make them, without security and at least a moderate degree of prosperity, few people would buy them. In other words, without taxes, and the system of regulation that could not exist without taxes, the corporation would not be able to pay me $1000 a week—and if, somehow, I did get paid, the money would be of little value because I could not be secure in my ownership of anything I bought with it.
Herbert Simon, a Nobel Prize winning economist, has estimated the proportion of income in wealthy countries that is the result of social capital—including technology and organisational and governmental skills—rather than individual effort. Given the enormous differences between average incomes in rich and poor countries which cannot be explained by differences in effort he suggests that social capital is probably responsible for or at least 90 per cent of income in wealthy societies like the United States. So for affluent countries, he argues, 'On moral grounds, then, we could argue for a flat income tax of 90 per cent to return that wealth to its real owners'. This moral argument does not make allowance for the effects of such a tax on incentives. That, Simon thinks, is a question to be settled by experimentation and observation, not by philosophical debate. But the argument that people in rich countries earn by individual productivity, unaided by social capital, only a small proportion of their gross income, and that it may be legitimate to impose very high rates of tax, remains.

The conclusion to draw is that, if we put aside utopian fantasies that have no relevance to the real world, it makes nonsense to talk of the money you would have if the government did not levy taxes. A system of government is conceptually prior to property rights—and a system of government requires taxation. Oliver Wendell Holmes, the great Supreme Court judge, is often quoted as saying, 'Taxes are the price we pay for civilisation.' And without civilisation, he might have added, you would have no money. Especially in a complex modern society, there is no way of sorting out what your property entitlements would be, if there were no government and no taxes. Bush's tag line, 'It's your money', rests, as Murphy and Nagel point out, on a notion of a pretax distribution of resources that is 'deeply incoherent'.

Simon made his (economics) reputation in the field of behavioural economics, and particularly with his analysis of decision-making processes. He emphasised that decisions are taken in a complex universe, poorly known and uncertain. More generally, he insisted on the limited nature of rationality, and specifically opposed the 'rationality' ascribed to individual actors in neoclassical economics. His work led, on the one hand, to the rejection of theories based on simplistic hypotheses of economic agents maximising an objective function in a certain world (i.e. most contemporary economics); and, on the other hand, to renewed analysis of organisations and markets.)

Posted on October 1, 2004 04:01 PM | TrackBack