The Sociology of Taxation

There can be no doubt, then, that taxes invariably reduce production and with this the consumer’s standard of living. Whichever way things are put, there is no escaping the conclusion that taxation is a means of obstructing the formation of wealth and thereby creating relative impoverishment.

This brings me to my second subject: the sociology of taxation. If taxation is an instrument for the destruction of wealth-formation, then the question immediately becomes pressing of how it can be explained that there is taxation; that there is ever more of it; that we have experienced, in particular during the last hundred years, a steady increase not just in the absolute but also in the relative level of taxation; and that the institutions which lead the way in this process, the tax-states of the Western World, have simultaneously assumed ever more powerful positions in the arena of international politics and increasingly dominate the rest of the world.

With these questions one leaves the realm of economic theory. Economics answers the question “What is the consequence if taxation is introduced?” It deduces its answer from an understanding of the meaning of action and the meaning of taxation as a particular type of action. Why there is taxation is the subject matter of psychology, history, or sociology. Economics, or rather praxeology, recognizes that all actions are determined by ideas, correct or incorrect, good or bad. But it does not attempt to explain what these ideas are and how people come to hold or change them. Rather, it assumes them to be given and aims at explaining the logical consequences that flow from acting upon them, whatever they are. History and sociology ask what these ideas are, how people come to entertain them, and why they act the way they do.16

On a highly abstract level the answer to the question why there is steadily increasing taxation is this: The root cause for this is a slow but dramatic change in the idea of justice that has taken place in public opinion.

Let me explain. One can acquire property either through homesteading, production, and contracting, or else through the expropriation and exploitation of homesteaders, producers, or contractors. There are no other ways.17 Both methods are natural to mankind. Alongside production and contracting there has always been a process of nonproductive and noncontractual property acquisitions. Just as productive enterprises can develop into firms and corporations, so can the business of expropriating and exploiting occur on a larger scale and develop into governments and states.[18] That taxation as such exists and that there is the drive toward increased taxation should hardly come as a surprise. For the idea of nonproductive or noncontractual appropriations is almost as old as the idea of productive ones, and everyone — the exploiter certainly no less than the producer — prefers a higher income to a lower one.

The decisive question is this: what controls and constrains the size and growth of such a business?

It should be clear that the constraints on the size of firms in the business of expropriating producers and contractors are of a categorically different nature than those limiting the size of firms engaged in productive exchanges. Contrary to the claim of the public choice school, government and private firms do not do essentially the same sort of business. They are engaged in categorically different types of operations.[19]

The size of a productive enterprise is constrained on the one hand by consumer demand (which imposes a definite limit on the total revenue attainable), and on the other hand by the competition of other producers, which continuously forces each firm to operate with the lowest possible costs if it wishes to stay in business. For such an enterprise to grow in size the most urgent consumer wants must be served in the most efficient ways. Nothing but voluntary consumer purchases support its size.

The constraints on the other type of firm, of government or the state, are altogether different. For one thing, it is absurd to say that its size is determined by demand in the same sense as the size of a private firm is determined by demand. One cannot say, by any stretch of the imagination, that the homesteaders, the producers, and the contractors who must surrender part of their assets to a government have demanded such a service. Instead, they must be coerced into accepting it, and this is conclusive proof of the fact that the service is not actually in demand at all. Hence, demand cannot be considered as a limit on the size of government. Insofar as it grows, the state grows by acting in open contradiction to demand.

The state is also not in the same way constrained by competition as is a productive firm. Unlike such a firm, the state must not keep its cost of operation at a minimum but can operate at above-minimum costs because it is able to shift its higher costs onto competitors by taxing or regulating their behavior. Thus, the size of the state also cannot be considered as constrained by cost competition. Insofar as it grows, it does so in spite of the fact that it is not cost-efficient.

This, however, is not to say that the size of government is not constrained at all and that the historical fluctuations in the size of states are mere random walks. It only states that the constraints on the firm “government” must be fundamentally different.

Instead of being constrained by cost and demand conditions, the growth of an exploitative firm is constrained by public opinion:[20] It is not voluntarily supported, but by its very nature employs coercion. On the other side of the same coin, coercion implies creating victims, and victims are not supporters but active or passive resisters of a firm’s size. It is conceivable that this resistance can be lastingly broken by force in the case of one man, or one group of men, exploiting one or maybe two or three others, or another group of roughly the same size. It is inconceivable, however, to imagine that force alone can account for the breaking down of resistance in the actually familiar case of small minorities operating their business of expropriating and exploiting populations tens, hundreds, or thousands of times their size.[21] For this to happen, such a firm must have public support in addition to its coercive force.

A majority of the population must accept its operations as legitimate. This acceptance can range from active enthusiasm to passive resignation. But there must be acceptance in the sense that a majority must have given up the idea of actively or passively resisting any attempt to enforce nonproductive and noncontractual property acquisitions. Instead of displaying outrage over such actions, of showing contempt for everyone who engages in them, and of doing nothing to help make them successful (not to mention actively trying to obstruct them), a majority must actively or passively support them. Only in light of this can it be explained how the few can govern the many. State-supportive public opinion must counterbalance the resistance of victimized property owners to the extent that active resistance appears futile.

The state of public opinion also imposes a constraint on the size of the state in another respect. Every firm in the large-scale business of property expropriation must naturally aim to be a monopolist in a definite territory, for one can only prosper in such a business so long as there is something that can be expropriated. However, if competition were allowed in the business of expropriating, there would obviously be nothing left to take. Hence, in order to stay in business, one must be a monopolist.

Even if there is no internal competition, competition between governments operating in different territories still exists, and it is this competition that imposes severe limits on the size of government. On the one hand, it opens up the possibility that people may vote with their feet against a government and leave its territory if they perceive other territories as offering less exploitative living conditions. Naturally, each state must see this as a crucial problem, for it literally lives off a population, and any population loss is thus a loss of potential state-income.[22] Again, the state of public opinion is of utmost importance for maintaining exploitative rule. Only if the state succeeds in generating the impression in the general public that that state’s own territory compares favorably, or at least tolerably well with others will it be able to secure and expand its position.

Public opinion also plays a decisive role in the case of interstate aggression. While not a logical necessity, the nature of a state as an exploitative enterprise still makes it highly likely (not the least because of the just addressed problem of population movements) that it will become engaged in aggression against a “foreign” territory, or that it must defend itself against such aggression from other states.[23] Moreover, in order to emerge successfully from such interstate wars or warlike actions, a state must be in command of sufficient (in relative terms) economic resources that alone make its actions sustainable. However, these resources can only be provided by a productive population. Thus, to secure the means necessary to win wars and avoid being confronted with slackening productive outputs while at war, public opinion again turns out to be the decisive variable controlling the size of government. Only if popular support for the state’s war exists can it be sustained and possibly won.

Finally, the state of public opinion limits the size of government in yet a third way. While the state maintains its position vis-à-vis the exploited population through coercion and the successful management of public opinion, to maintain its own internal order, which regulates the relationships between the various branches of government and its employees, there is nothing else at its disposal but public opinion, for clearly, no one outside the state exists who could enforce its internal rules upon it. Rather, the enforcement must be accomplished exclusively by means of supportive public opinion among state employees themselves in the various branches of government.[24] That is, the president cannot coerce the general to go to war — in fact, the greater physical strength would probably be on the general’s side; and the general in turn cannot coerce his soldiers to do the fighting and killing — in fact, they could smash him anytime.

President and general can only succeed because of favorable intrastate public opinion, and only insofar as the overwhelming majority of the state employees at least passively supports their actions as legitimate. If, in the various branches of government, a large majority of them were strictly opposed to the enforcement of presidential policy, it could not be put into action successfully. The general who thinks most of his troops consider the war illegitimate or who thinks that the Congress, the IRS, the large majority of public educators and the so-called social services regard such actions as outrageous and to be openly opposed, would face an impossible task even if he himself supported the presidential command.[25]

With public opinion rather than demand and cost conditions thus identified as the constraining force on the size of government, I return to my original explanation of the phenomenon of ever-increasing taxation as “simply” a change in prevailing ideas.

If it is public opinion that ultimately limits the size of an exploitative firm, then an explanation of its growth in purely ideological terms is justified. Indeed, any other explanation, not in terms of ideological changes but of changes in “objective” conditions must be considered wrong. The size of government does not increase because of any objective causes over which ideas have no control and certainly not because there is a demand for it. It grows because the ideas that prevail in public opinion of what is just and what is wrong have changed. What once was regarded by public opinion as an outrage, to be treated and dealt with as such, has become increasingly accepted as legitimate.

What has happened regarding the general public’s conception of justice?[26]

In the aftermath of the fall of the Roman Empire, Western Europe gradually fell into a highly anarchic system of territories ruled by small-scale feudal governments. Facilitated by this international anarchy, which tended to reduce each individual government’s internal power and ease population movements,[27] and nourished by the ideology of natural law and natural rights, which emerged as an increasingly powerful theory within the intellectual elite of the Catholic Church, man’s unmistakable instinct that only private property is compatible with one’s nature as a rational being took effect.[28] Small centers developed where governmental power had been whittled away to a degree heretofore unknown: the cities of northern Italy, most notably Venice, those of the Hanseatic League, such as Lübeck and Hamburg, and those of Flanders and the Low Countries, in particular Antwerp and Amsterdam. There, the feudal ideas of bondage, of servitude, and of a hierarchically stratified society of rigidly separated classes was supplanted by public opinion that instead supported freedom, equality, property rights, and contractual relations. This public opinion steadily gained momentum with a continuous influx of new population, inspired by similar ideas and attracted by the unrivaled prosperity that freedom was proving itself capable of producing.[29]

However, the ideas of human rationality, freedom, and private property were not yet widespread enough. Rooted only in a few dispersed areas, the more or less distant feudal powers that naturally recognized such developments as a threat to their own stability could once again reassemble strength. By consolidating their territories in a long process of interfeudal struggles and warfare into large-scale states and thereby concentrating and centralizing their forces, they were able to succeed in crushing the competition of the idea of freedom blossoming in just a few places and reimpose their exploitative rule over such areas with increased strength. The age of absolutism had set in, and with it the age of a feudal super-power, the monarchy, which successfully centralized the system of feudal exploitation over territories that for the first time reached the size of familiar modern nation states. With absolutism taking hold, the competitive territories of free cities were again forced into economic decline and stagnation, which in some cases lasted for centuries.[30]

Yet this victory did not defeat the ideas of freedom and private property. On the contrary, these ideas found ever more powerful expression and increasingly inspired public opinion. Influenced by the continuously advanced natural rights tradition, another secularized intellectual tradition emerged and captivated minds: The tradition of what later became known as classical liberalism and was even more decisively centered around the notion of individual freedom and property and devoted to its intellectual justification.[31] In addition, stimulated by the recent experiences of unrivaled prosperity achieved under conditions of freedom and contractualism, the development of economic thinking took great strides. The then orthodox statist doctrines of mercantilism, cameralism, and Polizeiwissenschaft became intellectually demolished by a swelling number of new political economists who systematically explained, with great thoroughness and comprehensiveness, the indispensable role of private property and contractualism for the process of production and wealth formation and who accordingly hailed a policy of radical laissez-faire.[32]

From about 1700 onward, public opinion was captivated by these ideas to such an extent that revolutionary conditions emerged within the absolutist monarchies in Western Europe. England had already gone through a number of revolutions during the seventeenth century that severely shattered the powers of the absolutist state. The eighteenth century ended with the cataclysmic events of the American and French revolutions. Then until about the mid-nineteenth century a constant series of upheavals gradually stripped away governmental exploitation to an all-time low all over Western Europe.

The idea that had conquered public opinion and that had made this reduction of governmental power possible was that individual freedom and private property are just, self-evident, natural, inviolable and holy, and that any invader of such rights, a governmental agent no less (or even more so) than a private offender, should be regarded and treated as a contemptuous outcast.

With each successful step towards liberation, the movement grew stronger. In addition, the so-called Industrial Revolution that had been ushered in by these ideological changes and that had brought about unheard of economic growth rates, sustaining for the first time a steadily increasing population and gradually but continuously raising the general standard of living, created an almost unbounded optimism.[33] To be sure, in Western Europe there was still plenty of feudal and absolutist despotism left even during the first half of the nineteenth century when the ideology of freedom and private property and of anti-statist vigilance reached its highest level of popularity, but progress toward an ever farther-reaching erosion of the exploitative powers of government and toward freedom and economic prosperity seemed almost unstoppable.[34] In addition, there now existed an independent America, free of a feudal past and with hardly any government at all, that assumed a role similar to that of the free cities of the middle ages: of serving as a source of ideological inspiration and a center of attraction but on a much larger scale.[35]

Today, little is left of this ethic of private property and its anti-government vigilance. Although they now take place on a much grander scale, governmental appropriations of private property owners are overwhelmingly regarded as legitimate. There is no longer a general public opinion that regards government as an antisocial institution based on coercion and unjust property acquisitions, to be opposed and ridiculed everywhere and at all times on principled grounds. No longer is it generally regarded as morally despicable to propagate or, even worse, to actively participate in the enforcement of acts of expropriation, and no longer is it the general opinion that one would not have any private dealings whatsoever with people who engaged in such activities.

On the contrary, instead of being laughed off the stage or met with open hostility or passive indignation, such people are respected as decent and honest men. The politician who actively supports a continuation of the ongoing system of non-contractual property taxation and regulation or who even demands its expansion is treated everywhere with respect, rather than contempt. The intellectual who justifies taxation and regulation receives recognition as a deep and profound thinker in the public eye, instead of being exposed as an intellectual fraud. The IRS agent is regarded as a man doing a job just as legitimate as yours and mine, and not as an outcast that no one wishes to have as a relative, friend, or neighbor.

How could government accomplish such a feat and bring about a change in public opinion that removed the former constraint on its size and instead allowed (and still allows) it to grow in absolute as well as relative terms?[36]

There can be no doubt that the key element in this turn-around of public opinion that started to take hold in Western Europe around the mid-nineteenth century, around the turn of this century in the United States, and then at a steadily accelerating pace everywhere after World War I[37] has been the emergence of attractive new — implicitly or explicitly — statist ideologies.

In fact, states have always been aware of the decisive importance of state-supportive ideologies for stabilizing and increasing their exploitative grip on a population, and in this knowledge they have always made attempts to exert their control, above all, over the institutions of education. Even at their weakest, it should appear natural to see them give particular attention to “correct” ideological instruction and to concentrate whatever is left of their power on the destruction of all independent institutions of learning and their take-over into the states’ monopolistic hands. Accordingly, in order to regain the upper hand in the permanent struggle of ideas, since the mid-nineteenth century a steady process of nationalizing or socializing schools and universities (with one of the most recent examples being the unsuccessful attempt by the Mitterand government to crush France’s Catholic schools) and lengthening the period of compulsory schooling has taken place.[38]

Yet pointing out this and the related facts of an increasingly close alliance between state and intellectuals[39] and the latter’s rewriting history in line with statist ideologies merely puts the problem into focus. Indeed, when one hears about the state’s take-over of the system of education, must one not immediately ask how it could succeed in doing so if public opinion were really committed to a private property ethic?! Such a take-over presupposes a change in public opinion. How, then, was this accomplished, especially in view of the fact that such a change implies the acceptance of manifestly wrong ideas and thus can hardly be explained as an endogenously motivated process of intellectual advancement?

It would seem that such a change toward falsehood requires the systematic introduction of exogenous forces: A true ideology is capable of supporting itself merely by virtue of being true. A false one needs reinforcement by outside influences with a clear-cut, tangible impact on people in order to be capable of generating and supporting a climate of intellectual corruption.

It is to these tangible, ideology-supporting and reinforcing factors that one must turn to understand the decline of the private property ethic and the corresponding rise of statism during the last 100 to 150 years.[40]

I will discuss four such factors and explain their corruptive function for public opinion. All are changes in the organizational structure of the state. The first one is the state’s structural adjustment from a military or police state toward a redistributive one. (The prototype of such an organizational change is the often copied Prussia under Bismarck.) Instead of a governmental structure that is characterized by a small ruling class that uses its exploitatively appropriated resources almost exclusively for pure governmental consumption or for the maintenance of its military and police forces, states now increasingly engage in a policy of actively buying support among the people outside of the governmental apparatus itself. Through a system of transfer payments, grants of privilege to special clients, and governmental production and provision of certain “civilian” goods and services (as for instance education), the population is made increasingly dependent on the continuation of state rule. People outside the governmental apparatus increasingly have a tangible financial stake in its existence and would be harmed, at least in the short run and in parts of their existence, if the government were to lose power. Quite naturally, this dependency tends to reduce resistance and increase support. Exploitation may still seem reprehensible, but it is less so if one also happens to be someone who at least on some fronts is a legal benefactor of such actions.

In recognition of this corruptive influence on public opinion, then, states increasingly become engaged in redistributive policies. The share of government expenditure for civilian spending compared to military spending and pure government consumption increases. The latter expenditures can still increase steadily in absolute terms, and they have indeed done so practically everywhere to this day, but they lose importance everywhere relative to expenditures allocated to redistributionist measures.[41]

Depending on the particular conditions of public opinion, such redistributionist policies typically simultaneously assume one of two forms and frequently, as in the case of Prussia both: On the one hand the form of Sozialpolitik, of so-called welfare reforms, generally involving an income redistribution from the “haves” among producers to the “have-nots,” and on the other hand that of business cartelizations and regulations, generally implying a redistribution from productive “have-nots” or “not-yet-haves” to the established “already-haves.” With the introduction of a Sozialpolitik an appeal is made to egalitarian sentiments and a substantial part of it can be corrupted into accepting state exploitation in exchange for the state’s enforcement of “social justice.” With the introduction of a policy of business cartelization and regulation one appeals to conservative feelings, particularly among the bourgeois establishment, and it can be brought to accept the state’s noncontractual appropriations in exchange for its commitment to the preservation of a status quo. Egalitarian socialism and conservatism are thus transformed into statist ideologies. They compete with each other in the sense that they advocate somewhat different patterns of redistribution, but their competitive efforts converge and integrate in joint support for statism and statist redistribution.

The second structural adjustment aiding in the roll-back of the private property ethic is a change in states’ constitutions. In response to the challenge of the private property ethic, states change their constitutions from a monarchic autocracy or an aristocratic oligarchy to the now familiar type of a so-called liberal democracy.[42] Instead of being an institution which restricts entry into itself and/or into particular governmental positions through a system of caste or class legislation, a state constitution is adopted which in principle opens every government position to everyone and grants equal and universal rights of participation and competition in the making of state-policy. Everyone — not just the “nobility” — now receives a legal stake in the state, and resistance to its rule tends to reduce accordingly. While exploitation and expropriation may have seemed bad, they seem much less so, mankind being what it is, once one is given the chance to participate in its process, and while the ambitions of potential power-wielders within the general public previously must have been frustrated, now there is an institutionalized outlet for them.

In paying the price of democratizing its constitution, the state corrupts substantial parts of public opinion into gradually losing sight of the fundamental fact that an act of exploitation and expropriation is in all appearances and consequences the same no matter how and by whom it is decided and enforced. It lures them instead into accepting the view that such acts are legitimate as long as one is guaranteed a say over them somewhere along the line and could somehow somewhere participate in the selection of the state-personnel.[43]

This corruptive function of democratization as a stimulus for the resurgence of state power has been described with great perceptiveness by Bertrand de Jouvenel:

From the twelfth to the eighteenth century governmental authority grew continuously. The process was understood by all who saw it happening; it stirred them into incessant protest and to violent reaction. In later times its growth has continued at an accelerated pace, and its extension has brought a corresponding extension of war. And now we no longer understand the process, we no longer protest, we no longer react. The quiescence of ours is a new thing, for which Power has to thank the smoke-screen in which it has wrapped itself. Formerly it could be seen, manifest in the person of the king, who did not disclaim being the master he was, and in whom human passions were discernible. Now, masked in anonymity, it claims to have no existence of its own, and to be but the impersonal and passionless instrument of the general will. But that is clearly a fiction…. Today as always Power is in the hands of a group of men who control the power house…. All that has changed is that it has now been made easy for the ruled to change the personnel of the leading wielders of Power. Viewed from one angle, this weakens Power, because the wills that control a society’s life can, at the society’s pleasure, be replaced by other wills, in which it feels more confidence. But, by opening the prospect of Power to all the ambitious talents, this arrangement makes the extension of Power much easier. Under the ancien régime, society’s moving spirits, who had, as they knew, no chance of a share of Power, were quick to denounce its smallest encroachment. Now, on the other hand, when everyone is potentially a minister, no one is concerned to cut down an office to which he aspires one day himself, or to put sand in a machine which he means to use himself when his turn comes. Hence it is that there is in the political circles of a modern society a wide complicity in the extension of Power.[44]

The other two adjustments made by the state in order to overcome its lowest point of popularity and rise to its present size have to do with interstate relations. For one thing, as explained earlier and just mentioned again by de Jouvenel, states qua monopolistic exploiters tend to get involved in interstate warfare. With their internal exploitative power weak, the desire to compensate for these losses by external expansion rises. However, this desire is frustrated by a lack of internal support. The support is created through a policy of redistribution, industrial regulation, and democratization. (In fact, states that do not adopt these measures are bound to lose in any long-lasting warfare!) It is this support that is used as a springboard for a realization of the state’s expansionist desires.

This newfound support takes advantage of the fact that redistribution, regulation, and democratization imply a greater tangible identification of the population with a specific state and thus almost automatically lead to an increase in protectionist if not open antagonistic attitudes toward “outsiders” and that in particular state-privileged producers are by nature hostile to “foreign” competition. This support is transformed by the state and its intellectual bodyguards into a frenzy of nationalism and provides the intellectual framework for the integration of socialist-egalitarian, conservative, and democratic sentiments.[45]

Backed by such nationalism, states begin on their expansionist course. For more than a century an almost uninterrupted series of wars and imperialist expeditions set in, each one more brutal and destructive than the previous one, with always greater involvement of the non-combative population, culminating in World War I and II but not ending with this. In the name of the socialist, conservative, or democratic nation, and by means of warfare, states have expanded their territories to sizes compared to which even the Roman Empire appears insignificant, and have actually wiped out or brought under foreign rule a steadily increasing number of culturally distinct nations.[46]

However, not only external expansion of state power is brought about by the ideology of nationalism. War as the natural outgrowth of nationalism is also the means of strengthening the state’s internal powers of exploitation and expropriation. Each war is also an internal emergency situation, and an emergency requires and seems to justify the acceptance of the state’s increasing its control over its own population. Such increased control gained through the creation of emergencies is reduced during peacetime, but it never sinks back to its pre-war levels. Rather, each successfully ended war (and only successful governments can survive) is used by the government and its intellectuals to propagate the idea that it was only because of nationalistic vigilance and expanded governmental powers that the “foreign aggressors” were crushed and one’s own country saved, and that this successful recipe must then be retained in order to be prepared for the next emergency. Led by the just proven “dominant” nationalism, each successful war ends with the attainment of a new peacetime high of governmental controls and thereby further strengthens a government’s appetite for implementing the next winnable international emergency.[47]

Each new period of peace means a higher level of governmental interference as compared with the previous one: internally in the form of increased restrictions on the range of choices that private property owners are allowed to make regarding their own property; and externally, as regards foreign relations, in the form of higher trade barriers and of increasingly severe restrictions on population movements (most notably on emigration and immigration). Not the least because it is based on increased discrimination against foreigners and foreign trade, any such peace contains the increased risk of the next international conflict, or pressures the affected governments into negotiating bi- or multilateral interstate-agreements aimed at cartelizing their respective power structures and thereby jointly exploiting and expropriating each other’s populations.[48]

Finally, the fourth adjustment is made necessary by the other three, and again because of the ongoing process of interstate competition, crises, and warfare. It is less of the state’s own making than are redistribution, democratization, and war-making — just as it is not of its own making that there is interstate-competition at all. Rather, in fashionable Hayekian terminology, it is the unintended consequence of the fact that short of one state’s domination of the entire world (which is, of course, every state’s dream!) the continued existence of other states keeps exerting a significant constraint on each state’s size and structure.

Whether intended or unintended, this structural adjustment must also be noted if one wishes to fully understand the development that has led to the present world of statism. It is also only by mentioning this adjustment that the question why it is specifically the tax-state that has risen to world dominance is finally answered.

It is easy enough to explain how through a series of nationalistic wars during the nineteenth and twentieth century the states of Western Europe and North America could come to dominate the rest of the world and leave their imprint upon it. Notwithstanding the presently booming cultural relativism, the reason for this is the simple fact that these states were the outgrowth of societies with a superior intellectual tradition — that of Western rationalism — with its central ideas of individual freedom and private property, and that this tradition had laid the foundation for the creation of economic wealth far exceeding that existing anywhere else. Because they parasitically drew on such superior economic wealth, it is not at all surprising that these states were then able to battle all others victoriously.

It is also obvious why with the remarkable exception of a number of Pacific countries most of these defeated and reconstituted non-Western states have to this day utterly failed to significantly improve their international stature or even match that of the Western nation states, and have in particular failed to do so after having reached political independence from Western imperialism. With no endogenous tradition of rationalism and liberalism to speak of, such states naturally felt inclined to imitate or adopt the “victorious” ideological imports of socialism, conservatism, democratism, and nationalism, the very ideologies to which these countries’ intellectual elite had been exposed almost exclusively during their studies at the universities of Oxford and Cambridge, London, Paris, Berlin, Harvard, and Columbia. As a matter of course, a brew of such each-and-all statist ideologies, unconstrained by a significant tradition of private property ethic, spells economic disaster, and such a fact more or less rules out any prominent role in international politics.[49]

Yet what — and it is the answer to this that is somewhat less obvious — if the Western states fight each other? What determines the success in these conflicts, and what is bound to cause defeat?

Naturally, redistribution, democratization, and nationalism cannot be cited again here, for assumedly these states have already adopted such policies in order to regain internal strength and prepare for interstate warfare in the first place. Rather, just as it is the relatively stronger tradition of private property ethic that is responsible for these states’ dominance over the non-Western world, so, ceteris paribus, is a relatively more liberal policy responsible for their long run success in the struggle for survival among the Western states themselves. Among them, those states which have adjusted their internal redistributionist policies so as to decrease the importance of a conservatively minded policy of economic regulations relative to that of socialistically inclined policy of taxation tend to outstrip their competitors in the arena of international politics.

Regulations through which states either compel or prohibit certain exchanges between two or more private persons as well as acts of taxation are invasions of private property rights. In pursuing both types of redistributionist policies, the states’ representatives increase their own income at the expense of a corresponding income reduction for someone else. However, while by no means less destructive of productive output than taxation, regulations have the peculiar characteristic of requiring the state’s control over economic resources in order to become enforceable without simultaneously increasing the resources at its disposal. In practice, this is to say that regulations require the state’s command over and expenditure of taxes, yet regulations produce no monetary income for the state but only income in the form of the satisfaction of pure power lust (as when A, for no material gains of his own, outlaws that B and C engage in mutually beneficial trade with each other).

On the other hand, taxation and a redistribution of tax revenue according to the principle “from Peter to Paul” increases the economic means at a government’s disposal at least by its own “handling-charge” for the act of redistribution but may produce no other satisfaction (apart from the increased appreciation by the Pauls) than that of actually possessing certain economic resources and being able to expend them according to its own whims.[50]

Clearly, interstate conflicts and war require economic means, and even more resources the more frequent and longer-lasting such events are. In fact, those states which control more ample economic resources expendable on a war-effort will ceteris paribus tend to be victorious.

Hence, since a policy of taxation, and taxation without regulation, yields a higher monetary return to the state than a policy of regulation, and of taxation cum regulation, states must willy-nilly move in the direction of a comparatively deregulated economy and a comparatively pure tax-state in order to avoid international defeat.

It is this relative advantage in international politics of the tax-state over the regulatory state that explains the rise of the United States to the rank of the world’s foremost imperial power.[51] It also explains the defeat of such highly regulatory states as Nazi-Germany and Fascist-Italy, the relative weakness of the Soviet Union and its allies as compared to the NATO-alliance, and the recent simultaneous moves toward economic deregulation and increased levels of imperialist aggression of the Reagan and, to a lesser extent, the Thatcher governments.

This concludes my praxeologically informed sociological account of the evolution of the present statist world and the rise, in particular, of the modern tax-state. Based on such an understanding let me end with just a few brief remarks of how it is possible to overcome the tax-state.

It cannot be fought by a simple boycott, as could a private business, because an institution devoted to the business of expropriating and exploiting does not respect the negative verdict revealed by boycotts. It also cannot simply be fought by countering its aggression with defensive violence because the state’s aggression is supported by public opinion. Thus, overcoming it depends on a change in public opinion.

The private property ethic — the idea that private property is a just institution and the only means of creating economic prosperity, and the view of the state as an outcast institution that is destructive of wealth formation —  must be revived and must again inspire people’s minds and hearts. With the rampant statist ideologies of nationalism, democratism, and redistributionism (of either the socialist or the conservative kind), this may sometimes appear hopeless. However, ideas have changed in the past and can change again in the future. In fact, ideas can change instantaneously.52 Moreover, the idea of private property has one decisive attraction: it, and only it, is a true reflection of man’s nature as a rational being.53

This article is excerpted from Chapter Two of Hoppe’s Economics and Ethics of Private Property, published by the Mises Institute.

[18] On the theory of the state as developed in the following see — in addition to the works cited in note 17 — in particular Herbert Spencer, Social Statics (New York: Schalkenbach Foundation, 1970); Auberon Herbert, The Right and Wrong of Compulsion by the State (Indianapolis: Liberty Fund, 1978); Albert J. Nock, Our Enemy, the State (Tampa, Fla.: Hallberg Publishing, 1983); Murray N. Rothbard, For a New Liberty (New York: Macmillan, 1978); idem, The Ethics of Liberty (Atlantic Highlands, N.J.: Humanities Press, 1982); Hans-Hermann Hoppe, Eigentum, Anarchie und Staat (Opladen: Westdeutscher Verlag, 1987); Anthony de Jasay, The State (Oxford: Blackwell, 1985).

[19] This central idea of the public choice school has been expressed by its foremost representatives as follows:

Both the economic relation and the political relation represent co-operation on the part of two or more individuals. The market and the state are both devices through which co-operation is organized and made possible. Men co-operate through exchange of goods and services in organized markets, and such co-operation implies mutual gain. The individual enters into an exchange relationship in which he furthers his own interest by providing some product or service that is of direct benefit to the individual on the other side of the transaction. At base, political or collective action under the individualistic view of the State is much the same. Two or more individuals find it mutually advantageous to join forces to accomplish certain common purposes. In a very real sense, they “exchange” and devote resources to the construction of the common good. (James M. Buchanan and Gordon Tullock, The Calculus of Consent [Ann Arbor: University of Michigan Press], p. 192)

Surely, the most amazing thing about such a “new theory of politics” is that anyone takes it seriously. Remarks Joseph A. Schumpeter on such views:

The theory which construes taxes on the analogy of club dues or the purchase of the service of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind. (Capitalism, Socialism and Democracy [New York: Harper, 1942], p. 198)

And H.L. Mencken has this to say regarding a thesis such as Buchanan’s and Tullock’s:

The average man, whatever his errors otherwise, at least sees clearly that government is something lying outside him and outside the generality of his fellow men — that it is a separate, independent and often hostile power, only partly under his control, and capable of doing him great harm…. Is it a fact of no significance that robbing the government is everywhere regarded as a crime of less magnitude than robbing an individual, or even a corporation? … When a private citizen is robbed a worthy man is deprived of the fruits of his industry and thrift; when the government is robbed the worst that happens is that certain rogues and loafers have less money to play with than they had before. The notion that they have earned that money is never entertained; to most sensible men it would seem ludicrous. They are simply rascals who, by accidents of law, have a somewhat dubious right to a share in the earnings of their fellow men. When that share is diminished by private enterprise the business is, on the whole, far more laudable than not. (A Mencken Chrestomathy [New York: Vintage Books, 1949] pp. 146–47)

[20] See on this also Murray N. Rothbard, “The Anatomy of the State” in idem, Egalitarianism as a Revolt Against Nature and Other Essays (Washington, D.C.: Libertarian Review Press, 1974), esp. pp. 37–42.

[21] It might be thought that the government could accomplish such a feat by merely improving its weaponry: by threatening with atomic bombs instead of with guns and rifles, so to speak. However, since realistically one must assume that the technological know-how of such improved weaponry can hardly be kept secret, especially if it is in fact applied, then with the state’s improved instruments for instilling fear the victims’ ways amid means of resisting improve as well. Hence, such advances must be ruled out as an explanation of what must be explained.

[22] Witness the all-too-numerous states that go so far as to shoot everyone down without mercy who has committed no other sin than that of trying to leave a territory and move elsewhere!

[23] On the intimate relationship between state and war see the important study by Ekkehart Krippendorff, Staat und Krieg (Frankfurt/M.: Suhrkamp, 1985); also Charles Tilly, “War Making and State Making as Organized Crime” in Peter Evans et al., eds., Bringing the State Back In (Cambridge: Cambridge University Press, 1985).

[24] This insight (which refutes all talk about the impossibility of anarchism in showing that intra-governmental relations are, in fact, a case of — political — anarchy) has been explained in a highly important article by Alfred G. Cuzán, “Do We Ever Really Get Out of Anarchy,” Journal of Libertarian Studies 3, no. 2 (1979).

Wherever earthly governments are established or exist, anarchy is officially prohibited for all members of society, usually referred to as subjects or citizens. They can no longer relate to each other on their own terms…. Rather, all members of society must accept an external “third party” — a government — into their relationships, a third party with the coercive powers to enforce its judgments and punish detractors…. However, such a “third party” arrangement for society is non-existent among those who exercise the power of government themselves. In other words, there is no “third party” to make and enforce judgments among the individual members who make up the third party itself. The rulers still remain in a state of anarchy vis-à-vis each other. They settle disputes among themselves, without regard for a Government (an entity outside themselves). Anarchy still exists. Only whereas without government it was market or natural anarchy, it is now a political anarchy, an anarchy inside power. (Cuzán, pp. 152–53)

[25] One of the classic expositors of this idea is David Hume. In his essay, “Of The First Principles of Government,” he writes:

Nothing appears more surprising to those, who consider human affairs with a philosophical eye, than the easiness with which the many are governed by the few; and the implicit submission, with which men resign their own sentiments and passions to those of their rulers. When we enquire by what means this wonder is effected, we shall find, that as force is always on the side of the governed, the governors have nothing to support them but opinion. It is therefore, on opinion only that government is founded; and this maxim extends to the most despotic and most military governments, as well as to the most free and most popular. The soldan of Egypt, or the emperor of Rome, might drive his harmless subjects, like brute beasts, against their sentiments and inclination: but he must, at least, have led his mamalukes, or praetorian bands, like men, by their opinion. (Essays, Moral, Political and Literary , p. 19)

[26] See on the following in particular also Murray N. Rothbard, “Left and Right: The Prospects for Liberty” in idem, Egalitarianism as a Revolt Against Nature and Other Essays.

[27] The importance of international anarchy for the erosion of feudalism and the rise of capitalism has been justly emphasized by Jean Baechler, The Origins of Capitalism (New York: St. Martin’s Press, 1976), esp. chap. 7. He writes: “The constant expansion of the market, both in extensiveness and in intensity, was the result of an absence of a political order extending over the whole of Western Europe” (p. 73). “The expansion of capitalism owes its origin and raison d’etre to political anarchy…. Collectivism and state management have only succeeded in school textbooks” (p. 77).

All power tends toward the absolute. If it is not absolute, this is because some kind of limitations have come into play … those in the positions of power at the center ceaselessly tried to erode these limitations. They never succeeded, and for the reason that also seems to me to be tied to the international system: a limitation of power to act externally and the constant threat of foreign assault (the two characteristics of a multi-polar system) imply that power is also limited internally and must rely on autonomous centers of decision-making and so may use them only sparingly. (p. 78)

[28] The central characteristic of the modern natural law tradition (as represented by St. Thomas Aquinas, Luis de Molina, Francisco Suarez, and the late sixteenth century Spanish Scholastics, and the Protestant Hugo Grotius) was its thorough rationalism: its idea of universally valid, absolute, and immutable principles of human conduct that are — ultimately independent of any theological beliefs — to be discovered by and founded in and reason alone. “Man,” writes Frederick C. Copleston, [Aquinas (London: Penguin Books, 1955), pp. 213–14]

cannot read, as it were, the mind of God … (but) he can discern the fundamental tendencies and needs of his nature, and by reflecting on them he can come to a knowledge of the natural moral law…. Every man possesses … the light of reason whereby he can reflect … and promulgate to himself the natural law, which is the totality of the universal precepts of dictates of right reason concerning the good which is to be pursued and the evil which is to be shunned.

On the origin and development of the natural rights doctrine and its idea of justice and property (including all the statist failings and slips of its aforementioned heroes) see Richard Tuck, Natural Rights Theories (Cambridge: Cambridge University Press, 1979); on the revolutionary character of the idea of natural law see Lord (John) Acton, Essays on Freedom and Power (Glencoe, Ill.: Free Press. 1948); as an eminent contemporary natural rights philosopher see Henry Veatch, Human Rights (Baton Rouge: Louisiana State University Press, 1985).

[29] On the rise of the cities see C.M. Cipolla, Before the Industrial Revolution: European Society and Economy 1000–1700 (New York: Norton, 1980), chap. 4. Europe around 1000, writes Cipolla,

was poor and primitive … made up of numberless rural microcosms — the manors…. Society was dominated by a spirit of resignation, suspicion, and fear toward the outside world…. The arts, education, trade, production, and the division of labor were reduced to a minimal level. The use of money almost completely disappeared. The population was small, production meager, and poverty extreme…. The prevailing ideas reflected a brutal and superstitious society — fighting and praying were the only respectable activities…. Those who labored were regarded as despicable serfs…. In this depressed and depressing world, the rise of cities between the tenth and thirteenth centuries represented a new element which changed the course of history. (p. 144)

At the root of urban growth was a massive migratory movement. (p. 145)

The town was to the people of Europe from the eleventh to the thirteenth centuries what America was to Europeans in the nineteenth century. The town was the “frontier,” a new and dynamic world where people felt they could break their ties with an unpleasant past, where people hoped they could find opportunities for economic and social success, where sclerotic traditional institutions and discriminations no longer counted, and where there would be ample reward for initiative, daring, and industriousness (p. 146). In the feudal world, a vertical arrangement typically prevailed, where relations between men were dictated by the concepts of fief and service; investiture and homage; lord, vassal, and serf. In the cities, a horizontal arrangement emerged, characterized by cooperation among equals. (p. 148)

See also Henri Pirenne, Medieval Cities (Princeton, N.J.: Princeton University Press, 1952), chap. 5; Michael Tigar and Madeleine Levy, Law and the Rise of Capitalism (New York: Monthly Review Press, 1977).

[30] See on this Carolyn Webber and Aaron Wildavsky, A History of Taxation and Expenditure in the Western World (New York: Simon and Schuster, 1986), pp. 235–41; Pirenne, Medieval Cities, pp. 179–80, pp. 227f.

[31] As the outstanding champion of this tradition see John Locke, Two Treatises of Government, ed. Peter Laslett (Cambridge: Cambridge University Press, 1960).

[E]very man has a property in his own person. This nobody has any right to but himself. The labour of his body and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left in it, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature placed it in, it hath by his labour something annexed to it that excludes the common right of other men. For this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to. (p. 305)

See also Ernest K. Bramsted and K.J. Melhuish, eds., Western Liberalism (London: Longman, 1978).

[32] See on these developments of economic theory Marjorie Grice- Hutchinson, The School of Salamanca: Readings in Spanish Monetary History (Oxford: Clarendon Press, 1952); Raymond de Roover, Business, Banking, and Economic Thought (Chicago: University of Chicago Press, 1974); Murray N. Rothbard, “New Light on the Prehistory of the Austrian School” in Edwin Dolan, ed., The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976); on the outstanding contributions in particular of Richard Cantillon and A.R.J. Turgot see Journal of Libertarian Studies 7, no. 2 (1985) (which is devoted to Cantillon’s work) and Murray N. Rothbard, The Brilliance of Turgot (Auburn, Ala.: Ludwig von Mises Institute, Occasional Paper Series, 1986); see also Joseph A. Schumpeter, A History of Economic Analysis (New York: Oxford University Press, 1954).

[33] On the Industrial Revolution and its misinterpretation by the orthodox (school-book) historiography see F.A. Hayek, ed., Capitalism and the Historians (Chicago: University of Chicago Press, 1963).

[34] In fact, though the decline of liberalism began around the mid-nineteenth century, the optimism that it had created survived until the early twentieth century. Thus, John Maynard Keynes could write [The Economic Consequences of the Peace (London: Macmillan, 1919)]:

What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, convenience, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages…. But, most important of all, he [man] regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice. (pp. 6–7)

For a similar account see also J.P. Taylor, English History 1914–15 (Oxford: Clarendon Press, 1965), p. 1.

[35] Characterizing nineteenth-century America Robert Higgs (Crisis and Leviathan [New York: Oxford University Press, 1987]) writes:

There was a time, long ago, when the average American could go about his daily business hardly aware of the government — especially the federal government. As a farmer, merchant, or manufacturer, he could decide what, how, when, and where to produce and sell his goods, constrained by little more than market forces. Just think: no farm subsidies, price supports, or acreage controls; no Federal Trade Commission; no antitrust laws; no Interstate Commerce Commission. As an employer, employee, consumer, investor, lender, borrower, student, or teacher, he could proceed largely according to his own lights. Just think: no National Labor Relations Board; no federal consumer “protection” laws; no Securities and Exchange Commission; no Equal Employment Opportunity Commission; no Department of Health and Human Services. Lacking a central bank to issue national paper currency, people commonly used gold coins to make purchases. There were no general sales taxes, no Social Security taxes, no income taxes. Though governmental officials were as corrupt then as now — maybe more so — they had vastly less to be corrupt with. Private citizens spent about fifteen times more than all governments combined. (p. IX)

[36] On the following see in particular A.V. Dicey, Lectures on the Relation Between Law and Public Opinion in England (New Brunswick, N.J.: Transaction Books, 1981); Elie Halevy, A History of the English People in the 19th Century, 2 vols. (London: Benn, 1961); W.H. Greenleaf, The British Political Tradition, 3 vols. (London: Methuen, 1983–87); Arthur E. Ekirch, The Decline of American Liberalism (New York: Atheneum, 1976); Higgs, Crisis and Leviathan.

[37] On the worldwide excesses of statism since World War I see Paul Johnson, Modern Times: The World from the Twenties to the Eighties (New York: Harper and Row, 1983).

[38] On the relation between state and education see Murray N. Rothbard, Education, Free and Compulsory: The Individual’s Education (Wichita, Kans.: Center for Independent Education, 1972).

[39] On the relation between state and intellectuals see Julien Benda, The Treason of the Intellectuals (New York: Norton, 1969).

[40] On the following see in particular Hoppe, Eigentum, Anarchie, und Staat, chaps. 1, 5; idem, A Theory of Socialism and Capitalism, chap. 8.

[41] On this trend see Webber and Wildavsky, A History of Taxation and Expenditure in the Western World, pp. 588f.; on redistribution in general see also de Jasay, The State, chap. 4.

[42] On this trend see Reinhard Bendix, Kings or People (Berkeley: University of California Press, 1978).

[43] On the social psychology of democracy see Gaetano Mosca, The Ruling Class (New York: McGraw Hill, 1939); H.L. Mencken, Notes on Democracy (New York: Knopf, 1926); on the tendency of democratic rule to “degenerate” to oligarchic rule see Robert Michels, Zur Soziologie des Parteiwesens (Stuttgart: Kroener, 1957).

[44] Bertrand de Jouvenel, On Power (New York: Viking Press, 1949), pp. 9–10.

[45] On nationalism, imperialism, colonialism — and their incompatibility with classical liberalism — see Ludwig von Mises, Liberalism (San Francisco: Cobden Press, 1985); idem, Nation, State and Economy (New York: New York University Press, l983); Joseph A. Schumpeter, Imperialism and Social Classes (New York: World Publishing, 1955); Lance E. Davis and Robert A. Huttenback, Mammon and the Pursuit of Empire: The Political Economy of British Imperialism 1860 – 1912 (Cambridge: Cambridge University Press, 1986).

[46] See Krippendorff, Staat und Krieg; Johnson, Modern Times.

[47] This process is the central topic of Higgs, Crisis and Leviathan.

[48] The most vicious of such agreements is very likely that of restricting entry for noncriminal persons wanting to immigrate into a given territory — and the chance for those living in this territory to offer employment to them — and of extraditing them back to their home-countries.

[49] On the problem of the so-called Third World see Peter T. Bauer and B.S. Yamey, The Economics of Under-Developed Countries (London: Nisbet and Co., 1957); P.T. Bauer, Dissent on Development (Cambridge, Mass.: Harvard University Press, 1972); idem, Equality, The Third World and Economic Delusion (Cambridge, Mass.: Harvard University Press, 1981); Stanislav Andreski, The African Predicament (New York: Atherton Press, 1969); idem, Parasitism and Subversion (New York: Pantheon, 1966).

[50] On regulation and taxation as different forms of aggression against private property and their economics and sociology see Rothbard, Power and Market; Hoppe, A Theory of Socialism and Capitalism.

[51] On the imperialistic foreign policy of, in particular, the U.S. see Krippendorff, Staat und Krieg, chap. III, p. 1; and Rothbard, For a New Liberty, chap. 14.

• 16To make this distinction between economics and history or sociology is not to say, of course, that economics is of no importance for these latter disciplines. In fact, economics is indispensable for all other social sciences. While the reverse is not the case, economics can be developed and advanced without historical or sociological knowledge. The only consequence of doing so is that such economics would probably not be very interesting, as it would be written without consideration of real examples or instances of application (as if one were to write on the economics of taxation even though there had never been an actual example of it in all of history), for it would formulate what could not possibly happen in the social world, or what would have to happen provided that certain conditions were in fact fulfilled. Thus, any historical or sociological explanation is logically constrained by the laws as espoused by economic theory, and any account by a historian or sociologist in violation of these laws must be treated as ultimately confused. On the relationship between economic theory and history see also Ludwig von Mises, Theory and History (Auburn, Ala.: Ludwig von Mises Institute, 1985); Hans-Hermann Hoppe, Praxeology and Economic Science (Auburn, Ala.: Ludwig von Mises Institute, 1988).
• 17See on this also Franz Oppenheimer, The State (New York: Vanguard Press, 1914) esp. pp. 24–27; Rothbard, Power and Market, chap. 2; Hoppe, A Theory of Socialism and Capitalism, chap. 2.
• 52See on this also Etienne de la Boétie, The Politics of Obedience: The Discourse of Voluntary Servitude, ed. Murray N. Rothbard (New York: Free Life Editions, 1975). Resolve to serve no more, and you are at once freed. I do not ask that you place bands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great colossus whose pedestals have been pulled away, fall of his own weight and break into pieces. (pp. 52–53)
• 53On the — a prioristic — rational justification of the private property ethic see Hans-Hermann Hoppe, “From the Economics of Laissez Faire to the Ethics of Libertarianism,” in Walter Block and Llewellyn H. Rockwell, Jr., eds., Man, Economy, and Liberty: Essays in Honor of Murray N. Rothbard (Auburn, Ala.: Ludwig von Mises Institute, 1988); idem, “The Justice of Economic Efficiency,” Austrian Economics Newsletter (Winter, 1988); infra chaps. 8 and 9.