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NOTE XXXII. Confiscation and Redistribution

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Chapter 32. Confiscation and Redistribution

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1. The Philosophy of Confiscation

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Interventionism is guided by the idea that interfering with property rights does not affect the size of production.

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The most naive manifestation of this fallacy is presented by confiscatory interventionism.

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The yield of production activities is considered a given magnitude independent of the merely accidental arrangements of society's social order.

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The task of the government is seen as the fair distribution of this national income among the various members of society.

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The interventionists and the socialists contend that all commodities are turned out by a social process of production.

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When this process comes to an end, and its fruits ripen, a second social process, that

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of distribution of the yield, follows, and allots a share to each.

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The characteristic feature of the capitalist order is that the shares allotted are unequal.

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Some people, the entrepreneurs, the capitalists and the landowners, appropriate to themselves

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more than they should.

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Accordingly, the portions of other people are curtailed.

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Government should, by rights, expropriate the surplus of the privileged and distribute it among the underprivileged.

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Now, in the market economy, this alleged dualism of two independent processes, that of production and that of distribution, does not exist.

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There is only one process going on.

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Goods are not first produced and then distributed.

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There is no such thing as an appropriation of portions out of a stock of ownerless goods.

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The products come into existence as somebody's property.

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If one wants to distribute them, one must first confiscate them.

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It is certainly very easy for the governmental apparatus of compulsion and coercion to embark

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When the Vikings turned their backs upon a community

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of autarkic peasants whom they had plundered, the surviving victims began to work, to till

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the soil and to build again.

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When the pirates returned after some years, they again found things to seize.

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But capitalism cannot stand such reiterated predatory raids.

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Its capital accumulation and investments are founded upon the expectation that no such

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expropriation will occur.

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If this expectation is absent, people will prefer to consume their capital instead of

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and Safeguarding it for the expropriators.

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This is the inherent error of all plans that aim at combining private ownership and reiterated

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expropriation.

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2.

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Land Reform

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The social reformers of older days aimed at the establishment of a community of autarkic

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farmers only.

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The shares of land allotted to each member were to be equal.

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In the imagination of these utopians, there is no room for division of labor and specialization

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in processing trades.

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It is a serious mistake to call such a social order agrarian socialism.

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It is merely a juxtaposition of economically self-sufficient households.

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In the market economy, the soil is a means of production, like any other material factor

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of production. Plans aiming at a more or less equal distribution of the soil among the farming

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population are, under the conditions of the market economy, merely plans for granting

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privileges to a group of less efficient producers at the expense of the immense majority of consumers.

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The operation of the market tends to eliminate all those farmers whose cost of production

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is higher than the marginal costs needed for the production of that amount of farm products

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the consumers are ready to buy.

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It determines the size of the farms as well as the methods of production applied.

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If the government interferes in order to make a different arrangement of the conditions

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It is vain to justify such land reforms by referring to natural law and other metaphysical ideas.

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The simple truth is that they enhance the price of agricultural products, and that they

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also impair non-agricultural production.

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As more manpower is needed to turn out a unit of farm produce, more people are employed

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in Farming, and less are left for the processing industries.

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The total amount of commodities available for consumption drops, and a certain group

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of people is favored at the expense of the majority.

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3.

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Confiscatory Taxation

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Today the main instrument of confiscatory interventionism is taxation.

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It does not matter whether the objective of estate and income taxation is the allegedly

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social motive of equalizing wealth and income, or whether the primary motive is that of revenue.

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What alone counts is the resulting effect.

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The average man looks at the problems involved with unveiled envy.

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Why should anybody be richer than he himself is?

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The lofty moralist conceals his resentment and philosophical disquisitions.

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He argues that a man who owns ten millions cannot be made happier by an increment of

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ninety millions more.

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Inversely, a man who owns a hundred millions does not feel any impairment of happiness

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if his wealth is reduced to a bare ten millions only.

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The same reasoning holds good for excessive incomes.

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To judge in this way means to judge from an individualistic point of view.

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The yardstick applied is the supposed sentiments of individuals.

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Yet the problems involved are social problems.

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They must be appraised with regard to their social consequences.

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What matters is neither the happiness of any crisis nor his personal merits or demerits.

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is Society and the Productivity of Human Effort.

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A law that prohibits any individual from accumulating more than ten millions, or from making more

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than one million a year, restricts the activities of precisely those entrepreneurs who are most

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successful in filling the wants of consumers.

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If such a law had been enacted in the United States fifty years ago, many who are multi-millionaires

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today would live in more modest circumstances, but all those new branches of industry which

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supply the masses with articles unheard of before would operate, if at all, on a much

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smaller scale, and their products would be beyond the reach of the common man.

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It is manifestly contrary to the interest of the consumers to prevent the most efficient

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and Entrepreneurs from expanding the sphere of their activities up to the limit to which

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the public approves of their conduct of business by buying their products.

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Here again, the issue is, who should be supreme, the consumers or the government?

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In the unhampered market, the behavior of consumers, their buying or abstention from

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Buying, ultimately determines each individual's income and wealth.

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Should one vest in the government the power to overrule the consumer's choices?

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The incorrigible state holotrist objects.

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In his opinion, what motivates the activities of the great entrepreneur is not the lust

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for wealth, but the lust for power.

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Such a royal merchant would not restrict his activities if he had to deliver all the

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Let us, for the sake of argument, accept this psychology.

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But on what else is the power of a businessman founded than on his wealth?

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How would Rockefeller and Ford have been in a position to acquire power if they had been

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prevented from acquiring wealth?

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After all, those statolatrists are on comparatively better grounds who want to prohibit the accumulation

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of wealth precisely because it gives a man economic power.

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Taxes are necessary, but the system of discriminatory taxation universally accepted under the misleading

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name of progressive taxation of income and inheritance is not a mode of taxation.

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It is rather a mode of disguised expropriation of the successful capitalists and entrepreneurs.

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Whatever the government's satellites may advance in its favor, it is incompatible with the

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preservation of the market economy.

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It can, at best, be considered a means of bringing about socialism.

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Looking backward on the evolution of income tax rates from the beginning of the federal

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Income Tax in 1913 until the present day, one can hardly believe that the tax will not

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soon absorb 100% of all surplus above the customary level of a labor union leader's salary.

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Economics is not concerned with the spurious metaphysical doctrines advanced in favor of

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tax progression, but with its repercussions on the operation of the market economy.

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The interventionist authors and politicians look at the problems involved from the angle of their arbitrary notions of what is socially desirable.

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As they see it, the purpose of taxation is never to raise money, since the government can raise all the money it needs by printing it.

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The true purpose of taxation is to leave less in the hands of the taxpayer.

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Economists approach the issue from a different angle. They ask first, what are the effects

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of confiscatory taxation on capital accumulation? The greater part of that portion of the higher

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incomes which is taxed away would have been used for the accumulation of additional capital.

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If the Treasury employs the proceeds for current expenditure, the result is a drop in the amount

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of Capital Accumulation.

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The same is valid even to a greater extent for death taxes.

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They force the heirs to sell a considerable part of the testator's estate.

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This capital is, of course, not destroyed.

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It merely changes ownership.

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But the savings of the purchasers, which are spent for the acquisition of the capital sold

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by the heirs would have constituted a net increment in capital available.

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Thus, the accumulation of new capital is slowed down.

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The realization of technological improvement is impaired.

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The quota of capital invested per worker employed is reduced.

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A check is placed upon the rise in the productivity of labor and upon the concomitant rise in

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and Real Wage Rates.

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It is obvious that the popular belief that this mode of confiscatory taxation harms only

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the immediate victims, the rich, is false.

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If capitalists are faced with the likelihood that the income tax or the estate tax will

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rise to 100%, they will prefer to consume their capital funds rather than to preserve

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them for the tax collector.

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Every taxation results in checking economic progress and improvement, not only by its

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effect upon capital accumulation.

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It brings about a general trend towards stagnation and the preservation of business practices

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which could not last under the competitive conditions of the unhampered market economy.

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It is an inherent feature of capitalism that it is no respecter of vested interests and

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forces every capitalist and entrepreneur to adjust his conduct of business anew each day

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to the changing structure of the market.

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Capitalists and entrepreneurs are never free to relax.

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As long as they remain in business, they are never granted the privilege of quietly enjoying

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the fruits of their ancestors and their own achievements, and of lapsing into a routine.

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If they forget that their task is to serve the consumers to the best of their abilities,

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they will very soon forfeit their eminent position and will be thrown back into the

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ranks of the common man.

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Their leadership and their funds are continually challenged by newcomers.

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Every ingenious man is free to start new business projects.

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He may be poor, his funds may be modest and most of them may be borrowed, but if he fills

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As the wants of consumers in the best and cheapest way, he will succeed by means of

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excessive profits.

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He plows back the greater part of his profits into his business, thus making it grow rapidly.

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It is the activity of such enterprising parvenues that provides the market economy with its

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dynamism.

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These nouveau riches are the harbingers of economic improvement.

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Their threatening competition forces the old firms and big corporations either to adjust

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their conduct to the best possible service of the public, or to go out of business.

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But today, taxes often absorb the greater part of the newcomer's excessive profits.

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He cannot accumulate capital.

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He cannot expand his own business.

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He will never become big business and a match for the vested interests.

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The old firms do not need to fear his competition.

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They are sheltered by the tax collector.

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They may with impunity indulge in routine.

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They may defy the wishes of the public and become conservative.

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It is true, the income tax prevents them, too, from accumulating new capital.

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But what is more important for them is that it prevents the dangerous newcomer from accumulating

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any capital.

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They are virtually privileged by the tax system.

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In this sense, progressive taxation checks economic progress and makes for rigidity.

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While under unhampered capitalism, the ownership of capital is a liability, forcing the owner

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to serve the consumers.

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and methods of taxation transform it into a privilege.

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The interventionists complain that big business is getting rigid and bureaucratic and that

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it is no longer possible for competent newcomers to challenge the vested interests of the old

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rich families.

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However, as far as their complaints are justified, they complain about things which are merely

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the result of their own policies.

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Profits are the driving force of the market economy.

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The greater the profits, the better the needs of the consumers are supplied.

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For profits can only be reaped by removing discrepancies between the demands of the consumers

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and the previous state of production activities.

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He who serves the public best makes the highest profits.

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In fighting profits, governments deliberately sabotage the operation of the market economy.

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Confiscatory Taxation and Risk-Taking A popular fallacy considers entrepreneurial

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profit a reward for risk-taking.

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It looks upon the entrepreneur as a gambler who invests in a lottery after having weighed

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and the favorable chances of winning a prize against the unfavorable chances of losing

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his stake.

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This opinion manifests itself most clearly in the description of stock exchange transactions

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as a sort of gambling.

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From the point of view of this widespread fable, the evil caused by confiscatory taxation

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is that it disarranges the ratio between the favorable and the unfavorable chances

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in the lottery.

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Every word in this reasoning is false.

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The owner of capital does not choose between more risky, less risky and safe investments.

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He is forced, by the very operation of the market economy, to invest his funds in such

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such a way as to supply the most urgent needs of the consumers to the best possible extent.

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If the methods of taxation resorted to by the government bring about capital consumption

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or restrict the accumulation of new capital, the capital required for marginal employments

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is lacking, and an expansion of investment which would have been effected in the absence

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of these taxes is prevented.

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The wants of the consumers are satisfied to a lesser extent only.

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But this outcome is not caused by a reluctance of capitalists to take risks.

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It is caused by a drop in capital supply.

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There is no such thing as a safe investment.

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If capitalists were to behave in the way the risk fable describes and were to strive after

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is what they consider to be the safest investment, their conduct would render this line of investment

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unsafe and they would certainly lose their input.

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For the capitalist there is no means of evading the law of the market that makes it imperative

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for the investor to comply with the wishes of the consumers and to produce all that can

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can be produced under the given state of capital supply, technological knowledge and the valuations

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of the consumers.

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A capitalist never chooses that investment in which, according to his understanding of

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the future, the danger of losing his input is smallest.

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He chooses that investment in which he expects to make the highest possible profit.

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Those capitalists who are aware of their own lack of ability to judge correctly for themselves

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the trend of the market, do not invest in equity capital, but lend their funds to the

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owners of such venture capital.

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They thus enter into a sort of partnership with those on whose better ability to appraise

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the conditions of the market they rely.

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It is customary to call venture capital risk capital.

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However, as has been pointed out, the success or failure of the investment in preferred

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stock, bonds, debentures, mortgages and other loans depends ultimately also on the same

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factors that determine success or failure of the venture capital invested.

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There is no such thing as independence of the vicissitudes of the market.

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If taxation were to strengthen the supply of loan capital at the expense of the supply of

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venture capital, it would make the gross market rate of interest drop, and at the same time,

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by increasing the share of borrowed capital as against the share of equity capital in

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the capital structure of the firms and corporations, render the investment in loans more uncertain.

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The process would therefore be self-liquidating.

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The fact that a capitalist as a rule does not concentrate his investments, both in common

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stock and in loans, in one enterprise or one branch of business, but prefers to spread

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out his funds among various classes of investment, does not suggest that he wants to reduce his

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gambling risk.

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He wants to improve his chances of earning profits.

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Nobody embarks upon any investment if he does not expect to make a good investment.

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Nobody deliberately chooses a malinvestment.

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It is only the emergence of conditions not properly anticipated by the investor that

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turns an investment into a malinvestment.

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As has been pointed out, there cannot be such a thing as non-invested capital.

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The capitalist is not free to choose between investment and non-investment.

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Neither is he free to deviate in the choice of his investments from the lines determined

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by the most urgent among the yet unsatisfied wants of the consumers.

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He must try to anticipate these future wants correctly.

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Funds may reduce the amount of additional capital available or even bring about consumption

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of capital previously accumulated, but they do not affect the employment of capital available,

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whatever its quantity may be.

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With an excessive height of the income and estate tax rates for the very rich, a capitalist

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Wood may consider it the most advisable thing to keep all his funds in cash or in bank balances

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not bearing any interest.

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He consumes part of his capital, pays no income tax and reduces the inheritance tax which

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his heirs will have to pay.

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But even if people really behave this way, their conduct does not affect the employment

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of the capital available.

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Defects, Prices, but no capital good remains uninvested on account of it, and the operation

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of the market pushes investment into those lines in which it is expected to satisfy the

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The Most Urgent, Not Yet Satisfied Demand of the Buying Public