Natural Value (1889)

by Friedrich von Wieser (1851-1926)

Book VI: Value in the Economy of the State

Chapter IV
Value in the Present-Day Economy of the State

NV-VI-4.1 The conduct of economic life, as actually carried on, adds another and a stronger contrast to that which naturally exists between private and national valuation.
NV-VI-4.2 The state as it actually exists – unlike the communistic state – has not the management of all economic matters, but only of a trifling portion of them. And, again, all economic goods do not belong to the state. Indeed it does not possess even enough for the proper carrying out of its own objects. As a rule it possesses only the buildings and the fixed plant necessary for the exercise of its pubic functions. Whatever beyond is required for the current service must, for the most part, be handed over to it by the citizens in the shape of annual contributions from their property and income. The most important of these contributions are raised, as we know, in the shape of taxation, and to the consideration of this alone we shall here confine ourselves.
NV-VI-4.3 Schäffle (Steuerpolitik, p. 17) [Online editor’s note: German economist Albert Schäffle (1831-1903): “Taxation Policy.” – RTL] has already laid down the principle on which the goods which form the income of the citizens should be divided out, between taxes on the one hand for the satisfaction of public interests, and domestic outlay on the other for the satisfaction of private wants. He calls it the “principle of proportionate provision for the wants of the individual and the wants of the government.” The income of the citizens must always be devoted to those employments which at the time are the most important. There must not be too rich an endowment of the pubic housekeeping at the expense of keeping down the citizen’s, nor of the private housekeeping at the cost of deterioration in the pubic service.
NV-VI-4.4 Sax has developed the same idea still further. Goods obtain their value from the uses to which they are put. The correct principle for the appropriation of income to the purposes of the state is therefore simple; it is the universal principle of economical employment, viz. that goods be employed in accordance with their value. If the state should claim too much, it diminishes value, by expending goods for purposes of state economy which would have a higher value if employed in private economy. If it claims too little, value is again diminished – as in this case also the entire importance of the goods is not realised.
NV-VI-4.5 This law obtains its full significance in consequence of the fact that riches are unequally distributed, and that personal incomes and, moreover, personal wants are of different degrees. If every one had the same wealth, income, and wants, all the citizens would have to contribute the same quota of taxes. But as this is not so, they must contribute unequal quotas and again it is value which provides the measure. Every individual economy, in respect of the relation of supply and demand peculiar to it, has what Sax calls an “individual Werthstand.” [Online editor’s note: “value-situation.” – RTL] The same amounts of goods are valued differently, or, what amounts to the same thing, the same amounts of value are expressed in different quantities of goods. To understand this expression of Sax, it may be best to recur to a fact which we have already taken as a starting-point in arriving at the law of price. We said that every intending purchaser who goes on the market calculates to himself, or ought to calculate, the money equivalent of the goods he wishes to buy, i.e. the sum of money whose value to him will equal the value of the goods, so that it is not economically permissible for him to go beyond it. Now a similar money-equivalent must be calculated for the value which the services of the state have to the individual citizen. More than this money equivalent it cannot, economically speaking, be the duty of any citizen to pay in taxation, but, on the other hand, it is the duty of every one to pay taxes up to this amount in order to meet the costs of the public service.
NV-VI-4.6 This acknowledged, the next matter is the more exact estimate of the individual equivalents. The circumstances which decide are wealth, income, and want. The greater the wealth and income, the greater will be the subjective equivalent or the taxation; and the greater the degree of want, the smaller will be the subjective equivalent or the taxation. All the same, taxation cannot simply be fixed proportionally to wealth and income: a progressive rate of taxation is justifiable. The man who only earns enough to sustain the physical minimum of existence has nothing left to give up to the state. I cannot go further than this and show the reasons which Sax gives for the claim of exemption of those who are at the minimum of existence, for the progressive rate of taxation, and all the other familiar claims of modern taxation. While it need scarcely be said that, as the science grows, many things will probably be formulated otherwise, still he has reached the essential matter. In all points which have been indicated as important by economic discussion up till the present, and which developed legislation has called into notice, he has discovered the connection between them and general economic facts and principles, and thus given to what has been empirically reached a basis in theory.

NV-VI-4.7 Hitherto, as regards the most important points of the theory of taxation, the science of finance has rested its tenets on an appeal to the claims of justice. In this almost unanimous dependence upon outside and non-economic considerations, the imperfect condition of that science betrays itself even more than in its lack of agreement over the purely economic part of its investigation, and so far as this remains it must resign all claim to be regarded as an essentially economic doctrine. Thanks to the labours of Sax this is to a great extent altered. All the principal requirements of the theory of taxation have obtained an economic foundation in being derived from the general economic categories – Want, Goods, Economy, Value. In spite of this, however, I cannot believe – though this brings me into opposition to Sax – that the economic basis of taxation has proved so perfect as to be able to dispense altogether with considerations of justice. Without attempting any complete proof of this statement – whichh could not he done without the difficult and tedious work of distinguishing between the economic and the just, – I should like to advance one single argument which appears to me sufficiently to corroborate its correctness.
NV-VI-4.8 Sax as we have seen requires that every one pay in taxation the full money equivalent in which, according to his own individual standpoint of value, is expressed the value of the services of the state to him. This claim is certainly absolutely economic, in so far as it prevents the less able being taxed at their maximum or above it, while it taxes the more able under their maximum. The claim is, further, certainly an economic one, in so much as it excludes the possibility of any one being taxed above his maximum. But in so far it is not an absolutely economic claim; it rests also upon the legal assumption of private property; it would be uneconomic if it could be proved that private property is itself uneconomic. But how would it be if this claim were set against one which demanded that the rich, and possibly the middle classes also, should be taxed at their maximum, while the poorer and poorest classes were taxed below it? What could be opposed to this claim? Certainly no absolutely economic consideration; for the result of this being realised would be, economically considered, a more perfect satisfaction of the people’s want. The only thing that could be opposed to it would be the consideration that, as a matter of justice, the same formal fundamental proposition must hold for all, – equal justice for all; a consideration which might, perhaps, in the last instance, be traced back to an economic basis, but which, in the present state of scientific development, is simply derived from the feeling of justice, and represents a quite distinct phase of that feeing. It may possibly be that, at a later period of time, it will be declared the duty of the rich to free the poorer classes from all pubic burdens, in order somewhat to mitigate the privations they suffer from the unequal distribution of wealth. Sax himself suggests (page 522) that, when that time comes, there may be an active endeavour, based on altruistic motives, to extend exemption from the “physical” minimum of subsistence to a “culture” minimum. It is possible that this endeavour might be only a symptom of gradual development in the direction of freeing the weakest and weaker classes, entirely or in part, according to the degree of their weakness, from the burden of taxation.1
NV-VI-4.9 As it is with the ordering of taxation, so is it, in my opinion, with all valuations in private and national economy, in so far as they have to weigh the conflicting interests of many persons. The principle which will reduce to a common measure of advantage the interests of persons who are differently situated in respect of wealth, has, I think I may venture to say without hesitation, not yet been found. So long as it remains undiscovered, it is impossible in such cases to dispense with some reference to that ranking of personal claims with which the feeing of justice is somewhat satisfied. If we give our assent to the principle of taxation demanded by economic theory, it is only because, without having an entirely strict theoretical justification for it, practical considerations which cannot be rejected compel us to approve of private property, and, moreover, of a degree of its utilisation quite definite and in accordance with modern ideas.

NV-VI-4.n1.1 1 Sax (page 522) remarks that, in any case, as regards the over-burdening of the rich, the economic margin is already given in their “individual valuation looking to possible taxation.” But even granting that this margin is of purely economic origin, there remains, as we have seen, inside of it, sufficient room for the activity of other than purely economic considerations.

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