20160413 Variations on a theme of Adam Smith

Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Sun Jul 16, 2017 4:58 pm

20170716 Pages 938 to 939

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 2

Of the Sources of the General or Public Revenue of the Society

Article 4

Taxes which, it is intended, should fall indifferently upon every different Species of Revenue

This section: Taxes on Consumable Commodities

This section runs from page 938-980.

To do it justice, and because the last page of 1028 is close at hand, I've decided to consider subsections.

Today, the opening sequence runs from page 938-939. The topic Smith considers is of necessity vs luxury, in relation to the appropriateness of taxation.

To my eye, and considering the practices I observe in the United States in 2017, it seems to me that Smith is generous in his consideration of what is a necessity.

On the other hand, I agree with his suggestion, that a linen shirt or leather shoes are "necessities" by custom.

In the United States of 2017, my observation is that sales tax is forgiven for foods and non-alcoholic beverages, but imposed for clothing of all kinds.

In some jurisdictions, there exists a tax on products for feminine hygiene. As recently as February of 2017, a bill was introduced for consideration by the Ohio House of Representatives to exempt certain hygiene products from sales tax.

From my reading of Smith, I would hazard a guess that he would agree with the proposal.

***
Earlier in "The Wealth of Nations" Mr. Smith discussed various aspects of the herring trade in England and Scotland.

In his 2008 book "Hot, Flat and Crowded" Thomas L. Friedman discussed the herring fisheries on page 69.

Friedman quotes Sierra Club Executive Director Carl Pope:

Begin Quotation:
Northern Europe was taken into capitalism by the cod fishermen of the North Atlantic in the seventeenth century.
End Quotation.

While Pope's observation was offered in the context of human exploitation of biological commons, I consider the discussion of availability of new and abundant supplies of protein to be of interest as an enabler for development of what became the Industrial Revolution.

Mr. Smith mentions cod on page 25, in the context of its use as money in Newfoundland.

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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Mon Jul 24, 2017 3:07 am

20170723 Pages 939 - 941

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 2

Of the Sources of the General or Public Revenue of the Society

Article 4

Taxes which, it is intended, should fall indifferently upon every different Species of Revenue

This section: Taxes on Consumable Commodities

This section runs from page 938-980

To do it justice, and because the last page of 1028 is close at hand, I've decided to consider subsections.

Today, I'd like to consider Mr. Smith's observations from the bottom of page 939 through the middle of page 941.

Mr. Smith is discussing the impact of taxes upon necessities, of which (I gather) he disapproves, and on luxuries.

In the course of the discussion, Mr. Smith makes what seem to me to be sweeping generalizations about human beings.

Begin Quotation:
It is the sober and industrious poor who generally bring up the most numerous families, and who principally supply the demand for useful labour.
End Quotation.

Mr. Smith goes on from there, making observations about the poor of his time.

I cannot judge how accurately Mr. Smith captures the character and situation of the poor of his time, but from the vantage point of 240 years later, in the United States, it seems to me that some aspects of the state of poverty has changed.

The kind of sober and industrious person Mr. Smith was praising in his time might very well find employment in the American economy of 2017, but my expectation is that the wages on offer would be insufficient to support one person in a minimal state of comfort, let alone an entire family.

The rapid introduction of sophisticated automation into manufacturing and service industries, and even into agriculture (beyond the long established replacement of horses decades ago) means that fewer and fewer "jobs" are available for anyone, let alone sober and industrious ones.

In a somewhat random search of the Internet (via Mr. Google), I found a conservative web site with an opinion that I can use to make a point:

Begin Quotation from: http://www.heritage.org/poverty-and-ine ... ty-america (ca 2012)
Work is key. When the economy revives, able-bodied recipients of means-tested welfare aid should be required to work or prepare for work as a condition of receiving aid.
End Quotation.

It is my impression that there are simply not enough traditional "jobs" for the people who need them in the United States of 2017, and from news reports, I gather the same is true around the world.

From my observation, the state of wealth in a family tends to perpetuate itself, and if poverty is the state of a family, that state tends to persist as well. The United States ** does ** seem to offer some chance of upward mobility, but I am not convinced the reality experienced by most poor persons comes anywhere NEAR the potential that might exist if each such person were brought up with the kind of support that children of wealthy families receive.

That said, I recognize that not every person is able to take advantage of opportunities they may receive.

With that caveat out of the way, I am ** pretty sure ** that children brought up in circumstances that insure good health and intellectual and emotional growth will have a better chance of acquiring the skills and practical knowledge needed for "jobs" in today's complex environment, than those not so gifted.

In-as-much as parents have "volunteered" to supply the workers of tomorrow, I wonder if it makes sense for the community of which they are a part (nation, for example), to undertake to "employ" those parents as custodians of the next generation, and to insure they receive a salary sufficient to insure they are successful in their responsibility.

At present, as I look out at the scene in the United States of 2017, if people become parents, the rest of society is indifferent.

The only notice that I can see that reflects society having a view on the matter of parenting, is the provision of tax deductions for children of wage earners.

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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Mon Jul 31, 2017 3:57 pm

20170730 Pages 941-971

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 2

Of the Sources of the General or Public Revenue of the Society

Article 4

Taxes which, it is intended, should fall indifferently upon every different Species of Revenue

This section: Taxes on Consumable Commodities

This section runs from page 941-971

To do it justice, and because the last page of 1028 is close at hand, I've decided to consider subsections.

Today, I'd like to consider Mr. Smith's observations from the bottom of page 941 through the bottom of page 971.

This section might be perceived by some as a bit on the tedious side, considering as it does in great detail, the practices of Mr. Smith's time, primarily in Great Britain but including a number of other nations.

In the final paragraph of this section, I was amused to find this offer of a gesture of peace towards those in his country who set policy on taxation:

Begin Quotation from page 971:
The inconveniences, however, which are, perhaps, in some degree inseparable from taxes upon consumable commodities, fall as light upon the people of Great Britain as upon those of any other country of which the government is nearly as expensive. Our state is not perfect, and might be mended, but it is as good or better than most of our neighbors.
End Quotation.

The subject of taxation policy remains a constant source of dispute in the United States in 2017, and it would not surprise me to learn that it is likewise a concern in most nations around the world.

In trying to think of how a society might evolve to not need taxation to support the community expenses we associate with government, I remembered that the Star Trek Universe was reported to have eliminated money and thus taxation. Mr. Google quickly provided a link to an article which discusses a book written about that Universe:

https://www.wired.com/2016/05/geeks-gui ... economics/
Article Title: The Economic Lessons of Star Trek’s Money-Free Society

Author: Manu Saadia

Book: Trekonomics

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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Sun Aug 06, 2017 10:43 pm

20170806 Page 972

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 2

Of the Sources of the General or Public Revenue of the Society

Article 4

Taxes which, it is intended, should fall indifferently upon every different Species of Revenue

This section: Taxes on Consumable Commodities

This selection is found on page 972

Begin Quotation:
...those duties have, in come countries, been repeated upon every successive sale of the goods.
End Quotation.

When I first read this, I thought that perhaps Mr. Smith was describing the invention of the Value Added Tax. However, upon further consideration, I think there was no value added in each successive sale.

Mr. Smith is decidedly NOT a fan of this system.

It turns out that the Value Added Tax did NOT exist in Smith's time …

According to: http://www.taxpolicycenter.org/briefing ... istory-vat

Begin Quotation:
The value-added tax (VAT) is a relatively new tax. It was designed by two people, independently, in the early 20th century. To Wilhelm Von Siemens, a German businessman, the VAT was a way to resolve the cascading problems that arose in implementing gross turnover taxes and sales taxes. To Thomas S. Adams, an American, the VAT was a better version of the corporate income tax.
End Quotation.

In his discourse on Page 972, Mr. Smith points out the need (in his time) for what sounds like an army of tax collectors … “a multitude of revenue-officers” … to implement the successive sales taxes.

It is just a guess on my part, but advances in technology that were occurring in the 1960's might have permitted introduction of the Value Added Tax due to mechanization.

In the Wikipedia article: https://en.wikipedia.org/wiki/Value-add ... ed_Kingdom)

I found a note that would surely have sounded familiar to Mr. Smith:
Begin Quotation:
Between October 1940 and 1973 the UK had a consumption tax called Purchase Tax, which was levied at different rates depending on goods' luxuriousness.[5] 

End Quotation.

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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Mon Aug 14, 2017 12:01 am

20170813 Pages 973-980

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 2

Of the Sources of the General or Public Revenue of the Society

Article 4

Taxes which, it is intended, should fall indifferently upon every different Species of Revenue

This section: Taxes on Consumable Commodities


In the closing part of this chapter on taxes, Mr. Smith compares the policies of Great Britain to those of Naples, Spain, France (in some detail), Milan and Parma and Holland. In most cases, as I read his comments, Great Britain appears to win his approval, or at least positive comparison.

In particular, I note Smith's preference for levying of taxes by the government, as contrasted with the not uncommon practice in his time of contracting the work of collecting taxes to independent agents. As Smith has reminded us earlier in “The Wealth”, the Romans employed agents for collection of taxes.

In 2017, in the United States at least, and quite possibly in most countries around the world with established governments, taxes are collected by various levels of the organizational structure, and not by independent contractors.

I note that employees of public entities are not immune to temptation to commit fraud, but from my observation, eventually such behavior will be exposed. In the case of contracted tax collectors, fraud was built into the system, because the contractor was in position to impose whatever surcharge might seem bearable by the population.

Smith concludes this chapter with a review of the heavy taxation borne by the residents of Holland and Zealand, which helps to pay for defense against incursion by the ocean. Smith makes what I consider to be an interesting observation, that the republican form of government is a factor in the willingness of people of means to remain in the country, and to bear the burden of support for the infrastructure. I note that since Smith's time, the number of monarchies has decreased around the world, although it is not yet zero.
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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Sun Aug 20, 2017 12:09 pm

20170820 Pages 981 – 985

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 3

Of Public Debts

Mr. Smith opens this chapter with a review of the circumstances that lead to a need for a society to undertake activities on behalf of the society, and moves towards explaining why it is not unusual for societies to forgo saving for the future, and to instead build up several categories of public debt.

I note here that in 2017, the State of Ohio (and very likely other States of the United States) has adopted a policy of building up a fund called the “Rainy Day Fund”.

The official name for this fund is “Budget Stabilization Fund”. As of the day of posting, this fund stood at $2 billion and change.
In the course of developing his topic, Mr. Smith makes and assertion which I find worth of note, and of evaluation.

Begin Quotation from Page 985:
Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice, in which the people do not feel themselves secure in the possession of their property, in which the faith of contracts is not supported by law, and in which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from those who are able to pay. Commerce and manufactures, in short, can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government.
End Quotation.

Because I have grown up in a society which prides itself on its support of capitalism, I am often exposed to the conceit of some that our form of government is superior to others. I look at the confusion that seems characteristic of this society, and wonder upon occasion, if the authoritarian governments of China in particular, and a number of others, may not enjoy the benefits of “authority of the state” to a greater extent than does this society.

Since one of the purposes of this thread is to try to understand, not only how economies work, but which of the various styles of management are more successful, I note with interest that authoritarian states may indeed meet the description Mr. Smith provides above.

Were I to undertake design of a society which might establish itself in a remote location from Earth, I find myself more than a little hesitant to allow or encourage unlimited freedom for citizens. Indeed, it appears to me that Mr. Smith supports the benefits of a very considerable degree of rigidity in the structure and behavior of a government. At the same time, Mr. Smith is at pains at multiple points in his book, to encourage the greatest possible freedom of decision making on the part of citizens.

As I consider the evolving government of China in 2017, it seems to me that in recent decades, the ruling consortium has allowed its citizens to enjoy a degree of freedom of decision making that appears to have liberated creative energy on a massive scale.

On the other hand, the excesses that have occurred have included production of soot and greenhouse gases, polluted water and a myriad of similar afflictions.

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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Sun Aug 27, 2017 1:15 pm

20170827 Pages 986-993

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 3

Of Public Debts

In these pages, Mr. Smith continues development of the history of what he calls (on page 991):
Begin Quotation:
the more ruinous practice of perpetual funding.
End Quotation.

Mr. Smith describes in some detail, the various ways in which funds were raised in Great Britain, both to cover new expenses and to cover interest on previously incurred debt.

In particular, I note the distinction between annuities “for lives”, and those offered for periods of years, such as for ninety-six years.

It appears that these annuities were traded.

Google provides a number of citations in response to an inquiry: define perpetual annuity

My impression, from scanning the topmost citations, is that the modern (2017) insurance industry has adopted the concept Mr. Smith describes.

Google inquiry: does England still offer perpetual annuities

To my surprise, it turns out that England was STILL paying perpetual annuities as recently as 2015.

Wikipedia's article on Perpetuity reports that:
Begin Quotation:
There are few actual perpetuities in existence(the United Kingdom(UK)...)
End Quotation.

Prime Minister Henry Pelham is mentioned in this citation:
http://www.slate.com/articles/business/ ... f_low.html

I am surprised to find that Mr. Smith only mentions Mr. Pelham in connection with the price of corn.

According to the slate.com article, Mr. Pelham “converted the entire outstanding stock of British debt into consolidated annuities”

I would have thought Mr. Smith would have mentioned an event so significant in scale.
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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Sat Sep 02, 2017 1:02 pm

20170902 Pages 994-998

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 3

Of Public Debts

In these pages Mr. Smith continues discussion of the raising of public funds, primarily in England and in France, and he gives examples of those from whom public debt might be raised, in lieu of raising taxes, which is more difficult to accomplish, especially in time of peace.

In the United States, at the time of application of this update, the national debt had reached two Trillion dollars.

http://www.marketwatch.com/story/heres- ... 2017-03-30

On page 998, Mr. Smith reports:
Begin Quotation:
In Great Britain, from the time that we had first recourse to the ruinous expedient of perpetual funding, the reduction of the public debt in time of peace, has never borne any proportion to its accumulation in time of war.
End Quotation.

I note that the United States has been at war in Afghanistan since 2001, and there appears to be no chance that this state of affairs will change, because the earlier decision to pull out of Iraq led to the explosion of the Islamic State in the region.

The article cited above, by Robert Schroeder, opens with a graph showing how the US debt has risen over the past 30 years.

Mr. Smith's pessimistic outlook on the public debt of England and France certainly does not offer encouragement to hope the United States will find a way out of it's current situation.

The article below offers a suggestion for how the dept might be retired, but the tone is pessimistic that anything like that will happen.

https://www.thebalance.com/will-the-u-s ... ff-3970473


By Kimberly Amadeo
Updated September 05, 2017
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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Sat Sep 09, 2017 1:46 pm

20170909 Pages 999-1003

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 3

Of Public Debts

In these pages Mr. Smith continues discussion of the difficulty of retiring public debt.

On page 1002, he argues with an unnamed author who apparently believes that capital loaned to a government increases the capital of a nation. Smith argues that transferring the capital from citizens to the government deprives the country of the benefit of management of that capital by citizens, and in fact, Smith appears to believe that allocating capital to government means that it will be used in unproductive ways.

However, it seems to me that when government invests in infrastructure to improve the overall functioning of society, or invests in education of individuals on the chance they will subsequently be able to contribute to productive activities to a greater extent than they would have otherwise, the government is doing useful work with that capital that would otherwise not be done.

Throughout the world in 2017, and indeed, all over the United States, there are individuals who are not contributing to productive endeavors because there are no frameworks available to which they can attach themselves.

On page 1003, Mr. Smith asserts:
Begin Quotation:
When the public expense is defrayed by funding, it is defrayed by the annual destruction of some capital which had before existed in the country.
End Quotation.

I think that Mr. Smith is taking an extreme position which my observations of present activities leads me to question. In the community where I live, and by observation in countless similar ones, public debt is incurred to fund development of infrastructure or for maintenance of existing infrastructure. To my way of thinking, allocation of capital for these purposes is “productive” use of that capital.

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Re: 20160413 Variations on a theme of Adam Smith

Postby tahanson43206 » Sun Sep 17, 2017 1:02 am

20170916 Pages 1004-1008

Book Five

Of the Revenue of the Sovereign or Commonwealth

Chapter 3

Of Public Debts

In these pages Mr. Smith continues discussion of the difficulty of retiring public debt.

My sense of this discussion is that Mr. Smith is arguing with his his peers, or with those who are managing the affairs of the Nation. On page 1004, he makes one of several references to the accumulation of stock by private citizens:

Begin Quotation:
The seasons during which the ability of private people to accumulate was somewhat impaired, would occur more rarely, and be of shorter continuance.
End Quotation.

In a column printed in the local newspaper recently (September of 2017), the writer offered a comparison of the attitudes toward money of the middle class and those who are forced by circumstances to live from paycheck to paycheck, or on the dole in many cases.

The writer presented the idea that the middle class “manages” money, which I assume includes the option of saving some of it, while those in the day to day pattern spend everything that comes their way.

Earlier in “The Wealth” Mr. Smith acknowledges the presence of working people in the society of Great Britain, and even the not uncommon situation of those who cannot feed their families.

It seems to me that a nation would do well to insure that every citizen is equipped to be able to accumulate savings. The national debt of the United States has now reached $2 trillion. It would be advantageous to the Nation, in its quest to retire the debt, if every citizen were capable of contributing to the “productive labor” thanks to control of capital, and thus participation in the economy.

The only capital possessed by many millions of individuals, both in Smith's time, and today, is the energy available in the body, and the skills they may be able to offer in exchange for trade goods.

On page 1005, Mr. Smith asserts:

Begin Quotation:
Land and capital stock are the two original sources of all revenue both private and public.
End Quotation.

I can accept this assertion if it is understood that invention, or the ability to invent, may be understood as a “capital stock”.

However, it is my guess that Mr. Smith does not value the functions of the brain as he values hand labor, although he certainly acknowledges the contribution to the improvement of manufacturing and agriculture through application of thought to situations individuals encounter.

In our present times, it seems to me that “Intellectual Property” is recognized and indeed, supported by the legal system of the United States and Europe, so that if Mr. Smith were writing today, I think he would have reason to modify his “sources of all revenue” list.

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